schwz-house
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Shareholder Accounts Corporate Offices
c/o MGF Service Corp. 3707 W. Maple Road
P.O.Box 5354 Bloomfield Hills, MI 48301
Cincinnati, OH 45201-5354 (810) 644-8500
1-800-543-0407 Fax (810) 644-4250
Schwartz Value Fund
Dear Fellow Shareowner:
As value investors, our focus is on identifying opportunities wherein we can
purchase pieces of individual companies in the marketplace for substantively
less than their intrinsic value. While this is a satisfying intellectual
exercise, our primary motivation is that it's a low risk way to successfully
invest your money. This contrarian style requires fortitude, but almost always
pays off with favorable investment results over time. One of the challenges
confronting true value investors is purchasing shares of companies when the
specific event that will cause that underlying value to be realized is not
readily apparent. That is where faith in our analysis, and patience become
essential. The process of value revelation continues at its own pace with
individual companies, but at any given time the operation of that process may
become apparent for individual names in the Schwartz Value Fund portfolio.
The most dramatic method whereby value is realized is in a corporate takeover
or buy-out. One of our portfolio holdings, DETROIT & CANADA TUNNEL CORPORATION
(DTUN-$54), is a good example. Two years ago we bought the stock at an average
price of $25 per share because we thought it represented a deep discount to
intrinsic value. Today, with no changes in the underlying business, the
Company is being acquired at $54 per share by a New York based investment
group. The Company has operated quietly for years, collecting tolls and
producing cash at a very healthy rate. The shares languished in the
over-the-counter market, with a small float. Among investors, no one cared
(which further quickened our pulse). An inactively traded stock, such as this
one, can represent an extraordinary bargain for a patient, value-oriented
investor like SVF. For years Warren Buffett has talked about investing in
companies with "tollbridge type franchises" or unregulated monopolies. This
Company comes as close to that description as you're ever going to find.
Because we purchased it at a reasonable price, something good was bound to
happen, even though we didn't know when.
No question, buy-outs, when they occur, are the most fun because they offer
instant gratification. But there are other less dramatic methods whereby
hidden value can surface. Management merely refocusing on core competency can
result in a more profitable company, and thereby attract investor attention.
Much has been made in recent years of many large companies reorganizing and
downsizing their operations in order to maximize shareholder value. Though
less well publicized, that's been going on in many smaller companies as well.
Selling losing divisions, closing inefficient plants, or owners simply
redirecting management's attention, can be a catalyst for the realization of
underlying value. Will these moves reveal the underlying value in every
instance? Certainly not. Will they prove successful often enough to justify
the efforts of finding them and accumulating the shares? Yes. One of the
beauties of the process is that it continues during both bull and bear
markets. So while buy-outs will always be the most dramatic manner in which
share prices move up to approximate intrinsic value, it is not the only road
to success. Value continues to compound in several of our portfolio holdings,
even though the share price moves in some cases, have been less than robust.
A few examples follow:
THOMAS NELSON, INC. (TNM-$14), a leading publisher and distributor of Bibles
and Christian books, recently disposed of its Word music division. Management
concluded, rightly in our estimation, that they had no special advantage in
addressing this segment of the overall music market. This divestiture will
allow the Company to devote greater resources to its successful publishing
division, which we believe has a very bright future.
<PAGE>
UNR INDUSTRIES, INC. (UNRI-$7) is a stock that SVF has owned for more than
four years. The Company has gone through a significant restructuring by
divesting six operating divisions, leaving only the Rohn Tower division, a
maker of telecommunication towers for cellular and personal communication
systems. Divestitures enabled the Company to make large special cash dividend
payments to shareholders, so our original purchase price of $10 per share has
been adjusted downward to less than $5. The stock is currently selling for
twelve times earnings with an expected growth rate of 20% annually for the
next several years.
Another long-time holding has been TRIMAS CORPORATION (TMS-$23), an Ann Arbor
based manufacturer of proprietary specialty fasteners, trailer hitches and
closure devices. The stock traded as high as $29 per share four years ago when
the earnings were half the current level. Excess cash flow has been used to
pay down debt and make selective acquisitions augmenting an internal earnings
growth rate of 12-15%. With $500 million in sales, the Company is not well
known outside the Midwest, but growing institutional investor awareness should
add to the price-earnings ratio in the future.
STANHOME INC. (STH-$26) is a conglomerate currently in the process of
divesting non-core operations and concentrating on its basic business which is
Enesco Giftware Group, the distributor of Precious Moments and other
collectibles. The intrinsic value of this Company, which could be twice the
current market price, has been masked by the poorly performing divisions. The
underlying business, which has been growing at a 10% rate for the last six
years, has consistently produced over a 20% annual return on equity. When
investors realize how profitable this Company will be after the streamlining
is completed, the share price could rise substantially.
Smaller stocks, the type in which SVF typically invests, have underperformed
stocks of larger companies since late 1993. This is obvious from comparing the
performance of the Russell 2000 Index with the S&P 500. In 1996 this
bifurcated market really became apparent. In fact, in the six month period
from June 1 to December 1, the Dow rose almost 17% while the Russell 2000
actually declined 2%. This 19% spread was the widest six month divergence
between these two indices since the Russell 2000 was started in 1978. So far
in 1997 more of the same, with the Dow up 5.7% in January while the Russell
2000 gained 1.9%. But we look for the pendulum to start swinging back the
other way. Even though the money flowing into large capitalization mutual
funds remains robust, there are some signs that it's slowing. Over time, the
valuation disparity will dictate that large company shares receive less
attention and long neglected smaller cap value stocks will gain adherents. In
the meantime, I feel very confident that the downside risk in our stocks will
remain far less than that of the S&P 500 or the Dow.
Thanks for investing in the Schwartz Value Fund. Obviously, you have many
choices once you decide to invest in a mutual fund. I think you've made a wise
choice, to put a portion of your assets in this vehicle. In the period ahead
that choice may prove especially wise.
Sincerely,
SCHWARTZ VALUE FUND
George P. Schwartz, CFA
President
February 10, 1997
<PAGE>
<TABLE>
<CAPTION>
Annual Total Rates of Return
1984 1985 1986 1987 1988 1989 1990 1991
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWARTZ
VALUE FUND((A)) 11.1% 21.7% 16.4% -0.6% 23.1% 8.3% -5.3% 32.0%
RUSSELL 2000
INDEX -7.3% 31.1% 5.7% -8.8% 24.9% 16.2% -19.5% 46.0%
NASDAQ COMPOSITE( (B)) -11.2% 31.4% 7.4% -5.3% 15.4% 19.3% -17.8% 56.8%
VALUE LINE COMPOSITE((B)) -8.4% 20.7% 5.0% -10.6% 15.4% 11.2% -24.3% 27.2%
STANDARD & POORS 500 6.1% 31.6% 18.7% 5.3% 16.8% 31.6% -3.2% 30.4%
CONSUMER
PRICE INDEX 4.3% 3.5% 1.1% 4.4% 4.4% 4.6% 6.1% 3.1%
</TABLE>
<TABLE>
<CAPTION>
Compound Annual
Rates of Return
---------------------------
1992 1993 1994 1995 1996 5 Year 10 Year 13 Year
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWARTZ
VALUE FUND((A)) 22.7% 20.5% -6.8% 16.9% 18.3% 13.8% 12.2% 13.1%
RUSSELL 2000
INDEX 18.4% 18.9% -3.2% 26.2% 14.8% 14.6% 11.9% 11.1%
NASDAQ COMPOSITE((B)) 15.5% 14.7% -3.2% 39.9% 22.7% 17.1% 14.0% 12.5%
VALUE LINE COMPOSITE((B)) 7.0% 10.7% -6.0% 19.3% 13.4% 8.5% 5.2% 5.2%
STANDARD & POORS 500 7.6% 10.1% 1.3% 37.5% 22.9% 15.2% 15.3% 15.9%
CONSUMER
PRICE INDEX 2.9% 2.7% 2.7% 2.6% 3.3% 2.8% 3.7% 3.5%
<FN>
- ----------------
((A)) Schwartz Value Fund's performance combines the performance of the Fund,
since its commencement of operations as a registered investment company
on July 20, 1993, and the performance of RCM Partners Limited
Partnership for periods prior thereto.
((B) )Excludes dividends.
</FN>
</TABLE>
SCHWARTZ VALUE FUND
Ten Largest Equity Holdings
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Company Value
- -------- -------------------------------------------- ----------
<S> <C> <C>
165,000 Ottawa Financial Corporation $2,774,063
235,000 K-Swiss Inc. -- Class A $2,320,625
85,000 Leucadia National Corporation $2,273,750
70,000 UST Inc. $2,266,250
200,000 Unico American Corporation $2,175,000
170,000 Griffon Corporation $2,082,500
60,000 American List Corporation $1,822,500
120,000 Data Research Associates, Inc. $1,800,000
100,000 Core Industries Inc. $1,650,000
115,000 Dravo Corporation $1,624,375
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Market
Shares COMMON STOCK -- 94.6% Value
- -------- ----------------------------------------------------- -----------
<S> <C> <C>
APPAREL & TEXTILES -- 6.6%
235,000 K-Swiss Inc. -- Class A 2,320,625
19,300 Nautica Enterprises, Inc.* 487,325
20,000 Reebok International Ltd. 840,000
-----------
3,647,950
-----------
BUILDING MATERIALS AND CONSTRUCTION -- 4.4%
20,000 ABT Building Products Corporation* 500,000
30,000 Gardner Denver Machinery Inc.* 1,027,500
24,000 Industrial Acoustics Company, Inc. 210,000
51,000 MLX Corp.* 675,750
-----------
2,413,250
-----------
CONSUMER PRODUCTS -- DURABLES -- 5.9%
40,000 Craftmade International, Inc. 245,000
170,000 Griffon Corporation* 2,082,500
70,000 HMI Industries Inc. 367,500
30,000 Sturm, Ruger & Company, Inc. 581,250
-----------
3,276,250
-----------
CONSUMER PRODUCTS -- NONDURABLES -- 7.7%
40,000 Helen of Troy Limited* 880,000
700,000 Pentech International, Inc.* 831,250
15,000 Stanhome, Inc. 397,500
20,000 Standex International Corporation 617,500
11,950 Velcro Industries N.V. 746,875
9,200 Weyco Group, Inc. 370,300
30,000 Windmere-Durable Holdings, Inc. 386,250
-----------
4,229,675
-----------
ENERGY & MINING -- 5.5%
15,000 Dawson Geophysical Company* 168,750
115,000 Dravo Corporation* 1,624,375
70,000 Forest Oil Corporation* 1,233,750
-----------
3,026,875
-----------
4
<PAGE>
FINANCE -- BANKING & THRIFTS -- 16.5%
7,500 Calumet Bancorp, Inc.* 249,375
40,000 Coastal Bancorp, Inc. 915,000
40,000 The Commerce Group, Inc. 1,010,000
23,400 First of Michigan Capital Corporation* 187,200
14,500 FirstFed Bancshares, Inc. 250,125
15,000 GreenPoint Financial Corp.* 708,750
85,000 Leucadia National Corporation 2,273,750
15,000 MSB Bancorp, Inc. 294,375
165,000 Ottawa Financial Corporation 2,774,063
8,100 Peoples Bancorp 157,950
16,200 TF Financial Corporation 263,250
-----------
9,083,838
-----------
FINANCE -- INSURANCE -- 5.5%
26,000 MMI Companies, Inc. 838,500
200,000 Unico American Corporation 2,175,000
-----------
3,013,500
-----------
FOOD & TOBACCO -- 4.1%
70,000 UST Inc. 2,266,250
-----------
HEALTHCARE -- 0.8%
15,000 Health Care & Retirement Corporation* 429,375
-----------
INDUSTRIAL PRODUCTS & SERVICES -- 12.1%
100,000 Core Industries Inc. 1,650,000
22,155 Detroit & Canada Tunnel Corporation 1,102,211
24,835 Greif Brothers Corporation -- Class A 701,589
30,000 Maritrans Inc. 183,750
35,800 The Morgan Group, Inc. -- Class A 268,500
10,055 M.H. Rhodes, Inc.* 37,706
64,600 TriMas Corporation 1,542,325
200,000 UNR Industries, Inc. 1,200,000
-----------
6,686,081
-----------
5
<PAGE>
PRINTING & PUBLISHING -- 5.9%
60,000 American List Corporation 1,822,500
465 The Detroit Legal News Company 44,640
66,000 Thomas Nelson, Inc. 981,750
9,800 Value Line, Inc. 433,650
-----------
3,282,540
-----------
REAL ESTATE -- 4.5%
16,499 I. Gordon Corporation* 140,242
15 LaFourche Realty Company, Inc. 62,250
40,000 Malan Realty Investors, Inc. 650,000
30,000 North American Mortgage Company 592,500
40,000 Schuler Homes, Inc.* 250,000
35,000 Trizec Hahn Corporation 770,000
-----------
2,464,992
-----------
RETAIL -- 2.2%
30,000 The Dress Barn, Inc.* 450,000
100,000 Ellett Brothers, Inc. 500,000
76,500 Evans, Inc.* 124,312
20,000 The Good Guys, Inc.* 130,000
-----------
1,204,312
-----------
TECHNOLOGY & ELECTRONICS -- 10.0%
33,500 Astrosystems, Inc.* 159,125
120,000 Data Research Associates, Inc. 1,800,000
53,200 Metatec Corporation* 359,100
120,000 Nematron Corporation* 615,000
50,000 Rainbow Technologies, Inc.* 931,250
30,000 SPSS Inc.* 836,250
60,000 Universal Electronics Inc.* 330,000
28,500 X-Rite, Incorporated 470,250
-----------
5,500,975
-----------
MISCELLANEOUS -- 0.1%
12,500 Bull & Bear Group, Inc. -- Class A* 37,500
-----------
CLOSED-END FUNDS -- 2.8%
90,000 Royce Micro-Cap Trust, Inc. 742,500
60,000 Scudder New Europe Fund, Inc. 832,500
-----------
1,575,000
-----------
TOTAL COMMON STOCK (COST $43,060,770) 52,138,363
-----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Shares/ Market
Par Value Value
- ----------- ---------------------------------------------------- ------------
<S> <C> <C>
PREFERRED STOCK -- 0.3% (COST $132,739)
Telos Corporation, 12% Cumulative Exchangable
35,000 Preferred $ 135,625
-----------
U.S. GOVERNMENT & AGENCY BONDS -- 5.4%
$1,000,000 U.S. Treasury Notes, 4.75%, 02/15/97 998,438
$1,000,000 Federal Farm Credit Bank , 5.60%, 06/03/97 1,000,585
$1,000,000 U.S. Treasury Notes, 6.00%, 11/30/97 1,000,313
-----------
TOTAL U.S. GOVERNMENT & AGENCY BONDS
(COST $2,993,594) 2,999,336
-----------
REPURCHASE AGREEMENTS((1)) -- 1.6% (COST $858,000)
$858,000 Fifth Third Bank, 5.00%, dated 12/31/96, due
01/02/97, repurchase proceeds $858,238 858,000
-----------
TOTAL INVESTMENTS -- 101.9% (COST $47,045,103) 56,131,324
OTHER LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.9)% (1,026,196)
-----------
NET ASSETS -- 100% $55,105,128
===========
<FN>
* Non-income producing securities.
((1)) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at market value (cost of $47,045,103)
(Note 1) .......................................... $56,131,324
Cash ................................................ 3,930
Dividends and interest receivable ................... 104,824
Receivable for capital shares sold .................. 15,503
Other assets ........................................ 8,320
-----------
TOTAL ASSETS .................................... 56,263,901
-----------
LIABILITIES
Payable for capital shares redeemed ................. 12,250
Payable for securities purchased .................... 504,301
Accrued investment advisory fees (Note 2) ........... 206,611
Distributions payable to shareholders ............... 398,631
Other accrued expenses and liabilities .............. 36,980
-----------
TOTAL LIABILITIES ............................... 1,158,773
-----------
NET ASSETS .......................................... $55,105,128
===========
NET ASSETS CONSIST OF:
Paid in capital ..................................... $45,969,861
Undistributed net realized gains on investments ..... 49,046
Net unrealized appreciation on investments .......... 9,086,221
-----------
NET ASSETS .......................................... $55,105,128
===========
Shares of beneficial interest outstanding (unlimited
number of shares
authorized, no par value) ......................... 2,601,054
===========
Net asset value, redemption price, and offering price
per share ......................................... $ 21.19
===========
</TABLE>
See notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME
Interest .......................................... $ 258,998
Dividends ......................................... 749,730
----------
TOTAL INVESTMENT INCOME ......................... 1,008,728
----------
EXPENSES
Investment advisory fees (Note 2) ................. 801,444
Administration, accounting, and transfer agent fees
and expenses (Note 2) ........................... 111,853
Legal and audit fees .............................. 40,646
Trustees' fees and expenses ....................... 49,431
Insurance expense ................................. 18,175
Custodian fees .................................... 12,188
Reports to shareholders ........................... 10,698
Registration fees ................................. 5,330
Other expenses .................................... 3,991
----------
TOTAL EXPENSES .................................. 1,053,756
----------
NET INVESTMENT LOSS ................................. (45,028)
----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investments ................. 5,144,508
Net change in unrealized appreciation on
investments ..................................... 3,932,331
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS .... 9,076,839
----------
NET CHANGE IN NET ASSETS FROM OPERATIONS ............ $9,031,811
==========
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ............................... $ (45,028) $ (94,454)
Net realized gains on investments ................. 5,144,508 3,912,706
Net change in unrealized appreciation on
investments ......................................... 3,932,331 3,856,574
------------ -----------
Net increase in net assets from operations .......... 9,031,811 7,674,826
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains on investments ............ (4,922,816) (3,830,754)
------------ -----------
Net decrease in net assets from distributions to
shareholders ........................................ (4,922,816) (3,830,754)
------------ -----------
FROM FUND SHARE TRANSACTIONS((A))
Proceeds from shares sold ......................... 5,572,508 5,819,563
Reinvestment of distributions ..................... 4,524,185 3,580,547
Payments for shares redeemed ...................... (12,237,448) (5,203,945)
------------ -----------
Net increase (decrease) in net assets from Fund
share transactions ............................... (2,140,755) 4,196,165
------------ -----------
TOTAL INCREASE IN NET ASSETS ........................ 1,968,240 8,040,237
NET ASSETS
Beginning of year ................................. 53,136,888 45,096,651
------------ -----------
End of year ....................................... $ 55,105,128 $53,136,888
============ ===========
((A)) SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ................................... 264,865 291,957
Shares issued in reinvestment of
distributions to shareholders ............. 213,506 182,123
Shares redeemed ............................... (580,219) (260,324)
------------ -----------
Net increase (decrease) in shares
outstanding ................................. (101,848) 213,756
Shares outstanding, beginning of year ......... 2,702,902 2,489,146
------------ -----------
Shares outstanding, end of year ............... 2,601,054 2,702,902
============ ===========
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding
Throughout Each Period
July 20,
Year Ended 1993 ((A))
------------------------------ To
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value at beginning of period .............. $ 19.66 $ 18.12 $ 20.97 $ 19.71
-------- -------- -------- --------
Income from investment operations:
Net investment loss ............................... (0.02) (0.03) (0.05) (0.06)
Net realized and unrealized gains (losses) on
investments ..................................... 3.61 3.09 (1.37) 1.95
-------- -------- -------- --------
Total from investment operations .................... 3.59 3.06 (1.42) 1.89
-------- -------- -------- --------
Less dividends and distributions:
From net realized capital gains on investments .... (2.06) (1.52) (1.36) (0.63)
In excess of net realized gains on investments .... -- -- (0.07) --
-------- -------- -------- --------
Total dividends and distributions ................... (2.06) (1.52) (1.43) (0.63)
-------- -------- -------- --------
Net asset value at end of period .................... $ 21.19 $ 19.66 $ 18.12 $ 20.97
======== ======== ======== ========
Total return ........................................ 18.3 % 16.9 % (6.8)% 9.6 % ((B))
Ratio of expenses to average net assets ............. 1.97 % 2.00 % 2.01 % 2.13 % ((C))
Ratio of net investment loss to average net assets .. (0.08)% (0.18)% (0.36)% (0.63)% ((C))
Portfolio turnover rate ............................. 50 % 70 % 78 % 65 % ((C))
Average commission rate ............................. $0.0454 -- -- --
Net assets at end of period (in 000's) .............. $55,105 $53,137 $45,097 $40,704
<FN>
- ----------------
((A)) Commencement of operations.
((B)) Not annualized.
((C)) Annualized.
See notes to financial statements.
</FN>
</TABLE>
11
<PAGE>
SCHWARTZ VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Significant Accounting Policies
Schwartz Value Fund (the "Fund") is a series of Schwartz Investment Trust, a
diversified open-end management investment company established as an Ohio
Business Trust under a Declaration of Trust dated August 31, 1992. The Fund is
registered under the Investment Company Act of 1940 and commenced operations
on July 20, 1993. The Fund determines and makes available for publication the
net asset value of its shares on a daily basis.
The investment objective of the Fund is to seek long-term capital appreciation
through investment in basic value common stocks. This investment in common
stocks, by definition, entails the risk of loss of capital to shareholders.
See the Prospectus for more detailed information regarding the investment
objectives of the Fund.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments -- Securities which are traded on stock
exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of business on the day of valuation, or, if not
traded on a particular day, at the average of the highest current
independent bid and lowest current independent offer; securities traded
in the over-the-counter market, not quoted by NASDAQ, are valued at the
average of the highest current independent bid and lowest current
independent offer as of the close of trading on the day of valuation,
and; securities (and other assets) for which market quotations are not
readily available are valued at their fair market value as determined in
good faith pursuant to procedures established by the Board of Trustees.
Short-term securities are valued at amortized cost, which approximates
market value.
(b) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all taxable income
to the shareholders. Therefore, no provision for income taxes is
necessary.
The Fund files a tax return annually using tax accounting methods
required under provisions of the Code which may differ from generally
accepted accounting principles ("GAAP"), the basis on which these
financial statements are prepared. The differences arise primarily from
the deferral of certain losses under Federal income tax regulations.
Accordingly, the amount of net investment income or loss and net
realized capital gain or loss reported in the financial statements may
differ from that reported in the Fund's tax return and, consequently,
the character of distributions to shareholders reported in the financial
highlights may differ from that reported to shareholders for Federal
income tax purposes.
(c) Security transactions and investment income -- Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
12
<PAGE>
(d) Dividends and distributions -- Dividends from net investment income
and net capital gains are declared and paid annually in December.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
(e) Estimates -- The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure 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.
2. Investment Advisory Agreement and Transactions with Related Parties
The President of the Fund is also the President and Chief Investment Officer of
Schwartz Investment Counsel, Inc. (the "Adviser"). The Chairman of the Board of
the Fund is also the President and CEO of Gregory J. Schwartz & Co., Inc. (the
"Distributor"). Certain other trustees and officers of the Fund are officers of
the Adviser or of MGF Service Corp. ("MGF"), the administrative, accounting and
transfer agent for the Fund.
Pursuant to an Investment Advisory Agreement between the Fund and the Adviser,
the Adviser is responsible for the management of the Fund and provides
investment advice along with the necessary personnel, facilities, equipment,
and certain other services necessary to the operations of the Fund. For such
services, the Fund pays the Adviser a quarterly fee equal to the annual rate
of 1.5% of the average daily net assets up to $75 million; 1.25% of such
assets from $75 million to $100 million; and 1% of such assets in excess of
$100 million.
The Distributor is the exclusive agent for the distribution of the Fund and
receives fees from the Adviser, not the Fund or its shareholders.
Pursuant to an Administration, Accounting and Transfer Agency Agreement
between the Fund and MGF, MGF supplies regulatory and compliance services,
calculates the daily net asset value per share, maintains the financial books
and records of the Fund, maintains the records of each shareholder's account,
and processes purchases and redemptions of the Fund's shares. For the
performance of these services, the Fund pays MGF a fee, payable monthly, at an
annual rate of .22% of average daily net assets up to $25 million; .20% of
such assets from $25 million to $100 million; and .15% of such assets in
excess of $100 million.
3. Investment Transactions
Purchases and proceeds from sales and maturities of investments other than
short-term investments, for the year ended December 31, 1996, were $24,883,172
and $32,033,045, respectively. As of December 31, 1996, net unrealized
appreciation of securities was $9,073,360 for federal income tax purposes of
which $11,337,988 related to appreciated securities and $2,264,628 related to
depreciated securities. The aggregate cost of investments at December 31,
1996, for federal income tax purposes was $47,057,964.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND TRUSTEES
SCHWARTZ VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Schwartz Value Fund ("Fund") as of
December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets and the financial highlights
for each of the periods 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, 1996, 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Schwartz Value
Fund at December 31, 1996, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
JANUARY 17, 1997
<PAGE>
Schwartz Value Fund
INVESTMENT PHILOSOPHY
Schwartz Value Fund ("SVF") seeks superior, long-term performance
through value investing -- purchasing shares of strong, growing companies at
reasonable prices. Because small and medium size companies offer vast reward
opportunities, fundamental analysis is used to identify emerging companies
with outstanding business characteristics. Sometimes the best values are
issues not followed by Wall Street analysts.
Most value investors buy fair companies at an excellent price. SVF buys
excellent companies at a fair price. This is the essence of value investing.
SVF attempts to find companies with great business characteristics like an
unassailable franchise which by its nature, offers a margin of safety. A truly
fine business requires few assets to produce a consistently expanding stream
of income. SVF also purchases shares which are temporarily out-of-favor and
selling below intrinsic value.
A common thread in SVF investments is that the market price is below
what a corporate or entrepreneurial buyer might be willing to pay for the
entire business. The auction nature and the inefficiencies of the stock market
are such that SVF can often buy a minority interest in a fine company at a
small fraction of the price per share necessary to acquire the entire company.
15
<PAGE>
[backcov]
Schwartz Value Fund
a series of
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
(810) 644-8500
Board of Trustees
Donald J. Dawson, Jr.
Fred A. Erb
John J. McHale
Sidney F. McKenna
George P. Schwartz, CFA
Gregory J. Schwartz
Officers
Gregory J. Schwartz, Chairman of the Board
George P. Schwartz, CFA, President
Richard L. Platte, Jr., CFA, Vice President/Secretary
Cynthia M. Dickinson, Treasurer
Robert G. Dorsey, CPA, Assistant Vice President
John F. Splain, Assistant Secretary
Mark J. Seger, CPA, Assistant Treasurer
Investment Adviser
SCHWARTZ INVESTMENT COUNSEL, INC.
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
Distributor
GREGORY J. SCHWARTZ & CO., INC.
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
Custodian
FIFTH THIRD BANK
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Administrator
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201
Auditors
DELOITTE & TOUCHE LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402
Legal Counsel
SULLIVAN & WORCESTER 1025 Connecticut Avenue, N.W.
Suite 1000
Washington, D.C. 20036
Schwartz Value Fund is a 100% no load diversified investment company (a
mutual fund). The investment objective is long-term capital appreciation.
[frontcover]
SCHWARTZ
VALUE FUND
a series of
SCHWARTZ
INVESTMENT TRUST
ANNUAL REPORT
for the year ended
DECEMBER 31, 1996
<PAGE>
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