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, Ohio
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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: December 31
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Date of reporting period: June 30, 2009
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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
Semi-Annual Report to Shareholders
June 30, 2009
The PC&J Preservation Fund is a registered investment company under the
Investment Company Act of 1940 and is regulated by the Securities and Exchange
Commission. The enclosed Semi-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 (888-223-0600).
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PC&J PRESERVATION FUND
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FINANCIAL HIGHLIGHTS
The information contained in the table below for the years ended December 31,
2008, 2007, 2006, 2005, and 2004, has been derived from data contained in
financial statements examined by Deloitte & Touche LLP, an independent
registered public accounting firm. The information for the six months ended
June 30, 2009, has been derived from data contained in the unaudited financial
statements but which are believed to include all adjustments necessary for a
fair presentation. Such information should be read in conjunction with the
enclosed financial statements.
Period Ended
June 30, Years Ended December 31,
Selected Data for Each Share of Capital 2009 2008 2007 2006 2005 2004
Stock Outstanding Throughout the Period (Unaudited)
NET ASSET VALUE-BEGINNING OF PERIOD $ 9.43 $ 10.48 $ 10.39 $ 10.52 $ 10.74 $ 10.88
Income from investment operations:
Net investment income 0.25 0.52 0.52 0.53 0.49 0.44
Net realized and unrealized
gain (loss) on securities 0.49 (1.05) 0.09 (0.12) (0.23) (0.14)
TOTAL FROM INVESTMENT OPERATIONS 0.74 (0.53) 0.61 0.41 0.26 0.30
Less distributions:
From net investment income (0.00) (0.52) (0.52) (0.54) (0.48) (0.44)
TOTAL DISTRIBUTIONS (0.00) (0.52) (0.52) (0.54) (0.48) (0.44)
NET ASSET VALUE-END OF PERIOD $ 10.17 $ 9.43 $ 10.48 $ 10.39 $ 10.52 $ 10.74
TOTAL RETURN 7.85% (5.00%) 5.83% 3.86% 2.44% 2.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%* 1.10% 1.10% 1.10% 1.10% 1.02%
Net investment income 5.26%* 4.96% 4.58% 4.49% 4.04% 3.83%
Portfolio turnover rate 27.46%* 65.51% 31.76% 5.99% 16.10% 37.75%
Net assets at end of period (000's) $11,774 $10,953 $12,078 $12,923 $15,444 $17,328
* Annualized
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
JUNE 30, 2009
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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U.S. AGENCY OBLIGATIONS:
Maturity of 10 - 15 years: 4.5%
Federal Home Ln Mtg. Corp. Step-up, 1
5.250%, due 06-12-23 $ 400,000 $ 402,687
Federal Home Ln Mtg. Corp. Step-up, 1
4.000%, due 03-12-24 124,000 122,713
TOTAL U.S. AGENCY OBLIGATIONS
(Cost $524,000) 525,400
U.S. CORPORATE OBLIGATIONS:
Maturity of less than 1 year: 0.7
Ryder System Inc.,
4.625%, due 04-01-10 80,000 79,892
Maturity of 1 - 5 years: 11.6
Duke Energy,
7.875%, due 08-16-10 125,000 130,190
Arrow Electronics Inc.,
9.150%, due 10-01-10 100,000 99,843
Oneok Inc.,
7.125%, due 04-15-11 105,000 110,256
Western Union Co.,
5.400%, due 11-17-11 100,000 104,236
AOL Time Warner Inc.,
6.875%, due 05-01-12 210,000 224,054
Bunge Ltd. Finance Corp.,
7.800%, due 10-15-12 100,000 102,165
Fiserv Inc.,
6.125%, due 11-20-12 100,000 103,880
Alcoa Inc.,
5.375%, due 01-15-13 250,000 245,078
Arcelormittal.,
5.375%, due 06-01-13 130,000 124,341
Rio Tinto Finance USA Ltd.,
5.875%, due 07-15-13 105,000 105,621
Lehman Bros Holdings Inc., 6
4.800%, due 03-13-14 148,000 21,830
1,371,494
Maturity of 5 - 10 years: 14.5
HSBC Finance Corp.,
6.000%, due 08-15-14 275,000 270,086
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2009
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
U.S. CORPORATE OBLIGATIONS (Cont'd):
Bear Stearns Cos. Inc.,
5.700%, due 11-15-14 $ 162,000 $ 166,665
OGE Energy Corp.,
5.000%, due 11-15-14 250,000 233,320
Nabisco Inc.,
7.550%, due 06-15-15 100,000 101,311
Alltel Corp.,
7.000%, due 03-15-16 100,000 108,159
Goldman Sachs Group Inc.,
5.625%, due 01-15-17 350,000 325,826
Terex Corp.,
8.000%, due 11-15-17 250,000 192,187
Merrill Lynch Co. Inc.,
6.500%, due 07-15-18 230,000 207,186
Conoco Philips
5.750%, due 02-01-19 100,000 105,078
1,709,818
Maturity of 10 - 15 years: 8.2%
General Electric Capital Corp. Step-Up 1,
4.875%, due 10-28-21 200,000 188,189
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 12-21-21 125,000 122,500
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 01-18-22 50,000 49,000
Toyota Motor Credit Corp. Curve Accr'l 2,
8.000%, due 02-01-22 175,000 171,500
Dow Chemical Co.,
7.375%, due 03-01-23 200,000 190,925
Morgan Stanley Curve Accrual 2,
8.375%, due 04-25-23 250,000 240,000
962,114
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $4,332,310) 35.0 4,123,318
TAXABLE MUNICIPAL OBLIGATIONS: 3
Maturity of less than 1 year: 1.2
Dayton, OH Econ. Dev. Taxable
Bonds, 6.380%, due 12-01-09 140,000 142,465
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2009
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
TAXABLE MUNICIPAL OBLIGATIONS (Cont'd): 3
Maturity of 1 - 5 years: 5.7%
New York State Hsg. Fin. Agy. Bonds,
4.810%, due 09-15-13 $ 90,000 $ 91,897
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 250,000 250,000
Nebraska Public Power Dist. Rev.,
5.140%, due 01-01-14 310,000 325,996
667,893
Maturity of 5 - 10 years: 5.0
Reeves County TX COP,
6.550%, due 12-01-16 115,000 92,562
Hazelwood MO ID Authority Rev.,
5.640%, due 02-01-18 150,000 149,691
Maryland Heights MO Tax Incremnt Rev,
7.000%, due 09-01-18 200,000 201,216
Portland OR Weekly Auction Notes, 4
0.315%, due 06-01-19 7 150,000 150,000
593,469
Maturity of 10 - 20 years: 14.8
Hudson County NJ Lease Rev.,
7.950%, due 09-01-19 300,000 303,213
Dekalb Cnty. GA Dev. Auth. Rev.,
6.875%, due 03-01-20 275,000 274,959
Michigan State,
6.950%, due 11-01-20 110,000 121,664
Hopkins MN GO,
7.100%, due 02-01-21 150,000 150,099
New York NY,
6.491%, due 03-01-21 125,000 132,181
Minneapolis & St. Paul Met. GO Rev.,
6.850%, due 01-01-22 295,000 310,948
San Bernardino Cnty. CA Pension Oblig.,
6.020%, due 08-01-23 250,000 248,528
Ohio State Dev. Assistance,
5.670%, due 10-01-23 100,000 101,389
Pennsylvania Turnpike,
7.470%, due 06-01-25 100,000 97,011
1,739,992
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2009
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
Maturity of 20 - 30 years: 4.8%
Alameda Corridor Trans. Auth. CA,
6.600%, due 10-01-29 $ 200,000 $ 201,356
Frisco TX COP,
6.375%, due 02-15-33 360,000 361,505
562,861
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $3,733,884) 31.5 3,706,680
TOTAL U.S. AGENCY, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $8,590,194) 71.0% $8,355,398
LEASE ASSIGNMENTS: 1.7
PHS Indian Health Service Lease 2, 4
7.000%, due 05-01-10 57,489
Ford Motor Co. ESA Lease 2, 4
12.524%, due 06-01-13 140,615
TOTAL LEASE ASSIGNMENT
(Cost $228,666) 198,104
WARRANTS: 1.6
X-Alpha Call Warrants 22,500 193,050
TOTAL WARRANTS
(Cost $224,438) 193,050
NON-CONVERTIBLE PREFERRED STOCK: 6.5 SHARES
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Annaly Cap. Mgt. Inc. Pfd. A, 7.875% 5,000 113,251
FPL Group Cap. Tr. I Pfd., 5.875% 5,300 125,080
Georgia Power Cap. Tr. VII Pfd., 5.875% 5,200 126,880
JP Morgan Chase Cap. XVI Pfd., 6.350% 5,200 111,540
Lincoln Natl. Cap. VI. Pfd. F, 6.750% 5,200 92,560
Metlife Inc. Pfd. B, 6.500% 5,200 106,860
Powershares ETF Trust Finl. Pfd. 5,900 85,727
TOTAL NON-CONVERTIBLE PREFERRED
STOCK (Cost $860,447) 761,898
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
JUNE 30, 2009
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
EXCHANGE TRADED DEBT: 5.0% SHARES
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AT&T Inc. Senior Notes, 6.375% 5,000 $ 127,450
Comcast Corp. Notes, 6.625% 5,400 116,516
General Elec. Cap. Corp. Pines, 6.100% 5,000 110,400
Metlife Inc. Senior Notes, 5.875% 5,175 124,200
Viacom Inc. Senior Notes, 6.850% 5,544 115,149
TOTAL EXCHANGE TRADED DEBT
(Cost $615,586) 593,715
INVESTMENT COMPANIES: 13.1
Highland Floating Rate A 4 35,270 199,278
Oppenheimer Senior Floating Rate A 4 36,400 253,345
Templeton Income Trust Global Bond A 37,594 443,233
Vanguard Money Market Reserves 600,000 600,000
First American Treasury Obligations 42,761 42,760
TOTAL INVESTMENT COMPANIES
(Cost $1,777,761) 1,538,616
TOTAL INVESTMENTS
(Cost $12,297,092) 5 98.9 11,640,781
OTHER ASSETS LESS LIABILITIES 1.1 133,610
NET ASSETS 100.0% $11,774,391
1 Interest rates listed for step-up bonds are the rates as of June 30, 2009.
2 Security valued according to "good faith pricing" guidelines. (See Note A)
3 Some municipal obligations have a credit enhancement feature which produces a
credit quality comparable to that of a same-rated corporate bond.
4 Security has been deemed illiquid.
5 Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation (depreciation). (See Note D)
6 Security is in default as of June 30, 2009.
7 Variable interest rate. Interest rate listed is the rate as of June 30, 2009.
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2009
(UNAUDITED)
ASSETS:
Investments in securities, at market value
(Cost basis - $12,297,092) (Notes A & D) $11,640,781
Receivables - Dividend and Interest 149,050
Receivables - Fund shares sold 137
Total assets 11,789,968
LIABILITIES:
Accrued expenses (Note B) (10,463)
Deferred revenue (5,114)
Total liabilities (15,577)
NET ASSETS $11,774,391
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SHARES OUTSTANDING (Unlimited authorized shares - no par value):
Beginning of period 1,161,632
Net decrease (Note C) (3,635)
End of period 1,157,997
NET ASSET VALUE, offering price and redemption price per share $ 10.17
NET ASSETS CONSIST OF:
Paid in capital $12,435,852
Net unrealized depreciation on investments (656,311)
Undistributed net investment income 296,761
Accumulated net realized loss on investments (301,911)
Net Assets $11,774,391
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
INVESTMENT INCOME (Note A):
Interest $291,234
Dividends 60,130
Total Investment Income 351,364
EXPENSES (Note B):
Investment advisory fee 27,435
Management fee 32,923
Total expenses 60,358
NET INVESTMENT INCOME 291,006
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (279)
Change in unrealized depreciation of investments 567,345
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 567,066
NET INCREASE IN NET ASSETS FROM OPERATIONS $858,072
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For The Six Months For the Year
Ended Ended
June 30, 2009 December 31, 2008
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 291,006 $ 576,590
Net realized gain/(loss) on investments (279) 6,317
Change in unrealized depreciation of investments 567,345 (1,158,885)
Net increase in net assets from operations 858,072 (575,978)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income 0 (576,423)
Net decrease in assets from distributions to shareholders 0 (576,423)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) (36,268) 26,735
Total decrease in net assets 821,804 (1,125,666)
NET ASSETS:
Beginning of year 10,952,587 12,078,253
End of period $11,774,391 $10,952,587
UNDISTRIBUTED NET INVESTMENT INCOME $ 296,761 $ 5,755
See notes to financial statements.
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
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 ("1940
Act"). 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 SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
The following table summarizes the inputs used to value the Fund's net assets as
of June 30, 2009.
Valuation Inputs Investments in Securities ($000)
Level 1 - Quoted Prices $ 10,460
Level 2 - Other Significant Observable Inputs 1,124
Level 3 - Significant Unobservable Inputs 57
Total $ 11,641
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Measurements
Using Unobservable Inputs
$ in 000s (Level 3)
Securities
Beginning Balance 12-31-2008 $ 92
Total gains or losses (realized/unrealized) included in earnings 1
Purchases, sales, issuances, settlements and return of capital (net) -36
Transfers in and/or out of Level 3 0
Ending Balance 6-30-2009 $ 57
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 $ 1
=================================
Gains and losses (realized and unrealized) included in earnings
(or changes in net assets) for the period are reported in trading
revenues as follows:
Total gains or losses included in earnings (or changes in net
assets) for the period $ 1
Change in unrealized gains or losses relating to assets still held
at reporting date $ 1
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
(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.
(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 $27,435 for the six months ended June 30, 2009.
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 $2,000 for the six months ended
June 30, 2009.
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 $32,923
for the six months ended June 30, 2009.
Certain officers and Trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
C. CAPITAL SHARE TRANSACTIONS
For the Six Months Ended
June 30, 2009 For the Year Ended
(Unaudited) December 31, 2008
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Shares Dollars Shares Dollars
--------- ---------- --------- ------------
Subscriptions 63,266 $ 602,985 132,165 $ 1,356,449
Reinvestment of distributions 0 0 61,452 576,423
63,266 602,985 193,617 1,932,872
--------- ---------- --------- ------------
Redemptions (66,901) (639,253) (184,622) (1,906,137)
Net decrease (3,635) $ (36,268) 8,995 $ 26,735
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the six months ended June 30, 2009, aggregated
$1,653,861 and $583,350, respectively. Purchases and sales of long-term U.S.
Government Securities for the six months ended June 30, 2009, aggregated
$124,000 and $800,000, respectively.
At June 30, 2009, gross unrealized appreciation on investments was $143,557 and
gross unrealized depreciation on investments was $799,868 for a net unrealized
depreciation of $656,311 for financial
reporting and federal income tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2008 For the Year Ended December 31, 2007
- ------------------------------------- -------------------------------------
Ordinary Income Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
- --------------- ------------- ------------------ --------------- ------------- ------------------
$ 576,423 $ 0 $ 576,423 $ 566,481 $ 0 $ 566,481
=============== ============= =================== ================== =================== ================
Tax Basis of Distributable Earnings
As of December 31, 2008
Undistributed Ordinary Income Undistributed Accumulated Realized Losses Unrealized Depreciation
- ------------------------------ ------------------------------------------- -------------------------
$ 5,755 $ ( 301,632) $ (1,223,656)
============================== =========================================== =========================
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
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 June 30, 2009, no provision
for income tax would be required in the Fund's financial statements.
F. RENEWAL OF INVESTMENT ADVISORY AGREEMENT
The investment advisory agreement between the Fund and the Adviser (the
"Agreement") was renewed by the Board of Trustees at a meeting held on February
18, 2009. In determining whether to approve the Agreement, the Trustees
reviewed the following: the nature of the Adviser's business; the performance of
the Fund and the Adviser; the Adviser's personnel and operations; the nature,
quality and extent of the investment advisory services provided by the Adviser
to the Fund; the cost of the services and the profit to be realized by the
Adviser; a comparison of the fees paid by other funds and accounts; and
economies of scale and other benefits to the Funds and the Adviser.
The Trustees reviewed a description of the Adviser's business and a copy of the
Adviser's most recent registration statement on Form ADV. The Trustees noted
that the Fund is used as an investment vehicle for the Adviser's management
clients, not as a stand-alone product. The Fund was created in order to
efficiently manage the assets of the Adviser's smaller account relationships and
the Fund's shareholders receive many of the same advice and planning services,
at no additional cost, as the Adviser's non-Fund clients. The representatives of
the Adviser explained that understanding the nature of the Adviser's business is
important in reviewing the Fund's performance and advisory fees. The Trustees
also reviewed the Adviser's balance sheet dated as of December 31, 2008, and
income statement for the year ended December 31, 2008, and concluded that the
Adviser had adequate financial resources to provide the necessary services to
the Fund. The Trustees also considered the services provided by PC&J Service
Corp. ("Service Corp."), a wholly owned subsidiary of the Adviser. The Adviser
explained that Service Corp., the Funds' transfer agent, fund accountant, and
dividend disbursing agent, was formed to provide transfer agency services to the
Fund in a cost efficient manner. The Trustees reviewed Service Corp.'s balance
sheet dated as of December 31, 2008, and income statement for the year ended
December 31, 2008, and concluded that Service Corp. had adequate financial
resources to provide the necessary services to the Fund.
Next, the Trustees reviewed the Adviser's personnel and operations. The
organizational chart of all professional personnel performing services for the
Fund was next reviewed, as well as a breakout of the amount of time spent on the
Fund's activities as compared to the amount of time spent on other activities.
Following this review, the Trustees concluded that the Adviser's personnel
staffing was adequate to provide the necessary services to the Fund, and that
the quality of the services provided by the Adviser to the Fund is excellent.
The Trustees then compared the Fund's returns with benchmark indices. The
Trustees noted that the Fund does not have a pre-defined peer group or specific
investment style like many other mutual funds. Mr. Johnson explained that
because the Adviser often is the sole investment adviser for a
client/shareholder, and the Fund serves as the investment vehicle for the
Adviser's clients, the Adviser takes a broader view than a specific investment
mandate.
PC&J PRESERVATION FUND
- ----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
The Trustees compared the Fund's average total returns with comparable
benchmarks. Ms. Carlson reviewed with the Trustees the recent and long-term
performance of the Fund, compared to benchmarks and funds of similar size and
strategy, during the portfolio review earlier in the meeting. The Trustees
concluded that the performance of the Fund was acceptable based on this review.
The Trustees then turned their attention to the nature, quality and extent of
the services provided to the Fund. In addition to reviewing the professional
personnel involved in providing advisory services to the Fund, the Trustees
reviewed (i) the Adviser's compliance programs, including the Adviser's
practices for monitoring compliance with the Fund's investment limitations; (ii)
the business background and experience of the Adviser's Chief Compliance
Officer; (iii) examinations of the Adviser by state or Federal regulators during
the period since the last renewal of the Agreement; (iv) any material litigation
or administrative actions involving the Adviser or its affiliates, of which
there were none; and (v) the Adviser's currently effective Code of Ethics
adopted earlier in this meeting pursuant to Rule 17j-1. The Trustees reviewed
the certification from the Adviser that the employees of the Adviser have
complied with the Adviser's Code of Ethics and that the Adviser has procedures
in place to prevent violations of its Code of Ethics. The Trustees concluded
that they were satisfied with the compliance programs of the Adviser. Based on
the materials presented and their experiences with the Adviser, the Trustees
concluded that the nature, quality and extent of the services provided by the
Adviser are excellent in light of the objective and strategy of the Fund, and
were consistent with the Board's expectations.
The Trustees also considered the cost to the Adviser and Service Corp. of
providing the services and the profits realized by the Adviser and Service Corp.
In reviewing the Adviser's profitability, the Trustees considered and reviewed
the information in the Board materials which included the allocation of expenses
to the Adviser, including the method of allocating indirect and overhead costs
with respect to the Fund; a comparison of the Adviser's overall profitability
with the profitability of other investment advisers; and material payments by
the Fund to the Adviser, other than the fees paid pursuant to the Agreement.
The Trustees also reviewed a comparison matrix of service provider fees provided
by Thompson Hine. This matrix included transfer agency, fund accounting and
administration fees paid by other mutual funds. After this review, the Trustees
concluded that the allocation of expenses was reasonable, the profitability of
the Adviser consolidated with the profitability of Service Corp. was below the
average of other investment advisers, and the service provider fees charged by
Service Corp. were reasonable in light of the high level of services provided.
Next, the Trustees considered whether the compensation payable to the Adviser
was reasonable in comparison to fees paid by other funds in the Fund's peer
group and in absolute terms. In doing so, the Trustees reviewed (i) the current
advisory fee schedule, actual dollar payments and any proposed changes; (ii) an
advisory fee comparison with the advisory fee of similar sized funds; (iii) a
comparison of advisory fees paid by the Fund under the Agreement with fees paid
to the Adviser by other comparable accounts managed by the Adviser; and (iv) a
comparison of the expense ratio of the Fund with the expense ratio of funds in
the peer group. Ms. Carlson informed the Trustees that, because of the nature
of the relationship between the Adviser and the shareholder/clients, the level
of service received by shareholders, in her opinion, exceeded the "average
service" provided by advisers to other mutual funds. She stated that the
Adviser provides shareholder reporting tailored to specific client needs,
provides performance and cost information, and makes the Fund's manager
available for shareholder questions. She explained that these services are
embodied in its advisory fee. In addition, Ms. Carlson noted that small,
individually managed accounts would be subject to a minimum fee that would
exceed the 0.5% advisory fee charged through the Fund. The Trustees noted that
a better fee/expense comparison is total expenses paid by comparable funds,
since the Fund's advisory fee is all-inclusive with no front-end, deferred or
redemption fees. Based on the information presented, the Trustees concluded
that the Adviser's fees were reasonable.
PC&J PRESERVATION FUND
- ----------------------
NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
Next, the Trustees reviewed the economies of scale associated with managing the
Fund, the appropriateness of fee breakpoints, and benefits that accrue to the
Adviser as a result of its relationship with the Fund. The Trustees concluded
that as the Fund grows, adding breakpoints to benefit from realized economies of
scale could be appropriate, but that such considerations are not yet relevant
due to the size of the Fund and no excessive profits. In addition, the Trustees
concluded that investment analysis done on behalf of the Fund may benefit some
of the Adviser's other accounts, but investment ideas utilized in other accounts
also may benefit the Fund.
Finally, the Trustees reviewed the Adviser's practices for monitoring
compliance. Ms. Carlson, as Chief Compliance Officer, explained that monthly
tests are performed to ensure the Fund is in compliance with IRS and SEC
diversification requirements. Ms. Carlson is one of the founders of the Adviser
and has been in the investment management business for more than 25 years. Her
experience and background provide her with an understanding of the functions and
requirements from the ground up. She stated that there was an SEC examination
in January 2008; findings were reviewed at the previous meeting. Mr. Johnson
confirmed there is no material litigation or administrative actions involving
the Adviser or PC&J Service Corp.
Based upon the information provided, the Board concluded that the fees paid, and
to be paid, to the Adviser pursuant to the Agreement was reasonable, that the
overall arrangement provided under the terms of the Agreement was a reasonable
business arrangement, and that the renewal of the Agreement was in the best
interest of the Fund's shareholders. Therefore, the Agreement was renewed for
an additional one year term.
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(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 (January 1, 2009) and held for the six months ended June 30, 2009.
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
January 1, 2009 June 30, 2009 During Period*
Actual $ 1,000.00 $ 1,078.47 $ 5.67
Hypothetical (5% return $ 1,000.00 $ 1,019.34 $ 5.51
before expenses)
* 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 current fiscal year.
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Obligations 4.5%
U.S. Corporate Obligations 35.0
Taxable Municipal Obligations 31.5
Lease Assignments 1.7
Warrants 1.6
Non-Convertible Preferred Stock 6.5
Exchange Traded Debt 5.0
Investment Companies 13.1
Other Assets Less Liabilities 1.1
Total 100.0%
----------------
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. Not Applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not Applicable
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUNDS. Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of July 17, 2009, 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 last fiscal
half-year that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 11. 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 August 14, 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 August 14, 2009
---------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date August 14, 2009
---------------