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,
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Dayton, OH 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: 12-31-2009
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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, addressStreet450 Fifth
Street, NW, CityWashington, StateDC PostalCode20549-0609. 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, 2009, 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 2009 Annual Report is for your information and is provided pursuant
to Securities and Exchange Commission regulations.
MANAGEMENT REVIEW AND ANALYSIS
The Monday morning quarterbacking is just beginning about the rescue maneuvers
employed to "save" the financial system. The costs and benefits of the actions
taken by the Federal Reserve, the U.S. Treasury and the Bush and Obama
Whitehouses will be evaluated for years to come. At this point the financial
markets do not care. Some or all of the maneuvers took the Armageddon scenario
off the table, marking the bottom for the stock market and reinvigorating the
recovery in the bond market. Bond investors partied for the rest of the year.
AVERAGE ANNUAL TOTAL RETURNS
1 Yr. 5 Yrs 10 Yrs
Preservation Fund 14.91% 4.21% 4.78%
Barclays Inter
Gov/Credit 5.24% 4.66% 5.93%
Treasury Bills
(3 month) 0.25% 3.54% 3.08%
At the start of 2009 yields on intermediate-term, BBB-rated industrial bonds, a
proxy for an average credit yield, were near double-digit levels. The yield for
a 10-year BBB-rated bond dropped nearly 300 basis points (3%) over the course of
the year. As a result, the bond's price rose by over 20 percent. Conversely,
10-year Treasury yields started the year at a little over 2% and ended it 160
basis points higher at 3.84%, resulting in a 13% drop in prices. In fact,
yields are back to levels last seen in late 2007 before the credit crunch
gripped our economy.
The PC&J Preservation Fund (the "Fund") is primarily composed of government and
quality, investment-grade bonds. Distressed conditions in the financial
services industry at the end of 2008 weighed on the Fund's high-quality
holdings. Bond prices in almost all segments, except the Treasury segment,
started 2009 at a low point. As conditions improved over the course of the year,
prices of the Fund's holdings did too. In addition, other lower-tiered
investment-grade investments added late in 2008 and early 2009 benefitted from
investors' willingness to move out the risk spectrum. For the year, the Fund
provided a 14.9% return compared to the 5.2% return of the Barclays Intermediate
Gov't/Credit Index.
With bond prices returning to pre-bear market levels, investors wonder where to
go to find some income. It's hard to conjure up a scenario in the long-term
that doesn't include rising interest rates. How we transition from a
government-funded economic turnaround to a privately-funded expansion is what
keeps us up at night. We are looking to hold onto our credit investments, as
rates are not expected to rise in the near-term and most of them were purchased
with enough of a cushion to withstand an eventual rise in rates. For new
purchases, we are employing a price preservation theme - looking at some global
opportunities, accessed through mutual funds, where the yields are higher than
the placecountry-regionU.S., and evaluating opportunities where the coupon
either steps up over time or floats with a measure of inflation.
A return to more "normal" times would be welcomed by all of us. However, we
realize there are still some hurdles to jump and intend to maintain a
preservation bias in our management practices. Over the long-term this bias has
produced Fund returns that fall between the no-risk Treasury Bills and the
Barclays Index.
PRESERVATION FUND EXPENSE RATIO*
Per May 1, 2009 Prospectus 1.20%
Per December 31, 2009 Annual Report 1.10%
* The expense ratio stated in the May 1, 2009 Prospectus includes acquired fund
fees and expenses as required by Form N-1A. The expense ratio stated in the
December 31, 2009 Annual Report includes only operating expenses of the
Preservation Fund.
PRESERVATION LEHMAN INTER TREASURY BILL
GROWTH GOV/CR GROWTH
1999 10,000 10,000 10,000
2000 10,935 11,012 10,582
2001 11,618 11,999 10,942
2002 12,313 13,179 11,118
2003 12,637 13,747 11,230
2004 12,981 14,165 11,384
2005 13,298 14,389 11,734
2006 13,811 14,976 12,279
2007 14,616 16,083 12,910
2008 13,885 16,900 13,225
2009 15,955 17,785 13,548
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, 2009
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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U.S. AGENCY OBLIGATIONS:
Maturity of 5 - 10 years: 2.8%
Federal Home Loan Bank
5.625%, due 06-13-16 $ 125,000 $126,016
Federal Home Loan Bank Step-Up 1
3.000%, due 10-29-19 250,000 243,125
369,141
Maturity of 11 - 15 years: 0.9
Federal Home Loan Mtg Corp Step-Up 1
4.000%, due 03-12-24 124,000 121,299
TOTAL U.S. AGENCY OBLIGATIONS
(Cost $498,705) 3.7 490,440
U.S. CORPORATE OBLIGATIONS:
Maturity of less than 1 year: 1.6
Ryder System Inc.
4.625%, due 04-01-10 80,000 80,566
Duke Energy
7.875%, due 08-16-10 125,000 130,331
210,897
Maturity of 1 - 5 years: 17.7
Nissan Motor Acceptance Corp. 8
5.625%, due 03-14-11 100,000 102,032
Oneok Inc.
7.125%, due 04-15-11 105,000 111,699
Williams Partners
7.500%, due 06-15-11 100,000 102,500
Western Union
5.400%, due 11-17-11 100,000 106,759
AOL Time Warner Inc.
6.875%, due 05-01-12 210,000 229,935
Bunge Ltd. Finance Corp.
7.800%, due 10-15-12 100,000 109,418
Fiserv Inc.
6.125%, due 11-20-12 100,000 109,032
Alcoa Inc.
5.375%, due 01-15-13 250,000 259,142
Arcelormittal
5.375%, due 06-01-13 130,000 136,360
Rio Tinto Finance USA Ltd.
5.875%, due 07-15-13 105,000 113,440
Lehman Bros Holdings Inc. 6
4.800%, due 03-13-14 148,000 28,860
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2009
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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U.S. CORPORATE OBLIGATIONS (Cont'd):
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Brinker International Inc.
5.750%, due 06-01-14 $ 155,000 $ 151,849
HSBC Finance Corp.
6.000%, due 08-15-14 275,000 286,014
Bear Stearns Cos. Inc.
5.700%, due 11-15-14 162,000 177,153
OGE Energy Corp.
5.000%, due 11-15-14 250,000 258,539
Hornbeck Offshore Services Inc.
6.125%, due 12-01-14 100,000 93,750
2,376,482
Maturity of 6 - 10 years: 11.9%
Chesapeake Energy Corp.
9.500%, due 2-15-15 120,000 131,700
Nabisco Inc.
7.550%, due 6-15-15 100,000 115,438
Teck Cominco Ltd.
5.375%, due 10-01-15 160,000 153,440
Alltel Corp.
7.000%, due 03-15-16 100,000 113,181
Peabody Energy Corp.
7.375%, due 11-01-16 130,000 133,900
Goldman Sachs Group Inc.
5.625%, due 01-15-17 350,000 360,045
Terex Corp.
8.000%, due 11-15-17 250,000 240,625
Merrill Lynch Co. Inc.
6.500%, due 07-15-18 230,000 240,390
Conoco Philips
5.750%, due 02-01-19 100,000 109,745
1,598,464
Maturity of 11 - 15 years: 6.5
General Electric Capital Corp. Step-Up 1
5.50%%, due 10-28-21 200,000 198,476
Toyota Motor Credit Corp. Curve Accr'l 2
8.000%, due 01-18-22 50,000 49,500
Toyota Motor Credit Corp. Curve Accr'l 2
8.000%, due 02-01-22 175,000 173,250
Dow Chemical Co.
7.375%, due 03-01-23 200,000 196,592
Morgan Stanley Curve Accrual 2
8.375%, due 04-25-23 250,000 246,250
864,068
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2009
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $4,979,453) 37.7% $5,049,911
TAXABLE MUNICIPAL OBLIGATIONS 4:
Maturity of 1 - 5 years: 4.7
New York State Housing Finance Agency
4.810%, due 09-15-13 $ 90,000 94,841
Dayton, OH Taxable Bonds
6.500%, due 11-01-13 200,000 200,000
Nebraska Public Power District Revenue
5.140%, due 01-01-14 310,000 335,073
629,914
Maturity of 6 - 10 years: 6.7
Reeves County TX Cert. of Participation
6.550%, due 12-01-16 115,000 104,053
Hazelwood MO Industrial Dev. Auth. Rev
5.640%, due 02-01-18 150,000 138,357
Maryland Heights MO Tax Incremnt Rev
7.000%, due 09-01-18 200,000 197,104
Portland OR Weekly Auction Notes 5, 7
0.105%, due 06-01-19 150,000 150,000
Hudson Cnty NJ Lease Revenue
7.950%, due 09-01-19 300,000 303,111
892,625
Maturity of 11 - 20 years: 12.2
Dekalb Cnty GA Dev Authority Revenue
6.875%, due 03-01-20 275,000 274,997
Michigan State Refunding School Loan
6.950%, due 11-01-20 110,000 123,836
Hopkins MN General Obligation
7.100%, due 02-01-21 150,000 150,764
New York, NY General Obligation
6.491%, due 03-01-21 125,000 135,439
Minneapolis & St. Paul Met. Gen. Oblig.
6.850%, due 01-01-22 295,000 322,420
San Bernadino Cnty CA Pension Oblig.
6.020%, due 08-01-23 245,000 238,784
Ohio State Dev. Assistance
5.670%, due 10-01-23 100,000 91,330
Pennsylvania Turnpike
7.470%, due 06-01-25 100,000 112,837
See notes to financial statements.
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 2009
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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TAXABLE MUNICIPAL OBLIGATIONS
(Cont'd)
Alameda Corridor Transit Authority CA
6.600%, due 10-01-29 $ 200,000 $ 177,668
1,628,075
Maturity of 21 - 30 years:
Frisco TX COP
6.375%, due 02-15-33 2.7% 360,000 363,712
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $3,535,174) 26.3 3,514,326
TOTAL U.S. AGENCY, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $9,013,332) 67.7 9,054,677
LEASE ASSIGNMENTS: 1.5
PHS Indian Health Service Lease 2, 5
7.000%, due 05-01-10 18,905
Ford Motor Co. ESA Lease 2, 5
12.524%, due 06-01-13 184,400
TOTAL LEASE ASSIGNMENT
(Cost $181,356) 203,305
NUMBER OF
WARRANTS: 1.1 WARRANTS
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X-Alpha Call Warrants 22,500 144,450
TOTAL WARRANTS
(Cost $224,437) 144,450
NON-CONVERTIBLE PREFERRED STOCK: 5.5 SHARES
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Annaly Cap. Mgt. Inc. Pfd. A, 7.875% 5,000 121,300
FPL Group Cap. Tr. I Pfd., 5.875% 5,300 135,256
Georgia Power Cap. Tr. VII Pfd., 5.875% 5,200 132,248
JP Morgan Chase Cap. XVI Pfd., 6.350% 5,200 125,996
Metlife Inc. Pfd. B, 6.500% 5,200 124,852
Powershares ETF Trust Finl. Pfd. 5,900 96,288
TOTAL NON-CONVERTIBLE PREFERRED STOCK (Cost $735,161) 735,940
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
DECEMBER 31, 2009
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
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EXCHANGE TRADED DEBT: 3.8% SHARES
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AT&T Inc. Senior Notes, 6.375% 5,000 $ 133,450
Comcast Corp. Notes, 6.625% 5,400 130,572
General Elec. Cap. Corp. Pines, 6.100% 5,000 119,900
Metlife Inc. Senior Notes, 5.875% 5,175 128,288
TOTAL EXCHANGE TRADED DEBT
(Cost $491,702) 512,210
MUTUAL FUNDS: 19.3 SHARES
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Highland Floating Rate A 5 35,270 218,676
Oppenheimer Sr. Floating Rate A 5 36,400 283,557
Templeton Income Global Bond A 37,594 477,068
Vanguard Money Market Reserves 1,500,000 1,500,000
First American Treasury Obligations 109,531 109,531
TOTAL MUTUAL FUNDS
(Cost $2,744,531) 2,588,832
TOTAL INVESTMENTS
(Cost $13,390,519) 98.9 13,239,414
ASSETS LESS OTHER LIABILITIES 1.1 150,222
NET ASSETS 100.0% $13,389,636
1 Interest rates listed for step-up bonds are the rates as of December 31, 2009.
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. At December 31, 2009, the aggregate amount
of illiquid securities was $855,538, which is 6.4% of the Fund's net assets.
6 Security is in default as of December 31, 2009.
7 Variable interest rate. Interest rate listed is the rate as of December 31,
2009.
8 Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. At December 31, 2009, the aggregate amount of Rule 144A
securities was $102,032, which is 0.8% of the Fund's net assets.
See notes to financial statements
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2009
ASSETS:
Investments in securities, at value
(Cost basis - $13,390,519) (Notes A & D) $13,239,414
Receivables - Dividends and Interest 156,820
Receivables - Fund shares sold 5,800
Total assets 13,402,034
LIABILITIES:
Accrued expenses (Note B) (12,338)
Other liabilities (60)
Total liabilities (12,398)
NET ASSETS $13,389,636
SHARES OUTSTANDING (Unlimited authorized shares):
Beginning of year 1,161,632
Net increase (Note C) 130,667
End of year 1,292,299
NET ASSET VALUE, offering price and redemption price per share $ 10.36
NET ASSETS CONSIST OF:
Paid in capital $13,851,904
Net unrealized depreciation on investments (151,105)
Undistributed net investment income 4,315
Accumulated net realized loss on investments (315,478)
Net Assets $13,389,636
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
INVESTMENT INCOME (Note A):
Interest $ 561,209
Dividends 144,727
Total investment income 705,936
EXPENSES (Note B):
Investment advisory fee (58,939)
Management fee (70,726)
Total expenses (129,665)
NET INVESTMENT INCOME 576,271
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (13,846)
Change in unrealized appreciation/depreciation of investments 1,072,551
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,058,705
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,634,976
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,
2009 2008
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 576,271 $ 576,590
Net realized gain/(loss) on investments (13,846) 6,317
Change in unrealized appreciation/depreciation
of investments 1,072,551 (1,158,885)
Net increase (decrease) in net assets from operations 1,634,976 (575,978)
DECREASE IN NET ASSETS RESULTING FROM
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (577,711) (576,423)
INCREASE IN NET ASSETS RESULTING FROM CAPITAL
SHARE TRANSACTIONS (Note C) 1,379,784 26,735
Total increase/(decrease) in net assets 2,437,049 (1,125,666)
NET ASSETS:
Beginning of year 10,952,587 12,078,253
End of year $13,389,636 $10,952,587
UNDISTRIBUTED NET INVESTMENT INCOME $ 4,315 $ 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 YEAR ENDED DECEMBER 31, 2009
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
placeStateOhio 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 country-regionplaceUnited 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.
GAAP 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, 2009
The following table summarizes the inputs used to value the Fund's securities as
of December 31, 2009.
Level 1 Level 2 Level 3 Total
Security Type Investments in Securities ($000)
U.S. Agency Obligations $ - $ 491 $ - $ 491
U.S. Corporate Obligations - 5,050 - 5,050
Taxable Municipal Obligations - 3,514 - 3,514
Lease Assignments - 184 19 203
Warrants 144 - - 144
Non-Convertible Preferred Stock 736 - - 736
Exchange Traded Debt 512 - - 512
Mutual Funds 2,589 - - 2,589
Total $ 3,981 $ 9,239 $ 19 $13,239
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Measurements
Using Unobservable Inputs ($000)
(Level 3)
Securities
Beginning Balance December 31, 2008 $ 92
Total gains or losses (realized/unrealized) included in earnings 1
Purchases, sales, issuances, settlements and return of capital (net) (74)
Transfers in and/or out of Level 3 0
Ending Balance December 31, 2009 $ 19
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
=====
(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, 2009, the Fund has a capital loss carry forward of $315,478, of which
$98,440 can be carried forward through 2011, $35,450 through 2012, $29,688
through 2013, $120,473 through 2014, $17,581 through 2015, and $13,846 through
2017. These losses can be used to offset future gains. See Note E for further
disclosure regarding uncertain tax positions
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2009
(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. For tax purposes, paydown gains
and losses are reclassified to realized gains and losses on investments. 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 $58,939 for the year ended December 31, 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 $4,000 for the year ended
December 31, 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 $70,726
for the year ended December 31, 2009.
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, 2009 December 31, 2008
------------------- -------------------
Shares Dollars Shares Dollars
------ ------- ------ -------
Subscriptions 193,666 $ 1,988,278 132,165 $ 1,356,449
Reinvestment of distributions 55,710 577,711 61,452 576,423
249,376 2,565,989 193,617 1,932,872
-------- ------------ --------- ------------
Redemptions (118,709) (1,186,205) (184,622) (1,906,137)
Net decrease 130,667 $ 1,379,784 8,995 $ 26,735
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2009
D. INVESTMENT TRANSACTIONS
Securities purchased and sold (excluding short-term obligations and long-term
U.S. Government securities) for the year ended December 31, 2009, aggregated
$2,519,205 and $1,237,752, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 2009, aggregated $498,687
and $1,200,000, respectively.
At December 31, 2009, gross unrealized appreciation on investments was $390,962
and gross unrealized depreciation on investments was $542,067, for a net
unrealized depreciation of $151,105 for financial reporting and federal
income tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2009 For the Year Ended December 31, 2008
- ------------------------------------- -------------------------------------
Ordinary Income Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
- --------------- ------------- ------------------ --------------- ------------- ------------------
$ 577,711 $ 0 $ 577,711 $ 576,423 $ 0 $ 576,423
=============== ============= ================== =============== ============= ==================
Tax Basis of Distributable Earnings
As of December 31, 2009
Undistributed Undistributed
Ordinary Accumulated Unrealized
Income Realized Losses Depreciation
- ------------------------------------ -----------------
$ 4,315 $ ( 315,478) $ (151,105)
============= ================ ================
The Fund recognizes tax benefits or expenses of uncertain tax positions only
when the position is "more likely than not" to be sustained assuming examination
by tax authorities. Management has reviewed the tax positions taken on Federal
income tax returns for all open tax years (tax years ended December 31,
2006-2009) and has concluded that no provision for unrecognized tax benefits or
expenses is required in these financial statements.
PC&J PRESERVATION FUND
- ----------------------
NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2009
F. SUBSEQUENT EVENTS
The Fund is required to recognize in the financial statements the effects of all
subsequent events that provide additional evidence about conditions that existed
as of the date of the Statement of Assets and Liabilities. For non-recognized
subsequent events that must be disclosed to keep the financial statements from
being misleading, the Fund is required to disclose the nature of the event as
well as an estimate of its financial effect, or a statement that such an
estimate cannot be made. In addition, GAAP requires the Fund to disclose the
date through which subsequent events have been evaluated. Management has
evaluated subsequent events through the issuance of these financial statements
on February 25, 2010 and has noted no such events.
G. OTHER FEDERAL TAX INFORMATION (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 6.1%.
PC&J PRESERVATION FUND
- ----------------------
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital For The Years Ended December 31,
Stock Outstanding Throughout the Period 2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
NET ASSET VALUE-BEGINNING OF PERIOD $ 9.43 $ 10.48 $ 10.39 $ 10.52 $ 10.74
Income from investment operations:
Net investment income 0.48 0.52 0.52 0.53 0.49
Net realized and unrealized
gain (loss) on securities 0.93 (1.05) 0.09 (0.12) (0.23)
TOTAL FROM INVESTMENT OPERATIONS 1.41 (0.53) 0.61 0.41 0.26
Less distributions:
From net investment income (0.48) (0.52) (0.52) (0.54) (0.48)
TOTAL DISTRIBUTIONS (0.48) (0.52) (0.52) (0.54) (0.48)
NET ASSET VALUE-END OF PERIOD $ 10.36 $ 9.43 $ 10.48 $ 10.39 $ 10.52
TOTAL RETURN 14.91% (5.00%) 5.83% 3.86% 2.44%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income 4.89% 4.96% 4.58% 4.49% 4.04%
Portfolio turnover rate 22.50% 65.51% 31.76% 5.99% 16.10%
Net assets at end of period (000's) $13,390 $10,953 $12,078 $12,923 $15,444
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, including
the schedule of investments, of the PC&J Preservation Fund (the "Fund") as of
December 31, 2009, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years of 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 (placecountry-regionUnited 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, 2009, by
correspondence with the custodian. 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, 2009, 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.
/s/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 1, 2010
- ------
PC&J PRESERVATION FUND
- ----------------------
ADDITIONAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 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 (July 1, 2009) and held for the entire period through December 31, 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.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Beginning Account Ending Account
Value Value Expenses Paid
July 1, 2009 December 31, 2009 During Period*
Actual $ 1,000.00 $ 1,065.52 $ 5.73
Hypothetical (5% return $ 1,000.00 $ 1,019.66 $ 5.60
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 fiscal half-year, then divided by 365 (to
reflect the one-half year period).
PC&J PRESERVATION FUND
- ------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 2009 (Unaudited)
PORTFOLIO CHARACTERISTICS
TYPE OF SECURITY % OF NET ASSETS
----------------
U.S. Agency Obligations 3.7%
U.S. Corporate Obligations 37.7
Taxable Municipal Obligations 26.3
Lease Assignments 1.5
Warrants 1.1
Non-Convertible Preferred Stock 5.5
Exchange Traded Debt 3.8
Investment Companies 19.3
Assets Less Other Liabilities 1.1
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
c/o PC&J Service Corp.
300 Old Post Office
120 West Third Street
Dayton, Ohio 45402
Year of Birth: 1949 Trustee Trustee since 2008 2
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ----------------------------------------- -----------------------------------
From September 2005 to present, consultant with Battelle &
Battelle LLP (CPA firm); from December 1990 to August
2005, COO of Wagner Smith Co. (commercial electrical
contracting firm) 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
c/o PC&J Service Corp.
300 Old Post Office
120 West Third Street
Dayton, Ohio 45402
Year of Birth: 1954 Trustee Trustee since 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 (CPA firm) 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, as amended, 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
- ------------------------------------------ ---------------- ------------- --------------------
Kathleen A. Carlson, CFA* Treasurer and
c/o PC&J Service Corp. 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 the Adviser and PC&J Service Corp. since
1998; Treasurer and Director of the Adviser since 1982;
Chief Compliance Officer of the 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*
c/o PC&J Service Corp. 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 the 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 2008 $ 18,512
FY 2009 $ 19,250
(b) AUDIT-RELATED FEES
------------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2008 $ None $ None
FY 2009 $ None $ None
Nature of the fees: N/A
(c) TAX FEES
--------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2008 $ 2,032 $ None
FY 2009 $ 2,100 $ None
Nature of the fees: Federal and Excise Tax Returns
(d) ALL OTHER FEES
--------------
Registrant Parker Carlson & Johnson
---------- ------------------------
FY 2008 $ None $ None
FY 2009 $ 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 2008 $ 2,032 $ None
FY 2009 $ 2,100 $ 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, 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 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 25, 2010
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 25, 2010
By
/s/
- ---
Kathleen Carlson, Treasurer
Date February 25, 2010