File No. 33-51626
and 811-7148
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
----------
Post-Effective Amendment No. 8
----------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 9
----------
(Check appropriate box or boxes)
SCHWARTZ INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
3707 West Maple Road
Bloomfield Hills, Michigan 48301
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (810) 644-8500
George P. Schwartz
Schwartz Investment Counsel, Inc.
3707 West Maple Road
Bloomfield Hills, Michigan 48301
(Name and Address of Agent for Service)
Copies to:
David M. Leahy, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, NW
Washington, DC 20036
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / days after filing pursuant to paragraph (a)
/ / on May 1, 1999 pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1998 was
filed with the Commission on February 22, 1999.
<PAGE>
SCHWARTZ INVESTMENT TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
--------------------------------
PART A
- ------
Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
1. Front and Back Cover Pages Cover Pages
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks,
and Performance
3. Risk/Return Summary: Expense Information
Fee Table
4. Investment Objectives, Investment Objective,
Principal Investment Investment Strategies
Strategies, and Related Risks and Risk Considerations
5. Management's Discussion of Inapplicable (included in
Fund Performance Annual Report)
6. Management, Organization, Operation of the Fund
and Capital Structure
7. Shareholder Information How to Purchase Shares; How
to Redeem Shares; Dividend
and Distributions; Taxes;
Calculation of Share Price;
Application
8. Distribution Arrangements Inapplicable
9. Financial Highlights Financial Highlights
Information
PART B
- ------
Caption in Statement
of Additional
Item No. Registration Statement Caption Information
- -------- ------------------------------ --------------------
10. Cover Page and Table Cover Page; Table of
of Contents Contents
11. Fund History The Fund
12. Description of the Fund and Definitions, Policies
Its Investments and Risks and Risk Considerations;
Quality Ratings of Corporate
Bonds and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
(i)
<PAGE>
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Principal Security
Holders of Securities Holders
15. Investment Advisory and Other The Investment Adviser;
Services Custodian; Auditors;
Countrywide Fund Services,
Inc.; Securities
Transactions
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other The Fund
Securities
18. Purchase, Redemption and Calculation of Share
Pricing of Shares Price; Redemption in Kind
19. Taxation of the Fund Taxes
20. Underwriters The Distributor
21. Calculation of Performance Historical Performance
Data Information
22. Financial Statements Annual Report
PART C
- ------
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
<PAGE>
{Schwartz Logo} PROSPECTUS
May 5, 1999
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any State Securities Commission nor has the Securities
and Exchange Commission or any State Securities Commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
PROSPECTUS
May 5, 1999
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
(248) 644-8500
SCHWARTZ VALUE FUND
A No-Load Fund
INVESTMENT OBJECTIVE:
Long-term capital appreciation.
Minimum Investment:
Initial purchase - $25,000
No Sales Charge
No Redemption Charge
The Schwartz Value Fund is not a 12b-1 fund.
The Schwartz Value Fund (the "Fund") has retained Schwartz Investment Counsel,
Inc. (the "Adviser") to manage the Fund's investments. The Adviser uses
fundamental security analysis to identify and purchase shares of companies which
it believes to be selling below intrinsic value.
TABLE OF CONTENTS
Risk/Return Summary........................................................
Expense Information........................................................
Investment Objective, Investment Strategies
and Risk Considerations.................................................
How to Purchase Shares.....................................................
How to Redeem Shares.......................................................
Dividends and Distributions................................................
Taxes......................................................................
Operation of the Fund......................................................
Calculation of Share Price.................................................
Financial Highlights.......................................................
Application................................................................
For Information or Assistance in Opening An Account, Please Call:
- 2 -
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The investment objective of the Fund is to seek long-term capital appreciation.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Under normal market conditions, the Fund will invest primarily in common stocks.
The Adviser uses fundamental security analysis to identify and purchase shares
of companies which it believes are selling below intrinsic value. The price of
shares in relation to cash flow, earnings, dividends, book value, and asset
value, both historical and prospective, are key determinants in the security
selection process. Emphasis is also placed on companies under going change in
operations, management, capital allocation, strategies, product transitions, and
other significant changes which the Adviser feels will significantly enhance
shareholder value in the future.
The prices of stocks held by the Fund are monitored in relation to the Adviser's
criteria for value. When a stock appreciates substantially and is no longer
undervalued, according to the Adviser's valuation criteria, it is sold.
Additionally, stocks are sold when an expected turnaround fails to be achieved
or economic factors or competitive developments adversely impair long-term
intrinsic value of the enterprise.
The Adviser intends to hold securities for an average of 3 to 5 years. In the
Adviser's opinion, holding stocks purchased at bargain prices allows compounding
to work without the return-eroding effects of commissions and capital gains
taxes.
The Fund buys shares in companies of all sizes, although emphasis is placed on
small and medium sized companies because the Adviser believes these companies
are more likely to offer opportunities for capital appreciation.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Adviser. As a result, there is a risk
that you could lose money by investing in the Fund.
- 3 -
<PAGE>
While smaller and mid-sized companies generally have potential for rapid growth,
they often involve higher risks because they lack the management experience,
financial resources, product diversification and competitive strengths of larger
corporations. In addition, in many instances, the securities of smaller and
mid-sized companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller and
medium sized companies may be subject to wider price fluctuations.
PERFORMANCE SUMMARY
The bar chart and performance table shown below provide an indication of the
risks of investing in the Fund by showing the changes in the performance of the
Fund from year to year over the past ten years and by showing how the average
annual returns of the Fund compare to those of a broad-based securities market
index. How the Fund has performed in the past is not necessarily an indication
of how the Fund will perform in the future.
The bar chart and performance table include performance of RCM Partners Limited
Partnership prior to July 20, 1993. It should be noted that: (1) the quoted
performance data includes performance for periods before the Securities Act
Registration Statement became effective; (2) the Fund was not registered under
the Investment Company Act of 1940 (the "1940 Act") during such periods and
therefore was not subject to certain investment restrictions imposed by the 1940
Act and restrictions of Sub-Chapter M of the Internal Revenue Code; and (3) if
the Fund had been registered under the 1940 Act and subject Sub-Chapter M of the
Internal Revenue Code during such periods, performance may have been adversely
affected.
8.3% -5.3% 32.0% 22.7% 20.5% -6.8% 16.9% 18.3% 28.0% -10.4%
[bar chart]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was
15.62% during the quarter ended June 30, 1997 and the lowest return for a
quarter was -16.91% during the quarter ended September 30, 1998.
- 4 -
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998
One Year Five Years Ten Years
Schwartz Value Fund -10.38% 8.14% 11.46%
Russell 2000 Index
(dividends excluded)* -3.5% 10.3% 12.1%
* The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S.
domiciled publicly-traded common stocks in the Russell 3000 Index (an
unmanaged index of the 3,000 largest U.S. domiciled publicly-traded common
stocks by market capitalization representing approximately 98% of the U.S.
publicly-traded equity market).
EXPENSE INFORMATION
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from
your investment) None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 1.50%
Other Expenses .44%
-----
Total Annual Fund Operating Expenses 1.94%
=====
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and them redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year $ 197
3 Years 609
5 Years 1,047
10 Years 2,264
- 5 -
<PAGE>
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISK
CONSIDERATIONS
The investment objective of the Fund is to seek long-term capital appreciation.
Dividend and interest income is only an incidental consideration to the Fund's
investment objective. The Fund is not intended to be a complete investment
program, and there is no assurance that its investment objective can be
achieved. The Fund's investment objective is fundamental and as such may not be
changed without the affirmative vote of the holders of a majority of its
outstanding shares. Unless otherwise indicated, all investment practices and
limitations of the Fund are nonfundamental policies which may be changed by the
Board of Trustees without shareholder approval.
The Fund maintains a disciplined approach to investing. The price of shares in
relation to book value, asset value, earnings, dividends and cash flow, both
historical and prospective, are key determinants in the security selection
process. Regardless of the size of the company, a common thread in the Fund's
investments is that the market price is below what a corporate or
entrepreneurial buyer would be willing to pay for the entire business. Emphasis
is also placed on companies under going change in operations, management,
capital allocation, strategies, product transitions, and other significant
changes which the Adviser feels significantly enhance shareholder value in the
future.
The prices of stocks held by the Fund are monitored in relation to the Adviser's
criteria for value. When a stock appreciates substantially and is no longer
undervalued, according to the Adviser's valuation criteria, it is sold.
Additionally, stocks are sold when an expected turnaround fails to be achieved
or economic factors or competitive developments adversely impair long-term
intrinsic value of the enterprise.
The Fund will typically invest a substantial portion of its assets in small and
mid capitalization companies. While small and mid-cap companies generally have
potential for rapid growth, they often involve higher risks because they lack
the management experience, financial resources, product diversification and
competitive strengths of larger corporations. In addition, in many instances,
the securities of smaller and mid-sized companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
wider price fluctuations.
- 6 -
<PAGE>
Securities in the Fund's portfolio may not increase as much as the market as a
whole and some undervalued securities may continue to be undervalued for long
periods of time. Some securities may be inactively traded, i.e., not quoted
daily in the financial press, and thus may not be readily bought or sold.
Although profits in some Fund holdings may be realized quickly, it is not
expected that most investments will appreciate rapidly.
For temporary defensive purposes, the Fund may from time to time have a
significant portion, and possibly all, of its assets in U.S. Government
obligations or money market instruments. "U.S. Government obligations" include
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. The money market instruments which the Fund may own from time to
time include U.S. Government obligations having a maturity of less than one
year, commercial paper rated A-1 by Standard & Poor's Ratings Group or Prime-1
by Moody's Investors Service, Inc., repurchase agreements, bank debt instruments
(certificates of deposit, time deposits and bankers' acceptances) and other
short-term instruments issued by domestic branches of U.S. financial
institutions that are insured by the Federal Deposit Insurance Corporation and
have assets exceeding $10 billion. When the Fund invests in U.S Government
obligations or money market instruments for temporary defensive purposes, it may
not achieve its investment objective.
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $25,000. The
Fund may, in the Adviser's sole discretion, accept certain accounts with less
than the stated minimum initial investment. Shares of the Fund are sold on a
continuous basis at the net asset value next determined after receipt of a
purchase order by the Fund. Purchase orders received by the Fund's transfer
agent, Countrywide Fund Services, Inc. (the "Transfer Agent") by 4:00 p.m.,
Eastern time, are confirmed at that day's net asset value. Purchase orders
received by the Transfer Agent after 4:00 p.m., Eastern time, are confirmed at
the net asset value next determined on the following business day.
You may open an account and make an initial investment in the Fund by sending a
check and a completed account application form to Countrywide Fund Services,
Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made payable
to the "Schwartz Value Fund." Third party checks will not be accepted. An
account application is included in this Prospectus.
The Fund mails you confirmations of all purchases or redemptions of Fund shares.
Certificates representing shares are not issued. The Fund and the Distributor
reserve the rights to limit the amount of investments and to refuse to sell to
any person.
- 7 -
<PAGE>
Shares of the Fund may be purchased or sold through the Charles Schwab & Co.,
Inc. Mutual Fund MarketplaceTM and through other brokerage firms or financial
institutions. These organizations are authorized to accept purchase orders on
behalf of the Fund. These organizations may charge you transaction fees on
purchases of Fund shares and may impose other charges or restrictions or account
options that differ from those applicable to shareholders who purchase shares
directly through the Fund or the Transfer Agent. These organizations may be the
shareholders of record of your shares. The Fund is not responsible for ensuring
that the organizations carry out their obligations to their customers. The
Adviser may pay such organizations for administrative, shareholder subaccounting
and other services, including sales-related services, from the Adviser's own
revenues based on the amount of customer assets maintained in the Fund by such
organizations. The payment of such compensation by the Adviser will not affect
the expense ratio of the Fund.
The Fund's account application contains provisions in favor of the Fund, the
Transfer Agent and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services made available to
investors.
If an order to purchase shares is canceled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Fund or
the Transfer Agent in the transaction.
Provided the Trust has received a completed account application form, you may
also purchase shares of the Fund by bank wire. Please telephone the Transfer
Agent (Nationwide call toll-free 800-545-0103) for instructions. You should be
prepared to give the name in which the account is to be established, the
address, telephone number and taxpayer identification number for the account,
and the name of the bank which will wire the money. Your investment will be made
at the next determined net asset value after your wire is received together with
the account information indicated above. If the Transfer Agent does not receive
timely and complete account information, there may be a delay in the investment
of your money and any accrual of dividends. To make your initial wire purchase,
you must mail a completed account application to the Transfer Agent. Your bank
may impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
- 8 -
<PAGE>
You may purchase and add shares to your account by mail or by bank wire. Checks
should be sent to Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati,
Ohio 45201-5354. Checks should be made payable to the "Schwartz Value Fund."
Bank wires should be sent as outlined above. You may also make additional
investments at the Fund's offices at 3707 W. Maple Road, Bloomfield Hills,
Michigan 48301. Each additional purchase request must contain the account name
and number to permit proper crediting. While there is no minimum amount required
for subsequent investments, the Fund reserves the right to impose such
requirement.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for business
by sending a written request to the Transfer Agent. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
If the name(s) or the address on your account has been changed within 30 days of
your redemption request, you will be required to request the redemption in
writing with your signature guaranteed, regardless of the value of the shares
being redeemed.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. There is currently no charge for processing
wire redemptions. However, the Transfer Agent reserves the right, upon thirty
days' written notice, to make reasonable charges for wire redemptions. All
charges will be deducted from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. In the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
You will receive the net asset value per share next determined after receipt by
the Transfer Agent (or other agents of the Fund) of your redemption request in
the form described above. Payment is normally made within three business days
after tender in such form, provided that payment in redemption of shares
purchased by check will be effected only after the check has been collected,
which may take up to fifteen days from the purchase date. To eliminate this
delay, you may purchase shares of the Fund by certified check or wire.
- 9 -
<PAGE>
You may also redeem your shares through a brokerage firm or financial
institution that has been authorized to accept orders on behalf of the Fund at
the Fund's net asset value next determined after your order is received by such
organization in proper form before 4:00 p.m., Eastern time, or such earlier time
as may be required by such organization. These organizations may be authorized
to designate other intermediaries to act in this capacity. Such an organization
may charge you transaction fees on redemptions of Fund shares and may impose
other charges or restrictions or account options that differ from those
applicable to shareholders who redeem shares directly through the Transfer
Agent.
At the discretion of the Fund or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $25,000 (based on actual amounts invested, unaffected by
market fluctuations), or such other minimum amount as the Fund may determine
from time to time. After notification to you of the Fund's intention to close
your account, you will be given sixty days to increase the value of your account
to the minimum amount.
The Fund reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the Fund
may make payment for shares redeemed in liquid portfolio securities of the Fund
taken at current value.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment income
and net realized capital gains, if any, on an annual basis. Distributions are
paid according to one of the following options:
Share Option -- income distributions and capital gains distributions
reinvested in additional shares.
Income Option -- income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
- 10 -
<PAGE>
Cash Option -- income distributions and capital gains distributions paid in
cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then-current net asset
value and your account will be converted to the Share Option. No interest will
accrue on amounts represented by uncashed distribution checks.
TAXES
The Fund has qualified in all prior years and intends to continue to qualify for
the special tax treatment afforded a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it does not pay federal taxes
on income and capital gains distributed to shareholders. The Fund intends to
distribute substantially all of its net investment income and any net realized
capital gains to its shareholders. Distributions of net investment income as
well as net realized short-term capital gains, if any, are taxable as ordinary
income. Dividends distributed by the Fund from net investment income may be
eligible, in whole or in part, for the dividends received deduction available to
corporations.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by the Fund are taxable to you as
capital gains, without regard to the length of time you have held your Fund
shares. Capital gains distributions may be taxable at different rates depending
on the length of time the Fund holds its assets. Redemptions of shares of the
Fund are taxable events on which you may realize a gain or loss.
The Fund will mail a statement to you annually indicating the amount and federal
income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
- 11 -
<PAGE>
OPERATION OF THE FUND
The Fund is a diversified series of Schwartz Investment Trust, an open-end
management investment company organized as an Ohio business trust. The Board of
Trustees supervises the business activities of the Fund. Like other mutual
funds, various organizations are retained to perform specialized services for
the Fund.
The Fund retains Schwartz Investment Counsel, Inc. (the "Adviser"), 3707 W.
Maple Road, Bloomfield Hills, Michigan 48301, to manage the Fund's investments.
The Adviser was organized in 1980 and has approximately $215 million of assets
under management as of December 31, 1998. The controlling shareholders of the
Adviser are George P. Schwartz and Gregory J. Schwartz. George P. Schwartz, who
is President of both the Fund and the Adviser, is, and since the Fund's
inception has been, primarily responsible for managing the Fund's portfolio.
The Fund pays the Adviser a fee at the annual rate of 1.5% of the average value
of its 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.
Gregory J. Schwartz & Co., Inc. (the "Distributor"), 3707 W. Maple Road,
Bloomfield Hills, Michigan 48301, serves as the primary agent for the
distribution of shares of the Fund. Gregory J. Schwartz, Chairman of the Board
and a Trustee of the Fund, is also President and the controlling shareholder of
the Distributor. The Distributor will pay for the distribution of Fund shares
out of its own resources.
YEAR 2000 READINESS. Computer users around the world are faced with the dilemma
of the Year 2000 issue, which stems from the use of two digits in most computer
systems to designate the year. When the year advances from 1999 to 2000, many
computers will not recognize "00" as the Year 2000. This issue could potentially
affect every aspect of computer-related activity, on an individual and corporate
level. The Fund could be adversely impacted if the computer systems used by the
Adviser and other service providers have not been converted to meet the
requirements of the new century. The Adviser has evaluated its internal systems
and expects them to handle the change of millennium. The Adviser is monitoring
on an ongoing basis the progress of the Fund's service providers to convert
their systems to comply with the requirements of the Year 2000. The Adviser
currently has no reason to believe that these service providers will not be
fully and timely complaint. However, you should be aware that there can be no
assurance that all systems will be successfully converted prior to January 1,
2000, in which case it would become necessary for the Fund to enter into
agreements with new service providers or to make other arrangements.
- 12 -
<PAGE>
CALCULATION OF SHARE PRICE
On each day that the Fund is open for business, the share price (net asset
value) of the Fund's shares is determined as of the close of the regular session
of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time).
The Fund is open for business on each day the New York Stock Exchange is open
for business. The net asset value per share of the Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent. The
price at which a purchase or redemption of Fund shares is effected is based on
the next calculation of net asset value after the order is placed.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) 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 the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the average of the highest current independent bid and lowest
current independent offer, (2) securities traded in the over-the-counter market,
and which are 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
the regular session of trading on the New York Stock Exchange on the day the
securities are being valued, (3) securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
- 13 -
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
<TABLE>
<CAPTION>
Per Share Data for a Share Outstanding Throughout Each Year
- -----------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year $ 23.99 $ 21.19 $ 19.66 $ 18.12 $ 20.97
--------- --------- --------- --------- ---------
Income from investment
operations:
Net investment income
(loss) (0.09) 0.06 (0.02) (0.03) (0.05)
Net realized and
unrealized gains
(losses) on investments (2.40) 5.88 3.61 3.09 (1.37)
--------- --------- --------- --------- ---------
Total from investment
operations (2.49) 5.94 3.59 3.06 (1.42)
--------- --------- --------- --------- ---------
Less distributions:
From net investment income -- (0.06) -- -- --
From net realized gains on
investments -- (3.03) (2.06) (1.52) (1.36)
In excess of net realized
gains on investments -- (0.05) -- -- (0.07)
--------- --------- --------- --------- ---------
Total distributions -- (3.14) (2.06) (1.52) (1.43)
--------- --------- --------- --------- ---------
Net asset value at end of
year $ 21.50 $ 23.99 $ 21.19 $ 19.66 18.12
========= ========= ========= ========= =========
Total return (10.4)% 28.0% 18.3% 16.9% (6.8)%
========= ========= ========= ========= =========
Ratios/Supplementary Data:
Ratio of expenses to average
net assets 1.94% 1.91% 1.97% 2.00% 2.01%
Ratio of net investment
income (loss) to average
net assets (0.39)% 0.24% (0.08)% (0.18)% (0.36)%
Portfolio turnover rate 54% 47% 50% 70% 78%
Net assets at end of year
(000's) $ 62,697 69,967 $ 55,105 $ 53,137 $ 45,097
</TABLE>
- 14 -
<PAGE>
SCHWARTZ VALUE FUND ACCOUNT NO. 36-_____________________
Account Application (For Fund Use Only)
Please mail completed account FOR BROKER/DEALER USE ONLY
application to: Firm Name:__________________________
Countrywide Fund Services, Inc. Home Office Address:________________
P.O. Box 5354 Branch Address:_____________________
Cincinnati, Ohio 45201-5354 Rep Name & No.:_____________________
Rep. Signature:_____________________
================================================================================
Initial Investment of $ __________________ ($25,000 minimum)
o Check or draft enclosed payable to the Schwartz Value Fund.
o Bank Wire From:_______________________________________________
================================================================================
ACCOUNT NAME S.S. #/TAX L.D.#
_______________________________________________ ______________________________
Name of Individual, Corporation, Organization, (In case of custodial account
or Minor, etc. please list minor's S.S.#)
_______________________________________________ Citizenship:
Name of Joint Tenant, Partner, Custodian o U.S.
o Other _____________________
ADDRESS PHONE
_______________________________________________ ______________________________
Street or P.O. Box Business Phone
_______________________________________________ ______________________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed)
o Corporation
o Trust
o Custodial
o Other
Occupation and Employer Name/Address:___________________________________________
Are you an associated person of an NASD member? o Yes o No
================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. The Internal
Revenue Service does not require my consent to any provision of this document
other than the certifications required to avoid backup withholding. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short-term capital gains
distributions paid in cash, long-term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid
in cash.
o By Check o By ACH to my bank checking or savings account.
Please attach a voided check.
================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for
shares, to receive dividends and distributions for automatic reinvestment in
additional shares of the Fund for credit to the investor's account and to
surrender for redemption shares held in the investor's account in accordance
with any of the procedures elected above or for payment of service charges
incurred by the investor. The investor further agrees that Countrywide Fund
Services, Inc. can cease to act as such agent upon ten days' notice in writing
to the investor at the address contained in this Application. The investor
hereby ratifies any instructions given pursuant to this Application and for
himself and his successors and assigns does hereby release the Fund, Schwartz
Investment Counsel, Inc., Countrywide Fund Services, Inc., Gregory J. Schwartz &
Co., and their respective officers, employees, agents and affiliates from any
and all liability in the performance of the acts instructed herein.
By:_________________________________________ _______________________________
Signature & Title Date
By:_________________________________________ _______________________________
Signature & Title Date
NOTE: Corporations, trusts and other organizations must complete the resolution
form on the reverse side. Unless otherwise specified, each joint owner shall
have full authority to act on behalf of the account.
<PAGE>
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the
Schwartz Value Fund (the Fund) and that
____________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
Fund, to establish or acknowledge terms and conditions governing the redemption
of said shares and to otherwise implement the privileges elected on the
Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
____________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of _____________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _______________________
at which a quorum was present and acting throughout, and that the same are now
in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
Witness my hand and seal of the corporation or organization this _______ day of
__________________, 19_______
___________________________________ _________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
SCHWARTZ
VALUE FUND
SCHWARTZ INVESTMENT TRUST
PROSPECTUS
MAY 5, 1999
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 and Treasurer
Tina D. Hosking, Assistant Secretary
Brian J. Manley, Assistant Secretary
Robert L. Bennett, 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
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
<PAGE>
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-248-644-8500.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-7148
<PAGE>
SCHWARTZ INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 5, 1999
SCHWARTZ VALUE FUND
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of the Schwartz Value Fund dated May 5,
1999. A copy of the Fund's Prospectus can be obtained by writing the Fund at
3707 W. Maple Road, Bloomfield Hills, Michigan 48301, or by calling the Fund at
248-644-8500.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
TABLE OF CONTENTS
-----------------
PAGE
----
THE FUND.......................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................3
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS........................9
INVESTMENT LIMITATIONS........................................................15
TRUSTEES AND OFFICERS.........................................................16
THE INVESTMENT ADVISER........................................................17
THE DISTRIBUTOR...............................................................19
SECURITIES TRANSACTIONS.......................................................19
PORTFOLIO TURNOVER............................................................21
CALCULATION OF SHARE PRICE....................................................21
TAXES.........................................................................21
REDEMPTION IN KIND............................................................23
HISTORICAL PERFORMANCE INFORMATION............................................23
PRINCIPAL SECURITY HOLDERS....................................................25
CUSTODIAN.....................................................................26
AUDITORS......................................................................26
COUNTRYWIDE FUND SERVICES, INC................................................26
ANNUAL REPORT.................................................................26
- 2 -
<PAGE>
THE FUND
- --------
Schwartz Investment Trust (the "Trust"), an open-end, diversified
management investment company, was organized as an Ohio business trust on August
31, 1992. The Trust currently offers one series of shares to investors, the
Schwartz Value Fund (the "Fund"). Prior to June 1, 1994, the name of the Fund
was The RCM Fund.
Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Fund is not required to hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Fund's outstanding shares.
The Fund will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 in order to facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares of the Fund so long as the proportionate
beneficial interest in the assets belonging to the Fund are in no way affected.
In case of any liquidation of the Fund, the holders of shares of the Fund will
be entitled to receive as a class a distribution out of the assets, net of the
liabilities, belonging to the Fund. No shareholder is liable to further calls or
to assessment by the Fund without his express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment policies
described in the Prospectus (see "Investment Objective, Investment Strategies
and Risk Considerations") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Fund means the
lesser of (1) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented at such meeting or (2) more than 50% of the
outstanding shares of the Fund.
- 3 -
<PAGE>
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Fund will only invest in
commercial paper rated A-1 by Standard & Poor's Ratings Group ("Standard &
Poor's") or Prime-1 by Moody's Investors Service, Inc. ("Moody's") or unrated
paper of issuers who have outstanding unsecured debt rated AA or better by
Standard & Poor's or Aa or better by Moody's. Certain notes may have floating or
variable rates. Variable and floating rate notes with a demand notice period
exceeding seven days will be subject to the Fund's policy with respect to
illiquid investments (see "Investment Limitations") unless, in the judgment of
the Adviser, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist with the
issuer; and recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1. Commercial paper rated A-1 (highest quality)
by Standard & Poor's has the following characteristics: liquidity ratios are
adequate to meet cash requirements; long-term senior debt is rated "A" or
better, although in some cases "BBB" credits may be allowed; the issuer has
access to at least two additional channels of borrowing; basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time
- 4 -
<PAGE>
(usually from fourteen days to one year) at a stated or variable interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft which has been drawn on it by a customer, which instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. The Fund will not invest in time deposits maturing in more than
seven days if, as a result thereof, more than 15% of the value of its net assets
would be invested in such securities and other illiquid securities.
WHEN-ISSUED SECURITIES. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities. In addition, the Fund may purchase securities on a when-issued basis
only if delivery and payment for the securities takes place within 120 days
after the date of the transaction. In connection with these investments, the
Fund will direct the Custodian to place cash or liquid securities in a
segregated account in an amount sufficient to make payment for the securities to
be purchased. When a segregated account is maintained because the Fund purchases
securities on a when-issued basis, the assets deposited in the segregated
account will be valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase securities on a when-issued basis. To the
extent funds are in a segregated account, they will not be available for new
investment or to meet redemptions. Securities purchased on a when-issued basis
and the securities held in the Fund's portfolio are subject to changes in market
value based upon changes in the level of interest rates (which will generally
result in all of those securities changing in value in the same way, i.e., all
those securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise). Therefore, if in order to achieve higher
returns, the Fund remains substantially fully invested at the same time that it
has purchased securities on a when-issued basis, there will be a possibility
that the market value of the Fund's assets will experience greater fluctuation.
The purchase of securities on a when-issued basis may involve a risk of loss if
the broker-dealer selling the securities fails to deliver after the value of the
securities has risen.
When the time comes for the Fund to make payment for securities purchased
on a when-issued basis, the Fund will do so by using then available cash flow,
by sale of the securities held in the segregated account, by sale of other
securities or,
- 5 -
<PAGE>
although it would not normally expect to do so, by directing the sale of the
securities purchased on a when-issued basis themselves (which may have a market
value greater or less than the Fund's payment obligation). Although the Fund
will only make commitments to purchase securities on a when-issued basis with
the intention of actually acquiring the securities, the Fund may sell these
securities before the settlement date if it is deemed advisable by the Adviser
as a matter of investment strategy. The Fund does not currently intend to invest
more than 5% of its net assets in debt securities on a when-issued basis.
REPURCHASE AGREEMENTS. 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. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. At the time the Fund enters
into a repurchase agreement, the value of the collateral, including accrued
interest, will equal at least 102% of the value of the repurchase agreement and,
in the case of a repurchase agreement exceeding one day, the seller agrees to
maintain sufficient collateral so that the value of the collateral, including
accrued interest, will at all times equal at least 102% of the value of the
repurchase agreement. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Fund's Custodian at the Federal
Reserve Bank. The Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all
- 6 -
<PAGE>
times equal or exceed the value of the repurchase agreement. The collateral
securing the seller's obligation must be of a credit quality at least equal to
the Fund's investment criteria for portfolio securities and will be held by the
Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from the Fund to the seller subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the security. If a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case the Fund may
incur a loss if the proceeds to the Fund of the sale of the security to a third
party are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
U.S. Government Obligations. U.S. Government obligations include securities
which are issued or guaranteed by the United States Treasury, by various
agencies of the United States Government, and by various instrumentalities which
have been established or sponsored by the United States Government. U.S.
Treasury obligations are backed by the "full faith and credit" of the United
States Government. U.S. Treasury obligations include Treasury bills, Treasury
notes, and Treasury bonds. Agencies and instrumentalities established by the
United
- 7 -
<PAGE>
States Government include the Federal Home Loan Banks, the Federal Land Bank,
the Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Student Loan
Marketing Association, the Small Business Administration, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Federal Farm Credit Banks, the Federal Agricultural Mortgage Corporation,
the Resolution Funding Corporation, the Financing Corporation of America and the
Tennessee Valley Authority. Some of these securities are supported by the full
faith and credit of the United States Government while others are supported only
by the credit of the agency or instrumentality, which may include the right of
the issuer to borrow from the United States Treasury.
FOREIGN SECURITIES. Subject to the Fund's investment policies and quality
standards, the Fund may invest in the securities (payable in U.S. dollars) of
foreign issuers. Because the Fund may invest in foreign securities, investment
in the Fund involves risks that are different in some respects from an
investment in a fund which invests only in securities of U.S. domestic issuers.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. The Fund may purchase warrants and rights, provided
that the Fund does not invest more than 5% of its net assets at the time of
purchase in warrants and rights other than those that have been acquired in
units or attached to other
- 8 -
<PAGE>
securities. Of such 5%, no more than 2% of the Fund's assets at the time of
purchase may be invested in warrants which are not listed on either the New York
Stock Exchange or the American Stock Exchange.
BORROWING. The Fund may borrow from banks for the clearance of securities
transactions but only as a temporary measure for emergency or extraordinary
purposes in an amount exceeding 5% of the Fund's total assets. The Fund's policy
on borrowing is a fundamental policy which may not be changed without the
affirmative vote of a majority of its outstanding shares.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of its
total assets in securities of other investment companies. Investments by the
Fund in shares of other investment companies will result in duplication of
advisory, administrative and distribution fees. The Fund will not invest more
than 5% of its total assets in securities of any single investment company and
will not purchase more than 3% of the outstanding voting securities of any
investment company.
SHORT-TERM TRADING. The Fund does not intend to use short-term trading as a
primary means of achieving its investment objective. However, the Fund's rate of
portfolio turnover will depend upon market and other conditions, and it will not
be a limiting factor when portfolio changes are deemed necessary or appropriate
by the Adviser. High turnover involves correspondingly greater commission
expenses and transaction costs and may result in the Fund recognizing greater
amounts of income and capital gains, which would increase the amount of income
and capital gains which the Fund must distribute to its shareholders in order to
maintain its status as a regulated investment company and to avoid the
imposition of federal income or excise taxes. See "Taxes."
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
- -------------------------------------------------------
It is not the Adviser's intention to have the Fund invested in debt
securities primarily for capital appreciation. The Fund may, however, from time
to time, have all or a portion of its assets invested in debt securities for
defensive purposes or to preserve capital on a temporary basis pending a more
permanent disposition of assets subject to the Adviser's analysis of economic
and market conditions. There is no formula as to the percentage of assets that
may be invested in any one type of security, except as set forth herein. When
the Fund has a portion of its assets in U.S. Government obligations or corporate
debt securities, the maturities of these securities (which may range from one
day to thirty years) will be based in large measure both on the Adviser's
perception as to general risk levels in the debt market versus the equity
market, and on the Adviser's perception of the future trend and term structure
of interest rates.
- 9 -
<PAGE>
Although the Fund invests primarily in common stocks, the Fund may, in
seeking its objective of long-term capital appreciation, invest in preferred
stocks and corporate debt securities, including securities convertible into
common stocks, without regard to quality ratings assigned by rating
organizations such as Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group. The Fund does not hold, nor intend to invest, more than 5% of its
net assets in preferred stocks and corporate debt securities rated less than
"investment grade" by either of these two rating organizations. Lower-rated debt
securities (commonly called "junk bonds") are often considered to be speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness.
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR CORPORATE BONDS IN WHICH
THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- 10 -
<PAGE>
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC and CC - Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
- 11 -
<PAGE>
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR PREFERRED STOCKS IN WHICH
THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b - An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa - An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
- 12 -
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B and CCC - Preferred stock rated BB, B and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC - The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated C is a non-paying issue.
D - A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
General Risk Factors of Fixed-Income Securities
-----------------------------------------------
Investments in fixed-income securities are subject to inherent market risks
and fluctuations in value due to changes in earnings, economic conditions,
quality ratings and other factors beyond the control of the Adviser.
Fixed-income securities are also subject to price fluctuations based upon
changes in the level of interest rates, which will generally result in all those
securities changing in price in the same way, i.e., all those
- 13 -
<PAGE>
securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise. As a result, the return and net asset
value of a Fund will fluctuate.
Risk Factors of Lower-Rated Securities
--------------------------------------
Lower-rated debt securities (commonly called "junk bonds") may be subject
to certain risk factors to which other securities are not subject to the same
degree. An economic downturn tends to disrupt the market for lower-rated bonds
and adversely affect their values. Such an economic downturn may be expected to
result in increased price volatility of lower-rated bonds and of the value of
the Fund's shares, and an increase in issuers' defaults on such bonds.
Also, many issuers of lower-rated bonds are substantially leveraged, which
may impair their ability to meet their obligations. In some cases, the
securities in which the Fund invests are subordinated to the prior payment of
senior indebtedness, thus potentially limiting the Fund's ability to recover
full principal or to receive payments when senior securities are in default.
The credit rating of a security does not necessarily address its market
value risk. Also, ratings may, from time to time, be changed to reflect
developments in the issuer's financial condition. Lower-rated securities held by
the Fund have speculative characteristics which are apt to increase in number
and significance with each lower rating category.
When the secondary market for lower-rated bonds becomes increasingly
illiquid, or in the absence of readily available market quotations for
lower-rated bonds, the relative lack of reliable, objective data makes the
responsibility of the Trustees to value such securities more difficult, and
judgment plays a greater role in the valuation of portfolio securities. Also,
increased illiquidity of the market for lower-rated bonds may affect the Fund's
ability to dispose of portfolio securities at a desirable price.
In addition, if the Fund experiences unexpected net redemptions, it could
be forced to sell all or a portion of its lower-rated bonds without regard to
their investment merits, thereby decreasing the asset base upon which the Fund's
expenses can be spread and possibly reducing the Fund's rate of return. Also,
prices of lower-rated bonds have been found to be less sensitive to interest
rate changes and more sensitive to adverse economic changes and individual
corporate developments than more highly rated investments. Certain laws or
regulations may have a material effect on the Fund's investments in lower-rated
bonds.
- 14 -
<PAGE>
INVESTMENT LIMITATIONS
- ----------------------
The Fund has adopted certain fundamental investment limitations designed to
reduce the risk of an investment in the Fund. These limitations may not be
changed without the affirmative vote of a majority of the outstanding shares of
the Fund. The Fund may not:
1. Borrow amounts in excess of 5% of the Fund's total assets, except as a
temporary measure for extraordinary or emergency purposes.
2. Underwrite securities issued by other persons, except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of 1933
in selling a portfolio security.
3. Invest 25% or more of the Fund's total assets in any one industry.
4. Purchase or sell real estate, mineral leases, futures contracts or
commodities in the ordinary course of business.
5. Make loans; however, the Fund may enter into repurchase agreements and
may purchase corporate and debt obligations for investment purposes.
6. Purchase the securities of an issuer (other than the United States
Government, its agencies or instrumentalities) if such purchase, at the time
thereof, would cause more than 5% of the Fund's total assets taken at market
value to be invested in the securities of such issuer.
7. Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of such
issuer to be held by the Fund.
8. Invest for the purpose of exercising control or management.
9. Issue senior securities as defined in the Investment Company Act of 1940
or mortgage, pledge, hypothecate or in any way transfer as security for
indebtedness any securities owned or held by the Fund except as may be necessary
in connection with permissible borrowings, and then not exceeding 5% of the
Fund's total assets, taken at the lesser of cost or market value.
10. Purchase any securities on margin; however, the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities.
- 15 -
<PAGE>
11. Sell any securities short unless, by virtue of the Fund's ownership of
other securities, the Fund has at the time of sale a right to obtain securities,
without payment of further consideration, equivalent in kind and amount to the
securities sold and provided that if such right is conditional, the sale is made
upon the same conditions.
12. Purchase or sell any put or call options or any combination thereof,
provided that this shall not prevent the purchase, ownership, holding or sale of
warrants where the grantor of the warrants is the issuer of the underlying
securities.
13. Invest more than 10% of its total assets in securities of unseasoned
issuers or in securities which are subject to legal or contractual restrictions
on resale.
With respect to the percentages adopted by the Fund as maximum limitations
on the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
The Fund has never made, nor does it presently intend to make, short sales
of securities "against the box" as described in investment limitation 11. This
statement of intention reflects a nonfundamental policy which may be changed by
the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Fund
and their aggregate compensation from the Fund for the fiscal year ended
December 31, 1998. Each Trustee who is an "interested person" of the Fund, as
defined by the Investment Company Act of 1940, is indicated by an asterisk.
Gregory J. Schwartz and George P. Schwartz are brothers.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD COMPENSATION
- ---- --- ------------------------------------- ------------
<S> <C> <C> <C>
*Gregory J. Schwartz 57 Chairman of the Board/Trustee $ 0
*George P. Schwartz, CFA 54 President/Trustee 0
+Donald J. Dawson, Jr. 52 Trustee 7,000
+Fred A. Erb 76 Trustee 7,000
+John J. McHale 77 Trustee 7,000
+Sidney F. McKenna 76 Trustee 7,000
Richard L. Platte, Jr., CFA 48 Vice President, Secretary and Treasurer 0
</TABLE>
* Gregory J. Schwartz and George P. Schwartz, as affiliated persons of
Schwartz Investment Counsel, Inc., the Fund's investment adviser, are
"interested persons" of the Fund within the meaning of Section 2(a)(19) of
the Investment Company Act of 1940.
+ Member of Audit Committee.
- 16 -
<PAGE>
The principal occupations of the Trustees and executive officers of the
Fund during the past five years are set forth below:
GREGORY J. SCHWARTZ, 3707 W. Maple Road, Bloomfield Hills, Michigan, is
Chairman of Schwartz Investment Counsel, Inc., the Fund's investment manager,
and is President and Chief Executive Officer of Gregory J. Schwartz & Co., Inc.,
an investment banking firm which serves as the Fund's distributor. He is also
President of Bloomfield Town Center, a real estate management company.
GEORGE P. SCHWARTZ, CFA, 3707 W. Maple Road, Bloomfield Hills, Michigan, is
President and Chief Investment Officer of Schwartz Investment Counsel, Inc. and
is the portfolio manager of the Fund.
DONALD J. DAWSON, JR., 333 West Seventh Street, Royal Oak, Michigan, is
President of Payroll 1, Inc. (a payroll processing company).
FRED A. ERB, 44 East Long Lake Road, Bloomfield Hills, Michigan, is the
Chairman and Chief Executive Officer of Edgemere Enterprises, Inc. (a real
estate investment, development and management company). He is also the Chairman
of D.I.Y. Home Warehouse (a retail building supplies company).
JOHN J. McHALE, 2014 Royal Fern Court, Palm City, Florida, is retired as
the President of the Montreal Expos (a major league baseball team). He is
President of Japan Sports System, Inc. (owners and operators of professional
baseball franchises). He is also a director of Perini Corp. (a construction and
real estate company).
SIDNEY F. McKENNA, 3707 W. Maple Road, Bloomfield Hills, Michigan, is
retired Senior Vice President of United Technologies Corporation (a major
manufacturer of aircraft engines and other industrial products).
RICHARD L. PLATTE, JR., CFA, 3707 W. Maple Road, Bloomfield Hills,
Michigan, is Executive Vice President, Secretary and Treasurer of Schwartz
Investment Counsel, Inc.
THE INVESTMENT ADVISER
- ----------------------
Schwartz Investment Counsel, Inc. (the "Adviser"), 3707 W. Maple Road,
Bloomfield Hills, Michigan, is the Fund's investment manager. George P. Schwartz
and Gregory J. Schwartz, as the controlling shareholders of the Adviser, may
directly or
- 17 -
<PAGE>
indirectly receive benefits from the advisory fees paid to the Adviser. Under
the terms of the investment advisory agreement between the Fund and the Adviser,
the Adviser manages the Fund's investments. The Fund pays the Adviser a fee
computed and accrued daily and paid quarterly at an annual rate of 1.5% of its
average daily net assets up to $75,000,000, 1.25% of such assets from
$75,000,000 to $100,000,000 and 1% of such assets in excess of $100,000,000. For
the fiscal years ended December 31, 1998, 1997 and 1996, the Fund paid advisory
fees of $1,024,114, $940,830 and $801,444, respectively.
The Fund is responsible for the payment of all expenses incurred in
connection with the registration of shares and operations of the Fund, including
fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, insurance expenses, taxes or governmental fees, fees and expenses of the
custodian, transfer agent and accounting and pricing agent of the Fund, fees and
expenses of members of the Board of Trustees who are not interested persons of
the Fund, the cost of preparing and distributing prospectuses, statements,
reports and other documents to shareholders, expenses of shareholders' meetings
and proxy solicitations, and such extraordinary or non-recurring expenses as may
arise, such as litigation to which the Fund may be a party. The Fund may have an
obligation to indemnify the Fund's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The compensation and expenses of any officer,
Trustee or employee of the Fund who is an officer, director or employee of the
Adviser are paid by the Adviser, except that the Fund reimburses all officers
and Trustees, including those who may be officers, directors or employees of the
Adviser, for actual reasonable out-of-pocket costs related to attending meetings
of the Fund's Trustees.
By its terms, the Fund's investment advisory agreement will remain in force
until January 28, 2000 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Fund, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Fund's investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by the Adviser. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.
- 18 -
<PAGE>
THE DISTRIBUTOR
- ---------------
Gregory J. Schwartz & Co., Inc. (the "Distributor") is the principal
underwriter of shares of the Fund. The Distributor is obligated to sell the
shares on a best efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous basis. The
Distributor pays from its own resources promotional expenses in connection with
the distribution of the Fund's shares and any other expenses incurred by it in
the performance of its obligations under the Underwriting Agreement with the
Fund.
Gregory J. Schwartz is principal owner of the Distributor. The Adviser
pays, out of its legitimate profits, commissions to the Distributor which are
based on gross proceeds of Fund shares purchased for which the Distributor is
responsible for recommending for investment in the Fund. Such commissions are
equal to 4%. Upon redemption of Fund shares for any reason at any time prior to
the one-year anniversary of the applicable subscription date of such shares, the
Distributor refunds to the Adviser 75% of the commission paid upon the original
purchase of such shares. Upon redemption of Fund shares after the one-year
anniversary of the applicable subscription date of such shares, but prior to the
two-year anniversary, the Distributor refunds to the Adviser 37.5% of the
commission paid upon the original purchase of such shares. For the fiscal
periods ended December 31, 1998, 1997 and 1996, the Adviser paid the Distributor
compensation of $167,426, $209,234 and $168,750, respectively, in respect to
sales of shares of the Fund to the Distributor's clients.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Fund. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received. For the fiscal years ended
December 31, 1998, 1997 and 1996, the Fund paid brokerage commissions of
$186,705, $122,882 and $138,164, respectively.
- 19 -
<PAGE>
Generally, the Fund attempts to deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Fund and/or other accounts over which the
Adviser exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to the value of the
brokerage and research services provided. The determination may be viewed in
terms of a particular transaction or the Adviser's overall responsibilities with
respect to the Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
securities for the Fund and statistical services and information with respect to
the availability of securities or purchasers or sellers of securities. Although
this information is useful to the Fund and the Adviser, it is not possible to
place a dollar value on it. Research services furnished by brokers through whom
the Fund effects securities transactions may be used by the Adviser in servicing
all of its accounts and not all such services may be used by the Adviser in
connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. Over-the-counter transactions will be
placed either directly with principal market makers or with broker-dealers.
Although the Fund does not anticipate any ongoing arrangements with any
brokerage firms, brokerage business may be transacted from time to time with
various firms. Neither the Distributor nor affiliates of the Fund, the Adviser
or the Distributor will receive reciprocal brokerage business as a result of the
brokerage business transacted by the Fund with any brokers.
CODE OF ETHICS. The Fund, the Adviser and the Underwriter have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Adviser and, as described below, imposes additional, more onerous,
restrictions on investment personnel of the Adviser. No employee may purchase or
sell any security which at the time is being purchased or sold (as the case may
be), or to the knowledge of
- 20 -
<PAGE>
the employee is being considered for purchase or sale, by the Fund. Furthermore,
the Code provides for trading "blackout periods" which prohibit trading by
investment personnel of the Adviser within periods of trading by the Fund in the
same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Adviser anticipates that the portfolio turnover rate for the Fund
normally will not exceed 100%. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate. For the fiscal years ended December 31, 1998 and 1997, the
Fund's portfolio turnover rate was 54% and 47%, respectively.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Fund is open for business.
The Fund is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Fund may also be open for business on other days in which there
is sufficient trading in the Fund's portfolio securities that its net asset
value might be materially affected. For a description of the methods used to
determine the share price, see "Calculation of Share Price" in the Prospectus.
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
- 21 -
<PAGE>
The Fund has qualified and intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify the Fund must, among
other things, (1) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (2) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
On July 19, 1993, prior to the offering of Fund shares to the public, the
Fund exchanged its shares for portfolio securities of RCM Partners Limited
Partnership, a Michigan limited partnership (the "Partnership"), after which the
Partnership dissolved and distributed the Fund shares received pro rata to its
partners. Following this exchange transaction (the "Exchange"), partners of the
Partnership constituted all of the shareholders of the Fund, except for shares
representing seed capital contributed to the Fund by the Adviser. The Exchange
was intended to qualify as a tax-free reorganization, with no gain or loss to be
recognized by the Partnership or its partners. As a result of this Exchange, the
Fund acquired securities that had appreciated in value from the date they were
originally acquired by the Partnership. If these appreciated securities are
subsequently sold, the amount of the gain will be taxable to future shareholders
as well as to shareholders who received Fund shares in the Exchange. The effect
of this for future shareholders would be to immediately tax them on a
distribution that represents a return of the purchase price of their shares
rather than an increase in the value of their investment. The effect on
shareholders who received Fund shares in the Exchange would be to reduce their
potential liability for tax on capital gains by spreading it over a larger asset
base.
- 22 -
<PAGE>
The Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction. As of December 31, 1998, the Fund had a capital loss
carryforward of $18,170 for federal income tax purposes, which expires on
December 31, 2006.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Fund is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Fund to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
- 23 -
<PAGE>
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and will include performance of the Partnership
prior to July 20, 1993. It should be noted that: (1) the quoted performance data
includes performance for periods before the Fund's registration statement became
effective; (2) the Fund was not registered under the Investment Company Act of
1940 (the "1940 Act") during such periods and therefore was not subject to
certain investment restrictions imposed by the 1940 Act; and (3) if the Fund had
been registered under the 1940 Act during such periods, performance may have
been adversely affected. The average annual total returns of the Fund for the
periods ended December 31, 1998 are as follows:
1 Year -10.38%
5 Years 8.14%
10 Years 11.46%
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The Fund may also show, for
comparative purposes and as information to Fund shareholders who previously were
partners in the Partnership, the return data for the Partnership, and may
combine such data for the year of combination. If so, such depiction will be
clearly noted in text accompanying such depiction. The Fund's total returns as
calculated in this manner for each of the past ten fiscal years are as follows:
Year Ended
December 31, 1989 8.3%
December 31, 1990 -5.3%
December 31, 1991 32.0%
December 31, 1992 22.7%
December 31, 1993 20.5%
December 31, 1994 -6.8%
December 31, 1995 16.9%
December 31, 1996 18.3%
December 31, 1997 28.0%
December 31, 1998 -10.4%
- 24 -
<PAGE>
A nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
For example, the Fund's average annual compounded rate of return for the three
years ended December 31, 1998 was 10.7% and the Fund's average annual compounded
rate of return for the fifteen years ended December 31, 1998 was 12.3%. A
nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Russell 2000 Index, the NASDAQ Composite Index and the Value
Line Composite Index. In connection with a ranking, the Funds may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Funds may also present their performance and other
investment characteristics, such as volatility or a temporary defensive posture,
in light of the Adviser's view of current or past market conditions or
historical trends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of January 31, 1999, Charles Schwab & Co., Inc. for the benefit of its
customers, 101 Montgomery Street, San Francisco, California 94104, owned of
record 10.5% of the outstanding shares of the Fund.
- 25 -
<PAGE>
As of January 31, 1999, the Trustees and officers of the Fund as a group
owned of record or beneficially 16.85% of the outstanding shares of the Fund.
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has been
retained to act as Custodian for the Fund's investments. The Fifth Third Bank
acts as the Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
AUDITORS
- --------
The firm of Deloitte & Touche LLP has been selected as independent public
accountants for the Fund for the fiscal year ending December 31, 1999. Deloitte
& Touche LLP, 1700 Courthouse Plaza Northeast, Dayton, Ohio, performs an annual
audit of the Fund's financial statements and advises the Fund as to certain
accounting matters.
COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------
The Fund's transfer agent, Countrywide Fund Services, Inc. ("Countrywide"),
312 Walnut Street, Cincinnati, Ohio, maintains the records of each shareholder's
account, processes purchases and redemptions of the Fund's shares and acts as
dividend and distribution disbursing agent. Countrywide also provides
administrative services to the Fund, calculates daily net asset value per share
and maintains such books and records as are necessary to enable Countrywide to
perform its duties. For the performance of these services, the Fund pays
Countrywide a fee at the annual rate of .22% of the average value of its daily
net assets up to $25,000,000, .2% of such assets from $25,000,000 to
$100,000,000 and .15% of such assets in excess of $100,000,000; provided,
however, that the minimum fee is $6,000 per month. In addition, the Fund pays
out-of-pocket expenses, including but not limited to, postage, stationery,
checks, drafts, forms, reports, record storage, communication lines and the
costs of external pricing services. For the fiscal years ended December 31,
1998, 1997 and 1996, the Fund paid Countrywide compensation of $141,478,
$130,486 and $111,853, respectively.
Countrywide is a wholly-owned subsidiary of Countrywide Financial Services,
Inc., which in turn is a wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending.
- 26 -
<PAGE>
ANNUAL REPORT
- -------------
The Fund's financial statements as of December 31, 1998 appear in the
Fund's annual report which is attached to this Statement of Additional
Information.
- 27 -
<PAGE>
SCHWARTZ
VALUE FUND
a series of
SCHWARTZ
INVESTMENT TRUST
[LOGO]
for the year ended
DECEMBER 31, 1998
-28-
<PAGE>
SHAREHOLDER ACCOUNTS CORPORATE OFFICES
c/o Countrywide Fund 3707 W. Maple Road
Services, Inc. Bloomfield Hills, MI 48301
P.O. Box 5354 (248) 644-8500
Cincinnati, OH 45201-5354 Fax (248) 644-4250
1-800-543-0407
[LOGO]
Schwartz Value Fund
Dear Fellow Shareowner:
I've long been intrigued by the ancient Chinese toast, "May you live in
interesting times." It's a paradoxical wish which some consider a curse. 1998
certainly proved to be interesting times for investors and in many respects, a
paradoxical year. Worldwide commodity prices went off the cliff, while Asia,
Latin America and Russia experienced chaotic economic conditions. Here at home,
while the President was being impeached, the domestic economy continued to roar
ahead with virtually no unemployment and no inflation. (What a country!) U.S.
equity markets reflected this surreal environment. In a year when more stocks
went down than up, the S&P 500 Index was up an incredible 28.6%.
This paradox was reflected in the Schwartz Value Fund's disappointing 1998
performance of -10.4%. (For the fifteen-year period ended December 31, 1998, the
compound annual rate of return was +12.3%.) Some shareholders have asked why the
Fund performed so poorly last year in relation to the quoted averages. First,
let me assure you that the Schwartz Value Fund was not managed any differently
in 1998 than in previous years. We maintained our disciplined approach of buying
small and mid-sized companies with attractive growth potential, at prices below
intrinsic value. But clearly, our lower risk, value style was totally
out-of-favor last year. The popular stock averages seemed to indicate that it
was another wonderful year for investing. However, a closer look reveals that
most stocks had astonishingly poor results last year and a small number of
high-flyers accounted for most of the gains and all of the headlines. Indeed, a
handful of mega-cap issues that dominate the indices had spectacular price
run-ups, resulting in highly stratified returns by market capitalization, as the
following table compiled by Salomon Smith Barney shows:
1998
By Capitalization Unweighted Performance
----------------- ----------------------
Less than $250 Million -24.1%
$250 Million-$2 Billion -16.6
$2 Billion-$5 Billion -6.1
$5 Billion-$20 Billion +6.2
Greater than $20 Billion +25.9
The larger the market cap, the greater the appreciation last year. In the
Russell 2000, the largest decile by size was up 41% while deciles 5 through 10
(the size of most of our companies) were down an average of 33%. Needless to
say, anyone focusing investment efforts on anything other than the largest
companies was disappointed. That was certainly our experience in managing the
Schwartz Value Fund. The outperformance of large-cap stocks over small-caps
represents a departure from the long-term norm. This aberration has had little
to do with the financial performance of the companies themselves, but instead is
the product
-29-
<PAGE>
of indexing, momentum investing and foreign investors' proclivity to buy
large-cap U.S. stocks, regardless of price. Since investment styles go through
cycles, these trends are apt to prove transitory. The narrowness of the market
leadership is cause for concern. With the S&P 500 selling at 27 times earnings
and profits generally flattening, the downside risk in big-caps is noteworthy,
since there is little room for error. If the U.S. economy enters a recessionary
period, or gets jolted by unexpected bad news on the dollar, inflation or
interest rates, things could get ugly for high-expectation stocks. Now more than
ever, we are convinced of the merits of value investing to generate favorable
long-term returns and minimize risk.
Even though the Fund was down last year, there were bright spots. Most of our
companies made good fundamental progress in their operations and improved their
financial and competitive positions, even though their shares languished from
lack of investor interest. In fact, ten issues in the portfolio appreciated 30%
or more. One large position, Sunrise Assisted Living, Inc., was up 100% in 1998.
During the year, several of our companies were acquired and other holdings were
sold at substantial profits. In the general market correction this past fall,
many stocks fell to prices not seen since the early nineties. This created an
opportunity to add to attractive holdings and to also establish new positions in
companies that were previously too expensive. New names include Impath Inc., a
leading healthcare information and service provider. The Company's consultative
services are enhanced by its extensive database of cancer cases and outcomes.
Another new holding is Strayer Education, Inc., a rapidly expanding, for-profit,
adult education company which offers post-secondary degree programs. This theme
seems to have a lot of staying power with the growing need to train and retrain
individuals for technical careers. The Fund increased its position in
Perceptron, Inc., a leader in laser and machine vision technology. With a new
generation of proprietary products rolling out in 1999, profits should be
enhanced meaningfully. These are financially powerful and growing companies with
significant appreciation prospects.
No capital gains distribution was made at year-end and the net asset value of
the Fund finished the year at $21.50 per share.
As frustrating as 1998 was, we're sticking to our discipline, confident that our
turn in the sun is coming.
Best personal regards,
SCHWARTZ VALUE FUND
/s/ George P. Schwartz
George P. Schwartz, CFA
President
February 2, 1999
The annual meeting of shareholders will be held at Bloomfield Hills Country Club
on Long Lake Road in Bloomfield Hills, Michigan on Thursday, April 22, 1999 at
10:00 A.M.
-30-
<PAGE>
Annual Total Rates of Return
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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% 22.7%
RUSSELL 2000
INDEX (B) -7.3% 31.1% 5.7% -8.8% 24.9% 16.2% -19.5% 46.0% 18.4%
NASDAQ COMPOSITE (B) -11.2% 31.4% 7.4% -5.3% 15.4% 19.3% -17.8% 56.8% 15.5%
VALUE LINE COMPOSITE (B) -8.4% 20.7% 5.0% -10.6% 15.4% 11.2% -24.3% 27.2% 7.0%
STANDARD & POORS 500 6.1% 31.6% 18.7% 5.3% 16.8% 31.6% -3.2% 30.4% 7.6%
CONSUMER
PRICE INDEX 4.3% 3.5% 1.1% 4.4% 4.4% 4.6% 6.1% 3.1% 2.9%
</TABLE>
<TABLE>
<CAPTION>
Compound Annual
Rates of Return
-----------------------
3 10 15
1993 1994 1995 1996 1997 1998 Year Year Year
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWARTZ
VALUE FUND (A) 20.5% -6.8% 16.9% 18.3% 28.0% -10.4% 10.7% 11.5% 12.3%
RUSSELL 2000
INDEX (B) 18.9% -3.2% 26.2% 14.8% 20.5% -3.5% 10.1% 12.1% 10.7%
NASDAQ COMPOSITE (B) 14.7% -3.2% 39.9% 22.7% 21.6% 39.6% 27.7% 19.1% 14.7%
VALUE LINE COMPOSITE (B) 10.7% -6.0% 19.3% 13.4% 21.1% -3.8% 9.7% 6.5% 5.6%
STANDARD & POORS 500 10.1% 1.3% 37.5% 22.9% 33.4% 28.6% 28.2% 19.2% 17.9%
CONSUMER
PRICE INDEX 2.7% 2.7% 2.6% 3.3% 1.7% 1.5% 2.2% 3.1% 3.3%
</TABLE>
- ----------------
(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.
SCHWARTZ VALUE FUND
Ten Largest Equity Holdings
December 31, 1998
Market
Shares Company Value
- ------ ------- -----
165,000 Ottawa Financial Corporation $3,506,250
180,000 Rainbow Technologies, Inc. $3,386,250
238,200 Data Research Associates, Inc. $3,334,800
300,000 Griffon Corporation $3,187,500
150,000 SPSS Inc. $2,831,250
200,000 Thomas Nelson Inc. $2,700,000
150,000 Transition Systems, Inc. $2,250,000
75,000 K-Swiss Inc. -- Class A $2,015,625
250,000 Input/Output, Inc. $1,828,125
150,000 Unico American Corporation $1,725,000
-31-
<PAGE>
SCHWARTZ VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
================================================================================
Shares COMMON STOCK -- 96.0% Value
- --------------------------------------------------------------------------------
APPAREL & TEXTILES -- 3.6%
75,000 K-Swiss Inc. -- Class A $ 2,015,625
15,000 Nautica Enterprises, Inc.* 225,000
------------
2,240,625
------------
BUILDING MATERIALS & CONSTRUCTION -- 1.6%
50,000 Gardner Denver, Inc.* 737,500
40,000 Schuler Homes, Inc.* 285,000
------------
1,022,500
------------
CONSUMER PRODUCTS -- DURABLES -- 6.5%
52,500 Craftmade International, Inc. 872,813
300,000 Griffon Corporation* 3,187,500
------------
4,060,313
------------
CONSUMER PRODUCTS -- NONDURABLES -- 4.5%
20,000 Helen of Troy Limited* 293,750
250,000 Pentech International, Inc.* 226,563
15,000 Tupperware Corporation 246,562
9,800 Velcro Industries N.V. 1,460,200
24,200 Weyco Group, Inc. 614,075
------------
2,841,150
------------
EDUCATION -- 0.8%
5,000 Childtime Learning Centers, Inc.* 73,125
15,000 Computer Learning Centers, Inc.* 100,313
15,000 Nobel Learning Communities, Inc.* 82,500
8,000 Quest Education Corporation* 80,000
2,500 Strayer Education, Inc. 88,125
25,000 Whitman Education Group, Inc.* 82,812
------------
506,875
------------
ENERGY & MINING -- 9.9%
35,000 Diamond Offshore Drilling, Inc. 829,063
40,000 Forest Oil Corporation* 340,000
400,000 Golden Star Resources Ltd.* 425,000
175,000 Inco, Ltd. -- Class VBN 885,937
250,000 Input/Output, Inc.* 1,828,125
30,000 Newmont Mining Corporation 541,875
-32-
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCK -- 96.0% Value
- --------------------------------------------------------------------------------
150,000 Patterson Energy, Inc.* $ 609,375
100,000 Sante Fe Energy Resources, Inc.* 737,500
------------
6,196,875
------------
ENVIRONMENTAL SERVICES -- 1.0%
12,400 GZA GeoEnvironmental Technologies, Inc.* 54,250
73,800 Sevenson Environmental Services, Inc. 590,400
------------
644,650
------------
FINANCE -- BANKING & THRIFTS -- 7.4%
California Federal Contingent Participation
15,000 Interests 185,625
9,375 Chemical Financial Corporation 318,750
15,000 Flagstar Bancorp, Inc. 391,875
165,000 Ottawa Financial Corporation 3,506,250
12,150 Peoples Bancorp 249,075
------------
4,651,575
------------
FINANCE -- INSURANCE -- 11.1%
30,000 Acceptance Insurance Companies Inc.* 607,500
35,000 The Commerce Group, Inc. 1,240,313
50,000 Danielson Holding Corporation* 178,125
18,700 Frontier Adjusters of America, Inc. 45,581
40,000 Leucadia National Corporation 1,260,000
15,000 Loews Corporation 1,473,750
25,000 MMI Companies, Inc. 418,750
150,000 Unico American Corporation 1,725,000
------------
6,949,019
------------
HEALTHCARE -- 9.0%
132,000 America Service Group, Inc.* 1,716,000
10,000 HCR Manor Care, Inc.* 293,750
50,000 Hologic, Inc.* 606,250
10,000 IMPATH Inc.* 265,000
10,000 Sunrise Assisted Living, Inc.* 518,750
150,000 Transition Systems, Inc.* 2,250,000
------------
5,649,750
------------
HOLDING COMPANY -- 1.8%
20,000 Maxxam Inc.* 1,147,500
------------
-33-
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCK -- 96.0% Value
- --------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS & SERVICES -- 3.9%
20,000 Greif Brothers Corporation -- Class A $ 583,750
50,000 Maritrans Inc. 328,125
75,000 United Dominion Industries, Ltd. 1,528,125
------------
2,440,000
------------
PRINTING & PUBLISHING -- 4.9%
200,000 Thomas Nelson, Inc. 2,700,000
465 The Detroit Legal News Company 67,890
7,200 Value Line, Inc. 283,500
------------
3,051,390
------------
REAL ESTATE -- .6%
16,499 I. Gordon Realty Corporation* 150,553
15 LaFourche Realty Coompany, Inc. 78,000
10,000 Malan Realty Investors, Inc. 158,750
------------
387,303
------------
RETAIL -- 1.4%
125,000 Charming Shoppes, Inc.* 539,063
47,000 Ellett Brothers, Inc. 217,375
20,000 The Good Guys, Inc.* 128,750
------------
885,188
------------
TECHNOLOGY & ELECTRONICS -- 21.1%
33,500 Astrosystems, Inc.* 83,750
238,200 Data Research Associates, Inc. 3,334,800
25,000 Littelfuse, Inc.* 481,250
15,600 LoJack Corporation* 185,250
200,000 Perceptron, Inc.* 1,325,000
180,000 Rainbow Technologies, Inc.* 3,386,250
150,000 SPSS, Inc.* 2,831,250
60,000 Universal Electronics Inc.* 645,000
125,000 X-Rite, Incorporated 968,750
------------
13,241,300
------------
-34-
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
Shares COMMON STOCK -- 96.0% Value
- --------------------------------------------------------------------------------
TRANSPORTATION -- 2.8%
25,000 Aviall, Inc.* $ 293,750
50,000 Providence & Worcester Railroad Company 625,000
114,300 The Morgan Group, Inc. -- Class A 842,962
------------
1,761,712
------------
MISCELLANEOUS -- .1%
12,500 Bull & Bear Group, Inc. -- Class A* 37,500
------------
CLOSED-END FUNDS -- 4.0%
300,000 Royce Global Trust, Inc. 1,462,500
38,700 Royce Micro-Cap Trust, Inc.* 343,462
40,000 Scudder New Europe Fund, Inc. 705,000
------------
2,510,962
------------
TOTAL COMMON STOCK (Cost $50,483,072) 60,226,187
------------
PREFERRED STOCK -- .2% (Cost $132,739)
Telos Corporation, 12% Cumulative
35,000 Exchangable Preferred* 105,000
------------
Par Value
- ---------
CORPORATE BONDS -- 1.6% (Cost $1,052,500)
$ 1,000,000 Whittaker Corp., 7.00%, 5/01/05 990,000
------------
REPURCHASE AGREEMENTS((1)) -- 2.6% (Cost $1,647,000)
1,647,000 Fifth Third Bank, 3.82%, dated 12/31/98, due
01/04/99 repurchase proceeds: 1,647,000
------------
TOTAL INVESTMENTS -- 100.4% (Cost $53,315,311) 62,968,187
------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4)% (270,758)
------------
NET ASSETS -- 100.0% $ 62,697,429
============
* Non-income producing securities.
(1) Repurchase agreements are fully collateralized by U.S. Government agency
obligations.
See notes to financial statements.
-35-
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
===============================================================================
ASSETS
Investments, at market value (cost of $53,315,311)
(Note 1) ................................................. $ 62,968,187
Cash ....................................................... 4,122
Receivable for securities sold ............................. 158,995
Receivable for capital shares sold ......................... 4,570
Dividends receivable ....................................... 168,486
Interest receivable ........................................ 11,841
Other assets ............................................... 32,269
------------
TOTAL ASSETS ........................................... 63,348,470
============
LIABILITIES
Payable for capital shares redeemed ........................ 5,440
Payable for securities purchased ........................... 381,757
Accrued investment advisory fees (Note 2) .................. 227,212
Other accrued expenses and liabilities ..................... 36,632
------------
TOTAL LIABILITIES ...................................... 651,041
------------
NET ASSETS ................................................. $ 62,697,429
============
NET ASSETS CONSIST OF
Paid-in capital ............................................ $ 53,723,650
Accumulated net realized losses from security
transactions ............................................. (679,097)
Net unrealized appreciation on investments ................. 9,652,876
------------
NET ASSETS ................................................. $ 62,697,429
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ............... 2,916,734
============
Net asset value, redemption price, and offering price
per share .................................................. $ 21.50
============
See notes to financial statements.
-36-
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
INVESTMENT INCOME
Dividends ................................................. $ 592,326
Interest .................................................. 466,168
-----------
TOTAL INVESTMENT INCOME ................................. 1,058,494
-----------
EXPENSES
Investment advisory fees (Note 2) ......................... 1,024,114
Administration, accounting and transfer agent fees
(Note 2) ................................................ 141,478
Trustees' fees and expenses ............................... 50,838
Legal and audit fees ...................................... 33,912
Registration fees ......................................... 25,272
Insurance expense ......................................... 18,988
Reports to shareholders ................................... 10,730
Custodian fees ............................................ 8,016
Other expenses ............................................ 8,276
-----------
TOTAL EXPENSES .......................................... 1,321,624
NET INVESTMENT LOSS ......................................... (263,130)
-----------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized losses on investments ........................ (542,124)
Net change in unrealized depreciation on
investments ............................................. (7,053,405)
-----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS ........... (7,595,529)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS .................. $(7,858,659)
===========
See notes to financial statements.
-37-
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
=========================================================================================
1998 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C>
Net investment income (loss) ......................... $ (263,130) $ 148,105
Net realized gains (losses) on investments ........... (542,124) 7,830,848
Net change in unrealized appreciation/depreciation
on investments ..................................... (7,053,405) 7,620,060
------------ ------------
Net increase (decrease) in net assets from operations .. (7,858,659) 15,599,013
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........................... -- (148,105)
From net realized gains on investments ............... -- (7,879,894)
In excess of net realized gains on investments ....... -- (136,973)
------------ ------------
Net decrease in net assets from distributions to
shareholders ......................................... -- (8,164,972)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS((A))
Proceeds from shares sold ............................ 8,246,596 7,555,701
Reinvestment of distributions to shareholders ........ -- 7,588,008
Payments for shares redeemed ......................... (7,657,068) (7,716,318)
------------ ------------
Net increase in net assets from capital share
transactions ......................................... 589,528 7,427,391
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................ (7,269,131) 14,861,432
NET ASSETS
Beginning of year .................................... 69,966,560 55,105,128
------------ ------------
End of year .......................................... $ 62,697,429 $ 69,966,560
UNDISTRIBUTED NET INVESTMENT INCOME .................... $ -- $ --
============ ============
(A) SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ....................................... 344,319 324,868
Shares issued in reinvestment of distributions
to shareholders ................................ -- 316,298
Shares redeemed ................................... (343,575) (326,230)
------------ ------------
Net increase in shares outstanding ................ 744 314,936
Shares outstanding, beginning of year ............. 2,915,990 2,601,054
------------ ------------
Shares outstanding, end of year ................... 2,916,734 2,915,990
============ ============
</TABLE>
See notes to financial statements.
-38-
<PAGE>
<TABLE>
<CAPTION>
SCHWARTZ VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=========================================================================================================
Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year ...................... $ 23.99 $ 21.19 $ 19.66 $ 18.12 $ 20.97
--------- --------- --------- --------- ---------
Income from investment
operations:
Net investment income
(loss) ................... (0.09) 0.06 (0.02) (0.03) (0.05)
Net realized and
unrealized gains
(losses) on investments .. (2.40) 5.88 3.61 3.09 (1.37)
--------- --------- --------- --------- ---------
Total from investment
operations ................... (2.49) 5.94 3.59 3.06 (1.42)
--------- --------- --------- --------- ---------
Less distributions:
From net investment income ... -- (0.06) -- -- --
From net realized gains on
investments ................ -- (3.03) (2.06) (1.52) (1.36)
In excess of net realized
gains on investments ....... -- (0.05) -- -- (0.07)
--------- --------- --------- --------- ---------
Total distributions ............ -- (3.14) (2.06) (1.52) (1.43)
Net asset value at end of
year ......................... $ 21.50 $ 23.99 $ 21.19 $ 19.66 18.12
========= ========= ========= ========= =========
Total return ................... (10.4)% 28.0% 18.3% 16.9% (6.8)%
========= ========= ========= ========= =========
Ratios/Supplementary Data:
Ratio of expenses to average
net assets ................... 1.94% 1.91% 1.97% 2.00% 2.01%
Ratio of net investment
income (loss) to average
net assets ................... (0.39)% 0.24% (0.08)% (0.18)% (0.36)%
Portfolio turnover rate ........ 54% 47% 50% 70% 78%
Net assets at end of year
(000's) ...................... $ 62,697 69,967 $ 55,105 $ 53,137 $ 45,097
</TABLE>
- ----------------
(A) Commencement of operations.
(B) Not annualized.
(C) Annualized.
See notes to financial statements.
-39-
<PAGE>
SCHWARTZ VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
===============================================================================
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 small cap value stocks. This investment in
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 or excise 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 statements of changes and 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. Net investment losses, for tax purposes, are reclassified to
paid in capital.
(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. Discount and premiums on securities purchased are
amortized in accordance with income tax regulations, which approximates
generally accepted accounting principles.
-40-
<PAGE>
(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 may enter into repurchase agreements
(agreements to purchase securities subject to the seller's agreement to
repurchase them at a specified time and price) with well-established
registered securities dealers or banks. Repurchase agreements are the
equivalent of loans by the Fund. The Fund's policy is 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 the agreement.
(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.
The Distributor is the primary 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
Cost of purchases and proceeds from sales and maturities of investments other
than short-term investments, for the year ended December 31, 1998 were
$38,613,325 and $33,699,036, respectively.
4. FEDERAL INCOME TAXES
As of December 31, 1998, net unrealized appreciation of securities was
$8,991,949 for federal income tax purposes of which $12,883,935 related to
appreciated securities and $3,891,986 related to depreciated securities. The
aggregate cost of investments at December 31,1998, for federal income tax
purposes was $53,976,238. At December 31, 1998, the Fund had a capital loss
carryforward of $18,170 for Federal income tax purposes, expiring December 31,
2006. This carryforward is available to offset future capital gains, if any.
-41-
<PAGE>
INDEPENDENT AUDITORS' REPORT
===============================================================================
To the Shareholders and Trustees of
Schwartz Value Fund:
We have audited the accompanying statement of assets and liabilities of Schwartz
Value Fund (the "Fund"), including the schedule of investments, as of December
31, 1998, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Funds'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, 1998, 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 referred to
above present fairly, in all material respects, the financial position of
Schwartz Value Fund as of December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
January 15, 1998
-42-
<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.
-43-
<PAGE>
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, V.P./Secretary/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.
-44-
<PAGE>
SCHWARTZ INVESTMENT TRUST
-------------------------
PART C. OTHER INFORMATION
-----------------
Item 23. Exhibits
- -------- --------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of
Trust and Bylaws
(d) Advisory Agreement with Schwartz Investment Counsel, Inc.*
(e) Underwriting Agreement with Gregory J. Schwartz & Co., Inc.*
(f) Inapplicable
(g) Custody Agreement with The Fifth Third Bank*
(h) Administration, Accounting and Transfer Agency Agreement
with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel relating to Issuance of
Shares
(j) Consent of Independent Public Accountants
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Inapplicable
(n) Financial Data Schedule*
(o) Inapplicable
- ------------------------------
* Incorporated by reference to Registration Statement on Form N-1A previously
filed.
Item 24. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is directly or indirectly controlled by or under common
control with the Registrant.
<PAGE>
Item 25. Indemnification
- -------- ---------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. The Trust
shall indemnify each of its Trustees and officers, including persons
who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities, including but not limited
to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and expenses, including reasonable accountants'
and counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee,
and except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Section 6.5 ADVANCES OF EXPENSES. The Trust shall advance attorneys'
fees or other expenses incurred by a Covered Person in defending a
proceeding to the full extent permitted by the Securities Act of 1933,
as amended, the 1940 Act, and Ohio Revised Code Chapter 1707, as
amended. In the event any of these laws conflict with Ohio Revised
Code Section 1701.13(E), as amended, these laws, and not Ohio Revised
Code Section 1701.13(E), shall govern.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of
or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VI, "Covered Person" shall include
such person's heirs, executors and administrators. Nothing contained
in this article shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the
power of the Trust to purchase and maintain liability insurance on
behalf of any such person."
- 2 -
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability policy. The
policy provides coverage to the Registrant, its Trustees and officers,
its Adviser and its Underwriter. Coverage under the policy includes
losses by reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
The Advisory Agreement with Schwartz Investment Counsel, Inc. (the
"Adviser") provides that the Adviser shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by the Agreement,
or in accordance with (or in the absence of) specific directions or
instructions from Registrant, provided, however, that such acts or
omissions shall not have resulted from Adviser's willful misfeasance,
bad faith or gross negligence, a violation of the standard of care
established by and applicable to the Adviser in its actions under the
Agreement or breach of its duty or of its obligations thereunder.
The Underwriting Agreement with Gregory J. Schwartz & Co., Inc. (the
"Distributor") provides that the Distributor, its directors, officers,
employees, partners, shareholders and control persons shall not be
- 3 -
<PAGE>
liable for any error of judgment or mistake of law or for any loss
suffered by Registrant in connection with the matters to which the
Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of any of such persons in
the performance of Distributor's duties or from the reckless disregard
by any of such persons of Distributor's obligations and duties under
the Agreement. Registrant will advance attorneys' fees or other
expenses incurred by any such person in defending a proceeding, upon
the undertaking by or on behalf of such person to repay the advance if
it is ultimately determined that such person is not entitled to
indemnification.
Notwithstanding any provisions to the contrary in Registrant's
Agreement and Declaration of Trust, in Ohio law or in the Advisory
Agreement and the Underwriting Agreement, Registrant will not
indemnify its Trustees and officers, the Adviser or the Distributor
for any liability to the Registrant or its shareholders to which such
persons would otherwise be subject unless (1) a final decision on the
merits is made by a court or other body before whom the proceeding was
brought that the person to be indemnified ("indemnitee") was not
liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of duties ("disabling conduct") or (2) in the
absence of such a decision, a reasonable determination is made, based
upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of Registrant as
defined in the Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party Trustees"), or (b) an
independent legal counsel in a written opinion. Registrant may advance
attorneys' fees or other expenses incurred by the indemnitee in
defending a proceeding, upon the undertaking by or on behalf of the
indemnitee to repay the advance unless it is ultimately determined
that he is entitled to indemnification, so long as one of the
following conditions is met: (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the disinterested, non-party Trustees, or an
independent legal counsel in a written opinion, shall determine, based
on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
- 4 -
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
(a) The Adviser was organized in 1980 and has assets under management
of approximately $215 million as of December 31, 1998. The
Adviser served as the investment adviser to RCM Partners Limited
Partnership, the predecessor entity to the Fund.
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Gregory J. Schwartz -- President and Chief Executive Officer of
Gregory J. Schwartz & Co., Inc. (an investment banking firm and
the Registrant's principal underwriter).
(ii) George P. Schwartz
(iii) Richard L. Platte, Jr.
(iv) Robert M. Dailey
(v) George O. Sertl
The business address of each director and officer of the Adviser is
3707 W. Maple Road, Bloomfield Hills, Michigan 48301.
Item 27. Principal Underwriters
- -------- ----------------------
(a) Inapplicable
Position Position
with with
(b) Name Distributor Registrant
---- ----------- ----------
Gregory J. Schwartz President/ Chairman of
Director the Board
Judith M. Schwartz Director None
Stella Z. Pappas Vice President None
Joseph E. Schwartz Treasurer None
Walter G. Schwartz Director None
Gregory J. Schwartz, Jr. Director None
Edward A. Schwartz Secretary None
The address of all of the above-named persons is 3707 W. Maple Road,
Bloomfield Hills, Michigan 48301.
(c) Inapplicable
- 5 -
<PAGE>
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 3707 W. Maple Road, Bloomfield Hills, Michigan
48301 or at the offices of the Registrant's transfer agent located at
312 Walnut Street, Cincinnati, Ohio 45202.
Item 29. Management Services Not Discussed in Parts A or B
- -------- -------------------------------------------------
Inapplicable
Item 30. Undertakings
- -------- ------------
Inapplicable
- 6 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Bloomfield Hills and State of Michigan
on the 5th day of May, 1999.
SCHWARTZ INVESTMENT TRUST
By: /s/ George P. Schwartz
----------------------
George P. Schwartz
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gregory J. Schwartz
- ----------------------------- Chairman of May 5, 1999
Gregory J. Schwartz the Board
and Trustee
/s/ George P. Schwartz
- ----------------------------- President May 5, 1999
George P. Schwartz and Trustee
/s/ Richard L. Platte, Jr.
- ----------------------------- Vice President, May 5, 1999
Richard L. Platte, Jr. Secretary and
Treasurer
- ----------------------------- Trustee /s/ George P. Schwartz
Donald J. Dawson, Jr.* ----------------------
George P. Schwartz
Attorney-in-fact*
May 5, 1999
- ----------------------------- Trustee
Fred A. Erb*
- ----------------------------- Trustee
Sidney F. McKenna*
- ----------------------------- Trustee
John J. McHale*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of Trust and
Bylaws
(d) Advisory Agreement*
(e) Underwriting Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h) Administration, Accounting and Transfer Agency Agreement*
(i) Opinion and Consent of Counsel Relating to Issuance of Shares
(j) Consent of Independent Public Accountants
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Inapplicable
(n) Financial Data Schedule*
(o) Inapplicable
* Incorporated by reference to Registration Statement on Form N-1A previously
filed.
COUNTRYWIDE
FUND SERVICES, INC.
May 3, 1999
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
Ladies and Gentlemen:
You have requested my opinion in connection with the registration by Schwartz
Investment Trust, an Ohio business trust (the "Trust"), of an indefinite number
of shares of beneficial interest of the Trust (the "Shares") authorized by the
Trust's Agreement and Declaration of Trust, which has been filed with the
Securities and Exchange Commission as an exhibit to the Trust's registration
statement on Form N-1A (File No. 33-51626), as amended (the "Registration
Statement"), under the Securities Act of 1933 and the Investment Company Act of
1940.
I have examined and relied upon originals or copies, certified or otherwise
identified to my satisfaction, of such records, agreements, documents and other
instruments and certificates or comparable documents of public officials and of
officers and representatives of the Trust, and I have made such inquiries of the
officers and representatives of the Trust, as I have deemed relevant and
necessary as the basis for the opinion hereinafter set forth.
In such examination, I have assumed, without independent verification, the
genuineness of all signatures (whether original or photostatic) and the
authenticity of all documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified or
photostatic copies. As to all questions of fact material to such opinion, I have
relied upon the certificates referred to hereinabove. I have assumed, without
independent verification, the accuracy of the relevant facts stated therein.
This letter expresses my opinion as to the provisions of the Trust's Agreement
and Declaration of Trust and the laws of the State of Ohio applying to business
trusts generally, but does not extend to the Ohio Securities Act or to federal
securities or other laws.
312 Walnut Street o Cincinnati, Ohio 45202 o 513.629.2000 o 800.543.8721
<PAGE>
Schwartz Investment Trust
May 3, 1999
Page Two
Based on the foregoing, and subject to the qualifications set forth herein, I am
of the opinion that the Shares have been duly and validly authorized, and, when
issued and delivered as described in the Registration Statement, will be fully
paid and nonassessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, I do not thereby admit that I come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or under the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Tina D. Hosking
Tina D. Hosking
Counsel
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 8 to Registration
Statement under the Securities Act of 1933 filed under Registration Statement
No. 33-51626 of our report dated Janusry 15, 1999, relating to Schwartz Value
Fund appearing in the Statement of Additional Information, which is part of such
Registration Statement, and to the reference to us under the captions "Auditors"
and "Financial Highlights" in such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 3, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000891160
<NAME> SCHWARTZ INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 53,315,311
<INVESTMENTS-AT-VALUE> 62,968,187
<RECEIVABLES> 343,892
<ASSETS-OTHER> 32,269
<OTHER-ITEMS-ASSETS> 4,122
<TOTAL-ASSETS> 63,348,470
<PAYABLE-FOR-SECURITIES> 381,757
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 269,284
<TOTAL-LIABILITIES> 651,041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,723,650
<SHARES-COMMON-STOCK> 2,916,734
<SHARES-COMMON-PRIOR> 2,915,990
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (679,097)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,652,876
<NET-ASSETS> 62,697,429
<DIVIDEND-INCOME> 592,326
<INTEREST-INCOME> 466,168
<OTHER-INCOME> 0
<EXPENSES-NET> 1,321,624
<NET-INVESTMENT-INCOME> (263,130)
<REALIZED-GAINS-CURRENT> (542,124)
<APPREC-INCREASE-CURRENT> (7,053,405)
<NET-CHANGE-FROM-OPS> 7,858,659)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344,319
<NUMBER-OF-SHARES-REDEEMED> 343,575
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,269,131)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 136,973
<GROSS-ADVISORY-FEES> 1,024,114
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,321,624
<AVERAGE-NET-ASSETS> 68,254,334
<PER-SHARE-NAV-BEGIN> 23.99
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> (2.40)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.50
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
