PC&J PRESERVATION FUND
Financial Statements and Financial Highlights for the
Year Ended December 31, 1997 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. The enclosed 1997 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.
YEAR 2000 COMPLIANCE
Year 2000 Compliance is an important issue facing the financial services
industry. While the majority of our internal systems are in compliance,
we are undertaking a review of all of our systems, and monitoring the
progress of our suppliers to ensure the accuracy and safety of your
investments. We do not anticipate any significant problems.
MANAGEMENT REVIEW AND ANALYSIS
A flat yield curve was the medicine for the schizophrenic bond market.
The year began with the members of the Federal Reserve Board wringing
their hands over the prospects for higher rates of inflation, so
short-term rates rose in anticipation of a move to tighten. When the
economic statistics failed to substantiate any pick-up in inflation,
long-term rates fell. By year-end, the Asian meltdown gave the whole
yield curve a reason to decline.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 Yr. 5 Yrs 10 Yrs
<S> <C> <C> <C>
Preservation Fund 7.4% 6.1% 7.5%
Lehman Composite 9.5% 7.3% 9.0%
Treasury Bills (3mnth) 5.3% 4.7% 5.5%
</TABLE>
Long-term yields began the year at 6.64% and ended at 5.92 %, while the
spread between 1-year and 30-year treasuries went from 77 basis points
to 33 basis points. So what did all this mean for bond returns? As you
know, bond prices rise when interest rates decline, the extent depending
on the magnitude of the decline and the maturity of the bond.
Because rates ultimately declined across all maturities, bonds provided
some capital appreciation in addition to the interest income, with longer
maturities providing more appreciation. The Lehman Composite, with its
relatively longer average maturity, provided a 9.5% return of the year.
The PC&J Preservation Fund, with a shorter average maturity (less than
5 years), provided a 7.4% return, out-performing the 5.3% return of
Treasury bills, the cash alternative.
In an effort to increase the yield on the portfolio, we added some high
quality investments in the Taxable Municipal Sector of the bond market.
Taxable municipal bonds offer higher rates of interest over Treasuries
with the same or better credit risk profile as our corporate investments.
Looking out over a 5 and 10-year timeframe, the Fund continues to meet
its goal 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, through a
lower average maturity and larger weighting in the higher quality
investments, has led to returns that are more consistent over time. We
believe this is appropriate for our preservation of capital objective.
GROWTH OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Preservation Lehman G/C Treasury B
Growth Growth Growth
<S> <C> <C> <C>
1987 10,000 10,000 10,000
1981 10,510 10,760 10,630
1989 11,698 12,288 11,523
1990 12,786 13,308 12,422
1991 14,371 15,450 13,117
1992 15,276 16,625 13,576
1993 16,575 18,453 13,984
1994 16,177 17,807 14,529
1995 18,636 21,066 15,401
1996 19,148 21,677 16,219
1997 20,565 23,736 17,083
</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, 1997
<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 less than 1 year: 14.0%
Federal Nat'l. Mortgage Assoc.
Med Term Notes, 5.550%, 0.75 750,000 $ 749,531
due 10/98
Federal Home Loan Bank Bonds,
6.000%, due 12/98 1.00 1,500,000 1,502,813
------------
2,252,344
------------
Maturity of 1-5 years: 19.3
Federal Nat'l Mortgage Assoc.
Notes, 9.550%, due 03/99 1.25 1,000,000 1,042,500
U.S. Treasury Notes,
6.375%, due 08/02 4.50 2,000,000 2,051,250
------------
3,093,750
------------
Maturity of 5 - 10 years: 41.5
U.S. Treasury Notes,
5.875%, due 02/04 6.00 1,500,000 1,513,594
Federal Home Loan Bank Notes,
6.380%, due 10/04 6.75 1,000,000 1,020,000
U.S. Treasury Notes,
6.500%, due 05/05 7.25 1,000,000 1,042,500
Federal Home Loan Mortgage Corp.
Notes, 7.510%, due 08/05 7.50 1,000,000 1,003,750
U.S. Treasury Notes,
7.000%, due 07/06 8.50 1,000,000 1,079,688
Federal Nat'l Mortgage Assoc.
Notes, 6.860%, due 10/07 9.75 1,000,000 1,013,437
------------
6,672,969
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TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $11,653,359) 74.8% $12,019,063
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1997
<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. CORPORATE OBLIGATIONS:
Maturity of 1 - 5 years: 6.3%
US Leasing Int'l, Div. of Ford,
Med Term Notes, 6.700%,
due 09/99 1.75 500,000 $ 504,688
American Express Credit Corp.
Notes, 6.125%, due 11/01 3.75 500,000 499,531
------------
1,004,219
------------
Maturity of 5 - 10 years: 3.2
Lehman Brothers Holdings Inc.
Notes, 7.250%, due 10/03 5.75 500,000 516,250
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TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $1,521,248) 9.5 1,520,469
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TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of 5 - 10 years: 5.5
Ohio Taxable Development
Assistance Bonds, 6.820%,
due 04/03 5.25 500,000 516,135
Cleveland Ohio Airport Taxable
Bonds, 6.490%, due 01/06 8.00 365,000 368,851
------------
884,986
------------
Maturity of 10-20 years: 1.5
Dayton Ohio Taxable Housing
Improvement Bonds, 6.250%,
due 11/08 10.75 140,000 136,868
Texas State Water Development
Bonds, 8.800%, due 08/12 14.50 50,000 53,193
New York City Taxable Bonds,
9.000%, due 02/13 15.00 50,000 55,603
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245,664
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1997
<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>
TAXABLE MUNICIPAL OBLIGATIONS
(Continued):
Maturity of over 20 years: 2.6%
California Housing Finance
Agency Rev Bonds, 7.200%,
due 08/19 21.50 425,000 $ 425,000
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TOTAL TAXABLE MUNCIPAL OBLIGATIONS
(Cost $1,534,322) 9.6 1,555,650
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TOTAL U.S. GOVERNMENT, CORPORATE, AND
TAXABLE MUNICIPAL OBLIGATIONS
(Cost $14,708,929) 93.9 15,095,182
SHORT-TERM OBLIGATIONS
(Cost $718,519) 4.5 718,518
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TOTAL INVESTMENTS
(Cost $15,427,448) 98.4% $15,813,700
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
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<TABLE>
<S> <C>
ASSETS:
Investments in securities, at market value
(Cost basis - $15,427,448) (Notes A & D) $15,813,700
Receivables - Interest 271,152
------------
Total assets 16,084,852
LIABILITIES - Accrued expenses (Note B) (13,580)
------------
NET ASSETS $16,071,272
============
SHARES OUTSTANDING (Unlimited authorization - no par value):
Beginning of year 1,472,457
Net decrease (Note C) (30,208)
------------
End of year 1,442,249
============
NET ASSET VALUE, offering price
and redemption price per share $ 11.14
============
NET ASSETS CONSIST OF:
Paid in capital $15,708,073
Accumulated net realized loss (23,053)
Net unrealized appreciation 386,252
------------
Net Assets $16,071,272
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
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<TABLE>
<S> <C>
INVESTMENT INCOME - Interest (Note A) $ 1,026,068
------------
EXPENSES (Note B):
Investment advisory fee 77,457
Management fee 77,456
------------
Total expenses 154,913
------------
NET INVESTMENT INCOME 871,155
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS(Note D):
Net realized loss on investments (23,053)
Change in unrealized appreciation of investments 252,039
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 228,986
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,100,141
============
</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,
1997 1996
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 871,155 $ 861,330
Net realized gain (loss) on investments (23,053) 57,532
Change in unrealized appreciation
(depreciation) of investments 252,039 (495,171)
------------ ------------
Net increase in net assets from operations 1,100,141 423,691
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income (871,155) (861,330)
Dividends from net realized gain on
investments 0 (57,532)
------------ ------------
Net decrease in net assets from dividends
to shareholders (871,155) (918,862)
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS (Note C) (308,764) 174,434
------------ ------------
Total decrease in net assets (79,778) (320,737)
NET ASSETS:
Beginning of year 16,151,050 16,471,787
------------ ------------
End of year $16,071,272 $16,151,050
============ ============
</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 investment objective of the Fund is preservation of
capital through investment in fixed-income obligations.
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 for which quotations
are readily available are valued on the basis of quotations from
dealers or an independent pricing service with consideration of such
factors as yield, coupon rate, maturity, type of issue and other
market information. 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 net 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 $77,457 for the year ended December 31, 1997.
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 $77,456 for the year
ended December 31, 1997.
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 directors, 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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<TABLE>
<CAPTION>
C. CAPITAL SHARE TRANSACTIONS For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
<S> <C> <C> <C> <C>
---------------------------------------------------
Shares sold 108,897 $ 1,228,914 120,451 $ 1,357,280
Shares issued in reivestment
of dividends 78,178 871,155 83,771 918,862
--------- ------------ --------- ------------
187,075 2,100,068 204,222 2,276,142
Shares redeemed (217,283) (2,408,833) (186,785) (2,101,708)
--------- ------------ --------- ------------
Net increase (decrease) (30,208) $ (308,764) 17,437 $ 174,434
========= ============ ========= ============
</TABLE>
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations) for the
year ended December 31, 1997, aggregated $4,568,473 and $5,589,477,
respectively. Purchases and sales of U.S. Government Securities for the
year ended December 31, 1997, aggregated $3,019,375 and $5,065,117,
respectively.
At December 31, 1997, gross unrealized appreciation on investments was
$406,454 and gross unrealized depreciation on investments was $20,202 for a
net unrealized appreciation of $386,252 for financial reporting and federal
income tax purposes.
At December 31, 1997, the Fund has available a capital loss carryover of
$23,053 to offset future net capital gains, which expires December 31,
2005.
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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 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
-----------------------------------------------
NET asset value-beginning of year $10.97 $11.32 $10.34 $11.31 $11.24
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.64 0.62 0.59 0.70 0.67
Net realized and unrealized
gain (loss) on securities 0.17 (0.31) 0.98 (0.97) 0.28
------- ------- ------- ------- -------
Total from investment operations 0.81 0.31 1.57 (0.27) 0.95
------- ------- ------- ------- -------
Less dividends:
From net investment income (0.64) (0.62) (0.59) (0.70) (0.67)
From net realized gain
on investments (0.00) (0.04) (0.00) (0.00) (0.21)
------- ------- ------- ------- -------
Total dividends (0.64) (0.66) (0.59) (0.70) (0.88)
------- ------- ------- ------- -------
Net asset value-end of year $11.14 $10.97 $11.32 $10.34 $11.31
======= ======= ======= ======= =======
Total return 7.38% 2.75% 15.18% (2.39%) 8.45%
Ratios to average net assets
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income 5.62% 5.38% 5.56% 5.83% 5.87%
Portfolio turnover rate 31.39% 28.66% 25.62% 30.03% 37.13%
Net assets at end of year (000's) $16,071 $16,151 $16,472 $14,261 $16,218
</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, 1997, 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, 1997 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, 1997, the results of its operations, the
changes in its net assets and financial highlights for the respective stated
years in conformity with generally accepted accounting principles.
\S\ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 16, 1998
Dayton, Ohio
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