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: 12-31-2008
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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.
PC&J PRESERVATION
FUND
Financial Statements and Financial Highlights for
the Year Ended December 31, 2008, and Report of
Independent Registered Public Accounting Firm
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PC&J PRESERVATION FUND
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ANNUAL REVIEW
Unaudited
The enclosed 2008 Annual Report is for your information and is provided in
compliance with Securities and Exchange Commission regulations.
MANAGEMENT REVIEW AND ANALYSIS
The unprecedented financial distress we experienced in 2008 was numbing in its
severity. The explosion in home foreclosures undermined the value in billions
of dollars of collateralized mortgage obligations, which ultimately led to the
demise of investment-banking stalwart Lehman Brothers. The magnitude of the
losses wiped out any future for mortgage insurers MBIA, Ambac and FGIC, and
toppled industry giant AIG. Worldwide governments have promised support measured
in the trillions of dollars to stave off a collapse in our interconnected
financial systems.
AVERAGE ANNUAL TOTAL RETURNS
1 Yr. 5 Yrs 10 Yrs
Preservation
Fund -5.00% 1.90% 3.20%
Lehman Inter
Gov/Credit 5.08% 4.22% 5.43%
Treasury Bills
(3 month) 2.44% 3.32% 3.30%
The collapse of Lehman Brothers was the straw that broke the system's back.
Banks quit lending to one another in an effort to preserve their cash; the
commercial paper market closed causing a corporate scramble for cash; and
individuals, seeking the safety of the Treasury market, began redeeming their
money market holdings. Staving off a complete meltdown in our financial system,
the U.S. government increased its bank lending facilities, began issuing
commercial paper and guaranteed all participating money market fund balances as
of a specific date.
Credit spreads at an already above-average level at the beginning of 2008
widened to reflect an almost complete aversion to risk. The yield spread
between five-year, A-rated, investment-grade corporate bonds and Treasury bonds
went from 200 basis points at the beginning of the year to 300 basis points at
the end. At the same time, Treasury yields declined approximately 200 basis
points. The combination of declining yields and widening spreads over the year
produced a mixed bag of bond returns. Government and corporate bonds that
maintained a high quality credit rating produced positive total returns, while
all other bond returns were negative.
The PC&J Preservation Fund (the "Fund") is primarily composed of government and
quality, investment-grade bonds. However, many of its high quality holdings in
the financial services industry suffered from the deteriorating conditions in
the credit markets. The Fund's performance was hurt by the positions it held in
Morgan Stanley, Goldman Sachs and Lehman Brothers. Other investment-grade
investments that were added over the year in anticipation of an improving credit
market suffered price declines. The price losses in the Fund's financial and
corporate bond holdings outweighed the price increases that occurred in its
highest quality sectors. For the year, the Fund declined 5.00%, while the Lehman
Intermediate Gov't/Credit Index, with its heavy weighting in Treasury and
Government Agency bonds, provided a 5.08% return.
The price declines in 2008 have raised the yields on many of the Fund's
investments. This provides investors with the opportunity to earn an attractive
future return, expected later in 2009, when bond prices begin to discount a
stabilizing economy.
PRESERVATION FUND EXPENSE RATIO*
Per May 1, 2008 Prospectus 1.20%
Per December 31, 2008 Annual Report 1.10%
* The expense ratio stated in the May 1, 2008 Prospectus includes acquired fund
fees and expenses as required by Form N-1A. The expense ratio stated in the
December 31, 2008 Annual Report includes only operating expenses of the
Preservation Fund.
PRESERVATION LEHMAN INTER TREASURY BILL
GROWTH GOV/CR GROWTH
1998 10,000 10,000 10,000
1999 9,868 10,039 10,464
2000 10,791 11,055 11,073
2001 11,465 12,045 11,449
2002 12,151 13,231 11,634
2003 12,470 13,801 11,751
2004 12,809 14,221 11,912
2005 13,122 14,445 12,278
2006 13,628 15,035 12,849
2007 14,423 16,146 13,509
2008 13,702 16,966 13,839
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, 2008
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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U.S. AGENCY OBLIGATIONS:
Maturity of 10 - 15 years: 10.9%
Federal Home Loan Mtg Corp Step-Up 1,
5.000%, due 04-10-23 $ 300,000 $ 300,143
Federal Home Loan Banks Range Note 2,
7.250%, due 05-08-23 500,000 493,750
Federal Home Loan Mtg Corp Step-Up 1,
5.250%, due 06-12-23 400,000 404,232
TOTAL U.S. AGENCY OBLIGATIONS
(Cost $1,200,000) 1,198,125
U.S. CORPORATE OBLIGATIONS:
Maturity of less than 1 year: 1.3
Pepsi Bottling Holdings Inc.,
5.625%, due 02-17-09 140,000 140,648
Maturity of 1 - 5 years: 6.8
Ryder System Inc.,
4.625%, due 04-01-10 80,000 72,907
Arrow Electronics Inc.,
9.150%, due 10-01-10 100,000 97,170
Williams Cos. Inc.,
6.375%, due 10-01-10 50,000 46,612
Oneok Inc.,
7.125%, due 04-15-11 105,000 104,383
AOL Time Warner Inc.,
6.875%, due 05-01-12 210,000 203,865
Alcoa Inc.,
5.375%, due 01-15-13 250,000 223,806
748,743
Maturity of 5 - 10 years: 14.6
Lehman Bros Holdings Inc., 6
0.000%, due 03-13-14 148,000 14,060
HSBC Finance Corp.,
6.000%, due 08-15-14 275,000 253,010
Bear Stearns Cos. Inc.,
5.700%, due 11-15-14 162,000 159,208
OGE Energy Corp.,
5.000%, due 11-15-14 250,000 235,987
Nabisco Inc.,
7.550%, due 6-15-15 100,000 102,174
Alltel Corp.,
7.000%, due 03-15-16 100,000 98,750
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2008
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- ------------------------------------------- -------- ---------- ----------
U.S. CORPORATE OBLIGATIONS (Cont'd):
Goldman Sachs Group Inc.,
5.625%, due 01-15-17 $ 350,000 $ 291,730
Terex Corp.,
8.000%, due 11-15-17 250,000 212,500
Merrill Lynch Co. Inc.,
6.500%, due 07-15-18 230,000 232,216
1,599,635
Maturity of 10 - 15 years: 8.2%
General Electric Capital Corp. Step-Up 1,
4.875%, due 10-28-21 200,000 189,241
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 12-21-21 125,000 119,688
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 01-18-22 50,000 47,875
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 02-01-22 175,000 167,563
Dow Chemical Co.,
7.375%, due 03-01-23 200,000 187,335
Morgan Stanley Curve Accrual 2,
8.375%, due 04-25-23 250,000 186,875
898,577
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $3,789,535) 30.9 3,387,603
TAXABLE MUNICIPAL OBLIGATIONS 4:
Maturity of less than 1 year: 2.2
West Haven, CT General Obligation
6.125%, due 02-01-09 100,000 100,023
Dayton, OH Econ. Dev. Taxable Bonds,
6.380%, due 12-01-09 140,000 142,591
242,614
Maturity of 1 - 5 years: 2.3
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, 2008
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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Maturity of 5 - 10 years: 6.8%
Nebraska Public Power District Revenue,
5.140%, due 01-01-14 $ 310,000 $ 305,576
Reeves County TX Cert. of Participation,
6.550%, due 12-01-16 115,000 93,334
Hazelwood MO Industrial Dev. Auth. Rev,
5.640%, due 02-01-18 150,000 148,527
Maryland Heights MO Tax Incremnt Rev,
7.000%, due 09-01-18 200,000 198,082
745,519
Maturity of 10 - 20 years: 16.1
Portland OR Weekly Auction Notes, 7
0.150%, due 06-01-19 150,000 150,000
Hudson Cnty NJ Lease Revenue,
7.950%, due 09-01-19 300,000 304,860
Dekalb Cnty GA Dev Authority Revenue,
6.875%, due 03-01-20 275,000 276,422
Hopkins MN General Obligation,
7.100%, due 02-01-21 150,000 150,350
Minneapolis & St. Paul Met. Gen. Oblig.,
6.850%, due 01-01-22 295,000 310,936
KFW Frankfurt Bank Range Notes 2,
7.000%, due 05-07-23 250,000 236,250
San Bernadino Cnty CA Pension Oblig.,
6.020%, due 08-01-23 250,000 236,972
Pennsylvania Turnpike,
7.470%, due 06-01-25 100,000 99,991
1,765,781
Maturity of 20 - 30 years: 5.0
Alameda Corridor Transit Authority CA,
6.600%, due 10-01-29 200,000 180,066
Frisco TX COP,
6.375%, due 02-15-33 360,000 361,944
542,010
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $3,656,358) 32.4 3,545,924
TOTAL U.S. AGENCY, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $8,645,893) 74.2 8,131,652
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2008
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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LEASE ASSIGNMENTS: 1.3%
PHS Indian Health Service Lease 2, 5
7.000%, due 05-01-10 $ 91,742
Ford Motor Co. ESA Lease 2, 5
12.524%, due 06-01-13 53,675
TOTAL LEASE ASSIGNMENT
(Cost $271,475) 145,417
WARRANTS: 1.2
X-Alpha Call Warrants 22,500 129,375
TOTAL WARRANTS
(Cost $224,438) 129,375
NON-CONVERTIBLE PREFERRED STOCK: 6.5 SHARES
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Annaly Cap. Mgt. Inc. Pfd. A, 7.875% 5,000 95,280
FPL Group Cap. Tr. I Pfd., 5.875% 5,300 122,960
Georgia Power Cap. Tr. VII Pfd., 5.875% 5,200 119,392
JP Morgan Chase Cap. XVI Pfd., 6.350% 5,200 111,176
Lincoln Natl. Cap. VI Pfd. F, 6.750% 5,200 92,248
Metlife Inc. Pfd. B, 6.500% 5,200 88,764
Powershares ETF Trust Finl. Pfd. 5,900 77,762
TOTAL NON-CONVERTIBLE PREFERRED
STOCK (Cost $860,447) 707,582
EXCHANGE TRADED DEBT: 5.1
AT&T Inc. Senior Notes, 6.375% 5,000 124,700
Comcast Corp. Notes, 6.625% 5,400 110,808
General Elec. Cap. Corp. Pines, 6.100% 5,000 111,850
Metlife Inc. Senior Notes, 5.875% 5,175 113,850
Viacom Inc. Senior Notes 6.850% 5,544 101,344
TOTAL EXCHANGE TRADED DEBT
(Cost $615,586) 562,552
INVESTMENT COMPANIES: 10.3
Highland Floating Rate A 35,270 192,576
Oppenheimer Sr. Floating Rate A 36,400 210,029
Vanguard Money Market Reserves 550,000 550,000
First American Treasury Obligations 170,593 170,593
TOTAL INVESTMENT COMPANIES
(Cost $1,405,593) 1,123,198
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
DECEMBER 31, 2008
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- -------- ------ ------ -----
TOTAL INVESTMENTS
(Cost $12,023,432) 3 98.6% $ 10,799,776
ASSETS LESS OTHER LIABILITIES 1.4 152,811
NET ASSETS 100.0% $10,952,587
1 Interest rates listed for step-up bonds are the rates as of December 31, 2008.
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
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.
6 Security is in default as of December 31, 2008.
7 Variable interest rate. Interest rate listed is the rate as of December 31,
2008.
See notes to financial statements
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2008
ASSETS:
Investments in securities, at value
(Cost basis - $12,023,432) (Notes A & D) $10,799,776
Receivables - Dividends and Interest 164,413
Receivables - Fund shares sold 18,425
Total assets 10,982,614
LIABILITIES:
Accrued expenses (Note B) (10,027)
Payables - Fund shares redeemed (20,000)
Total liabilities (30,027)
NET ASSETS $10,952,587
SHARES OUTSTANDING (Unlimited authorized shares - no par value):
Beginning of year 1,152,637
Net increase (Note C) 8,995
End of year 1,161,632
NET ASSET VALUE, offering price and redemption price per share $ 9.43
NET ASSETS CONSIST OF:
Paid in capital $12,472,120
Net unrealized depreciation on investments (1,223,656)
Undistributed net investment income 5,755
Accumulated net realized loss on investments (301,632)
Net Assets $10,952,587
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
INVESTMENT INCOME (Note A):
Interest $ 544,827
Dividends 159,619
Total investment income 704,446
EXPENSES (Note B):
Investment advisory fee 58,116
Management fee 69,740
Total expenses 127,856
NET INVESTMENT INCOME 576,590
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized gain on investments 6,317
Change in unrealized appreciation/(depreciation) of investments (1,158,885)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,152,568)
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (575,978)
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,
2008 2007
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 576,590 $ 566,985
Net realized gain/(loss) on investments 6,317 (17,582)
Change in unrealized appreciation/(depreciation)
of investments (1,158,885) 157,633
Net increase (decrease) in net assets from operations (575,978) 707,036
DECREASE IN NET ASSETS RESULTING FROM
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (576,423) (566,481)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) 26,735 (985,102)
Total decrease in net assets (1,125,666) (844,547)
NET ASSETS:
Beginning of year 12,078,253 12,922,800
End of year $10,952,587 $12,078,253
UNDISTRIBUTED NET INVESTMENT INCOME $ 5,755 $ 5,588
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, 2008
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, as
amended. The investment objective of the Fund is the generation of income and
the preservation of capital.
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, both short-term and
long-term, 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 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 (the "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.
In September 2006, the Financial Accounting Standards Board issued
Interpretation No. 157 ("FAS 157"), Fair Value Measurements. FAS 157
establishes a framework for measuring fair value and expands disclosures about
fair value measurements in financial statements, effective for the Fund's
current fiscal period.
Various inputs may be used to determine the value of the Fund's investments.
These inputs are summarized in three broad levels:
Level 1 - quoted prices in active markets for identical securities.
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3 - significant unobservable inputs (including the fund's own assumptions
used to determine the fair value of investments).
The inputs or methodologies used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2008
The following table summarizes the inputs used to value the Fund's net assets as
of December 31, 2008.
Valuation Inputs Investments in Securities ($000)
Level 1 - Quoted Prices $ 9,002
Level 2 - Other Significant Observable Inputs 1,706
Level 3 - Significant Unobservable Inputs 92
Total $10,800
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Measurements
Using Unobservable Inputs ($000)
(Level 3)
Securities
Beginning Balance December 31, 2007 $ 142
Total gains or losses (realized/unrealized) included in
earnings 2
Purchases, sales, issuances, settlements and return of
capital (net) (52)
Transfers in and/or out of Level 3 0
Ending Balance December 31, 2008 $ 92
The amount of total gains or losses for the period included in
earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets still
held at the reporting date $ 2
========
(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, 2008, the Fund has a capital loss carry forward of $301,632, of which
$98,440 can be carried forward 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. The Fund reclassified $145,954 against
paid-in-capital as a result of the expiration of a capital loss carry forward
originating in 2000. 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.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2008
(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.
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 $58,116 for the year ended December 31, 2008.
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 $4,500 for the year ended
December 31, 2008.
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 $69,740
for the year ended December 31, 2008.
Certain officers and Trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
C. CAPITAL SHARE TRANSACTIONS
For the Year Ended For the Year Ended
December 31, 2008 December 31, 2007
-------------------
Shares Dollars Shares Dollars
------ ------- ------ -------
Subscriptions 132,165 $ 1,356,449 103,358 $ 1,102,488
Reinvestment of distributions 61,452 576,423 54,105 566,481
------- ------------ --------- ------------
193,617 1,932,872 157,463 1,668,969
Redemptions (184,622) (1,906,137) (248,847) (2,654,071)
------- ------------ --------- ------------
Net decrease 8,995 $ 26,735 (91,384) $ (985,102)
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2008
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the year ended December 31, 2008, aggregated
$6,512,949 and $2,468,750, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 2008, aggregated
$1,399,600 and $4,165,000, respectively.
At December 31, 2008, gross unrealized appreciation on investments was $26,447
and gross unrealized depreciation on investments was $1,250,103, for a net
unrealized depreciation of $1,223,656 for
financial reporting and federal income tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2008
- -------------------------------------
Ordinary Income Capital Gains Total Distribution
- --------------- ------------- -------------------
$ 576,423 $ 0 $ 576,423
=============== ============= ===================
For the Year Ended December 31, 2007
- ------------------------------------
Ordinary Income Capital Gains Total Distribution
- --------------- ------------- ------------------
$ 566,481 $ 0 $ 566,481
=============== ============= ==================
Tax Basis of Distributable Earnings
As of December 31, 2008
Undistributed Undistributed
Ordinary Accumulated Unrealized
Income Realized Losses Depreciation
- ------------- ----------------- -------------
$ 5,755 $ (301,632) $ (1,223,656)
============= ================= ==============
The percentage of ordinary income dividends that are eligible for the reduced
rate attributed to qualified dividend income under the Jobs and Growth Tax
Relief & Reconciliation Act of 2003 is 9.6%.
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, 2005-2008) for purposes of
implementing FIN 48, and has concluded that as of December 31, 2008, no
provision for income tax would be required in the Fund's financial statements.
PC&J PRESERVATION FUND
- ----------------------
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital For The Years Ended December 31,
Stock Outstanding Throughout the Period 2008 2007 2006 2005 2004
-------- -------- -------- -------- --------
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.48 $ 10.39 $ 10.52 $ 10.74 $ 10.88
Income from investment operations:
Net investment income 0.52 0.52 0.53 0.49 0.44
Net realized and unrealized
gain (loss) on securities (1.05) 0.09 (0.12) (0.23) (0.14)
TOTAL FROM INVESTMENT OPERATIONS (0.53) 0.61 0.41 0.26 0.30
Less distributions:
From net investment income (0.52) (0.52) (0.54) (0.48) (0.44)
TOTAL DISTRIBUTIONS (0.52) (0.52) (0.54) (0.48) (0.44)
NET ASSET VALUE-END OF PERIOD $ 9.43 $ 10.48 $ 10.39 $ 10.52 $ 10.74
TOTAL RETURN (5.00%) 5.83% 3.86% 2.44% 2.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.10% 1.02%
Net investment income 4.96% 4.58% 4.49% 4.04% 3.83%
Portfolio turnover rate 65.51% 31.76% 5.99% 16.10% 37.75%
Net assets at end of period (000's) $10,953 $12,078 $12,923 $15,444 $17,328
See notes to financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2008, and the related statements 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, 2008, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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, 2008, 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
February 20, 2009
Cincinnati, Ohio
- ------
PC&J PRESERVATION FUND
- ----------------------
ADDITIONAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2008 (Unaudited)
FUND EXPENSES
As a shareholder of the Fund, you incur ongoing costs, including management fees
and investment advisory fees. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period (July 1, 2008) and held for the six months ended December 31, 2008.
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, 2008 December 31, 2008 During Period*
================== ================== ===============
Actual
$ 1,000.00 $ 945.54 $ 5.38
Hypothetical (5% return
before expenses) $ 1,000.00 $ 1,019.64 $ 5.58
* Expenses are equal to the Fund's annualized expense ratio of 1.10%,
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, 2008 (Unaudited)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Obligations 10.9%
U.S. Corporate Obligations 30.9
Taxable Municipal Obligations 32.4
Lease Assignments 1.3
Warrants 1.2
Non-Convertible Preferred Stock 6.5
Exchange Traded Debt 5.1
Investment Companies 10.3
Assets Less Other Liabilities 1.4
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, as amended.
NUMBER OF PORTFOLIOS
POSITION(S) IN LENGTH OF IN FUND COMPLEX**
NAME, AGE AND ADDRESS FUND COMPLEX** TIME SERVED OVERSEEN BY TRUSTEE
- ------------------------------ -------------------- ------------------ --------------------
John W. Lohbeck
300 Old Post Office
120 West Third Street
Dayton, Ohio 45402 Trustee since
Year of Birth: 1949 Trustee 2008 2
- ----------------------- -------------------- ----------- --------------------
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------------------------------------- -----------------------------------
From September 2005 to present, consultant with Battelle
& Battelle LLP; from December 1990 to August 2005, COO of
Wagner Smith Co. 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
- -------------------------------------------------- -----------------------------------
**The term "Fund Complex" refers to the PC&J Performance Fund and the PC&J
Preservation Fund.
PC&J PRESERVATION 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 2007 $ 16,750
FY 2008 $ 18,512
(b) AUDIT-RELATED FEES
------------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2007 $ None $ None
FY 2008 $ None $ None
Nature of the fees: N/A
(c) TAX FEES
--------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2007 $ 1,918 $ None
FY 2008 $ 2,032 $ None
Nature of the fees: Federal and Excise Tax Returns
(d) ALL OTHER FEES
--------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2007 $ None $ None
FY 2008 $ 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 2007 $ 1,918 $ None
FY 2008 $ 2,032 $ 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, 2008, 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 23, 2009
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 23, 2009
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 23, 2009