August 21, 2000
SCHWARTZ VALUE FUND
SUPPLEMENT TO PROSPECTUS
The Prospectus, dated May 1, 2000, of the Schwartz Value Fund (the "Fund")
is hereby amended to reflect the following new information:
New Transfer Agent
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The Fund has appointed Ultimus Fund Solutions, LLC as the new transfer agent of
the Fund.
Address of Fund
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Inquiries concerning the Fund or shareholder accounts, and orders to purchase or
redeem shares of the Fund should now be addressed to:
Schwartz Value Fund
c/o Ultimus Fund Solutions, LLC
P.O. Box 46707
Cincinnati, Ohio 45246
For persons desiring to invest in the Fund by bank wire, your bank should now
use the following wire instructions:
Fifth Third Bank
ABA #042 000 314
Attn: Schwartz Value Fund
Acct# 999-43227
For further credit to: [shareholder's name and Acct.#]
For further information concerning purchases or redemptions of Fund shares, see
"How to Purchase Shares" and "How to Redeem Shares" in the Prospectus.
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SCHWARTZ INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
REVISED AUGUST 21, 2000
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 1,
2000. 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.
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STATEMENT OF ADDITIONAL INFORMATION
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
TABLE OF CONTENTS
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THE FUND.......................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................3
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS........................8
INVESTMENT LIMITATIONS........................................................12
TRUSTEES AND OFFICERS.........................................................14
THE INVESTMENT ADVISER........................................................15
THE DISTRIBUTOR...............................................................16
SECURITIES TRANSACTIONS.......................................................16
PORTFOLIO TURNOVER............................................................18
CALCULATION OF SHARE PRICE....................................................18
TAXES.........................................................................18
REDEMPTION IN KIND............................................................19
HISTORICAL PERFORMANCE INFORMATION............................................20
PRINCIPAL SECURITY HOLDERS....................................................21
CUSTODIAN.....................................................................22
AUDITORS......................................................................22
TRANSFER AGENT................................................................22
ANNUAL REPORT.................................................................22
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THE FUND
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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.
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
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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 (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
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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, 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
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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
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 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
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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 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 not 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
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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.
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
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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.
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
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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
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.
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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.
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 securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise. As a result, the
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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.
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
-12-
<PAGE>
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 of 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.
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.
-13-
<PAGE>
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, 1999. 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 58 Chairman of the Board/Trustee $ 0
*George P. Schwartz, CFA 55 President/Trustee 0
+Donald J. Dawson, Jr. 53 Trustee 7,000
+Fred A. Erb 77 Trustee 7,000
+John J. McHale 78 Trustee 7,000
+Sidney F. McKenna 77 Trustee 7,000
Richard L. Platte, Jr., CFA 49 Vice President and Secretary 0
Timothy S. Schwartz 28 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.
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).
-14-
<PAGE>
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.
TIMOTHY S. SCHWARTZ 3707 W. Maple Road, Bloomfield Hills, Michigan, is a
member of Schwartz Investment Counsel, Inc. He assists the Adviser in the
day-to-day operations of the Fund.
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 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, 1999, 1998 and 1997, the
Fund paid advisory fees of $796,035, $1,024,114, and $940,830, 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.
-15-
<PAGE>
By its terms, the Fund's investment advisory agreement will remain in force
until January 28, 2001 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.
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, 1999, 1998 and 1997, the Adviser paid the Distributor
compensation of $84,936, $167,426 and $209,234, 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, 1999, 1998 and 1997, the Fund paid brokerage commissions of
$193,191, $186,705 and $122,882, respectively.
Generally, the Fund attempts to deal directly with the dealers who make a
market in the
-16-
<PAGE>
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 Distributor have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Codes
significantly restricts the personal investing activities of all employees of
the Fund, the Adviser and the Distributor and, as described below, imposes
additional, more onerous, restrictions on investment personnel. 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 the employee is being considered for
purchase or sale, by the Fund. Furthermore, the Codes each provide for trading
"blackout periods" which prohibit trading by investment personnel within periods
of trading by the Fund in the same (or equivalent) security.
-17-
<PAGE>
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, 1999 and 1998, the
Fund's portfolio turnover rate was 59% and 54%, 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.
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).
-18-
<PAGE>
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.
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, 1999, the Fund had no capital loss
carryforwards for federal income tax purposes.
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
------------------
The Fund, when it is deemed to be in the shareholders best interests, 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.
-19-
<PAGE>
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:
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, 1999 are as follows:
1 Year -2.45%
5 Years 9.12%
10 Years 10.30%
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:
-20-
<PAGE>
Year Ended
----------
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%
December 31, 1999 -2.45%
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, 1999 was 3.83%. 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 April 14, 2000, Community Support Corporation, 958 Western Avenue,
Joliet, Illinois 60435, owned of record 5.79% of the outstanding shares of the
Fund.
-21-
<PAGE>
As of April 14, 2000, the Trustees and officers of the Fund as a group
owned of record or beneficially 4.16% 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, 2000. 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.
TRANSFER AGENT
--------------
The Fund's transfer agent, Ultimus Fund Solutions, LLC ("Ultimus"), 135
Merchant Street, Suite 230, Cincinnati, Ohio 45246, 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. Ultimus 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
Ultimus to perform its duties. For the performance of these services, the Fund
pays Ultimus a fee at the annual rate of .15% of the average value of its daily
net assets, provided, however, that the minimum fee is $4,000 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.
Prior to August 21, 2000, Integrated Fund Services, Inc. ("Integrated"),
312 Walnut Street, Cincinnati, Ohio, served as the Fund's transfer agent,
administrator and fund accounting agent. Integrated is a wholly-owned indirect
subsidiary of The Western and Southern Life Insurance Company. For the fiscal
years ended December 31, 1999, 1998 and 1997, the Fund paid Integrated
compensation of $111,129, $141,478 and $130,486, respectively.
ANNUAL REPORT
-------------
The Fund's financial statements as of December 31, 1999 appear in the
Fund's annual report which is attached to this Statement of Additional
Information.
<PAGE>
SCHWARTZ
VALUE FUND
a series of
SCHWARTZ
INVESTMENT TRUST
ANNUAL REPORT
for the year ended
DECEMBER 31, 1999
<PAGE>
SHAREHOLDER ACCOUNTS CORPORATE OFFICES
-------------------- -----------------
c/o Countrywide Fund 3707 W. Maple Road
Services, Inc. Bloomfield Hills, MI 48301
P.O. Box 5354 Schwartz Value Fund (248) 644-8500
Cincinnati, OH 45201-5354 Fax (248) 644-4250
1-800-543-0407
Dear Fellow Shareowner:
In many ways, 1999 was a repeat of 1998. Looking at the equity indexes, one
would assume the financial markets did extremely well in 1999. They did not.
Even though the Dow was up 25.2%, the S&P 500 up 21.0%, and the NASDAQ up an
astounding 85.5%, most stocks went down in 1999. The averages were again driven
by a few heavily weighted, high-priced technology issues. More than 50% of the
stocks on the NYSE, the S&P 500 and the NASDAQ declined in 1999. Traditional
measures of valuation lost their relevance. The IPO market sizzled and a bubble
grew to encompass the techs and Internets. At year-end, a full-fledged mania was
driving these sectors and the ten largest companies in the S&P were selling for
54 times estimated earnings, leaving little room for error. The equity market
was one of haves and have-nots; a few stocks with high prices and higher
expectations, and the great majority of stocks no one cared about. This was a
continuation of the trend in recent years of investors' preference for large-cap
issues and the avoidance of small-caps, especially small-cap value. Even in the
Russell 2000 Index, results were highly stratified. The Growth component of the
Russell, which is heavily weighted toward technology, was up 43% while the Value
component was down 1.5% in 1999. Bond investors got off no better than most
stock investors last year. The total return on long Treasuries was negative
15.1%. It was the second worst year for bonds since 1973.
In this very mixed environment, Schwartz Value Fund was down 2.5% in 1999. With
the popular stock averages soaring, it was a frustrating year for those of us
concerned with operating fundamentals and managing portfolio risk. Despite the
Fund being down last year, most of our companies improved their financial and
competitive positions.
With the market's single-minded infatuation with large-cap growth stocks, there
has been a great leveling of many small and mid-cap issues. This has created the
opportunity to purchase stocks of larger and better companies at little or no
premium. These companies are frequently industry leaders with excellent growth
prospects. The added liquidity of their stocks further enhances their appeal. We
have taken advantage of this opportunity and in a number of cases have already
seen some price appreciation reflecting these favorable characteristics.
Examples include Nova Corporation, which has gone from our cost of $23 to $32,
NCR Corporation from a cost of $30 to $39, Barra, Inc. from $23 to $36 and RSA
Security from our cost of $18 to $50. Positions have been established in
information technology, housing, real estate and selected financial service
companies. Exposure to underperforming issues has been reduced in healthcare and
consumer goods industries. These portfolio changes began to bear fruit late last
year with the Schwartz Value Fund returning +2.8% during the fourth quarter of
1999 versus the Russell 2000 Value Index of +1.5%.
The current period of economic prosperity is now going into the record books as
the longest ever. There is no apparent reason to predict an immediate end to the
expansion of the economy, but there is a danger. If the stock prices of the
popular market leaders unwind in a serious way
<PAGE>
this year, there could be a spillover effect on the broader economy. (The wealth
effect played out in reverse.) In that environment, investors would certainly
become more conscious of risk, and favor current earnings over the mere
possibility of future earnings. An increased appreciation of risk would be a
boon to the value sector. There are some signs that a rotation favoring value
has already begun, witness the extreme volatility of tech and Internet shares in
recent weeks. If this trend continues, Schwartz Value Fund will be a
beneficiary. It's overdue.
Thanks for investing in the Schwartz Value Fund. Among the many funds in which
you could invest, I think you've made a wise decision to put a portion of your
assets in this vehicle. In the period ahead, that choice may prove especially
wise.
With best regards,
SCHWARTZ VALUE FUND
/s/ George P. Schwartz
George P. Schwartz, CFA
President
February 7, 2000
P.S. A capital gain distribution, representing realized long-term gains of $1.23
per share, was paid December 31, 1999 and the Fund finished the year with a net
asset value of $19.74 per share.
2
<PAGE>
Annual Total Rates of Return
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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% 20.5%
RUSSELL 2000 VALUE(B) -1.4% 26.5% 4.9% -9.1% 26.0% 9.6% -24.3% 38.0% 26.3% 21.5%
RUSSELL 2000 GROWTH(B) -17.0% 29.3% 2.6% -11.4% 18.8% 19.0% -18.5% 49.6% 6.8% 12.5%
RUSSELL 2000 INDEX(B) -7.3% 31.1% 5.7% -8.8% 24.9% 16.2% -19.5% 46.0% 18.4% 18.9%
NASDAQ COMPOSITE(B) -11.2% 31.4% 7.4% -5.3% 15.4% 19.3% -17.8% 56.8% 15.5% 14.7%
VALUE LINE COMPOSITE(B) -8.4% 20.7% 5.0% -10.6% 15.4% 11.2% -24.3% 27.2% 7.0% 10.7%
STANDARD & POORS 500 6.1% 31.6% 18.7% 5.3% 16.8% 31.6% -3.2% 30.4% 7.6% 10.1%
CONSUMER PRICE INDEX 4.3% 3.5% 1.1% 4.4% 4.4% 4.6% 6.1% 3.1% 2.9% 2.7%
<CAPTION>
Compound Annual
Rates of Return
--------------------------
1994 1995 1996 1997 1998 1999 3 Year 10 Year 16 Year
---- ---- ---- ---- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWARTZ VALUE FUND(A) -6.8% 16.9% 18.3% 28.0% -10.4% -2.5% 3.8% 10.3% 11.3%
RUSSELL 2000 VALUE(B) -3.7% 22.7% 18.4% 28.9% -8.5% -1.5% 5.1% 10.0% 9.5%
RUSSELL 2000 GROWTH(B) -3.1% 30.1% 10.7% 12.5% 0.8% 42.5% 17.3% 12.7% 9.9%
RUSSELL 2000 INDEX(B) -3.2% 26.2% 14.8% 20.5% -3.5% 19.6% 11.6% 12.4% 11.2%
NASDAQ COMPOSITE(B) -3.2% 39.9% 22.7% 21.6% 39.6% 85.5% 46.6% 24.5% 18.2%
VALUE LINE COMPOSITE(B) -6.0% 19.3% 13.4% 21.1% -3.8% -1.4% 4.7% 5.2% 5.1%
STANDARD & POORS 500 1.3% 37.5% 22.9% 33.4% 28.6% 21.0% 27.6% 18.2% 18.1%
CONSUMER PRICE INDEX 2.7% 2.6% 3.3% 1.7% 1.5% 2.7% 2.0% 2.9% 3.2%
</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.
3
<PAGE>
SCHWARTZ VALUE FUND
Ten Largest Equity Holdings
December 31, 1999
Market
Shares Company Value
------ ------- ------
105,000 SPSS Inc. $2,651,250
125,000 Ottawa Financial Corporation $2,265,625
150,000 Malan Realty Investors, Inc. $2,006,250
240,000 Data Research Associates, Inc. $1,920,000
75,000 Rainbow Technologies, Inc. $1,743,750
35,000 Universal Electronics, Inc. $1,610,000
300,000 Input/Output, Inc. $1,518,750
160,000 Griffon Corporation $1,250,000
250,000 Royce Focus Trust $1,179,688
125,000 Thomas Nelson, Inc. $1,156,250
4
<PAGE>
SCHWARTZ VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
--------------------------------------------------------------------------------
Shares COMMON STOCK -- 92.3% Value
------ --------------------- -----
APPAREL & TEXTILES -- .9%
10,000 K-Swiss Inc. -- Class A $ 185,781
15,000 Nautica Enterprises, Inc.* 169,687
-----------
355,468
-----------
BUILDING MATERIALS & CONSTRUCTION -- 1.8%
15,000 Champion Enterprises, Inc.* 128,437
25,000 Gardner Denver, Inc.* 417,187
30,000 Schuler Homes, Inc.* 195,000
-----------
740,624
-----------
BUSINESS & INDUSTRIAL PRODUCTS -- .2%
3,000 AptarGroup, Inc. 75,375
-----------
BUSINESS SERVICES -- 1.4%
7,500 Convergys Corporation* 230,625
7,500 NOVA Corporation* 236,719
10,000 The ServiceMaster Company 123,125
-----------
590,469
-----------
COMMUNICATION EQUIPMENT & SERVICES -- 4.8%
10,000 Advanced Communication Systems, Inc.* 191,250
6,100 Datron Systems Incorporated* 51,850
25,000 LoJack Corporation* 168,750
35,000 Universal Electronics Inc.* 1,610,000
-----------
2,021,850
-----------
COMPUTER EQUIPMENT & SERVICES -- 2.8%
50,000 Mechanical Dynamics, Inc.* 256,250
17,500 NCR Corporation* 662,813
7,500 National Data Corporation 254,531
-----------
1,173,594
-----------
5
<PAGE>
CONSUMER PRODUCTS -- DURABLES -- 6.0%
100,000 Craftmade International, Inc. 725,000
160,000 Griffon Corporation* 1,250,000
50,000 HMI Industries Inc.* 53,125
27,500 La-Z-Boy Incorporated 462,344
-----------
2,490,469
-----------
CONSUMER PRODUCTS -- NONDURABLES -- 3.2%
20,000 Helen of Troy Limited * 145,000
54,500 Velcro Industries N.V. 657,406
20,000 Weyco Group, Inc. 513,750
-----------
1,316,156
-----------
EDUCATION -- 2.1%
10,000 Childtime Learning Centers, Inc.* 123,750
5,000 DeVRY, Inc.* 93,125
20,000 Nobel Learning Communities, Inc.* 145,000
11,300 Quest Education Corporation* 98,875
10,000 Strayer Education, Inc. 197,500
75,000 Whitman Education Group, Inc.* 206,250
-----------
864,500
-----------
ELECTRONICS -- .9%
15,000 Littelfuse, Inc.* 363,984
-----------
ENERGY & MINING -- 12.2%
5,000 Diamond Offshore Drilling, Inc. 152,813
30,000 Forest Oil Corporation* 395,625
150,000 Golden Star Resources Ltd.* (2) 164,375
100,000 Inco, Ltd. -- Class VBN* 868,750
300,000 Input/Output, Inc.* 1,518,750
12,500 Newmont Mining Corporation 306,250
25,000 Oglebay Norton Company 593,750
50,000 Patterson Energy, Inc.* 650,000
50,000 Sante Fe Snyder Corporation* 400,000
-----------
5,050,313
-----------
6
<PAGE>
ENVIRONMENTAL SERVICES -- 1.1%
50,000 Sevenson Environmental Services, Inc. 475,000
-----------
FINANCE -- BANKS & THRIFTS -- 6.2%
9,375 Chemical Financial Corporation 298,828
125,000 Ottawa Financial Corporation 2,265,625
1,000 Republic Bancorp Inc. 12,141
-----------
2,576,594
-----------
FINANCE -- INSURANCE -- 2.9%
38,000 Acceptance Insurance Companies Inc.* 220,875
15,000 GAINSCO, Inc. 80,625
100,000 Queensway Financial Holdings Limited* 334,178
85,000 Unico American Corporation 595,000
-----------
1,230,678
-----------
FINANCE -- MISCELLANEOUS -- 2.7%
45,000 Countrywide Credit Industries, Inc. 1,136,250
-----------
HEALTHCARE -- 4.6%
70,000 America Service Group Inc.* 1,050,000
10,000 Brookdale Living Communities, Inc.* 123,750
5,000 IMPATH Inc.* 127,187
60,000 STERIS Corporation* 618,750
-----------
1,919,687
-----------
HOLDING COMPANIES -- 1.5%
50,000 PICO Holdings, Inc.* 615,625
-----------
7
<PAGE>
INDUSTRIAL PRODUCTS & SERVICES -- 3.3%
12,500 Crown Cork & Seal Company, Inc. 279,688
3,000 Greif Bros. Corporation -- Class A 89,250
10,000 Kaydon Corporation 268,125
50,000 Maritrans Inc. 268,750
60,000 Perceptron, Inc.* 240,000
7,500 United Dominion Industries Limited 149,531
15,000 X-Rite, Incorporated 93,750
-----------
1,389,094
-----------
INFORMATION TECHNOLOGY -- 20.3%
5,000 BARRA, Inc.* 158,750
25,000 Compuware Corporation * 931,250
240,000 Data Research Associates, Inc. 1,920,000
2,500 National Computer Systems, Inc. 94,063
12,500 RSA Security Inc.* 968,750
75,000 Rainbow Technologies, Inc.* 1,743,750
105,000 SPSS Inc.* 2,651,250
-----------
8,467,813
-----------
PRINTING & PUBLISHING -- 2.9%
465 The Detroit Legal News Company* 71,610
125,000 Thomas Nelson, Inc. 1,156,250
-----------
1,227,860
-----------
REAL ESTATE -- 5.4%
16,499 I. Gordon Realty Corporation* 150,553
15 LaFourche Realty Company, Inc. 96,000
150,000 Malan Realty Investors, Inc. 2,006,250
-----------
2,252,803
-----------
8
<PAGE>
RETAIL -- 2.5%
50,000 Charming Shoppes, Inc.* 331,250
10,000 Miami Computer Supply Corporation* 371,250
3,000 Payless ShoeSource, Inc.* 141,000
20,000 The Good Guys, Inc.* 186,250
-----------
1,029,750
-----------
TRANSPORTATION -- 2.6%
7,500 Aviation Sales Company* 123,750
Providence and Worcester Railroad
25,000 Company 200,000
135,000 The Morgan Group, Inc. -- Class A 776,250
-----------
1,100,000
-----------
TOTAL COMMON STOCK (Cost -- $32,950,766) 38,463,956
-----------
PREFERRED STOCK -- 0.3% (Cost -- $132,739)
Telos Corporation, 12% Cumulative
35,000 Exchangable Preferred* 122,500
-----------
CLOSED-END FUNDS -- 4.5% (Cost -- $1,852,119)
25,000 Central Securities Corporation 681,250
250,000 Royce Focus Trust, Inc. 1,179,688
-----------
1,860,938
-----------
9
<PAGE>
Face Amount Value
----------- -----
REPURCHASE AGREEMENTS(1) -- 5.8% (Cost $2,430,178)
Fifth Third Bank, 1.10%, dated 12/31/99, due
$ 2,430,178 1/03/00, repurchase proceeds: $2,430,401 $ 2,430,178
-----------
TOTAL INVESTMENTS -- 102.9% (Cost $37,365,802) 42,877,572
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.9%) (1,205,099)
-----------
NET ASSETS -- 100.0% $41,672,473
===========
* Non-income producing security.
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
(2) Includes 100,000 warrants entitling the Fund to purchase one additional
common share per warrant for $.70 through February 25, 2001.
See notes to financial statements.
10
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost of $37,365,802) (Note 1) ....... $ 42,877,572
Cash ....................................................... 4,539
Receivable for securities sold ............................. 502,045
Receivable for capital shares sold ......................... 21,318
Dividends receivable ....................................... 76,337
Interest receivable ........................................ 74
Other assets ............................................... 23,705
------------
TOTAL ASSETS ........................................... 43,505,590
------------
LIABILITIES
Payable for capital shares redeemed ........................ 309,772
Payable for securities purchased ........................... 1,087,813
Accrued investment advisory fees (Note 2) .................. 168,391
Distributions payable to shareholders ...................... 236,912
Other accrued expenses and liabilities ..................... 30,229
------------
TOTAL LIABILITIES ...................................... 1,833,117
------------
NET ASSETS ................................................. $ 41,672,473
============
NET ASSETS CONSIST OF
Paid-in capital ............................................ $ 36,531,410
Distributions in excess of realized gains .................. (370,707)
Net unrealized appreciation on investments ................. 5,511,770
------------
NET ASSETS ................................................. $ 41,672,473
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ............... 2,111,529
============
Net asset value, redemption price, and offering price
per share ................................................ $ 19.74
============
See notes to financial statements.
11
<PAGE>
SCHWARTZ VALUE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ................................................. $ 576,402
Interest .................................................. 187,654
-----------
TOTAL INVESTMENT INCOME ................................. 764,056
-----------
EXPENSES
Investment advisory fees (Note 2) ......................... 796,035
Administration, accounting and transfer agent fees
(Note 2) ................................................ 111,129
Trustees' fees and expenses ............................... 59,491
Legal and audit fees ...................................... 41,436
Insurance expense ......................................... 20,125
Registration fees ......................................... 18,096
Custodian fees ............................................ 13,429
Reports to shareholders ................................... 12,069
Other expenses ............................................ 15,500
-----------
TOTAL EXPENSES .......................................... 1,087,310
-----------
NET INVESTMENT LOSS ......................................... (323,254)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on investments ......................... 2,790,206
Net change in unrealized appreciation/depreciation
on investments .......................................... (4,141,106)
-----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS ........... (1,350,900)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS .................. $(1,674,154)
===========
See notes to financial statements.
12
<PAGE>
SCHWARTZ VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS For the Years Ended
December 31, 1999 and 1998
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss .............................. $ (323,254) $ (263,130)
Net realized gains (losses) on investments ....... 2,790,206 (542,124)
Net change in unrealized appreciation/depreciation
on investments ................................. (4,141,106) (7,053,405)
------------ ------------
Net decrease in net assets from operations ......... (1,674,154) (7,858,659)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ....................... -- --
From net realized gains on investments ........... (2,111,109) --
Distributions in excess of realized gains ........ (370,707) --
------------ ------------
Net decrease in net assets from distributions to
shareholders ..................................... (2,481,816) --
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........................ 4,815,186 8,246,596
Reinvestment of distributions to shareholders .... 2,244,904 --
Payments for shares redeemed ..................... (23,929,076) (7,657,068)
------------ ------------
Net increase (decrease) in net assets from capital
share transactions ............................... (16,868,986) 589,528
------------ ------------
TOTAL DECREASE IN NET ASSETS ....................... (21,024,956) (7,269,131)
NET ASSETS
Beginning of year ................................ 62,697,429 69,966,560
------------ ------------
End of year ...................................... $ 41,672,473 $ 62,697,429
============ ============
ACCUMULATED NET INVESTMENT INCOME .................. $ -- $ --
============ ============
------------
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ........................................ 224,924 344,319
Shares issued in reinvestment of distributions to
shareholders ....................................... 113,724 --
Shares redeemed .................................... (1,143,853) (343,575)
------------ ------------
Net increase (decrease) in shares outstanding ...... (805,205) 744
Shares outstanding, beginning of year .............. 2,916,734 2,915,990
------------ ------------
Shares outstanding, end of year .................... 2,111,529 2,916,734
============ ============
</TABLE>
See notes to financial statements.
13
<PAGE>
SCHWARTZ VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding
Throughout Each Period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year ............... $ 21.50 $ 23.99 $ 21.19 $ 19.66 $ 18.12
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) ................... (0.15) (0.09) 0.06 (0.02) (0.03)
Net realized and unrealized gains (losses) on
investments .................................. (0.38) (2.40) 5.88 3.61 3.09
--------- --------- --------- --------- ---------
Total from investment operations ................... (0.53) (2.49) 5.94 3.59 3.06
--------- --------- --------- --------- ---------
Less distributions:
From net investment income ....................... -- -- (0.06) -- --
From net realized gains on investments ........... (1.05) -- (3.03) (2.06) (1.52)
In excess of net realized gains on investments ... (0.18) -- (0.05) -- --
--------- --------- --------- --------- ---------
Total distributions ................................ (1.23) -- (3.14) (2.06) (1.52)
--------- --------- --------- --------- ---------
Net asset value at end of year ..................... $ 19.74 $ 21.50 $ 23.99 $ 21.19 $ 19.66
========= ========= ========= ========= =========
Total return ....................................... (2.5)% (10.4)% 28.0% 18.3% 16.9%
========= ========= ========= ========= =========
Ratios/Supplementary Data:
Ratio of expenses to average net assets ............ 2.05% 1.94% 1.91% 1.97% 2.00%
Ratio of net investment income (loss) to average net
assets ........................................... (0.61)% (0.39)% 0.24% (0.08)% (0.18)%
Portfolio turnover rate ............................ 59% 54% 47% 50% 70%
Net assets at end of year (000's) .................. $ 41,672 $ 62,697 $ 69,967 $ 55,105 $ 53,137
</TABLE>
See notes to financial statements.
14
<PAGE>
SCHWARTZ VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
--------------------------------------------------------------------------------
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 the regular session of trading 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. At December 31, 1999, Lafourche Realty Company, Inc. was
valued pursuant to these procedures. 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
15
<PAGE>
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. Discounts and premiums on securities purchased are
amortized in accordance with income tax regulations which approximate
GAAP.
(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.
16
<PAGE>
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, 1999, were
$28,997,882 and $48,502,102, respectively.
4. FEDERAL INCOME TAXES
As of December 31, 1999, net unrealized appreciation of securities was
$5,141,063 for federal income tax purposes of which $8,893,305 related to
appreciated securities and $3,752,242 related to depreciated securities. The
aggregate cost of investments at December 31, 1999 for federal income tax
purposes was $37,736,509.
5. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 31, 1999, the Schwartz Value Fund declared and paid a long-term
capital gain of $1.2326 per share. In January of 2000, shareholders will be
provided with Form 1099-DIV which reports the amount and tax status of the
capital gain distribution paid during calendar year 1999.
17
<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, 1999, the related statement 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 Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the Fund's custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1999, 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 21, 2000
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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.
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[ Back Cover ]
Schwartz Value Fund
a series of
Schwartz Investment Trust
3707 W. Maple Road
Bloomfield Hills, Michigan 48301
(248) 644-8500
Board of Trustees
Donald J. Dawson, Jr.
Fred A. Erb
John J. McHale
Sidney F. McKenna
George P. Schwartz, CFA
Gregory J. Schwartz, Chairman
Officers
George P. Schwartz, CFA, President
Richard L. Platte, Jr., CFA, V.P./Secretary/Treasurer
Tina D. Hosking, CPA, Assistant Secretary
Brian J. Manley, CPA, 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
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.
