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, 2007
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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.
Page 1
PC&J PRESERVATION
FUND
Semi-Annual Report to Shareholders
June 30, 2007
The PC&J Preservation Fund is a registered investment company under the
Investment Company Act of 1940 and 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).
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PC&J PRESERVATION FUND
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FINANCIAL HIGHLIGHTS
The information contained in the table below for the years ended December 31,
2006, 2005, 2004, 2003, and 2002, 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, 2007, 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 2007 2006 2005 2004 2003 2002
Stock Outstanding Throughout the Period (Unaudited)
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.39 $ 10.52 $ 10.74 $ 10.88 $ 11.06 $ 10.96
Income from investment operations:
Net investment income 0.25 0.53 0.49 0.44 0.47 0.54
Net realized and unrealized
gain (loss) on securities 0.01 (0.12) (0.23) (0.14) (0.18) 0.11
TOTAL FROM INVESTMENT OPERATIONS 0.26 0.41 0.26 0.30 0.29 0.65
Less distributions:
From net investment income (0.00) (0.54) (0.48) (0.44) (0.47) (0.55)
TOTAL DISTRIBUTIONS (0.00) (0.54) (0.48) (0.44) (0.47) (0.55)
NET ASSET VALUE-END OF PERIOD $ 10.65 $ 10.39 $ 10.52 $ 10.74 $ 10.88 $ 11.06
TOTAL RETURN 2.50% 3.86% 2.44% 2.72% 2.63% 5.98%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%* 1.10% 1.10% 1.02% 1.00% 1.00%
Net investment income 4.59%* 4.49% 4.04% 3.83% 4.19% 4.64%
Portfolio turnover rate 19.42%* 5.99% 16.10% 37.75% 30.80% 53.92%
Net assets at end of period (000's) $ 12,187 $12,923 $15,444 $17,328 $18,081 $18,647
* Annualized
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
JUNE 30, 2007
(UNDAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- -------- ---------- ----------
U.S. AGENCY STEP-UP OBLIGATIONS 1:
Maturity of 1 - 5 years: 12.8%
Federal National Mortgage Assn. Note,
4.000%, due 02-26-10 $ 765,000 $ 758,306
Federal Home Loan Banks,
5.000%, due 10-28-11 800,000 799,250
1,557,556
Maturity of 5 - 10 years: 13.8
Federal Home Loan Banks,
5.000%, due 07-30-13 700,000 692,344
Federal National Mortgage Assn. Note,
5.000%, due 02-25-15 1,000,000 992,812
1,685,156
Maturity of 10 - 20 years: 29.3
Federal Home Loan Banks,
5.000%, due 06-04-18 2,000,000 1,962,500
Federal Home Loan Banks,
4.250%, due 07-16-18 500,000 475,000
Federal Home Loan Mortgage Corp.,
5.125%, due 08-15-18 390,000 387,702
Federal Home Loan Mortgage Corp.,
4.999%, due 09-21-18 750,000 743,150
3,568,352
TOTAL U.S. AGENCY STEP-UP OBLIGATIONS
(Cost $6,900,283) 55.9 6,811,064
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of less than 1year: 2.2
Chicago Heights, IL GO Taxable
Bonds, 7.350%, due 12-01-07 170,000 171,076
Minneapolis, MN Cmty. Dev. Taxable
Bonds, 10.400%, due 12-01-07 100,000 101,400
272,476
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2007
(UNAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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Maturity of 1 - 5 years: 7.1%
Maricopa County, AZ Indl. Dev. Taxable
Bonds, 6.000%, due 07-01-08 $ 300,000 $ 300,000
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 12-01-09 140,000 142,181
862,181
Maturity of 5 - 10 years: 2.0
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 250,000 250,000
Maturity of 10 - 20 years: 1.9
Palmdale, CA Redev. Taxable Bonds,
7.900%, due 09-01-17 225,000 230,216
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $1,629,167) 13.2 1,614,873
U.S. CORPORATE OBLIGATIONS:
Maturity of 5 - 10 years: 0.7
Alltel Corp.,
7.000%, due 03-15-16 100,000 87,631
Maturity of 10 - 20 years: 15.4
Int'l Bank Reconstruction & Dev. 2,
7.000%, due 08-13-18 850,000 811,750
Morgan Stanley DW 2,
8.000%, due 07-06-21 250,000 243,750
Toyota Motor Credit Corp. 2,
8.000%, due 09-21-21 350,000 342,125
General Elec Capital Corp. 1,
4.875%, due 10-28-21 200,000 184,380
Toyota Motor Credit Corp. 2,
8.000%, due 12-21-21 125,000 122,500
Toyota Motor Credit Corp. 2,
8.000%, due 02-01-22 175,000 171,500
1,876,005
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $2,032,706) 16.1 1,963,636
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
JUNE 30, 2007
(UNAUDITED)
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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FOREIGN SOVEREIGN OBLIGATIONS:
Maturity of 5 - 10 years: 2.8%
Bayerische Landesbank Note 2,
6.750%, due 10-29-13 $ 350,000 $ 336,000
TOTAL FOREIGN SOVEREIGN OBLIGATIONS
(Cost $350,000) 336,000
TOTAL U.S. AGENCY STEP-UP,
TAXABLE MUNICIPAL, U.S.
CORPORATE, AND FOREIGN
SOVEREIGN OBLIGATIONS
(Cost $10,912,156) 88.0 10,725,573
LEASE ASSIGNMENT: 1.4
PHS Indian Health Service Lease 167,398
TOTAL LEASE ASSIGNMENT
(Cost $172,125) 167,398
INVESTMENT COMPANIES: 9.3 SHARES
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Highland Floating Rate A 29,970 301,798
Oppenheimer Sr. Floating Rate A 31,546 299,685
First American Treasury Obligations 36,482 36,482
Federated Prime Obligations 500,000 500,000
TOTAL INVESTMENT COMPANIES
(Cost $1,136,482) 1,137,965
TOTAL INVESTMENTS
(Cost $12,220,763)3 98.7 12,030,936
OTHER ASSETS AND LIABILITIES 1.3 156,072
NET ASSETS 100.0% $12,187,008
1 Interest rates listed for step-up bonds are the rates as of June 30, 2007.
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
JUNE 30, 2007
(UNAUDITED)
ASSETS:
Investments in securities, at market value
(Cost basis - $12,220,763) (Notes A & D) $12,030,936
Receivables - Interest 158,174
Receivables - Fund shares sold 8,887
Total assets 12,197,997
LIABILITIES:
Accrued expenses (Note B) (10,989)
NET ASSETS $12,187,008
SHARES OUTSTANDING (Unlimited authorized shares - no par value):
Beginning of period 1,244,021
Net decrease (Note C) (99,795)
End of period 1,144,226
NET ASSET VALUE, offering price and redemption price per share $ 10.65
NET ASSETS CONSIST OF:
Paid in capital $12,520,442
Net unrealized depreciation on investments (189,828)
Undistributed net investment income 294,915
Accumulated net realized loss on investments (438,521)
Net Assets $12,187,008
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
INVESTMENT INCOME (Note A):
Interest $330,354
Dividends 28,430
Total Investment Income 358,784
EXPENSES (Note B):
Investment advisory fee 31,342
Management fee 37,611
Total expenses 68,953
NET INVESTMENT INCOME 289,831
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (2,200)
Change in unrealized depreciation of investments 32,576
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 30,376
NET INCREASE IN NET ASSETS FROM OPERATIONS $320,207
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, 2007 December 31, 2006
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 289,831 $ 623,883
Net realized loss on investments (2,200) (120,473)
Change in unrealized depreciation of
investments 32,576 (13,650)
Net increase in net assets from operations 320,207 489,760
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income 0 (633,838)
Net decrease in assets from distributions to
shareholders 0 (144,078)
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS (Note C) (1,055,999) (2,377,610)
Total decrease in net assets (735,792) (2,521,688)
NET ASSETS:
Beginning of year 12,922,800 15,444,488
End of period $12,187,008 $12,922,800
UNDISTRIBUTED NET INVESTMENT INCOME $ 294,915 $ 5,084
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, 2007
(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 ("1940
Act"). 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, as amended, 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 SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
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 has evaluated the
impact of FIN 48 and has concluded that it has no impact on the financial
statements. 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. Management has evaluated
the impact of the adoption of SFAS 157 and has concluded it has no impact 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 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 $31,342 for the six months ended June 30, 2007.
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 $2,000 for the six months ended
June 30, 2007.
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 $37,611
for the six months ended June 30, 2007.
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, 2007 For the Year Ended
(Unaudited) December 31, 2006
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Shares Dollars Shares Dollars
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Subscriptions 60,196 $ 637,826 85,737 $ 912,750
Reinvestment of distributions 0 0 61,005 633,838
60,196 637,826 146,742 1,546,588
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Redemptions (159,991) (1,693,825) (370,208) (3,924,198)
Net decrease (99,795) $(1,055,999) (223,466) $(2,377,610)
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
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, 2007, aggregated
$1,165,342 and $1,162,360, respectively. Purchases and sales of long-term U.S.
Government Securities for the six months ended June 30, 2007, aggregated $0 and
$296,070, respectively.
At June 30, 2007, gross unrealized appreciation on investments was $5,557 and
gross unrealized depreciation on investments was $195,384 for a net unrealized
depreciation of $189,827 for financial reporting and federal income tax
purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2006 For the Year Ended December 31, 2005
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Ordinary Income Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
- ---------------- -------------- ------------------- ---------------- -------------- -------------------
633,838 $ 0 $ 633,838 $ 673,479 $ 0 $ 673,479
Tax Basis of Distributable Earnings
-----------------------------------
As of December 31, 2006
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Undistributed Ordinary Income Undistributed Capital Gains Unrealized Appreciation
- ------------------------------ ---------------------------- ------------------------
5,084 $ 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
13, 2007. 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
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT (Continued)
important in reviewing the Fund's performance and advisory fees. The Trustees
also reviewed the Adviser's balance sheet dated as of December 31, 2006, and
income statement for the year ended December 31, 2006, 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 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 with comparable
benchmarks. 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 explained that the Fund's return
for 2006 lagged behind the benchmarks due to its higher ratio of high-quality
government issues that provide a slightly lower yield than securities with more
credit risk. The Adviser noted that, over a five-year time horizon, as the
economy stabilized and then moved higher, the Fund has been managed to protect
its principal value against a potential rise in interest rates. The Adviser
indicated its belief that interest rates could be low and stable for a prolonged
period of time, and, therefore, the Fund will expand its universe of available
investment options to increase the expected yield. The Adviser reviewed the
performance of the Fund compared to other short and intermediate term mutual
funds, noting that the Fund performed similarly, particularly in the last three
years. The Trustees concluded that they were satisfied with the performance of
the Fund, particularly in the last three years, and are encouraged with the
expansion of investment opportunities for the shareholders to improve the yield
without incurring excessive risk.
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, of which there were none; 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 and Service Corp. of
providing the services and the profits to be realized by the Adviser and Service
Corp. In reviewing the Adviser's profitability, the
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT (Concluded)
Trustees considered and reviewed the information in the Board materials which
included the allocation of expenses to the Adviser, including the method of
allocating indirect and overhead costs with respect to the Funds; a comparison
of the Adviser's overall profitability with the profitability of other
investment advisers; and material payments by the Funds to the Adviser, other
than the fees paid pursuant to the Agreement. Materials were distributed at the
meeting which compared Service Corp.'s service provider fees with the fees of
other service providers. After this review, the Trustees concluded that the
allocation of expenses was reasonable, the profitability of the Adviser
consolidated with the profitability of Service Corp. was below the average of
other investment advisers, and the service provider fees charged by Service
Corp. were very reasonable.
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. In addition,
the Adviser pointed out that small, individually managed accounts would be
subject to a minimum fee that would exceed the advisory fee charged through the
Fund. 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, deferred or redemption fees. Based on the information presented, the
Trustees concluded that the Adviser's fee schedule was reasonable. The Fund's
expense ratio of 1.10% was lower than the 1.26% average expense ratio of the
other funds of similar size and objective. It was also noted that the 1.26%
average expense ratio does not include front-end fees (average of 1.2%),
deferred load (average of 0.89%) and 12b-1 fees (average of 0.44%) charged by
the other funds of similar size and objective.
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
- ------------------------
ADDITIONAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(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, 2007) and held for the six months ended June 30, 2007.
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, 2007 June 30, 2007 During Period*
Actual $ 1,000.00 $ 1,025.02 $ 5.52
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, 2007
(UNAUDITED)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Step-Up Obligations 55.9%
- ------------------------------- ----------------
Taxable Municipal Obligations 13.2
U.S. Corporate Obligations 16.1
Foreign Sovereign Obligations 2.8
Lease Assignment 1.4
Investment Companies 9.3
Other Assets and Liabilities 1.3
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 2, 2007, 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 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 August 22, 2007
---------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date August 22, 2007
---------------