PC&J PRESERVATION FUND
Financial Statements and Financial Highlights for the
Year Ended December 31, 1996 and Independent
Auditors' Report
<PAGE>
PC&J PRESERVATION FUND
ANNUAL REVIEW
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INTRODUCTION
The PC&J Preservation Fund is a registered investment company under
the Investment Company Act of 1940 and, for your protection, is regulated
by the Securities and Exchange Commission. The enclosed 1996 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.
MANAGEMENT REVIEW AND ANALYSIS
The seesaw continues. The tone of the market at the beginning of the
year reflected prospects for non-inflationary economic growth and perhaps a
balanced budget agreement. The yield on 30-year treasuries was 5.94%. This
represented the low for the year as indications for a strengthening economy
began to cause concern about accelerating inflation. By the middle of the
year, market gurus were speculating on a 50 basis point increase in the
Federal Funds rate. Long-term yields peaked at 7.20 percent in September.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 Yr. 5 Yrs 10 Yrs
<S> <C> <C> <C>
Preservation Fund 2.8% 5.9% 7.1%
Lehman Composite 2.9% 7.0% 8.3%
Treasury Bills (3mnth) 5.3% 4.3% 5.5%
</TABLE>
During the fourth quarter economic news began to point to a decelerating
economy and the Federal Reserve backed off as did interest rates. Yet much
of the damage had been done. The long bond ended the year at 6.64% producing
problems for bond investors.
As you know, bond prices decline when interest rates rise; the extent
depending on the magnitude of the increase and the maturity of the bond.
Price depreciation worked against the interest earned to produce a 2.7%
total return for the year; in line with the Lehman Composite yet below the
3 month Treasury Bill return representing the cash alternative. Anticipating
that interest rates were going to rise in 1997, the PC&J Preservation Fund
began the year with a conservative average maturity of 5.3 years. The Fund
maintained this conservative posture and has ended the year with a 4-year
average maturity.
Low quality corporate bonds were one of the best performing sectors for
1997. The Fund in keeping with its relatively low risk objective did not own
any of these issues and therefore was at a disadvantage when compared to the
Lehman Government/Corporate Bond Index. We have consciously chosen to
maintain a lower risk posture because it is consistent with our preservation
of capital objective.
Looking out over a longer timeframe, the Fund continues to meet its
objective of providing a return superior to cash alternatives as measured by
3-month Treasury bills. We have also found that the strategy of maintaining
a lower risk posture than the Lehman Composite has led to returns that are
more consistent over time.
GROWTH OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Preservation Lehman G/C Treasury B
Year Growth Growth Growth
<S> <C> <C> <C>
1986 10,000 10,000 10,000
1987 10,390 10,230 10,550
1988 10,920 11,007 11,215
1989 12,154 12,571 12,157
1990 13,284 13,614 13,105
1991 14,931 15,806 13,839
1992 15,872 17,007 14,323
1993 17,221 18,878 14,753
1994 16,808 18,217 15,328
1995 19,363 21,551 16,248
1996 19,895 22,176 17,111
</TABLE>
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 WILL BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST AT THE TIME OF REDEMPTION.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
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PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
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<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS:
Maturity of 1 - 5 years: 45.5%
Federal Nat'l. Mortgage Assoc.
Step Notes, 5.550%, due 10/98 1.75 750,000 738,825
Federal Nat'l. Mortgage Assoc.
Notes, 4.875%, due 10/98 1.75 1,000,000 978,906
Federal Home Loan Bank Bonds,
6.000%, due 12/98 2.00 1,500,000 1,494,540
Federal Nat'l Mortgage Assoc.
Notes, 9.550%, due 03/99 2.25 1,000,000 1,071,875
U.S. Treasury Notes,
7.000%, due 04/99 2.25 1,000,000 1,022,500
U.S. Treasury Notes,
6.500%, due 04/99 2.25 1,500,000 1,517,813
U.S. Treasury Notes,
7.750%, due 01/00 3.00 500,000 523,437
------------
7,347,896
Maturity of 6 - 10 years: 40.2
U.S. Treasury Notes,
6.375%, due 08/02 5.75 2,000,000 2,013,750
U.S. Treasury Notes,
5.875%, due 02/04 7.25 1,500,000 1,461,094
Federal Nat'l. Mortgage Assoc.
Notes, 7.600%, due 04/04 7.25 500,000 497,031
U.S. Treasury Notes,
7.250%, due 08/04 7.75 500,000 526,563
Federal Home Loan Bank Notes,
6.380%, due 10/04 7.75 1,000,000 979,010
Federal Home Loan Mortgage Corp.
Notes, 7.510%, due 08/05 8.75 1,000,000 1,009,380
------------
6,486,828
------ ------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $13,714,166) 85.7% $13,834,724
</TABLE>
See notes to financial statements.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
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PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
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<S> <C> <C> <C> <C>
TOTAL U.S. GOVERNMENT OBLIGATIONS
FORWARD (Cost $13,714,166) 85.7% $13,834,724
------ ------------
U.S. CORPORATE OBLIGATIONS:
Maturity of 1 - 5 years: 9.4
Lehman Brothers Holding Inc.
Notes, 5.750%, due 02/98 1.25 525,000 521,797
US Leasing Int'l, Div. of Ford, Med
Term Notes, 6.700%, due 09/99 2.75 500,000 502,110
American Express Credit Corp.
Notes, 6.125%, due 11/01 5.00 500,000 491,770
------------
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $1,503,452) 1,515,677
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MUNICIPAL OBLIGATIONS - 3.1
Maturity of 6-10 years -
Ohio Taxable Development Assistance
Bonds, 6.820%, due 04/03
(Cost $500,000) 6.25 525,000 501,430
------ ------------
TOTAL U.S. GOVERNMENT, CORPORATE, AND
MUNICIPAL OBLIGATIONS
(Cost $15,717,618) 98.2 15,851,831
SHORT-TERM OBLIGATIONS
(Cost $26,566) 0.1 26,566
------ ------------
TOTAL INVESTMENTS
(Cost $15,744,184) 98.3% $15,878,397
====== ============
</TABLE>
See notes to financial statements.
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PC&J PRESERVATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
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<TABLE>
<S> <C>
ASSETS:
Investments in securities, at market value $15,878,397
(Cost basis - $15,744,184) (Notes A & D)
Receivables: Interest 286,462
------------
Total assets 16,164,859
LIABILITIES - Accrued expenses (Note B) (13,809)
------------
NET ASSETS $16,151,050
============
SHARES OUTSTANDING (Unlimited authorization - no par value):
Beginning of year 1,455,020
Net increase (Note C) 17,437
------------
End of year 1,472,457
============
NET ASSET VALUE PER SHARE $10.97
============
NET ASSETS CONSIST OF:
Paid in capital $16,016,837
Net unrealized appreciation 134,213
------------
Net Assets $16,151,050
============
</TABLE>
See notes to financial statements.
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PC&J PRESERVATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
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<TABLE>
<S> <C>
INVESTMENT INCOME - Interest (Note A) $ 1,021,424
------------
EXPENSES (Note B):
Investment advisory fee 80,047
Management fee 80,047
------------
Total expenses 160,094
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NET INVESTMENT INCOME 861,330
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note D):
Net realized gain on investments 57,532
Change in unrealized appreciation/(depreciation) of investments (495,171)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (437,639)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 423,691
============
</TABLE>
See notes to financial statements.
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PC&J PRESERVATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
For The Years Ended December 31,
1996 1995
------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 861,330 $ 813,759
Net realized gain on investments 57,532 52,173
Change in unrealized appreciation
(depreciation) of investments (495,171) 1,188,939
------------ ------------
Net increase in net assets from operations 423,691 2,054,871
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income (861,330) (816,140)
Dividends from net realized gain on
investments (57,532) (2,751)
------------ ------------
Net decrease in net assets from dividends
to shareholders (918,862) (818,891)
INCREASE IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) 174,434 974,772
------------ ------------
Total increase (decrease) in net assets (320,737) 2,210,752
NET ASSETS
Beginning of year 16,471,787 14,261,035
----------- ------------
End of year $16,151,050 $16,471,787
============ ============
</TABLE>
See notes to financial statements.
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PC&J PRESERVATION FUND
NOTES TO FINANCIAL STATEMENTS
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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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates or
assumptions that affect the reported amounts of assets and liabilities
and 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 - Investments in securities traded on the
over-the-counter market are valued at the average of the reported bid
and ask prices. All other securities are valued using established
procedures which involve approximating the yield-to-maturity of similar
securities traded on a national exchange.
(2) Federal Income Taxes - The Fund has elected to be treated as a regulated
investment company and intends to comply with the requirements under
Subchapter M of the Internal Revenue Code and to distribute all of its
net investment income and realized gains on security transactions.
Accordingly, no provision for federal income taxes has been made in the
accompanying financial statements.
(3) Other - Security transactions are accounted for on the date the
securities are purchased or sold, (trade date). Realized gains and
losses on sales are determined using the first-in first-out method.
Dividends to shareholders from net investment income and net realized
capital gains are declared and paid annually. Interest income is
accrued daily.
B. INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT
The Fund has an investment advisory agreement with Parker, Carlson &
Johnson, Inc. (the 'Advisor'), wherein the Fund pays the Advisor a monthly
advisory fee, accrued daily, based on an annual rate of one-half of one
percent of the daily net assets of the Fund. Investment advisory fees were
$80,047 for the year ended December 31, 1996.
The Fund has a management agreement with PC&J Service Corp., (the 'Service
Corp.'), wholly owned by the shareholders of the Advisor. The Fund pays
Service Corp. for the overall management of the Fund's business affairs,
exclusive of the services provided by the Advisor, and functions as the
Fund's transfer and dividend disbursing agent. Service Corp. pays all
expenses of the Fund (with certain exclusions) and is entitled to a monthly
fee, accrued daily, based on an annual rate of one-half of one percent of
the daily net assets of the Fund. Management fees were $80,047 for the year
ended December 31, 1996.
The Fund's shareholders have adopted a Distribution Expense Plan ('Plan')
pursuant to Rule 12b-1 of the Investment Company Act of 1940. This Plan
authorizes payments under the investment advisory agreement and management
agreement described above which might be deemed to be expenses primarily
intended to result in the sale of Fund shares. No other payments are
authorized under the Plan.
Certain officers and trustees of the Fund are officers and trustees, or
both, of the Advisor and of Service Corp.
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PC&J PRESERVATION FUND
NOTES TO FINANCIAL STATEMENTS - (Concluded)
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C. CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 120,451 $ 1,357,280 204,399 $ 2,304,454
Shares issued in
reinvestment of
dividends 83,771 918,862 72,336 818,891
--------- ------------- ---------- -------------
204,222 2,276,142 276,735 3,123,345
Shares redeemed (186,785) (2,101,708) (200,290) (2,148,573)
--------- ------------- ---------- -------------
Net increase 17,437 $ 174,434 76,445 $ 974,772
========= ============= ========== =============
</TABLE>
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations) for the
year ended December 31, 1996, aggregated $5,256,500 and $4,375,781,
respectively. Purchases and sales of U.S. Government Securities for the
year ended December 31, 1996, aggregated $4,238,125 and $2,885,938,
respectively.
At December 31, 1996, gross unrealized appreciation on investments was
$278,291 and gross unrealized depreciation on investments was $144,078
for a net unrealized appreciation of $134,213 for financial reporting
and federal income tax purposes.
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PC&J PRESERVATION FUND
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
Selected Data for Each Share of Capital For The Years Ended December 31,
Stock Outstanding Throughout the Year 1996 1995 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF YEAR $11.32 $10.34 $11.31 $11.24 $11.43
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.62 0.59 0.70 0.67 0.82
Net realized and unrealized
gain (loss) on securities (0.31) 0.98 (0.97) 0.28 (0.11)
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.31 1.57 (0.27) 0.95 0.71
-------- -------- -------- -------- --------
Less dividends:
From net investment income (0.62) (0.59) (0.70) (0.67) (0.82)
From net realized gain
on investments (0.04) (0.00) (0.00) (0.21) (0.08)
-------- -------- -------- -------- --------
TOTAL DIVIDENDS (0.66) (0.59) (0.70) (0.88) (0.90)
-------- -------- -------- -------- --------
NET ASSET VALUE-END OF YEAR $10.97 $11.32 $10.34 $11.31 $11.24
======== ======== ======== ======== ========
TOTAL RETURN 2.75% 15.18% (2.39%) 8.45% 6.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income 5.38% 5.56% 5.83% 5.87% 6.66%
Portfolio turnover rate 28.66% 25.62% 30.03% 37.13% 26.10%
Net assets at end of year (000's) $16,151 $16,472 $14,261 $16,218 $13,997
</TABLE>
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
PC&J Preservation Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments of the
PC&J Preservation Fund as of December 31, 1996, the related
statement of operations for the year then ended, and the
statements of changes in net assets and the financial
highlights for each of the years presented. 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 generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with
the Fund's custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position
of the PC&J Preservation Fund at December 31, 1996, the results of
its operations and the changes in its net assets for the respective
stated years in conformity with generally accepted accounting
principles.
\S\ Deloitte & Touche
January 31, 1997
Dayton, Ohio
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