(PRINCIPAL PRESERVATION LOGO)
Tax-Exempt Portfolio
Government Portfolio
S&P100 Plus Portfolio
Dividend Achievers Portfolio
Select Value Portfolio
PSE Tech 100 Index Portfolio
Managed Growth Portfolio
ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1999
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER
ANNUAL REPORT TO SHAREHOLDERS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999
December 27, 1999
Dear Shareholder:
The first ten months of 1999 proved to be our most successful period in fund
history. We have two highly ranked equity funds that have performed very well
and, as a result, have fueled an increase in the total assets of the fund group
through market appreciation and sales. Therefore, the total assets of Principal
Preservation, which began the year at approximately $600,000,000, broke through
the $1.0 billion mark as of the date of this report.
The Board of Directors of Principal Preservation authorized the change to an
October 31st fiscal year for the portfolios contained in this report, so you are
receiving the annual report slightly earlier. This move allowed the fund family
to operate more efficiently when calculating capital gains distributions and
communicating those distributions to financial service firms and investors. As a
result, this report contains information for the first ten months of the year.
In the future, we will be reporting twelve month results through October 31st of
each year.
On November 8, 1999, we completed the conversion to outsource our transfer
agent operations to PFPC Services Group, a national provider of these services
to mutual funds. While management and the Board of Directors were pleased with
the quality and reasonable prices of transfer agent services provided by B.C.
Ziegler and Company, they concluded that the enhanced technological capabilities
of PFPC Services would be in the best interest of shareholders long term. Some
of the services in the future will include householding, internet access of
accounts, and consolidated statement processing. The conversion went reasonably
smoothly, and we would expect that day to day operations will continue to
improve.
I invite you to read the Management Discussion and Analysis on each of the
portfolios on the following pages. I also thank you for your continued trust
and investment with us at Principal Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
This report contains information for existing shareholders of Principal
Preservation. It does not constitute an offer to sell. If an investor wishes to
receive more information about the portfolios, the investor should obtain a
prospectus, which includes a discussion of each investment objective and all
sales charges and expenses of the relevant portfolio(s).
TAX-EXEMPT PORTFOLIO
The graph below compares the change in value of a $10,000 investment in
Principal Preservation Tax-Exempt Portfolio with the Lehman 20-Year Municipal
Bond Index. The graph reflects a deduction from the amount invested for the
applicable sales charge.
Principal Preservation Lehman 20-Year
Date Tax-Exempt Portfolio Municipal Bond Index
10/31/89 $9,650 $10,000
11/30/89 $9,722 $10,175
12/31/89 $9,835 $10,258
1/31/90 $9,817 $10,210
2/28/90 $9,859 $10,301
3/31/90 $9,902 $10,304
4/30/90 $9,810 $10,230
5/31/90 $9,951 $10,453
6/30/90 $10,028 $10,545
7/31/90 $10,143 $10,700
8/31/90 $10,035 $10,545
9/30/90 $10,039 $10,551
10/31/90 $10,184 $10,742
11/30/90 $10,366 $10,958
12/31/90 $10,447 $11,006
1/31/91 $10,567 $11,153
2/28/91 $10,688 $11,250
3/31/91 $10,706 $11,255
4/30/91 $10,776 $11,405
5/31/91 $10,846 $11,507
6/30/91 $10,904 $11,495
7/31/91 $10,975 $11,635
8/31/91 $11,113 $11,789
9/30/91 $11,211 $11,942
10/31/91 $11,324 $12,049
11/30/91 $11,355 $12,083
12/31/91 $11,494 $12,343
1/31/92 $11,566 $12,371
2/29/92 $11,556 $12,375
3/31/92 $11,600 $12,380
4/30/92 $11,727 $12,490
5/31/92 $11,867 $12,637
6/30/92 $12,022 $12,849
7/31/92 $12,457 $13,234
8/31/92 $12,275 $13,104
9/30/92 $12,305 $13,189
10/30/92 $12,122 $13,060
11/30/92 $12,396 $13,294
12/31/92 $12,485 $13,430
1/31/93 $12,718 $13,586
2/28/93 $13,240 $14,078
3/31/93 $13,111 $13,929
4/30/93 $13,258 $14,070
5/31/93 $13,333 $14,149
6/30/93 $13,554 $14,385
7/31/93 $13,582 $14,404
8/31/93 $13,878 $14,704
9/30/93 $14,071 $14,872
10/30/93 $14,098 $14,900
11/30/93 $13,959 $14,769
12/31/93 $14,273 $15,081
1/31/94 $14,452 $15,271
2/28/94 $14,038 $14,814
3/31/94 $13,393 $14,033
4/30/94 $13,512 $14,148
5/31/94 $13,632 $14,315
6/30/94 $13,534 $14,172
7/31/94 $13,810 $14,497
8/31/94 $13,836 $14,538
9/30/94 $13,613 $14,247
10/31/94 $13,311 $13,871
11/30/94 $13,023 $13,546
12/31/94 $13,357 $13,971
1/31/95 $13,818 $14,517
2/28/95 $14,250 $15,044
3/31/95 $14,407 $15,216
4/30/95 $14,419 $15,213
5/31/95 $14,934 $15,787
6/30/95 $14,717 $15,544
7/31/95 $14,794 $15,625
8/31/95 $15,001 $15,839
9/30/95 $15,094 $15,964
10/31/95 $15,353 $16,304
11/30/95 $15,597 $16,664
12/31/95 $15,767 $16,897
1/31/96 $15,844 $16,983
2/29/96 $15,718 $16,789
3/31/96 $15,508 $16,520
4/30/96 $15,449 $16,454
5/31/96 $15,444 $16,474
6/30/96 $15,642 $16,706
7/31/96 $15,754 $16,870
8/31/96 $15,711 $16,843
9/30/96 $15,997 $17,183
10/31/96 $16,163 $17,389
11/30/96 $16,469 $17,752
12/31/96 $16,361 $17,647
1/31/97 $16,335 $17,629
2/28/97 $16,468 $17,818
3/31/97 $16,141 $17,538
4/30/97 $16,327 $17,733
5/31/97 $16,602 $18,052
6/30/97 $16,791 $18,279
7/31/97 $17,428 $18,893
8/31/97 $17,090 $18,661
9/30/97 $17,349 $18,919
10/31/97 $17,464 $19,057
11/30/97 $17,579 $19,211
12/31/97 $17,899 $19,561
1/31/98 $18,072 $19,780
2/28/98 $17,981 $19,794
3/31/98 $17,907 $19,822
4/30/98 $17,756 $19,721
5/31/98 $18,158 $20,078
6/30/98 $18,180 $20,168
7/31/98 $18,181 $20,210
8/31/98 $18,548 $20,560
9/30/98 $18,783 $20,850
10/31/98 $18,628 $20,783
11/30/98 $18,685 $20,879
12/31/98 $18,661 $20,925
1/31/99 $18,884 $21,149
2/28/99 $18,702 $21,060
3/31/99 $18,740 $21,134
4/30/99 $18,759 $21,191
5/31/99 $18,532 $21,032
6/30/99 $18,119 $20,691
7/31/99 $18,097 $20,716
8/31/99 $17,723 $20,382
9/30/99 $17,598 $20,317
10/31/99 $17,182 $19,896
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Tax-Exempt:
Full Sales Charge -10.99% 4.49% 5.56%
Net Asset Value -7.93% 5.24% 5.94%
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad-based index containing
over 22,000 issues with maturities ranging from two to thirty years. The issues
comprising the index are those completed within the last five years with a total
issue size of $50 million or more. The average quality rating is "AA." The
performance of the Index does not include sales charges or other fees you would
pay if you attempted to replicate the index.
TAX-EXEMPT PORTFOLIO
The net asset value total return of the Tax-Exempt Portfolio for the ten
month period ended October 31, 1999 was -7.76% compared to the benchmark Lehman
20 year Municipal Bond Index total return of -4.9%.
During the third quarter, the municipal market weakened as the yield on
long-term AAA municipal bonds began the quarter at a yield of 5.25% and finished
at 5.65%. This level is the highest level of municipal bond yields in three
years. The tax treatment on discount municipal bonds is one reason the municipal
market is the worst performing sector in the U.S. fixed-income market this year,
with a year to date loss of -6.80%. A pickup in new issue underwriting toward
the end of the third quarter and the beginning of the fourth quarter has further
weakened the municipal market. At the end of the quarter AAA rated municipal
bonds were trading to yield over 93% of U.S. Treasury yields. The nine year
average for AAA rated municipal bonds was 87%.
The portfolio's length of duration caused its performance to lag its peer
group. The portfolio is four to five years longer in duration than most other
tax-exempt bond funds. The manager, in addition to cover redemptions, traded
securities so as to shorten the duration. He also replaced bonds sold during the
quarter with bonds having higher coupon rates and shorter maturities.
The municipal bond market followed the U.S. Treasury market through October,
however, because of an increase in underwriting of new securities, municipals
did slightly worse. Municipal bond yields in thirty year insured bonds rose by
1.20% from the beginning of the year through October 26, 1999 compared to a
yield increase in the U.S. Treasury thirty year bond of 1.07%. By the last week
of October, the supply of new municipal issues coming to market had dwindled to
$3.5 billion, compared to $5 billion early in the month. This should reduce the
pressure on the municipal market, and also should reduce the likelihood that
states, cities and public agencies will sell bonds for the balance of the year.
Long term AAA rated municipal bonds are selling to yield 93% of thirty year U.S.
Treasury yields as of the end of October. The nine year average of long term
high quality municipal bonds to thirty year U.S. Treasury bonds is 82%, which
tells us that the municipal bond market is still under-priced as compared to
U.S. Treasuries.
Most of the new issue underwriting in the municipal market was completed by
the middle of November. According to some technicians, bear markets in bonds
average 12.2 months, and the market is at that point now. Municipal bonds seem
to represent a good value at these levels when one considers the inflation rate
as measured by the Consumer Price Index.
GOVERNMENT PORTFOLIO
The graph below compares the change in value of a $10,000 investment in the
Government Portfolio with the Lehman Intermediate Government Bond Index. The
graph reflects a deduction from the amount invested for the applicable sales
charge.
Date Principal Preservation Lehman Intermediate
Government Portfolio Government Bond Index
10/31/89 $9,650 $10,000
11/30/89 $9,737 $10,099
12/31/89 $9,760 $10,128
1/31/90 $9,655 $10,065
2/28/90 $9,679 $10,102
3/31/90 $9,671 $10,114
4/30/90 $9,587 $10,081
5/31/90 $9,822 $10,297
6/30/90 $9,958 $10,433
7/31/90 $10,096 $10,579
8/31/90 $9,988 $10,541
9/30/90 $10,083 $10,635
10/31/90 $10,235 $10,783
11/30/90 $10,457 $10,946
12/31/90 $10,611 $11,097
1/31/91 $10,696 $11,211
2/28/91 $10,756 $11,279
3/31/91 $10,792 $11,341
4/30/91 $10,901 $11,458
5/31/91 $10,950 $11,522
6/30/91 $10,903 $11,531
7/31/91 $11,025 $11,656
8/31/91 $11,308 $11,877
9/30/91 $11,541 $12,079
10/31/91 $11,665 $12,217
11/30/91 $11,802 $12,360
12/31/91 $12,216 $12,660
1/31/92 $11,964 $12,538
2/29/92 $11,999 $12,577
3/31/92 $11,892 $12,527
4/30/92 $11,976 $12,640
5/31/92 $12,215 $12,828
6/30/92 $12,430 $13,013
7/31/92 $12,789 $13,263
8/31/92 $12,926 $13,398
9/30/92 $13,156 $13,583
10/30/92 $12,922 $13,420
11/30/92 $12,837 $13,365
12/31/92 $13,047 $13,537
1/31/93 $13,366 $13,789
2/28/93 $13,659 $13,992
3/31/93 $13,706 $14,044
4/30/93 $13,821 $14,154
5/31/93 $13,782 $14,116
6/30/93 $14,106 $14,321
7/31/93 $14,126 $14,350
8/31/93 $14,426 $14,564
9/30/93 $14,500 $14,624
10/30/93 $14,530 $14,659
11/30/93 $14,331 $14,587
12/31/93 $14,391 $14,647
1/31/94 $14,582 $14,792
2/28/94 $14,233 $14,589
3/31/94 $13,855 $14,376
4/30/94 $13,724 $14,283
5/31/94 $13,711 $14,293
6/30/94 $13,668 $14,296
7/31/94 $13,893 $14,483
8/31/94 $13,924 $14,525
9/30/94 $13,699 $14,404
10/31/94 $13,685 $14,407
11/30/94 $13,594 $14,344
12/31/94 $13,613 $14,391
1/31/95 $13,847 $14,626
2/28/95 $14,168 $14,908
3/31/95 $14,233 $14,990
4/30/95 $14,408 $15,164
5/31/95 $14,915 $15,592
6/30/95 $15,009 $15,692
7/31/95 $14,991 $15,700
8/31/95 $15,150 $15,829
9/30/95 $15,263 $15,935
10/31/95 $15,458 $16,109
11/30/95 $15,668 $16,306
12/31/95 $15,837 $16,467
1/31/96 $15,925 $16,605
2/29/96 $15,679 $16,429
3/31/96 $15,553 $16,353
4/30/96 $15,476 $16,306
5/31/96 $15,432 $16,298
6/30/96 $15,607 $16,464
7/31/96 $15,629 $16,515
8/31/96 $15,603 $16,533
9/30/96 $15,833 $16,746
10/31/96 $16,133 $17,021
11/30/96 $16,401 $17,227
12/31/96 $16,197 $17,134
1/31/97 $16,220 $17,199
2/28/97 $16,243 $17,227
3/31/97 $16,017 $17,129
4/30/97 $16,237 $17,323
5/31/97 $16,352 $17,458
6/30/97 $16,523 $17,608
7/31/97 $16,986 $17,932
8/31/97 $16,790 $17,864
9/30/97 $17,035 $18,059
10/31/97 $17,299 $18,270
11/30/97 $17,319 $18,310
12/31/97 $17,509 $18,458
1/31/98 $17,790 $18,698
2/28/98 $17,699 $18,677
3/31/98 $17,729 $18,735
4/30/98 $17,798 $18,825
5/31/98 $17,946 $18,955
6/30/98 $18,072 $19,082
7/31/98 $18,106 $19,155
8/31/98 $18,587 $19,517
9/30/98 $19,206 $19,972
10/31/98 $19,121 $20,006
11/30/98 $19,051 $19,944
12/31/98 $19,101 $20,022
1/31/99 $19,191 $20,112
2/28/99 $18,779 $19,836
3/31/99 $18,876 $19,967
4/30/99 $18,931 $20,021
5/31/99 $18,680 $19,899
6/30/99 $18,633 $19,929
7/31/99 $18,569 $19,931
8/31/99 $18,567 $19,959
9/30/99 $18,769 $20,131
10/31/99 $18,777 $20,171
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Government:
Full Sales Charge -5.23% 5.78% 6.50%
Net Asset Value -1.70% 6.53% 6.88%
Past performance is not predictive of future performance.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return on
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of bonds in the Index is approximately four years. The index does not contain
any sales charge, expenses or other fees that you would incur if you attempted
to replicate the Index.
GOVERNMENT PORTFOLIO
The net asset value total return of the Government Portfolio for the ten
month period ended October 31, 1999 was -1.70% compared to the benchmark Lehman
Intermediate Government Index total return of 0.74%.
The performance of the U.S. Treasury market in the first ten months of 1999
was the second worst performance in twenty-five years. The bear market of 1994
was only slightly worse. In 1994 the yield on the benchmark thirty-year Treasury
bond in the first three-quarters of the year rose 1.67%. This year the yield on
the thirty-year Treasury bond rose 1.22%. The difference in the two years was
the fact that the Fed raised rates six times in 1994 compared to just twice this
year. Although the Fed did not raise rates at its last meeting, it cautioned it
would do so promptly upon any hints of inflation.
In the third quarter the manager sold part of the portfolio's U.S. Treasury
bond 11.125% position and purchased a 10.375% U.S. Treasury bond maturing in
2012, but callable in 2005. The transactions were done to improve the yield to
maturity. The manager plans to liquidate the remaining balance of the 11.125%
position in the fourth quarter. The duration of the portfolio is 4.74 years.
The market discounted a Fed rate raise on November 16. Despite the larger
than expected core rate reports on both the PPI and CPI, the core rate of the
CPI over last year was only 1.9% gain, which is a thirty-three year low. The
last time it was below 2% was in 1966, when it was 1.8%. The average bear market
for bonds is twelve months and the market has reached that point.
The decline in U.S. Treasury prices continued through most of October with
the high point in yields and the low point in prices taking place on October
26th. The thirty-year treasury bond was selling to yield 6.38%, the ten-year
selling to yield 6.238% and the five-year selling to yield 6.15%. All three
yields were the high for the year. Shortly thereafter Federal Reserve Chairman
Alan Greenspan cooled speculation about a series of interest rate increases by
the central bank. This produced the best government bond rally this year in the
week ended October 29th. Treasuries extended gains after reports showing a drop
in home sales and prices paid by manufacturers suggested the pace of economic
growth is slowing. By month end the yield on the 30-year Treasury bond had
fallen to 6.16%, the ten-year to 6.02% and the five-year finished the month to
5.946%. Bond yields climbed about 1.07% so far this year. The rise was fueled in
part by quickening-inflation and the two Fed rate increases since June.
S&P 100 PLUS PORTFOLIO
The graph below compares the change in value of a $10,000 investment in the
S&P 100 Plus Portfolio Class A Shares with the S&P 100 Index. The graph
reflects a deduction from the amount invested for the applicable sales charge.
Class B Shares of the S&P 100 Plus Portfolio began on July 27, 1998, and its
results are not presented in the line graph.
Principal Preservation
Date S&P 100 Plus Portfolio S&P 100 Index
10/31/89 $9,475 $10,000
11/30/89 $9,649 $10,186
12/31/89 $9,800 $10,415
1/31/90 $9,177 $9,752
2/28/90 $9,345 $9,944
3/31/90 $9,559 $10,204
4/30/90 $9,390 $10,034
5/31/90 $10,258 $10,990
6/30/90 $10,192 $10,919
7/31/90 $10,176 $10,898
8/31/90 $9,271 $9,902
9/30/90 $8,858 $9,439
10/31/90 $8,809 $9,390
11/30/90 $9,313 $9,952
12/31/90 $9,490 $10,138
1/31/91 $9,981 $10,657
2/28/91 $10,701 $11,435
3/31/91 $10,961 $11,699
4/30/91 $10,986 $11,715
5/31/91 $11,479 $12,254
6/30/91 $10,951 $11,717
7/31/91 $11,480 $12,296
8/31/91 $11,604 $12,462
9/30/91 $11,330 $12,173
10/31/91 $11,438 $12,324
11/30/91 $10,948 $11,831
12/31/91 $12,124 $12,996
1/31/92 $11,945 $12,826
2/29/92 $12,133 $13,035
3/31/92 $11,922 $12,823
4/30/92 $12,290 $13,237
5/31/92 $12,367 $13,331
6/30/92 $12,155 $13,130
7/31/92 $12,568 $13,551
8/31/92 $12,233 $13,214
9/30/92 $12,277 $13,242
10/30/92 $12,234 $13,197
11/30/92 $12,623 $13,603
12/31/92 $12,751 $13,768
1/31/93 $12,906 $13,954
2/28/93 $13,134 $14,215
3/31/93 $13,372 $14,487
4/30/93 $13,116 $14,244
5/31/93 $13,482 $14,661
6/30/93 $13,468 $14,667
7/31/93 $13,367 $14,597
8/31/93 $13,871 $15,139
9/30/93 $13,689 $14,939
10/30/93 $13,910 $15,183
11/30/93 $13,845 $15,150
12/31/93 $13,989 $15,403
1/31/94 $14,519 $16,002
2/28/94 $14,156 $15,626
3/31/94 $13,454 $14,890
4/30/94 $13,557 $15,002
5/31/94 $13,865 $15,374
6/30/94 $13,451 $14,920
7/31/94 $13,920 $15,474
8/31/94 $14,352 $15,980
9/30/94 $14,080 $15,672
10/31/94 $14,391 $16,045
11/30/94 $13,901 $15,504
12/31/94 $14,145 $15,806
1/31/95 $14,400 $16,117
2/28/95 $15,034 $16,870
3/31/95 $15,488 $17,428
4/30/95 $16,058 $18,116
5/31/95 $16,704 $18,904
6/30/95 $17,059 $19,341
7/31/95 $17,573 $19,983
8/31/95 $17,478 $19,879
9/30/95 $18,312 $20,873
10/31/95 $18,312 $20,888
11/30/95 $19,039 $21,755
12/31/95 $19,337 $22,120
1/31/96 $20,099 $23,053
2/29/96 $20,347 $23,378
3/31/96 $20,548 $23,616
4/30/96 $20,796 $23,954
5/31/96 $21,303 $24,606
6/30/96 $21,336 $24,702
7/31/96 $20,280 $23,548
8/31/96 $20,738 $24,113
9/30/96 $21,799 $25,393
10/31/96 $22,348 $26,150
11/30/96 $24,086 $28,234
12/31/96 $23,672 $27,771
1/31/97 $25,119 $29,793
2/28/97 $25,044 $29,727
3/31/97 $24,117 $28,568
4/30/97 $25,547 $30,476
5/31/97 $26,902 $32,128
6/30/97 $28,036 $33,511
7/31/97 $30,343 $36,242
8/31/97 $28,370 $33,919
9/30/97 $29,831 $35,723
10/31/97 $28,513 $34,180
11/30/97 $29,982 $35,988
12/31/97 $30,010 $36,110
1/31/98 $30,632 $36,828
2/28/98 $32,818 $39,491
3/31/98 $34,550 $41,671
4/30/98 $35,061 $42,298
5/31/98 $34,561 $41,772
6/30/98 $36,273 $43,839
7/31/98 $36,061 $43,595
8/31/98 $30,817 $37,339
9/30/98 $32,354 $39,138
10/31/98 $35,186 $42,651
11/30/98 $37,897 $45,907
12/31/98 $39,708 $48,103
1/31/99 $42,131 $51,023
2/28/99 $40,618 $49,324
3/31/99 $42,507 $51,637
4/30/99 $44,409 $53,997
5/31/99 $43,270 $52,690
6/30/99 $46,351 $56,410
7/31/99 $44,938 $54,768
8/31/99 $45,553 $55,540
9/30/99 $44,328 $54,018
10/31/99 $47,304 $57,643
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
S&P 100 Plus:
Class A Shares 27.38% 25.51% 16.87%
Class B Shares 28.49% N/A N/A
Past performance is not predictive of future performance.
S&P 100 INDEX
The S&P 100 Index is a broad based stock index made up of the largest 100
securities in the United States based upon market capitalization. The Index
results do not include any sales charges or any other fees you would incur if
you attempted to replicate the Index.
S&P 100 PLUS PORTFOLIO
The net asset value total return of the Class A shares of the S&P 100 Plus
Portfolio for the ten month period ended October 31, 1999 was 19.13% compared to
the Standard & Poor's 100 Index total return of 19.8%.
The third quarter of 1999 exhibited renewed volatility. Increased concerns
for investors over interest rates and inflation overshadowed strengthening
corporate earnings. Every domestic sector except for technology witnessed a
contraction in investment performance, as investors appeared to take some
profits while moving into relatively attractive bonds.
For the third quarter the S&P100 Index return of 19.13% outpaced the S&P500
Index return of 12.03%. Year-to-date the index return is 12.30% versus 5.36%
for the S&P 500 Index. Large-cap stocks continued to outperform small and mid-
cap equities. The higher concentration and weightings within the S&P 100 Index
continue to benefit this portfolio.
During the quarter the Portfolio Manager made only one adjustment to the
over/under weighting strategy, initiating an over-weighting on Bank of America.
While that move may have been a bit premature, the over-weightings in CSCO, MSFT
and NT benefited the performance of the fund along with the under-weightings of
KO and DIS. The Portfolio Manager remains positive about the technology and
financial sectors. Reviewing the events that occurred during the last few
months, attention must be focused on the heightened level of volatility
exhibited within the equity sector. Investors seemed somewhat convinced that
both interest rates and inflation are headed higher. In response, the Federal
Reserve raised their benchmark interest rates in an attempt to preempt any
significant rise in inflation. Throughout this period, economic statistics
continued to send mixed signals. On the one hand there was sustained tightness
in the unemployment level; on the other there was continued relative moderation
in the PPI and the CPI.
For the most part, domestic large-cap entities remain squarely in the
driver's seat when it comes to competition on the worldwide stage. Technology
companies continue to accelerate innovation and change on the masses, with U.S.-
based corporations dominating in most areas. Domestic financial organizations
continue to consolidate both in the U.S. and internationally, believing that
size equals strength. With the apparent acceptance of foreign ownership in
Asian corporate entities, especially in Japan's weakened financial giants, we
anticipate U.S. expansion into these heightened areas of opportunity.
For the remainder of 1999 the Portfolio Manager believes that volatility
will continue to be prevalent. Fears of Y2K have abated somewhat but there will
continue to be doomsayers throughout the quarter sermonizing in the media about
the coming cataclysmic collapse of a computer-aided society. Looking beyond to
the first and second quarters of 2000, the Portfolio Manager remains predisposed
towards large-capitalization, domestic equities such as those in the S&P100
Index. During the month of October, the U.S. domestic markets continued to
perform relatively strongly, despite renewed fears of inflation and interest
rate intervention by the Federal Reserve. As expected, Chairman Greenspan
increased the Federal Funds rate an additional 25 basis points on October 5, and
another 2.5 basis points on November 16, 1999 to bring the benchmark to the
5.50% level. The Fed has made it perfectly clear throughout this bull market
that inflation would be its number one focus in attempting to prolong this
economic upturn. Although current statistics appear mixed regarding the actual
resurgence of sustained inflation, the Federal Reserve's proactive policy
appears to be sound. With a rebounding worldwide economy expected in 2000, a
slight moderation in the pace of growth domestically should be viewed
positively. Sustainable growth in any sector will produce a more benevolent
economic and investment environment than the widely divergent swings exhibited
in recent cycles.
DIVIDEND ACHIEVERS PORTFOLIO
The graph below compares the change in value of a $10,000 investment made in
Dividend Achievers Portfolio Class A Shares with the S&P 500 Index. The graph
reflects a deduction from the amount invested for the applicable sales charge.
Class B Shares of the Dividend Achievers Portfolio began on July 27, 1998 and
its results are not presented in the line graph.
Principal Preservation
Date Dividend Achievers Portfolio S&P 500 Index
10/31/89 $9,475 $10,000
11/30/89 $9,609 $10,204
12/31/89 $9,845 $10,449
1/31/90 $9,262 $9,748
2/28/90 $9,295 $9,874
3/31/90 $9,447 $10,136
4/30/90 $9,201 $9,884
5/31/90 $9,966 $10,848
6/30/90 $10,076 $10,775
7/31/90 $10,016 $10,741
8/31/90 $9,214 $9,770
9/30/90 $8,855 $9,294
10/31/90 $8,872 $9,254
11/30/90 $9,499 $9,852
12/31/90 $9,941 $10,127
1/31/91 $10,347 $10,569
2/28/91 $11,064 $11,325
3/31/91 $11,661 $11,599
4/30/91 $11,626 $11,627
5/31/91 $12,190 $12,128
6/30/91 $11,643 $11,573
7/31/91 $12,123 $12,112
8/31/91 $12,402 $12,399
9/30/91 $12,128 $12,192
10/31/91 $12,531 $12,355
11/30/91 $12,092 $11,857
12/31/91 $13,765 $13,213
1/31/92 $13,329 $12,967
2/29/92 $13,255 $13,136
3/31/92 $13,032 $12,880
4/30/92 $13,079 $13,259
5/31/92 $13,042 $13,324
6/30/92 $12,632 $13,125
7/31/92 $13,248 $13,662
8/31/92 $13,201 $13,382
9/30/92 $13,228 $13,540
10/30/92 $13,639 $13,587
11/30/92 $14,163 $14,050
12/31/92 $14,193 $14,223
1/31/93 $13,885 $14,342
2/28/93 $13,745 $14,540
3/31/93 $14,099 $14,847
4/30/93 $13,430 $14,488
5/31/93 $13,540 $14,876
6/30/93 $13,490 $14,919
7/31/93 $13,280 $14,859
8/31/93 $13,610 $15,422
9/30/93 $13,511 $15,303
10/30/93 $13,772 $15,620
11/30/93 $13,340 $15,472
12/31/93 $13,482 $15,659
1/31/94 $13,783 $16,191
2/28/94 $13,562 $15,752
3/31/94 $12,951 $15,065
4/30/94 $13,183 $15,235
5/31/94 $13,466 $15,485
6/30/94 $13,239 $15,106
7/31/94 $13,593 $15,601
8/31/94 $13,917 $16,241
9/30/94 $13,496 $15,843
10/31/94 $13,740 $16,199
11/30/94 $13,435 $15,609
12/31/94 $13,647 $15,840
1/31/95 $13,720 $16,250
2/28/95 $14,091 $16,882
3/31/95 $14,380 $17,380
4/30/95 $14,980 $17,891
5/31/95 $15,374 $18,605
6/30/95 $15,568 $19,037
7/31/95 $16,025 $19,667
8/31/95 $15,942 $19,716
9/30/95 $16,573 $20,548
10/31/95 $17,020 $20,474
11/30/95 $17,666 $21,373
12/31/95 $17,972 $21,785
1/31/96 $18,809 $22,526
2/29/96 $18,989 $22,735
3/31/96 $18,986 $22,953
4/30/96 $19,261 $23,290
5/31/96 $19,590 $23,891
6/30/96 $19,943 $23,982
7/31/96 $19,306 $22,922
8/31/96 $19,476 $23,406
9/30/96 $20,745 $24,724
10/31/96 $20,958 $25,406
11/30/96 $22,386 $27,327
12/31/96 $21,883 $26,786
1/31/97 $23,272 $28,457
2/28/97 $23,633 $28,682
3/31/97 $22,424 $27,506
4/30/97 $23,782 $29,145
5/31/97 $24,625 $30,918
6/30/97 $25,743 $32,303
7/31/97 $27,211 $34,871
8/31/97 $25,107 $32,922
9/30/97 $26,411 $34,721
10/31/97 $26,049 $33,565
11/30/97 $27,400 $35,116
12/31/97 $27,981 $35,718
1/31/98 $28,594 $36,113
2/28/98 $30,564 $38,716
3/31/98 $31,444 $40,697
4/30/98 $31,578 $41,106
5/31/98 $30,508 $40,400
6/30/98 $31,266 $42,040
7/31/98 $30,642 $41,594
8/31/98 $26,183 $35,588
9/30/98 $28,022 $37,868
10/31/98 $30,209 $40,827
11/30/98 $32,194 $43,300
12/31/98 $33,409 $45,794
1/31/99 $34,378 $47,708
2/28/99 $33,792 $46,224
3/31/99 $34,995 $48,073
4/30/99 $36,491 $49,938
5/31/99 $35,497 $48,759
6/30/99 $36,568 $51,460
7/31/99 $36,030 $49,854
8/31/99 $35,204 $49,605
9/30/99 $33,911 $48,271
10/31/99 $36,293 $51,302
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Dividend Achievers:
Class A Shares 13.83% 20.14% 13.74%
Class B Shares 14.40% N/A N/A
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The
Index does not adjust for any sales charges or other fees and expenses which you
would incur if you attempted to replicate the Index.
DIVIDEND ACHIEVERS PORTFOLIO
The net asset value total return of the Class A shares of the Dividend
Achievers Portfolio for the ten month period ended October 31, 1999 was 8.63%,
compared to the Standard & Poor's 500 Index total return of 12.03%.
At September 30, the portfolio remained over-weighted in the Capital Goods,
Consumer Staples and Healthcare sectors versus the S&P 500, and significantly
under-weighted in Consumer Cyclicals and Technology. For the quarter, every
sector in the S&P 500 Index except technology produced negative returns.
On October 1, the new Portfolio Management team of Jay Ferrara and Leon
Dodge began adjusting the portfolio to correlate more closely to the S&P 500
Index sector weightings. These moves resulted in a capital gains distribution
of approximately $4.50 per share which were declared and distributed in
November, 1999.
In order to expand the growth rate of the portfolio the managers increased
the number of holdings from 36 to 39. The combination of an increased number of
holdings and the reduction in the concentration weightings of some specific
positions appeared attractive. While the manager intends to have 70-80% of the
portfolio in the strict definition of the Universe, the remaining investment in
equities will focus on expanding both top and bottom-line growth prospects for
the portfolio.
Because technology has been driving the recent strong performance of the
U.S. domestic large-cap equity markets the managers emphasized participation in
this sector. Also, recent government intervention in the historical parameters
of the financial sector appears to have presented some unique opportunities for
many of the larger, established financial giants. Finally, the emerging
revolution of the worldwide telecommunications markets, as well as the continued
strength exhibited by the domestic consumer, provide additional areas of
emphasis for the portfolio. Looking out into the new Millenium, rumblings
regarding inflation, valuation and accelerating volatility appear to
periodically spook investors into more defensive stances. Even so, the
recovering worldwide economy with accompanying competition should provide ample
opportunity for many companies to sustain relatively strong top and bottom-line
growth. At the same time, productivity and efficiency enhancements accomplished
through technological innovation should continue to dampen any large scale
inflation pressures.
SELECT VALUE PORTFOLIO
The graph below compares the change in value of a $10,000 investment in the
Select Value Portfolio Class A Shares with the Russell 2000 Index. The graph
reflects a deduction from the amount invested for the applicable sales charge.
Class B Shares of the Select Value Portfolio began on July 27, 1998 and its
results are not presented in the line graph.
Principal Preservation
Date Select Value Portfolio Russell 2000 Index
8/23/94*<F1> $9,475 $10,000
8/31/94 $9,474 $10,232
9/30/94 $9,365 $10,184
10/31/94 $9,157 $10,141
11/30/94 $8,800 $9,712
12/31/94 $9,005 $9,956
1/31/95 $8,755 $9,816
2/28/95 $9,044 $10,203
3/31/95 $9,220 $10,370
4/30/95 $9,210 $10,585
5/31/95 $9,360 $10,746
6/30/95 $9,613 $11,279
7/31/95 $10,247 $11,920
8/31/95 $10,408 $12,142
9/30/95 $10,704 $12,344
10/31/95 $10,401 $11,782
11/30/95 $10,764 $12,272
12/31/95 $10,878 $12,565
1/31/96 $11,102 $12,542
2/29/96 $11,421 $12,922
3/31/96 $11,452 $13,078
4/30/96 $12,209 $13,477
5/31/96 $12,551 $13,659
6/30/96 $12,232 $13,455
7/31/96 $11,453 $12,547
8/31/96 $12,114 $13,271
9/30/96 $12,521 $13,850
10/31/96 $12,799 $13,891
11/30/96 $13,472 $14,672
12/31/96 $13,777 $14,688
1/31/97 $13,928 $15,239
2/28/97 $13,676 $15,114
3/31/97 $13,162 $14,472
4/30/97 $13,400 $14,847
5/31/97 $14,656 $16,145
6/30/97 $15,774 $16,599
7/31/97 $16,590 $18,241
8/31/97 $16,866 $18,219
9/30/97 $18,152 $19,266
10/31/97 $17,396 $18,428
11/30/97 $17,371 $18,701
12/31/97 $17,526 $19,426
1/31/98 $17,511 $19,130
2/28/98 $19,021 $20,564
3/31/98 $19,733 $21,428
4/30/98 $19,951 $21,546
5/31/98 $19,094 $20,390
6/30/98 $18,615 $20,448
7/31/98 $17,613 $18,778
8/31/98 $14,419 $15,137
9/30/98 $15,333 $16,308
10/31/98 $15,333 $16,977
11/30/98 $16,292 $17,873
12/31/98 $16,408 $18,989
1/31/99 $16,103 $19,236
2/28/99 $14,970 $17,686
3/31/99 $14,346 $17,958
4/30/99 $15,638 $19,565
5/31/99 $16,175 $19,855
6/30/99 $17,018 $20,746
7/31/99 $16,916 $20,173
8/31/99 $16,175 $19,431
9/30/99 $15,566 $19,431
10/31/99 $15,508 $19,513
AVERAGE ANNUAL TOTAL RETURN
SINCE
INCEPTION
1-YEAR 5-YEAR 8/23/94
Select Value:
Class A Shares -4.17% 9.92% 8.82%
Class B Shares -4.43% N/A N/A
*<F1> August 23, 1994 inception date.
Past performance is not predictive of future performance.
RUSSELL 2000 INDEX
The Russell 2000 Index is a broad stock index made up of 2000 small market
capitalization companies. The Index tracks the general stock market performance
of 2000 small market capitalization companies. The Index results do not include
any sales charges or any other fees you would incur if you attempted to
replicate the Index.
SELECT VALUE PORTFOLIO
The net asset value total return of the Class A shares of the Select Value
Portfolio for the ten month period ended October 31, 1999 was -5.49%, compared
to the Russell 2000 Index total return of 2.76%. The portfolio experienced a
challenging operating environment during the third quarter as deteriorating
investor confidence led to negative stock market returns. While small company
stock returns were similar to large company stock returns, growth stocks
significantly outperformed value stocks in the last four months. Specifically,
the portfolio fell 8.5% in that time frame. The Russell 2000 Index, a small
company benchmark, declined 5.95%. The performance difference stems mainly from
our value-oriented investment approach.
The stock market struggled in the third quarter with both the Russell 2000
Index and S&P 500 Index showing losses in excess of 6%. Market breadth was
particularly poor with the vast majority of stocks posting declines. Market
weakness in the third quarter can be largely attributed to the Federal Reserve
Board raising interest rates. Also, many cyclical stocks that rallied in the
June quarter failed to hold their gains when company fundamentals proved to be
less robust than expected. In terms of investment styles, growth stock
investing performed much better than value-oriented investing. Growth stock
managers benefited from strong performance in the technology sector, one of only
two sectors in the Russell 2000 Index to post a gain for the quarter. At the
same time, value-oriented managers were hurt by the decline in cyclical and
financial stocks sectors in which they tend to invest.
Small company stocks with inexpensive valuation characteristics performed
poorly during the third quarter. The market became increasingly focused on
companies with rapid growth characteristics, with little regard for the prices
being paid. The negative bias toward value-oriented stocks is the primary
culprit behind the portfolio's recent weak results. The only sectors in the
portfolio to show a positive return or a very modest decline were energy and
technology. Rising oil prices helped energy stocks. Technology companies
generally demonstrated strong growth as they began recovering from last year's
Asian-led difficulties. Every other sector of the portfolio fell considerably.
The reasons generally related to fears that higher interest rates would harm
future profit growth. The sectors that were most severely affected this quarter
were those tied to the economy, like materials and processing, autos and
transportation and producer durables and those in the financial services sector.
Consumer stocks also declined despite strong consumer spending trends and
healthy profit reports.
A number of stocks were affected by fears that future profit growth
expectations might not be as strong as originally thought. These concerns
typically related to company comments that the business environment was still
healthy but not as robust as earlier in the year. This caused some stock prices
to fall significantly more than logic would have anticipated. Typically, stocks
that carry low valuations, like those owned by the portfolio, tend to hold up
well on slight disappointments. However, recently this has not been true due to
the intense focus by investors on rapid stock price momentum, rather than
valuation levels.
While large company stocks have enjoyed a period of healthy returns over the
last several years, small company stocks, particularly those with a value-
orientation, have been in a severe bear market. Virtually no disappointment
seems to be tolerated by investors focused so intently on short-term gains.
Despite a good economic outlook and most companies in the portfolio reporting
record profit levels, returns have been disappointing.
We continue to find exciting new investment opportunities by seeking out
companies with attractive valuation levels and strong profit growth outlooks.
Presently, the environment is fertile for finding such companies. Therefore, we
continue to improve the portfolio by selling stocks when weak fundamentals
develop and replacing them with companies demonstrating good growth trends. The
portfolio is well diversified by industry, with healthy exposure to almost every
major sector.
PSE TECH 100 INDEX PORTFOLIO
The graph below compares the change in value of a $10,000 investment in the
PSE Tech 100 Index Portfolio Class A Shares with the Pacific Stock Exchange
Technology Stock Index. The graph reflects a deduction from the amount invested
for the applicable sales charge. Class B Shares of the PSE Tech 100 Index
Portfolio began on July 27, 1998 and its results are not presented in the line
graph.
Principal Preservation Pacific Stock Exchange
Date PSE Tech 100 Index Portfolio Technology Stock Index
6/10/96*<F2> $9,475 $10,000
6/30/96 $8,976 $9,506
7/31/96 $8,303 $8,775
8/31/96 $8,825 $9,315
9/30/96 $9,626 $10,157
10/31/96 $9,483 $10,005
11/30/96 $10,755 $11,362
12/31/96 $10,492 $11,095
1/31/97 $11,584 $12,267
2/28/97 $11,096 $11,750
3/31/97 $10,476 $11,096
4/30/97 $10,828 $11,477
5/31/97 $12,136 $12,866
6/30/97 $12,208 $12,956
7/31/97 $14,075 $14,956
8/31/97 $14,056 $14,937
9/30/97 $14,529 $15,444
10/31/97 $12,993 $13,858
11/30/97 $13,032 $13,897
12/31/97 $12,522 $13,361
1/31/98 $13,038 $13,908
2/28/98 $14,625 $15,615
3/31/98 $14,877 $15,923
4/30/98 $15,453 $16,544
5/31/98 $14,230 $15,236
6/30/98 $14,877 $15,936
7/31/98 $14,837 $15,896
8/31/98 $12,056 $12,917
9/30/98 $13,745 $14,745
10/31/98 $15,292 $16,418
11/30/98 $16,981 $18,241
12/31/98 $19,282 $20,727
1/31/99 $22,093 $23,766
2/28/99 $19,825 $21,328
3/31/99 $21,320 $22,962
4/30/99 $22,062 $23,775
5/31/99 $22,668 $24,469
6/30/99 $25,657 $27,714
7/31/99 $25,490 $27,548
8/31/99 $26,775 $28,967
9/30/99 $26,796 $29,008
10/31/99 $28,353 $30,717
AVERAGE ANNUAL TOTAL RETURN
SINCE
INCEPTION
1-YEAR 6/10/96
PSE Tech 100 Index:
Class A Shares 75.68% 35.98%
Class B Shares 79.10% N/A
*<F2> June 10, 1996 inception date.
Past performance is not predictive of future performance.
PACIFIC STOCK EXCHANGE TECHNOLOGY STOCK INDEX
The Pacific Stock Exchange Technology Stock Index consists of 100 common
stocks of companies in 15 different industries. The Index results do not
include any sales charges or any other fees you would incur if you attempted to
replicate the Index.
PSE TECH 100 INDEX PORTFOLIO
The net asset value total return of the Class A shares of the PSE Tech 100
Portfolio for the ten month period ended October 31, 1999 was 47.05% compared
to the PSE Technology index total return of 48.2%.
The domestic technology sector continued to steam ahead during the last part
of this year as investors searched for consistent growth companies in allocating
their equity investments. In fact, technology was the only sector within the
S&P500 that produced positive returns for the three months ended September 30.
Unlike the double-digit returns witnessed during the first two quarters of
1999, the PSE Tech 100 moderated its positive performance, although it was still
comfortably in the plus column. The fund returned 4.45% versus the 4.67%
registered by the PSE Tech index.
Specific sector performance in technology was more evenly distributed during
the third quarter than during the powerful second quarter when all sub-sectors
in the PSE produced positive returns. Led by Apple, Gateway and Sun
Microsystems, microcomputers led the way in producing strong returns. On the
other hand, Xerox continued to post disappointing earnings and led the office
automation equipment group on the way down.
Beyond the overall strength of the technology sector, investors continued to
fret about interest rates, inflation and valuations. Volatility has increased
and probably will continue to be a major ingredient in the equity markets' mix
through the end of 1999. With overseas markets beginning to exert some economic
strengthening, some commentators believe, the "goldilocks" domestic environment
may be altering. Talk of disinflation appears to have ceased, while fears of
Fed intervention through higher interest rates became reality twice during the
quarter. Even so, large-cap technology companies continued to exhibit dominant
products and innovations, revenues and profits. Investors appear willing to pay
high prices for sustainable and reliable growth, and many of these types of
companies reside in the technology sector.
The Portfolio Manager believes the strong will get stronger into the new
millenium. Large-cap technology companies with the financial infrastructure and
strong management leadership will be able to develop in-house the next
generation of innovative, technological products in-house, or will use their
cash balances or valuable equity stock as currency to purchase what is needed.
Unlike IBM in the late 1980's, today's technology leaders such as Bill Gates,
Andy Grove, Scott McNealy and Larry Ellison remain hungry and combative in terms
of succeeding in the future. Complacency will not be an issue with their
companies.
Volatility remained present throughout the year as investors fought an
internal conflict between ever-higher valuations and accelerating earnings.
Even so, strong growth of both top-line and bottom-line levels for large-cap
technology companies bodes well for this portfolio. Although the domestic
technology sector has witnessed impressive investment performance for the past
two years, investors searching for long-term growth representation for their
overall portfolios should remain committed to at least a sector-neutral
allocation in large capitalization technology companies. Much like the
agricultural and industrial revolutions of yore, the technological revolution
presently occurring will redefine many of our daily routines that we presently
take for granted.
MANAGED GROWTH PORTFOLIO
The graph below compares the change in value of a $10,000 investment made in
Managed Growth Portfolio Class A Shares with the S&P 400 Index. The graph
reflects a deduction from the amount invested for the applicable sales charge.
Class B Shares of the Managed Growth Portfolio began on January 1, 1999 and its
results are not presented in the line graph.
Date Managed Growth Portfolio S&P Mid Cap Index
1/1/99 $9,475 $10,000
1/31/99 $9,365 $9,610
2/28/99 $8,815 $9,107
3/31/99 $8,853 $9,362
4/30/99 $9,175 $10,100
5/31/99 $9,166 $10,144
6/30/99 $9,583 $10,687
7/31/99 $9,299 $10,460
8/31/99 $9,109 $10,101
9/30/99 $9,090 $9,790
10/31/99 $9,526 $10,289
AVERAGE ANNUAL TOTAL RETURN
SINCE
INCEPTION
1/1/99
Managed Growth:
Class A Shares 4.78%
Class B Shares 4.90%
Past performance is not predictive of future performance.
S&P 400 INDEX
The S&P 400 Index is a broad based United States stock index representing
400 midsize companies, based upon market capitalization. The companies
comprising the index have market capitalization between approximately
$200,000,000 and $23,000,000,000. The 400 domestic stocks are chosen based upon
market size, liquidity, and industry group representation. The Index does not
adjust for any sales charges or other fees and expenses which you would incur if
you attempted to replicate the Index.
MANAGED GROWTH PORTFOLIO
The net asset value total return of the Class A shares of the Managed Growth
Portfolio for the ten month period ended October 31, 1999 was 0.50% compared to
the Standard & Poor's S&P 400 Index total return of 2.9%.
During the final four months of this shortened year, the Managed Growth
Portfolio outperformed its benchmark, continuing a trend of improving relative
performance that began in May. The Managed Growth Portfolio had a return of
- -.59% compared to -3.27% for the S&P 400 MidCap Index.
The economic expansion remains on a moderate growth track despite a 1% run
up in interest rates and weak world growth. Two recent tightening moves by the
Federal Reserve Board, coupled with an anticipated slowing in capital spending
late in the year due to Y2K concerns, should serve to temper momentum over the
remainder of 1999. The year, as a whole, will see a continuation of 3% real GNP
growth. Reflecting initially weak post Y2K technology spending and first
quarter inventory disaccumulation, 2000 will start slowly before accelerating
through year end. Overall, look for 2-1/2%+ real Gross Domestic Product growth
next year.
Inflation remains benign despite rising energy prices and higher
compensation patterns. Offsetting these negative trends are continued strong
productivity in almost all sectors and worldwide excess capacity in many
commodity sectors. 1999 should see inflation (CPI) in the 1-3/4-2% range with
2-2-1/2% next year as world economies strengthen. The important point to stress
is that the U.S. economy is not poised to enter a new inflationary spiral. In
fact, the next recession could well see outright deflation, especially
considering the deflationary impact of the internet becoming even more important
in setting price levels in a myriad of industries.
Corporate profit growth remains robust although a Y2K based slowdown in
technology spending by the fourth quarter and the excess inventory liquidation
after year-end likely will slow profit momentum in the early months of the new
year. Supporting our forecast is recent evidence of a weakening in consumer
confidence and a slowing in the housing sector. With a stronger second half,we
expect that 2000 profits will advance 8% after a robust 10%+ gain this year.
The median price-earnings ratio for the S&P 400 mid-cap index is about 16x,
and we believe the attractive growth/PE characteristics of this sector will lead
to an extended period of superior relative performance beginning sometime before
year end. As always, quality guidelines cannot be compromised in participating
in this expected surge of performance.
The secular bull market remains in force and should continue for the
foreseeable future despite occasional sharp selloffs. Previous secular bull
markets have ended primarily due to ill-advised government actions (Smoot Hawley
Tariffs, monetary tightening, "Guns and Butter" economics, etc.) rather than
high valuations. Despite our optimistic expectations for 2000, the advance will
be much more tepid, providing investors low double digit returns on average - a
far cry from the 25-30% returns achieved between 1995 and 1998.
The majority of our under-performance, year to date, was concentrated in the
months of February, March and April. Since that time, we have added several
successful new holdings and sold or trimmed companies in which fundamentals
deteriorated. Furthermore, we have deliberately over-weighted holdings in which
the company fundamentals were strong, and kept smaller positions in stocks whose
fundamentals were suspect, but not problematic enough to cause us to liquidate
the position.
During the third quarter, seven of our stock holdings appreciated over
twenty percent; these holdings made up twenty-one percent of assets.
Conversely, fourteen of our stock holdings depreciated over twenty percent
during the quarter, but these companies made up no more than twenty percent of
our assets. In general, the narrowness of the market is troublesome and
difficult for managers like us who focus on companies with consistently positive
earning trends and reasonable price/growth relationships.
Going forward, we believe the so-called "New Economy" is where the jobs are,
where the profits are, and where investors are. New economy industries include
computers, semiconductors, communication equipment and services such as
outsourcing or software. New ideas for our portfolios are predominantly chosen
from this broad economic sector. However, we will invest in "Old Economy"
companies if we believe they are doing something unique.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The table below presents information for a share of capital stock of each of
seven portfolios of Principal Preservation Portfolios, Inc. outstanding for the
periods indicated. This information should be read in conjunction with the
financial statements and related notes:
<TABLE>
TAX-EXEMPT PORTFOLIO
----------------------------------------------------------------------------
For the ten For the years ended December 31,
months ended ---------------------------------------------------
October 31, 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.24 $ 9.52 $ 9.30 $ 9.39 $ 8.36
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .29 .37 .41 .43 .45
Net realized and unrealized gains
(losses) on investments (1.01) .03 .44 (.09) 1.03
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS (.72) .40 .85 .34 1.48
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.29) (.37) (.41) (.43) (.45)
Distributions from net realized
gains on investments -- (.31) (.22) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.29) (.68) (.63) (.43) (.45)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.23 $ 9.24 $ 9.52 $ 9.30 $ 9.39
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN**<F4> (7.8)%++<F6> 4.3% 9.4% 3.8% 18.1%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $42,954 $54,914 $60,252 $66,310 $56,443
Ratio of net expenses to average net assets 1.2%*<F3> 1.1% 1.1% 1.1%+<F5> 1.0%+<F5>
Ratio of net investment income to
average net assets 4.0%*<F3> 3.9% 4.4% 4.7%+<F5> 4.9%+<F5>
Portfolio turnover rate 39.1%++<F6> 236.7% 209.2% 163.1% 105.9%
</TABLE>
*<F3> Annualized.
**<F4> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F5> Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996
and 0.01% in 1995.
++<F6> Not annualized.
<TABLE>
GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------
For the ten For the years ended December 31,
months ended ---------------------------------------------------
October 31, 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 9.28 $ 9.20 $ 9.64 $ 8.84
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .47 .55 .63 .64 .61
Net realized and unrealized gains
(losses) on investments (.63) .27 .08 (.44) .80
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS (.16) .82 .71 .20 1.41
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.47) (.55) (.63) (.64) (.61)
Distributions from net realized
gains on investments -- -- -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.47) (.55) (.63) (.64) (.61)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.92 $ 9.55 $ 9.28 $ 9.20 $ 9.64
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN**<F8> (1.7)%++<F8> 9.1% 8.1% 2.3% 16.3%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $37,379 $40,088 $40,683 $44,920 $49,319
Ratio of net expenses to average net assets 1.2%*<F7> 1.2% 1.1%+<F9> 1.1%+<F9> 1.1%+<F9>
Ratio of net investment income to
average net assets 6.2%*<F7> 5.9% 7.0%+<F9> 7.0%+<F9> 6.5%+<F9>
Portfolio turnover rate 30.3%++<F10> 87.7% 78.6% 36.9% 68.2%
</TABLE>
*<F7> Annualized.
**<F8> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F9> Reflects a voluntary reimbursement of fund expenses of 0.04% in
1997, 0.04% in 1996 and 0.02% in 1995.
++<F10> Not annualized.
<TABLE>
S&P 100 PLUS PORTFOLIO
---------------------------------------------------------------------------------------------
For the
period from
July 27, 1998
For the ten (commencement For the years ended December 31,
months ended of operations) to ---------------------------------------------
October 31, 1999 December 31, 1998 1998 1997 1996 1995
--------------------- ----------------- ------ ------ ------ ------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $34.91 $34.90 $33.13 $27.04 $22.08 $19.53 $14.95
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (.13) .10 .01 .20 .26 .29 .25
Net realized and unrealized
gains on investments 6.57 6.57 2.43 8.51 5.63 4.07 5.21
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 6.44 6.67 2.44 8.71 5.89 4.36 5.46
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- (.08) (.01) (.20) (.26) (.29) (.25)
Distributions from net realized
gains on investments -- -- (.59) (.59) (.65) (1.52) (.63)
Distributions in excess of
net realized gains -- -- (.06) (.06) (.02) -- --
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- (.08) (.66) (.85) (.93) (1.81) (.88)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $41.35 $41.49 $34.91 $34.90 $27.04 $22.08 $19.53
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F12> 18.4%++<F14> 19.1%++<F14> 7.4%++<F14> 32.3% 26.8% 22.4% 36.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $37,160 $214,358 $6,123 $160,190 $105,738 $77,517 $57,062
Ratio of net expenses to average
net assets 1.5%*<F11> 0.8%*<F11> 1.3%*+<F11><F13> 0.9%+<F13> 0.9%+<F13> 1.0%+<F13> 1.2%
Ratio of net investment
income (loss) to average net assets (0.4)%*<F11> 0.3%*<F11> --*+<F11><F13> 0.6%+<F13> 1.0%+<F13> 1.4%+<F13> 1.4%
Portfolio turnover rate 4.9%++<F14> 4.9%++<F14> 10.2%++<F14> 10.2% 17.0% 8.0% 3.5%
</TABLE>
*<F11> Annualized.
**<F12> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F13> Reflects a voluntary reimbursement of fund expenses of 0.03% in
Class B Shares and 0.07% in Class A Shares in 1998, 0.11% in 1997
and 0.01% in 1996.
++<F14> Not annualized.
<TABLE>
DIVIDEND ACHIEVERS PORTFOLIO
---------------------------------------------------------------------------------------------
For the
period from
July 27, 1998
For the ten (commencement For the years ended December 31,
months ended of operations) to ---------------------------------------------
October 31, 1999 December 31, 1998 1998 1997 1996 1995
--------------------- ----------------- ------ ------ ------ ------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $27.86 $27.92 $28.48 $25.13 $20.01 $16.97 $13.24
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (.16) .02 .01 .07 .13 .14 .18
Net realized and unrealized
gains on investments 2.42 2.39 1.39 4.80 5.43 3.54 3.99
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 2.26 2.41 1.40 4.87 5.56 3.68 4.17
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- (.01) (.01) (.07) (.13) (.14) (.18)
Distributions from net realized
gains on investments -- -- (2.01) (2.01) (.31) (.50) (.26)
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- (.01) (2.02) (2.08) (.44) (.64) (.44)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $30.12 $30.32 $27.86 $27.92 $25.13 $20.01 $16.97
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F16> 8.1%++<F18> 8.6%++<F18> 4.9%++<F18> 19.4% 27.9% 21.8% 31.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $1,138 $45,071 $338 $44,219 $39,565 $30,504 $25,393
Ratio of net expenses to average
net assets 2.0%*+ 1.3%*+ 1.7%*+ 1.3%+ 1.2%+ 1.2%+ 1.3%+
<F15><F17> <F15><F17> <F15><F17> <F17> <F17> <F17> <F17>
Ratio of net investment
income (loss) to average net assets (0.7)%*+ 0.1%*+ --*+ 0.2%+ 0.6%+ 0.8%+ 1.2%+
<F15><F17> <F15><F17> <F15><F17> <F17> <F17> <F17> <F17>
Portfolio turnover rate 18.1%++<F18> 18.1%++<F18> 11.9%++<F18> 11.9% 11.9% 13.1% 28.2%
</TABLE>
*<F15> Annualized.
**<F16> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F17> Reflects a voluntary reimbursement of fund expenses of 0.02% in
Class B and Class A Shares in 1999, 0.06% in Class B Shares and
0.02% in Class A Shares in 1998, 0.1% in 1997, 0.1% in 1996 and
0.2% in 1995.
++<F18> Not annualized.
<TABLE>
SELECT VALUE PORTFOLIO
---------------------------------------------------------------------------------------------
For the
period from
July 27, 1998
For the ten (commencement For the years ended December 31,
months ended of operations) to ---------------------------------------------
October 31, 1999 December 31, 1998 1998 1997 1996 1995
--------------------- ----------------- ------ ------ ------ ------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $11.27 $11.30 $12.32 $12.07 $10.97 $10.21 $ 9.03
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (.09) (.03) -- -- .01 .04 .14
Net realized and unrealized
gains (losses) on
investments (.58) (.59) (1.05) (.77) 2.93 2.68 1.73
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS (.67) (.62) (1.05) (.77) 2.94 2.72 1.87
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- -- -- -- (.01) (.04) (.14)
Distributions from net realized
gains on investments -- -- -- -- (1.83) (1.92) (.43)
Distributions in excess of net
realized gains on investments -- -- -- -- -- -- (.12)
Book return of capital -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- -- -- -- (1.84) (1.96) (.69)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.60 $10.68 $11.27 $11.30 $12.07 $10.97 $10.21
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F20> (5.9)%++<F22>(5.5)%++<F22> (8.5)%++<F22> (6.4)% 27.2% 26.7% 20.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $1,234 $9,219 $1,012 $10,520 $8,497 $4,829 $3,445
Ratio of net expenses to
average net assets 2.0%*+ 1.4%*+ 1.7%*+ 1.3%+ 1.1%+ 1.0%+ 0.8%+
<F19><F21> <F19><F21> <F19><F21> <F21> <F21> <F21> <F21>
Ratio of net investment
income (loss) to average net assets (1.0)%*+ (0.3)%*+ --*+ --+ 0.1%+ 0.3%+ 1.4%+
<F19><F21> <F19><F21> <F19><F21> <F21> <F21> <F21> <F21>
Portfolio turnover rate 91.2%++<F22> 91.2%++<F22> 110.0%++<F22> 110.0% 82.5% 122.2% 124.3%
</TABLE>
*<F19> Annualized.
**<F20> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F21> Reflects a voluntary reimbursement of fund expenses of 0.6% in
Class B Shares and 0.6% in Class A Shares in 1999, 0.5% in Class B
Shares and 0.5% in Class A Shares in 1998, 1.0% in 1997, 1.4% in
1996 and 2.5% in 1995.
++<F22> Not annualized.
<TABLE>
PSE TECH 100 INDEX PORTFOLIO
------------------------------------------------------------------------------------
For the period from For the period from
July 27, 1998 June 10, 1996
For the ten (commencement For the years ended (commencement
months ended of operations) to ------------------- of operations) to
October 31, 1999 December 31, 1998 1998 1997 December 31, 1996
---------------------- ----------------- ------ ------ -----------------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $18.39 $18.45 $14.94 $12.39 $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.22) (.08) .01 .01 .04 .03
Net realized and unrealized gains
on investments 8.73 8.76 4.07 6.68 2.04 1.03
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 8.51 8.68 4.08 6.69 2.08 1.06
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (.01) (.01) (.04) (.03)
Distributions from net realized gains
on investments -- -- (.60) (.60) (.38) (.24)
Distributions in excess of
net realized gains -- -- (.02) (.02) (.03) (.03)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- -- (.63) (.63) (.45) (.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $26.90 $27.13 $18.39 $18.45 $12.39 $10.76
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F24> 46.3%++<F26> 47.0%++<F26> 27.2%++<F26> 54.0% 19.4% 10.7%++<F26>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $60,038 $169,247 $6,559 $72,724 $27,144 $6,004
Ratio of net expenses to
average net assets 1.4%*+ 0.7%*+ 1.2%*+ 0.6%+ 0.2%+ --*+
<F23><F25> <F23><F25> <F23><F25> <F25> <F25> <F23><F25>
Ratio of net investment income
(loss) to average net assets (1.1)%*+ (0.4)%*+ --*+ --+ 0.3%+ 0.7%*+
<F23><F25> <F23><F25> <F23><F25> <F25> <F25> <F23><F25>
Portfolio turnover rate 33.0%++<F26> 33.0%++<F26> 25.4%++<F26> 25.4% 22.0% 3.0%++<F26>
</TABLE>
*<F23> Annualized.
**<F24> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F25> Reflects a voluntary reimbursement of fund expenses of 0.13% in
Class B Shares and 0.13% in Class A Shares in 1999, 0.3% in Class B
Shares and 0.5% in Class A Shares in 1998, 1.1% in 1997 and 3.3%
in 1996.
++<F26> Not annualized.
<TABLE>
MANAGED GROWTH PORTFOLIO
-----------------------------------
For the period from January 1, 1999
(commencement of operations)
to October 31, 1999
-----------------------------------
Class B Class A
Shares Shares
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.07) (.01)
Net realized and unrealized gains on investments .08 .06
------ ------
TOTAL FROM INVESTMENT OPERATIONS .01 .05
------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- --
Distributions from net realized gains on investments -- --
Distributions in excess of net realized gains -- --
------ ------
TOTAL DISTRIBUTIONS -- --
------ ------
NET ASSET VALUE, END OF PERIOD $10.01 $10.05
------ ------
------ ------
TOTAL RETURN**<F28> 0.1%++<F30> 0.5%++<F30>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $1,701 $5,913
Ratio of net expenses to average net assets 1.2%*+<F27><F29> 0.6%*+<F27><F29>
Ratio of net investment income (loss) to average net assets (0.8)%*+<F27><F29> (0.1)%*+<F27><F29>
Portfolio turnover rate 27.5%++<F30> 27.5%++<F30>
</TABLE>
*<F27> Annualized.
**<F28> The Fund's sales charge is not reflected in total return as set
forth in the table.
+<F29> Reflects a voluntary reimbursement of fund expenses of 2.3% in
Class B Shares and 2.3% in Class A Shares in 1999.
++<F30> Not annualized.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCE SHEETS
OCTOBER 31, 1999
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
----------- ----------- ------------ ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Cost basis
of investments $47,194,474 $37,645,380 $138,652,987 $24,877,623 $10,190,917 $174,667,143 $7,220,223
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
Long-term investments
in securities $42,420,344 $36,657,888 $249,107,332 $43,561,473 $ 9,657,692 $226,166,825 $7,498,642
Short-term investments 133,000 12,000 1,587,000 2,661,000 744,000 2,855,000 236,000
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total investments
(See Schedule of
Investments) 42,553,344 36,669,888 250,694,332 46,222,473 10,401,692 229,021,825 7,734,642
Cash 906 362 196 238 211 109 975
Receivables:
Capital shares sold -- 12 857,963 4,629 28,991 2,244,469 4,442
Dividends and interest 720,395 871,397 206,132 35,970 6,199 13,889 1,001
Investments sold -- -- 901,038 413,746 91,141 -- --
Due from affiliates -- -- 2,000 -- -- -- --
Margin variation -- -- 39,150 -- -- 168,000 --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total receivables 720,395 871,409 2,006,283 454,345 126,331 2,426,358 5,443
Other assets 1,882 1,485 8,330 1,702 408 11,811 13
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total assets $43,276,527 $37,543,144 $252,709,141 $46,678,758 $10,528,642 $231,460,103 $7,741,073
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
LIABILITIES:
Payables:
Capital shares
redeemed $ 200,118 $ 27,596 $ 37,455 $ 11,851 $ 15,331 $ 52,614 $ --
Distributions to
shareholders 58,522 81,451 -- -- -- -- --
Management fees 21,655 18,522 76,445 27,427 6,465 60,425 4,221
Other accrued expenses 41,668 36,867 117,185 48,038 12,970 62,545 5,472
Investments purchased -- -- 960,352 382,077 40,703 1,999,237 116,515
Other liabilities 695 -- -- -- -- -- --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total liabilities 322,658 164,436 1,191,437 469,393 75,469 2,174,821 126,208
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET ASSETS:
Capital stock 48,518,243 41,462,462 136,422,580 18,134,189 10,862,914 157,444,867 7,363,219
Undistributed net
investment income (loss) 12,688 16,880 42,128 9,692 -- -- --
Undistributed net realized
gains (losses) on
investments (935,932) (3,125,142) 3,011,651 6,720,634 (620,516) 17,485,733 (262,773)
Net unrealized appreciation
(depreciation) on
investments (4,641,130) (975,492) 112,041,345 21,344,850 210,775 54,354,682 514,419
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total net assets 42,953,869 37,378,708 251,517,704 46,209,365 10,453,173 229,285,282 7,614,865
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total liabilities and
net assets $43,276,527 $37,543,144 $252,709,141 $46,678,758 $10,528,642 $231,460,103 $7,741,073
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET ASSET VALUE AND
REDEMPTION PRICE
PER SHARE $ 8.23 $ 8.92
----------- -----------
----------- -----------
MAXIMUM OFFERING
PRICE PER SHARE $ 8.53 $ 9.24
----------- -----------
----------- -----------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
PER SHARE
Class A:
Net asset value $214,357,645 $45,070,879 $ 9,219,620 $169,247,277 $5,913,492
Shares outstanding 5,166,251 1,486,317 863,450 6,238,435 588,424
Redemption price per share $ 41.49 $ 30.32 $ 10.68 $ 27.13 $ 10.05
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
Maximum offering price per share $ 43.79 $ 32.00 $ 11.27 $ 28.63 $ 10.61
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
Class B:
Net asset value $ 37,160,059 $ 1,138,486 $ 1,233,553 $ 60,038,005 $1,701,373
Shares outstanding 898,673 37,793 116,369 2,232,063 169,934
Offering and redemption price per share $ 41.35 $ 30.12 $ 10.60 $ 26.90 $ 10.01
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH*<F31>
----------- ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ -- $ -- $ 1,926,897 $ 456,989 $ 61,485 $ 235,901 $ 15,155
Interest 2,149,938 2,370,118 71,715 74,474 35,897 92,236 5,175
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total investment
income 2,149,938 2,370,118 1,998,612 531,463 97,382 328,137 20,330
----------- ----------- ------------ ----------- ----------- ------------ ----------
EXPENSES:
Investment advisory fees 249,494 193,345 691,480 283,524 68,688 433,025 32,184
Custodian fees 13,122 9,153 40,972 8,525 4,980 56,297 4,864
Transfer agent fees 34,879 34,855 92,249 29,552 15,845 91,791 3,648
Broker service fees 108,676 83,736 525,639 100,086 28,248 411,426 14,205
Distribution Fees - Class B -- -- 41,883 1,365 2,313 58,986 1,762
Professional fees 34,518 26,781 80,931 46,870 25,427 59,135 31,216
Registration 13,381 10,090 38,613 18,997 20,501 39,793 32,880
Communication 17,287 9,858 43,349 10,236 5,954 32,258 10,740
Director fees 4,162 3,041 14,675 4,408 2,329 9,467 1,520
Pricing of investments 4,629 2,342 6,965 4,272 4,398 5,430 3,952
Deferred organization
expense -- -- -- -- 1,751 2,815 --
Other expense 9,091 1,498 8,152 3,277 1,800 5,504 1,532
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total expenses 489,239 374,699 1,584,908 511,112 182,234 1,205,927 138,503
Less expenses absorbed
by advisor -- -- (10,732) (3,994) (52,577) (184,234) (106,790)
----------- ----------- ------------ ----------- ----------- ------------ ----------
Net expenses 489,239 374,699 1,574,176 507,118 129,657 1,021,693 31,713
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET INVESTMENT
INCOME (LOSS) 1,660,699 1,995,419 424,436 24,345 (32,275) (693,556) (11,383)
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET REALIZED GAINS (LOSSES)
ON INVESTMENTS (936,361) (999,954) 3,363,466 6,720,588 (186,769) 18,387,897 (262,773)
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS (4,675,154) (1,722,840) 31,625,617 (3,033,691) (456,173) 35,036,837 514,419
----------- ----------- ------------ ----------- ----------- ------------ ----------
Net gains (losses)
on investments (5,611,515) (2,722,794) 34,989,083 3,686,897 (642,942) 53,424,734 251,646
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $(3,950,816) $ (727,375) $ 35,413,519 $ 3,711,242 $ (675,217) $ 52,731,178 $ 240,263
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
</TABLE>
*<F31> The Managed Growth Portfolio is from January 1, 1999, the commencement
of its operations, through October 31, 1999.
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH*<F32>
----------- ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income (loss) $ 1,660,699 $ 1,995,419 $ 424,436 $ 24,345 $ (32,275) $ (693,556) $ (11,383)
Net realized gains (losses)
on investments (936,361) (999,954) 3,363,466 6,720,588 (186,769) 18,387,897 (262,773)
Change in unrealized
appreciation (depreciation)
on investments
for the year (4,675,154) (1,722,840) 31,625,617 (3,033,691) (456,173) 35,036,837 514,419
----------- ----------- ------------ ----------- ----------- ------------ ----------
Net increase (decrease)
in net assets resulting
from operations (3,950,816) (727,375) 35,413,519 3,711,242 (675,217) 52,731,178 240,263
----------- ----------- ------------ ----------- ----------- ------------ ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (1,655,072) (1,980,343) (388,855) (15,045) -- -- --
Net realized gains
on investments (4,647) -- -- -- -- -- --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total distributions (1,659,719) (1,980,343) (388,855) (15,045) -- -- --
----------- ----------- ------------ ----------- ----------- ------------ ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from
shares issued 734,230 2,679,791 63,805,712 3,200,433 2,667,230 118,207,229 7,517,403
Net asset value of shares
issued in distributions 1,058,496 1,249,962 355,785 14,155 -- 931 --
Cost of shares redeemed (8,142,535) (3,931,011) (13,981,568) (5,258,236) (3,070,703) (14,377,969) (142,801)
----------- ----------- ------------ ----------- ----------- ------------ ----------
Net increase (decrease)
in net assets from
capital share
transactions (6,349,809) (1,258) 50,179,929 (2,043,648) (403,473) 103,830,191 7,374,602
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total increase
(decrease) (11,960,344) (2,708,976) 85,204,593 1,652,549 (1,078,690) 156,561,369 7,614,865
NET ASSETS:
Balance at beginning
of period 54,914,213 40,087,684 166,313,111 44,556,816 11,531,863 72,723,913 --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Balance at end of period $42,953,869 $37,378,708 $251,517,704 $46,209,365 $10,453,173 $229,285,282 $7,614,865
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
</TABLE>
*<F32> The Managed Growth Portfolio is from January 1, 1999, the commencement
of its operations, through October 31, 1999.
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 2,288,238 $ 2,340,336 $ 828,385 $ 98,997 $ (8,542) $ (14,391)
Net realized gains (losses)
on investments 1,767,224 514,545 2,791,207 3,014,952 (434,802) 2,256,382
Change in unrealized
appreciation (depreciation)
on investments for
the year (1,583,100) 622,997 33,392,322 4,410,903 (251,854) 19,319,500
----------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease)
in net assets resulting
from operations 2,472,362 3,477,877 37,011,914 7,524,852 (695,198) 21,561,491
----------- ----------- ------------ ----------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (2,290,497) (2,345,276) (827,779) (99,223) -- (29,881)
Distributions in excess of
Net realized gains on
investments -- -- (281,681) -- -- (89,874)
Net realized gains on
investments (1,766,795) -- (2,791,208) (3,014,906) -- (2,256,382)
----------- ----------- ------------ ----------- ----------- ------------
Total distributions (4,057,292) (2,345,276) (3,900,668) (3,114,129) -- (2,376,137)
----------- ----------- ------------ ----------- ----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,817,590 1,780,198 35,767,268 3,386,784 6,252,009 31,213,981
Net asset value of shares
issued in distributions 2,719,842 1,499,635 3,606,285 2,836,202 1,490 2,051,744
Cost of shares redeemed (8,289,995) (5,007,964) (11,909,578) (5,641,880) (2,523,817) (6,871,469)
----------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease)
in net assets from
capital share
transactions (3,752,563) (1,728,131) 27,463,975 581,106 3,729,682 26,394,256
----------- ----------- ------------ ----------- ----------- ------------
Total increase
(decrease) (5,337,493) (595,529) 60,575,221 4,991,829 3,034,484 45,579,610
NET ASSETS:
Balance at beginning
of period 60,251,706 40,683,213 105,737,890 39,564,987 8,497,379 27,144,303
----------- ----------- ------------ ----------- ----------- ------------
Balance at end of period $54,914,213 $40,087,684 $166,313,111 $44,556,816 $11,531,863 $72,723,913
----------- ----------- ------------ ----------- ----------- ------------
----------- ----------- ------------ ----------- ----------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES _
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment
company, is a series company with nine portfolios: Tax-Exempt Portfolio,
Government Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio,
Select Value Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt
Portfolio, Cash Reserve Portfolio and the Managed Growth Portfolio. The
Managed Growth Portfolio commenced operations on January 1, 1999. This
report contains the information of all portfolios, except for the Cash
Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio which information
is contained 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.
In 1999 the Board of Directors elected to change the fiscal year end of all
of the Portfolios except for the Cash Reserve and Wisconsin Tax-Exempt
Portfolios to October 31. The S&P 100 Plus Portfolio, Dividend Achievers
Portfolio, Select Value Portfolio, PSE Tech 100 Index Portfolio and Managed
Growth Portfolio each offer two classes of shares - Class A Shares and
Class B Shares. Both classes represent interests in the same portfolio of
investments of each Portfolio and are substantially the same in all
respects except that the classes are subject to different sales load
structures and 12b-1 fees.
The following is a summary of the significant accounting policies of the
Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value
using quotations by an independent pricing service (the "Service").
When in the judgment of the Service, quoted bid prices for securities
are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid
prices (as obtained by the Service from dealers in such securities)
and ask prices (as calculated by the Service based upon its evaluation
of the market for such securities). Securities for which, in the
judgment of the Service, there are no readily obtainable market
quotations (which may constitute a majority of the Tax-Exempt
portfolio's securities) are carried at fair value as determined by the
Service, based on methods which include consideration of yields or
prices of municipal securities of comparable quality, coupon,
maturity, type, indications as to values from dealers, and general
market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price
reported by the New York Stock Exchange, other appropriate exchanges,
or NASDAQ, on the date of valuation. Common and preferred stocks not
traded on that date are valued at the last bid price.
Short-term investments are valued at amortized cost, which
approximates market value.
Through the year, investment transactions are recorded on the next
date after trade date. However, the fiscal year-end financial
statements are adjusted to reflect trade date, which adjustment does
not materially impact the Fund's financial results.
Premiums on long-term tax-exempt securities are amortized to the
shorter of call date or maturity. The Fund does not amortize premiums
on taxable long-term securities. The fund amortizes all discounts on
taxable securities and on original issue discount tax-exempt
securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio and the PSE Tech 100
Index Portfolio may buy and sell put and call options, write covered
call options on portfolio securities, write cash-secured puts, and
write call options that are not covered for cross-hedging purposes.
The risk in writing a call option is that a Portfolio gives up the
opportunity for profit if the market price of the security increases.
The risk in writing a put option is that a Portfolio may incur a loss
if the market price of the security decreases and the option is
exercised. The risk in buying an option is that a Portfolio pays a
premium whether or not the option is exercised. A Portfolio also has
the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist. The S&P 100
Plus Portfolio also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing of
another party.
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A Portfolio will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option, or the cost of a security for
a purchased put or call option is adjusted by the amount of premium
received or paid.
(c) Futures Contracts
The S&P 100 Plus and PSE Tech 100 Index Portfolios may utilize futures
contracts to a limited extent. The primary risks associated with the
use of futures contracts include an imperfect correlation between the
change in market value of the securities held by the Portfolio and the
prices of futures contracts and the possibility of an illiquid market.
Futures contracts are based upon their quoted daily settlement prices.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities in an amount (initial margin) equal
to a certain percentage of the contract value. Subsequent payments
(variation margin) are made or received by the Portfolio each day. The
variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized appreciation
(depreciation) until the contracts are terminated at which time
realized gains and losses are recognized.
(d) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options)
are computed on the identified cost basis. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on an accrual
basis. Total net realized gains (losses) on investments for the period
ended October 31, 1999, were comprised of the following:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
----------- ----------- ------------ ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net realized gains (losses)
on investments $(936,361) $(999,954) $2,956,662 $6,720,588 $(186,769) $17,221,297 $(262,773)
Net realized gains
on options and futures -- -- 406,804 -- -- 1,166,600 --
--------- --------- ---------- ---------- --------- ----------- ---------
Total net realized gains
(losses) on investments $(936,361) $(999,954) $3,363,466 $6,720,588 $(186,769) $18,387,897 $(262,773)
--------- --------- ---------- ---------- --------- ----------- ---------
--------- --------- ---------- ---------- --------- ----------- ---------
</TABLE>
(e) Federal Income Taxes
Provision has not been made for Federal income taxes since each
portfolio has elected to be taxed as a "regulated investment company"
and intends to distribute substantially all income to its shareholders
and otherwise comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. As of October 31, 1999,
the Government Portfolio has capital loss carry forwards of
$1,963,517, $151,408 and $1,001,047 expiring in 2002, 2005 and 2007
respectively. As of October 31, 1999, the Tax-Exempt Portfolio has
capital loss carry forwards of $935,932 expiring in 2007. As of
October 31, 1999, the Select Value Portfolio has capital loss carry
forwards of $413,487 and $182,281 expiring in 2006 and 2007,
respectively. As of October 31, 1999, the Managed Growth Portfolio
has capital loss carry forwards of $262,773 expiring in 2007. It is
management's intention to make no distribution of any future realized
capital gains until the Federal income tax capital loss carry forwards
are exhausted.
Distributions in excess of net realized gains on investments in the
PSE Tech 100 Index Portfolio of $89,874 for the year ended December
31, 1998, are the result of losses on wash sales which are currently
recognized for book purposes but are deferred for tax purposes and the
reversal of Section 1256 mark to market losses utilized in 1998. This
distribution does not represent a tax return of capital.
Distributions in excess of net realized gains on investments in the
S&P 100 Plus Portfolio of $281,681 for the year ended December 31,
1998 are as a result of current year Section 1256 market to market
gains and the reversal of Section 1256 mark to market losses utilized
in 1998. This distribution does not represent a tax return of
capital.
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 October 31, 1999,
reclassifications were recorded to increase (decrease) undistributed
net investment income by $7,061, ($2,525), ($2,905), $32,275, $693,556
and $11,383 in the Tax-Exempt, Government, S&P 100 Plus, Select Value,
PSE Tech 100 and Managed Growth Portfolios; increase (decrease)
capital stock by $775, $6,969, ($12,312), ($32,275) $31,270 and
($11,383) in the Tax-Exempt, Government, S&P 100 Plus, Select Value,
PSE Tech 100 Index and Managed Growth Portfolios; increase (decrease)
undistributed net realized gains by ($7,836), ($4,444), $15,217,
($724,826) in the Tax-Exempt, Government, S&P 100 Plus and PSE Tech
100 Index Portfolios. There were no reclassifications in the Dividend
Achievers Portfolio.
The portfolios designate approximately the following long term capital
gains for purposes of the dividend paid deduction:
S&P 100 Plus Portfolio $2,300,000
Dividend Achievers Portfolio $6,721,000
PSE Tech 100 Portfolio $7,648,000
These gains were declared and distributed on November 19, 1999.
(f) Expenses
Fund expenses associated with a specific Portfolio are charged to that
Portfolio as they are incurred. Common expenses incurred by the Fund
are allocated, as incurred, between the portfolios based upon the
ratio of the net assets of each Portfolio to the combined net assets
of the Fund.
(g) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(h) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,627 for the Select Value Portfolio
and $16,900 for the PSETech 100 Index Portfolio have been paid by the
Fund and are being amortized over a five year period. All initial
start up costs for the Managed Growth Portfolio were borne by the
Advisor.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES _
On May 1, 1999, the separate investment advisory functions of B.C. Ziegler
and Company ("BCZ") and Ziegler Asset Management, Inc. ("ZAMI") were
consolidated in BCZ, and BCZ became investment advisor for all of the
portfolios covered in this report pursuant to an Investment Advisory
Agreement of that date. BCZ and ZAMI are wholly owned subsidiaries of The
Ziegler Companies, Inc. Certain officers and directors of the Fund are
affiliated with BCZ. Under the Agreement, the Tax-Exempt and Government
Portfolios pay BCZ a monthly fee based upon the average daily net assets of
each portfolio at the rate of .60% of the first $50,000,000 of each
portfolio's average daily net assets, reducing to .50% on the next
$200,000,000 of each portfolio's average daily net assets and .40% of each
portfolio's average daily net assets in excess of $250,000,000.
Pursuant to the Agreement, the S&P 100 Plus Portfolio pays BCZ a monthly
fee based upon the S&P 100 Plus average daily net assets at the rate of
0.575% of the first $20,000,000, .45% of the next $30,000,000, .40% of the
next $50,000,000, .35% of the next $400,000,000 and .30% of assets over
$500,000,000.
Pursuant to the Agreement, the Dividend Achievers Portfolio pays BCZ a
monthly fee based upon the Dividend Achievers average daily net assets at
the rate of .75% of the first $250,000,000 of average daily net assets,
reducing to .70% on the next $250,000,000 and .65% on the average daily net
assets of over $500,000,000.
Under its Agreement, the PSETech 100 Index Portfolio pays BCZ a monthly fee
based upon the PSE Tech 100 average daily net assets at the rate of .50% of
the first $50,000,000 of average daily net assets, .30% of the next
$200,000,000 of average daily net assets, .25% of the next $250,000,000 of
average daily net assets and .20% of average daily net assets in excess of
$500,000,000.
Pursuant to the Agreement, BCZ has retained Skyline Asset Management, Inc.
("Skyline") to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays BCZ a monthly fee based on the average daily
net assets of the Portfolio at the rate of .75% of the first $250,000,000
of the Portfolio's average daily net assets, and .65% on average daily net
assets exceeding $250,000,000. BCZ pays Skyline 50% of the fee paid by the
Select Value Portfolio.
Pursuant to the Agreement, BCZ has retained Geneva Capital Management
("Geneva") to manage the Managed Growth Portfolio. Under the Agreement, the
Managed Growth Portfolio pays BCZ a monthly fee based on the average daily
net assets of the Portfolio at the rate of .75% of the first $250,000,000
of the Portfolio's average daily assets, and .65% on the average daily net
assets exceeding $250,000,000. BCZ pays Geneva 50% of the fee paid by the
Managed Growth Portfolio.
The Advisor voluntarily reimbursed the S&P 100 Plus Portfolio $10,732, the
Dividend Achievers Portfolio $3,994, the Select Value Portfolio $52,577,
the PSE Tech 100 Index Portfolio $184,234 and the Managed Growth Portfolio
$106,790 in 1999. The Advisor is not obligated to continue the voluntary
reimbursement in the future.
BCZ has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services. Until November 8, 1999, BCZ provided
transfer agent services to the portfolios pursuant to a Transfer and
Dividend Disbursing Agency Agreement with the Fund. In addition, each
Portfolio pays BCZ commissions on sales of Portfolio shares. The transfer
agent fees, commissions and accounting and pricing fees paid to BCZ for the
period ended October 31, 1999, were as follows for each Portfolio:
COMMISSIONS ACCOUNTING
TRANSFER ON PORTFOLIO AND PRICING 12B-1
AGENT FEES SHARES FEES FEES
---------- ------------ ----------- --------
Tax-Exempt Portfolio $ 29,081 $ 10,493 $ 21,166 $ 63,449
Government Portfolio 28,103 32,631 18,093 54,977
S&P100 Plus Portfolio 93,565 870,283 50,125 246,829
Dividend Achievers Portfolio 24,685 42,218 19,662 72,463
Select Value Portfolio 15,699 44,091 15,833 11,974
PSE Tech 100 Index Portfolio 92,693 1,098,728 37,084 83,583
Managed Growth Portfolio 3,131 97,275 14,250 2,905
-------- ---------- -------- --------
TOTAL $286,957 $2,195,719 $176,213 $536,180
-------- ---------- -------- --------
-------- ---------- -------- --------
During the period ended October 31 1999, an affiliate of BCZ received
$11,212, $10,789, $8,922 and $4,345 representing commissions from the
purchases and sales of investments of the S&P 100 Plus Portfolio, Dividend
Achievers Portfolio, PSE Tech 100 Portfolio and Managed Growth Portfolio,
respectively.
3. INVESTMENT TRANSACTIONS _
Purchases and proceeds from sales of securities, excluding short-term
investments, for the period ended October 31, 1999 aggregated:
PURCHASES PROCEEDS FROM SALES
--------- -------------------
Tax-Exempt Portfolio $19,427,705 $25,822,349
Government Portfolio 11,565,379 11,460,802
S&P 100 Plus Portfolio 73,084,242 20,892,141
Dividend Achievers Portfolio 11,732,259 14,596,575
Select Value Portfolio 9,383,369 9,992,588
PSE Tech 100 Index Portfolio 174,865,734 72,150,568
Managed Growth Portfolio 8,470,827 1,224,101
Net tax basis unrealized appreciation (depreciation) on investments as of
October 31, 1999, included:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
----------- ----------- ------------ ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized
appreciation $ -- $ -- $113,274,221 $21,790,296 $ 1,123,340 $ 65,177,487 $1,044,775
Gross unrealized
(depreciation) (4,641,130) (984,662) (1,237,881) (445,446) (938,357) (10,925,488) (537,066)
----------- ----------- ------------ ----------- ----------- ------------ ----------
Net unrealized
appreciation
(depreciation) $(4,641,130) $ (984,662) $112,041,340 $21,344,850 $ 184,983 $ 54,251,999 $ 507,709
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
Tax basis cost of
investments $47,194,474 $37,654,550 $138,652,992 $24,877,623 $10,216,709 $174,769,826 $7,226,933
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
</TABLE>
4. LINE OF CREDIT _
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year.
Borrowings under this arrangement bear interest approximating the then
current Prime Rate. All borrowings under this line of credit are guaranteed
by BCZ. Each Portfolio's policies allow borrowings for temporary or
emergency purposes.
5. CAPITAL SHARE TRANSACTIONS _
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Fund's shares are divided into nine separate
portfolios: Wisconsin Tax-Exempt Portfolio, Government Portfolio,
Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Dividend Achievers
Portfolio, Select Value Portfolio, PSE Tech 100 Index Portfolio,
Managed Growth Portfolio, and Cash Reserve Portfolio, consisting of
50,000,000 shares in each of the first eight portfolios and
400,000,000 in the Cash Reserve Portfolio. Each portfolio (other than
the Cash Reserve Portfolio) has designated Class A (front-end load)
shares. In addition, the S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolio also have
designated Class B (contingent deferred sales charge) shares. The
shares of the Cash Reserve Portfolio have been subdivided into
200,000,000 shares of Class X (Retail Shares) and 200,000,000 shares
of Class Y (Institutional Shares). The remaining 200,000,000
authorized shares of common stock of the Fund may be allocated to any
of the above portfolios or to new portfolios as determined by the
Board of Directors. The shares of each portfolio have equal rights and
privileges with all other shares of that portfolio.
(b) Capital share activity during the year ended December 31, 1998 and ten
months ended October 31, 1999, were as follows:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
----------- ----------- ------------ ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
--------------
SHARES OUTSTANDING
AT DECEMBER 31, 1997 6,330,386 4,382,997 3,910,233 1,574,239 704,173 2,190,175 --
Shares issued 190,850 187,980 955,644 111,801 448,577 1,719,208 --
Shares issued in
distributions 290,135 159,302 102,379 100,863 124 100,656 --
Shares redeemed (870,402) (534,125) (378,892) (203,074) (221,718) (423,487) --
--------- --------- --------- --------- ------- --------- -------
SHARES OUTSTANDING
At December 31, 1998 5,940,969 4,196,154 4,589,364 1,583,829 931,156 3,586,552 --
Shares issued 80,908 289,467 906,985 79,241 194,286 3,125,619 599,783
Shares issued in
distributions 119,300 136,833 9,222 473 -- 41 --
Shares redeemed (919,228) (430,122) (339,320) (177,226) (261,992) (473,777) (11,359)
--------- --------- --------- --------- ------- --------- -------
SHARES OUTSTANDING
At OCTOBER 31, 1999 5,221,949 4,192,332 5,166,251 1,486,317 863,450 6,238,435 588,424
--------- --------- --------- --------- ------- --------- -------
--------- --------- --------- --------- ------- --------- -------
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
PLUS ACHIEVERS VALUE INDEX GROWTH
------------ ----------- ----------- ------------ --------
CLASS B SHARES
--------------
SHARES OUTSTANDING
AT July 27, 1998 (commencement of operations) -- -- -- -- --
Shares issued 174,934 11,323 90,380 387,176 --
Shares issued in distributions 3,157 822 -- 11,012 --
Shares redeemed (2,698) -- (558) (41,545) --
-------- ------ ------- --------- -------
SHARES OUTSTANDING
AT DECEMBER31, 1998 175,393 12,145 89,822 356,643 --
Shares issued 744,928 28,472 53,591 2,017,439 173,279
Shares issued in distributions -- -- -- 9 --
Shares redeemed (21,648) (2,824) (27,044) (142,028) (3,345)
-------- ------ ------- --------- -------
SHARES OUTSTANDING
AT OCTOBER 31, 1999 898,673 37,793 116,369 2,232,063 169,934
-------- ------ ------- --------- -------
-------- ------ ------- --------- -------
</TABLE>
* Amounts shown for the Class B Shares are from its
commencement of operations.
(c) For the S&P 100 Plus Portfolio, the Dividend Achievers Portfolio, the
Select Value Portfolio, the PSE Tech 100 Index Portfolio, and the
Managed Growth Portfolio, the maximum offering price per Class A Share
is computed based on a maximum sales charge of 5.25% of the offering
price or 5.54% of the net asset value. For the purpose of this
computation, the price per share is derived from multiplying the net
asset value and redemption price per share by 100 and then dividing
the product by 94.75.
For the Tax-Exempt and Government Portfolios, the maximum offering
price per share is computed based on a maximum sales charge of 3.5% of
the offering price or 3.62% of the net asset value. For these
portfolios the price per share is derived from multiplying the net
asset value and redemption price per share by 100 and then dividing
the product by 96.5.
6. FUTURES CONTRACTS WRITTEN _
An analysis of the futures contracts written for the ten months ended
October 31, 1999, in the S&P 100 Plus and PSE Tech 100 Index Portfolios,
respectively, were as follows:
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1998 7 $ 1,826,806
Contracts opened 23 7,692,722
Contracts closed (24) (7,455,480)
---- -----------
Outstanding at October 31, 1999 6 $ 2,064,048
---- -----------
---- -----------
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at December 31, 1998 40 $ 1,675,695
Contracts opened 170 9,758,359
Contracts closed (150) (7,427,075)
---- -----------
Outstanding at October 31, 1999 60 $ 4,006,979
---- -----------
---- -----------
The number of financial futures contracts and the gross unrealized
appreciation, as of October 31, 1999, for each Portfolio were as follows:
UNREALIZED
NUMBER OF CONTRACTS APPRECIATION
------------------- ------------------
S&P 100 PLUS PORTFOLIO:
S&P 500 Index Futures Contract
expiration date March 2000 6 $26,052
PSE Tech 100 Index Portfolio:
PSE Technology 100 Index Futures
Contract expiration
date December 1999 60 $ 1,021
7. DISTRIBUTIONS _
The amount of dividends paid during the ten months ended October 31, 1999
qualifying for the dividend received deduction available to corporate
shareholders were as follows:
S&P 100 Plus Portfolio 70%
Dividend Acheivers Portfolio 86%
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
PRINCIPAL S&P MOODY'S MARKET
AMOUNT DESCRIPTION RATING RATING VALUE
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 98.8%
ALABAMA -- 2.1%
$1,000,000 The Board of Trustees of Alabama Agricultural and Mechanical AAA Aaa $ 902,500
University Revenue bonds, Series 1998, 5.00%, due 11-01-2016
ARIZONA -- 1.8%
1,000,000 Scottsdale Preserve Authority Excise Tax Revenue Bonds, Series 1998, AAA Aaa 790,000
4.50%, due 07-01-2024
COLORADO -- 2.1%
1,000,000 City of Colorado Springs, Colorado, Revenue Bonds (The Colorado AA- Aa3 905,000
College Project) Series 1999, 5.25%, due 06-01-2024
DISTRICT OF COLUMBIA -- 2.6%
1,175,000 District of Columbia Water and Sewer Authority Public Utility Revenue AAA Aaa 1,108,906
Bonds, 5.50%, due 10-01-2028
GEORGIA -- 2.0%
1,000,000 The Atlanta Development Authority Revenue bonds, (Student AAA Aaa 835,000
Recreation Center Project at Georgia State University), Series 1998,
4.750%, due 10-01-2018
ILLINOIS -- 11.0%
1,000,000 Public Building Commission of Chicago Building Revenue Bonds, AAA Aaa 1,143,750
Series A of 1990, (Board of Education of the City of Chicago), 7.00%,
due 01-01-2020
1,000,000 State of Illinois Build Illinois Bonds (Sales Tax Revenue Bonds), Series AAA Aa2 1,055,000
P, 6.50%, due 06-15-2022
1,000,000 Community Unit School District #220 (Barrington) Lake, Cook, Kane AAA Aaa 1,037,500
and McHenry Counties, Illinois, General Obligation School Bonds,
Series 1998, 6.30%, due 12-01-2017
1,600,000 Metropolitan Pier and Exposition Authority (Illinois) McCormick Place AAA Aaa 1,500,000
Expansion Project Refunding Bonds, Series 1998A, 5.50%,
due 12-15-2023
INDIANA -- 8.0%
1,500,000 Indiana State Office Building Commission Capitol Complex Revenue AAA Aaa 1,756,875
Bonds, Series 1990A, (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,500,000 The Indianapolis Local Public Improvement Bond Bank, Series 1992D AA NR 1,663,125
Bonds, 6.750%, due 02-01-2014
LOUISIANA -- 2.2%
1,000,000 Public Improvement Sales Tax Bonds, Series ST-1999A, Parish of East AAA Aaa 942,500
Baton Rouge, State of Louisiana, 5.50%, due 02-01-2019
MAINE -- 2.0%
1,000,000 Maine Turnpike Authority Special Obligation Refunding Bonds, AAA Aaa 875,000
Series 1998, 5.00%, due 07-01-2018
MASSACHUSETTS -- 2.1%
1,000,000 City of Springfield, Massachusetts, General Obligation State Qualified AAA Aaa 890,000
Municipal Purpose Loan of 1998 Bonds, 5.00%, due 11-15-2018
MICHIGAN -- 10.9%
2,250,000 Dexter Community Schools, Counties of Washtenaw and Livingston, AAA Aaa 2,039,063
State of Michigan, 1998 School Building and Site Bonds, (Unlimited
Tax General Obligation), 5.10%, due 05-01-2018
1,000,000 Board of Control of Northern Michigan University, General Revenue AAA Aaa 888,750
Bonds, Series 1997, 5.125%, due 12-01-2020
1,000,000 Parchment School District County of Kalamazoo, State of Michigan, AAA Aaa 866,250
1998 School Building and Site Bonds, (General Obligation - Unlimited
Tax), 5.00%, due 05-01-2025
1,000,000 Standish-Sterling Community Schools, State of Michigan, 1998 School AAA Aaa 900,000
Building and Site Bonds, (General Obligation - Unlimited Tax), 5.10%,
due 05-01-2018
MINNESOTA -- 2.0%
1,000,000 Minnesota Public Facilities Authority Water Pollution Control Revenue AAA Aaa 850,000
Bonds, Series 1998A, 4.750%, due 03-01-2019
MISSISSIPPI -- 4.5%
1,000,000 Certificates of Participation (East Mississippi correctional Facility AAA Aaa 872,500
Project), Series 1997, Payments under Lease/Purchase Agreement,
5.0%, due 01-01-2018
1,130,000 Mississippi State University Educational Building Corporation Revenue NR Aaa 1,059,375
Bonds, Series 1998, 5.25%, due 08-01-2017
NEVADA -- 2.0%
1,000,000 Clark County, Nevada, General Obligation, (Limited Tax), Las Vegas AA- Aa3 870,000
Convention and Visitors Authority Refunding Bonds, Series 1998A,
5.00%, due 07-01-2024
NEW JERSEY -- 2.3%
1,000,000 New Jersey Economic Development Authority Transportation Project AAA Aaa 968,750
Sublease Revenue Bonds (New Jersey Transit Corporation Light Rail
Transit System Project), 1999 Series, 5.50%, due 05-01-2016
NEW MEXICO -- 2.1%
1,000,000 Bernalillo County, New Mexico, Gross Receipts Tax Refunding AA Aa3 905,000
Revenue Bonds, Series 1998, 5.25%, due 04-01-2027
NEW YORK -- 2.3%
1,000,000 County of Monroe, new York General Obligation Bonds Public AA Aa2 1,006,250
Improvement Refunding Bonds-1996, Series A, 6.00%, due 03-01-2019
OKLAHOMA -- 2.4%
1,000,000 Tulsa Industrial Authority Revenue and Refunding Bonds, (The AAA Aaa 1,033,750
University of Tulsa), Series 1996A, 6.00%, due 10-01-2016
PENNSYLVANIA -- 6.4%
1,000,000 Delaware Valley Regional Finance Authority, (Bucks, Chester, AAA Aaa 966,250
Delaware and Montgomery Counties, Pennsylvania), Local Government
Revenue Bonds, 1997 Series B, 5.70%, due 07-01-2027
1,000,000 Nazareth Area School District, Northampton County, Pennsylvania, AAA Aaa 880,000
General Obligation Bonds Improvement Series of 1998, 5.00%,
due 08-15-2017
1,000,000 Public Auditorium Authority of Pittsburgh and Allegheny County, AAA Aaa 882,500
(Allegheny County, Pennsylvania), Hotel Room Excise Tax Revenue
Bonds, Series of 1999, 5.00%, due 02-01-2017
SOUTH CAROLINA -- 2.1%
1,000,000 City of Spartanburg, South Carolina, Water System Refunding Revenue AAA Aaa 885,000
Bonds, Series 1997, 5.00%, due 06-01-2019
TENNESSEE -- 4.0%
1,000,000 Harpeth Valley Utilities District of Davidson and Williamson Counties, AAA Aaa 883,750
Tennessee, Utilities Improvement Revenue Bonds, Series 1998, 5.05%,
due 09-01-2020
1,000,000 Knox County, Tennessee General Obligation Public Improvement AA Aa2 850,000
Bonds, Series 1998, 4.75%, due 04-10-2018
TEXAS -- 6.4%
2,000,000 Austin Independent School District, (Travis County, Texas), Unlimited AAA Aaa 1,822,500
Tax Refunding Bonds, Series 1998, 5.00%, due 08-01-2016
1,000,000 Brownsville Independent School District (Cameron County, Texas), AAA Aaa 945,000
Unlimited Tax School Building Bonds, Series 1999, 5.50%,
due 08-15-2019
VIRGINIA -- 4.5%
2,000,000 Chesapeake Bay Bridge and Tunnel District, General Resolution AAA Aaa 1,910,000
Revenue Bonds, Refunding Series 1998, 5.50%, due 07-01-2025
WISCONSIN -- 8.8%
1,200,000 Southeast Wisconsin Professional Baseball Park District Sales Tax AAA Aaa 1,143,000
Revenue Refunding Bonds, Series 1998A, 5.50%, due 12-15-2020
1,000,000 School District of Waupun, Dodge and Fond du Lac Counties, NR Aaa 850,000
Wisconsin, General Obligation Refunding Bonds, 4.75%,
due 04-01-2018
1,000,000 Wisconsin State Transportation Revenue Refunding Bonds, Series B, AAA Aaa 835,000
4.75%, due 07-01-2019
1,000,000 State of Wisconsin, Clean Water Revenue Bonds, 1999 Series 1, 5.50%, AA+ Aa2 958,750
due 06-01-2018
WYOMING -- 2.2%
1,000,000 The Trustees of the University of Wyoming Facilities Improvement and AAA Aaa 943,750
Refunding Revenue Bonds, Series 1999, 5.50%, due 06-01-2019
-----------
Total Municipal Bonds (Cost $47,061,474) 42,420,344
SHORT-TERM TAX-EXEMPT SECURITIES -- 0.3%
MONEY MARKET
$ 133,000 Firstar Tax-Exempt Money Market Fund 133,000
-----------
Total Investments $42,553,344
-----------
-----------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 98.1%
U.S. GOVERNMENT OBLIGATIONS -- 80.0%
$ 300,000 U.S. Treasury Note 5.750% 11-30-2002 $ 298,687
5,875,000 U.S. Treasury Note 7.875% 11-15-2004 6,328,474
4,400,000 U.S. Treasury Bond 10.750% 08-15-2005 5,362,500
7,000,000 U.S. Treasury Note 6.250% 02-15-2007 7,035,000
3,000,000 U.S. Treasury Note 9.125% 05-15-2009 3,336,561
6,050,000 U.S. Treasury Bond 10.375% 11-15-2012 7,534,138
-----------
Total U.S. Government Obligations 29,895,360
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS -- 18.1%
338,541 Pool #407884 7.000% 09-15-2025 332,387
347,454 Pool #420853 7.000% 01-15-2026 341,138
514,777 Pool #422688 7.000% 05-15-2026 505,420
402,844 Pool #451586 7.000% 08-15-2027 395,521
1,756,249 Pool #456741 7.000% 03-15-2028 1,724,324
871,286 Pool #457779 7.000% 07-15-2028 855,447
1,728,032 Pool #G22617 7.500% 07-20-2028 1,728,915
895,658 Pool #433945 7.000% 08-15-2028 879,376
-----------
Total Agency Obligations 6,762,528
-----------
Total U.S. Government and Agency Obligations (Cost $37,633,380) 36,657,888
-----------
SHORT-TERM INVESTMENTS -- 0.0%
MONEY MARKET
$ 12,000 Firstar Government Trust 12,000
-----------
Total Short-Term Investments 12,000
-----------
Total Investments $36,669,888
-----------
-----------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
S&P 100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
COMMON STOCKS -- 99.0%
BASIC INDUSTRIES -- 2.8%
Alcoa Inc. 16,000 $ 972,000
Allegheny Teledyne Inc. 7,592 115,304
*<F34> Bethlehem Steel Corporation 5,600 38,850
Boise Cascade Corporation 1,566 55,789
Champion International 3,500 202,344
Dow Chemical Company 9,250 1,093,813
Homestake Mining Company 11,600 97,150
International Paper Company 17,600 926,200
International Flavors &
Fragrances Inc. 3,950 151,087
Weyerhaeuser Company 7,900 471,531
DuPont (E.I.) de Nemours
and Company 45,500 2,931,906
------------
7,055,974
------------
COMMUNICATION SERVICES -- 4.5%
AT&T Corp. 149,738 7,000,251
Bell Atlantic Corporation 68,582 4,453,544
------------
11,453,795
------------
CONSUMER CYCLICALS -- 9.4%
Black & Decker Corporation 3,000 129,000
Brunswick Corporation 3,600 81,450
Ford Motor Company 52,900 2,902,888
General Motors Corporation 28,200 1,981,050
*<F34> Harrah's Entertainment, Inc. 4,750 137,453
The Home Depot, Inc. 65,000 4,907,500
*<F34> Kmart Corporation 21,500 216,344
Limited (The), Inc. 8,539 351,166
May Department Stores Company 13,950 483,891
Sears, Roebuck and Co. 16,000 451,000
Tandy Corporation 8,400 528,675
*<F34> Toys "R" Us, Inc. 10,225 144,428
Wal-Mart Stores, Inc. 197,900 11,218,456
------------
23,533,301
------------
CONSUMER STAPLES -- 9.3%
Avon Products, Inc. 10,600 341,850
*<F34> CBS Corporation 30,500 1,488,781
Campbell Soup Company 18,600 837,000
Coca-Cola Company 96,300 5,681,700
Colgate-Palmolive Company 25,100 1,518,550
Walt Disney Company 78,000 2,057,250
Heinz (H.J.) Company 15,700 749,675
McDonald's Corporation 49,200 2,029,500
PepsiCo, Inc. 63,800 2,213,063
Procter & Gamble Company 58,900 6,177,138
Ralston Purina Group 13,500 424,406
------------
23,518,913
------------
CAPITAL GOODS -- 10.1%
The Boeing Company 41,712 1,921,359
Fluor Corporation 2,700 107,663
General Dynamics Corporation 8,000 443,500
General Electric Company 144,300 19,561,669
Minnesota Mining &
Manufacturing Company 17,400 1,654,087
Rockwell International Corporation 8,500 411,719
United Technologies Corporation 20,700 1,252,350
------------
25,352,347
------------
ENERGY -- 6.1%
+<F35> Atlantic Richfield Company 13,700 1,276,669
Baker Hughes Incorporated 14,860 415,151
Exxon Corporation 106,400 7,880,250
Halliburton Company 18,700 704,756
Mobil Corporation 34,400 3,319,600
Occidental Petroleum Corporation 15,100 344,469
Schlumberger Limited 23,200 1,405,050
------------
15,345,945
------------
FINANCIAL -- 13.7%
American International Group, Inc. 67,495 6,947,766
American Express Company 19,100 2,941,400
American General Corporation 10,500 778,969
Bank One Corporation 51,044 1,917,340
Bank of America Corporation 90,290 5,812,419
CIGNA Corporation 8,100 605,475
Citigroup Inc. 153,625 8,314,953
Hartford Financial Services Group 9,500 492,219
Merrill Lynch & Co., Inc. 16,500 1,295,250
U.S. Bancorp 31,500 1,167,469
Wells Fargo Company 89,500 4,284,812
------------
34,558,072
------------
HEALTH CARE -- 9.5%
Baxter International Inc. 12,700 823,913
Bristol-Myers Squibb Company 87,140 6,693,441
Columbia/HCA Healthcare
Corporation 24,400 588,650
Johnson & Johnson 59,300 6,211,675
Mallinckrodt, Inc. 2,400 81,450
Merck & Co., Inc. 103,800 8,258,587
Pharmacia & Upjohn, Inc. 22,260 1,200,649
------------
23,858,365
------------
TECHNOLOGY -- 31.7%
*<F34> Ceridian Corporation 5,900 129,431
*<F34> Cisco Systems, Inc. 157,450 11,651,300
Computer Sciences Corporation 6,300 432,731
Eastman Kodak Company 13,100 903,081
Harris Corporation 2,500 56,094
Hewlett-Packard Company 45,000 3,332,812
Honeywell Inc. 5,100 537,731
International Business Machines
Corporation 80,200 7,889,675
Intel Corporation 146,100 11,313,619
Lucent Technologies, Inc. 135,000 8,673,750
*<F34> Microsoft Corporation 228,600 21,159,787
Monsanto Company 27,300 1,051,050
*<F34> National Semiconductor Corporation 6,500 194,594
Nortel Networks Corp. 72,400 4,484,275
*<F34> Oracle Corporation 63,287 3,010,088
Polaroid Corporation 1,500 33,469
Raytheon Company, Class B Shares 14,700 428,137
Tektronix, Inc. 1,600 54,000
Texas Instruments Inc. 36,200 3,248,950
*<F34> Unisys Corporation 13,300 322,525
Xerox Corporation 28,782 805,896
------------
79,712,995
------------
TRANSPORTATION -- 0.8%
Burlington Northern
Santa Fe Corporation 20,200 643,875
Delta Air Lines, Inc. 6,100 332,069
*<F34> FDX Corporation 12,900 555,506
Norfolk Southern Corporation 15,900 388,556
------------
1,920,006
------------
UTILITIES -- 1.1%
American Electric Power
Company, Inc. 7,900 272,550
Coastal Corporation 8,700 366,488
Entergy Corporation 10,400 311,350
Southern Company 29,600 786,250
Unicom Corporation 8,900 340,981
Williams Companies, Inc. 19,200 720,000
------------
2,797,619
------------
Total Common Stocks
(Cost $137,092,039) 249,107,332
------------
SHORT-TERM INVESTMENTS -- 0.6%
MONEY MARKET
Firstar Institutional Money
Market Fund 1,587,000 1,587,000
------------
Total Short-Term Investments 1,587,000
------------
Total Investments $250,694,332
------------
------------
FUTURES CONTRACTS -- 0.8%
FUTURES
*<F34> S&P 500 Index Futures expiring
March, 2000 6 2,090,100
------------
Total Futures Contracts
(cost $2,064,048) $ 2,090,100
------------
------------
*<F34> Non-income producing
+<F35> Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
COMMON STOCKS -- 94.3%
COMMUNICATIONS SERVICES -- 7.1%
AT&T Corp. 23,000 $ 1,075,250
SBC Communications, Inc. 21,600 1,100,250
Sprint Corporation 15,000 1,114,688
-----------
3,290,188
-----------
CONSUMER CYCLICALS -- 7.5%
Dayton Hudson Corporation 10,000 646,250
The Home Depot, Inc. 8,000 604,000
Intimate Brands, Inc. 15,000 615,000
McGraw-Hill Companies, Inc. 17,000 1,013,625
Wal-Mart Stores, Inc. 10,000 566,875
-----------
3,445,750
-----------
CONSUMER STAPLES -- 9.4%
Kimberly-Clark Corporation 21,600 1,363,500
McDonald's Corporation 23,200 957,000
PepsiCo, Inc. 25,000 867,188
Procter & Gamble Company 5,000 524,375
Walgreen Co. 25,000 629,687
-----------
4,341,750
-----------
CAPITAL GOODS -- 14.6%
Avery-Dennison Corporation 28,400 1,775,000
General Electric Company 16,000 2,169,000
Illinois Tool Works, Inc. 20,000 1,465,000
Johnson Controls, Inc. 9,000 546,750
Tyco International Ltd. 20,000 798,750
-----------
6,754,500
-----------
ENERGY -- 6.1%
Mobil Corporation 14,400 1,389,600
Royal Dutch Petroleum Company 24,000 1,438,500
-----------
2,828,100
-----------
FINANCIAL -- 14.6%
American International Group, Inc. 10,000 1,029,375
Bank of America Corporation 22,632 1,456,935
Citigroup Inc. 7,000 378,875
Federal Home Loan Mortgage
Corporation 16,000 865,000
Federal National Mortgage
Association 19,000 1,344,250
Washington Mutual, Inc. 20,000 718,750
Wells Fargo Company 20,000 957,500
-----------
6,750,685
-----------
HEALTH CARE -- 11.6%
Johnson & Johnson 21,600 2,262,600
Merck & Co., Inc. 24,000 1,909,500
Pfizer,Inc. 30,000 1,185,000
-----------
5,357,100
-----------
TECHNOLOGY -- 20.1%
Automatic Data Processing, Inc. 15,600 751,725
Hewlett-Packard Company 20,000 1,481,250
International Business Machines
Corporation 5,000 491,875
Intel Corporation 16,000 1,239,000
Linear Technology Corporation 12,000 839,250
Nokia Corp - ADR 10,000 1,155,625
Nortel Networks Corp. 32,000 1,982,000
Texas Instruments Inc. 14,800 1,328,300
-----------
9,269,025
-----------
UTILITIES -- 3.3%
Enron Corp. 10,000 399,375
Williams Companies, Inc. 30,000 1,125,000
-----------
1,524,375
-----------
Total Common Stocks
(Cost $22,216,623) 43,561,473
-----------
SHORT-TERM INVESTMENTS -- 5.7%
DEMAND NOTE -- 2.8%
General Mills Variable Demand Note $800,000 800,000
Pitney Bowes Capital Corporation,
Variable Demand Note 500,000 500,000
-----------
1,300,000
-----------
MONEY MARKET -- 2.9%
Firstar Institutional Money
Market Fund 1,361,000 1,361,000
-----------
Total Short-Term Investments 2,661,000
-----------
Total Investments $46,222,473
-----------
-----------
*<F36> Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS -- 92.4%
AUTOS & TRANSPORTATION -- 4.1%
*<F37> Covenant Transport, Inc., Class A 19,400 $ 298,275
*<F37> Dura Automotive Systems, Inc. 6,800 127,500
----------
425,775
----------
CONSUMERS DISCRETIONARY -- 20.5%
*<F37> Gadzooks, Inc. 19,100 152,800
*<F37> Gildan Activeware, Inc. Class A
Subordinate Voting Shares 14,300 272,594
*<F37> Heidrick & Struggles
International, Inc. 15,300 351,900
Regis Corporation 11,700 217,181
*<F37> RemedyTemp, Inc. 15,900 170,925
*<F37> Safety-Kleen Corporation 19,075 218,170
*<F37> ShopKo Stores, Inc. 5,500 137,844
*<F37> United Stationers 12,200 311,100
Warnaco Group, Inc. 7,500 106,875
*<F37> Whitehall Jewellers, Inc. 7,900 205,894
----------
2,145,283
----------
CONSUMER STAPLES -- 4.9%
*<F37> Del Monte Foods Company 18,900 263,419
*<F37> International Home Foods, Inc. 13,200 252,450
----------
515,869
----------
ENERGY -- 4.6%
*<F37> Newfield Exploration Company 6,200 182,513
*<F37> Santa Fe Snyder Corporation 17,100 147,487
Tidewater, Inc. 5,100 153,000
----------
483,000
----------
FINANCIAL -- 17.4%
American Capital Strategies, Ltd. 9,500 198,906
CNASurety Corporation 8,000 92,000
*<F37> Gabelli Asset Management, Inc. 15,100 225,556
Heller Financial, Inc. 12,000 285,000
Peoples Heritage Financial Group, Inc. 9,500 180,500
Prentiss Properties Trust 10,400 222,950
Radian Group Inc. 4,700 248,219
Raymond James Financial, Inc. 7,800 157,950
StanCorp Financial Group, Inc. 8,000 203,000
----------
1,814,081
----------
HEALTH CARE -- 9.4%
*<F37> AmeriSource Health Corporation 6,500 97,500
Arrow International, Inc. 7,100 192,587
Cooper Companies, Inc. 7,300 182,500
DENTSPLY International, Inc. 7,500 173,906
*<F37> Henry Schein, Inc. 8,300 107,900
*<F37> US Oncology, Inc. 9,100 40,665
*<F37> Wesley Jessen VisionCare, Inc. 7,100 190,813
----------
985,871
----------
MATERIALS & PROCESSING -- 1.0%
*<F37> Ivex Packaging Corporation 10,600 100,038
----------
100,038
----------
PRODUCER DURABLES -- 8.5%
Applied Power, Inc. Class A 8,600 249,937
Belden Inc. 12,500 229,688
Pentair Inc. 5,800 218,225
Snap-on Incorporated 6,400 194,400
----------
892,250
----------
TECHNOLOGY -- 22.0%
*<F37> Artesyn Technologies, Inc. 11,500 227,125
*<F37> Black Box Corporation 2,100 106,575
C&D Technologies, Inc. 5,400 173,475
*<F37> CACI International, Inc. 10,100 216,519
*<F37> DII Group, Inc. 4,500 162,000
*<F37> FLIR Systems, Inc. 16,100 228,419
National Data Corporation 6,400 153,600
Primex Technologies, Inc. 8,300 190,900
*<F37> SCI Systems, Inc. 3,600 177,750
*<F37> ScanSource, Inc. 7,900 267,612
*<F37> Symantec Corporation 8,200 391,550
-----------
2,295,525
-----------
Total Common Stocks
(cost $9,446,917) 9,657,692
-----------
SHORT-TERM INVESTMENTS -- 7.1%
DEMAND NOTE -- 4.8%
General Mills Variable
Demand Note $200,000 200,000
Warner Lambert Daily Demand 300,000 300,000
-----------
500,000
-----------
MONEY MARKET -- 2.3%
Firstar Institutional Money
Market Fund 244,000 244,000
-----------
244,000
-----------
Total Short-Term Investments 744,000
-----------
Total Investments $10,401,692
-----------
-----------
*<F37> Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PSE TECH 100 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
COMMON STOCKS -- 98.6%
BIOTECHNOLOGY --8.2%
*<F38> Amgen, Inc. 43,600 $ 3,477,100
*<F38> Biogen, Inc. 43,600 3,231,850
*<F38> Chiron Corporation 43,600 1,245,325
*<F38> Genentech, Inc. 43,600 6,354,700
*<F38> Immunex Corporation 43,600 2,746,800
Monsanto Company 43,600 1,678,600
------------
18,734,375
------------
CAD/CAM -- 2.0%
Autodesk, Inc. 43,600 817,500
*<F38> Evans &Sutherland Computer
Corporation 43,600 520,475
*<F38> Intergraph Corporation 43,600 168,950
*<F38> Mentor Graphics Corporation 43,600 351,525
*<F38> Synopsys, Inc. 43,600 2,716,825
------------
4,575,275
------------
DATA COMMUNICATIONS -- 14.3%
*<F38> 3Com Corporation 43,600 1,264,400
*<F38> Adaptec, Inc. 43,600 1,962,000
*<F38> ADC Telecommunications, Inc. 43,600 2,079,175
*<F38> Cabletron Systems, Inc. 43,600 722,125
*<F38> Cisco Systems, Inc. 43,600 3,226,400
Lucent Technologies 43,600 2,801,300
*<F38> Newbridge Networks Corporation 43,600 861,100
Nortel Networks Corporation 43,600 2,700,475
*<F38> QUALCOMM Inc. 43,600 9,711,900
Scientific - Atlanta, Inc. 43,600 2,496,100
*<F38> Standard Microsystems Corporation 43,600 395,125
Symbol Technologies, Inc. 43,600 1,733,100
*<F38> Tellabs, Inc. 43,600 2,757,700
------------
32,710,900
------------
DATA STORAGE AND PROCESSING -- 1.1%
*<F38> Quantum Corporation - DLT &
Storage Systems 43,600 673,075
*<F38> Seagate Technology, Inc. 43,600 1,283,475
*<F38> Storage Technology Corporation 43,600 686,700
------------
2,643,250
------------
ELECTRONIC EQUIPMENT -- 5.4%
Linear Technologies 43,600 3,049,275
*<F38> Maxim Integrated Products, Inc. 43,600 3,441,675
Sensormatic Electronics Corporation 43,600 659,450
*<F38> Solectron Corporation 43,600 3,280,900
*<F38> Vitesse Semiconductors 43,600 2,000,150
------------
12,431,450
------------
INFORMATION PROCESSING -- 12.5%
America Online, Inc. 43,600 5,654,375
Automatic Data Processing, Inc. 43,600 2,100,975
*<F38> Ceridian Corporation 43,600 956,475
Computer Sciences Corporation 43,600 2,994,775
Comsat Corporation 43,600 814,775
*<F38> DST System, Inc. 43,600 2,776,775
Electronic Data Systems 43,600 2,550,600
First Data Corporation 43,600 1,991,975
*<F38> SunGard Data Systems, Inc. 43,600 1,065,475
*<F38> Yahoo!, Inc. 43,600 7,807,125
------------
28,713,325
------------
LARGE DIVERSIFIED COMPUTER
MANUFACTURING -- 3.0%
+<F39> International Business
Machines Corporation 43,600 4,289,150
*<F38> NCR Corporation 43,600 1,444,250
*<F38> Unisys Corporation 43,600 1,057,300
------------
6,790,700
------------
MEDICAL TECHNOLOGY -- 7.3%
*<F38> Acuson Corporation 43,600 452,350
Biomet, Inc. 43,600 1,313,450
*<F38> Boston Scientific Corporation 43,600 877,450
*<F38> Coherent, Inc. 43,600 896,525
*<F38> Genzyme Corporation 43,600 1,667,700
*<F38> JDS Uniphase Corporation 43,600 7,275,750
Medtronic, Inc. 43,600 1,509,650
Shared Medical Systems Corporation 43,600 1,645,900
*<F38> St. Jude Medical, Inc. 43,600 1,193,550
------------
16,832,325
------------
MICRO COMPUTER MANUFACTURERS -- 6.1%
*<F38> Apple Computer, Inc. 43,600 3,493,450
Compaq Computer Corporation 43,600 828,400
*<F38> Dell Computer Corporation 43,600 1,749,450
*<F38> Gateway, Inc. 43,600 2,880,325
*<F38> Micron Electronics, Inc. 43,600 446,900
*<F38> Sun Microsystems, Inc. 43,600 4,613,425
------------
14,011,950
------------
MINI AND MAINFRAME COMPUTER
MANUFACTURERS -- 2.9%
*<F38> EMC Corporation 43,600 3,182,800
Hewlett-Packard Company 43,600 3,229,125
*<F38> Silicon Graphics, Inc. 43,600 337,900
------------
6,749,825
------------
OFFICE AUTOMATION EQUIPMENT -- 1.0%
Harris Corporation 43,600 978,275
Xerox Corporation 43,600 1,220,800
------------
2,199,075
------------
SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS -- 7.9%
*<F38> Analog Devices, Inc. 43,600 2,316,250
*<F38> Applied Materials, Inc. 43,600 3,915,825
*<F38> KLA-Tencor Corporation 43,600 3,452,575
*<F38> Kulicke &Soffa Industries, Inc. 43,600 1,283,475
*<F38> Lam Research Corporation 43,600 3,681,475
*<F38> Novellus Systems, Inc. 43,600 3,379,000
------------
18,028,600
------------
SEMICONDUCTOR MANUFACTURERS -- 9.3%
*<F38> Advanced Micro Devices, Inc. 43,600 863,825
*<F38> Cypress Semiconductor Corporation 43,600 1,114,525
Intel Corporation 43,600 3,376,275
*<F38> Micron Technology, Inc. 43,600 3,109,225
Motorola, Inc. 43,600 4,248,275
*<F38> National Semiconductor Corporation 43,600 1,305,275
Texas Instruments Inc. 43,600 3,913,100
*<F38> Xilinx, Inc. 43,600 3,428,050
------------
21,358,550
------------
SOFTWARE PRODUCTS -- 12.2%
Adobe Systems, Inc. 43,600 3,049,275
*<F38> BMC Software, Inc. 43,600 2,798,575
*<F38> Cadence Design Systems, Inc. 43,600 662,175
Computer Associates
International, Inc. 43,600 2,463,400
*<F38> Compuware Corp. 43,600 1,212,625
*<F38> Informix Corporation 43,600 332,450
*<F38> Microsoft Corporation 43,600 4,035,725
*<F38> Network Associates 43,600 798,425
*<F38> Novell, Inc. 43,600 874,725
*<F38> Oracle Corporation 43,600 2,073,725
*<F38> PeopleSoft, Inc. 43,600 654,000
SAP AG 43,600 1,594,125
*<F38> Siebel Systems, Inc. 43,600 4,787,825
*<F38> Sybase, Inc. 43,600 588,600
*<F38> Symantec Corporation 43,600 2,081,900
------------
28,007,550
------------
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 5.4%
Honeywell Inc. 43,600 4,597,075
Millipore Corporation 43,600 1,389,750
PE Biosystems Group 43,600 2,828,550
Tektronix, Inc. 43,600 1,471,500
*<F38> Teradyne, Inc. 43,600 1,678,600
*<F38> Thermo Instrument Systems, Inc. 43,600 414,200
------------
12,379,675
------------
Total Common Stocks
(Cost $171,813,163) 226,166,825
------------
SHORT-TERM INVESTMENTS -- 1.2%
MONEY MARKET
Firstar Institutional Money
Market Fund 2,855,000 2,855,000
------------
Total Short-Term Investments 2,855,000
------------
Total Investments $229,021,825
------------
------------
FUTURES CONTRACTS -- 1.7%
FUTURES
PSE Technology 100 Index,
expiring December, 1999 60 4,008,000
------------
Total Futures Contracts
(Cost $4,006,979) $ 4,008,000
------------
------------
*<F38> Non-income producing
+<F39> Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
MANAGED GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
COMMON STOCKS -- 98.5%
BASIC INDUSTRIES --4.7%
Cintas Corporation 2,960 $ 178,340
*<F40> Dionex Corporation 2,660 118,204
Ingersoll-Rand Company 1,200 62,700
----------
359,244
----------
CONSUMER CYCLICALS -- 6.5%
Harley-Davidson, Inc. 3,675 217,973
The Home Depot, Inc. 3,640 274,820
----------
492,793
----------
CONSUMER STAPLES -- 2.0%
Walgreen Co. 6,100 153,644
----------
153,644
----------
CONSUMER NONDURABLES -- 1.8%
Valspar Corporation 4,450 134,334
----------
134,334
----------
CONSUMER SERVICE -- 25.5%
*<F40> Catalina Marketing Corporation 900 84,263
Central Parking Corporation 5,820 156,049
Ecolab Inc. 3,230 109,214
Fastenal Company 2,920 105,850
*<F40> Interim Services Inc. 6,115 100,515
*<F40> Kohl's Corporation 3,290 246,133
*<F40> O'Reilly Automotive, Inc. 5,150 224,669
Omnicom Group Inc. 2,710 238,480
Paychex, Inc. 4,975 195,891
*<F40> Scholastic Corporation 2,400 111,600
*<F40> Staples, Inc. 5,010 111,159
*<F40> Starbucks Corporation 3,240 88,087
Tribune Company 2,800 168,000
----------
1,939,910
----------
EDUCATION -- 2.3%
*<F40> DeVry, Inc. 8,250 173,766
----------
173,766
----------
FINANCIAL -- 8.5%
*<F40> Concord EFS, Inc. 8,460 228,949
Fifth Third Bancorp 2,780 205,199
Marshall & Ilsley Corporation 3,140 210,772
----------
644,920
----------
HEALTH CARE -- 4.9%
Cardinal Health, Inc. 2,950 127,219
*<F40> Patterson Dental Company 5,420 244,239
----------
371,458
----------
PRODUCER DURABLES -- 1.9%
Kaydon Corporation 2,585 64,140
Snap-on Incorporated 2,670 81,101
----------
145,241
----------
TECHNOLOGY -- 34.6%
*<F40> Acxiom Corporation 5,790 95,535
*<F40> Biogen, Inc. 2,215 164,187
*<F40> Cisco Systems, Inc. 3,315 245,310
*<F40> Citrix Systems, Inc. 3,400 218,025
*<F40> Comverse Technology, Inc. 3,120 354,120
*<F40> Electronic Arts Inc. 3,250 262,641
*<F40> Fiserv, Inc. 6,400 204,800
Intel Corporation 2,850 220,697
*<F40> Keane, Inc. 3,260 76,610
*<F40> Legato Systems, Inc. 5,414 291,002
*<F40> Microsoft Corporation 1,610 149,026
*<F40> SunGard Data Systems, Inc. 4,615 112,779
*<F40> Zebra Technologies Corporation 4,500 244,687
----------
2,639,419
----------
TRANSPORTATION -- 5.8%
Expeditors International
of Washington, Inc. 5,100 190,613
*<F40> Midwest Express Holdings, Inc. 3,200 93,800
Southwest Airlines Co. 9,487 159,500
----------
443,913
----------
Total Common Stocks
(Cost $6,984,223) 7,498,642
----------
SHORT-TERM INVESTMENTS -- 3.1%
MONEY MARKET
Firstar Institutional Money
Market Fund 236,000 236,000
----------
Total Short-Term Investments 236,000
----------
Total Investments $7,734,642
----------
----------
*<F40> Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Tax-Exempt, Government,
S&P 100 Plus, Dividend Achievers, Select Value,
PSE Tech 100 Index and Managed Growth Portfolios:
We have audited the accompanying balance sheets, including the schedules of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Tax-Exempt, Government, S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolios as of October 31, 1999,
and the related statements of operations for the ten month period then ended,
the statements of changes in net assets for the ten month period ended October
31, 1999 and the year ended December 31, 1998 and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
October 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 audits provide 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. Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Select Value, PSE Tech 100 Index and Managed Growth
Portfolios as of October 31, 1999, the results of their operations for the ten
month period then ended and the changes in their net assets for the ten month
period ended October 31, 1999 and the year ended December 31, 1998 and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 24, 1999.
NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained in this annual report for
Principal Preservation Portfolios, Inc., the matters discussed in this report
may constitute forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform act of 1995. These include any
advisor, sub-advisor and/or portfolio manager predictions, assessments, analyses
or outlooks for individual securities, industries, market sectors and/or
markets. These statements involve risks and uncertainties. In addition to the
general risks described for each Portfolio in the current Prospectus, other
factors bearing on these reports include the accuracy of the advisor's and any
sub-advisor's or portfolio manager's forecasts and predictions, and the
appropriateness of the investment programs designed by the advisor, any sub-
advisor or portfolio manager to implement their strategies efficiently and
effectively. Any one or more of these factors, as well as other risks affecting
the securities markets and investment instruments generally, could cause the
actual results of any Portfolio to differ materially as compared to benchmarks
associated with the particular Portfolio.
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 ADVISORS
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
Ziegler Asset Management, Inc.
(Sub-Advisor to S&P 100 Plus, Dividend Achievers and
PSE Tech 100 Index Portfolios)
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management, L.P.
(Sub-Advisor to Select Value Portfolio)
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Geneva Capital Management,Ltd.
(Sub-Advisor to Managed Growth Portfolio)
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
DISTRIBUTOR, 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
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard & Poor's 100," "S&P," "100" are trademarks of
Standard & Poor's Corporation and have been licensed for use by B.C. Ziegler and
Company.
PSE is the service mark of the Pacific Stock Exchange Incorporated and has been
licensed for use by B.C. Ziegler and Company.
This report was prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
PP 343-12/99
