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, 2010
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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.
Page 1
PC&J PRESERVATION
FUND
Semi-Annual Report to Shareholders
June 30, 2010
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
JUNE 30, 2010
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- -------- ---------- --------
U.S. AGENCY OBLIGATIONS:
Maturity of 5 - 10 years: 4.0%
Federal Home Loan Bank
5.625%, due 06-13-16 $ 125,000 $134,258
Federal National Mtg. Assn. Step-Up 1
2.000%, due 05-12-20 400,000 401,536
TOTAL U.S. AGENCY OBLIGATIONS
(Cost $524,706) 4.0 535,794
U.S. CORPORATE OBLIGATIONS:
Maturity of less than 1 year: 3.3
Duke Energy
7.875%, due 08-16-10 125,000 125,953
Nissan Motor Acceptance Corp. 8
5.625%, due 03-14-11 100,000 102,595
Oneok Inc.
7.125%, due 04-15-11 105,000 109,845
Williams Partners
7.500%, due 06-15-11 100,000 104,598
442,991
Maturity of 1 - 5 years: 21.6
Western Union
5.400%, due 11-17-11 100,000 105,660
AOL Time Warner Inc.
6.875%, due 05-01-12 210,000 228,977
Fiserv Inc.
6.125%, due 11-20-12 100,000 109,747
Alcoa Inc.
5.375%, due 01-15-13 250,000 258,840
Scholastic Corp.
5.000%, due 04-15-13 125,000 120,625
Arcelormittal
5.375%, due 06-01-13 130,000 137,774
Arcelormittal Sa Luxembourg 8
5.375%, due 06-01-13 25,000 26,293
Rio Tinto Finance USA Ltd.
5.875%, due 07-15-13 105,000 114,683
Montpelier Re Holdings Ltd.
6.125%, due 08-15-13 150,000 154,009
Massey Energy Co.
6.875%, due 12-15-13 100,000 97,750
Lehman Bros Holdings Inc. 6
4.800%, due 03-13-14 148,000 29,230
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2010
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- ----------------------------------------- -------- ---------- ----------
U.S. CORPORATE OBLIGATIONS (Cont'd):
- -----------------------------------------
Brinker International Inc.
5.750%, due 06-01-14 $ 155,000 $ 161,628
HSBC Finance Corp.
6.000%, due 08-15-14 275,000 289,089
Bear Stearns Cos. Inc.
5.700%, due 11-15-14 162,000 179,308
OGE Energy Corp.
5.000%, due 11-15-14 250,000 268,623
Hornbeck Offshore Services Inc.
6.125%, due 12-01-14 100,000 89,500
L-3 Communications Corp.
5.875%, due 01-15-15 150,000 148,500
Chesapeake Energy Corp.
9.500%, due 02-15-15 120,000 132,600
JPMorgan Floating Rate
3.500%, due 05-01-15 150,000 137,250
Nabisco Inc.
7.550%, due 06-15-15 100,000 118,421
2,908,507
Maturity of 6 - 10 years: 10.5%
Teck Cominco Ltd.
5.375%, due 10-01-15 160,000 165,989
Alltel Corp.
7.000%, due 03-15-16 100,000 117,721
Boston Scientific Corp.
6.400%, due 06-15-16 150,000 156,000
Peabody Energy Corp.
7.375%, due 11-01-16 130,000 135,200
Goldman Sachs Group Inc.
5.625%, due 01-15-17 250,000 252,777
Terex Corp.
8.000%, due 11-15-17 250,000 231,250
Merrill Lynch Co. Inc.
6.500%, due 07-15-18 230,000 240,209
Conoco Philips
5.750%, due 02-01-19 100,000 114,098
1,413,244
Maturity of 11 - 15 years: 6.6
General Electric Capital Corp. Step-Up 1
5.50%%, due 10-28-21 200,000 201,485
Toyota Motor Credit Corp. Curve Accr'l 2
8.000%, due 01-18-22 50,000 49,375
Toyota Motor Credit Corp. Curve Accr'l 2
8.000%, due 02-01-22 175,000 172,813
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2010
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- ----------------------------------------- -------- ---------- ----------
U.S. CORPORATE OBLIGATIONS (Cont'd):
- -----------------------------------------
Dow Chemical Co.
7.375%, due 03-01-23 $ 200,000 $ 219,339
Morgan Stanley Curve Accrual 2
8.375%, due 04-25-23 250,000 245,000
888,012
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $5,555,988) 42.0% 5,652,754
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 98,852
Dayton, OH Taxable Bonds
6.500%, due 11-01-13 200,000 200,000
Nebraska Public Power District Revenue
5.140%, due 01-01-14 310,000 340,675
639,527
Maturity of 6 - 10 years: 8.7
Reeves County TX Cert. of Participation
6.550%, due 12-01-16 115,000 112,414
Hazelwood MO Industrial Dev. Auth. Rev
5.640%, due 02-01-18 150,000 145,506
Maryland Heights MO Tax Incremnt Rev
7.000%, due 09-01-18 200,000 206,284
Portland OR Weekly Auction Notes 5, 7
0.195%, due 06-01-19 125,000 125,000
Hudson Cnty NJ Lease Revenue
7.950%, due 09-01-19 300,000 301,773
Dekalb Cnty GA Dev Authority Revenue
6.875%, due 03-01-20 275,000 275,283
1,166,260
Maturity of 11 - 20 years: 9.3
Michigan State Refunding School Loan
6.950%, due 11-01-20 110,000 124,893
New York, NY General Obligation
6.491%, due 03-01-21 125,000 141,520
Minneapolis & St. Paul Met. Gen. Oblig.
6.850%, due 01-01-22 295,000 320,854
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2010
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- --------------------------------------- -------- ---------- ----------
TAXABLE MUNICIPAL OBLIGATIONS (Cont'd)
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San Bernadino Cnty CA Pension Oblig.
6.020%, due 08-01-23 $ 245,000 $ 255,596
Ohio State Dev. Assistance
5.670%, due 10-01-23 100,000 102,283
Pennsylvania Turnpike
7.470%, due 06-01-25 100,000 111,395
Alameda Corridor Transit Authority CA
6.600%, due 10-01-29 200,000 196,246
1,252,787
Maturity of 21 - 30 years:
Frisco TX COP
6.375%, due 02-15-33 2.9% 360,000 383,756
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $3,356,701) 25.6 3,442,330
TOTAL U.S. AGENCY, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $9,437,395) 71.6 9,630,878
GOVERNMENT NATIONAL MORTGAGE
ASSN MORTGAGE BACKED SECURITIES: 4.6
GNMA Remic Series 2010-76
4.500%, due 07-19-12 145,000 145,000
GNMA Remic Series 2010-17
4.500%, due 07-15-13 469,622 475,950
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSN MORTGAGE BACKED
SECURITIES
(Cost $614,622) 620,950
LEASE ASSIGNMENTS: 1.3
Ford Motor Co. ESA Lease 2, 5
12.524%, due 06-01-13 179,781
TOTAL LEASE ASSIGNMENTS
(Cost $153,529) 179,781
See notes to financial statements.
SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2010
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
- ---------------------------------------- -------- --------- -----------
NUMBER OF
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WARRANTS: 1.4% WARRANTS
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X-Alpha Call Warrants 22,500 $ 182,475
TOTAL WARRANTS
(Cost $224,437) 182,475
NON-CONVERTIBLE PREFERRED STOCK: 4.5 SHARES
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Annaly Cap. Mgt. Inc. Pfd. A, 7.875% 5,000 125,500
FPL Group Cap. Tr. I Pfd., 5.875% 5,300 133,560
Georgia Power Cap. Tr. VII Pfd., 5.875% 5,200 130,520
Metlife Inc. Pfd. B, 6.500% 5,200 120,952
Powershares ETF Trust Finl. Pfd. 5,900 95,344
TOTAL NON-CONVERTIBLE PREFERRED
STOCK (Cost $614,209) 605,876
3.9
EXCHANGE TRADED DEBT: % SHARES
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AT&T Inc. Senior Notes, 6.375% 5,000 132,500
Comcast Corp. Notes, 6.625% 5,400 132,030
General Elec. Cap. Corp. Pines, 6.100% 5,000 124,800
Metlife Inc. Senior Notes, 5.875% 5,175 131,083
TOTAL EXCHANGE TRADED DEBT
(Cost $491,702) 520,413
MUTUAL FUNDS: 11.8 SHARES
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Highland Floating Rate A 5 35,270 221,498
Oppenheimer Sr. Floating Rate A 5 36,400 290,109
Templeton Income Global Bond A 37,594 484,211
Vanguard Money Market Reserves 550,000 550,000
First American Treasury Obligations 49,083 49,083
TOTAL MUTUAL FUNDS
(Cost $1,734,083) 1,594,901
TOTAL INVESTMENTS
(Cost $13,269,977) 99.1 13,335,274
ASSETS LESS OTHER LIABILITIES 0.9 120,069
NET ASSETS 100.0% $13,455,343
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
JUNE 30, 2010
(UNAUDITED)
1 Interest rates listed for step-up bonds are the rates as of June 30, 2010.
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 June 30, 2010, the aggregate amount of
illiquid securities was $816,388, which is 6.1% of the Fund's net assets.
6 Security is in default as of June 30, 2010.
7 Variable interest rate. Interest rate listed is the rate as of June 30, 2010.
8 Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. At June 30, 2010, the aggregate amount of Rule 144A
securities was $128,888, which is 1.0% of the Fund's net assets.
See notes to financial statements
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2010
(UNAUDITED)
ASSETS:
Investments in securities, at value
(Cost basis - $13,269,977) (Notes A & D) $13,335,274
Receivables - Dividends and Interest 156,881
Receivables - Fund shares sold 738
Total assets 13,492,893
LIABILITIES:
Accrued expenses (Note B) (12,184)
Payables - Securities Purchased (25,366)
Total liabilities (37,550)
NET ASSETS $13,455,343
SHARES OUTSTANDING (Unlimited authorized shares):
Beginning of period 1,292,299
Net decrease (Note C) (41,964)
End of period 1,250,335
NET ASSET VALUE, offering price and redemption price per share $ 10.76
NET ASSETS CONSIST OF:
Paid in capital $13,403,688
Net unrealized appreciation on investments 65,297
Undistributed net investment income 285,497
Accumulated net realized loss on investments (299,139)
Net Assets $13,455,343
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
INVESTMENT INCOME (Note A):
Interest $293,246
Dividends 62,229
Total investment income 355,475
EXPENSES (Note B):
Investment advisory fee (33,769)
Management fee (40,524)
Total expenses (74,293)
NET INVESTMENT INCOME 281,182
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized gain on investments 16,339
Change in unrealized appreciation/depreciation of investments 216,402
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 232,741
NET INCREASE IN NET ASSETS FROM OPERATIONS $513,923
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, 2010 December 31, 2009
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 281,182 $ 576,271
Net realized gain/(loss) on investments 16,339 (13,846)
Change in unrealized appreciation/depreciation
of investments 216,402 1,072,551
Net increase (decrease) in net assets from operations 513,923 1,634,976
DECREASE IN NET ASSETS RESULTING FROM
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income 0 (577,711)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) (448,216) 1,379,784
Total increase (decrease) in net assets 65,707 2,437,049
NET ASSETS:
Beginning of year 13,389,636 10,952,587
End of period $13,455,343 $13,389,636
UNDISTRIBUTED NET INVESTMENT INCOME $ 285,497 $ 4,315
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, 2010
(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, as
amended. The investment objective of the Fund is the generation of income and
the preservation of capital. The investment adviser to the Fund is Parker
Carlson & Johnson, Inc. (the "Adviser").
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 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.).
Observable inputs may also include benchmark yields, reported trades, broker
quotes, benchmark securities and bid/offer quotations.
Level 3 - significant unobservable inputs (including the fund's own assumptions
used to determine the fair value of investments). Level 3 securities are
generally unique investment structures that have no widely adopted benchmarks.
Factors involved in valuation may include the type of security, financial
statements, cost at the date of purchase, and information as to any transactions
or offers with respect to the security.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
The inputs or methodologies used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
There were no transfers in and out of Levels 1 and 2.
The following table summarizes the inputs used to value the Fund's securities as
of June 30, 2010.
Level 1 Level 2 Level 3 Total
Security Type Investments in Securities ($000)
U.S. Agency Obligations $ - $ 536 $ - $ 536
U.S. Corporate Obligations - 5,653 - 5,653
Taxable Municipal Obligations - 3,442 - 3,442
Government National Mortgage Assn. Mortgage
Backed Securities - 621 - 621
Lease Assignments - 180 - 180
Warrants 182 - - 182
Non-Convertible Preferred Stock 606 - - 606
Exchange Traded Debt 520 - - 520
Mutual Funds 1,595 - - 1,595
Total $2,903 $10,432 $0 $13,335
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Measurements
Using Unobservable Inputs ($000)
(Level 3)
Securities
Beginning Balance December 31, 2009 $ 19
Total gains or losses (realized/unrealized) included in
earnings 0
Purchases, sales, issuances, settlements and return of
capital (net) (19)
Transfers in and/or out of Level 3 0
Ending Balance June 30, 2010 $ 0
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 $ 0
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(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, 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.
(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 $33,769 for the six months ended June 30, 2010.
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, 2010.
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 $40,524
for the six months ended June 30, 2010.
Certain officers and Trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
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PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
C. CAPITAL SHARE TRANSACTIONS
For the Six Months Ended
June 30, 2010 For the Year Ended
(Unaudited) December 31, 2009
Shares Dollars Shares Dollars
------------------- ------------ --------- ------------
Subscriptions 96,802 $ 1,024,507 193,666 $ 1,988,278
Reinvestment of distributions 0 0 55,710 577,711
96,802 1,024,507 249,376 2,565,989
------------------- ------------ --------- ------------
Redemptions (138,766) (1,472,723) (118,709) (1,186,205)
Net increase/(decrease) (41,964) $ (448,216) 130,667 $ 1,379,784
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, 2010, aggregated
$1,625,363 and $717,623, respectively. Purchases and sales of long-term U.S.
Government Securities for the six months ended June 30, 2010, aggregated
$400,000 and $374,000, respectively.
At June 30, 2010, gross unrealized appreciation on investments was $499,950 and
gross unrealized depreciation on investments was $434,653, for a net unrealized
appreciation of $65,297 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)
============= ================ =============
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
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 as of June 30, 2010 no provision for
unrecognized tax benefits or expenses is required in these financial statements.
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
and has noted no such events.
G. 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
17, 2010. 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 Fund 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
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, 2009, and
income statement for the year ended December 31, 2009, 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 Service Corp.,
a wholly owned subsidiary of the Adviser. The Adviser explained that Service
Corp., the Fund's 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, 2009, and income statement for the year ended December 31, 2009,
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.
PC&J PRESERVATION FUND
- ------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
The Trustees compared the Fund's average total returns with comparable
benchmarks. The President of the Adviser 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 Secretary of the Adviser noted that since the Fund's investment objective
and strategy is not comparable to that of the Adviser's separately managed
accounts, average total returns of the Fund and these accounts were not
compared. 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 (i)
reviewed 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 in light of the objective and strategy of the Fund 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.
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. The President of the Adviser 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, The President of the
Adviser noted that many of the smaller accounts invested in the Fund would be
subject to a minimum fee if the Adviser managed the assets in a separate
account, and these minimums would exceed the 0.5% advisory fees 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. The President of
the Adviser noted that since the Fund's investment objective
PC&J PRESERVATION FUND
- ------------------------
NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
and strategy is not comparable to that of the Adviser's separately managed
accounts, a comparison of the advisory fees paid by the Fund to the fees paid by
the Adviser's separately managed accounts are not particularly relevant. Based
on the information presented, the Trustees concluded that the Adviser's fees
were reasonable.
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. The Chief Compliance Officer explained that monthly tests are
performed to ensure the Fund is in compliance with IRS and SEC diversification
requirements. The Chief Compliance Officer 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. There have been no examinations
by state or Federal regulators since the last renewal a year ago. The Secretary
of the Adviser confirmed there is no material litigation or administrative
actions involving the Adviser or 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 were 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 by the Trustees, including the Independent Trustees.
PC&J PRESERVATION FUND
- ----------------------
FINANCIAL HIGHLIGHTS
The information contained in the table below for the years ended December 31,
2009, 2008, 2007, 2006, and 2005, 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, 2010, 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 2010 2009 2008 2007 2006 2005
Stock Outstanding Throughout the Period (Unaudited)
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.36 $ 9.43 $ 10.48 $ 10.39 $ 10.52 $ 10.74
Income from investment operations:
Net investment income 0.22 0.48 0.52 0.52 0.53 0.49
Net realized and unrealized
gain (loss) on securities 0.18 0.93 (1.05) 0.09 (0.12) (0.23)
TOTAL FROM INVESTMENT OPERATIONS 0.40 1.41 (0.53) 0.61 0.41 0.26
Less distributions:
From net investment income (0.00) (0.48) (0.52) (0.52) (0.54) (0.48)
TOTAL DISTRIBUTIONS (0.00) (0.48) (0.52) (0.52) (0.54) (0.48)
NET ASSET VALUE-END OF PERIOD $ 10.76 $ 10.36 $ 9.43 $ 10.48 $ 10.39 $ 10.52
TOTAL RETURN 3.86% 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% 1.10%
Net investment income 4.16%* 4.89% 4.96% 4.58% 4.49% 4.04%
Portfolio turnover rate 18.01%* 22.50% 65.51% 31.76% 5.99% 16.10%
Net assets at end of period (000's) $13,455 $13,990 $10,953 $12,078 $12,923 $15,444
* Annualized
See notes to financial statements.
PC&J PRESERVATION FUND
- ----------------------
ADDITIONAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(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, 2010) and held for the entire period through June 30, 2010.
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
January 1, 2010 June 30, 2010 During Period*
Actual $ 1,000.00 $ 1,038.61 $ 5.56
Hypothetical (5% return
before expenses) $ 1,000.00 $ 1,019.34 $ 5.51
* 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 SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
PORTFOLIO CHARACTERISTICS
% OF NET
TYPE OF SECURITY ASSETS
---------
U.S. Agency Obligations 4.0%
U.S. Corporate Obligations 42.0
Taxable Municipal Obligations 25.6
Government National Mortgage Assn
Mortgage Backed Securities 4.6
Lease Assignments 1.3
Warrants 1.4
Non-Convertible Preferred Stock 4.5
Exchange Traded Debt 3.9
Mutual Funds 11.8
Assets Less Other Liabilities 0.9
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 22, 2010, 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 11, 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 August 11, 2010
---------------
By
/s/
- ---
Kathleen Carlson, Treasurer
Date August 11, 2010
---------------