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
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PC&J Preservation Fund
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(Exact name of registrant as specified in charter)
120 West Third Street, Suite 300, Dayton, Ohio 45402-1819
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(Address of principal executive offices) (Zip code)
PC&J Service Corp., 120 West Third Street, Suite 300, Dayton, Ohio
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45402-1819
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(Name and address of agent for service)
Registrant's telephone number, including area code: 937-223-0600
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2006
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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
Semi-Annual Report to Shareholders
June 30, 2006
The PC&J Preservation Fund is a registered investment company under the
Investment Company Act of 1940 and, for your protection, is regulated by the
Securities and Exchange Commission. The enclosed Semi-Annual Report is for your
information and is provided to you in compliance with ongoing Securities and
Exchange Commission regulations. This report requires no action on your part.
Please give us a call if you have any questions (888-223-0600).
PC&J PRESERVATION FUND
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FINANCIAL HIGHLIGHTS
The information contained in the table below for the years ended December 31,
2005, 2004, 2003, 2002, and 2001, has been derived from data contained in
financial statements examined by Deloitte & Touche, independent certified public
accountants. The information for the six months ended June 30, 2006, has been
derived from data contained in the unaudited financial statements but which are
believed to include all adjustments necessary for a fair presentation. Such
information should be read in conjunction with the enclosed financial
statements.
Period Ended
June 30, Years Ended December 31,
Selected Data for Each Share of Capital 2006 2005 2004 2003 2002 2001
Stock Outstanding Throughout the Period (Unaudited)
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.52 $ 10.74 $ 10.88 $ 11.06 $ 10.96 $ 10.88
Income from investment operations:
Net investment income (loss) 0.26 0.49 0.44 0.47 0.54 0.62
Net realized and unrealized
gain (loss) on securities (0.23) (0.23) (0.14) (0.18) 0.11 0.06
TOTAL FROM INVESTMENT OPERATIONS 0.03 0.26 0.30 0.29 0.65 0.68
Less distributions:
From net investment income (0.00) (0.48) (0.44) (0.47) (0.55) (0.60)
From net realized gain
on investments (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
TOTAL DISTRIBUTIONS (0.00) (0.48) (0.44) (0.47) (0.55) (0.60)
NET ASSET VALUE-END OF PERIOD $ 10.55 $ 10.52 $ 10.74 $ 10.88 $ 11.06 $ 10.96
TOTAL RETURN 0.29% 2.44% 2.72% 2.63% 5.98% 6.25%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%* 1.10% 1.02% 1.00% 1.00% 1.00%
Net investment income (loss) 4.45%* 4.04% 3.83% 4.19% 4.64% 5.31%
Portfolio turnover rate 6.28%* 16.10% 37.75% 30.80% 53.92% 46.56%
Net assets at end of year (000's) $ 13,158 $15,444 $17,328 $18,081 $18,647 $18,440
* Annualized
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
JUNE 30, 2006
(UNDAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- ------- ---------- ----------
U.S. AGENCY STEP-UP OBLIGATIONS :
Maturity of 1 - 5 years: 5.6
Federal National Mortgage Assn. Note,
4.000%, due 02-26-10 $ 765,000 $ 743,963
Maturity of 5 - 10 years: 18.5
Federal Home Loan Banks,
4.000%, due 10-28-11 800,000 789,250
Federal Home Loan Banks,
4.000%, due 07-30-13 700,000 677,250
Federal National Mortgage Assn. Note,
5.000%, due 02-25-15 1,000,000 967,813
2,434,313
Maturity of 10 - 20 years: 28.5
Federal Home Loan Banks,
5.000%, due 06-04-18 2,000,000 1,894,375
Federal Home Loan Banks,
4.250%, due 07-16-18 500,000 454,375
Federal Home Loan Mortgage Corp.,
5.125%, due 08-15-18 390,000 381,056
Federal Home Loan Mortgage Corp.,
4.999%, due 09-21-18 750,000 729,613
Federal National Mortgage Assn. Note,
5.000%, due 09-17-19 300,000 285,938
3,745,357
TOTAL U.S. AGENCY STEP-UP OBLIGATIONS
(Cost $7,198,975) 52.6 6,923,633
FOREIGN SOVEREIGN OBLIGATIONS:
Maturity of 5 - 10 years: 2.5
Bayerische Landesbank Note,
6.750%, due 10-29-13 350,000 329,000
TOTAL FOREIGN SOVEREIGN OBLIGATIONS
(Cost $350,000) 329,000
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2006
(UNAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- ---------------------------------------- -------- ---------- ----------
U.S. CORPORATE OBLIGATIONS:
Maturity of 10 - 25 years: 11.6%
Int'l Bank Reconstruction & Dev.,
7.000%, due 08-13-18 $ 850,000 $ 790,500
Morgan Stanley DW,
8.000%, due 07-06-21 250,000 250,000
General Elec Capital Corp. ,
4.875%, due 10-28-21 200,000 181,804
Household Finance Corp.,
7.750%, due 04-15-22 300,000 300,527
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $1,617,662) 1,522,831
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity/call of less than 1year: 3.9
Broward Cnty., FL Professional Sports
Fac., 8.110%, to be called 09-01-06 500,000 511,935
Maturity of 1 - 5 years: 11.9
Chicago Heights, IL GO Taxable
Bonds, 7.350%, due 12-01-07 170,000 173,298
Minneapolis, MN Cmty. Dev. Taxable
Bonds, 10.400%, due 12-01-07 200,000 202,532
Maricopa County, AZ Indl. Dev. Taxable
Bonds, 6.000%, due 07-01-08 435,000 430,359
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 11-01-08 140,000 140,000
Dayton, OH Econ. Dev. Taxable
Bonds, 6.380%, due 12-01-09 140,000 142,478
1,563,667
Maturity of 5 - 10 years: 7.5
Denver, CO School Dist. Taxable Bonds,
6.940%, due 12-15-12 500,000 531,980
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 250,000 250,000
Sacramento, CA Redev. Agency Taxable
Bonds, 6.375%, due 11-01-13 200,000 204,944
986,924
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
JUNE 30, 2006
(UNAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- ------------------------------------- -------- ---------- ------------
Maturity of 10 - 20 years: 7.6%
Ohio State Taxable Bonds,
7.600%, due 10-01-16 $ 750,000 $ 767,242
Palmdale, CA Redev. Taxable Bonds,
7.900%, due 09-01-17 225,000 234,486
1,001,728
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $4,121,453) 30.9 4,064,254
TOTAL U.S. AGENCY STEP-UP,
FOREIGN SOVEREIGN, U.S.
CORPORATE AND TAXABLE
MUNICIPAL OBLIGATIONS
(Cost $13,288,090) 97.6 12,839,718
SHORT-TERM OBLIGATIONS: 12.4
First American Treasury Obligations 34,972
Federated Prime Obligations 1,600,000
TOTAL SHORT-TERM OBLIGATIONS
(Cost $1,634,972) 1,634,972
TOTAL INVESTMENTS
(Cost $14,923,062)2 110.0 14,474,690
OTHER ASSETS AND LIABILITIES (10.0) (1,316,634)
NET ASSETS 100.0% $13,158,056
1 Interest rates listed for step-up bonds are the rates as of
June 30, 2006.
2 Represents cost for federal income tax and book
purposes and differs from market value by net unrealized appreciation
(depreciation). (See Note D)
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006
(UNAUDITED)
ASSETS:
Investments in securities, at market value
(Cost basis - $14,923,062) (Notes A& D) $14,474,690
Receivables - Interest 190,470
Receivables - Fund shares sold 25,906
Total assets 14,691,066
LIABILITIES:
Accrued expenses (Note B) (13,010)
Payables - Fund shares redeemed (1,270,000)
Payables - Securities purchased (250,000)
Total liabilities (1,533,010)
NET ASSETS $13,158,056
SHARES OUTSTANDING (Unlimited authorized shares):
Beginning of period 1,467,487
Net decrease (Note C) (219,974)
End of period 1,247,513
NET ASSET VALUE, offering price and redemption price per share $ 10.55
NET ASSETS CONSIST OF:
Paid in capital $13,638,008
Net unrealized depreciation on investments (448,372)
Undistributed net investment income 341,249
Accumulated net realized loss on investments (372,829)
Net Assets $13,158,056
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
INVESTMENT INCOME - Interest (Note A): $ 406,265
EXPENSES (Note B):
Investment advisory fee 36,391
Management fee 43,664
Total expenses 80,055
NET INVESTMENT INCOME 326,210
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (56,981)
Change in unrealized appreciation of investments (239,618)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (296,599)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 29,611
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For The Six Months For the Year
Ended Ended
June 30, 2006 December 31, 2005
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 326,210 $ 681,798
Net realized loss on investments (56,981) (29,688)
Change in unrealized appreciation of
investments (239,618) (230,749)
Net increase in net assets from operations 29,611 421,361
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income 0 (673,479)
Net decrease in assets from distributions to
shareholders 0 (673,479)
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS (Note C) (2,316,043) (1,630,981)
Total decrease in net assets (2,286,432) (1,883,099)
NET ASSETS:
Beginning of year 15,444,488 17,327,587
End of period $13,158,056 $15,444,488
UNDISTRIBUTED NET INVESTMENT INCOME $ 341,249 $ 15,039
See notes to financial statements.
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
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, or when unique investment
structures have no widely adopted benchmarks, 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. It is incumbent upon
the Adviser to consider all appropriate factors relevant to the value of
securities for which market quotations are not readily available. No single
standard for determining fair value can be established, since fair value depends
upon the circumstances of each individual case. As a general principle, the
current fair value of an issue of securities being valued by the Adviser would
appear to be the amount which the owner might reasonably expect to receive for
them upon their current sale. Methods which are in accord with this principle
may, for example, be based on a multiple of earnings, or a discount from market
of a similar freely traded security (including a derivative security or a basket
of securities traded on other markets, exchanges or among dealers), or yield to
maturity with respect to debt issues, or a combination of these and other
methods.
(2) Federal Income Taxes - The Fund has elected to be treated as a regulated
investment company and intends to continue 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. As of December
31, 2005, the Fund had a capital loss carry forward of $315,848, of which
$152,270 can be carried forward through 2008, $98,440 through 2011, $35,450
through 2012 and $29,688 through 2013.
(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.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
B. INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT
The Fund has an investment advisory agreement (the "Agreement") with Parker
Carlson & Johnson, Inc. (the "Adviser"), whereby 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 $36,391 for the six
months ended June 30, 2006.
The Fund pays PC&J Service Corp. ("Service Corp."), which is wholly owned by the
shareholders of the Adviser, for the overall management of the Fund's business
affairs, exclusive of the services provided by the Adviser, and to function as
the Fund's transfer and dividend disbursing agent. Service Corp. pays all
expenses of the Fund (with certain exclusions), including trustee fees of $2,000
for the six months ended June 30, 2006.
Service Corp. is entitled to a monthly fee, accrued daily, based on an annual
rate of 0.6% of the daily net assets of the Fund. Management fees were $43,664
for the six months ended June 30, 2006.
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 Six Months Ended
June 30, 2006 For the Year Ended
(Unaudited) December 31, 2005
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Shares Dollars Shares Dollars
--------- ------------ --------- ------------
Subscriptions 46,330 $ 488,185 171,311 $ 1,852,471
Reinvestment of distributions 0 0 64,202 673,479
46,330 488,185 235,513 2,525,950
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Redemptions (266,304) (2,804,228) (381,337) (4,156,931)
Net decrease (219,974) $(2,316,043) (145,824) $(1,630,981)
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the six months ended June 30, 2006, aggregated
$442,500 and $1,000,000, respectively. Purchases and sales of long-term U.S.
Government Securities for the six months ended June 30, 2006, aggregated $0 and
$1,195,560, respectively.
At June 30, 2006, gross unrealized appreciation on investments was $21,968 and
gross unrealized depreciation on investments was $470,340 for a net unrealized
depreciation of $448,372 for financial
reporting and federal income tax purposes.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2005 For the Year Ended December 31, 2004
------------------------------------
Ordinary Income Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
- ---------------- -------------- ------------------- ---------------- -------------- -------------------
673,479 $ 0 $ 673,479 $ 672,490 $ 0 $ 672,490
Tax Basis of Distributable Earnings
As of December 31, 2005
Undistributed Ordinary Income Undistributed Capital Gains Unrealized Appreciation
---------------------------- ------------------------
$ 15,039 $ 0 $ 0
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F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT
The investment advisory agreement between the Fund and the Adviser (the
"Agreement") was renewed by the Board of Trustees at a meeting held on February
14, 2006. In determining whether to approve the Agreement, the Trustees
reviewed the following: the nature of the Adviser's business; the performance of
the Fund and the Adviser; the Adviser's personnel and operations; the nature,
quality and extent of the investment advisory services provided by the Adviser
to the Fund; the cost of the services and the profit to be realized by the
Adviser; comparison with the fees paid by other funds and accounts; and
economies of scale and other benefits to the Fund and the Adviser.
The Trustees reviewed a description of the Adviser's business and a copy of the
Adviser's most recent registration statement on Form ADV. The Trustees noted
that the Fund is used as an investment vehicle for the Adviser's management
clients, not as a stand-alone product. The Fund was created in order to manage
efficiently the assets of the Adviser's smaller account relationships, and Fund
shareholders receive many of the same advice and planning services at no
additional cost, as do the Adviser's non-Fund clients. The Adviser explained
that understanding the nature of its business is important in reviewing the
Fund's performance and advisory fees. The Trustees also reviewed the Adviser's
balance sheet dated as of December 31, 2005, and income statement for the year
ended December 31, 2005, and concluded that the Adviser had adequate financial
resources to provide the necessary services to the Fund. The Trustees also
considered the services provided by PC&J Service Corp. ("Service Corp."), which
is wholly owned by the shareholders of the Adviser. The Adviser explained that
Service Corp., the Fund's transfer agent and dividend disbursing agent, was
formed to provide transfer agency services to the Fund in a cost efficient
manner.
Next, the Trustees reviewed the Adviser's personnel and operations. The
organizational chart of all professional personnel performing services for the
Fund was next reviewed, as well as a breakout of the amount of time spent on
Fund activities as compared to the amount of time spent on other activities.
Following this review, the Trustees concluded that the Adviser's personnel
staffing was adequate to
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT (Continued)
provide the necessary services to the Fund, and that the services provided by
the Adviser to the Fund are adequate.
The Trustees then compared the Fund's average total returns to the Lehman
Intermediate Government/Credit Index. The Fund's one-year return outperformed
the Index, while the five- and ten-year returns under-performed the Index. The
Trustees noted that, unlike mutual funds that have a specific investment style,
the Fund does not have a pre-defined peer group. The Adviser explained that
because the Adviser often is the sole investment adviser for a
client/shareholder and the Fund serves as the investment vehicle for the
Adviser's clients, the Adviser takes a broader view than a specific investment
mandate. The Adviser stated the Fund is designed to meet the client/shareholder
need for positive investment returns that exceed returns available from money
market funds as opposed to outperforming a static benchmark. The Adviser stated
that positive returns are more important to the Fund's shareholders than
performance against a benchmark. The Adviser reviewed the performance of the
Fund compared to other short and intermediate term mutual funds, noting that the
Fund outperformed the group by approximately 0.80%. The Trustees concluded that
they were satisfied with the performance of the Fund considering the
relationship between the Adviser and the Fund's shareholders, and considering
the relative results compared with the Lehman Government/Credit Index. The
Trustees determined the return was satisfactory considering the Fund's
investment objective.
The Trustees then turned their attention to the nature, quality and extent of
the services provided to the Fund. In addition to reviewing the professional
personnel involved in providing advisory services to the
Fund, the Trustees reviewed (i) the Adviser's compliance programs, including the
Adviser's practices for monitoring compliance with the Fund's investment
limitations; (ii) the business background and experience of the Adviser's Chief
Compliance Officer; (iii) examinations of the Adviser by state or Federal
regulators during the period since the last renewal of the Agreement; (iv) any
material litigation or administrative actions involving the Adviser or its
affiliates; and (v) the Adviser's currently effective Code of Ethics adopted
pursuant to Rule 17j-1. The Trustees concluded that they were satisfied with
the compliance programs of the Adviser. Based on the materials presented and
their experiences with the Adviser, the Trustees concluded that they were
satisfied with the nature, quality and extent of the services provided by the
Adviser in light of the objective and strategy of the Fund.
The Trustees also considered the cost to the Adviser of providing the services
and the profits to be realized by the Adviser. In reviewing the Adviser's
profitability, the Trustees considered the allocation of expenses to the
Adviser, including the method of allocating indirect and overhead costs with
respect to the Fund; a comparison of the Adviser's overall profitability with
the profitability of other investment advisers; and material payments by the
Fund to the Adviser, other than the fees paid pursuant to the Agreement. After
this review, the Trustees concluded that the allocation of expenses was
reasonable, and that profitability of the Adviser consolidated with the
profitability of Service Corp. was not excessive.
Next, the Trustees considered whether the compensation payable to the Adviser
was reasonable in comparison to fees paid by other funds in the Fund's peer
group and in absolute terms. In doing so, the Trustees reviewed (i) the current
advisory fee schedule, actual dollar payments and any proposed changes; (ii) an
advisory fee comparison with the advisory fee of similar sized funds; (iii) a
comparison of advisory fees paid by the Fund under the Agreement with fees paid
to the Adviser by other comparable accounts managed by the Adviser; and (iv) a
comparison of the expense ratio of the Fund with the expense ratio of funds in
the peer group. The board noted that the Adviser provides shareholder reporting
tailored to specific client needs, provides performance and cost information,
and makes the Fund's manager available for shareholder questions. The Adviser
explained that these services are embodied in its advisory fee. The Trustees
noted that a better fee/expense comparison is total expenses paid by comparable
funds, since the Fund's advisory fee is all-inclusive with no front-end,
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT (Concluded)
deferred or redemption fees. The Trustees agreed that the other accounts
managed by the Adviser are not comparable to the Fund. Based on the information
presented, the Trustees concluded that they were satisfied that the Adviser's
fee schedule was reasonable.
Next, the Trustees reviewed the economies of scale associated with managing the
Fund, the appropriateness of fee breakpoints, and benefits that accrue to the
Adviser as a result of its relationship with the Fund. The Trustees concluded
that as the Fund grows, adding breakpoints to benefit from realized economies of
scale could be appropriate, but that such considerations are not yet relevant
due
to the size of the Fund. They noted that current structure allows for lower
fees overall, rather than an initial higher fee for the first step before a
breakpoint. In addition, the Trustees concluded that investment analysis done
on behalf of the Fund may benefit some of the Adviser's other accounts, but
investment ideas utilized in other accounts also may benefit the Fund.
Based upon the information provided, the Board concluded that the fee paid, and
to be paid, to the Adviser pursuant to the Agreement was reasonable, that the
overall arrangement provided under the terms of the Agreement was a reasonable
business arrangement, and that the renewal of the Agreement was in the best
interest of the Fund's shareholders.
PC&J PRESERVATION FUND
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ADDITIONAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(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 (January 1, 2006) and held for the six months ended June 30, 2006.
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
Value Value Expenses Paid
January 1, 2006 June 30, 2006 During Period*
Actual $ 1,000.00 $ 1,002.85 $ 5.46
Hypothetical (5% return
before expenses) $ 1,000.00 $ 1,019.34 $ 5.51
* Expenses are equal to the Fund's annualized expense ratio of 1.1%, 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
current fiscal year.
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
- ------------------------------- ----------------
U.S. Agency Step-Up Obligations 52.6%
Foreign Sovereign Obligations 2.5
U.S. Corporate Obligations 11.6
Taxable Municipal Obligations 30.9
Short-Term Obligations 12.4
Other Assets and Liabilities (10.0)
Total 100.0%
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 the most recent 12-month period ended June
30 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 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. Not Applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not Applicable
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUNDS. Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of August 25, 2006, 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 last fiscal
half-year that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 11. 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 August 25, 2006
---------------
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 August 25, 2006
---------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date August 25, 2006
---------------