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, 2012
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
PC&J PRESERVATION
FUND
Semi-Annual Report to Shareholders
June 30, 2012
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS
JUNE 30, 2012
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
------------------------------------- -------- ---------- --------
-------------------------------------
U.S. AGENCY OBLIGATIONS:
Maturity of 1 - 5 years: 1.1%
Federal Home Loan Bank
5.625%, due 06-13-16 $ 125,000 $144,060
Maturity of 6 - 15 years: 1.9
Federal National Mtg Assn Step-Up 1
2.250%, due 09-30-25 260,000 260,010
TOTAL U.S. AGENCY OBLIGATIONS
(Cost $384,776) 3.0 404,070
U.S. CORPORATE OBLIGATIONS:
Maturity of less than 1 year: 2.3
Scholastic Corp.
5.000%, due 04-15-13 125,000 125,469
Arcelormittal
5.375%, due 06-01-13 130,000 133,751
Arcelormittal Sa Luxembourg 2
5.375%, due 06-01-13 50,000 51,423
310,643
Maturity of 1 - 5 years: 22.6
Leucadia National Corp.
7.000%, due 08-15-13 125,000 130,156
Montpelier Re Holdings Ltd.
6.125%, due 08-15-13 150,000 156,059
American Axle & Manufacturing Inc.
5.250%, due 02-11-14 210,000 216,300
Bunge Limited Finance Corp.
5.350%, due 04-15-14 150,000 158,335
Brinker International Inc.
5.750%, due 06-01-14 155,000 165,764
HSBC Finance Corp.
6.000%, due 08-15-14 275,000 289,690
Bear Stearns Cos. Inc.
5.700%, due 11-15-14 162,000 174,755
OGE Energy Corp.
5.000%, due 11-15-14 250,000 265,683
JPMorgan Floating Rate
3.500%, due 05-01-15 150,000 149,114
Nabisco Inc.
7.550%, due 06-15-15 100,000 117,356
See notes to financial statements.
PC&J PRESERVATION FUND
----------------------
SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2012
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
--------------------------------------- -------- ---------- ----------
U.S. CORPORATE OBLIGATIONS (Cont'd):
---------------------------------------
Teck Cominco Ltd.
5.375%, due 10-01-15 $ 160,000 $ 176,469
Pitney Bowes Inc.
4.750%, due 01-15-16 100,000 101,580
Alltel Corp.
7.000%, due 03-15-16 100,000 119,608
Alliant Techsystems Inc.
6.750%, due 04-01-16 110,000 112,750
Boston Scientific Corp.
6.400%, due 06-15-16 150,000 172,923
Frontier Oil Corp.
8.500%, due 09-15-16 125,000 131,406
Peabody Energy Corp.
7.375%, due 11-01-16 130,000 142,675
Goldman Sachs Group Inc.
5.625%, due 01-15-17 250,000 262,226
3,042,849
Maturity of 6 - 10 years: 5.6%
Terex Corp.
8.000%, due 11-15-17 250,000 259,375
Merrill Lynch Co. Inc.
6.500%, due 07-15-18 230,000 247,500
Conoco Philips
5.750%, due 02-01-19 100,000 122,296
Whirlpool Corp.
4.700%, due 06-01-22 125,000 126,377
755,548
Maturity of 11 - 15 years: 1.8
Dow Chemical Co.
7.375%, due 03-01-23 200,000 246,319
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $4,086,590) 32.3 4,355,359
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of 1 - 5 years: 4.9
New York State Housing Finance Agency
4.810%, due 09-15-13 90,000 94,511
Dayton, OH Taxable Bonds
6.500%, due 11-01-13 100,000 100,277
Nebraska Public Power District Rev. 3
5.140%, due 01-01-14 310,000 330,094
See notes to financial statements.
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PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2012
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
---------------------------------------- -------- ---------- ----------
TAXABLE MUNICIPAL OBLIGATIONS:
----------------------------------------
Maturity of 1 - 5 years:
Michigan Finance Authority Revenue
4.750%, due 11-01-15 $ 125,000 $ 131,652
656,534
Maturity of 6 - 10 years: 8.1%
Hazelwood MO Industrial Dev. Auth. Rev
5.640%, due 02-01-18 150,000 169,465
Maryland Heights MO Tax Incremnt Rev
7.000%, due 09-01-18 200,000 220,976
Reeves County TX Lease Revenue
5.625%, due 12-01-18 125,000 127,574
Portland OR Weekly Auction Notes 4, 5
0.15%, due 06-01-19 100,000 100,000
Cuyahoga County OH Economic Dev.
5.000%, due 12-01-19 150,000 168,999
Michigan State Refunding School Loan
6.950%, due 11-01-20 110,000 144,042
New York, NY General Obligation
6.491%, due 03-01-21 125,000 153,959
1,085,015
Maturity of 11 - 15 years: 6.0
Iowa Tobacco Settlement
6.500%, due 06-01-23 55,000 52,158
San Bernadino Cnty CA Pension Oblig. 3
6.020%, due 08-01-23 245,000 265,362
Ohio State Dev. Assistance 3
5.670%, due 10-01-23 100,000 104,885
Pennsylvania Turnpike
7.470%, due 06-01-25 100,000 116,238
New Jersey Economic Development 3
6.310%, due 07-01-26 50,000 55,037
Lake County IL School District
6.300%, due 01-01-27 110,000 127,520
New York Cntys Tobacco Settlement Tr.
6.000%, due 06-01-27 110,000 90,947
812,147
Maturity of 16 - 25 years: 5.5
Erie County NY Tobacco Asset Secur.
6.000%, due 06-01-28 150,000 139,120
Alameda Corridor Transit Authority CA 3
6.600%, due 10-01-29 200,000 217,156
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2012
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
------------------------------------- -------- ---------- ----------
TAXABLE MUNICIPAL OBLIGATIONS
(Cont'd)
-------------------------------------
Maturity of 16 - 25 years:
Frisco TX COP 3
6.375%, due 02-15-33 $ 360,000 $ 393,581
749,857
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TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (Cost $3,049,806) 24.5% 3,303,553
TOTAL U.S. AGENCY, U.S. CORPORATE
AND TAXABLE MUNICIPAL
OBLIGATIONS
(Cost $7,521,172) 59.8 8,062,982
MORTGAGE BACKED STRUCTURED
OBLIGATIONS: 1.7
FNMA Remic Series 2011-49
4.000%, due 06-25-41 113,730 114,637
GNMA Remic Series 2011-153
3.000%, due 12-16-41 117,849 117,959
TOTAL MORTGAGE BACKED
STRUCTURED OBLIGATIONS
(Cost $232,853) 232,596
LEASE ASSIGNMENTS: 0.9
Ford Motor Co. ESA Lease 4, 6
12.524%, due 06-01-13 111,948 119,069
TOTAL LEASE ASSIGNMENTS
(Cost $111,948) 119,069
NON-CONVERTIBLE PREFERRED STOCK: 5.1 SHARES
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Annaly Cap. Mgt. Inc. Pfd. A, 7.875% 5,000 131,001
FPL Group Cap. Tr. I Pfd., 5.875% 6,300 164,682
Magnum Hunter Res. Pfd. D, 8.000% 3,300 145,035
Metlife Inc. Pfd. B, 6.500% 5,200 134,160
Powershares ETF Trust Finl. Pfd. 5,900 106,200
TOTAL NON-CONVERTIBLE PREFERRED
STOCK (Cost $673,176) 681,078
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2012
(UNAUDITED)
PERCENT
OF NET PRINCIPAL
SECURITY ASSETS AMOUNT VALUE
--------------------------------------- -------- --------- -----------
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5.2%
EXCHANGE TRADED DEBT: % SHARES
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Comcast Corp. Notes
6.625%, due 05-15-56 5,400 $ 136,728
General Elec. Cap. Corp. Pines
6.100%, due 11-15-32 6,000 156,600
Georgia Power Co. Senior Notes
6.375%, due 07-15-47 5,000 125,300
Metlife Inc. Senior Notes
5.875%, due 11-21-33 5,175 137,603
Telephone & Data Systems Senior Notes
6.875%, due 11-15-59 5,195 139,952
TOTAL EXCHANGE TRADED DEBT
(Cost $663,842) 696,183
MUTUAL FUNDS: 20.1 SHARES
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Oppenheimer Sr. Floating Rate A 42,352 345,596
Payden Emerging Markets Bond 28,187 405,330
TCW Emerging Markets Income I 31,903 277,871
Templeton Income Global Bond A 60,499 774,987
First American Treasury Obligations 897,368 897,368
TOTAL MUTUAL FUNDS
(Cost $2,720,374) 2,701,152
DIVERSIFIED STRATEGIES: 6.3
Pimco All Asset All Authority Fund 63,603 664,020
SPDR Gold Trust 7, 8 1,200 186,228
TOTAL DIVERSIFIED STRATEGIES
(Cost $873,044) 850,248
TOTAL INVESTMENTS
(Cost $12,796,409) 9 99.1 13,343,308
ASSETS LESS OTHER LIABILITIES 0.9 120,599
NET ASSETS 100.0% $13,463,907
See notes to financial statements.
PC&J PRESERVATION FUND
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SCHEDULE OF INVESTMENTS (Concluded)
JUNE 30, 2012
(UNAUDITED)
1 Interest rates listed for step-up bonds are the rates as of June 30, 2012.
2 Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. At June 30, 2012, the aggregate amount of Rule 144A
securities was $51,423, which is 0.4% of the Fund's net assets.
3 Some municipal obligations have a credit enhancement feature, such as
insurance or letter of credit, which produces a credit quality comparable to
that of a same-rated corporate bond.
4 Security has been deemed illiquid. At June 30, 2012, the aggregate amount of
illiquid securities was $219,069, which is 1.6% of the Fund's net assets.
5 Variable interest rate. Interest rate listed is the rate as of June 30, 2012.
6 Security valued according to "good faith pricing" guidelines. (See Note A)
7 Non-income producing security
8 Exchange Traded Funds, or baskets of stocks giving exposure to certain
industry, style & country segments.
9 Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation (depreciation). (See Note D)
The following table presents securities held by PC&J Preservation Fund by
industry sector as a percentage of net assets:
Consumer Discretionary 6.6%
Consumer Staple 2.1%
Energy 4.0%
Financial 15.4%
Healthcare 1.3%
Industrials 3.5%
Materials 5.9%
Telecommunications 1.9%
Utilities 4.1%
Other 55.2%
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Total 100.0%
See notes to financial statements
PC&J PRESERVATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2012
(UNAUDITED)
ASSETS:
Investments in securities, at value
(Cost basis - $12,796,409) (Notes A & D) $13,343,308
Receivables
Dividends and Interest 125,995
Fund shares sold 6,756
Total receivables 132,751
Total assets 13,476,059
LIABILITIES:
Accrued expenses (Note B) 12,152
Total liabilities 12,152
NET ASSETS $13,463,907
SHARES OUTSTANDING (Unlimited authorized shares):
Beginning of period 1,283,855
Net decrease (Note C) (40,550)
End of period 1,243,305
NET ASSET VALUE, offering price and redemption price per share $ 10.83
NET ASSETS CONSIST OF:
Paid in capital $13,267,068
Net unrealized appreciation on investments 546,899
Undistributed net investment income 280,308
Accumulated net realized loss on investments (630,368)
Net Assets $13,463,907
See notes to financial statements.
PC&J PRESERVATION FUND
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
INVESTMENT INCOME (Note A):
Interest $ 235,562
Dividends 101,947
Total investment income 337,509
EXPENSES (Note B):
Investment advisory fee 33,865
Management fee 40,638
Total expenses 74,503
NET INVESTMENT INCOME 263,006
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note D):
Net realized loss on investments (162,774)
Change in unrealized appreciation/depreciation of investments 338,105
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 175,331
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 438,337
See notes to financial statements.
PC&J PRESERVATION FUND
----------------------
STATEMENTS OF CHANGES IN NET ASSETS
For The Six Months For the Year
Ended Ended
June 30, 2012 December 31, 2011
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 263,006 $ 574,872
Net realized loss on investments (162,774) (101,341)
Change in unrealized appreciation/depreciation
of investments 338,105 (49,727)
Net increase in net assets from operations 438,337 423,804
DECREASE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
From net investment income 0 (563,705)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) (435,820) 814,411
Total increase in net assets 2,517 674,510
NET ASSETS:
Beginning of year 13,461,390 12,786,880
End of period $13,463,907 $13,461,390
UNDISTRIBUTED NET INVESTMENT INCOME $ 280,308 $ 5,264
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, 2012
(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 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 - Securities that are traded on any national
exchange, including exchange traded debt and non-convertible preferred stock,
are generally valued at the last quoted sales price or, if unavailable, the last
bid price. Securities that are traded on the NASDAQ over-the-counter market,
including non-convertible preferred stock, are generally valued at the NASDAQ
Official Closing Price. Mutual funds and closed end funds are valued at the net
asset value of their shares on each business day. Fixed income securities,
including U.S. agency obligations, U.S. corporate obligations, taxable municipal
obligations, Government National Mortgage Association mortgage backed securities
and warrants, 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. These prices may be based on inputs such as
dealer quotations, current trades and offerings, market movement and credit
information. 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 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") (generally lease assignments). 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 inputs such as 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. Other inputs may include a review of the issuer's financial statements,
cash flows or credit quality and other transactions or offers by the issuer. A
combination of these and other methods may be used.
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.
PC&J PRESERVATION FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
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).
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU
2011-04 "Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs", modifying Topic 820, Fair Value
Measurements and Disclosures. At the same time, the International Accounting
Standards Board ("IASB") issued International Financial Reporting Standard
("IFRS") 13, Fair Value Measurement. The objective of the FASB and IASB is
convergence of their guidance on fair value measurements and disclosures.
Specifically, ASU 2011-04 requires reporting entities to disclose (i) the
amounts of any transfers between Level 1 and Level 2, and the reasons for the
transfers, (ii) for Level 3 fair value measurements, quantitative information
about significant unobservable inputs used, (iii) a description of the valuation
processes used by the reporting entity, and (iv) a narrative description of the
sensitivity of the fair value measurement to changes in unobservable inputs if a
change in those inputs might result in a significantly higher or lower fair
value measurement. The effective date of ASU 2011-04 is for interim and annual
periods beginning after December 15, 2011. During the current period,
management adopted the disclosure requirements effective for the fiscal years
beginning after December 15, 2011 and for interim periods within those fiscal
years.
There were no transfers in and out of Levels 1 and 2.
The Fund did not hold any Level 3 securities during the current period.
The inputs or methodologies used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following table summarizes the inputs used to value the Fund's securities as
of June 30, 2012.
Level 1 Level 2 Level 3 Total
Security Type Investments in Securities ($000)
U.S. Agency Obligations $ - $ 404 $ - $ 404
U.S. Corporate Obligations - 4,355 - 4,355
Taxable Municipal Obligations - 3,304 - 3,304
Mortgage Backed Structured Obligations - 233 - 233
Lease Assignments - 119 - 119
Non-Convertible Preferred Stock 681 - - 681
Exchange Traded Debt 696 - - 696
Mutual Funds 2,701 - - 2,701
Diversified Strategies 850 - - 850
Total $ 4,928 $ 8,415 $ 0 $13,343
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PC&J PRESERVATION FUND
----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(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, 2011, the Fund has a capital loss carry forward of $357,116, of which
$35,450 can be carried forward through 2012, $29,688 through 2013, $120,473
through 2014, $17,581 through 2015, $13,846 through 2017, $50,327 through 2018,
and $89,751 can be carried forward indefinitely. These losses can be used to
offset future gains. The Regulated Investment Company Modernization Act of 2010
eliminates the eight-year limit on the use of capital loss carryforwards,
effective for losses generated in the first taxable year after the date of
enactment (December 22, 2010). See Note E for further disclosure regarding
uncertain tax positions. Additionally, the Fund had an unused capital loss
carry forward of $98,440 which expired as of December 31, 2011 and was
reclassified to paid in capital.
(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 an adjustment to 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.
The Fund's maximum exposure under these arrangements is not known; however, the
Fund has not had prior claims or losses pursuant to these arrangements and
expects the risk of loss to be remote.
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 $33,865 for the six months ended June 30, 2012.
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, 2012.
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 $40,638
for the six months ended June 30, 2012.
Certain officers and Trustees of the Fund are officers and directors, or both,
of the Adviser and of Service Corp.
PC&J PRESERVATION FUND
----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
C. CAPITAL SHARE TRANSACTIONS
For the Six Months Ended
June 30, 2012 For the Year Ended
(Unaudited) December 31, 2011
------------------- -------------------
Shares Dollars Shares Dollars
------ ------- ------ -------
Subscriptions 34,924 $ 373,036 97,491 $1,054,576
Reinvestment of distributions 0 0 53,789 563,705
34,924 373,036 151,280 1,618,281
-------- ---------- -------- -----------
Redemptions (75,474) (808,856) (73,960) (803,870)
Net increase/(decrease) (40,550) $(435,820) 77,320 $ 814,411
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, 2012, aggregated
$1,731,225 and $1,618,804 (including principal paydowns of $140,294 and returns
of capital of $11,386), respectively. Purchases and sales of long-term U.S.
Government Securities for the six months ended June 30, 2012, aggregated $0 and
$350,000, respectively.
At June 30, 2012, gross unrealized appreciation on investments was $674,373
and gross unrealized depreciation on investments was $127,474, for a net
unrealized appreciation of $546,899 for financial reporting and federal income
tax purposes.
E. FEDERAL TAX DISCLOSURE
Tax Character of Distributions Paid
For the Year Ended December 31, 2011 For the Year Ended December 31, 2010
------------------------------------- -------------------------------------
Ordinary Income Capital Gains Total Distribution Ordinary Income Capital Gains Total Distribution
--------------- ------------- ------------------ ------------------- ----------------
$ 563,705 $ - $ 563,705 $ 566,978 $ - $ 566,978
=============== ============= ================== =============== ============= ==================
Tax Basis of Distributable Earnings
As of December 31, 2011
Undistributed Undistributed
Ordinary Accumulated Unrealized
Income Realized Losses Appreciation
------------- ----------------- ------------
$ 5,264 $ (357,116) $ 208,794
============= ================= ============
PC&J PRESERVATION FUND
----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(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,
2008-2011) and has concluded that as of June 30, 2012 no provision for
unrecognized tax benefits or expenses is required in these financial statements.
F. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the date of issuance of the
financial statements and determined that no events have occurred that require
disclosure.
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
15, 2012. 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 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, 2011, and income statement for the year ended December 31, 2011,
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 Funds in a cost efficient manner. The Trustees reviewed Service
Corp.'s balance sheet dated as of December 31, 2011, and income statement for
the year ended December 31, 2011, and concluded that Service Corp. has 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
Funds' 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, 2012
(UNAUDITED)
The Trustees compared the Fund's average total returns with comparable
benchmarks. Ms. Carlson reviewed with the Trustees the recent and long-term
performance of the Fund, compared to benchmarks and funds of similar size and
strategy, during the portfolio review earlier in the meeting. Ms. Carlson 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 Funds' 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 ratified
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 servicing the Fund. 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 was reasonable, and that when consolidated with the
profitability of Service Corp. profitability 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
respective peer groups 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 respective peer groups. Ms. Carlson informed the
Trustees that, because of the nature of the relationship between the Adviser and
the shareholder/clients, the level of service received by shareholders, in her
opinion, exceeded the "average service" provided by advisers to other mutual
funds. She stated that the Adviser provides shareholder reporting tailored to
specific client needs, provides performance and cost information, and makes the
Fund's managers available for shareholder questions. She explained that these
services are embodied in its advisory fee. In addition, Ms. Carlson 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. Ms. Carlson noted that since the Fund's investment
objective 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.
PC&J PRESERVATION FUND
------------------------
NOTES TO FINANCIAL STATEMENTS (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
After reviewing all the information presented and discussing with the Adviser,
the Trustees concluded that the Adviser's fees with respect to the Fund 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 relative size of the Fund and the fact that the Adviser is not
accumulating excessive profits from the Advisory Agreement. In addition, the
Trustees concluded that investment analysis done on behalf of the Fund may
benefit some of the Adviser's other accounts, but investment ideas utilized in
other accounts also may benefit the Fund.
Finally, the Trustees reviewed the Adviser's practices for monitoring
compliance. Ms. Carlson, as Chief Compliance Officer, explained that monthly
tests are performed to ensure the Fund is in compliance with IRS and SEC
diversification requirements. Ms. Carlson is one of the founders of the Adviser
and has been in the investment management business for more than 30 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 of the Adviser's Agreements a year
ago. Mr. Johnson confirmed there is no material litigation or administrative
actions pending 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,
2011, 2010, 2009, 2008, and 2007, 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, 2012, 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 2012 2011 2010 2009 2008 2007
Stock Outstanding Throughout the Period (Unaudited)
----------------------------------------
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.49 $ 10.60 $ 10.36 $ 9.43 $ 10.48 $ 10.39
Income from investment operations:
Net investment income 0.22 0.46 0.49 0.48 0.52 0.52
Net realized and unrealized
gain (loss) on securities 0.12 (0.11) 0.24 0.93 (1.05) 0.09
TOTAL FROM INVESTMENT OPERATIONS 0.34 0.35 0.73 1.41 (0.53) 0.61
Less distributions:
From net investment income (0.00) (0.46) (0.49) (0.48) (0.52) (0.52)
TOTAL DISTRIBUTIONS (0.00) (0.46) (0.49) (0.48) (0.52) (0.52)
NET ASSET VALUE-END OF PERIOD $ 10.83 $ 10.49 $ 10.60 $ 10.36 $ 9.43 $ 10.48
TOTAL RETURN 1 3.24% 3.29% 7.08% 14.91% (5.00%) 5.83%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income 3.87%* 4.32% 4.18% 4.89% 4.96% 4.58%
Portfolio turnover rate 28.90%* 23.54% 20.52% 22.50% 65.51% 31.76%
Net assets at end of period (000's) $ 13,464 $13,461 $12,787 $13,990 $10,953 $12,078
1 Total return is based on the combination of reinvested dividends, capital gain
and return of capital distributions, if any. Past performance is not indicative
of future results.
* Annualized
See notes to financial statements.
------
PC&J PRESERVATION FUND
----------------------
ADDITIONAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(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, 2012) and held for the entire period through June 30, 2012.
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, 2012 June 30, 2012 During Period*
Actual $ 1,000.00 $ 1,032.41 $ 5.56
Hypothetical (5% return
before expenses) $ 1,000.00 $ 1,019.41 $ 5.52
* 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 366 (to
reflect the one-half year period).
PC&J PRESERVATION FUND
------------------------
ADDITIONAL INFORMATION (Concluded)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
PORTFOLIO CHARACTERISTICS
% OF NET
TYPE OF SECURITY ASSETS
---------
U.S. Agency Obligations 3.0%
U.S. Corporate Obligations 32.3
Taxable Municipal Obligations 24.5
Mortgage Backed Structured
Obligations 1.7
Lease Assignments 0.9
Non-Convertible Preferred Stock 5.1
Exchange Traded Debt 5.2
Mutual Funds 20.1
Diversified Strategies 6.3
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 19, 2012, 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 1, 2012
--------------
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 1, 2012
--------------
By
/s/
---
Kathleen Carlson, Treasurer
Date August 1, 2012
--------------