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: 12-31-2007
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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
Financial Statements and Financial Highlights for
the Year Ended December 31, 2007, and Report of
Independent Registered Public Accounting Firm
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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 2007 Annual Report is for your
information and is provided to you in compliance with ongoing Securities and
Exchange Commission regulations.
MANAGEMENT REVIEW AND ANALYSIS
Investors everywhere, we're sure, learned more than they ever cared to know
about subprime mortgages in 2007. Default rates that exceeded mortgage
insurers' expectations caused prices of the CDO (collaterized debt oblilgations)
pools to plummet. There were investors all over the globe who held positions,
measuring in the hundreds of billions of dollars. By the end of the year,
financial institutions had written off over $100 billion from the value of their
CDO holdings.
AVERAGE ANNUAL TOTAL RETURNS
1 Yr. 5 Yrs 10 Yrs
Preservation Fund 5.83% 3.49% 4.57%
Lehman Inter
Gov/Credit 7.39% 4.06% 5.76%
Treasury Bills (3month) 5.14% 3.03% 3.54%
The meltdown in the value of the CDO investments and uncertainty as to what
products institutions held, led to some anxious moments in the credit markets.
At times, the bank commercial paper market, the market banks rely upon to
balance their lending books, was not functioning. Fortunately, central banks
from around the globe stepped in to provide the necessary liquidity to get it
working again and, hopefully, keep their economies growing.
Credit spreads widened to reflect an increased aversion to risk. A concurrent
flight to quality and cuts in the fed funds rate by the Federal Reserve led to a
100-basis-point (1.0%) decline in the 5-year Treasury yield. Conversely, the
yield on a 5-year below-investment-grade B-rated corporate bond rose by over 200
basis points. The year began with a below-average 300-basis-point spread between
the two 5-year benchmarks and ended at an above-average 600-basis-point spread.
Returns in the high quality fixed income market benefited from the decline in
Treasury yields.
The PCJ Preservation Fund, with its heavy exposure to high-quality credit
instruments, provided a 5.83% return for 2007. However, the Fund was positioned
more for a rising interest rate environment than a declining one. To preserve
principal in a rising rate market, the Fund's effective average maturity
(average based on expected bond call dates) was lower than the Lehman
Intermediate Bond Index.
It also held a number of issues with limited price appreciation-the security
would be called if interest rates dropped; therefore, the price could not rise
much above par. To compensate the Fund for the price limitation, the securities
provided above-average coupon payments and offered some downside price
protection from a rising rate environment. The higher coupon payments helped
the Fund's return exceed the 5.14% return of 3-month Treasury bills. But,
holding issues with price caps caused the return to fall below the 7.39% return
of the Lehman Index.
As interest rates declined near the end of the year, a number of the Fund's
price-limited securities were called. This has resulted in an above-average
cash equivalents position. We believe the above-average spreads in the credit
markets, though, should present us with some reasonable opportunities. But, as
always, the purchases will be in keeping with our objective to preserve your
capital.
PRESERVATION LEHMAN INTER TREASURY B
GROWTH GOV/CR GROWTH
1997 10,000 10,000 10,000
1998 10,835 10,844 10,478
1999 10,692 10,886 10,964
2000 11,692 11,988 11,602
2001 12,422 13,062 11,997
2002 13,165 14,347 12,190
2003 13,512 14,966 12,313
2004 13,879 15,421 12,482
2005 14,218 15,664 12,865
2006 14,766 16,304 13,463
2007 15,627 17,508 14,155
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 888.223.0600.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 2007
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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U.S. AGENCY STEP-UP OBLIGATIONS 1:
Maturity of 1 - 5 years: 6.4%
Federal National Mortgage Assn. Note,
4.000%, due 02-26-10 $ 765,000 $ 765,000
Maturity of 5 - 10 years: 5.8
Federal Home Loan Banks,
5.000%, due 07-30-13 700,000 700,437
Maturity of 10 - 15 years: 20.7
Federal Home Loan Banks,
5.000%, due 06-04-18 2,000,000 2,003,750
Federal Home Loan Banks,
4.250%, due 07-16-18 500,000 498,594
2,502,344
TOTAL U.S. AGENCY STEP-UP OBLIGATIONS
(Cost $3,959,209) 32.9 3,967,781
FOREIGN SOVEREIGN OBLIGATIONS:
Maturity of 5 - 10 years: 2.8
Bayerische Landesbank Note 2,
6.750%, due 10-29-13 350,000 341,250
TOTAL FOREIGN SOVEREIGN OBLIGATIONS
(Cost $350,000) 341,250
U.S. CORPORATE OBLIGATIONS:
Maturity of 5 - 10 years: 8.2%
Lehman Bros Holdings Inc.,
4.800%, due 03-13-14 148,000 137,743
HSBC Finance Corp.,
6.000%, due 08-15-14 275,000 276,020
Bear Stearns Cos. Inc.,
5.700%, due 11-15-14 162,000 153,624
Alltel Corp.,
7.000%, due 03-15-16 100,000 78,000
Goldman Sachs Group Inc.,
5.625%, due 01-15-17 100,000 97,658
Terex Corp.,
8.000%, due 11-15-17 250,000 253,125
996,170
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2007
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
U.S. CORPORATE OBLIGATIONS (Cont'd):
Maturity of 10 - 20 years: 18.3%
Merrill Lynch Co. Inc.,
6.500%, due 07-15-18 $ 230,000 $ 232,438
Int'l Bank Recon. & Dev. Range Note 2,
7.000%, due 08-13-18 850,000 826,625
Morgan Stanley D W Range Note 2,
8.000%, due 07-06-21 250,000 246,250
Toyota Motor Credit Corp. Range Note 2,
8.000%, due 09-21-21 350,000 348,250
General Electric Capital Corp. Step-Up 1,
4.875%, due 10-28-21 200,000 202,820
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 12-21-21 125,000 124,375
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 01-18-22 50,000 49,750
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 02-01-22 175,000 174,125
2,204,633
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $3,228,854) 26.5 3,200,803
TAXABLE MUNICIPAL OBLIGATIONS 4:
Maturity of less than 1 year: 3.2
Maricopa County, AZ Indl. Dev. Taxable
Bonds, 6.000%, due 07-01-08 175,000 174,113
Oklahoma City, OK Airport Taxable
Bonds, 6.950%, due 07-01-08 80,000 80,000
Dayton, OH Taxable Hsng. Improvement
Bonds, 6.250%, due 11-01-08 140,000 140,000
394,113
Maturity of 1 - 5 years: 1.2
Dayton, OH Econ. Dev. Taxable
Bonds, 6.380%, due 12-01-09 140,000 142,713
Maturity of 5 - 10 years: 2.1
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 250,000 250,000
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2007
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
Maturity of 10 - 20 years: 7.8%
Hazelwood MO ID Authority Rev,
5.640%, due 02-01-18 $ 150,000 $ 147,285
Maryland Heights MO Tax Incremnt Rev,
7.000%, due 09-01-18 200,000 200,270
Hudson Cnty NJ Lease Rev,
7.950%, due 09-01-19 300,000 314,748
Dekalb Cnty GA Dev Auth Rev,
6.875%, due 03-01-20 275,000 279,499
941,802
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $1,724,804) 14.3 1,728,628
TOTAL U.S. AGENCY STEP-UP,
FOREIGN SOVEREIGN, U.S.
CORPORATE AND TAXABLE
MUNICIPAL OBLIGATIONS
(Cost $9,262,867) 76.5 9,238,462
LEASE ASSIGNMENT: 1.1
PHS Indian Health Service Lease 2, 5
7.000%, due 05-01-10 141,802
TOTAL LEASE ASSIGNMENT
(Cost $145,054) 141,802
PREFERRED STOCK: SHARES
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Annaly Cap Mgt Inc. Pfd. A, 7.875% .6 3,000 72,180
TOTAL PREFERRED STOCK
(Cost $71,580) 72,180
INVESTMENT COMPANIES: 22.9
Highland Floating Rate A 29,970 279,321
Oppenheimer Sr. Floating Rate A 31,546 282,965
First American Treasury Obligations 2,202,001 2,202,001
TOTAL INVESTMENT COMPANIES
(Cost $2,802,001) 2,764,287
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
DECEMBER 31, 2007
PERCENT
OF NET PRINCIPAL MARKET
SECURITY ASSETS AMOUNT VALUE
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TOTAL INVESTMENTS
(Cost $12,281,502) 3 101.1% $12,216,731
LIABILITIES LESS OTHER ASSETS (1.1) (138,478)
NET ASSETS 100.0% $12,078,253
1 Interest rates listed for step-up bonds are the rates as of December 31, 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)
4 Some municipal obligations have a credit enhancement feature which produces a
credit quality comparable to that of a same-rated corporate bond.
5 Security has been deemed illiquid.
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2007
ASSETS:
Investments in securities, at market value
(Cost basis - $12,281,502) (Notes A & D) $12,216,731
Receivables - Dividends and Interest 143,311
Receivables - Fund shares sold 1,179
Total assets 12,361,221
LIABILITIES:
Accrued expenses (Note B) (11,232)
Payables - Securities purchased (271,736)
Total liabilities (282,968)
NET ASSETS $12,078,253
SHARES OUTSTANDING (Unlimited authorized shares - no par value):
Beginning of year 1,244,021
Net decrease (Note C) (91,384)
End of year 1,152,637
NET ASSET VALUE, offering price and redemption price per share $ 10.48
NET ASSETS CONSIST OF:
Paid in capital $12,591,339
Net unrealized depreciation on investments (64,771)
Undistributed net investment income 5,588
Accumulated net realized loss on investments (453,903)
Net Assets $12,078,253
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
INVESTMENT INCOME (Note A):
Interest $626,672
Dividends 76,578
Total investment income 703,250
EXPENSES (Note B):
Investment advisory fee 61,939
Management fee 74,326
Total expenses 136,265
NET INVESTMENT INCOME 566,985
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (17,582)
Change in unrealized appreciation/depreciation of investments 157,633
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 140,051
NET INCREASE IN NET ASSETS FROM OPERATIONS $707,036
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,
2007 2006
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 566,985 $ 623,883
Net realized loss on investments (17,582) (120,473)
Change in unrealized appreciation/depreciation
of investments 157,633 (13,650)
Net increase in net assets from operations 707,036 489,760
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (566,481) (633,838)
Net decrease in assets from distributions to shareholders (566,481) (633,838)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) (985,102) (2,377,610)
Total decrease in net assets (844,547) (2,521,688)
NET ASSETS:
Beginning of year 12,922,800 15,444,488
End of year $12,078,253 $12,922,800
UNDISTRIBUTED NET INVESTMENT INCOME $ 5,588 $ 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 YEAR ENDED DECEMBER 31, 2007
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 the securities 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, 2007, the Fund has a capital loss carry forward of $453,902, of which
$152,270 can be carried forward through 2008, $98,440 through 2011, $35,450
through 2012, $29,688 through 2013, $120,473 through 2014 and $17,581 through
2015. These losses can be used to offset future gains. See Note E for further
disclosure regarding adoption of FASB Interpretation 48. The adoption has no
material impact on the financial statements; furthermore, management anticipates
no impact on future financial statements.
(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.
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2007
(4) New Accounting Pronouncements - 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
Fund will adopt SFAS 157 effective January 1, 2008. Initial analysis reveals 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 $61,939 for the year ended December 31, 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 $4,000 for the year ended
December 31, 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 $74,326
for the year ended December 31, 2007.
Certain officers and trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
C. C APITAL SHARE TRANSACTIONS
For the Year Ended For the Year Ended
December 31, 2007 December 31, 2006
-------------------
>
Shares Dollars Shares Dollars
------------------- ------------ --------- ------------
Subscriptions 103,358 $ 1,102,488 85,737 $ 912,750
Reinvestment of distributions 54,105 566,481 61,005 633,838
157,463 1,668,969 146,742 1,546,588
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Redemptions (248,847) (2,654,071) (370,208) (3,924,198)
Net decrease (91,384) $ (985,102) (223,466) $(2,377,610)
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the year ended December 31, 2007, aggregated
$3,446,726 and $2,061,860, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 2007, aggregated $180,000
and $3,416,070, respectively.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2007
At December 31, 2007, gross unrealized appreciation on investments was $33,602
and gross unrealized depreciation on investments was $98,373, for a net
unrealized depreciation of $64,771 for
financial reporting and federal income tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2007
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Ordinary Income Capital Gains Total Distribution
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$ 566,481 $ 0 $ 566,481
For the Year Ended December 31, 2006
Ordinary Income Capital Gains Total Distribution
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$ 633,838 $ 0 $ 633,838
Tax Basis of Distributable Earnings
As of December 31, 2007
Undistributed Undistributed
Ordinary Accumulated Unrealized
Income Realized Losses Depreciation
- ------------------------------------ ----------------- --------------
$ 5,588 $ ( 453,903) $ (64,771)
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In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. 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, and
is effective for the Fund's fiscal year beginning January 1, 2007. Management
has analyzed the Fund's tax positions taken on federal income tax returns for
all open tax years (tax years ended December 31, 2004-2007) for purposes of
implementing FIN 48, and has concluded that as of December 31, 2007, no
provision for income tax would be required in the Fund's financial statements.
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 2007 2006 2005 2004 2003
-------- -------- -------- --------
NET ASSET VALUE-BEGINNING OF PERIOD $10.39 $10.52 $10.74 $10.88 $11.06
Income from investment operations:
Net investment income 0.52 0.53 0.49 0.44 0.47
Net realized and unrealized
gain (loss) on securities 0.09 (0.12) (0.23) (0.14) (0.18)
TOTAL FROM INVESTMENT OPERATIONS 0.61 0.41 0.26 0.30 0.29
Less distributions:
From net investment income (0.52) (0.54) (0.48) (0.44) (0.47)
TOTAL DISTRIBUTIONS (0.52) (0.54) (0.48) (0.44) (0.47)
NET ASSET VALUE-END OF PERIOD $10.48 $10.39 $10.52 $10.74 $10.88
TOTAL RETURN 5.83% 3.86% 2.44% 2.72% 2.63%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.02% 1.00%
Net investment income 4.58% 4.49% 4.04% 3.83% 4.19%
Portfolio turnover rate 31.76% 5.99% 16.10% 37.75% 30.80%
Net assets at end of period (000's) $12,078 $12,923 $15,444 $17,328 $18,081
See notes to financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIR
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, 2007, 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, 2007, 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, 2007, 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 22, 2008
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PC&J PRESERVATION FUND
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ADDITIONAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 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
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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, 2007) and held for the six months ended December 31, 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
July 1, 2007 December 31, 2007 During Period*
================== ================== ===============
Actual
========================
$ 1,000.00 $ 1,032.49 $ 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
- ------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2007 (Unaudited)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Step-Up Obligations 32.9%
- ------------------------------- ----------------
Foreign Sovereign Obligations 2.8
U.S. Corporate Obligations 26.5
Taxable Municipal Obligations 14.3
Investment Companies 22.9
Lease Assignment 1.1
Preferred Stock 0.6
Liabilities Less Other Assets (1.1)
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 Fund, 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 PERFORMANCE FUND
FUND TRUSTEES DISCLOSURE (Concluded)
(Unaudited)
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 PC&J 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 PC&J Service Corp since
1982; Chief Investment Officer of the Adviser 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 2006 $ 15,000
FY 2007 $ 16,750
(b) AUDIT-RELATED FEES
------------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2006 $ None $ None
FY 2007 $ None $ None
Nature of the fees: N/A
(c) TAX FEES
--------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2006 $ 1,838 $ None
FY 2007 $ 1,918 $ None
Nature of the fees: Federal and Excise Tax Returns
(d) ALL OTHER FEES
--------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2006 $ None $ None
FY 2007 $ 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 2006 $ 1,838 $ None
FY 2007 $ 1,918 $ 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, 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 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 25, 2008
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 25, 2008
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 25, 2008