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The PC&J Performance Fund is a registered investment company under the Investment Company Act of 1940. The enclosed 1999 Annual Report is for your information and is provided to you in compliance with ongoing Securities and Exchange Commission regulations.
Year 2000 compliance was an important issue for the financial services industry. A lot of work went into addressing the problem that some computer systems would not be able to accurately handle the year 2000 as a date. While we did not experience any difficulties to-date, it may take a 12-month work cycle to be sure all functions are working properly.
Once again fact proves to be stranger than fiction. Nary a soul imagined the stock market would post a fifth straight year of 20% plus returns in the face of long-term interest rates rising 150 basis points. The Federal Reserve did its best to throw cold water on the market with three rate increases, but they just couldn’t keep a good market down. While the year-end numbers look routine when compared to the last four, 1999 was anything but routine.
Average Annual Total Returns
1 Year 5 Years 10 Years
Performance Fund 17.0% 25.2% 16.7%
Lipper Gen'l Equity 27.1% 23.2% 15.8%
S&P 500 Index 21.0% 28.5% 18.2%
It was a year full of challenges, excesses and opportunities. While the market reached new highs, it was led by a narrow list of sectors – companies in the technology, telecommunications, and Internet industries. These sectors along with select financials offered the greatest opportunities for the year. The PC&J Performance Fund, with its 17% return, had some representation in these areas, but not enough. This was costly in a year when the Nasdaq rose 85%.
Most of the excesses, of course, were also found in the Internet sector where companies with little or no income were valued at more than 20 times revenues. Last year was a year in which investors were rewarded for taking risks. Portfolio manager Jim Johnson was uncomfortable with the valuation levels and the business strategies of many of these stocks and that hurt the Fund’s relative performance.
Much of the challenges for the year occurred in the “other” sectors of the market. Even though the indices posted double digit returns, 60% of the stocks on the NYSE were actually down for the year. While the S&P 500 Index posted a 21% return, without the tech stocks it would have posted only a 3.1% return.
Last year was not a year for value-oriented investments. Some of our stocks, selected for their lower P/E valuations and hence lower expected risk turned out to be higher-risk, underperforming investments. In hindsight, these were all companies competing in industries undergoing an increasing amount of change. Under these circumstances, the risk of a misstep was higher than we estimated.
Although for 1999 the Fund missed our target, our methodology for selecting investments, focusing on free cash flow, has led to consistent performance. The Fund’s five-year return of 25.2% compares very well against the average fund as measured by Lipper.
Growth of $10,000 Investment
Performance S& P 500 Lipper
Growth Growth Growth
89 10,000 10,000 10,000
90 9,410 9,680 9,370
91 12,280 12,632 12,706
92 13,262 13,605 13,837
93 15,159 14,979 15,566
94 15,280 15,174 15,301
95 18,755 20,864 20,060
96 22,470 25,659 23,966
97 30,465 34,229 29,814
98 40,144 44,018 34,137
99 46,981 53,262 43,388
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 will be worth more or less than their original cost at the time of redemption.
PERCENT OF NUMBER OF MARKET
SECURITY (Note A) NET ASSETS SHARES VALUE
COMMON STOCKS
Capital goods & transportation: 11.4%
Emerson Electric Co. 19,600 $ 1,124,550
General Electric Co. 18,600 2,878,350
Tyco International Ltd. 46,000 1,794,000
United Technologies Corp. 21,600 1,404,000
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7,200,900
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Consumer cyclical - 1.4
Walt Disney Co. 29,000 848,250
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Consumer staple: 13.1
American Home Products 35,000 1,373,750
Campbell Soup Co. 24,200 936,238
Clorox Company 29,000 1,460,875
Gillette Company 18,600 766,087
Eli Lilly & Co. 17,500 1,163,750
Merck & Co. 20,000 1,343,750
Procter & Gamble Co. 11,000 1,205,187
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8,249,637
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Energy: 4.8
Chevron Corp. 10,200 883,575
Cooper Cameron Corp. (1) 18,000 880,875
Exxon Mobil Corp. 12,673 1,020,969
Newpark Resources Inc. (1) 38,600 236,425
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3,021,844
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Financial services: 23.3
American Express Co. 13,200 2,194,500
American International Group 26,023 2,813,737
Citigroup Inc. 36,750 2,046,516
Fannie Mae 18,000 1,123,875
Franklin Resources Inc. 24,000 769,500
Nasdaq 100 Trust Series I (1) 5,000 913,750
Northern Trust Corp. 35,800 1,897,400
Schwab (Charles) Corp. 42,050 1,608,412
Wells Fargo & Co. 33,000 1,334,438
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$14,702,128
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(1) Non-income producing security.
PERCENT OF NUMBER OF MARKET
SECURITY (Note A) NET ASSETS SHARES VALUE
Industrial commodities: 5.5%
Alcoa Inc. 26,400 $ 2,191,200
Sealed Air Corp. (1) 25,000 1,295,313
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3,486,513
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Technology: 23.4
Cisco Systems Co., Inc. (1) 41,250 4,418,906
E M C Corp. Mass (1) 26,400 2,884,200
Intel Corp. 15,000 1,234,688
International Business Machines Inc. 15,400 1,661,275
LSI Logic Corp. (1) 20,000 1,350,000
Microsoft Corp. (1) 19,000 2,218,250
Policy Management Systems (1) 37,300 953,481
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14,720,800
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Telecommunications: 13.0
America Online Inc. (1) 37,200 2,822,550
Lucent Technologies Inc. 34,768 2,607,600
MCI Worldcom Inc. (1) 25,800 1,369,012
Qwest Communications International 10,000 430,000
SBC Communications Inc. 20,000 975,000
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8,204,162
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TOTAL COMMON STOCKS 95.9
(Cost $27,284,279) 60,434,234
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SHORT-TERM OBLIGATIONS 4.2
Star Treasury Fund 115,604
Star Federal Prime Obligations 2,500,000
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TOTAL SHORT-TERM OBLIGATIONS
(Cost $2,615,604) 2,615,604
-------- -----------
TOTAL INVESTMENTS
(Cost $29,899,883) (2) 100.1% $63,049,838
======== ===========
(1) Non-income producing security.
ASSETS:
Investments in securities, at market value $ 63,049,838
(Cost basis - $29,899,883)(Notes A & D)
Receivables - Dividends and interest 30,915
-------------
Total assets 63,080,753
LIABILITIES - Accrued expenses (Note B) (78,237)
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NET ASSETS $ 63,002,516
=============
SHARES OUTSTANDING (Unlimited authorization - no par value):
Beginning of year 1,426,503
Net increase (Note C) 172,334
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End of year 1,598,837
=============
NET ASSET VALUE, offering price and redemption price per share $ 39.41
=============
NET ASSETS CONSIST OF:
Paid in capital $2 9,825,843
Net unrealized appreciation 33,149,955
Accumulated net realized gain on investments 26,718
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Net Assets $ 63,002,516
=============
See notes to financial statements.
INVESTMENT INCOME (Note A):
Dividends $ 391,389
Interest 156,897
------------
Total investment income 548,286
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EXPENSES (Note B):
Investment advisory fee 560,016
Management fee 280,009
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Total expenses 840,025
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NET INVESTMENT LOSS (291,739)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note D):
Net realized gain on investments 1,046,382
Change in unrealized appreciation of investments 7,898,921
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 8,945,303
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 8,653,564
============
See notes to financial statements.
For The Years Ended December 31,
1999 1998
--------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment (loss) $ (291,739) $ (155,474)
Net realized gain on investments 1,046,382 1,859,470
Change in unrealized appreciation of investments 7,898,921 10,277,549
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Net increase in net assets from operations 8,653,564 11,981,545
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DIVIDENDS TO SHAREHOLDERS (Note A):
Dividends from net investment income 0 0
Dividends from net realized gain on investments (1,019,664) (1,859,470)
------------- -------------
Net decrease in net assets from dividends to shareholders (1,019,664) (1,859,470)
INCREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE
TRANSACTIONS (Note C) 6,537,042 1,256,957
------------- -------------
Total increase in net assets 14,170,942 11,379,032
NET ASSETS:
Beginning of year 48,831,574 37,452,542
------------- -------------
End of year $ 63,002,516 $ 48,831,574
============= =============
See notes to financial statements.
| A. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
PC&J Performance Fund (the “Fund”) commenced operations on December 23, 1983, 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. The investment objective of the Fund is long-term growth of capital through investment in common stocks. Current income is of secondary importance. |
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities and 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 - Investments in securities traded on a national securities exchange are valued at the last sale price as of the close of New York trading on the day the securities are being valued; securities traded on the over-the-counter market are valued at either the mean between the bid and ask prices or the last sale price as one or the other may be quoted by the NASDAQ System as of the close of New York trading on the day the securities are being valued; securities and other assets for which quotations are not readily available are valued at fair value as determined in good faith under the direction of the Board of Trustees of the Fund. |
| (2) | Federal Income Taxes - The Fund has elected to be treated as a regulated investment company and intends to comply with the requirements under Subchapter M of the Internal Revenue Code and to distribute all of its net investment income and net realized gains on security transactions. Accordingly, no provision for federal income taxes has been made in the accompanying financial statements. |
| (3) | Other - Security transactions are accounted for on the date the securities are purchased or sold (trade date). 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. Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Net investment losses, for tax purposes, are reclassified to paid in capital. |
| B. | INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT |
|
The Fund has an investment advisory agreement with Parker, Carlson & Johnson, Inc. (the “Advisor”), wherein the Fund pays the Advisor a monthly advisory fee, accrued daily, based on an annual rate of one percent of the daily net assets of the Fund. Investment advisory fees were $560,016 for the year ended December 31, 1999. |
|
The Fund has a management agreement with PC&J Service Corp., (the "Service Corp."), which is wholly owned by the shareholders of the Advisor. The Fund pays Service Corp. for the overall management of the Fund's business affairs, exclusive of the services provided by the Advisor, and functions as the Fund's transfer and dividend disbursing agent. Service Corp. pays all expenses of the Fund (with certain exclusions) and is entitled to a monthly fee, accrued daily, based on an annual rate of one-half of one percent of the daily net assets of the Fund. Management fees were $280,009 for the year ended December 31, 1999. |
| B. | INVESTMENT ADVISORY AGREEMENT AND MANAGEMENT AGREEMENT (Continued) |
|
The Fund’s shareholders have adopted a Distribution Expense Plan (the “Plan”) pursuant to Rule 12b-1 of the Investment Company Act of 1940. This Plan authorizes payments under the investment advisory agreement and management agreement described above which might be deemed to be expenses primarily intended to result in the sale of Fund shares. No other payments are authorized under the Plan. |
|
Certain officers and trustees of the Fund are officers and directors, or both, of the Advisor and of Service Corp. |
| C. | CAPITAL SHARE TRANSACTIONS |
For the Year Ending For the Year Ending
December 31, 1999 December 31, 1998
---------------------------------------------------------
Shares sold 242,347 $ 8,992,472 128,041 $ 3,730,700
Shares issued in reinvestment
of dividends 25,876 1,019,664 54,320 1,859,470
------------ ------------- ----------- ------------
268,223 10,012,136 182,361 5,590,170
Shares redeemed (95,889) (3,475,094) (142,386) (4,333,213)
------------ ------------- ----------- ------------
Net increase 172,334 $ 6,537,042 39,975 $ 1,256,957
============ ============= =========== ============
| D. | INVESTMENT TRANSACTIONS |
| Securities purchased and sold (excluding short-term obligations and long-term U.S. Government securities) for the year ended December 31, 1999, aggregated $17,946,548 and $12,509,227, respectively. |
| At December 31, 1999 gross unrealized appreciation on investments was $33,868,544 and gross unrealized depreciation on investments was $718,589 for a net unrealized appreciation of $33,149,955 for financial reporting and federal income tax purposes. |
Selected Data for Each Share of For The Years Ended December 31,
Capital Stock Outstanding
Throughout the Year 1999 1998 1997 1996 1995
----------------------------------------------------
Net asset value-beginning of year $34.23 $27.01 $21.11 $19.18 $17.68
--------- ---------- ---------- ---------- ---------
Income from investment operations:
Net investment income (loss) (0.18) (0.11) (0.03) 0.06 0.03
Net realized and unrealized
gain on securities 6.01 8.69 7.54 3.73 3.99
--------- ---------- ---------- ---------- ---------
Total from investment operations 5.83 8.58 7.51 3.79 4.02
--------- ---------- ---------- ---------- ---------
Less dividends:
From net investment income (0.00) (0.00) (0.00) (0.06) (0.03)
From net realized gain
on investments (0.65) (1.36) (1.61) (1.80) (2.49)
--------- ---------- ---------- ---------- ---------
Total dividends (0.65) (1.36) (1.61) (1.86) (2.52)
--------- ---------- ---------- ---------- ---------
Net asset value-end of year $39.41 $34.23 $27.01 $21.11 $19.18
========= ========== ========== ========== =========
Total return 17.03% 31.77% 35.58% 19.80% 22.74%
Ratios to average net assets
Expenses 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (0.52%) (0.38%) (0.12%) 0.30% 0.13%
Portfolio turnover rate 23.72% 25.60% 22.44% 64.31% 76.71%
Net assets at end of year (000's) $63,003 $48,832 $37,453 $28,638 $23,949
See notes to financial statements.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the PC&J Performance Fund (the “Fund”) as of December 31, 1999, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years presented. 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 generally accepted auditing standards. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the Fund’s custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the PC&J Performance Fund at December 31, 1999, the results of its operations, the changes in its net assets and financial highlights for the respective stated years in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP|
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