[COVER PAGE]
SCHWARTZ
VALUE FUND
a series of
SCHWARTZ
INVESTMENT TRUST
[LOGO]
ANNUAL REPORT
for the year ended
DECEMBER 31, 1997
<PAGE>
Shareholder Accounts Corporate Offices
c/o Countrywide Fund 3707 W. Maple Road
Services, Inc. [LOGO] Bloomfield Hills, MI 48301
P.O.Box 5354 (248) 644-8500
Cincinnati, OH 45201-5354 Fax (248) 644-4250
1-800-543-0407
Schwartz Value Fund
Dear Fellow Shareowner:
The Schwartz Value Fund ("SVF") had a 28% return in 1997 vs. 20.5% for our
benchmark, the Russell 2000 Index. Year-end distributions totaled $3.14 per
share, comprised of $.06 per share net investment income, $.65 per share
short-term gains and $2.43 per share of long-term capital gains. It was a good
year by any measure. Small-cap value stocks are no longer lagging. Micro caps,
after years of discredit, are suddenly down right respectable. Perhaps the love
affair investors have had with the big-cap issues since 1990 has run its course.
Maybe the inflated multiples of the largest and most popular institutional
favorites, finally went too far. Clearly the valuation gap between large and
small companies, which we spoke about a year ago, has started to close. If this
recent trend continues, it's good news for SVF, since past cycles of small-cap
outperformance have lasted from two to five years.
One of the factors fueling success for SVF in 1997 was buyouts, especially
during the first half of the year. Six portfolio companies were acquired during
the year -- all at premiums to the Fund's cost -- with an average gain of 57%.
These included Core Industries Inc., American List Corporation, North American
Mortgage Company, First of Michigan Capital Corporation, Detroit and Canada
Tunnel Corporation, and TriMas Corporation (pending). In every case, the
transactions were a realization of previously unrecognized value we have so
often discussed in the past.
It's hard to imagine economic conditions getting any better in 1998 than they
were last year. Even in a tight labor market, when unemployment hit a 25-year
low, inflation was almost non-existent. In past periods of strong economic
expansion, wage pressures tended to push up inflation. But this time, price
increases were moderated by productivity gains and the globalization of
manufacturing. Now however, we're starting to see the darker side of the new
global economy -- the Asian Flu is spreading to the U.S. fast. What initially
appeared to be foreign currency jitters, has in fact proven to be much more
serious, a reflection of the weak economic infrastructure in several Southeast
Asian countries. Poor banking practices led to excessive corporate borrowing and
severe overbuilding in real estate and manufacturing capacity. When combined
with markets that don't allow free competition, it became a formula for
disaster. Clearly a deflationary force is rolling in from Southeast Asia that
will adversely affect the U.S. economy, especially our export industries.
Product pricing increases will likely be modest to non-existent for domestic
manufacturers. With U.S. wage pressures escalating, profit margins are getting
squeezed. From a portfolio perspective, smaller companies in which SVF typically
invests, generally will be less vulnerable to currency devaluations and other
<PAGE>
fallout from the Asian crisis. But even if the Asian contagion ends up being
worse than is now generally perceived, the results for American businesses are
not universally bad.
Over 60% of U.S. gross domestic product consists of services, which are largely
insulated from foreign competition. Thankfully, America is a service-based
economy. Increasingly, SVF is investing in service-related companies. Service
organizations currently represent two of the Fund's largest industry
concentrations -- insurance and banking, at about 12% of the portfolio each.
Both performed well in 1997, and our stocks in these sectors should continue to
benefit from the ongoing consolidation taking place within these industries.
Given our concerns, the overall portfolio is defensively postured with 15% in
cash equivalents. Beyond that, many of the larger positions are in companies
that are asset rich, have liquid balance sheets, and are debt free. And
importantly, the Fund's stocks are modestly priced in relation to fundamentals
like earnings and cash flow, which reduces risk. Managing risk is an important
part of our investment philosophy. That prudence could prove particularly
important in 1998.
I'm always impressed with the sophistication of SVF shareholders, and their
realistic expectations with respect to returns. Many unsophisticated investors
have come to expect annual double-digit investment returns almost as a
birthright. It's been so easy for so long to achieve outsized returns, it's no
wonder newer entrants to the complicated world of investing think it's easy. At
some point, there'll be a rude awakening for the neophytes. Come what may, we'll
remain committed to the task of finding well managed, micro-cap, small and
mid-sized businesses, with sustainable competitive advantages. Before the year
is out, some of them may be available at exceedingly attractive prices. The
Schwartz Value Fund is postured to be opportunistic.
With best wishes,
SCHWARTZ VALUE FUND
/s/ George P. Schwartz
George P. Schwartz, CFA
President
January 19, 1998
2
<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(B) (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 1997 3 Year 10 Year 14 Year
---- ---- ---- ---- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWARTZ
VALUE FUND(A) 22.7% 20.5% (6.8)% 16.9% 18.3% 28.0% 21.0% 15.1% 14.1%
RUSSELL 2000
INDEX(B) 18.4% 18.9% (3.2)% 26.2% 14.8% 20.5% 20.4% 15.0% 11.8%
NASDAQ COMPOSITE(B) 15.5% 14.7% (3.2)% 39.9% 22.7% 21.6% 27.8% 16.9% 13.1%
VALUE LINE COMPOSITE(B) 7.0% 10.7% (6.0)% 19.3% 13.4% 21.1% 17.9% 8.5% 6.3%
STANDARD & POORS 500 7.6% 10.1% 1.3% 37.5% 22.9% 33.4% 31.1% 18.0% 17.1%
CONSUMER PRICE INDEX 2.9% 2.7% 2.7% 2.6% 3.3% 1.7% 2.5% 3.4% 3.4%
- ----------------
(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.
</TABLE>
SCHWARTZ VALUE FUND
Ten Largest Equity Holdings
December 31, 1997
Market
Shares Company Value
------ ------- -----
181,500 Ottawa Financial Corporation $6,171,000
235,000 K-Swiss Inc. -- Class A $3,818,750
100,000 Leucadia National Corporation $3,450,000
209,000 Data Research Associates, Inc. $2,978,250
170,000 Griffon Corporation $2,486,250
200,000 Unico American Corporation $2,450,000
200,000 Thomas Nelson, Inc. $2,312,500
60,000 RJR Nabisco Holdings Corp. $2,250,000
90,000 SPSS Inc. $1,732,500
600,000 Pentech International, Inc. $1,725,000
3
<PAGE>
SCHWARTZ VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
Shares COMMON STOCK -- 88.6% Value
- ---------- ---------------------------------------------- -----------
APPAREL & TEXTILES -- 6.0%
235,000 K-Swiss Inc. -- Class A .................. $ 3,818,750
17,500 Nautica Enterprises, Inc.* ............... 406,875
-----------
4,225,625
-----------
BUILDING MATERIALS & CONSTRUCTION -- 4.4%
20,000 ABT Building Products Corporation* ....... 360,000
60,000 Gardner Denver Machinery Inc.* ........... 1,518,750
24,000 Industrial Acoustics Company, Inc. ....... 250,500
35,000 MLX Corp.* ............................... 651,875
40,000 Schuler Homes, Inc.* ..................... 257,500
-----------
3,038,625
-----------
CONSUMER PRODUCTS - DURABLES -- 5.8%
37,500 Craftmade International, Inc. ............ 426,563
170,000 Griffon Corporation* ..................... 2,486,250
70,000 HMI Industries Inc. ...................... 420,000
40,000 Sturm, Ruger & Company, Inc. ............. 737,500
-----------
4,070,313
-----------
CONSUMER PRODUCTS - NONDURABLES -- 9.1%
25,000 Helen of Troy Limited* ................... 403,125
600,000 Pentech International, Inc.* ............. 1,725,000
20,000 The Scotts Company* ...................... 605,000
20,000 Standex International Corporation ........ 705,000
50,000 Tupperware Corporation ................... 1,393,750
10,000 Velcro Industries N.V .................... 960,000
24,000 Weyco Group, Inc. ........................ 543,000
-----------
6,334,875
-----------
ENERGY & MINING -- 3.4%
70,000 Forest Oil Corporation* .................. 1,155,000
200,000 Golden Star Resources Ltd.* .............. 712,500
18,000 Newmont Mining Corporation ............... 528,750
-----------
2,396,250
-----------
4
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCK -- 88.6% Value
- ---------- ---------------------------------------------- -----------
ENVIRONMENTAL SERVICES -- 0.1%
2,400 GZA GeoEnvironmental Technologies, Inc.* . 12,000
3,000 Sevenson Environmental Services, Inc. .... 36,750
-----------
48,750
-----------
FINANCE - BANKING & THRIFTS -- 12.3%
10,050 Calumet Bancorp, Inc.* ................... 330,394
65,000 Flagstar Bancorp, Inc. ................... 1,286,797
15,000 MSB Bancorp, Inc. ........................ 564,375
181,500 Ottawa Financial Corporation ............. 6,171,000
12,150 Peoples Bancorp .......................... 267,300
-----------
8,619,866
-----------
FINANCE - INSURANCE -- 12.0%
45,000 The Commerce Group, Inc. ................. 1,468,125
75,100 Danielson Holding Corporation* ........... 544,475
100,000 Leucadia National Corporation ............ 3,450,000
20,000 MMI Companies, Inc. ...................... 502,500
200,000 Unico American Corporation ............... 2,450,000
-----------
8,415,100
-----------
FOOD & TABACCO -- 3.2%
60,000 RJR Nabisco Holdings Corp. ............... 2,250,000
-----------
HEALTHCARE -- 2.6%
15,000 Health Care & Retirement Corporation* .... 603,750
50,000 Hologic, Inc.* ........................... 1,034,375
9,000 SteriGenics International, Inc.* ......... 171,000
-----------
1,809,125
-----------
HOLDING COMPANY -- 1.3%
20,000 Maxxam Inc.* ............................. 872,500
-----------
INDUSTRIAL PRODUCTS & SERVICES -- 3.9%
30,000 Greif Brothers Corporation -- Class A .... 1,005,000
50,000 Maritrans Inc. ........................... 487,500
10,055 M.H. Rhodes, Inc. ........................ 40,220
5
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCK -- 88.6% Value
- ---------- ---------------------------------------------- -----------
100,000 Rohn Industries, Inc. .................... $ 515,625
20,000 TriMas Corporation ....................... 687,500
-----------
2,735,845
-----------
LEISURE & ENTERTAINMENT -- 2.2%
75,000 Circus Circus Enterprises, Inc.* ......... 1,537,500
-----------
PRINTING & PUBLISHING -- 3.8%
465 The Detroit Legal News Company ........... 58,590
200,000 Thomas Nelson, Inc. ...................... 2,312,500
7,200 Value Line, Inc. ......................... 284,400
-----------
2,655,490
-----------
REAL ESTATE -- 1.0%
16,499 I. Gordon Corporation* ................... 164,990
15 LaFourche Realty Company, Inc. ........... 62,250
25,000 Malan Realty Investors, Inc. ............. 453,125
-----------
680,365
-----------
RETAIL -- 1.3%
2,000 Dart Group Corporation -- Class A ........ 232,000
100,000 Ellett Brothers, Inc. .................... 553,125
20,000 The Good Guys, Inc.* ..................... 152,500
-----------
937,625
-----------
TECHNOLOGY & ELECTRONICS -- 11.7%
33,500 Astrosystems, Inc.* ...................... 41,875
209,000 Data Research Associates, Inc. ........... 2,978,250
100,000 Nematron Corporation* .................... 406,250
50,000 Rainbow Technologies, Inc.* .............. 1,450,000
90,000 SPSS Inc.* ............................... 1,732,500
60,000 Universal Electronics Inc.* .............. 600,000
53,900 X-Rite, Incorporated ..................... 983,675
-----------
8,192,550
-----------
TRANSPORTATION -- 0.8%
58,800 The Morgan Group, Inc. -- Class A ........ 543,900
-----------
MISCELLANEOUS -- 0.1%
12,500 Bull & Bear Group, Inc. -- Class A* ...... 37,500
-----------
6
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Shares
Par Value COMMON STOCK -- 88.6% Value
- ---------- ---------------------------------------------- -----------
CLOSED-END FUNDS -- 3.6%
90,000 Royce Global Trust, Inc. ................. $ 455,625
90,000 Royce Micro-Cap Trust, Inc. .............. 911,250
60,000 Scudder New Europe Fund, Inc. ............ 907,500
25,000 Templeton Dragon Fund, Inc. .............. 268,750
-----------
2,543,125
-----------
TOTAL COMMON STOCK (COST $45,284,516) 61,944,929
-----------
PREFERRED STOCK -- 0.2% (COST $132,739)
35,000 Telos Corporation, 12% Cumulative
Exchangable Preferred ................ 158,025
-----------
U.S. GOVERNMENT AGENCY BONDS -- 11.3%
$1,000,000 Federal Home Loan Bank, 0%, 05/14/98 ..... 979,760
$1,000,000 Federal Home Loan Bank, 5.90%, 06/19/98 .. 1,000,937
$2,000,000 Federal National Mortgage Association,
5.87% 09/25/98 ........................... 2,001,938
$2,000,000 Federal National Mortgage Association,
0%, 11/06/98 ............................. 1,906,916
$2,000,000 Federal National Mortgage Association,
5.77%, 12/17/98 .......................... 2,000,552
-----------
TOTAL U.S. GOVERNMENT AGENCY BONDS
(COST $7,869,521) 7,890,103
-----------
REPURCHASE AGREEMENTS(1) -- 1.2% (COST $866,000)
$ 866,000 Fifth Third Bank, 5.09%, dated 12/31/97, due
01/02/98 repurchase proceeds: .......... 866,000
-----------
TOTAL INVESTMENTS -- 101.3% (COST $54,152,776) 70,859,057
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.3)% (892,497)
-----------
NET ASSETS -- 100.0% ......................... $69,966,560
===========
* Non-income producing securities.
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See notes to financial statements.
7
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost of $54,152,776) (Note 1) ......... $ 70,859,057
Cash ......................................................... 870,237
Dividends receivable ......................................... 217,208
Interest receivable .......................................... 37,883
Receivable for securities sold ............................... 50,311
Other assets ................................................. 23,637
------------
TOTAL ASSETS ............................................. 72,058,333
------------
LIABILITIES
Payable for capital shares redeemed .......................... 582
Payable for securities purchased ............................. 1,213,684
Accrued investment advisory fees (Note 2) .................... 265,313
Distributions payable to shareholders ........................ 576,964
Other accrued expenses and liabilities ....................... 35,230
------------
TOTAL LIABILITIES ........................................ 2,091,773
------------
NET ASSETS ................................................... $ 69,966,560
============
NET ASSETS CONSIST OF:
Paid-in capital .............................................. $ 53,397,252
Distributions in excess of net realized gains on
investments ................................................ (136,973)
Net unrealized appreciation on investments ................... 16,706,281
------------
NET ASSETS ................................................... $ 69,966,560
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ................. 2,915,990
============
Net asset value, redemption price, and offering price
per share .................................................. $ 23.99
============
See notes to financial statements.
8
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ................................................... $ 973,032
Interest .................................................... 373,184
-----------
TOTAL INVESTMENT INCOME ................................... 1,346,216
-----------
EXPENSES
Investment advisory fees (Note 2) ........................... 940,830
Administration, accounting and transfer agent fees
(Note 2) .................................................... 130,486
Trustees' fees and expenses ................................. 54,213
Legal and audit fees ........................................ 30,433
Insurance expense ........................................... 18,175
Reports to shareholders ..................................... 6,602
Custodian fees .............................................. 8,616
Registration fees ........................................... 5,628
Other expenses .............................................. 3,128
-----------
TOTAL EXPENSES ............................................ 1,198,111
-----------
NET INVESTMENT INCOME ......................................... 148,105
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investments ........................... 7,830,848
Net change in unrealized appreciation on
investments ............................................... 7,620,060
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS .............. 15,450,908
-----------
NET CHANGE IN NET ASSETS FROM OPERATIONS ...................... $15,599,013
===========
See notes to financial statements.
9
<PAGE>
SCHWARTZ VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
FROM OPERATIONS
<S> <C> <C>
Net investment income (loss) .................... $ 148,105 $ (45,028)
Net realized gains on investments ............... 7,830,848 5,144,508
Net change in unrealized appreciation on
investments ................................... 7,620,060 3,932,331
------------ ------------
Net increase in net assets from operations ........ 15,599,013 9,031,811
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ...................... (148,105) --
From net realized gains on investments .......... (7,879,894) (4,922,816)
In excess of net realized gains on investments .. (136,973) --
------------ ------------
Net decrease in net assets from distributions to
shareholders .................................... (8,164,972) (4,922,816)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS(A):
Proceeds from shares sold ....................... 7,555,701 5,572,508
Reinvestment of distributions to shareholders ... 7,588,008 4,524,185
Payments for shares redeemed .................... (7,716,318) (12,237,448)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions ...................... 7,427,391 (2,140,755)
------------ ------------
TOTAL INCREASE IN NET ASSETS ...................... 14,861,432 1,968,240
NET ASSETS:
Beginning of year ............................... 55,105,128 53,136,888
------------ ------------
End of year ..................................... $ 69,966,560 $ 55,105,128
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ............... $ $
============ ============
- ----------
(A) SUMMARY OF CAPITAL SHARE ACTIVITY:
Shares sold ..................................... 324,868 264,865
Shares issued in reinvestment of distributions
to shareholders ............................... 316,298 213,506
Shares redeemed ................................. (326,230) (580,219)
------------ ------------
Net increase (decrease) in shares outstanding ... 314,936 (101,848)
Shares outstanding, beginning of year ........... 2,601,054 2,702,902
------------ ------------
Shares outstanding, end of year ................. 2,915,990 2,601,054
============ ============
See notes to financial statements.
</TABLE>
10
<PAGE>
SCHWARTZ VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding
Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, July 20, 1993 (A)
----------------------- To
1997 1996 1995 1994 Dec. 31, 1993
---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ....... $ 21.19 $ 19.66 $ 18.12 $ 20.97 $ 19.71
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) ............. 0.06 (0.02) (0.03) (0.05) (0.06)
Net realized and unrealized gains
(losses) on investments ................ 5.88 3.61 3.09 (1.37) 1.95
------- ------- ------- ------- -------
Total from investment operations ............. 5.94 3.59 3.06 (1.42) 1.89
------- ------- ------- ------- -------
Less distributions:
From net investment income ................. (0.06) -- -- -- --
From net realized gains on investments ..... (3.03) (2.06) (1.52) (1.36) (0.63)
In excess of net realized gains on
investments .............................. (.05) -- -- (0.07) --
------- ------- ------- ------- -------
Total distributions .......................... (3.14) (2.06) (1.52) (1.43) (0.63)
------- ------- ------- ------- -------
Net asset value at end of period ............. $ 23.99 $ 21.19 $ 19.66 $ 18.12 $ 20.97
======= ======= ======= ======= =======
Total return ................................. 28.0% 18.3% 16.9% (6.8)% 9.6%(B)
======= ======= ======= ======= =======
Ratios/Supplementary Data:
Ratio of expenses to average net assets ...... 1.91% 1.97% 2.00% 2.01% 2.13%(C)
Ratio of net investment income (loss) to
average net assets ......................... 0.24% (0.08)% (0.18)% (0.36)% (0.63)%(C)
Portfolio turnover rate ...................... 47% 50% 70% 78% 65%(C)
Average commission rate ...................... $0.0468 $0.0454 -- -- --
Net assets at end of period (000's) .......... $69,967 $55,105 $53,137 $45,097 $40,704
</TABLE>
- ----------------
(A) Commencement of operations.
(B) Not annualized.
(C) Annualized.
See notes to financial statements.
11
<PAGE>
SCHWARTZ VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
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 primarily 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. Distributions
which exceed net realized gains for financial reporting purposes but not
for tax purposes, if any, are shown as distributions in excess of net
realized gains in the accompanying statements.
12
<PAGE>
(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.
(d) DIVIDENDS AND DISTRIBUTIONS -- Dividends from net investment income
and net capital gains, if any, are declared and paid annually in December.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
(e) REPURCHASE AGREEMENTS -- The Fund intends to enter into repurchase
agreements only with its Custodian, banks having assets in excess of $10
billion, and creditworthy primary U.S. Government securities dealers.
Repurchase agreements are transactions by which the Fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon time and price, thereby determining the yield during the
term of the agreement. With respect to such agreements, it is the Fund's
policy to take possession of the underlying securities and, on a daily
basis, mark-to-market such securities to ensure that the value, including
accrued interest, is at least equal to the amount to be repaid to the Fund
under each agreement. The seller under a repurchase agreement, is required
to pledge securities as collateral pursurant to the agreement at not less
than 102% of the repurchase price (including accrued interest). Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
(f) 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 Countrywide Fund Services, Inc. (CFS), 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.
Pursuant to an Administration, Accounting and Transfer Agency Agreement between
the Fund and CFS, CFS 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
13
<PAGE>
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 CFS, CFS 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 CFS 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, 1997 were $27,221,664
and $31,701,528, respectively. As of December 31, 1997, net unrealized
appreciation of securities was $16,569,639 for federal income tax purposes of
which $18,142,440 related to appreciated securities and $1,572,801 related to
depreciated securities. The aggregate cost of investments at December 31, 1997,
for federal income tax purposes was $54,289,418.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
Schwartz Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Schwartz Value Fund (the "Fund") as of
December 31, 1997, 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, 1997, 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 the Schwartz Value
Fund at December 31, 1997, 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 16, 1998
15
<PAGE>
Schwartz Value Fund
INVESTMENT PHILOSOPHY
Schwartz Value Fund ("SVF") seeks long-term capital appreciation 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
attempts to buy excellent companies at a fair price. The essence of value
investing is finding companies with great business characteristics which by
their nature, offer 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.
<PAGE>
[back cover]
SCHWARTZ VALUE FUND
a series of
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
(248) 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
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
AUDITORS
DELOITTE & TOUCHE LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402
LEGAL COUNSEL
SULLIVAN & WORCESTER LLP
1025 Connecticut Avenue, N.W.
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.
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<NAME> SCHWARTZ INVESTMENT TRUST
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 54,152,776
<INVESTMENTS-AT-VALUE> 70,859,057
<RECEIVABLES> 305,402
<ASSETS-OTHER> 23,637
<OTHER-ITEMS-ASSETS> 870,237
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