PC&J PRESERVATION FUND
Financial Statements and Financial Highlights for the
Year Ended December 31, 1998 and Independent
Auditors' Report
<PAGE>
PC&J PRESERVATION FUND
ANNUAL REVIEW
Unaudited
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INTRODUCTION
The PC&J Preservation Fund is a registered investment company
under the Investment Company Act of 1940. The enclosed 1998
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 our critical 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
An international financial crisis, the implosion of a star-
studded hedge fund and three rate cuts by the Federal Reserve
were enough to send investors scurring to find safety in the
treasury market. Long-term bond yields fell to levels not seen
in decades. The strength was not universal however, as investors
shunned anything with above average risk. Both the high-grade
credit and low-grade credit corporate bond markets saw increased
spreads as recession worries came to our shores.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 Yr. 5 Yrs 10 Yrs
<S> <C> <C> <C>
Preservation Fund 8.4% 6.1% 7.8%
Lehman Index 10.0% 7.2% 9.3%
Treasury Bills (3mnth) 5.1% 5.1% 5.4%
</TABLE>
Long-term yields began the year at 5.92% and ended at 5.09%,
while 1-year treasuries fell 100 basis points to 4.48 percent.
Because rates declined across all maturities, bonds provided some
capital appreciation in addition to the interest income, with
longer maturities providing more appreciation.
The Lehman Index, with its relatively longer average maturity,
provided a 10.0% return for the year. The PC&J Preservation
Fund, with a shorter average maturity (less than 5 years) and a
higher commitment to high quality investments, provided an 8.4%
return, out-performing the 5.1% return of treasury bills, the
cash alternative.
For the first three quarters of the year, Kathleen Carlson, lead
portfolio manager, lengthened the average maturity of the Fund,
believing economic weakness and international jitters would cause
investors to bid up bond prices. She also increased its
investment in the higher yielding taxable municipal market.
Desiring to lock in some of the gains, during the fourth quarter
some of the longer maturing treasury investments were replaced to
reduce the average maturity to less than five years.
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 Index, 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>
88 10,000 10,000 10,000
89 11,130 11,420 10,840
90 12,165 12,368 11,686
91 13,674 14,359 12,340
92 14,535 15,450 12,772
93 15,770 17,150 13,155
94 15,392 16,550 13,668
95 17,732 19,578 14,488
96 18,219 20,146 15,257
97 19,567 22,060 16,071
98 21,201 24,266 16,890
</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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<PAGE>
PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<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 AND
AGENCY OBLIGATIONS:
Maturity of less than 1 year: 5.1%
Federal Nat'l Mortgage Assoc.
Notes, 9.550%, due 03/99 0.25 1,000,000 $ 1,008,125
------------
Maturity of 1 - 5 years: 15.7
Federal Nat'l Mortgage Assoc.
Notes, 5.490%, due 08/00 1.75 1,000,000 1,007,813
U.S. Treasury Notes,
6.375%, due 08/02 3.75 2,000,000 2,110,626
------------
3,118,439
------------
Maturity of 5 - 10 years: 23.7
U.S. Treasury Notes,
5.875%, due 02/04 5.25 1,500,000 1,582,969
Federal Home Loan Bank Notes,
6.380%, due 10/04 5.75 1,000,000 1,056,875
Federal Nat'l Mortgage Assoc.
Notes, 6.650%, due 03/06 7.25 1,000,000 1,032,187
Federal Nat'l Mortgage Assoc.
Notes, 6.860%, due 10/07 8.75 1,000,000 1,031,250
------------
4,703,281
------------
Maturity of 10 - 20 years: 4.5
Student Loan Marketing Assoc.
Notes, 7.300%, due 08/12 13.75 750,000 881,719
------ ------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $9,224,967) 49.0% $ 9,711,564
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1998
<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: 2.5%
US Leasing Int'l, Div. of
Ford, Med Term Notes,
6.700%, due 09/99 0.75 500,000 $ 503,750
------------
Maturity of 5 - 10 years: 8.9
Ford Motor Credit Co. Notes,
5.125%, due 10/01 2.75 750,000 744,141
American Express Credit Corp.
Notes, 6.125%, due 11/01 3.00 500,000 508,594
Lehman Brothers Holdings Inc.
Notes, 7.250%, due 10/03 4.75 500,000 515,312
------------
1,768,047
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TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $2,265,990) 11.4 2,271,797
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TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of 1 - 5 years: 2.7
Ohio Taxable Development
Assistance Bonds,
6.820%, due 04/03 4.25 500,000 531,065
------------
Maturity of 5 - 10 years: 8.5
Rome NY Hsg Dev Corp Taxable
Bonds, 6.500%, due 01/05 6.00 455,000 465,406
Cleveland Ohio Airport Taxable
Bonds, 6.490%, due 01/06 7.00 365,000 383,816
Chicago Heights Ill. Taxable
Bonds, 7.350%, due 12/07 9.00 170,000 190,648
Oklahoma City OK Airport
Taxable Bonds,
6.950%, due 07/08 9.50 475,000 498,845
Dayton Ohio Taxable Housing
Improvement Bonds,
6.250%, due 11/08 10.00 140,000 142,787
------------
$ 1,681,502
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1998
<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 10 - 20 years: 16.4%
Texas State Taxable Bonds,
6.550%, due 08/09 10.75 400,000 $ 409,960
Texas State Water Dev Taxable
Bonds, 8.800%, due 08/12 13.75 50,000 52,870
Mississippi State GO Taxable
Bonds, 6.750%, due 11/12 14.00 300,000 313,752
Denver CO School Dist. Taxable
Bonds, 6.940%, due 12/12 14.00 500,000 547,965
New York City Taxable Bonds,
9.000%, due 02/13 14.25 50,000 56,061
St Cloud MN Taxable Bonds,
6.700%, due 02/13 14.25 70,000 71,219
Dayton Ohio Taxable Bonds,
6.500%, due 11/13 15.00 250,000 255,493
Sacramento CA Redev Agency
Taxable Bonds,
6.375%, due 11/13 15.00 200,000 204,566
Jackson Cnty Miss GO Taxable
Bonds, 8.250%, due 03/14 15.25 135,000 151,406
Jackson Cnty Miss GO Taxable
Bonds, 8.250%, due 03/15 16.25 110,000 123,006
Ohio State Taxable Bonds,
7.600%, due 10/16 17.75 750,000 830,917
Palmdale CA Redev Taxable
Bonds, 7.900%, due 09/17 18.75 225,000 245,824
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3,263,039
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Maturity of over 20 years: 2.1
California Housing Finance
Agency Rev Bonds,
7.200%, due 08/19 20.75 425,000 425,000
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TOTAL TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $5,757,385) 29.7% $ 5,900,606
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<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 AND AGENCY,
CORPORATE, AND TAXABLE MUNICIPAL 90.1% $17,883,967
OBLIGATIONS (Cost $17,248,342)
SHORT-TERM OBLIGATIONS 8.1
Star Treasury Fund 641,538
Star Federal Prime Obligations 975,000
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TOTAL SHORT-TERM OBLIGATIONS
(Cost $1,616,538) 1,616,538
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TOTAL INVESTMENTS
(Cost $18,864,880) <F1> 98.2% $19,500,505
====== ============
<FN>
<F1> REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES AND
DIFFERS FROM VALUE BY NET UNREALIZED APPRECIATION
(SEE NOTE D)
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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Page 5
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PC&J PRESERVATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
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<TABLE>
<S> <C>
ASSETS:
Investments in securities, at market value
(Cost basis - $18,864,880) (Notes A & D) $19,500,505
Receivables - Interest 368,017
------------
Total assets 19,868,522
LIABILITIES _ Accrued expenses (Note B) (16,643)
------------
NET ASSETS $19,851,879
============
SHARES OUTSTANDING (Unlimited authorization - no par value):
Beginning of year 1,442,249
Net increase (Note C) 304,026
------------
End of year 1,746,275
============
NET ASSET VALUE, offering price and redemption price per share $ 11.37
============
NET ASSETS CONSIST OF:
Paid in capital $19,216,254
Net unrealized appreciation 635,625
------------
Net Assets $19,851,879
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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Page 6
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PC&J PRESERVATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
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<TABLE>
<S> <C>
INVESTMENT INCOME - Interest (Note A) $ 1,113,729
------------
EXPENSES (Note B):
Investment advisory fee 89,174
Management fee 89,173
------------
Total expenses 178,347
------------
NET INVESTMENT INCOME 935,382
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note D):
Net realized gain on investments 241,455
Change in unrealized appreciation of investments 249,373
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 490,828
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,426,210
============
</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,
1998 1997
--------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 935,382 $ 871,155
Net realized gain(loss) on investments 241,455 (23,053)
Change in unrealized appreciation of
investments 249,373 252,039
------------ ------------
Net increase in net assets from operations 1,426,210 1,100,141
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income (935,382) (871,155)
Dividends from net realized gain on
investments (218,402) 0
------------ ------------
Net decrease in net assets from dividends
to shareholders (1,153,784) (871,155)
INCREASE (DECREASE)IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS (Note C) 3,508,181 (308,764)
------------ ------------
Total increase (decrease) in net assets 3,780,607 (79,778)
NET ASSETS:
Beginning of year 16,071,272 16,151,050
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End of year $19,851,879 $16,071,272
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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Page 8
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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). All premiums and
discounts are amortized or accreted for both financial and tax
reporting purposes as required by Federal Income Tax regulations.
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 $89,174 for the year ended
December 31, 1998.
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 $89,173 for the year ended December 31, 1998.
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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Page 9
<PAGE>
PC&J PRESERVATION FUND
NOTES TO FINANCIAL STATEMENTS - (Concluded)
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<TABLE>
<CAPTION>
C. CAPITAL SHARE For the Year Ended For the Year Ended
TRANSACTIONS December 31, 1998 December 31, 1997
<S> <C> <C> <C> <C>
Shares sold 323,475 $3,761,985 108,897 $1,228,914
Shares issued in
reinvestment of
dividends 101,493 1,153,784 78,178 871,155
--------- ----------- --------- -----------
425,968 4,915,769 187,075 2,100,068
Shares redeemed (120,942) (1,407,588) (217,283) (2,408,833)
--------- ----------- --------- -----------
Net increase
(decrease) 304,026 $3,508,181 ( 30,208) $ (308,764)
--------- ----------- --------- -----------
</TABLE>
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-
term U.S. Government securities) for the year ended December 31, 1998,
aggregated $4,980,024 and $0, respectively. Purchases and sales of long-
term U.S. Government Securities for the year ended December 31, 1998,
aggregated $4,984,816 and $7,643,908, respectively.
At December 31, 1998, gross unrealized appreciation on investments was
$658,919 and gross unrealized depreciation on investments was $23,294 for
a net unrealized appreciation of $635,625 for financial reporting and
federal income tax purposes.
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Page 10
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PC&J PRESERVATION FUND
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
Selected Data for Each Share For The Years Ended December 31,
of Capital Stock Outstanding
Throughout the Year 1998 1997 1996 1995 1994
-------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF YEAR $11.14 $10.97 $11.32 $10.34 $11.31
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.57 0.64 0.62 0.59 0.70
Net realized and unrealized
gain (loss) on securities 0.36 0.17 (0.31) 0.98 (0.97)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 0.93 0.81 0.31 1.57 (0.27)
------- ------- ------- ------- -------
Less dividends:
From net investment income (0.57) (0.64) (0.62) (0.59) (0.70)
From net realized gain
on investments (0.13) (0.00) (0.04) (0.00) (0.00)
------- ------- ------- ------- -------
TOTAL DIVIDENDS (0.70) (0.64) (0.66) (0.59) (0.70)
------- ------- ------- ------- -------
NET ASSET VALUE-END OF YEAR $11.37 $11.14 $10.97 $11.32 $10.34
======= ======= ======= ======= =======
TOTAL RETURN 8.35% 7.38% 2.75% 15.18% (2.39%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income 5.25% 5.62% 5.38% 5.56% 5.83%
Portfolio turnover rate 44.50% 31.39% 28.66% 25.62% 30.03%
Net assets at end of year (000's) $19,852 $16,071 $16,151 $16,472 $14,261
</TABLE>
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Page 11
<PAGE>
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, 1998, 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, 1998 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, 1998, 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 22, 1999
Dayton, Ohio
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