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, OH
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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: 12-31
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Date of reporting period: 12-31-2006
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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
Financial Statements and Financial Highlights for
the Year Ended December 31, 2006, and Report of
Independent Registered Public Accounting Firm
PC&J PRESERVATION FUND
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ANNUAL REVIEW
Unaudited
INTRODUCTION
The PC&J Preservation Fund (the "Fund") is a registered investment company under
the Investment Company Act of 1940. The enclosed 2006 Annual Report is for your
information and is provided to you in compliance with ongoing Securities and
Exchange Commission regulations.
MANAGEMENT REVIEW AND ANALYSIS
We started 2006 worrying the economy and inflation rates were rising too
rapidly. We ended 2006 questioning the magnitude of the economic slowdown and
wondering if crude oil prices were going to break below $50 per barrel.
The Federal reserve raised the Funds Rate four times to 5.25% in June 2006. Ben
Bernanke, Chair, and the rest of the Federal Open Market Committee (FOMC), voted
in their July meeting, and their subsequent meetings in 2006, to hold off on any
additional rate increases pending news of the economy and inflation.
AVERAGE ANNUAL TOTAL RETURNS
1 Yr. 5 Yrs 10 Yrs
Preservation Fund 3.86% 3.52% 4.72%
Lehman Inter
Gov/Credit 4.08% 4.53% 5.81%
Treasury Bills (3month) 4.65% 2.33% 3.53%
Well, it looks like the FOMC got it right. The economy slowed to a 2% rate
during the second and third quarters. The consumer price deflator went from a
3.5% year-over-year rate of increase in June to an average increase of 1.7% for
October and November. As most analysts believe, the Fed likes to see the
deflator in the 1% to 2% range.
Interest rates at the short end of the yield curve, hovering around 5%, are
higher than at any other point along the 30-year maturity spectrum. Ten-year
Treasury yields rose during the first half of the year, then declined in the
second half as the economy and inflation decelerated. The ten-year bond yield
ended the year 40 basis points higher than where it began, thus causing a slight
decline in the corresponding bond price. The ten-year yield peaked around 5.2%
in June and ended the year at 4.7%, twenty basis points below the two-year
Treasury.
For the year, the negatively sloped yield curve and modestly rising
intermediate-term yields produced higher returns in the short-term market,
measured by the three-month Treasury Bills, than the longer-term Lehman
Intermediate Gov/Credit Index and the Fund. Tremendous demand by the U.S.
international trading partners for U.S. treasury securities kept our rates lower
than what the fundamentals would dictate for the last stages of an economic
growth cycle. We had positioned the Fund to protect the value of its holdings
against a significant rise in rates by purchasing a series of secure, government
step-up notes. The preponderance of high quality issues, compared to the more
diverse Lehman Index with a concomitant higher yield for some lower quality
issues, caused the Fund's return to fall a little short of the Index.
Over the course of the year, we added a few range notes, a new bond structure
for the Fund. These bonds are offered by high quality, corporate entities and
pay higher rates of interest. In return for the higher yield, the buyer accepts
the risk that the actual return could fall below the expected return should
interest rates rise dramatically on the short end of the curve. We believe the
risk is low that rates will rise significantly from the current 5% level.
We are interested in exploring these new structures as a means to add yield
without a lot of duration or credit risk. Preservation of capital continues to
be an important objective and will be balanced with a desire to provide a
competitive rate of return.
PRESERVATION LEHMAN INTER TREASURY BILL
GROWTH GOV/CR GROWTH
1996 10,000 10,000 10,000
1997 10,738 10,787 10,506
1998 11,635 11,697 11,008
1999 11,481 11,743 11,519
2000 12,555 12,931 12,189
2001 13,339 14,090 12,604
2002 14,137 15,477 12,807
2003 14,509 16,144 12,936
2004 14,903 16,634 13,113
2005 15,267 16,897 13,516
2006 15,856 17,587 14,144
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. PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END MAY BE
OBTAINED BY CALLING 800.223.0600.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- -------- ---------- ----------
U.S. AGENCY STEP-UP OBLIGATIONS 1:
Maturity of 1 - 5 years: 12.0%
Federal National Mortgage Assn. Note,
4.000%, due 02-26-10 $ 765,000 $ 753,525
Federal Home Loan Banks,
5.000%, due 10-28-11 800,000 797,000
1,550,525
Maturity of 5 - 10 years: 13.0
Federal Home Loan Banks,
5.000%, due 07-30-13 700,000 688,406
Federal National Mortgage Assn. Note,
5.000%, due 02-25-15 1,000,000 983,438
1,671,844
Maturity of 10 - 20 years: 29.6
Federal Home Loan Banks,
5.000%, due 06-04-18 2,000,000 1,938,750
Federal Home Loan Banks,
4.250%, due 07-16-18 500,000 470,156
Federal Home Loan Mortgage Corp.,
5.125%, due 08-15-18 390,000 386,212
Federal Home Loan Mortgage Corp.,
5.000%, due 09-21-18 750,000 740,533
Federal National Mortgage Assn. Note,
5.000%, due 09-17-19 300,000 292,125
3,827,776
TOTAL U.S. AGENCY STEP-UP OBLIGATIONS
(Cost $7,199,612) 54.6 7,050,145
FOREIGN SOVEREIGN OBLIGATIONS:
Maturity of 5 - 10 years: 2.6
Bayerische Landesbank Note 2,
6.750%, due 10-29-13 350,000 339,500
TOTAL FOREIGN SOVEREIGN OBLIGATIONS
(Cost $350,000) 339,500
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2006
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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U.S. CORPORATE OBLIGATIONS:
Maturity of 10 - 20 years: 14.6%
Int'l Bank Recon. & Dev. Range Note 2,
7.000%, due 08-13-18 $ 850,000 $ 805,375
Morgan Stanley D W Range Note 2,
8.000%, due 07-06-21 250,000 248,750
Toyota Motors Credit Corp Range Note 2,
8.000%, due 09-21-21 350,000 346,500
General Electric Capital Corp. 1,
4.875%, due 10-28-21 200,000 190,298
Household Finance Corp.,
7.750%, due 04-15-22 300,000 300,591
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $1,967,105) 14.6 1,891,514
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of less than 1 year: 2.1
Chicago Heights, IL GO Taxable
Bonds, 7.350%, due 12-01-07 170,000 172,458
Minneapolis, MN Cmty. Dev. Taxable
Bonds, 10.400%, due 12-01-07 100,000 101,338
273,796
Maturity of 1 - 5 years: 7.6
Maricopa County, AZ Indl. Dev. Taxable
Bonds, 6.000%, due 07-01-08 420,000 418,471
Oklahoma City, OK Airport Taxable
Bonds, 6.950%, due 07-01-08 280,000 280,000
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 12-01-09 140,000 142,936
981,407
Maturity of 5 - 10 years: 7.7
Denver, CO School Dist. Taxable Bonds,
6.940%, due 12-15-12 500,000 536,420
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 250,000 250,000
Sacramento, CA Redev. Agency Taxable
Bonds, 6.375%, due 11-01-13 200,000 205,924
992,344
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
DECEMBER 31, 2006
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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Maturity of 10 - 20 years: 1.8%
Palmdale, CA Redev. Taxable Bonds,
7.900%, due 09-01-17 $ 225,000 $ 232,529
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $2,466,922) 19.2 2,480,076
TOTAL U.S. AGENCY STEP-UP,
FOREIGN SOVEREIGN, U.S.
CORPORATE AND TAXABLE
MUNICIPAL OBLIGATIONS
(Cost $11,983,639) 91.0 11,761,235
INVESTMENT COMPANIES: 7.7 SHARES
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First American Treasury Oblig. Fund 46,667 46,667
Federated Prime Oblig. Fund 950,000 950,000
TOTAL INVESTMENT COMPANIES
(Cost $996,667) 7.7 996,667
TOTAL INVESTMENTS
(Cost $12,980,306) 3 98.7 12,757,902
OTHER ASSETS AND LIABILITIES 1.3 164,898
NET ASSETS 100.0% $12,922,800
1 Interest rates listed for step-up bonds are the rates as of
December 31, 2006.
2 Security valued according to "good faith pricing" guidelines. (See Note A)
3 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
DECEMBER 31, 2006
ASSETS:
Investments in securities, at market value
(Cost basis - $12,980,306) (Notes A & D) $12,757,902
Receivables - Interest 168,926
Receivables - Fund shares sold 17,226
Total assets 12,944,054
LIABILITIES:
Accrued expenses (Note B) (12,254)
Payables - Fund shares redeemed (9,000)
Total liabilities (21,254)
NET ASSETS $12,922,800
SHARES OUTSTANDING (Unlimited authorized shares - no par value):
Beginning of year 1,467,487
Net decrease (Note C) (223,466)
End of year 1,244,021
NET ASSET VALUE, offering price and redemption price per share $ 10.39
NET ASSETS CONSIST OF:
Paid in capital $13,576,441
Net unrealized depreciation on investments (222,404)
Undistributed net investment income 5,084
Accumulated net realized loss on investments (436,321)
Net Assets $12,922,800
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME (Note A):
Interest $ 748,748
Dividends 27,886
Total investment income 776,634
EXPENSES (Note B):
Investment advisory fee 69,432
Management fee 83,319
Total expenses 152,751
NET INVESTMENT INCOME 623,883
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (120,473)
Change in unrealized depreciation of investments (13,650)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (134,123)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 489,760
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For The Years Ended December 31,
2006 2005
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 623,883 $ 681,798
Net realized loss on investments (120,473) (29,688)
Change in unrealized depreciation of investments (13,650) (230,749)
Net increase in net assets from operations 489,760 421,361
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (633,838) (673,479)
Net decrease in assets from distributions to shareholders (144,078) (673,479)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) (2,377,610) (1,630,981)
Total decrease in net assets (2,521,688) (1,883,099)
NET ASSETS:
Beginning of year 15,444,488 17,327,587
End of year $12,922,800 $15,444,488
UNDISTRIBUTED NET INVESTMENT INCOME $ 5,084 $ 15,039
See notes to financial statements.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2006
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 Parker Carlson & Johnson, Inc. (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 accordance 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, 2006, the Fund has a capital loss carry forward of $436,321, of which
$152,270 can be carried forward through 2008, $98,440 through 2011, $35,450
through 2012, $29,688 through 2013 and $120,473 through 2014. These losses can
be used to offset future gains.
(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 using the
effective interest rate method. 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. Dividend income is recorded on the
ex-dividend date. Paydown gains and losses on mortgage and asset-backed
securities are presented as interest income. Net investment losses, if any, for
tax purposes are reclassified to paid in capital.
(4) New Accounting Pronouncements - In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation 48 ("FIN 48"), Accounting
for Uncertainty in Income Taxes-
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2006
an interpretation of FASB Statement 109. FIN 48 sets forth a threshold for
financial statement recognition, measurement and disclosure of a tax position
taken or expected to be taken on a tax return. Management is currently
evaluating the impact that FIN 48 will have on the financial statements. While
FIN 48 is effective for the Fund's fiscal year beginning January 1, 2007, the
effect will be contained within the June 30, 2007, semi-annual statement. In
addition, in September 2006, the FASB released Statement of Financial Accounting
Standards No. 157 ("SFAS 157"), Fair Value Measurements. SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The application for SFAS 157 is required for
fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact the adoption of SFAS 157 will have on the financial
statements.
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 (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 $69,432 for the
year ended December 31, 2006.
The Fund has a management agreement with PC&J Service Corp. ("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 $4,000 for the year ended
December 31, 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 $83,319
for the year ended December 31, 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 Year Ended For the Year Ended
December 31, 2006 December 31, 2005
Shares Dollars Shares Dollars
------------------- ------------ --------- ------------
Subscriptions 85,737 $ 912,750 171,311 $ 1,852,471
Reinvestment of distributions 61,005 633,838 64,202 673,479
146,742 1,546,588 235,513 2,525,950
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Redemptions (370,208) (3,924,198) (381,337) (4,156,931)
Net decrease (223,466) $(2,377,610) (145,824) $(1,630,981)
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2006
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the year ended December 31, 2006, aggregated
$792,500 and $2,585,000, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 2006, aggregated $0 and
$1,195,560, respectively.
At December 31, 2006, gross unrealized appreciation on investments was $29,067
and gross unrealized depreciation on investments was $251,471, for a net
unrealized depreciation of $222,404 for
financial reporting and federal income tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2006
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Ordinary Income Capital Gains Total Distribution
- --------------- ------------- -------------------
$ 633,838 $ 0 $ 633,838
For the Year Ended December 31, 2005
- -------------------------------------
Ordinary Income Capital Gains Total Distribution
- --------------- ------------- -------------------
$ 673,479 $ 0 $ 673,479
Tax Basis of Distributable Earnings
As of December 31, 2006
Undistributed Ordinary Income Undistributed Capital Gains Unrealized Appreciation
- ------------------------------------ ---------------------------- ------------------------
$ 5,084 $ 0 $ 0
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PC&J PRESERVATION FUND
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FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital For The Years Ended December 31,
Stock Outstanding Throughout the Period 2006 2005 2004 2003 2002
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NET ASSET VALUE-BEGINNING OF PERIOD $ 10.52 $ 10.74 $ 10.88 $ 11.06 $ 10.96
Income from investment operations:
Net investment income 0.53 0.49 0.44 0.47 0.54
Net realized and unrealized
gain (loss) on securities (0.12) (0.23) (0.14) (0.18) 0.11
TOTAL FROM INVESTMENT OPERATIONS 0.41 0.26 0.30 0.29 0.65
Less distributions:
From net investment income (0.54) (0.48) (0.44) (0.47) (0.55)
TOTAL DISTRIBUTIONS (0.54) (0.48) (0.44) (0.47) (0.55)
NET ASSET VALUE-END OF PERIOD $ 10.39 $ 10.52 $ 10.74 $ 10.88 $ 11.06
TOTAL RETURN 3.86% 2.44% 2.72% 2.63% 5.98%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.02% 1.00% 1.00%
Net investment income 4.49% 4.04% 3.83% 4.19% 4.64%
Portfolio turnover rate 5.99% 16.10% 37.75% 30.80% 53.92%
Net assets at end of period (000's) $ 12,923 $15,444 $17,328 $18,081 $18,647
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, 2006, 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
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, 2006, 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, 2006, 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 21, 2007
PC&J PRESERVATION FUND
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ADDITIONAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 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 (July 1, 2006) and held for the six months ended December 31, 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
July 1, 2006 December 31, 2006 During Period*
Actual
$ 1,000.00 $ 1,035.65 $ 5.64
Hypothetical (5% return
before expenses) $ 1,000.00 $ 1,019.66 $ 5.60
* 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
Fund's fiscal year.
PC&J PRESERVATION FUND
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ADDITIONAL INFORMATION (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2006 (Unaudited)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Step-Up Obligations 54.6%
- ------------------------------- ----------------
Foreign Sovereign Obligations 2.6
U.S. Corporate Obligations 14.6
Taxable Municipal Obligations 19.2
Investment Companies 7.7
Other Assets and Liabilities 1.3
Total 100.0%
----------------
PC&J PRESERVATION FUND
- ------------------------
FUND TRUSTEES DISCLOSURE
(Unaudited)
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
- ------------------------------ -------------------- ------------------ --------------------
Robert S. Neff
300 Old Post Office
120 West Third Street
Dayton, Ohio 45402 Trustee since
Year of Birth: 1931 Trustee 2003 2
- ----------------------- -------------------- ----------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------------------------------------- -----------------------------------
Retired from Neff Packaging Solutions Inc. (paper container
manufacturer). Joined firm in 1959; from June 1980 to
June 2001, Chairman and CEO of Neff Packaging; from June
2001 to May 2005, Consultant to Neff Packaging. 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
300 Old Post Office
120 West Third Street
Dayton, Ohio 45402 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 PRESERVATION 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 FUND TIME SERVED OVERSEEN BY TRUSTEE
- ------------------------- ---------------- ------------- --------------------
Treasurer and
Kathleen A. Carlson, CFA* Trustee since
300 Old Post Office Treasurer, Chief 1985; Chief
120 West Third Street Compliance Compliance
Dayton, Ohio 45402 Officer and Officer since
Year of Birth: 1955 Trustee 2004 2
- ------------------------- ---------------- ------------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ---------------------------------------------------- -----------------------------------
President of Adviser and Service Corp. since 1998;
Treasurer and Director since 1982; Chief Compliance
Officer of Adviser since 2004. None
- ---------------------------------------------------- -----------------------------------
NUMBER OF PORTFOLIOS
POSITION(S) HELD LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS WITH FUND TIME SERVED OVERSEEN BY TRUSTEE
- ---------------------- ---------------- ------------- --------------------
James M. Johnson, CFA* Secretary and
300 Old Post Office Trustee since
120 West Third Street President, 1985;
Dayton, Ohio 45402 Secretary and President
Year of Birth: 1952 Trustee since 2005 2
- ---------------------- ---------------- ------------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- --------------------------------------------------------- -----------------------------------
Secretary and Director of Adviser and Service Corp. since
1982. None
- --------------------------------------------------------- -----------------------------------
* 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 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.
(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 2005 $ 14,250
FY 2006 $ 15,000
(b) AUDIT-RELATED FEES
------------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2005 $ None $ None
FY 2006 $ None $ None
Nature of the fees: N/A
(c) TAX FEES
--------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2005 $ 1,750 $ None
FY 2006 $ 1,838 $ None
Nature of the fees: Federal and Excise Tax Returns
(d) ALL OTHER FEES
--------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2005 $ None $ None
FY 2006 $ 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 2005 $ 1,750 $ None
FY 2006 $ 1,838 $ 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, 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 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 22, 2007
-----------------
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 22, 2007
-----------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 22, 2007
-----------------