PC&J PRESERVATION FUND
ANNUAL REVIEW
Unaudited
Introduction
The PC&J Preservation 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. This report requires no action
on your part. Please give us a call if you have any questions.
Year 2000 Compliance
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.
Management Review and Analysis
The Federal Reserve giveth and the Federal Reserve taketh away.
An international financial crisis and the implosion of a star-studded hedge fund
gave the Federal Reserve cause to cut rates three times late in 1998. Long-term
bond yields fell to levels not seen in decades ending 1998 at an artificially
low 5.09 percent. The rate cuts worked not only to restore confidence and
liquidity to the financial markets, but also worked to stimulate the economy.
This is where 1999 began.
Average Annual Total Returns
1 Yr. 5 Yrs 10 Yrs
Preservation Fund -1.3% 6.3% 6.5%
Lehman Index -2.5% 7.4% 7.4%
Treasury Bills(3mth) 4.6% 5.3% 5.0%
Throughout the year market prognosticators focused on when and by how much
the Federal Reserve would raise interest rates. In fact, they did raise rates
three times. Some felt they would have done so a fourth time in December if it
wasn't for worries about potential Y2K problems.
Long-term yields rose 150 basis points to end the year at 6.48 percent.
Because rates increased across all maturities, bond prices declined across all
maturities. The declines were so severe, it wiped out the interest income earned
by most bond holders. For the second time in the decade of the 90's the bond
market produced a negative total return.
The PC&J Preservation Fund began the year with a relatively short 3.3-year
average duration. Over the course of the year, as yields rose, portfolio manager
Kathleen Carlson lengthened the average duration to a still relatively short 5.1
years. The Fund declined 1.3%, less than the 2.5% decline for the Lehman Index
with its longer duration. Treasury bills with their 4.6% return offered the best
protection, because if held to maturity they do not decline in price.
Looking out over a 5 and 10-year timeframe, the Fund continues to meet its
goal of providing a return superior to cash alternatives as measured by 3-month
Treasury bills. We have also found that the strategy of maintaining a lower risk
posture than the Lehman Index, through a lower average duration, has led to
returns that are more consistent over time. We believe this is appropriate for
our preservation of capital objective.
Growth of $10,000 Investment
Preservation Lehman G/C Treasury B
Growth Growth Growth
89 10,000 10,000 10,000
90 10,930 10,850 10,780
91 12,285 12,467 11,384
92 13,059 13,364 11,782
93 14,169 14,794 12,136
94 13,829 14,291 12,609
95 15,931 16,907 13,365
96 16,369 17,363 14,075
97 17,581 19,012 14,825
98 19,049 20,914 15,581
99 18,784 20,391 16,301
Total returns and the growth of a $10,000 investment are based
on past performance and are not an indication of future performance. The value
of your shares will fluctuate and may be worth more or less than their original
cost at the time of redemption.
PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS:
Maturity of less than 1 year - 5.1%
Federal Nat'l. Mortgage Assoc.
Notes, 5.490%, due 08-18-00 0.75 1,000,000 $ 995,000
-----------
Maturity of 1 - 5 years: 12.5
Federal Home Loan Bank Notes,
5.270%, due 02-26-02 2.25 1,000,000 973,125
U.S. Treasury Notes,
6.375%, due 08-15-02 2.75 500,000 500,937
Federal Home Loan Bank Notes,
6.380%, due 10-18-04 4.75 1,000,000 980,312
-----------
2,454,374
-----------
Maturity of 5 - 10 years: 32.9
Federal Nat'l. Mortgage Assoc. Notes,
6.650%, due 03-08-06 6.25 1,000,000 964,688
U.S. Treasury Notes,
6.500%, due 10-15-06 6.75 2,000,000 1,994,375
Federal Nat'l. Mortgage Assoc.
Notes, 6.860%, due 10-16-07 7.75 1,000,000 960,937
U.S. Treasury Notes,
5.625%, due 05-15-08 8.50 1,500,000 1,410,938
Federal Home Loan Bank Notes,
5.805%, due 03-23-09 9.25 1,250,000 1,140,625
-----------
6,471,563
-----------
Maturity of 10 - 20 years - 3.8
Student Loan Marketing Assoc. Notes,
7.300%, due 08-01-12 12.75 750,000 755,391
------- -----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $11,026,992) 54.3% $10,676,328
------- -----------
See notes to financial statements.
Page 2
PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1999
PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
TAXABLE MUNICIPAL OBLIGATIONS:
Maturity of 1 - 5 years: 3.5%
New York, NY Taxable Bond,
10.000%, due 08-01-01 1.75 100,000 $ 104,335
Ohio Taxable Development Assistance
Bonds, 6.820%, due 04-01-03 3.25 500,000 494,930
Philadelphia, PA Industrial Development
Bonds, 6.488%, due 06-15-04 4.50 89,420 85,651
-----------
684,916
-----------
Maturity of 5 - 10 years: 15.3
Rome, NY Hsg. Dev. Corp. Taxable Bonds,
6.500%, due 01-01-05 5.00 395,000 378,465
Cleveland, OH Airport Taxable Bonds,
6.490%, due 01-01-06 6.00 365,000 350,499
Pittsburgh, PA Conv. Bonds,
0.00%, due 03-01-07 7.25 705,000 414,505
Chicago Heights, IL Taxable Bonds,
7.350%, due 12-01-07 8.00 170,000 168,582
Oklahoma City, OK Airport Taxable Bonds,
6.950%, due 07-01-08 8.50 475,000 456,209
Dayton, OH Taxable Housing Improvement
Bonds, 6.250%, due 11-01-08 9.00 140,000 128,486
Scranton, PA U. S. Govt. Gtd. Notes,
7.720%, due 08-01-09 9.75 285,000 288,277
Texas State Water Finl. Assistance Taxable
Bonds, 6.550%, due 08-01-09 9.75 400,000 373,284
Dayton, OH Econ. Dev. Bonds,
6.380%, due 12-01-09 10.00 500,000 459,960
-----------
$ 3,018,267
-----------
See notes to financial statements.
Page 3
PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1999
PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
TAXABLE MUNICIPAL OBLIGATIONS (Continued):
Maturity of 10 - 20 years: 15.3%
Texas State Water Dev Taxable Bonds,
8.800%, due 08-01-12 12.75 50,000 $ 50,480
Mississippi State GO Taxable Bonds,
6.750%, due 11-01-12 13.00 300,000 278,361
Denver, CO School Dist. Taxable Bonds,
6.940%, due 12-15-12 13.00 500,000 471,505
New York City Taxable Bonds,
9.000%, due 02-01-13 13.25 50,000 51,756
St Cloud, MN Taxable Bonds,
6.700%, due 02-01-13 13.25 70,000 62,747
Dayton, OH Taxable Bonds,
6.500%, due 11-01-13 14.00 250,000 224,900
Sacramento, CA Redev. Agency Taxable
Bonds, 6.375%, due 11-01-13 14.00 200,000 172,192
Jackson Cnty., MS GO Taxable Bonds,
8.250%, due 03-01-14 14.25 135,000 138,266
Jackson Cnty., MS GO Taxable Bonds,
8.250%, due 03-01-15 15.25 210,000 215,080
Ohio State Taxable Bonds,
7.600%, due 10-01-16 16.75 750,000 745,200
Palmdale, CA Redev. Taxable Bonds,
7.900%, due 09-01-17 17.75 225,000 225,729
California Housing Finance Agency Rev
Bonds, 7.200%, due 08-01-19 19.75 400,000 383,440
-----------
3,019,656
------- -----------
TOTAL TAXABLE MUNICIPAL OBLIGATIONS
(Cost $7,205,684) 34.1% $ 6,722,839
------- -----------
See notes to financial statements.
Page 4
PC&J PRESERVATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
PERCENT YEARS
OF NET TO PRINCIPAL MARKET
SECURITY (Note A) ASSETS MATURITY AMOUNT VALUE
U.S. CORPORATE OBLIGATIONS:
Maturity of 1 - 5 years: 5.2%
American Express Credit Corp.
Notes, 6.125%, due 11-15-01 2.00 500,000 $ 508,281
Lehman Brothers Holdings Inc.
Notes, 7.250%, due 10-15-03 3.75 500,000 516,094
-----------
1,024,375
-----------
Maturity of 10 - 20 years - 3.6
Ford Motor Credit Co. Notes,
7.125%, due 07-16-12 12.50 750,000 716,016
------- -----------
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $1,728,323) 8.8 1,740,391
------- -----------
TOTAL U.S. GOVERNMENT AND AGENCY,
TAXABLE MUNICIPAL, AND U.S.
CORPORATE OBLIGATIONS
(Cost $19,960,999) 97.2 19,139,558
------- -----------
SHORT-TERM OBLIGATIONS: 1.2
Star Treasury Fund 129,648
Star Federal Prime Obligations 100,000
------- -----------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $229,648) 229,648
------- -----------
TOTAL INVESTMENTS
(Cost $20,190,647) (1) 98.4% $19,369,206
======= ===========
(1) Represents cost for federal income tax purposes and
differs from value by net unrealized depreciation.
(See Note D)
See notes to financial statements.
Page 5
PC&J PRESERVATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments in securities, at market value $ 19,369,206
(Cost basis - $20,190,647)(Notes A & D)
Receivables - Interest 331,826
-------------
Total assets 19,701,032
LIABILITIES - Accrued expenses (Note B) (16,758)
-------------
NET ASSETS $ 19,684,274
=============
SHARES OUTSTANDING (Unlimited authorization - no par value):
Beginning of year 1,746,275
Net increase (Note C) 121,725
-------------
End of year 1,868,000
=============
NET ASSET VALUE, offering price and redemption price per share $ 10.54
=============
NET ASSETS CONSIST OF:
Paid in capital $ 20,505,715
Net unrealized depreciation (821,441)
-------------
Net Assets $ 19,684,274
=============
See notes to financial statements.
Page 6
PC&J PRESERVATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME - Interest (Note A) $ 1,270,244
------------
EXPENSES (Note B):
Investment advisory fee 99,725
Management fee 99,724
------------
Total expenses 199,449
------------
NET INVESTMENT INCOME 1,070,795
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (Note D):
Net realized gain on investments 115,476
Change in unrealized appreciation/(depreciation) of investments (1,457,066)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (1,341,590)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (270,795)
============
See notes to financial statements.
Page 7
PC&J PRESERVATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
For The Years Ended December 31,
1999 1998
--------------------------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,070,795 $ 935,382
Net realized gain on investments 115,476 241,455
Change in unrealized appreciation/
(depreciation) of investments (1,457,066) 249,373
------------- -------------
Net increase/(decrease) in net assets from operations (270,795) 1,426,210
DIVIDENDS TO SHAREHOLDERS (Note A):
Dividends from net investment income (1,070,795) (935,382)
Dividends from net realized gain on investments (115,476) (218,402)
------------- -------------
Net decrease in net assets from dividends to shareholders (1,186,271) (1,153,784)
INCREASE IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS (Note C) 1,289,461 3,508,181
------------- -------------
Total increase/(decrease) in net assets (167,605) 3,780,607
NET ASSETS:
Beginning of year 19,851,879 16,071,272
------------- -------------
End of year $ 19,684,274 $ 19,851,879
============= =============
See notes to financial statements.
Page 8
PC&J PRESERVATION FUND
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
| 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. The investment objective of the Fund is preservation of
capital through investment in fixed-income obligations. |
| |
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 for which quotations are
readily available are valued on the basis of quotations from dealers or an
independent pricing service with consideration of such factors as yield, coupon
rate, maturity, type of issue and other market information. All other securities
are valued using established procedures which involve approximating the
yield-to-maturity of similar securities traded on a national exchange. |
| |
(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). All premiums and discounts are amortized or
accreted for both financial and tax reporting purposes as required by Federal
Income Tax regulations. Realized gains and losses on sales are determined using
the first-in, first-out method. Dividends to shareholders from net investment
income and net realized capital gains are declared and paid annually. Interest
income is accrued daily. |
| 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-half of one percent
of the daily net assets of the Fund. Investment advisory fees were $99,725 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 $99,724 for the year ended December 31, 1999. |
| |
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. |
Page 9
PC&J PRESERVATION FUND
NOTES TO FINANCIAL STATEMENTS - (Concluded)
FOR THE YEAR ENDED DECEMBER 31, 1999
| C. |
CAPITAL SHARE TRANSACTIONS |
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
--------------------------------------------------
Shares sold 293,839 $ 3,314,125 323,475 $ 3,761,985
Shares issued in reinvestment
of dividends 112,574 1,186,271 101,493 1,153,784
---------- ----------- ---------- ------------
406,413 4,500,396 424,968 4,915,769
Shares redeemed (284,688) (3,210,935) (120,942) (1,407,588)
---------- ----------- ---------- ------------
Net increase 121,725 $ 1,289,461 304,026 $ 3,508,181
---------- ----------- ---------- ------------
| 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
$2,266,171 and $812,575, respectively. Purchases and sales of long-term U.S.
Government Securities for the year ended December 31, 1999, aggregated
$7,210,615 and $6,093,930, respectively. |
| |
At December 31, 1999, gross unrealized appreciation on investments was $36,599 and
gross unrealized depreciation on investments was $858,040 for a net unrealized
depreciation of $821,441 for financial reporting and federal income tax
purposes. |
Page 10
PC&J PRESERVATION FUND
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of
Capital Stock Outstanding For The Years Ended December 31,
Throughout the Year 1999 1998 1997 1996 1995
------------------------------------------------
Net asset value-beginning of year $ 11.37 $ 11.14 $ 10.97 $ 11.32 $ 10.34
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.61 0.57 0.64 0.62 0.59
Net realized and unrealized
gain/(loss) on securities (0.76) 0.36 0.17 (0.31) 0.98
-------- -------- -------- -------- --------
Total from investment operations (0.15) 0.93 0.81 0.31 1.57
-------- -------- -------- -------- --------
Less dividends:
From net investment income (0.61) (0.57) (0.64) (0.62) (0.59)
From net realized gain
on investments (0.07) (0.13) (0.00) (0.04) (0.00)
-------- -------- -------- -------- --------
Total dividends (0.68) (0.70) (0.64) (0.66) (0.59)
-------- -------- -------- -------- --------
Net asset value-end of year $ 10.54 $ 11.37 $ 11.14 $ 10.97 $ 11.32
-------- -------- -------- -------- --------
Total return (1.32%) 8.35% 7.38% 2.75% 15.18%
Ratios to average net assets
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income 5.37% 5.25% 5.62% 5.38% 5.56%
Portfolio turnover rate 36.25% 44.50% 31.39% 28.66% 25.62%
Net assets at end of year (000's) $19,684 $19,852 $16,071 $16,151 $16,472
See notes to financial statements.
Page 11
INDEPENDENT AUDITORS’ REPORT
The Board of Trustees and Shareholders,
PC&J Preservation Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of the PC&J Preservation
Fund (the “Fund”) as of December 31, 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 Preservation 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
January 21, 2000
Dayton, Ohio
Page 12
