UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4204
--------
PC&J Preservation Fund
------------------------
(Exact name of registrant as specified in charter)
120 West Third Street, Suite 300, Dayton, Ohio 45402-1819
-----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
PC&J Service Corp., 120 West Third Street, Suite 300, Dayton, OH
--------------------------------------------------------------------------
45402-1819
-----
(Name and address of agent for service)
Registrant's telephone number, including area code: 937-223-0600
------------
Date of fiscal year end: 12-31
-----
Date of reporting period: 12-31-2004
----------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
PC&J PRESERVATION FUND
- ------------------------
ANNUAL REVIEW
Unaudited
INTRODUCTION
The PC&J Preservation Fund is a registered investment company under the
Investment Company Act of 1940. The enclosed 2004 Annual Report is for your
information and is provided to you in compliance with ongoing Securities and
Exchange Commission regulations.
MANAGEMENT REVIEW AND ANALYSIS
Not to anyone's surprise, interest rates on the short end of the yield curve
rose significantly over the course of the year. The Federal Reserve raised the
overnight Federal Funds rate five times for a total increase of 1.25%. These
increases and more worked their way through the short end of the yield curve,
but didn't have much impact on bonds maturing in ten years or longer. The
continued strength in the economic recovery, confirmed by modest yet steady
employment gains, gave the Federal Reserve the confidence they needed to reduce
the monetary stimulus provided by the historically low rates.
AVERAGE ANNUAL TOTAL RETURNS
1 Yr. 5 Yrs 10 Yrs
Preservation Fund . . 2.72% 5.36% 5.84%
Lehman Govt/Credit. . 4.19% 8.00% 7.69%
Treasury Bills (3mth) 1.37% 2.63% 3.80%
Yields on the 1-year treasury went from just a little over 1% at the beginning
of the year to almost 3% at the end, with investors already building future rate
hikes into the current yield curve. If the economy continues to grow by
approximately 3.5%, we should expect the 1-year treasury yield to rise to 4.0%.
Longer-term yields might rise by half as much resulting in a more normal spread
between the 1-year and 10-year treasuries of 150 basis points instead of the 200
basis points spread at the end of 2003 and the 275 basis points spread at the
end of 2002.
All of this is a long way of saying the difference between rates on the
short-end and those on the long-end have been pretty significant, rewarding
longer-term bond holders, but looks to be declining over time. These holders
took more price risk because if interest rates on the long-end had risen to any
great degree, their bonds would have experienced some price erosion. The
objective of the Preservation Fund is to generate a steady stream of income with
a low amount of risk. Because we were not convinced that increases in short
rates wouldn't lead to increases in long rates, we managed the portfolio to
preserve its value. This meant holding shorter-term maturities and investing in
securities that provide some price protection like government agency step-up
bonds. As a result, the Fund didn't generate as high a return as the
longer-term Lehman Govt/Credit Index, but it did significantly outperform
short-term Treasury Bills.
The Fed's policies are still on the stimulative side of the ledger as witnessed
by the above average 1-year to 10-year interest rate spread. Growth in the
economy will lead to pockets of price increases meaning the Fed should continue
its strategy of gradually raising rates. However, global competition will keep
prices from rising too dramatically as manufacturers shift production to lower
cost locations.
We expect to hold to our strategy of protecting the Fund from price erosion and
will look to benefit from the higher yields that should be available over the
course of the new year. Looking out over a longer timeframe, this strategy of
maintaining a lower duration risk posture than the Lehman Govt/Credit Index, has
led to returns that are more consistent over time.
GROWTH OF $10,000 INVESTMENT
PRESERVATION LEHMAN G/C TREASURY B
GROWTH GROWTH GROWTH
1994 10,000 10,000 10,000
1995 11,520 11,830 10,549
1996 11,837 12,149 11,078
1997 12,710 13,304 11,638
1998 13,772 14,634 12,194
1999 13,590 14,268 12,760
2000 14,861 15,959 13,503
2001 15,789 17,315 13,962
2002 16,734 19,227 14,187
2003 17,174 20,125 14,330
2004 17,641 20,968 14,526
TOTAL RETURNS AND THE GROWTH OF A $10,000 INVESTMENT ARE BASED ON PAST
PERFORMANCE AND ARE NOT AN INDICATION OF FUTURE PERFORMANCE. THE VALUE OF YOUR
SHARES WILL FLUCTUATE AND MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST AT
THE TIME OF REDEMPTION. THE RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
PC&J PRESERVATION FUND
- ------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- -------------------------------------------- ----------- ---------- ------
U.S. GOVERNMENT AND AGENCY STEP-UP OBLIGATIONS:
Maturity of 5 - 10 years:. . . . . .. . . 8.9%
Federal National Mortgage Assn. Note,
3.000%, due 02-26-10 . . . . . . . . . . . $ 765,000 $ 751,153
Federal Home Loan Banks,
3.000%, due 10-28-11 . . . . . . . . . . . . . . . 800,000 797,176
1,548,329
Maturity of 10 - 20 years:. . . . . . . . . . 36.9
Federal Home Loan Mortgage Corp.,(1)
4.000%, due 01-27-15 . . . . . . . . . . . . . . . 1,230,000 1,230,000
Federal Home Loan Banks,
4.250%, due 06-04-18 . . . . . . . . . . . . . . . 2,000,000 1,990,760
Federal Home Loan Banks,
4.250%, due 07-16-18 . . . . . . . . . . . . . . . 500,000 472,060
Federal Home Loan Mortgage Corp.,
5.125%, due 08-15-18 . . . . . . . . . . . . . . . 390,000 391,268
Federal Home Loan Mortgage Corp.,
4.999%, due 09-21-18 . . . . . . . . . . . . . . . 750,000 751,425
Federal Home Loan Mortgage Corp.,
4.250%, due 11-05-18 . . . . . . . . . . . . . . . 500,000 500,440
Federal National Mortgage Assn.,
5.000%, due 09-17-19 . . . . . . . . . . . . . . . 300,000 301,203
Federal Home Loan Mortgage Corp.,
5.000%, due 10-28-19 . . . . . . . . . . . . . . . 750,000 744,098
6,381,254
TOTAL U.S. GOVERNMENT AND AGENCY STEP-UP OBLIGATIONS
(Cost $7,982,821). . . . . . . . . . . . . . . . . 45.8 7,929,583
U.S. CORPORATE OBLIGATIONS:
Maturity of 15 - 25 years:. . . . . . . . . . . . . 3.3
Household Finance Corp.,
7.750%, due 04-15-22 . . . . . . . . . . . . . . . 300,000 316,043
Bank of America Corp.,
7.000%, due 06-15-26 . . . . . . . . . . . . . . . 250,000 258,402
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $587,579). . . . . . . . . . . . . . . . . . . 3.3 574,445
See notes to financial statements.
PC&J PRESERVATION FUND
- ------------------------
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2004
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- ----------- ---------- ------
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of 1 - 5 years:. . . . . . . . 14.1%
Cleveland, OH Airport Taxable Bonds,
6.490%, due 01-01-06 . . . . . . . . $ 365,000 $ 374,472
Chicago Heights, IL GO Taxable
Bonds, 7.350%, due 12-01-07. . . . . 170,000 185,181
Minneapolis, MN Cmty. Dev. Taxable
Bonds, 10.400%, due 12-01-07 . . . . 285,000 291,734
Maricopa County, AZ Indl. Dev. Taxable
Bonds, 6.000%, due 07-01-08. . . . . 435,000 429,915
Oklahoma City, OK Airport Taxable
Bonds, 6.950%, due 07-01-08. . . . . 475,000 475,000
Dayton, OH Taxable Hsng Improvement
Bonds, 6.250%, due 11-01-08. . . . . 140,000 141,400
Dayton, OH Econ. Dev. Taxable
Bonds, 6.380%, due 12-01-09. . . . . 500,000 544,240
2,441,942
Maturity of 5 - 10 years: . . . . . . . 9.3
Baltimore, MD Taxable
Bonds, 8.400%, due 07-01-11. . . . . 435,000 435,000
Denver, CO School Dist. Taxable Bonds,
6.940%, due 12-15-12 . . . . . . . . 500,000 565,815
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 . . . . . . . . 250,000 252,500
Sacramento, CA Redev. Agency Taxable
Bonds, 6.375%, due 11-01-13. . . . . 200,000 216,258
Jackson Cnty., MS GO Taxable Bonds,
8.250%, due 03-01-14 . . . . . . . 135,000 136,092
1,605,665
See notes to financial statements.
- ------
PC&J PRESERVATION FUND
- ------------------------
SCHEDULE OF INVESTMENTS (Concluded)
DECEMBER 31, 2004
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- ----------- ------------ ------
Maturity of 10 - 20 years:. . . . . . . 7.3%
Jackson Cnty., MS GO Taxable Bonds,
8.250%, due 03-01-15 . . . . . . . . $ 210,000 $ 211,699
Ohio State Taxable Bonds,
7.600%, due 10-01-16 . . . . . . . . 750,000 805,965
Palmdale, CA Redev. Taxable Bonds,
7.900%, due 09-01-17 . . . . . . . . 225,000 250,454
1,268,118
Maturity of 20 - 30 years:. . . . . . . 3.1
Broward Cnty., FL Professional Sports
Fac., 8.110%, due 09-01-28 . . . . . 500,000 540,110
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $5,767,468). . . . . 33.8 5,855,835
TOTAL U.S. GOVERNMENT AND
AGENCY STEP-UP, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $14,337,868) . . . . . . . . . . 82.9 14,359,863
SHORT-TERM OBLIGATIONS. . . . . . . . . 23.2
First American Treasury Obligations. . 20,156
Federated Prime Obligations. . . . . . 4,000,000
TOTAL SHORT-TERM OBLIGATIONS
(Cost $4,020,156). . . . . . . . . . . 4,020,156
TOTAL INVESTMENTS
(Cost $18,358,024) (2) . . . . . . . . 106.1 18,380,019
OTHER ASSETS AND LIABILITIES. . . . . . ( 6.1) (1,052,432)
NET ASSETS. . . . . . . . . . . . . . . 100.0% $17,327,587
(1) Security will settle on January 27, 2005
(2) Represents cost for federal income tax and book purposes and differs from
market value by net unrealized appreciation. (See Note D)
See notes to financial statements.
PC&J PRESERVATION FUND
- ------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS:
Investments in securities, at market value
(Cost basis - $18,358,024) (Notes A& D). . . . . . . . . . . . $18,380,019
Receivables - Interest. . . . . . . . . . . . . . . . . . . . . 184,590
Receivables - Fund shares sold. . . . . . . . . . . . . . . . . 9,424
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . 18,574,033
LIABILITIES:
Payables - Securities purchased . . . . . . . . . . . . . . . . (1,230,000)
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . (16,446)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . (1,246,446)
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $17,327,587
SHARES OUTSTANDING (Unlimited authorized shares):
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . 1,662,312
Net decrease (Note C) . . . . . . . . . . . . . . . . . . . . (49,001)
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . 1,613,311
NET ASSET VALUE, offering price and redemption price per share. $ 10.74
NET ASSETS CONSIST OF:
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . $17,585,032
Net unrealized appreciation on investments . . . . . . . . . . 21,995
Undistributed net investment income. . . . . . . . . . . . . . 6,720
Accumulated net realized loss on investments . . . . . . . . . (286,160)
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $17,327,587
See notes to financial statements.
PC&J PRESERVATION FUND
- ------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME - Interest (Note A): . . . . . . . . . . . $ 851,323
EXPENSES (Note B):
Investment advisory fee . . . . . . . . . . . . . . . . . . 87,724
Management fee. . . . . . . . . . . . . . . . . . . . . . . 91,895
Total expenses . . . . . . . . . . . . . . . . . . . . . . . 179,619
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . 671,704
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments. . . . . . . . . . . . . . (35,487)
Change in unrealized appreciation of investments. . . . . . (159,644)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . (195,131)
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . $ 476,573
See notes to financial statements.
PC&J PRESERVATION FUND
- ------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For The Years Ended December 31,
2004 2003
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . $ 671,704 $ 754,127
Net realized loss on investments. . . . . . . . . (35,487) (98,697)
Change in unrealized appreciation of investments. (159,644) (195,547)
Net increase in net assets from operations . . . . 476,573 459,883
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income. . . . . . . . . . . . (672,490) (750,354)
Net decrease in assets from distributions to shareholders(672,490) (730,354)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) . . . . . . . . .(557,361) (276,052)
Total decrease in net assets . . . . . . . . . . . . .(753,278) (566,523)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . .18,080,865 18,647,388
End of year . . . . . . . . . . . . . . . . . . $17,327,587 $18,080,865
UNDISTRIBUTED NET INVESTMENT INCOME. . . . . . . $ 6,720 $ 7,543
See notes to financial statements.
- ------
PC&J PRESERVATION FUND
- ------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2004
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PC&J Preservation Fund (the "Fund") commenced operations on April 30, 1985, as a
"no-load, open-end, diversified" investment company. It is organized as an Ohio
business trust and is registered under the Investment Company Act of 1940. The
investment objective of the Fund is the generation of income and the
preservation of capital through investment in fixed-income obligations.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates or assumptions that affect the reported amounts of assets and
liabilities, disclosures 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.
(1) Security Valuations - Fixed income securities are generally valued by
using market quotations, or a matrix methodology (including prices furnished by
a pricing service) when the Adviser believes such prices accurately reflect the
fair market value of such securities. The matrix pricing methodology utilizes
yield spreads relating to securities with similar characteristics to determine
prices for normal institutional-size trading units of debt securities without
regard to sale or bid prices. If the Adviser decides through the due diligence
process that the market quotation does not accurately reflect current value or
that prices cannot be readily estimated using the matrix methodology, or when
restricted or illiquid securities are being valued, securities are valued at
fair value as determined in good faith by the Adviser, in conformity with
guidelines adopted by and subject to review by the Board of Trustees.
(2) Federal Income Taxes - The Fund has elected to be treated as a regulated
investment company and intends to comply with the requirements under Subchapter
M of the Internal Revenue Code and to distribute all, or substantially all, of
its net investment income and net realized gains on security transactions.
Accordingly, no provision for federal income or excise taxes has been made in
the accompanying financial statements. The Fund has a capital loss carry
forward of $286,160, of which $152,270 can be carried forward through 2008,
$98,440 through 2011, and $35,450 through 2012.
(3) Other - Security transactions are accounted for on the date the
securities are purchased or sold, (trade date). All premiums and discounts are
amortized or accreted for financial and tax reporting purposes as required by
AICPA financial accounting standards. Realized gains and losses on sales are
determined using the specific lot method. Dividends to shareholders from net
investment income and net realized capital gains are declared and paid annually.
Interest income is accrued daily. Paydown gains and losses on mortgage and
asset-backed securities are presented as interest income. Net investment
losses, for tax purposes, are reclassified to paid in capital.
The Fund indemnifies the Trustees and officers of the Fund for certain
liabilities that might arise from the performance of their duties to the Fund.
B. INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT
The Fund has an investment advisory agreement with Parker Carlson &
Johnson, Inc. (the "Adviser"), wherein the Fund pays the Adviser a monthly
advisory fee, accrued daily, based on an annual rate of 0.5% of the daily net
assets of the Fund. Investment advisory fees were $87,724 for the year ended
December 31, 2004.
PC&J PRESERVATION FUND
- ------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2004
B. INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT (Continued)
The Fund has a management agreement with PC&J Service Corp., (the "Service
Corp."), which is wholly owned by the shareholders of the Adviser. The Fund pays
Service Corp. for the overall management of the Fund's business affairs,
exclusive of the services provided by the Adviser, and functions as the Fund's
transfer and dividend disbursing agent. Service Corp. pays all expenses of the
Fund (with certain exclusions), including trustee fees of $6,000 for the year
ended December 31, 2004.
Service Corp is entitled to a monthly fee, accrued daily, based on an annual
rate applied to the daily net assets of the Fund. The trustees approved a rate
increase in October 2004. The new rate is 0.6%, an increase of 0.1% over the
old rate of 0.5%. Management fees were $91,895 for the year ended December 31,
2004.
Certain officers and trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
C. CAPITAL SHARE TRANSACTIONS
For the Year Ended For the Year Ended
December 31, 2004 December 31, 2003
------------------ ------------------
Shares Dollars Shares Dollars
-------- -------- ------- -------------
Subscriptions . . . . . 158,814 $ 1,746,891 354,324 $ 3,961,862
Reinvestment of distributions 62,674 672,490 68,966 750,354
221,488 2,419,381 423,290 4,712,216
-------- --------- --------- ------------
Redemptions . . . . . . . . (270,489) (2,976,742) (447,189) (4,988,268)
Net decrease. . . . . . . . (49,001) $ (557,361) (23,899) $ (276,052)
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the year ended December 31, 2004, aggregated
$1,022,725 and $1,897,579, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 2004, aggregated
$4,988,105 and $5,100,000, respectively.
At December 31, 2004, gross unrealized appreciation on investments was $148,698
and gross unrealized depreciation on investments was $126,703 for a net
unrealized appreciation of $21,995 for
financial reporting and federal income tax purposes.
PC&J PRESERVATION FUND
- ------------------------
NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2004
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2004 For the Year Ended December 31, 2003
------------------------------------ ------------------------------------
Ordinary Income. Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
- ---------------- -------------- ------------------- ---------------- -------------- -------------------
$ 672,490 . $ 0 $ 672,490 $ 750,354 $ 0 $ 750,354
Tax Basis of Distributable Earnings
As of December 31, 2004
Undistributed Ordinary Income. . . . Undistributed Capital Gains Unrealized Appreciation
- ------------------------------------ ---------------------------- ------------------------
$ 6,720 . . . . $ 0 $ 21,995
- ------------------------------------ ---------------------------- ------------------------
The difference between book basis and tax basis undistributed ordinary income is
attributable to the classification of gains (losses) on paydowns.
PC&J PRESERVATION FUND
- ------------------------
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital For The Years Ended December 31,
Stock Outstanding Throughout the Year 2004 2003 2002 2001 2000
----- ----- ----- ------ ----
NET ASSET VALUE-BEGINNING OF YEAR. . . . $10.88 $ 11.06 $ 10.96 $ 10.88 $ 10.54
Income from investment operations:
Net investment income . . . . . . . . 0.44 0.47 0.54 0.62 0.63
Net realized and unrealized
gain (loss) on securities . . . . . (0.14) (0.18) 0.11 0.06 0.35
TOTAL FROM INVESTMENT OPERATIONS . . . . 0.30 0.29 0.65 0.68 0.98
Less distributions:
From net investment income. . . . . . (0.44) (0.47) (0.55) (0.60) (0.63)
From net realized gain
on investments . . . . . . . . (0.00) (0.00) (0.00) (0.00) (0.00)
From return of capital . . . . . (0.01)
TOTAL DISTRIBUTIONS. . . . . . . . . . . (0.44) (0.47) (0.55) (0.60) (0.64)
NET ASSET VALUE-END OF YEAR. . . . . . . $10.74 $ 10.88 $ 11.06 $ 10.96 $ 10.88
TOTAL RETURN . . . . . . . . . . . . . . 2.72% 2.63% 5.98% 6.25% 9.35%
RATIOS TO AVERAGE NET ASSETS
Expenses. . . . . . . . . . . . . . . 1.02% 1.00% 1.00% 1.00% 1.00%
Net investment income . . . . . . . . 3.83% 4.19% 4.64% 5.31% 5.40%
Portfolio turnover rate. . . . . . . . . 37.75% 30.80% 53.92% 46.56% 35.10%
Net assets at end of period (000's). . . $17,328 $18,081 $18,647 $18,440 $18,839
See notes to financial statements.
- ------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
PC&J Preservation Fund
We have audited the accompanying statement of assets and liabilities of PC&J
Preservation Fund (the "Fund"), including the schedule of investments, as of
December 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2004, by
correspondence with the custodian and brokers. 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 PC&J
Preservation Fund as of December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 9, 2005
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2004 (Unaudited)
FUND EXPENSES
As a shareholder of the Fund, you incur ongoing costs, including management fees
and investment advisory fees. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period for the six months ended December 31,
2004.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Beginning Account Ending Account Expenses Paid
Value Value During Period*
July 1, 2004 December 31, 2004
Actual
$ 1,000.00 . . . $ 1,024.42 $ 5.36**
Hypothetical (5% return $ 1,019.57 $ 1,000.00 $ 5.34**
before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 1.05%,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent six-month period, then divided by the number
of days in the most recent 12-month period.
** In October 2004 the Fund trustees approved an increase in fees from 1.0% to
1.1% of net assets. If the new rate of 1.1% had been in effect during the
entire 6-month period, the "Expenses Paid During the Period" would have been
$5.61for Actual and $5.60 for Hypothetical.
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2004 (Unaudited)
PORTFOLIO CHARACTERISTICS
% OF NET
TYPE OF SECURITY ASSETS
- ----------------------------- ---------
U.S. Government and Agency
Step-Up Obligations. . . . . 45.8%
U.S. Corporate Obligations. . 3.3
Taxable Municipal Obligations 33.8
Short-Term Obligations. . . . 23.2
Other Assets and Liabilities. -6.1
Total . . . . . . . . . . . . 100.0%
---------
PC&J PRESERVATION FUND
- ------------------------
FUND TRUSTEES DISCLOSURE
The responsibility for management of the Fund is vested in its Board of
Trustees, which, among other things, is empowered by the Fund's Declaration of
Trust to elect officers of the Fund and contract with and provide for the
compensation of agents, consultants and other professionals to assist and advise
in such management.
The following table provides information regarding each Trustee who is not an
"interested person" of the Trust, as defined in the Investment Company Act of
1940.
NUMBER OF PORTFOLIOS
POSITION(S) IN LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS FUND COMPLEX** TIME SERVED OVERSEEN BY TRUSTEE
- ------------------------------ -------------------- ------------------ --------------------
Donald N. Lorenz
26 Misty Morning Drive
Hilton Head Island, S.C. 29926
Year of Birth: 1935 Trustee Trustee since 1987 2
- ------------------------------ -------------------- ------------------ --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ----------------------------------------------------- -----------------------------------
Retired since December 1998; from December 1980 to
December 1998, Vice President-Finance and Treasurer,
Price Brothers Company (concrete pipe products) None
- ----------------------------------------------------- -----------------------------------
NUMBER OF PORTFOLIOS
POSITION(S) IN LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS FUND COMPLEX** TIME SERVED OVERSEEN BY TRUSTEE
- ----------------------- -------------------- ----------- --------------------
Robert S. Neff
4466 Blairgowrie Circle
Kettering, Ohio 45429 Trustee since
Year of Birth: 1931 Trustee 2003 2
- ----------------------- -------------------- ----------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------------------------------------- -----------------------------------
Since June 2001, Consultant to Neff Packaging Solutions
Inc.; from June 1980 to June 2001, Chairman and CEO of
Neff Packaging Solutions Inc. (paper container
manufacturer) None
- -------------------------------------------------------- -----------------------------------
NUMBER OF PORTFOLIOS
POSITION(S) IN LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS FUND COMPLEX** TIME SERVED OVERSEEN BY TRUSTEE
- --------------------- -------------------- ----------- --------------------
Laura B. Pannier
629 Woodbourne Trail
Dayton, Ohio 45459 Trustee since
Year of Birth: 1954 Trustee 2003 2
- --------------------- -------------------- ----------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------------------------------- -----------------------------------
Not presently employed; from May 1988 to May 1997,
partner with Deloitte & Touche LLP None
- -------------------------------------------------- -----------------------------------
PC&J PERFORMANCE FUND
- -----------------------
FUND TRUSTEES DISCLOSURE (Concluded)
The following table provides information regarding each Trustee who is an
"interested person" of the Trust, as defined in the Investment Company Act of
1940, and each officer of the Trust.
NUMBER OF PORTFOLIOS
POSITION(S) HELD LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS WITH TRUST TIME SERVED OVERSEEN BY TRUSTEE
- --------------------- -------------------- ------------- --------------------
Leslie O. Parker III*
300 Old Post Office
120 West Third Street President President and
Dayton, Ohio 45402 and Trustee since
Year of Birth: 1940 Trustee 1985 2
- --------------------- -------------------- ------------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ----------------------------------------- -----------------------------------
Chairman of Adviser since September 1982. None
- ----------------------------------------- -----------------------------------
NUMBER OF PORTFOLIOS
POSITION(S) HELD LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS WITH TRUST TIME SERVED OVERSEEN BY TRUSTEE
- ------------------------- -------------------- ------------- --------------------
Kathleen A. Carlson, CFA*
300 Old Post Office
120 West Third Street Treasurer and
Dayton, Ohio 45402 Treasurer and Trustee since
Year of Birth: 1955 Trustee 1985 2
- ------------------------- -------------------- ------------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------------------------------- -----------------------------------
President and Treasurer of Adviser since September
1982 None
- -------------------------------------------------- -----------------------------------
NUMBER OF PORTFOLIOS
POSITION(S) HELD LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS WITH TRUST TIME SERVED OVERSEEN BY TRUSTEE
- ---------------------- -------------------- ------------- --------------------
James M. Johnson, CFA*
300 Old Post Office
120 West Third Street Secretary and
Dayton, Ohio 45402 Secretary and Trustee since
Year of Birth: 1952 Trustee 1985 2
- ---------------------- -------------------- ------------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------------------ -----------------------------------
Secretary of Adviser since September 1982. None
- ------------------------------------------ -----------------------------------
* Mr. Parker, Ms. Carlson and Mr. Johnson are "interested persons" of the Fund
because they are officers of the Fund and officers and shareholders of the
Adviser, and own in the aggregate a controlling interest in the Adviser and PC&J
Service Corp., the Fund's transfer agent.
**The term "Fund Complex" refers to the PC&J Performance Fund and the PC&J
Preservation Fund.
The Statement of Additional Information includes additional information about
the Trustees and is available without charge upon request, by calling toll free
at (888) 223-0600.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities and information regarding how
the Fund voted those proxies during the12-month period ended June 30, 2004 are
available without charge: (1) upon request by calling toll free at (888)
223-0600 or (2) from the Fund's documents filed with the Securities and Exchange
Commission ("SEC") on the SEC's website at www.sec.gov.
-----------
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's web site at http://www.sec.gov. The Fund's Forms N-Q
may also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330.
ITEM 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party.
(b) For purposes of this item, "code of ethics" means written standards that
are reasonably designed to deter wrongdoing and to promote:
(1) Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in reports
and documents that a registrant files with, or submits to, the Commission and in
other public communications made by the registrant;
(3) Compliance with applicable governmental laws, rules, and
regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) Amendments: During the period covered by the report, there have not
been any amendments to the provisions of the code of ethics.
(d) Waivers: During the period covered by the report, the registrant has
not granted any express or implicit waivers from the provisions of the code of
ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) The registrant's board of trustees has determined that Laura B. Pannier
is an audit committee financial expert. Ms. Pannier is independent for purposes
of this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES
-----------
FY 2003 $ 13,500
FY 2004 $ 14,125
(b) AUDIT-RELATED FEES
-------------------
Registrant Parker Carlson & Johnson
---------- ---------------------------
FY 2003 $ None $ None
FY 2004 $ None $ None
Nature of the fees: N/A
(c) TAX FEES
---------
Registrant Parker Carlson & Johnson
---------- ---------------------------
FY 2003 $ 1,500 $ None
FY 2004 $ 1,500 $ None
Nature of the fees: Federal and Excise Tax Returns
(d) ALL OTHER FEES
----------------
Registrant Parker Carlson & Johnson
---------- ---------------------------
FY 2003 $ None $ None
FY 2004 $ None $ None
(e) (1) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES
------------------------------------------
The audit committee has not adopted pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(2) PERCENTAGES OF SERVICES APPROVED BY THE AUDIT COMMITTEE
--------------------------------------------------------------
Registrant Parker Carlson & Johnson
---------- ---------------------------
Audit-Related Fees: None None
Tax Fees: None None
All Other Fees: None None
None of the services described in paragraphs (b) through (d) of this Item were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X. All non-audit services were pre-approved by the audit
committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X.
(f) During audit of registrant's financial statements for the most recent
fiscal year, less than 50 percent of the hours expended on the principal
accountant's engagement were attributed to work performed by persons other than
the principal accountant's full-time, permanent employees.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant:
Registrant Parker Carlson & Johnson
---------- ---------------------------
FY 2003 $ 1500 $ None
FY 2004 $ 1500 $ None
(h) Not applicable. The auditor performed no services for the registrant's
investment adviser or any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES. Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable - schedule filed with Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END FUNDS.
Not applicable.
ITEM 8. PORTFOLIO MANAGER OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not
applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUNDS. Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Describe any material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors, where those changes
were implemented after the registrant last provided disclosure in response to
the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of December 31, 2004, the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings on Forms
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no significant changes in the registrant's internal control
over financial reporting that occurred during the registrant's second fiscal
half-year that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PC&J Preservation Fund
- ------------------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 24, 2005
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By
/s/
- ---
James M. Johnson, President
Date February 24, 2005
-------------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 24, 2005
-------------------