AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 9, 1998 REGISTRATION NOS.: 333-20891
811-8039
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ 3 ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. [ 4 ]
THIRD AVENUE TRUST
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(Exact name of Registrant as Specified in Charter)
767 Third Avenue, New York, New York 10017-2023
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(Address of Principal Executive Offices including Zip Code)
(toll-free) (800)443-1021, (212)888-6685
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(Registrant's Telephone Number, including Area Code)
Please send copies of communications to:
David M. Barse Richard T. Prins, Esq.
767 Third Avenue Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York 10017-2023 919 Third Avenue, New York, NY 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ X ] On February 10, 1998, pursuant to paragragh (a)(2) of Rule 485.
<PAGE>
THIRD AVENUE TRUST
CROSS-REFERENCE SHEET
[AS REQUIRED BY RULE 481A]
PART A.
ITEM NO. PROSPECTUS CAPTION
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Item 1. Cover Page Cover Page
Item 2. Synopsis Cover Page; Fund Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant About The Funds
Item 5. Management of the Fund Management of the Funds;
Performance Information
Item 5a. Management's Discussion of
Fund Performance Inapplicable
Item 6. Capital Stock and Other Securities About the Funds; Shareholder
Services; Dividends, Capital
Gain Distributions and Taxes
Item 7. Purchase of Securities Being Offered How to Purchase Shares, How
to Exchange Shares
Item 8. Redemption or Repurchase How to Redeem Shares
Item 9. Legal Proceedings Inapplicable
<PAGE>
PART B. STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
Item 13. Investment Objectives and Policies Investment Policies;
Investment Restrictions
Item 14. Management of the Registrant Management of the Trust;
Compensation Table
Item 15. Control Persons and Principal Principal Shareholders
Holders of Securities
Item 16. Investment Advisory and Other Investment Adviser;
Services Investment Advisory Agreement;
Administrator; Custodian
Item 17. Brokerage Allocation Portfolio Trading Practices
Item 18. Capital Stock and Other Securities Inapplicable
Item 19. Purchase, Redemption and Pricing Redemption of Shares; (See
of Securities Being Offered Prospectus)
Item 20. Tax Status Dividends, Capital Gain
Distributions and Taxes
Item 21. Underwriters Distributor
Item 22. Calculations of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
PART C. OTHER INFORMATION
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Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Post-Effective Amendment No. 3 to the
Registration Statement.
<PAGE>
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YEILD FUND
PROSPECTUS
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February 1, 1998
<PAGE>
Contents
FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
ABOUT THE FUNDS 7
Investment Objectives 7
INVESTMENT PHILOSOPHY AND APPROACH 9
Value Discipline 9
Intensive Research 9
Diversification 9
Buy and Hold 9
Investment in Equity Securities 9
Investment in Debt Securities 10
Convertible Securities 11
Mortgage-Backed Securities 11
Asset-Backed Securities 12
Floating Rate, Inverse Floating Rate and Index Obligations 12
Investment in High Yield Debt Securities 13
Zero-Coupon and Pay-in-Kind Securities 14
Loans and Other Direct Debt Instruments 15
Trade Claims 15
Portfolio Practices 16
Foreign Securities 16
Foreign Currency Transactions 16
Restricted and Illiquid Securities 17
Investment in Relatively New Issues 18
Temporary Defensive Investments 18
Borrowing 18
Investment in Other Investment Companies 18
Simultaneous Investments 19
Restrictions on Investments 19
Securities Lending 19
Portfolio Turnover 20
MANAGEMENT OF THE FUNDS 21
The Investment Adviser 21
Advisory Fees 22
Administrator 22
Distributor 23
Custodian and Transfer Agent 23
Portfolio Trading Practices 23
PERFORMANCE INFORMATION 25
Performance Illustration 25
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 27
Distribution Options 28
Withholding 29
HOW TO PURCHASE SHARES 30
Business Hours 30
Determining Net Asset Value 30
Share Certificates 31
Through an Authorized Broker-Dealer or Investment Adviser 31
New Accounts 31
Initial Investment 31
By Mail 31
By Wire 32
Additional Investments By Mail 32
Additional Investments Through
the Automatic Investment Plan 33
Individual Retirement Accounts 33
Other Retirement Plans 33
HOW TO REDEEM SHARES 34
By Mail 34
Telephone Redemption Service 34
Fees 34
Redemption Without Notice 35
Account Minimum 35
Payment of Redemption Proceeds 35
Wired Proceeds 35
Signature Guarantees/Other Documents 36
Systematic Withdrawal Plan 36
Early Redemption Fee 36
HOW TO EXCHANGE SHARES 38
Inter-Fund Exchange Privilege 38
Money Market Exchange Privilege 38
Early Redemption Fee 39
SHAREHOLDER SERVICES 40
Telephone Information 40
TRANSFER OF OWNERSHIP 41
DESCRIPTION OF CORPORATE BOND RATINGS 42
Standard & Poor's Ratings Group 42
Moody's Investor's Service, Inc. 44
<PAGE>
Third Avenue Trust (the "Trust") is an open-end, non-diversified, management
investment company organized as a Delaware business trust. The Trust currently
consists of three separate investment series; THIRD AVENUE VALUE FUND, THIRD
AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND (each a "Fund" and,
collectively, the "Funds").
Each of THIRD AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND seeks to
achieve its investment objective of long-term capital appreciation by adhering
to a strict value discipline when selecting securities. While both such Funds
pursue a capital appreciation objective, each Fund has a distinct investment
approach. THIRD AVENUE HIGH YIELD FUND seeks to achieve its objective of
maximizing total return by adhering to a similar value discipline in selecting
securities.
THIRD AVENUE VALUE FUND seeks to achieve its objective by investing in a
portfolio of equity securities of well-financed companies believed to be priced
below their private market values and debt securities providing strong,
protective covenants and high effective yields.
THIRD AVENUE SMALL-CAP VALUE FUND seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of equity securities of well-financed
companies having market capitalizations of below $1 billion at the time of
investment and believed to be priced below their private market values.
THIRD AVENUE HIGH YIELD FUND seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of non-investment grade fixed income or
other debt securities of companies whose capital structures, in the opinion of
EQSF Advisers, Inc., the Fund's investment adviser, have a market value priced
below their private market values.
Some of the securities in which the Funds may invest are regarded as
speculative. As with all mutual funds, there is no assurance the Funds will
achieve their objectives. The Funds are not intended to be a complete investment
program.
THIRD AVENUE HIGH YIELD FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS
IN MEDIUM AND LOWER RATED AND COMPARABLE UNRATED FIXED INCOME AND OTHER DEBT
SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS." THESE SECURITIES ARE
CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN
OF PRINCIPAL AND INVOLVE GREATER VOLATILITY OF PRICE THAN HIGHER QUALITY FIXED
INCOME SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH
AN INVESTMENT IN JUNK BONDS BEFORE INVESTING IN THIRD AVENUE HIGH YIELD FUND.
SEE "INVESTMENT IN HIGH YIELD DEBT SECURITIES."
This Prospectus contains important information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference. A Statement of Additional Information ("SAI"),
dated February 1, 1998, about the Funds has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. You
can obtain the SAI without charge by writing or calling the Funds at 767 Third
Avenue, New York, NY 10017-2023, (800) 443-1021 or (212) 888-6685. The SAI,
material incorporated by reference into this Prospectus, and any other
information regarding the Funds are maintained electronically with the
Securities and Exchange Commission at its Internet Web sight
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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Each Fund's objective is suitable for investors who are willing to hold their
shares through periods of market fluctuations and the accompanying changes in
prices of the Funds' portfolio securities and, in the case of THIRD AVENUE HIGH
YIELD FUND, for investors seeking current income. The Funds are not intended for
investors seeking short-term price appreciation or for "market timers."
Shares of each Fund are sold and redeemed at net asset value. See "How to
Purchase Shares" and "How to Redeem Shares."
No person is authorized by the Funds to give any information or make any
representation other than those contained herein or in other printed or written
material issued by the Funds, and no person is entitled to rely upon any other
information or representation.
2
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Funds will incur.
<TABLE>
<CAPTION>
THIRD AVENUE
THIRD AVENUE SMALL-CAP THIRD AVENUE
VALUE FUND VALUE FUND HIGH YIELD FUND
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fee Payable to the Fund None None 1.00%*
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Management Fees .90% .90% .90%
12b-1 Fees None None None
Other Expenses .23% .75% 1.00% (after waivers)
----- ------ -----
Total Fund Operating Expenses 1.13% 1.65% 1.90% (after waivers)
===== ===== =====
</TABLE>
Example
The following example illustrates the expenses that a shareholder would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
THIRD AVENUE VALUE FUND $12 $36 $63 $138
THIRD AVENUE SMALL-CAP
VALUE FUND $17 $52 $90 $197
THIRD AVENUE HIGH YIELD FUND $30 $60
The purpose of this table is to assist investors in understanding the various
costs and expenses that investors will bear directly or indirectly. The expenses
of THIRD AVENUE VALUE FUND are based on actual expenses incurred for the fiscal
year ended October 31, 1997. The other expenses of THIRD AVENUE SMALL-CAP VALUE
FUND are estimated based on actual expenses incurred for the period April 1,
1997, commencement of operations, to October 31, 1997. THIRD AVENUE HIGH YIELD
FUND commenced operations
3
<PAGE>
on or about February 10, 1998. Because THIRD AVENUE HIGH YIELD FUND has no
operating history, "Other Expenses" is based on estimated amounts for the
current fiscal year. From time to time, the Adviser may voluntarily waive
receipt of its fees and/or assume certain expenses of the Funds which would have
the effect of lowering the expense ratio and increasing the yield to investors.
The expenses noted above for THIRD AVENUE HIGH YIELD FUND, without
reimbursement, would be: "Other Expenses" 1.84% and "Total Fund Operating
Expenses" 2.74%. In addition, shareholders of each Fund pay a $9 charge for
redemptions by wire. For a further description of the various costs and expenses
incurred in the Funds' operations, as well as any reimbursements or waiver
arrangements, see "Management of the Funds."
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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* There will be a 1% fee retained by THIRD AVENUE HIGH YIELD FUND which is
imposed only on redemptions or exchanges of shares held less than one
year. For additional information, see "How to Redeem Shares - Early
Redemption Fee" and "How to Exchange Shares - Early Redemption Fee."
4
<PAGE>
FINANCIAL HIGHLIGHTS
THIRD AVENUE TRUST
The following sets forth information for THIRD AVENUE VALUE FUND and THIRD
AVENUE SMALL-CAP VALUE FUND regarding per share income and capital changes from
each of the Fund's commencement of operations to October 31, 1997, the end of
the Funds' most recent fiscal year. These Financial Highlights have been audited
by Price Waterhouse LLP, independent accountants, whose unqualified report on
the October 31, 1997 financial statements appears in the Funds' Annual Report to
Shareholders. This information should be read in conjunction with the financial
statements and accompanying notes appearing in the 1997 Annual Report to
Shareholders which are incorporated by reference into the SAI.
Because the Trust's new Fund, THIRD AVENUE HIGH YIELD FUND, commenced investment
operations on or about February 10, 1998, no financial highlights are available.
THIRD AVENUE VALUE FUND: SELECTED DATA AND RATIOS (Years Ended October 31,)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $24.26 $21.53 $18.01 $17.92 $13.57 $12.80 $10.00
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .48 .53 .38 .29 .18 .19 .15
Net gain on securities
(both realized and unrealized) 7.92 2.76 3.53 .16 4.77 .64 4.65
----- ----- ----- ---- ----- ---- -----
Total from Investment Operations 8.40 3.29 3.91 .45 4.95 .83 4.80
---- ----- ----- ---- ----- ---- -----
LESS DISTRIBUTIONS:
Dividends from net investment income (.57) (.41) (.25) (.22) (.24) (.02) (.15)
Distributions from net realized gains (.15) (.15) (.14) (.14) (.36) (.04) (1.85)
----- ------ ------ ------ ------ ------ ------
Total Distributions (.72) (.56) (.39) (.36) (.60) (.06) (2.00)
-------- -------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $31.94 $24.26 $21.53 $18.01 $17.92 $13.57 $12.80
======== ======== ======= ======= ======= ======= =======
TOTAL RETURN 35.31% 15.55% 22.31% 2.56% 37.36% 6.50% 49.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year
(in thousands) $1,646,240 $566,847 $312,722 $187,192 $118,958 $31,387 $17,641
Ratio of Expenses to Average
Net Assets 1.13% 1.21% 1.25% 1.16% 1.42% 2.32% 2.50%
Ratio of Net Income to Average
Net Assets 2.10% 2.67% 2.24% 1.85% 1.45% 1.71% 1.71%
Portfolio Turnover Rate 10% 14% 15% 5% 17% 31% 67%
Average Commission Rate $ 0.0376 $0.0318 ------ ------ ------ ------ ------
</TABLE>
5
<PAGE>
THIRD AVENUE SMALL-CAP VALUE FUND: SELECTED DATA AND RATIOS
(Period from April 1, 1997* to October 31,)
1997
----
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05
Net gain on securities
(both realized and unrealized) 2.32
----
Total from Investment Operations 2.37
----
NET ASSET VALUE, END OF PERIOD 12.37
-----
TOTAL RETURN 23.70% 1
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $107,256
Ratio of Expenses to Average Net Assets 1.65% 2
Ratio of Net Income to Average Net Assets 1.44% 2
Portfolio Turnover Rate 7% 1
Average Commission Rate $0.0339
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1 Not Annualized
2 Annualized
* Commencement of investment operations
6
<PAGE>
ABOUT THE FUNDS
Third Avenue Trust (the "Trust") was organized as a business trust under the
laws of the state of Delaware pursuant to a Trust Instrument dated October 31,
1996. At the close of business on March 31, 1997, shareholders of Third Avenue
Value Fund, Inc. ("Third Avenue Maryland"), a Maryland corporation which was
incorporated on November 27, 1989 and began operations on October 9, 1990,
became shareholders of THIRD AVENUE VALUE FUND, a series of the Trust, pursuant
to a merger agreement which was approved by a majority of Third Avenue
Maryland's shareholders on December 13, 1996. Upon this merger, all assets,
privileges, powers, franchises, liabilities and obligations of Third Avenue
Maryland were assumed by the Trust. Except as noted herein, all information
about THIRD AVENUE VALUE FUND includes information about its predecessor, Third
Avenue Maryland. THIRD AVENUE SMALL-CAP VALUE FUND, a series of the Trust,
commenced investment operations on April 1, 1997.
INVESTMENT OBJECTIVES
The investment objective of each of THIRD AVENUE VALUE FUND and THIRD AVENUE
SMALL-CAP VALUE FUND is long-term capital appreciation. The investment objective
of THIRD AVENUE HIGH YIELD FUND is to maximize total return through a
combination of income and capital appreciation. Each investment objective is a
fundamental policy and may not be changed without the affirmative vote of a
majority of that Fund's outstanding voting securities. In pursuit of the Funds'
investment objectives, the research efforts of the Funds' Adviser, EQSF
Advisers, Inc., emphasize analysis of documents, especially stockholder mailings
and Securities and Exchange Commission ("SEC") filings by issuers. The Adviser's
intensive research process, combined with the Adviser's investment philosophy,
may mean that any or all Funds may be constructed using a relatively limited
number of securities.
THIRD AVENUE VALUE FUND seeks to achieve its objective by following a value
investing philosophy to acquire common stocks of well-financed companies at a
substantial discount to the Adviser's estimate of the issuing company's private
market value or takeover value. The Fund also seeks to acquire senior
securities, such as preferred stocks and debt instruments, that have strong
covenant protections and above-average current yields, yields to events, or
yields to maturity. See "Investment in Equity Securities" and "Investment in
Debt Securities."
THIRD AVENUE SMALL-CAP VALUE FUND seeks to achieve its objective by following a
value investing philosophy that seeks to acquire common stocks
7
<PAGE>
of well-financed companies at a substantial discount to the Adviser's estimate
of the issuing company's private market value or takeover value. The Fund
intends to invest at least 65% of its total assets in the equity securities of
companies whose aggregate shares outstanding have a market value of less than $1
billion at the time of investment. See "Investment in Equity Securities."
THIRD AVENUE HIGH YIELD FUND seeks to achieve its objective by following a value
investing philosophy that seeks to acquire senior securities such as debt
instruments and preferred securities, both straight and convertible, of
companies whose securities are rated primarily below investment grade. The Fund
intends to invest at least 65% of its assets in a portfolio of non-investment
grade fixed income and other debt securities of companies whose capital
structures, in the opinion of the Adviser, have a market value priced below
their private market values. Securities emphasized will have above-average
yields in the case of straight senior issues, and in the case of convertible
issues, the possibility of capital appreciation should the underlying common
stock increase in value. See "Investment in High Yield Debt Securities" and
"Convertible Securities."
The Adviser may seek investments in the securities of companies in industries
that are temporarily depressed. The Adviser also seeks investments for THIRD
AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND in equity securities of
companies where debt service1 consumes a small part of such companies' cash
flow.
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1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
8
<PAGE>
INVESTMENT PHILOSOPHY AND APPROACH
VALUE DISCIPLINE
The Adviser adheres to a strict value discipline when selecting securities for
the Funds. Contrary to conventional wisdom, which says that you have to take
greater risks to reap greater rewards, the Adviser seeks to invest in a
portfolio of securities where the prices at the time of acquisition are low
enough so that the Adviser can conclude that both the risk is lowered and
appreciation potential is enhanced.
INTENSIVE RESEARCH
The Adviser believes that value is created more by past corporate prosperity
than by bear markets. For this reason, the Adviser conducts intensive bottom-up
research to identify investment opportunities, and ignores general stock market
conditions and other macro factors.
DIVERSIFICATION
The Adviser believes that knowledge gained through intensive research lends more
toward reducing investment risk than does diversification. However, the Funds
will remain diversified in general, although probably less diversified than
other mutual funds of comparable size.
BUY AND HOLD
The Adviser follows a strategy of "buy and hold." This approach to achieving
growth over the long term means that the Funds should experience low turnover,
minimizing transaction costs and tax consequences.
INVESTMENT IN EQUITY SECURITIES
In selecting equity securities, the Adviser seeks issuing companies that exhibit
the following characteristics:
(1) A strong financial position, as measured not only by balance sheet data
but also by off-balance sheet assets, liabilities and contingencies (as
disclosed in footnotes to financial statements and as determined through
research of public information).
(2) Responsible management and control groups, as gauged by managerial
competence as operators and investors as well as by an apparent absence of
intent to profit at the expense of stockholders.
(3) Availability of comprehensive and meaningful financial and related
information. A key disclosure is audited financial statements and
information which the Adviser believes are reliable benchmarks to aid in
understanding the business, its values and its dynamics.
9
<PAGE>
(4) Availability of the security at a market price which the Adviser believes
is at a substantial discount to the Adviser's estimate of what the issuer
is worth as a private company or as a takeover or merger and acquisition
candidate.
Although the Adviser does not pay attention to market factors in making
investment decisions, the Funds are, of course, subject to the vagaries of the
markets. In particular, small-cap stocks have less market liquidity and tend to
have more price volatility than larger capitalization stocks.
INVESTMENT IN DEBT SECURITIES
Each of THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND intends its
investment in debt securities to be, for the most part, in securities which the
Adviser believes will provide above-average current yields, yields to events, or
yields to maturity. In selecting debt instruments for THIRD AVENUE VALUE FUND,
the Adviser requires the following characteristics:
1) Strong covenant protection, and
2) Yield to maturity at least 500 basis points above that of a comparable
credit.
In acquiring debt securities for THIRD AVENUE VALUE FUND, the Adviser generally
will look for covenants which protect holders of the debt issue from possible
adverse future events such as, for example, the addition of new debt senior to
the issue under consideration. Also, the Adviser will seek to analyze the
potential impacts of possible extraordinary events such as corporate
restructurings, refinancings, or acquisitions. The Adviser will also use its
best judgment as to the most favorable range of maturities. In general, THIRD
AVENUE VALUE FUND will acquire debt issues which have a senior position in an
issuer's capitalization and will avoid "mezzanine" issues such as
non-convertible subordinated debentures. THIRD AVENUE HIGH YIELD FUND may invest
in such "mezzanine" issues.
The market value of debt securities is affected by changes in prevailing
interest rates. When prevailing interest rates fall, the market values of debt
securities generally rise. Conversely, when interest rates rise, the market
values of debt securities generally decline. The magnitude of these fluctuations
will be greater when the average maturity of the portfolio securities is longer.
10
<PAGE>
CONVERTIBLE SECURITIES
THIRD AVENUE HIGH YIELD FUND intends to invest in convertible securities, which
are bonds, debentures, notes, preferred stocks or other securities that may be
converted into or exchanged for a prescribed amount of equity securities
(generally common stock) of the same or a different issuer within a particular
period of time at a specified price or formula. Convertible securities have
general characteristics similar to both fixed income and equity securities.
Yields for convertible securities tend to be lower than for non-convertible debt
securities but higher than for common stocks. Although to a lesser extent than
with fixed income securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying security and therefore also
will react to variations in the general market for equity securities. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same issuer.
MORTGAGE-BACKED SECURITIES
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND intend to invest
in mortgage-backed securities and derivative mortgage-backed securities,
including, with respect to THIRD AVENUE HIGH YIELD FUND, "principal only" and
"interest only" components. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. Those Funds intend to invest in
these securities only when they believe, after analysis, that there is unlikely
to ever be permanent impairment of capital as measured by whether there will be
a money default by either the issuer or the guarantor of these securities. These
securities do, nonetheless, entail considerable market risk, i.e., fluctuations
in quoted prices for the instruments, interest rate risk, prepayment risk and
inflation risk.
THIRD AVENUE VALUE FUND will not invest in non-investment grade subordinated
classes of residential mortgages and does not intend to invest in commercial
mortgage-backed securities. THIRD AVENUE HIGH YIELD FUND may invest in
commercial mortgage-backed securities if these securities are available at a
sufficient yield spread over risk-free investments. Prepayments of principal
generally may be made at any time without penalty on residential mortgages and
these prepayments are passed through to holders of
11
<PAGE>
one or more of the classes of mortgage-backed securities. Prepayment rates may
change rapidly and greatly, thereby also affecting yield to maturity,
reinvestment risk and market value of the mortgage-backed securities. As a
result, the high credit quality of many of these securities may provide little
or no protection against loss in market value, and there have been periods
during which many mortgage-backed securities have experienced substantial losses
in market value. The Adviser believes that, under certain circumstances, many of
these securities may trade at prices below their inherent value on a
risk-adjusted basis and believes that selective purchases by a Fund may provide
high yield and total return in comparison to risk levels.
ASSET-BACKED SECURITIES
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND also intend to
invest in asset-backed securities that, through the use of trusts and special
purpose vehicles, are securitized with various types of assets, such as
automobile receivables, credit card receivables and home-equity loans in
pass-through structures similar to the mortgage-related securities described
above. In general, the collateral supporting asset-backed securities is of
shorter maturity than the collateral supporting mortgage loans and is less
likely to experience substantial prepayments. However, asset-backed securities
are not backed by any governmental agency.
FLOATING RATE, INVERSE FLOATING RATE AND INDEX OBLIGATIONS
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in debt
securities with interest payments or maturity values that are not fixed, but
float in conjunction with (or inversely to) an underlying index or price. These
securities may be backed by U.S. Government or corporate issuers, or by
collateral such as mortgages. The indices and prices upon which such securities
can be based include interest rates, currency rates and commodities prices.
However, neither Fund will invest in any instrument whose value is computed
based on a multiple of the change in price or value of an asset or an index of
or relating to assets in which that Fund cannot or will not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. The reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. Inverse
floating rate securities are similar to floating rate securities except that
their coupon payments vary inversely with an underlying index by use of a
formula. Inverse floating rate securities tend to exhibit greater price
volatility than other floating rate securities.
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Neither Fund intends to invest more than 5% of its total assets in inverse
floating rate securities. Floating rate obligations generally exhibit a low
price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. Interest rate risk and price
volatility on inverse floating rate obligations can be high, especially if
leverage is used in the formula. Index securities pay a fixed rate of interest,
but have a maturity value that varies by formula, so that when the obligation
matures a gain or loss may be realized. The risk of index obligations depends on
the volatility of the underlying index, the coupon payment and the maturity of
the obligation.
INVESTMENT IN HIGH YIELD DEBT SECURITIES
THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND intend to invest in
high yield debt securities, including those rated below Baa by Moody's Investors
Service, Inc. ("Moody's") and below BBB by Standard & Poor's Ratings Group
("Standard & Poor's") and unrated debt securities. THIRD AVENUE HIGH YIELD FUND
intends to invest at least 65% of its net assets, under normal market
conditions, in non-investment grade high yield fixed income and other debt
securities, including straight debt instruments, convertible debt, preferred
securities and unrated securities. See also "Investment in Debt Securities" and
"Restricted and Illiquid Securities." Such securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation, and may in fact be in
default. The ratings of Moody's and Standard & Poor's represent their opinions
as to the credit quality of the securities which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market price risk of these
securities. In seeking to achieve its investment objective, each such Fund
depends on the Adviser's credit analysis to identify investment opportunities.
For the Funds, credit analysis is not a process of merely measuring the
probability of whether a money default will occur, but also measuring how the
creditor would fare in a reorganization or liquidation in the event of a money
default.
Before investing in any high yield debt instruments, the Adviser will evaluate
the issuer's ability to pay interest and principal, as well as the seniority
position of such debt in the issuer's capital structure vis-a-vis any other
outstanding debt or potential debts. There appears to be a direct cause and
effect relationship between the weak financial conditions of issuers of high
yield bonds and the market valuation and prices of their credit instruments,
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as well as a direct relationship between the weak financial conditions of such
issuers and the prospects that principal or interest may not be paid.
The market price and yield of bonds rated below Baa by Moody's and below BBB by
Standard & Poor's are more volatile than those of higher rated bonds due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity and the risk of an issuer's inability
to meet principal and interest payments. In addition, the secondary market for
these bonds is generally less liquid than that for higher rated bonds.
Lower rated or unrated debt obligations also present reinvestment risks based on
payment expectations. If an issuer calls the obligation for redemption, the Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors.
The market values of these higher yielding debt securities tend to be more
sensitive to economic conditions and individual corporate developments than
those of higher rated securities. Companies that issue such bonds often are
highly leveraged and may not have available to them more traditional methods of
financing. Under adverse economic conditions, there is a risk that highly
leveraged issuers may be unable to service their debt obligations or to repay
their obligations upon maturity. Under deteriorating economic conditions or
rising interest rates, the capacity of issuers of lower-rated securities to pay
interest and repay principal is more likely to weaken significantly than that of
issuers of higher-rated securities. Investors should carefully consider the
relative risks of investing in high yield securities and understand that such
securities are generally not meant for short term investing.
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may also purchase
or retain debt obligations of issuers not currently paying interest or in
default. In addition, those Funds may purchase securities of companies that have
filed for protection under Chapter 11 of the United States Bankruptcy Code.
Defaulted securities will be purchased or retained if, in the opinion of the
Adviser, they may present an opportunity for subsequent price recovery, the
issuer may resume payments, or other advantageous developments appear likely.
ZERO-OUPON AND PAY-IN-KIND SECURITIES
THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in zero
coupon and pay-in-kind ("PIK") securities. Zero coupon securities are debt
securities that pay no cash income but are sold at substantial dis-
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counts from their value at maturity. PIK securities pay all or a portion of
their interest in the form of additional debt or equity securities. Because such
securities do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate. While these securities do not pay
current cash income, federal income tax law requires the holders of zero coupon
and PIK securities to include in income each year the portion of the original
issue discount (or deemed discount) and other non-cash income on such securities
accrued during that year. In order to continue to qualify for treatment as a
"regulated investment company" under the Internal Revenue Code and avoid a
certain excise tax, each Fund may be required to distribute a portion of such
discount and income and may be required to dispose of other portfolio
securities, which may occur in periods of adverse market prices, in order to
generate cash to meet these distribution requirements.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in
loans and other direct debt instruments owed by a borrower to another party.
They represent amounts owed to lenders or lending syndicates (loans and loan
participations) or to other parties. Direct debt instruments may involve a risk
of loss in case of default or insolvency of the borrower and may offer less
legal protection to a Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC.
TRADE CLAIMS
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in
trade claims. Trade claims are interests in amounts owed to suppliers of goods
or services and are purchased from creditors of companies in financial
difficulty. For purchasers such as a Fund, trade claims offer the potential for
profits since they are often purchased at a significant discount from face value
and, consequently, may generate capital appreciation in the event that the
market value of the claim increases as the debtor's financial position improves
or the claim is paid.
An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid instruments which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are
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<PAGE>
unsecured, holders of trade claims may have a lower priority in terms of payment
than certain other creditors in a bankruptcy proceeding.
PORTFOLIO PRACTICES
FOREIGN SECURITIES
THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH
YIELD FUND may invest in foreign securities. Each Fund's foreign securities
investments will have characteristics similar to those of domestic securities
selected for the Fund. Each Fund intends to limit its investments in foreign
securities to companies issuing U.S. dollar-denominated American Depository
Receipts or who otherwise comply substantially with SEC disclosure requirements.
By limiting their investments in this manner, the Funds seek to avoid investing
in securities where there is no compliance with SEC requirements to provide
public financial information, or such information is unreliable as a basis for
analysis.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. The Funds will be
subject to additional risks which include: possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption of governmental restrictions that may adversely affect the payment of
principal and interest on the foreign securities or currency blockage that would
restrict such payments from being brought back to the United States. Because
foreign securities often are purchased with and payable in foreign currencies,
the value of these assets as measured in U.S. dollars may be affected favorably
or unfavorably by changes in currency rates and exchange control regulations.
FOREIGN CURRENCY TRANSACTIONS
THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH
YIELD FUND may, from time to time, engage in foreign currency transactions in
order to hedge the value of their respective portfolio holdings denominated in
foreign currencies against fluctuations in foreign currency prices versus the
U.S. dollar. These transactions include forward currency contracts, exchange
listed and OTC options on currencies, currency swaps and other swaps
incorporating currency hedges.
The notional amount of a currency hedged by a Fund will be closely related to
the aggregate market value (at the time of making such sale) of the securities
held and reasonably expected to be held in its portfolio denominated or quoted
in or currently convertible into that particular currency or
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a closely related currency. If a Fund enters into a hedging transaction in which
such Fund is obligated to make further payments, its custodian will segregate
cash or readily marketable securities having a value at all times at least equal
to such Fund's total commitments.
The cost to a Fund of engaging in currency hedging transactions varies with
factors such as (depending upon the nature of the hedging transaction) the
currency involved, the length of the contract period, interest rates in foreign
countries for prime credits relative to U.S. interest rates for U.S. Treasury
obligations, the market conditions then prevailing and fluctuations in the value
of such currency in relation to the U.S. dollar. Transactions in currency
hedging contracts usually are conducted on a principal basis, in which case no
fees or commissions are involved. The use of currency hedging contracts does not
eliminate fluctuations in the prices in local currency of the securities being
hedged. The ability of a Fund to realize its objective in entering into currency
hedging transactions is dependent on the performance of its counterparties on
such contracts, which may in turn depend on the absence of currency exchange
interruptions or blockage by the governments involved, and any failure on their
part could result in losses to a Fund. The requirements for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), may cause a Fund to restrict the degree to which it engages in
currency hedging transactions.
RESTRICTED AND ILLIQUID SECURITIES
None of THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD
AVENUE HIGH YIELD FUND will purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current market value) would be
invested in securities that are illiquid. Generally speaking, an illiquid
security is any asset or investment which a Fund cannot sell in the ordinary
course of business within seven days at approximately the value at which the
Fund has valued the asset or investment, including securities that cannot be
sold publicly due to legal or contractual restrictions.
Over the past several years, strong institutional markets have developed for
various types of restricted securities, including repurchase agreements,
commercial paper, and some corporate bonds and notes. Securities freely salable
among qualified institutional investors under special rules adopted by the SEC
or otherwise determined to be liquid may be treated as liquid if they satisfy
liquidity standards established by the Board of Trustees. The continued
liquidity of such securities is not as well assured as that of pub-
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<PAGE>
licly traded securities, and accordingly the Board of Trustees will monitor
their liquidity. The Board will review pertinent factors such as trading
activity, reliability of price information and trading patterns of comparable
securities in determining whether to treat any such security as liquid for
purposes of the foregoing 15% test. To the extent the Board treats such
securities as liquid, temporary impairments to trading patterns of such
securities may adversely affect the Fund's liquidity.
INVESTMENT IN RELATIVELY NEW ISSUES
Both THIRD AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND intend to
invest occasionally in the common stock of selected new issuers; THIRD AVENUE
HIGH YIELD FUND intends to invest occasionally in the debt securities of
selected new issuers. Investments in relatively new issuers, i.e., those having
continuous operating histories of less than three years, may carry special risks
and may be more speculative because such companies are relatively unseasoned.
Such companies may also lack sufficient resources, may be unable to generate
internally the funds necessary for growth and may find external financing to be
unavailable on favorable terms or even totally unavailable. Those companies will
often be involved in the development or marketing of a new product with no
established market, which could lead to significant losses.
TEMPORARY DEFENSIVE INVESTMENTS
When, in the judgment of the Adviser, a temporary defensive posture is
appropriate, a Fund may hold all or a portion of its assets in short-term U.S.
Government obligations, cash or cash equivalents. The adoption of a temporary
defensive posture does not constitute a change in such Fund's investment
objective.
BORROWING
THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH
YIELD FUND may also make use of bank borrowing as a temporary measure for
extraordinary or emergency purposes, such as for liquidity necessitated by
shareholder redemptions, and may use securities as collateral for such
borrowing. Such temporary borrowing may not exceed 5% of the value of the
applicable Fund's total assets at the time of borrowing.
INVESTMENT IN OTHER INVESTMENT COMPANIES
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in
securities of other investment companies, to the extent per-
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mitted under the Investment Company Act of 1940, provided that after any
purchase the Fund does not own more than 3% of such investment company's
outstanding stock. THIRD AVENUE VALUE FUND may invest up to 10% of its total
assets in securities of other investment companies; up to 5% of its total assets
may be invested in any one investment company, provided that after its purchase
no more than 3% of such investment company's outstanding stock is owned by the
Fund. The Adviser will charge an advisory fee on the portion of a Fund's assets
that are invested in securities of other investment companies. Thus,
shareholders will be responsible for a "double fee" on such assets, since both
investment companies will be charging fees on such assets.
SIMULTANEOUS INVESTMENTS
Investment decisions for a Fund are made independently from those of the other
Funds advised by the Adviser. If, however, such other Funds wish to invest in,
or dispose of, the same securities as the Fund, available investments will be
allocated equitably to each Fund. This procedure may adversely affect the size
of the position obtained for or disposed of by a Fund or the price paid or
received by a Fund.
RESTRICTIONS ON INVESTMENTS
The Funds have adopted various investment restrictions, some of which are
fundamental policies that cannot be changed without shareholder approval and
others of which are operating investment restrictions that may be changed
without shareholder approval. Certain restrictions not described in this
Prospectus are set forth in full in the SAI. In the event any Fund changes an
operating investment restriction, the new restriction may not meet the
investment needs of every shareholder.
SECURITIES LENDING
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND may lend
their portfolio securities to qualified institutions. By lending its portfolio
securities, a Fund attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund. A Fund may lend its portfolio securities so long as the terms and the
structure of such loans are not inconsistent with the requirements of the
Investment Company Act of 1940, which currently provide that (a) the borrower
pledge and maintain with the Fund collateral consisting of cash, a letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. government having a value at all times
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not less than 100% of the value of the securities loaned, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e., the
value of the loan is "marked to the market" on a daily basis), (c) the loan be
made subject to termination by the Fund at any time and the loaned securities be
subject to recall within the normal and customary settlement time for securities
transactions and (d) the Fund receive reasonable interest on the loan (which may
include the Fund's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase in
their market value.
A Fund will not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 33 1/3% of the value of its total assets (including such loans).
Loan arrangements made by a Fund will comply with all other applicable
regulatory requirements. All relevant facts and circumstances, including the
creditworthiness of the qualified institution, will be monitored by the Adviser,
and will be considered in making decisions with respect to lending of
securities, subject to review by the Fund's Board of Trustees.
A Fund may pay reasonable negotiated fees in connection with loaned securities,
so long as such fees are set forth in a written contract and approved by its
Board of Trustees. In addition, the Fund shall, through the ability to recall
securities prior to any required vote, retain voting rights over the loaned
securities.
On behalf of THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND,
the Trust has entered into a master lending arrangement with Bear, Stearns
Securities Corp. in compliance with the foregoing requirements.
PORTFOLIO TURNOVER
The Funds' investment policies and objectives, which emphasize long-term
holdings, would tend to keep the number of portfolio transactions relatively
low. THIRD AVENUE VALUE FUND'S portfolio turnover rate for the years ended
October 31, 1996 and 1997 was 14% and 10%, respectively. THIRD AVENUE SMALL-CAP
VALUE FUND'S portfolio turnover rate for the period ended October 31, 1997 was
7%.
It is currently estimated that, under normal market conditions, the annual
portfolio turnover rate for THIRD AVENUE HIGH YIELD FUND will not exceed 75%.
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MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
EQSF Advisers, Inc. (the "Adviser") manages each Fund's investments, provides
various administrative services and supervises the Funds' daily business
affairs, subject to the authority of the Trust's Board of Trustees. The Adviser,
a New York corporation organized in 1986, is controlled by Martin J. Whitman and
has its offices at 767 Third Avenue, New York, NY 10017-2023.
Mr. Whitman, the Chairman, President and Chief Executive Officer of the Trust
and its Adviser, is responsible for the day-to-day management of the portfolios
of THIRD AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND. During the
past five years, he has also served in various executive capacities with M.J.
Whitman, Inc., the Fund's distributor and regular broker dealer and several
affiliated companies engaged in various investment and financial businesses; he
has served as a Distinguished Management Fellow at the Yale School of
Management; and has been a director of various public and private companies,
including Danielson Holding Corporation, an insurance holding company, and
Nabors Industries, Inc., an international oil drilling contractor.
Curtis Jensen has served as co-manager of THIRD AVENUE SMALL-CAP VALUE FUND
since inception. He has been employed by the Adviser since 1995 and also serves
as senior research analyst for THIRD AVENUE VALUE FUND. Prior to joining the
Adviser, Mr. Jensen was a graduate business student at the Yale School of
Management from 1993 to 1995 where he studied under Mr. Whitman. Prior to that,
Mr. Jensen was a director of and managed the operations of a specialty food
manufacturer.
Margaret Patel has served as the manager of THIRD AVENUE HIGH YIELD FUND since
inception. Prior to joining the Adviser, Ms. Patel was a portfolio manager of
several mutual funds which invested in high yield, convertible and government
securities at Northstar Investment Management Corp. from 1995 to 1997. Prior to
that, Ms. Patel was a portfolio manager of several mutual funds with investments
in high yield, convertibles, governments, and municipals at Boston Security
Counsellors, Inc., the investment advisor for the Advantage Funds, from 1988
until their acquisition by Northstar in 1995.
The portfolio managers and certain other persons related to the Adviser and the
Funds are subject to written policies and procedures designed to prevent abusive
personal securities trading and other activities.
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ADVISORY FEES
Each of THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD
AVENUE HIGH YIELD FUND has agreed to pay the Adviser a flat rate of .90% of its
average daily net assets. Each Fund pays all costs of leased office space of or
allocable to such Fund. The Adviser's fee for the previous month is paid at the
beginning of the next month based upon the average daily net assets during the
previous month.
Each Fund pays all of its expenses other than those assumed by the Adviser. Any
expense which cannot be allocated to a specific Fund will be allocated to each
of the Funds based on their relative net asset values on the date the expense is
incurred. From time to time, the Adviser may waive receipt of its fees and/or
assume certain expenses of a Fund, which would have the effect of lowering the
expense ratio of the Fund and increasing yield to investors. Under current
arrangements, whenever in any fiscal year, a Fund's normal operating expenses,
including the investment advisory fee, but excluding brokerage commissions and
interest and taxes, exceeds 1.9% of the first $100 million of average daily net
assets of the Fund, and 1.5% of assets in excess of $100 million, the Adviser is
obligated to reimburse the Fund in an amount equal to that excess. If a Fund's
operating expenses fall below the expense limitation, that Fund will begin
repaying the Adviser for the amount contributed on behalf of the Fund. This
repayment will continue for up to three years after the end of the fiscal year
in which an expense is reimbursed by the Adviser, subject to the expense
limitation, until the Adviser has been paid for the entire amount contributed or
such three year period expires. For the fiscal years ended October 31, 1996 and
1997, no reimbursement was required to be paid for THIRD AVENUE VALUE FUND. For
the period ended October 31, 1997, no reimbursement was required to be paid for
THIRD AVENUE SMALL-CAP VALUE FUND.
ADMINISTRATOR
FPS Services, Inc. ("FPS"), which has its principal business address at 3200
Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903, serves as
administrator of the Funds pursuant to an Administrative Services Agreement. The
services that FPS provides to the Funds include: coordinating and monitoring of
any third parties furnishing services to the Funds; providing the necessary
office space, equipment and personnel to perform administrative and clerical
functions for the Funds; preparing, filing and distributing proxy materials,
periodic reports to shareholders, registration statements and other documents;
and responding to shareholder inquiries.
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DISTRIBUTOR
M.J. Whitman, Inc. (together with its predecessors "MJW"), a registered
broker-dealer and member of the National Association of Securities Dealers
("NASD"), is the Distributor of the Funds' shares. MJW, whose business address
is 767 Third Avenue, New York, NY 10017-2023, is a wholly-owned subsidiary of
M.J. Whitman Holding Corp. ("MJWHC"). Martin J. Whitman, David M. Barse, Michael
Carney and Ian M. Kirschner are executive officers of the Trust, MJW and MJWHC,
as well as stockholders of MJWHC.
CUSTODIAN AND TRANSFER AGENT
The custodian acts as the depository for the Funds, is responsible for
safekeeping its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Funds' request and
maintains records in connection with its duties. North American Trust Company,
525 B Street San Diego, CA 92101-4492, serves as custodian for THIRD AVENUE
VALUE FUND and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540-6231, serves as custodian for THIRD AVENUE SMALL-CAP VALUE FUND and THIRD
AVENUE HIGH YIELD FUND (each a "Custodian" and, collectively the "Custodians").
FPS serves as the Funds' Transfer Agent and also performs certain accounting and
pricing services for the Funds. FPS maintains shareholder records, answers
shareholder inquiries concerning their accounts, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder services. All shareholder inquiries should
be directed to FPS. You may write to: FPS Services, Inc., 3200 Horizon Drive,
P.O. Box 61503, King of Prussia, PA 19406-0903 or you may telephone toll free
(800) 443-1021.
PORTFOLIO TRADING PRACTICES
The Adviser is responsible on a day-to-day basis for executing the Funds'
portfolio transactions, and seeks to obtain the most favorable price and best
available execution of orders. In principal trades, it normally deals with
market makers and will not deal with any affiliated broker. In agency trades, it
seeks to obtain reasonable commissions and may have the Funds pay a higher
commission than the broker might otherwise charge if the Funds determine that
the commission is reasonable in relation to, among other things, the value of
brokerage or research services provided by the broker to the Adviser. In agency
trades, the Adviser generally uses the services of its affiliated brokers, if in
the judgment of the Adviser, such affili-
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ates are able to obtain a price and execution at least as favorable as other
qualified brokers. For a more detailed description of the Funds' portfolio
trading practices, see "Portfolio Trading Practices" in the SAI.
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PERFORMANCE INFORMATION
PERFORMANCE ILLUSTRATIONS
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THIRD
AVENUE VALUE FUND AND THE STANDARD & POOR'S 500 INDEX (S&P 500)
AVERAGE ANNUAL TOTAL RETURN
THIRD AVENUE VALUE FUND
YEAR VALUE OF
ENDED RETURN INVESTMENT INVESTMENT
10/31/90 $10,000.00 $10,000.00
Year 1 10/31/91 49.16% $14,916.00
Year 2 10/31/92 6.50% $15,884.48
Year 3 10/31/93 37.36% $21,818.91
Year 4 10/31/94 2.56% $22,377.48
Year 5 10/31/95 22.31% $27,369.89
Year 6 10/31/96 15.55% $31,625.91
Year 7 10/31/97 35.31% $42,793.02
S&P Index
YEAR VALUE OF
ENDED RETURN INVESTMENT INVESTMENT
10/31/90 $10,000.00 $10,000.00
Year 1 10/31/91 33.50% $13,350.00
Year 2 10/31/92 9.96% $14,679.66
Year 3 10/31/93 14.94% $16,872.80
Year 4 10/31/94 3.87% $17,525.78
Year 5 10/31/95 26.44% $22,159.59
Year 6 10/31/96 24.09% $27,498.71
Year 7 10/31/97 32.11% $36,328.55
THIRD AVENUE VALUE FUND Average Annual Return
1 Year 35.31%
2 Years 25.00%
3 Years 24.12%
4 Years 38.17%
5 Years 21.92%
6 Years 19.20%
7 Years 23.07%
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THIRD AVENUE SMALL-CAP VALUE FUND AND THE RUSSELL 2000 INDEX
AVERAGE ANNUAL TOTAL RETURN
THIRD AVENUE SMALL-CAP VALUE FUND
PERIOD VALUE OF
ENDED* RETURN INVESTMENT INVESTMENT
$10,000.00 $10,000.00
Year 1 10/31/97 23.70% $12,370.00
Russell 2000 Index
PERIOD VALUE OF
ENDED* RETURN INVESTMENT INVESTMENT
$10,000.00 $10,000.00
Year 1 10/31/97 28.11% $12,811.00
THIRD AVENUE SMALL-CAP VALUE FUND Total Return Since Inception.
Seven months 23.70%
- --------------------------------------------------------------------------------
* Period beginning April 1, 1997 (THIRD AVENUE SMALL-CAP VALUE FUND'S
commencement of operations)
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DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Each of THIRD AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND expects to
declare and pay distributions annually, generally in December. THIRD AVENUE HIGH
YIELD FUND expects to declare and pay distributions quarterly. The Funds will
notify shareholders of the tax status of dividends and capital gain
distributions.
Each Fund intends to qualify annually for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code, and thus not be subject
to Federal income tax on the portion of its net investment income and net
realized capital gains that it distributes to shareholders. Each Fund intends to
continue its qualification as a regulated investment company in future years,
unless it determines that such tax treatment would not be advantageous to the
Fund and its shareholders. Each Fund intends to distribute substantially all of
its net investment income and net realized capital gain.
For the year ended October 31, 1997, THIRD AVENUE VALUE FUND distributed net
investment income of approximately $13,987,128 and net realized capital gains on
investments of approximately $3,539,465. A distribution of $0.572 per share,
consisting of $0.411 of income, $0.049 of short-term capital gain and $0.112 of
long-term capital gain was distributed to shareholders of record on December 30,
1997.
For the period ended October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND did not
distribute net investment income or net realized capital gains. A distribution
of $0.062 per share, consisting solely of income, was distributed to
shareholders of record on December 30, 1997.
Distributions from net investment income and short-term capital gains are
taxable as ordinary income. A portion of these distributions may qualify for the
corporate dividends-received deduction available to corporate shareholders.
Distributions of net long-term capital gain realized by the Funds from the
purchase and sale of securities held by them for more than one year or eighteen
months, as the case may be, will be taxable to shareholders as a long-term
capital gain (even if the shareholder has held the shares for less than one
year) at the rate applicable to those respective holding periods. The Taxpayer
Relief Act of 1997 generally reduced the maximum federal tax rate for
noncorporate taxpayers on long-term capital gains generated from assets held for
more than eighteen months from 28% to 20%. Capital gains from assets held for
more than twelve months but not more than eighteen months are still taxed at a
maximum 28% rate. After the close of each calendar year, the shareholders of
each Fund will receive information regarding the amount and the
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tax character of that Fund's distributions. If a shareholder who has received a
capital gain distribution suffers a loss on the sale of his shares not more than
six months after purchase, the loss will be treated as a long-term capital loss
to the extent of the capital gain distribution received.
Shareholders receiving distributions in the form of additional shares will be
treated for federal income tax purposes in the same manner as if they had
received cash distributions equal in value to the shares received, and will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the applicable Fund on the date of distribution.
Shareholders will generally recognize taxable gain or loss on a redemption of
shares in an amount equal to the difference between the redemption proceeds and
the shareholder's basis in the shares redeemed. This gain or loss will generally
be capital, assuming that the shareholder held the shares as a capital asset,
and will be long-term capital gain or loss if the shares were held for longer
than one year, with gain taxed at a lower rate if the shares were held by a
noncorporate taxpayer for longer than eighteen months. A loss recognized on the
disposition of shares of a Fund will be disallowed if identical (or
substantially identical) shares are acquired in a 61-day period beginning 30
days before and ending 30 days after the date of disposition.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes or withholding taxes. Shareholders
should consult their tax advisers as to the tax consequences to them of
ownership of shares of the Funds.
If a shareholder purchases shares shortly before the record date of a dividend
or capital gain distribution, such distribution will be taxable even though it
may represent in whole or in part a return of the purchase price, and the value
of the shares drops by the approximate amount of the distribution.
DISTRIBUTION OPTIONS
Shareholders should specify on their account application how they wish to
receive distributions. If no election is made on the account application, all
distributions will automatically be reinvested.
Each Fund offers four options:
(1) all income dividends and capital gain distributions paid in cash;
(2) income dividends paid in cash with capital gain distributions
reinvested;
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(3) income dividends reinvested with capital gain distributions paid in
cash; or
(4) both distributions automatically reinvested in additional shares of
that Fund.
Any distribution payments returned by the post office as undeliverable will be
reinvested in additional shares of the applicable Fund at the net asset value
next determined.
WITHHOLDING
The Funds may be required to withhold Federal income tax at the rate of 31%
(backup withholding) from dividend, capital gain and redemption payments to
shareholders (a) who fail to furnish the Funds with and to certify the payee's
correct taxpayer identification number or social security number, (b) when the
Internal Revenue Service notifies the Funds that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect or (c) when the payee fails to certify that he is not
subject to backup withholding. Investors should be sure to provide this
information when they complete the application. Certain foreign accounts may be
subject to U.S. withholding tax on ordinary distributions. Investors should be
sure to provide their place of residence as well as citizenship status when
completing the application.
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HOW TO PURCHASE SHARES
The price paid for shares is the net asset value next determined following
receipt of the purchase order in proper form by the applicable Fund or its
authorized service agent or sub-agent. See "Determining Net Asset Value" below.
All purchase orders should be directed to the Funds' transfer agent, FPS
Services, Inc. 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903.
The Funds reserve the right to reject any purchase order.
BUSINESS HOURS
The Funds are open for business each day the New York Stock Exchange ("NYSE") is
open. The NYSE and the Funds will be closed on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
DETERMINING NET ASSET VALUE
Net asset value per share is calculated as of the close of regular trading on
the NYSE, normally 4:00 p.m., Eastern time, each day the NYSE is open for
trading. Net asset value of each Fund is determined by dividing the value of all
portfolio securities, cash, and other assets, including accrued interest and
dividends, owned by the Fund, less all liabilities, including accrued expenses
of the Fund, by the total number of shares of each Fund outstanding.
Short-term securities with original or remaining maturities in excess of 60 days
are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are amortized to maturity based on
their cost to a Fund if acquired within 60 days of maturity or, if already held
by the Fund on the day, based on the value determined on the day. This amortized
cost method will be used unless the Board of Trustees determines that such
method does not represent fair value.
Securities traded on any securities exchange or other market trading system
which reports actual transaction prices on a contemporaneous basis are valued at
the last quoted sales price or, in the absence of closing sales prices on that
day, securities will be valued at the mean between the closing bid and asked
price. Other readily marketable securities are valued at the mean between the
closing bid and asked prices. A Fund may utilize the services of one or more
pricing services to assist it in valuing the Fund's securities. Illiquid
securities and other securities and assets for which market quotations are not
readily available are valued at "fair value", as determined in
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good faith by or under the direction of the Board of Trustees of the Fund
holding such securities.
SHARE CERTIFICATES
Share certificates representing shares of a Fund will be delivered to
shareholders only upon written request.
THROUGH AN AUTHORIZED BROKER-DEALER OR INVESTMENT ADVISER
Shares of the Funds may also be purchased through an investor's broker-dealer or
investment adviser. The broker-dealer must be a member in good standing with the
NASD and have entered into a selling agreement with the Funds' distributor, MJW.
Investment advisers must be registered under federal securities laws.
Transactions in Fund shares made through an investor's broker-dealer or
investment adviser may be subject to charges imposed by the dealer or investment
adviser, who may also impose higher initial or additional amounts for investment
than those established by the Funds. In those situations, the investor's
broker-dealer or investment adviser is responsible for forwarding payment or
arranging for payment promptly. The Funds reserve the right to cancel any
purchase order for which payment has not been received by the third business day
following receipt of the purchase order. Telephone purchase orders will only be
accepted from financial institutions which have been approved previously by the
Funds or the Adviser.
NEW ACCOUNTS
An account application must be completed and signed for each new account opened,
regardless of the method chosen for making the initial investment.
INITIAL INVESTMENT
The minimum initial investment for each Fund is $1,000. Payment may be made by
check or money order payable to "THIRD AVENUE VALUE FUND," "THIRD AVENUE
SMALL-CAP VALUE FUND" or "THIRD AVENUE HIGH YIELD FUND."
BY MAIL
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND or
THIRD AVENUE HIGH YIELD FUND
c/o FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903.
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Checks will be accepted if drawn in U.S. currency on a domestic bank. Checks
drawn against a non-U.S. bank may be subject to collection delays and will be
accepted only upon actual receipt of the funds by the transfer agent, FPS. The
Funds will not accept a check endorsed over by a third-party. A charge (minimum
of $20) will be imposed if any check used for the purchase of Fund shares is
returned unpaid. Investors who purchase Fund shares by check or money order may
not receive redemption proceeds until there is a reasonable belief that the
check has cleared, which may take up to fifteen calendar days after payment has
been received.
BY WIRE
Prior to sending wire instructions, notify FPS at (800) 443-1021, Option 2 to
insure proper credit to the shareholder's account. Direct shareholder's bank to
wire funds as follows:
UMB Bank KC NA
Kansas City, MO
ABA #: 10-10-00695
For FPS #: 98-7037-071-9
For further credit to: THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP
VALUE FUND or THIRD AVENUE HIGH YIELD FUND (Shareholder's name, exact
account title and account number)
Heavy wire traffic over the Federal Reserve System may delay the arrival of
purchase orders made by wire.
ADDITIONAL INVESTMENTS BY MAIL
Subsequent investments should be accompanied by the "payment stub" attached to
the shareholder's account statement and may be made in minimum amounts of $1,000
and mailed to:
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND or
THIRD AVENUE HIGH YIELD FUND
c/o FPS Services, Inc.
P.O. Box 412797
Kansas City, MO 64141-2797
At the sole discretion of the Adviser, the initial and any additional investment
minimums may be waived in new accounts opened by existing shareholders for
additional family members and by officers, trustees or employ-
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ees of the Funds, MJW, the Adviser or any affiliate of the Adviser (including
their spouses and children under age 21).
ADDITIONAL INVESTMENTS THROUGH THE AUTOMATIC INVESTMENT PLAN
This Plan provides shareholders with a convenient method by which they may
automatically make subsequent monthly purchases. A predetermined amount,
selected by the shareholder, will be deducted from the shareholder's checking
account. Subsequent investments under this Plan are subject to a monthly minimum
of $200. The Automatic Investment Plan option may be elected on the application.
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds' Individual Retirement Account ("IRA") application and additional
forms required may be obtained by contacting FPS at (800) 443-1021, Option 1.
For IRA's, the initial minimum is $500 and the minimum subsequent contribution
is $200. The account will be maintained by the custodian, Semper Trust Company,
which currently charges an annual maintenance fee of $12. Fees are subject to
change by Semper Trust Company.
OTHER RETIREMENT PLANS
Investors who are self-employed may purchase shares of the Funds through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. However, the Funds do not currently act as a
sponsor or administrator for such plans. Fund shares may also be purchased for
other types of qualified pension or profit sharing plans which are
employer-sponsored, including deferred compensation or salary reduction plans
known as "401(k) Plans", which give participants the right to defer portions of
their compensation for investment on a tax-deferred basis until distributions
are made from the plan.
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HOW TO REDEEM SHARES
Shareholders may redeem shares on any business day during which the NYSE is
open. All redemption requests should be directed to FPS. Fund shares will be
redeemed at the net asset value next calculated after such request is received
by FPS in proper form. Redemption requests that contain a restriction as to the
time, date or share price at which the redemption is to be effective will not be
honored.
BY MAIL
Send a written request, together with any share certificates that have been
issued, to:
FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
Written redemption requests, stock powers and any share certificates issued must
be submitted and signed exactly as the account is registered. Such requests
generally require a signature guarantee and additional documents. See "Signature
Guarantees/Other Documents."
TELEPHONE REDEMPTION SERVICE
Shareholders who wish to redeem shares by telephone may elect this service on
the application. Such shareholders may thereafter redeem unissued shares valued
at not less than $1,000 on any business day by calling FPS at (800) 443-1021,
Option 2, prior to 4:00 p.m. Eastern time.
The Funds and FPS will not be liable for following telephone instructions
reasonably believed to be genuine. In this regard, FPS will require personal
identification information before accepting a telephone redemption order. If the
transfer agent fails to use reasonable procedures, the Funds or FPS might be
liable for losses due to fraudulent instructions.
Shareholders who did not previously elect the Telephone Redemption Service on
their application, or who wish to change any information previously provided,
including the address of record or the bank to which redemption proceeds are to
be wired, must submit a signature guaranteed letter of instructions. See
"Signature Guarantees/Other Documents."
FEES
There is no charge for redemption of shares tendered directly to FPS, except as
described below under "Early Redemption Fee." FPS currently charges a wire fee
of $9 for payment of redemption proceeds by federal
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funds. FPS will automatically deduct the wire fee from the redemption proceeds.
Broker-dealers handling redemption transactions generally will charge a service
fee.
REDEMPTION WITHOUT NOTICE
The Funds have the right, at any time and without prior notice to a shareholder,
to redeem shares held in any account registered in the name of such shareholder
at current net asset value, if and to the extent that such redemption is
necessary to reimburse the Funds for any loss sustained by reason of the failure
of such shareholder to make full payment for shares of the Funds previously
purchased or subscribed for by such shareholder.
ACCOUNT MINIMUM
A shareholder selling a partial amount of shares must leave at least $500 worth
of shares to keep the account open, or in the case of an IRA account, at least
$200. The Funds may also, upon 30 days prior written notice to a shareholder,
redeem shares in any account, other than an IRA account, containing shares
currently having an aggregate net asset value, not attributed to market
fluctuations, of less than $500.
PAYMENT OF REDEMPTION PROCEEDS
A Fund will usually make payment for redemptions of Fund shares within one
business day, but not later than seven calendar days after receipt of such
redemption requests. However, if the Fund has not collected the purchase price
of the shares being redeemed, the redemption will not be processed until such
collection has been completed.
Redemption of recently purchased Fund shares that have been paid for by check
may be delayed until the Fund has a reasonable belief that the check has
cleared, which may take up to fifteen calendar days after payment for the
purchase. Investors who anticipate that they may wish to redeem their shares
before fifteen calendar days are advised to pay for their shares by federal
funds wire.
WIRED PROCEEDS
In the case of redemption proceeds that are wired to a shareholder's bank,
payment will be transmitted only on days that commercial banks are open for
business and only to the bank and account previously authorized on the
application or shareholder's signature guaranteed letter of instruction. Neither
the Funds nor FPS will be responsible for any delays in wired redemption
proceeds due to heavy wire traffic over the Federal Reserve System.
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SIGNATURE GUARANTEES/OTHER DOCUMENTS
Signatures on any (1) request for redemption, payable to the registered
shareholder involving $5,000 or more, (2) redemption proceeds payable to and/or
mailed to other than the registered shareholder, or (3) requests to transfer
shares, must be guaranteed by an "eligible guarantor institution" as such term
is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, which
includes certain banks, brokers, dealers, credit unions, securities exchanges
and associations, clearing agencies and savings associations. A notary public is
not an acceptable guarantor. ADDITIONAL DOCUMENTS MAY BE REQUIRED WHEN SHARES
ARE REGISTERED IN THE NAME OF A CORPORATION, PARTNERSHIP, ASSOCIATION, AGENT,
FIDUCIARY, TRUST, ESTATE OR OTHER ORGANIZATION. Additional tax documents may
also be required in the case of redemptions from IRA accounts. For further
information, call FPS toll free at (800) 443-1021, Option 2.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders owning or purchasing shares of the Funds having a current value of
at least $10,000 may participate in a Systematic Withdrawal Plan, which provides
for automatic redemption of at least $100 monthly, quarterly, semi-annually, or
annually. Shareholders may establish a Systematic Withdrawal Plan by sending a
letter to FPS. Notice of all changes concerning the Systematic Withdrawal Plan
must be received by FPS at least two weeks prior to the next scheduled payment.
Further information regarding the Systematic Withdrawal Plan and its
requirements can be obtained by contacting FPS at (800) 443-1021, Option 2.
EARLY REDEMPTION FEE
With respect to THIRD AVENUE HIGH YIELD FUND, upon the redemption or exchange of
shares held less than one year, a fee of 1% of the current net asset value of
the shares will be assessed and retained by the Fund for the benefit of the
remaining shareholders. This fee is intended to encourage long-term investment
in the Fund, to avoid transaction and other expenses caused by early
redemptions, and to facilitate portfolio management. The fee is not a deferred
sales charge, is not a commission paid to the Adviser, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time. The fee applies to redemptions from the Fund and
exchanges to other THIRD AVENUE funds, but not to dividend or capital gains
distributions which have been automatically reinvested in the Fund. The fee is
applied to the shares being redeemed or exchanged in the order in which they
were purchased.
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For the foregoing purposes and without regard to the shares actually redeemed,
shares will be treated as redeemed as follows: first, reinvestment shares;
second, purchased shares held one year or more; and third, purchased shares held
for less than one year. No fee will be payable by shareholders who are omnibus
or similar account customers of certain Fund-approved broker-dealers and other
institutions.
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HOW TO EXCHANGE SHARES
INTER-FUND EXCHANGE PRIVILEGE
Shareholders may, in writing or by telephone, exchange shares of one Fund of the
Trust for shares of another Fund at net asset value without the payment of any
fee or charge, except as noted below under "Early Redemption Fee." An exchange
is considered a sale of shares and may result in capital gain or loss for
federal income tax purposes. Shareholders who wish to use this exchange
privilege may elect the service on the account application.
If FPS receives exchange instructions in writing or by telephone at (800)
443-1021, in good order by the valuation time on any business day, the exchange
will be effected that day. For an exchange request to be in good order, it must
include the shareholder's name as it appears on the account, the account number,
the amount to be exchanged, the names of the Funds from which and to which the
exchange is to be made and a signature guarantee as may be required. A written
request for an exchange in excess of $5,000 must be accompanied by a signature
guarantee as described under "Signature Guarantees/Other Documents."
MONEY MARKET EXCHANGE PRIVILEGE
Shareholders may redeem any or all shares of the Funds and automatically invest
the proceeds through the Third Avenue Money Market Fund account, in the Cash
Account Trust Money Market Portfolio, an unaffiliated, separately managed, money
market mutual fund. The exchange privilege with the money market portfolio does
not constitute an offering or recommendation of the shares of the money market
portfolio by the Funds or the Distributor. The Adviser is compensated for
administrative services it performs with respect to the money market portfolio.
Shareholders who wish to use this exchange privilege may elect the service on
the account application. The Funds' shareholders should not order shares of the
Money Market Fund without first receiving the current prospectus for the Money
Market Fund. By giving exchange instructions, a shareholder will be deemed to
have represented that he has received the current prospectus for the Money
Market Fund. Exchanges of Fund shares are subject to the other requirements of
the Money Market Fund into which the exchange is made.
The Funds reserve the right to reject any exchange request or otherwise modify,
restrict or terminate the exchange privilege at any time upon at least 60 days
prior written notice.
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Shareholders should be aware that an exchange is treated for federal income tax
purposes as a sale and a purchase of shares, which may result in realization of
a gain or loss.
EARLY REDEMPTION FEE
See "How to Redeem Shares - Early Redemption Fee" for an explanation of a fee
that might be applicable upon the exchange of shares of THIRD AVENUE HIGH YIELD
FUND held for less than one year.
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SHAREHOLDER SERVICES
Each Fund provides you with helpful services and information about your account.
o A statement after every transaction.
o An annual account statement reflecting all transactions for the year.
o Tax information will be mailed by January 31 of each year, a copy of
which will also be filed with the Internal Revenue Service.
o The financial statements of the Fund with a summary of portfolio
composition and performance will be mailed at least twice a year.
o The Funds intend to continue to mail to shareholders quarterly reports
containing the Portfolio Managers' letters and a summary of portfolio
changes, composition and performance.
The Funds pay for shareholder services but not for special services such as
requests for historical transcripts of accounts. The Funds' transfer agent, FPS,
currently charges $10 per year for duplication of historical account activity
records, with a maximum fee of $100.
TELEPHONE INFORMATION
YOUR ACCOUNT: Questions about your account, purchases,
redemptions and distributions can be
answered by FPS Monday through Friday, 9:00
AM to 7:00 PM (Eastern time). Call toll free
(800) 443-1021, Option 2 or (610) 239-4600.
THE FUNDS: Questions about the Funds can be answered by
the Funds' telephone representatives Monday
through Friday 9:00 AM to 5:00 PM (Eastern
time). Call toll free (800) 443-1021 or
(212) 888-6685.
TO REDEEM SHARES: To redeem shares by telephone, call FPS
prior to 4:00 PM on the day you wish to
redeem, toll free (800) 443-1021, Option 2,
or (610) 239-4600.
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TRANSFER OF OWNERSHIP
A shareholder may transfer Fund shares or change the name or form in which the
shares are registered by writing to FPS. The letter of instruction must clearly
identify the account number, name(s) and number of shares to be transferred, and
provide a certified tax identification number by way of a completed new account
application or W-9 form, and include the signature(s) of all registered owners,
and any share certificates issued. The signature(s) on the transfer instructions
or any stock power must be guaranteed as described under "Signature
Guarantees/Other Documents."
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such information
or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obliger as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation.
II. Nature and provisions of the obligation.
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC", and "C" is
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 "C"
the highest degree of speculation. While such debt will
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likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rate "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BBB" rating.
B - Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
C1 - The rating "C1" is reserved for income bonds on which no interest is
being paid.
D - Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
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Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
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 edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risk appear
somewhat greater than the 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 some time 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
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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. Moody's applies numerical
modifiers: 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
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BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer, President
David M. Barse
Chief Operating Officer, Executive Vice President
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
DISTRIBUTOR
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
TRANSFER AGENT
FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIANS
THIRD AVENUE VALUE FUND THIRD AVENUE SMALL-CAP VALUE FUND
North American Trust Company THIRD AVENUE HIGH YIELD FUND
525 B Street Custodial Trust Company
San Diego, CA 92101-4492 101 Carnegie Center
Princeton, NJ 08540-6231
767 THIRD AVENUE
NEW YORK, NY 10017-2023
Phone (212) 888-6685
Toll Free (800) 443-1021
www.mjwhitman.com
<PAGE>
(LOGO)
STATEMENT OF
ADDITIONAL
INFORMATION
------------
February 1, 1998
<PAGE>
(LOGO)
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1998
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
This Statement of Additional Information is in addition to and serves to expand
and supplement the current Prospectus of Third Avenue Trust (the "Trust"), which
currently consists of three separate investment series: THIRD AVENUE VALUE FUND,
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND (each a
"Fund" and collectively, the "Funds").
This Statement of Additional Information, dated February 1, 1998, is not a
Prospectus and should be read in conjunction with the Prospectus dated February
1, 1998. A copy of the Prospectus may be obtained without charge by contacting
the Funds at 767 Third Avenue, New York, NY 10017-2023, (800) 443-1021 or (212)
888-6685.
TABLE OF CONTENTS
GENERAL INFORMATION 1
INVESTMENT POLICIES 1
Loans and Other Direct Debt Instruments 1
Short Sales 1
Commodities 1
INVESTMENT RESTRICTIONS 2
MANAGEMENT OF THE TRUST 4
COMPENSATION TABLE 11
INVESTMENT ADVISER 13
INVESTMENT ADVISORY AGREEMENT 13
ADMINISTRATOR 15
DISTRIBUTOR 15
CUSTODIAN 15
PORTFOLIO TRADING PRACTICES 16
PURCHASE ORDERS 19
REDEMPTION OF SHARES 19
REDEMPTION IN KIND 20
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 20
General 20
Distributions 23
Redemption of Shares 23
Backup Withholding 24
PERFORMANCE INFORMATION 24
FINANCIAL STATEMENTS 25
<PAGE>
GENERAL INFORMATION
Third Avenue Trust (the "Trust") was organized as a business trust under the
laws of the state of Delaware pursuant to a Trust Instrument dated October 31,
1996. At the close of business on March 31, 1997, shareholders of Third Avenue
Value Fund, Inc. ("Third Avenue Maryland"), a Maryland corporation which was
incorporated on November 27, 1989 and began operations on October 9, 1990,
became shareholders of THIRD AVENUE VALUE FUND, a series of the Trust, pursuant
to a merger agreement which was approved by a majority of Third Avenue
Maryland's shareholders on December 13, 1996. Upon this merger, all assets,
privileges, powers, franchises, liabilities and obligations of Third Avenue
Maryland were assumed by the Trust. Except as noted herein, all information
about THIRD AVENUE VALUE FUND or the Trust, as applicable, includes information
about its predecessor, Third Avenue Maryland.
INVESTMENT POLICIES
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
THIRD AVENUE SMALL-CAP VALUE FUND may invest in loans and other direct debt
instruments but currently does not intend to do so except to the extent it has
excess cash or for temporary defensive purposes. THIRD AVENUE HIGH YIELD FUND
may from time to time make loans and expects to invest in loans and other direct
debt instruments.
SHORT SALES
Both THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND may, but
currently do not intend to, engage in short sales. In a short sale transaction,
the Fund sells a security it does not own in anticipation of a decline in the
market value of the security.
COMMODITIES
Both THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND may, but
currently do not intend to, invest in commodities or commodity contracts and
futures contracts.
1
<PAGE>
INVESTMENT RESTRICTIONS
For the benefit of shareholders, each Fund has adopted the following
restrictions, which are fundamental policies and cannot be changed without the
approval of a majority of such Fund's outstanding voting securities. 1
The following investment restrictions apply to each of THIRD AVENUE VALUE FUND,
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND. No Fund may:
1. Borrow money or pledge, mortgage or hypothecate any of its assets
except that each Fund may borrow on a secured or unsecured basis as
a temporary measure for extraordinary or emergency purposes. Such
temporary borrowing may not exceed 5% of the value of such Fund's
total assets when the borrowing is made.
2. Act as underwriter of securities issued by other persons, except to
the extent that, in connection with the disposition of portfolio
securities, it may technically be deemed to be an underwriter under
certain securities laws.
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable
securities of companies which invest in or sponsor such programs.
4. Issue any senior security (as defined in the Investment Company Act
of 1940, as amended) (the "1940 Act"). Borrowings permitted by Item
1 above are not senior securities.
5. Invest 25% or more of the value of its total assets in the
securities (other than Government Securities or the securities of
other regulated investment companies) of any one issuer, or of two
or more issuers which the Fund controls and which are determined to
be engaged in the same industry or similar trades or businesses or
related trades or businesses.
6. Invest 25% or more of the value of its total assets in any one
industry.
- --------------------------------------------------------------------------------
1 As used in this Statement of Additional Information as to any matter requiring
shareholder approval, the phrase "majority of the outstanding securities" means
the vote at a meeting of (i) 67% or more of the shares present or represented,
if the holders of more than 50% of the outstanding voting securities are present
in person or represented by proxy, or (ii) more than 50% of the outstanding
voting securities, whichever is less.
2
<PAGE>
The following investment restrictions apply only to THIRD AVENUE VALUE FUND. The
Fund may not:
1. Make short sales of securities or maintain a short position.
2. Buy or sell commodities or commodity contracts, futures contracts or
real estate or interests in real estate, although it may purchase
and sell securities which are secured by real estate and securities
of companies which invest or deal in real estate.
3. Invest in securities of other investment companies if the Fund,
after such purchase or acquisition owns, in the aggregate, (i) more
than 3% of the total outstanding voting stock of the acquired
company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of
the Fund, or (iii) securities issued by the acquired company and all
other investment companies (other than treasury stock of the Fund)
having an aggregate value in excess of 10% of the value of the total
assets of the Fund.
4. Participate on a joint or joint and several basis in any trading
account in securities.
5. Make loans, except through (i) the purchase of bonds, debentures,
commercial paper, corporate notes, and similar evidences of
indebtedness of a type commonly sold to financial institutions, and
(ii) repurchase agreements. The purchase of a portion of an issue
of securities described under (i) above distributed publicly,
whether or not the purchase is made on the original issuance, is not
considered the making of a loan.
Each Fund is required to comply with the above fundamental investment
restrictions applicable to it only at the time the relevant action is taken. A
Fund is not required to liquidate an existing position solely because a change
in the market value of an investment or a change in the value of the Fund's net
or total assets causes it not to comply with the restriction at a future date. A
Fund will not purchase any portfolio securities while any borrowing exceeds 5%
of its total assets.
3
<PAGE>
MANAGEMENT OF THE TRUST
Trustees and officers of the Funds, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each trustee who is deemed to be an "interested person" of the Funds, as
defined in the 1940 Act, is indicated by an asterisk.
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
PHYLLIS W. BECK* 71 Trustee An Associate Judge (1981 to
GSB Bldg. Suite 800 Present) of the Superior Court
Cynwyd, PA 19004-1611 City Line & Belmont Ave. Bala of
Pennsylvania; Trustee or
Director of the Trust or its
predecessor since November,
1992.
LUCINDA FRANKS 51 Trustee Journalist (1969 to Present);
64 East 86th Street Author "Wild Apples" (1990),
New York, NY 10028 "Waiting Out a War; The Exile of
Private John Picciano (1974);
Winner of the 1971 Pulitzer
Prize for Journalism; Trustee of
the Trust since February, 1998.
GERALD HELLERMAN 60 Trustee Managing Director (8/93 to
10965 Eight Bells Lane Present) of Hellerman
Columbia, MD 21044 Associates, a financial and
corporate consulting firm; Chief
Financial Analyst (1976 to 7/93)
of the Antitrust Division of
U.S. Department of Justice;
Trustee or Director of the Trust
or its predecessor since
September, 1993.
MARVIN MOSER, M.D. 74 Trustee Trustee (1992 to Present) of the
13 Murray Hill Road Trudeau Institute, a medical
Scarsdale, NY 10583 research institute; Clinical
Professor of Medicine (1984 to
Present) at Yale University
School of Medicine; Senior
Medical Consultant (1972 to
Present) for the National High
Blood Pressure Education Program
of the National Heart, Lung and
Blood Institute; Member of the
Committee in 1980, 1984, 1988,
4
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
MARVIN MOSER, M.D. 1992 and 1996 of the Joint
(continued) National Committee on Detection,
Evaluation and Treatment of High
Blood Pressure for the National
Heart, Lung and Blood Institute;
Director of AMBI Corp. (1997 to
Present); Trustee or Director of
the Trust or its predecessor
since November, 1994.
MYRON M. SHEINFELD 67 Trustee Counsel to (12/96 to present)
1001 Fannin St., and Attorney and Shareholder
Suite 3700 (1986 to 12/96) of Sheinfeld,
Houston, TX 77002 Maley & Kay P.C., a law firm;
Adjunct Professor (1975 to
1991) of the University of Texas
Law School; Director (1984 to
1992) of Equity Strategies Fund,
Inc.; Director (1988 to Present)
of Nabors Industries, Inc., an
international oil drilling
contractor; former Consultant
(11/90 to 4/95) to Meyer
Hendricks Victor Osborn &
Maledon, a law firm in Phoenix,
Arizona; Co-Editor and Co-Author
"Collier on Bankruptcy 15th
Edition Revised" and "Collier on
Bankruptcy Taxation"; Trustee or
Director of the Trust or its
predecessor since its inception.
MARTIN SHUBIK 71 Trustee Seymour H. Knox Professor (1975
Yale University to Present) of Mathematical and
Dept. of Economics Institutional Economics, Yale
Box 2125, Yale Station University; Director (1984 to
New Haven, CT 06520 4/94) of Equity Strategies Fund,
Inc.; Trustee or Director of the
Trust or its predecessor since
its inception.
5
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
CHARLES C. WALDEN 53 Trustee Senior Vice-President -- Invest-
Knights of Columbus ments (1973 to Present) (Chief
1 Columbus Plaza Investment Officer) of Knights
New Haven, CT 06510 of Columbus, a fraternal benefit
society selling life insurance
and annuities; Chartered
Financial Analyst; Trustee or
Director of the Trust or its
predecessor since May, 1996.
BARBARA WHITMAN* 39 Trustee Registered Securities Represen-
767 Third Avenue tative (11/96 to Present) of
New York, NY 10017-2023 M.J. Whitman, Inc.; Director
(8/97 to Present) of Riverside
Stage Company, a theater;
Director (4/95 to Present) of
EQSF Advisers, Inc.; House
Manager (1/94 to 8/94) of
Whiting Auditorium, a theater;
Substitute Teacher (1/92 to
6/93) of National-Louis Univer-
sity Movement Center, a
university. Trustee of the Trust
since September, 1997.
MARTIN J. WHITMAN* 73 Chairman, President (1/91 to Present),
767 Third Avenue Chief Chairman and CEO (3/90 to
New York, NY 10017-2023 Executive Present) of the Trust; Chairman,
Officer, CEO (1/1/95 to Present),
President, President (1/1/95 to 6/29/95)
and Trustee and Chief Investment Officer
(10/92 to Present) of M.J.
Whitman Advisers, Inc., a
subsidiary of M.J. Whitman
Holding Corp., (MJWHC), a
holding company managing
investment subsidiaries and an
investment adviser to private
and institutional clients;
Chairman, CEO (1/1/95 to
Present) and President (1/1/95
to 6/29/95) of MJWHC and of M.J.
Whitman, Inc., a subsidiary of
MJWHC and the successor
broker-dealer of
6
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
MARTIN J. WHITMAN* M.J. Whitman, L.P. (MJWLP), a
(continued) Delaware limited partnership
which has been dissolved;
Distinguished Management Fellow
(1972 to Present) and Member of
the Advisory Board (10/94 to
6/95) of the Yale School of
Management at Yale University;
Director and Chairman (8/90 to
Present), President (8/90 to
12/90), CEO (8/96 to Present)
and Chief Investment Officer
(12/90 to 8/96) of Danielson
Holding Corporation, and a
Director of its subsidiaries;
Director (3/91 to Present) of
Nabors Industries, Inc., an
international oil drilling
contractor; Chairman and CEO
(4/86 to Present) and President
(1/91 to Present) of EQSF
Advisers, Inc., investment
adviser to the Trust; Director
(8/97 to Present) of Tejon Ranch
Co.; President and CEO (10/74 to
Present) of Martin J. Whitman &
Co., Inc., (formerly M.J.
Whitman & Co., Inc.), a private
investment company; Trustee or
Director of the Trust or its
predecessor since its inception;
Chartered Financial Analyst.
DAVID M. BARSE 35 Executive President, Chief Operating
767 Third Avenue Vice Officer and Director (7/96 to
New York, NY 10017-2023 President Present) of Danielson Holding
and Chief Corporation; Director (8/96 to
Operating Present) of National American
Officer Insurance Company of California;
Executive Vice President and
Director (4/95 to Present) of
EQSF Advisers, Inc.; President
(6/95 to Present), Director,
Chief Operating
7
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
DAVID M. BARSE Officer (COO) (1/95 to Present),
(continued) Secretary (1/95 to 1/96) and
Executive Vice President (1/95
to 6/95) of MJWHC; President
(6/95 to Present), Director and
COO (1/95 to Present), Secretary
(1/95 to 1/96), Executive Vice
President (1/95 to 6/95) of M.J.
Whitman, Inc.; President (6/95
to Present), Director and COO
(1/95 to Present), Executive
Vice President (1/95 to 6/95)
and Corporate Counsel (10/92 to
12/95) of M.J. Whitman Advisers,
Inc.; Director (6/97 to Present)
of CGA Group, Ltd.; Director
(7/94 to 12/94), Executive Vice
President and Secretary (1/92 to
12/94) of Whitman Securities
Corp.
MICHAEL CARNEY 44 Treasurer Director, (1/1/95 to Present)
767 Third Avenue and Chief Executive Vice President, Chief
New York, NY 10017-2023 Financial Financial Officer (6/29/95 to
Officer(CFO) Present) of MJWHC and of M.J.
Whitman, Inc.; Treasurer,
Director (1/1/95 to Present),
Executive Vice President
(6/29/95 to Present) and CFO
(10/92 to Present) of M.J.
Whitman Advisers, Inc.;
Treasurer (12/93 to 4/96) of
Longstreet Investment Corp.; CFO
(3/26/93 to 6/95) of Danielson
Trust Company; Limited Partner
(1/92 to 12/31/94) of M.J.
Whitman, L.P.; CFO of WHR
Management Corporation (8/91 to
Present), Danielson Holding
Corporation (8/90 to Present)
and Carl Marks Strategic
8
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
MICHAEL CARNEY Investments, L.P., an investment
(continued) partnership (1/90 to 4/94); CFO
(1/90 to 4/94) of Carl Marks &
Co., Inc., a broker-dealer; CFO
(8/89 to 12/90) of Whitman
Advisors, Ltd.; CFO and
Treasurer (5/89 to 4/94) of
Equity Strategies Fund, Inc.;
CFO and Treasurer (5/89 to
Present) of EQSF Advisers, Inc.;
CFO (5/89 to Present) of Whitman
Heffernan Rhein & Co., Inc.,
Martin J. Whitman & Co., Inc.,
(formerly M.J. Whitman & Co.,
Inc.) and WHR Management
Company, L.P., a firm managing
investment partnerships.
KERRI WELTZ 30 Assistant Assistant Treasurer (5/96 to
767 Third Avenue Treasurer Present), Controller (1/96 to
New York, NY 10017-2023 Present), Assistant Controller
(1/93 to 12/95) and Staff
Accountant (1/92 to 12/92) for
the Trust; Controller (1/96 to
Present), Assistant Controller
(1/93 to 12/95), and Staff
Accountant (1/92 to 12/92) of
EQSF Advisers, Inc.; Controller
(8/96 to Present), of Danielson
Holding Corp.; Controller (5/96
to Present) and Assistant
Controller (1/95 to 5/96) of
Whitman Heffernan & Rhein
Workout Fund II, L.P. and
Whitman Heffernan & Rhein
Workout Fund II-A, L.P.;
Controller (5/96 to present) of
WHR Management Corp.; Controller
(5/96 to present), Assistant
Controller (1/93 to 5/96) and
Staff Accountant (5/91 to
12/92), of
9
<PAGE>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION
HELD WITH DURING PAST 5 YEARS
REGISTRANT
KERRI WELTZ Whitman Heffernan Rhein & Co.,
(continued) Inc.; Controller (5/96 to
Present) of Martin J Whitman &
Co., Inc.; Assistant Controller
(10/94 to 4/96) of Longstreet
Investment Corp and Emerald
Investment Partners, L.P.;
Assistant Controller (1/93 to
4/94) and Staff Accountant (1/92
to 12/92) of Equity Strategies
Fund, Inc.; Payroll manager
(5/91 to 12/93) of M.J. Whitman,
IAN M. KIRSCHNER 42 General General Counsel and Secretary
767 Third Avenue Counsel and (8/96 to Present) of Danielson
New York, NY 10017-2023 Secretary Holding Corporation; General
Counsel and Secretary (1/96 to
Present) of MJWHC, M.J. Whitman,
Inc., and M. J. Whitman
Advisers, Inc.; General Counsel
and Secretary (1/97 to Present)
of the Trust; General Counsel
and Secretary (1/97 to Present)
of EQSF Advisers, Inc.;
Vice-President, General Counsel
and Secretary (2/93 to 6/95) of
2 I Inc.; Of Counsel (10/90 to
10/92) to Morgan, Lewis &
Bockius.
The Trust does not pay any fees to its officers for their services as such, but
does pay Trustees who are not affiliated with the Investment Adviser a fee of
$1,500 per Fund for each meeting of the Board of Trustees that they attend, in
addition to reimbursing all Trustees for travel and incidental expenses incurred
by them in connection with their attendance at Board meetings. The Trust also
pays the non-interested Trustees an annual stipend of $2,000 per Fund in January
of each year for the previous year's service. The Trust paid Trustees in the
aggregate, $89,549 in such fees and expenses for the year ended October 31,
1997. Trustees do not receive any pension or retirement benefits.
10
<PAGE>
For the fiscal year ended October 31, 1997, the aggregate amount of compensation
paid to each Trustee by the Trust is listed below. No compensation was paid to
the Trustees with respect to THIRD AVENUE HIGH YIELD FUND because the Fund had
not commenced operations as of that date.
COMPENSATION TABLE
AGGREGATE
COMPENSATION
FROM REGISTRANT TOTAL COMPENSATION
FOR FISCAL YEAR FROM REGISTRANT AND
ENDED FUND COMPLEX
NAME AND POSITION HELD OCTOBER 31, 1997 PAID TO TRUSTEES
- ---------------------- ---------------- ----------------
Phyllis W. Beck, Trustee $ 0 $ 0
Tibor Fabian, Trustee** $ 11,700 $ 11,700
Gerald Hellerman, Trustee $ 11,700 $ 11,700
Marvin Moser, M.D., Trustee $ 11,700 $ 11,700
Donald Rappaport, Trustee*** $ 8,700 $ 8,700
Myron M. Sheinfeld, Trustee $ 11,700 $ 11,700
Martin Shubik, Trustee $ 7,200 $ 7,200
Charles C. Walden, Trustee $ 11,300 $ 11,300
Barbara Whitman, Trustee $ 0 $ 0
Martin J. Whitman, Chairman/ $ 0 $ 0
Chief Executive Officer
and President
- --------------------------------------------------------------------------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $15,549 for all Trustees as a group. For the fiscal year
ended October 31, 1998, it is anticipated that in addition to the
compensation payable to the Trustees of THIRD AVENUE VALUE FUND and THIRD
AVENUE SMALL-CAP VALUE FUND, the Trustees of THIRD AVENUE HIGH YIELD FUND
also shall receive compensation in an estimated amount equal to $4,500 per
Trustee and THIRD AVENUE HIGH YIELD FUND will reimburse the Trustees for
approximately $4,000 in expenses in the aggregate (such estimated amounts
are based upon the aggregate compensation received and expenses incurred
by the Trustees of THIRD AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP
VALUE FUND for the fiscal year ended October 31, 1997).
** Mr. Fabian passed away on December 6, 1997.
*** Mr. Rappaport resigned as a Trustee on May 8, 1997.
11
<PAGE>
The following persons beneficially own of record or are known to beneficially
own of record 5 percent or more of the outstanding common stock of THIRD AVENUE
VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND as set forth below as of
February 2, 1998. THIRD AVENUE HIGH YIELD FUND had not commenced operations as
of February 2, 1998.
THIRD AVENUE VALUE FUND
PERCENTAGE OF
NAME AND ADDRESS THIRD AVENUE VALUE FUND NUMBER OF SHARES
- ---------------- ----------------------- ----------------
Charles Schwab & Co., Inc.2 39.69% 22,395,112
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities Corp.3 11.75% 6,632,762
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Donaldson Lufkin & Jenrette Securities
Corporation3 11.07% 6,249,208
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
THIRD AVENUE SMALL-CAP VALUE FUND
PERCENTAGE OF
THIRD AVENUE NUMBER OF
NAME AND ADDRESS SMALL-CAP VALUE FUND SHARES
- ---------------- -------------------- ---------
Charles Schwab & Co., Inc.2 35.72% 3,718,071
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities Corp.3 19.56% 2,036,543
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Bear Stearns Securities Corp.4 10.01% 1,041,713
One Metrotech Center North
Brooklyn, NY 11201-3859
Donaldson Lufkin & Jenrette Securities
Corporation3 5.53% 575,297
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------
2 Charles Schwab & Co., Inc. is a discount broker-dealer acting as a nominee
for registered investment advisers whose clients have purchased shares of
the Fund, and also holds shares for the benefit of its clients.
3 Donaldson Lufkin & Jenrette Securities Corporation and National Financial
Services Corp. are broker-dealers holding shares for the benefit of their
respective clients.
4 Bear Stearns Securities Corp. is a broker-dealer holding shares for the
benefit of its clients, including, at such time, clients of MJW, the
Funds' affiliated broker-dealer, principal underwriter and distributor.
12
<PAGE>
INVESTMENT ADVISER
The Investment Adviser to the Trust is EQSF Advisers, Inc. (the "Adviser").
Martin J. Whitman is a controlling person of the Adviser. His control is based
upon an irrevocable proxy signed by his children, who own in the aggregate 75%
of the outstanding common stock of the Adviser, pursuant to a shareholders'
agreement entered into by and among them. Mr. Whitman is Chairman, Chief
Executive Officer and President of the Adviser.
The following individuals are affiliated persons of the Trust and Adviser:
<TABLE>
<CAPTION>
CAPACITY WITH FUNDS CAPACITY WITH ADVISER
<S> <C> <C>
Martin J. Whitman Chairman, Chief Executive Chairman, Chief Executive
Officer and President Officer and President
David M. Barse Chief Operating Officer, Chief Operating Officer,
Executive Vice President Executive Vice President
Michael Carney Treasurer, Chief Financial Officer Treasurer, Chief Financial Officer
Ian M. Kirschner General Counsel and Secretary General Counsel and Secretary
Kerri Weltz Assistant Treasurer Assistant Treasurer
Barbara Whitman Trustee Director
</TABLE>
INVESTMENT ADVISORY AGREEMENT
The investment advisory services of the Adviser are furnished to each of THIRD
AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP VALUE FUND pursuant to an
Investment Advisory Agreement dated February 28, 1997 and to THIRD AVENUE HIGH
YIELD FUND pursuant to an Investment Advisory Agreement dated February 9, 1998
(the "Investment Advisory Agreement"), each providing for an initial term of two
years. The Investment Advisory Agreement of THIRD AVENUE VALUE FUND and THIRD
AVENUE SMALL-CAP VALUE FUND were initially approved for each Fund on February
11, 1997 and the Investment Advisory Agreement of THIRD AVENUE HIGH YIELD FUND
was initially approved on February 9, 1998, in each case by the Board of
Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" as defined in the 1940 Act, and by the sole shareholder of
each Fund on the same date. The Adviser has provided investment advisory
services to the Funds since their inception.
13
<PAGE>
After the initial two-year term, each Investment Advisory Agreement will
continue from year to year if approved annually by the Board of Trustees of the
Trust or a majority of the outstanding voting securities of the Trust, and by
vote of a majority of the Trustees who are not parties to the Investment
Advisory Agreements or "interested persons" (as defined in the 1940 Act) of such
parties, cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreements may be terminated at any time
without penalty, upon 60 days written notice by either party to the other, and
will automatically be terminated upon any assignment thereof.
Under the Investment Advisory Agreements, the Adviser supervises and assists in
the management of the Trust, provides investment research and research
evaluation and makes and executes recommendations for the purchase and sale of
securities. The Adviser furnishes at its expense all necessary office equipment
and personnel necessary for performance of the obligations of the Adviser and
pays the compensation of officers of the Trust. However, in the event that any
person serving as an officer of the Trust has both executive duties attendant to
such offices and administrative duties to the Trust apart from such office, the
Adviser does not pay any amount relating to the performance of such
administrative duties.
All other expenses incurred in the operation of the Funds and the continuous
offering of its shares, including taxes, fees and commissions, bookkeeping
expenses, fund employees, expenses of redemption of shares, charges of
administrators, custodians and transfer agents, auditing and legal expenses,
fees of outside Trustees and rent are borne by the Funds. For the investment
advisory services provided by the Adviser, each Fund pays the Adviser a monthly
fee of 1/12 of .90% (an annual rate of .90%) on the average daily net assets in
the Fund during the prior month. During the fiscal years ended October 31, 1997,
1996 and 1995, THIRD AVENUE VALUE FUND paid investment advisory fees to the
Adviser of $9,303,435, $3,976,741 and $1,926,686, respectively. During the
period from inception to October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND
paid investment advisory fees to the Adviser of $252,298.
14
<PAGE>
ADMINISTRATOR
The Funds have entered into an Administration Services Agreement (the
"Administration Agreement") with FPS Services, Inc. ("FPS"). The Administration
Agreement provides that FPS shall provide all administrative services to each
Fund other than those relating to the investment portfolio of the Funds, the
distribution of the Funds and the maintenance of each Fund's financial records.
The Administration Agreement has an initial two year term and may be terminated
at any time (effective after such initial term) without penalty, upon 180 days
written notice by either party to the other, and will automatically be
terminated upon any assignment thereof.
DISTRIBUTOR
The distribution services of M.J. Whitman, Inc. ("MJW" or the "Distributor") are
furnished to each Fund pursuant to a Distribution Agreement (the "Distribution
Agreement") dated February 28, 1997 in the case of THIRD AVENUE VALUE FUND and
THIRD AVENUE SMALL-CAP VALUE FUND, and February 9, 1998 in the case of THIRD
AVENUE HIGH YIELD FUND. Under such agreements, the Distributor shall (1) assist
in the sale and distribution of each Fund's shares; and (2) qualify and maintain
the qualification as a broker-dealer in such states where shares of the Funds
are registered for sale.
Each Distribution Agreement will remain in effect provided that it is approved
at least annually by the Board of Trustees or by a majority of the Fund's
outstanding shares, and in either case, by a majority of the Trustees who are
not parties to the Distribution Agreement or interested persons of any such
party. Each Distribution Agreement terminates automatically if it is assigned
and may be terminated without penalty by either party on not less than 60 days
written notice.
CUSTODIAN
North American Trust Company ("North American"), 525 B Street, San Diego, CA
92101-4492 serves as custodian for THIRD AVENUE VALUE FUND and Custodial Trust
Company, 101 Carnegie Center, Princeton, NJ 08540-6231, serves as custodian for
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND pursuant to
custodian agreements. Under
15
<PAGE>
such agreements, each Custodian (1) maintains a separate account or accounts in
the name of the Fund for which it is Custodian; (2) holds and transfers
portfolio securities on account of such Fund; (3) accepts receipts and makes
disbursements of money on behalf of such Fund; (4) collects and receives all
income and other payments and distributions on account of such Fund's
securities; and (5) makes periodic reports to the Board of Trustees concerning
such Fund's operations.
PORTFOLIO TRADING PRACTICES
Under the Investment Advisory Agreement between the Trust and the Adviser, the
Adviser has the responsibility of selecting brokers and dealers. The Adviser
must place portfolio transactions with brokers and dealers who render
satisfactory service in the execution of orders at the most favorable prices and
at reasonable commission rates, but has discretion to pay a greater amount if
it, in good faith, determines that such commission was reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer, either in terms of that particular transaction or in fulfilling the
overall responsibilities of the Adviser to the Funds. Where transactions are
executed in the over-the-counter market, or in the "third market" (the
over-the-counter market in listed securities), the Fund will normally first seek
to deal with the primary market makers. However, when the Funds consider it
advantageous to do so, they will utilize the services of brokers, but will, in
all cases, attempt to negotiate the best price and execution. The determination
of what may constitute the most favorable price and execution in a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to the Funds (involving both
price paid or received and any commissions or other costs paid), the efficiency
with which the transaction is effected, the ability to effect the transaction at
all if selling large blocks is involved, the availability of the broker to stand
ready to execute possibly difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. In allocating any such portfolio brokerage on a national
securities exchange, the Funds may consider the research, statistical and other
factual information and services provided by brokers from time to time to the
Adviser. Such services and information are available to the
16
<PAGE>
Adviser for the benefit of all clients of the Adviser and its affiliates and it
is not practical for the Adviser to assign a particular value to any such
service.
The Adviser intends to use brokers affiliated with the Adviser as brokers for
the Funds where, in its judgment, such firms will be able to obtain a price and
execution at least as favorable as other qualified brokers. Martin J. Whitman,
David M. Barse, Michael Carney and Ian M. Kirschner, who are executive officers
of the Trust and the Adviser, are also executive officers of MJW and M.J.
Whitman Senior Debt Corp. ("Senior Debt Corp."), a broker of private debt
instruments under common control with MJW.
In determining the commissions to be paid to MJW and Senior Debt Corp., it is
the policy of the Funds that such commissions will, in the judgment of the
Adviser, be (i) at least as favorable as those which would be charged by other
qualified brokers having comparable execution capability and (ii) at least as
favorable as commissions contemporaneously charged by MJW or Senior Debt Corp.,
as the case may be, on comparable transactions for its most favored unaffiliated
customers, except for any customers of MJW or Senior Debt Corp., as the case may
be, considered by a majority of the disinterested Trustees not to be comparable
to the Funds. The Funds do not deem it practicable and in their best interests
to solicit competitive bids for commission rates on each transaction. However,
consideration is regularly given to information concerning the prevailing level
of commissions charged on comparable transactions by other qualified brokers.
The Trustees from time to time, at least on a quarterly basis, will review,
among other things, all the Funds' portfolio transactions including information
relating to the commissions charged by MJW and Senior Debt Corp. to the Funds
and to their other customers, and information concerning the prevailing level of
commissions charged by other qualified brokers. In addition, the procedures
pursuant to which MJW and Senior Debt Corp. effect brokerage transactions for
the Funds must be reviewed and approved no less often than annually by a
majority of the disinterested Trustees.
The Adviser expects that it will execute a portion of the Funds' transactions
through qualified brokers other than MJW and Senior Debt Corp. In selecting such
brokers, the Adviser will consider the quality and reliability of the brokerage
services, including execution capability and performance, financial
responsibility, and investment information and other research
17
<PAGE>
provided by such brokers. Accordingly, the commissions charged by any such
broker may be greater than the amount another firm might charge if management of
the Trust determines in good faith that the amount of such commissions is
reasonable in relation to the value of the brokerage services and research
information provided by such broker to the Funds. Management of the Trust
believes that the research information received in this manner provides the
Funds with benefits by supplementing the research otherwise available to the
Funds. Over-the-counter purchases and sales will be transacted directly with
principal market makers, except in those circumstances where the Funds can, in
the judgment of their management, otherwise obtain better prices and execution
of orders. During the fiscal year ended October 31, 1997, the amount of
brokerage transactions and related commissions that THIRD AVENUE VALUE FUND and
THIRD AVENUE SMALL-CAP VALUE FUND directed to brokers due to research services
provided were $75,880,891 and $156,693, and $39,274,127 and $78,938,
respectively.
To the knowledge of the Funds, no affiliated person of the Funds receives
give-ups or reciprocal business in connection with security transactions of the
Funds. The Funds do not effect securities transactions through brokers in
accordance with any formula, nor will they take the sale of Fund shares into
account in the selection of brokers to execute security transactions. However,
brokers who execute brokerage transactions for the Funds, including MJW and
Senior Debt Corp., from time to time may effect purchases of Fund shares for
their customers.
For the fiscal year ended October 31, 1997, THIRD AVENUE VALUE FUND incurred
total brokerage commissions of $620,345 of which approximately $460,641 (or
74.26%) was paid to MJW and $18,047 (or 2.91%) was paid to Senior Debt Corp. For
the fiscal year ended October 31, 1996, THIRD AVENUE VALUE FUND incurred total
brokerage commissions of $447,855 of which approximately $329,168 (or 73%) was
paid to MJW and $70,250 (or 16%) was paid to Senior Debt Corp. For the year
ended October 31, 1995, the Fund incurred total brokerage commissions of
$320,517, of which approximately $269,152 (or 84%) was paid to MJW and $22,689
(or 7%) was paid to Senior Debt Corp.
18
<PAGE>
For the fiscal year ended October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND
incurred total brokerage commissions of $78,938 of which approximately $50,977
(or 64.58%) was paid to MJW.
These amounts include fees paid by MJW to its clearing agents. Commissions paid
by the Funds to MJW are paid at an average discount of at least 20% to the
normal fees charged by MJW.
For the fiscal year ended October 31, 1997, THIRD AVENUE VALUE FUND effected 37%
and 3% of its total transactions for which commissions were paid through MJW and
Senior Debt Corp., respectively. For the fiscal year ended October 31, 1997,
THIRD AVENUE SMALL-CAP VALUE FUND effected 32% of its total transactions for
which commissions were paid through MJW.
At October 31, 1997, THIRD AVENUE VALUE FUND held securities of the following
Fund's regular broker-dealers: Piper Jaffray Companies, Inc. (the market value
of which was $3,666,644 at October 31, 1997), and Raymond James Financial, Inc.
(the market value of which was $23,625,000 at October 31, 1997).
PURCHASE ORDERS
Each Fund reserves the right, in its sole discretion, to refuse purchase orders.
Without limiting the foregoing, a Fund will consider exercising such refusal
right when it determines that it cannot effectively invest the available funds
on hand in accordance with the Fund's investment policies.
REDEMPTION OF SHARES
The procedure for redemption of Fund shares under ordinary circumstances is set
forth in the Prospectus. In unusual circumstances, such as in the case of a
suspension of the determination of net asset value, the right of redemption is
also suspended and, unless redeeming shareholders withdraw their certificates
from deposit, they will receive payment of the net asset value next determined
after termination of the suspension. The right of redemption may be suspended or
payment upon redemption deferred for more than seven days: (a) when trading on
the New York Stock Exchange (the "NYSE") is restricted; (b) when the NYSE is
closed for other than weekends and holidays; (c) when the Securities and
Exchange Commission
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<PAGE>
(the "SEC") has by order permitted such suspension; or (d) when an emergency
exists making disposal of portfolio securities or valuation of net assets of a
Fund not reasonably practicable; provided that applicable rules and regulations
of the SEC shall govern as to whether the conditions prescribed in (a), (c) or
(d) exist.
REDEMPTION IN KIND
Each Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which such Fund is obligated during any 90 day period to
redeem shares for any one shareholder of record solely in cash up to the lesser
of $250,000 or 1% of the net asset value of such Fund at the beginning of such
period. Should a redemption exceed such limitation, a Fund may deliver, in lieu
of cash, readily marketable securities from its portfolio. The securities
delivered will be selected at the sole discretion of such Fund, will not
necessarily be representative of the entire portfolio and may be securities
which the Fund would otherwise sell. The redeeming shareholder will usually
incur brokerage costs in converting the securities to cash. The method of
valuing securities used to make the redemptions in kind will be the same as the
method of valuing portfolio securities and such valuation will be made as of the
same time the redemption price is determined. See "Calculation of Net Asset
Value."
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
GENERAL
Each Fund intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If they so qualify, the Funds will not be subject to
Federal income tax on their net investment income and net short-term capital
gain, if any, realized during any fiscal year to the extent that they distribute
such income and gain to their shareholders.
Each Fund will either distribute or retain for reinvestment all or part of any
net long-term capital gain. If any such net capital gain is retained, the Fund
will be subject to a tax of 35% of such amount. In that event, the Fund expects
to designate the retained amount as undistributed capital gains in a notice to
its shareholders, each of whom (1) will be required to include in
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<PAGE>
income for tax purposes, as long-term capital gains, its share of such
undistributed amount, (2) will be entitled to credit its proportionate share of
the tax paid by the Fund against its Federal income tax liability and to claim
refunds to the extent the credit exceeds such liability, and (3) will increase
its basis in its shares of such Fund by an amount equal to 65% of the amount of
the undistributed capital gains included in such shareholder's gross income. A
distribution by a Fund will be treated as paid during any calendar year if it is
declared by the Fund in October, November or December of that year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distribution paid during January of the
following year will be deemed to be received on December 31 of the year the
distribution is declared, rather than when the distribution is received.
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a 4% excise tax. To avoid
the tax, each Fund must distribute during each calendar year, an amount equal to
at least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year (unless an election is made by a Fund with a November or
December year end to use the Fund's fiscal year), and (3) all ordinary income
and net capital gains for previous years that were not previously distributed.
Gains or losses on the sales of securities by a Fund will be treated as
long-term capital gains or losses if the securities have been held by such Fund
for more than twelve months, with gains taxable at a lower rate if the
securities were held by the Fund for more than eighteen months. The Taxpayer
Relief Act of 1997 generally reduced the maximum federal tax rate for
noncorporate taxpayers on long-term capital gains generated from assets held for
more than eighteen months from 28% to 20%. Capital gains from assets held for
more than twelve months but not more than eighteen months are still taxed at a
maximum 28% rate. After the close of each calendar year, the shareholders of
each Fund will receive information regarding the amount and the tax character of
that Fund's distributions. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.
21
<PAGE>
The Federal income tax treatment of the various high yield debt securities and
other debt instruments (collectively, "Instruments" and individually, an
"Instrument") to be acquired by the Funds will depend, in part, on the nature of
those Instruments and the application of various tax rules. The Funds may derive
interest income through the accrual of stated interest payments or through the
application of the original issue discount rules, the market discount rules or
other similar provisions. The Funds may be required to accrue original issue
discount income, and in certain circumstances the Funds may be required to
accrue stated interest even though no concurrent cash payments will be received.
Moreover, it is the position of the IRS that a holder of a debt instrument
subject to the original issue discount rules is required to recognize interest
income regardless of the financial condition of the obligor, even where there is
no reasonable expectancy that the Instrument will be redeemed according to its
terms. If a Fund acquires an Instrument at a discount and the terms of that
Instrument are subsequently modified, the Fund could be required to recognize
gain at the time of the modification even though no cash payments will have been
received at that time. The market discount rules, as well as certain other
provisions, may require that a portion of any gain recognized on the sale,
redemption or other disposition of an Instrument to be treated as ordinary
income as opposed to capital gain. Also, under the market discount rules, if a
Fund were to receive a partial payment on an Instrument, the Fund could be
required to recognize ordinary income at the time of the partial payment, even
though the Instrument may ultimately be settled at an overall loss. As a result
of these and other rules, the Funds may be required to recognize taxable income
which they would be required to distribute, even though the underlying
Instruments have not made concurrent cash distributions to the Funds.
The body of law governing these Instruments is complex and not well developed.
Thus the Funds and their advisors may be required to interpret various
provisions of the Internal Revenue Code and Regulations and take certain
positions on the Funds' tax returns, in situations where the law is somewhat
uncertain.
22
<PAGE>
DISTRIBUTIONS
Distributions of investment company taxable income (which includes taxable
interest income and the excess of net short-term capital gain over net long-term
capital loss) are taxable to a U.S. shareholder as ordinary income, whether paid
in cash or in additional Fund shares. Dividends paid by a Fund will qualify for
the 70% deduction for dividends received by corporations to the extent the
Fund's income consists of qualified dividends received from U.S. corporations.
Distributions of net capital gain (which consists of the excess of net long-term
capital gain over net short-term capital loss), if any, are taxable as long-term
capital gain, whether paid in cash or in shares, regardless of how long the
shareholder has held the applicable Fund's shares, and are not eligible for the
dividends received deduction. Shareholders receiving distributions in the form
of newly issued shares will have a basis in such shares equal to the fair market
value of such shares on the distribution date. If the net asset value of shares
is reduced below a shareholder's cost as a result of a distribution by a Fund,
such distribution may be taxable even though it represents a return of invested
capital. The price of shares purchased at any time may reflect the amount of a
forthcoming distribution. Those purchasing shares just prior to distribution
will receive a distribution which will be taxable to them, even though the
distribution represents in part a return of their invested capital.
REDEMPTION OF SHARES
Upon a redemption of shares, a shareholder will realize a taxable gain or loss
equal to the difference between the redemption proceeds and the basis in the
shares redeemed. Shareholders should consult their tax advisors regarding the
determination of the basis in any shares redeemed. Such gain or loss will
generally be treated as long-term capital gain or loss if the shares have been
held for more than twelve months, with gains taxable at a lower rate if the
securities were held by the Fund for more than eighteen months. Any loss
realized on a sale will be disallowed to the extent the shares disposed of are
replaced within a 61-day period beginning 30 days before and ending 30 days
after the date the shares are disposed of. In such case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
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<PAGE>
Any loss realized by a shareholder on the sale of a Fund's shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to such shares.
BACKUP WITHHOLDING
The Funds may be required to withhold Federal income tax at a rate of 31% on all
taxable distributions payable to shareholders who fail to provide the Funds with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup withholding. Backup withholding is not an additional tax; any amounts
withheld may be credited against the shareholder's Federal income tax liability.
PERFORMANCE INFORMATION
Performance information for the Funds may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual return" and "total return."
Each Fund's average annual return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual return
for a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Fund's shares on the first day of the period and
computing the redeemable value of that investment at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and is
subtracted by the result, which is then expressed as a percentage. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period.
Calculation of a Fund's total return is not subject to a standardized formula.
Total return performance for a specific period is calculated by taking an
initial investment in the Fund's shares on the first day of the period and
computing the redeemable value of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial investment
from the redeemable value and dividing the remainder by
24
<PAGE>
the initial investment and expressing the result as a percentage. The
calculation assumes that all income and capital gains dividends by the Fund have
been reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the hypothetical
investment over the period.
THIRD AVENUE VALUE FUND'S total return from inception (November 1, 1990),
through fiscal year ended October 31, 1997, was 327.92%. THIRD AVENUE VALUE
FUND'S average annual return from inception through fiscal year ended October
31, 1997, was 23.07%.
THIRD AVENUE SMALL-CAP VALUE FUND'S total return from inception (April 1, 1997),
through fiscal year ended October 31, 1997, was 23.70%.
FINANCIAL STATEMENTS
The Funds' financial statements and notes thereto appearing in their Annual
Report to Shareholders and report thereon of Price Waterhouse LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information. The Funds will issue unaudited semi-annual and
audited annual financial statements.
25
<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer, President
David M. Barse
Chief Operating Officer, Executive Vice President
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
DISTRIBUTOR
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
TRANSFER AGENT
FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIANS
THIRD AVENUE VALUE FUND THIRD AVENUE SMALL-CAP VALUE FUND
North American Trust Company THIRD AVENUE HIGH YIELD FUND
525 B Street Custodial Trust Company
San Diego, CA 92101-4492 101 Carnegie Center
Princeton, NJ 08540-6231
[LOGO]
767 THIRD AVENUE
NEW YORK, NY 10017
Phone (212) 888-6685
Toll Free (800) 443-1021
www.mjwhitman.com
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in Part A:
Financial Highlights for THIRD AVENUE VALUE FUND for
each of the seven years in the period ended October 31,
1997. Financial Highlights for THIRD AVENUE SMALL-CAP
VALUE FUND for the period from commencement of
operations to October 31, 1997.
Included in Part B of the Registration Statement:
THIRD AVENUE VALUE FUND
Portfolio of Investments at October 31, 1997, Statement
of Assets and Liabilities at October 31, 1997,
Statements of Operations for the year ended October 31,
1997, Statement of Changes in Net Assets for the year
ended October 31, 1997, Statement of Changes in Net
Assets for the years ended October 31, 1997 and 1996,
Financial Highlights for the years ended October 31,
1997, 1996, 1995, 1994 and 1993 and Notes to Financial
Statements for the year ended October 31, 1997. Reports
of Independent Accountants. Incorporated by reference to
the Statement of Additional Information.
THIRD AVENUE SMALL-CAP VALUE FUND
Portfolio of Investments at October 31, 1997, Statement
of Assets and Liabilities at October 31, 1997,
Statements of Operations for the period ended October
31, 1997, Statement of Changes in Net Assets for the
period ended October 31, 1997, Statement of Changes in
Net Assets for the period ended October 31, 1997,
Financial Highlights for the period ended October 31,
1997 and Notes to Financial Statements for the period
ended October 31, 1997. Reports of Independent
Accountants. Incorporated by reference to the Statement
of Additional Information.
(b) Exhibits:
Exhibits filed pursuant to Form N-1A:
(1) Trust Instrument and Certificate of Trust
are incorporated by reference to Exhibit No.
(1) of Registration Statement No. 333-20891
filed on January 31, 1997.
(2) By-Laws are incorporated by reference to
Exhibit No. (2) of Registration Statement
No. 333- 20891 filed on January 31, 1997.
(5) Investment Advisory Contracts for THIRD
AVENUE VALUE FUND and THIRD AVENUE SMALL-CAP
VALUE FUND are incorporated by reference to
Exhibit No. (5) of Pre-Effective Amendment
No. 1 to the Registration Statement No.
333-20891 filed March 25, 1997. Investment
Advisory Contract for the THIRD AVENUE HIGH
YIELD FUND is filed herewith.
(6) Distribution Agreements for THIRD AVENUE
VALUE FUND and THIRD AVENUE SMALL-CAP VALUE
FUND are incorporated by reference to
Exhibit No. (6) of Pre-Effective Amendment
No. 1 to the Registration Statement No.
333-20891 filed March 25, 1997. Distribution
Agreement for THIRD AVENUE HIGH YIELD FUND
is filed herewith.
(8) Custodian Agreements
(a) Custody Agreement between Third
Avenue Trust on behalf of THIRD
AVENUE VALUE FUND and North
American Trust Company is
incorporated by reference to
Exhibit No. (8)(a) of Pre-Effective
Amendment No. 1 to the Registration
Statement No. 333- 20891 filed
March 25, 1997.
<PAGE>
(b) Custody Agreement between Third
Avenue Trust on behalf of THIRD
AVENUE SMALL- CAP VALUE FUND and
Custodial Trust Company is
incorporated by reference to
Exhibit No. (8)(b) of Pre-Effective
Amendment No. 1 to the Registration
Statement No. 333-20891 filed March
25, 1997.
Amendment to Custody Agreement to
include THIRD AVENUE HIGH YIELD
FUND is filed herewith.
(9) (a) Transfer Agent Services Agreement
for THIRD AVENUE VALUE FUND and
THIRD AVENUE SMALL-CAP VALUE FUND
is incorporated by reference to
Exhibit No. (9)(a) of Pre-Effective
Amendment No. 1 to the Registration
Statement No. 333-20891 filed March
25, 1997.
Amendment to Transfer Agent
Services Agreement to include THIRD
AVENUE HIGH YIELD FUND is filed
herewith.
(b) Administration Agreement for THIRD
AVENUE VALUE FUND and THIRD AVENUE
SMALL- CAP VALUE FUND is
incorporated by reference to
Exhibit No. (9)(b) of Pre-Effective
Amendment No. 1 to the Registration
Statement No. 333-20891 filed March
25, 1997.
Amendment to Administration
Agreement to include THIRD AVENUE
HIGH YIELD FUND is filed herewith.
(c) Accounting Services Agreement for
THIRD AVENUE VALUE FUND and THIRD
AVENUE SMALL-CAP VALUE FUND is
incorporated by reference to
Exhibit No. (9)(c) of Pre-
Effective Amendment No. 1 to the
Registration Statement No.
333-20891 filed March 25, 1997.
Amendment to Accounting Services
Agreement to include THIRD AVENUE
HIGH YIELD FUND is filed herewith.
(10) (a) Opinion and Consent of Counsel
regarding the legality of the
securities being issued is filed
herewith.
(11) Consent of Independent Auditors is filed
herewith.
(14) Individual Retirement Account Disclosure
Statement and Custodial Account Agreement is
incorporated by reference to Exhibit No.
(14) of Pre-Effective Amendment No. 1 to the
Registration Statement No. 333-20891 filed
March 25, 1997.
(17) Financial Data Schedule
THIRD AVENUE VALUE FUND is filed herewith.
THIRD AVENUE SMALL-CAP VALUE FUND is filed
herewith.
(19) Trustees' Powers of Attorney are
incorporated by reference to Exhibit No.
(19) of Registration Statement No. 333-20891
filed on January 31, 1997.
Item 25. Persons Controlled By or Under Common Control with
Registrant. Not Applicable.
<PAGE>
Item 26. Number of holders of securities.
Title of Class
Common Stock Number of Record Holders
(No Par Value) As of February 2, 1998
THIRD AVENUE VALUE FUND 35,716
THIRD AVENUE SMALL-CAP VALUE FUND 3,616
Item 27. Indemnification.
Reference is made to Article X of the Registrant's Trust
Instrument.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant by
the Registrant pursuant to the Trust's Trust Instrument,
its By-Laws or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange
Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid
by trustees, officers or controlling persons of the
Registrant in connection with the successful defense of
any act, suit or proceeding) is asserted by such
trustees, officers or controlling persons in connection
with shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issues.
Item 28. Business and other connections of investment adviser.
EQSF Advisers, Inc., 767 Third Avenue, New York, New
York 10017-2023 provides investment advisory services to
investment companies and as of February 2, 1998 had
approximately $1,922 million in assets under management.
For information as to any other business, vocation or
employment of a substantial nature in which each
Director or officer of the Registrant's investment
adviser has been engaged for his own account or in the
capacity of Director, officer, employee, partner or
trustee, reference is made to Form ADV (File #801-27792)
filed by it under the Investment Advisers Act of 1940.
Item 29. Principal underwriters.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
Item 30. Location of accounts and records.
All records described in Section 31 (a) of the Investment Company Act of 1940,
as amended and Rules 17 CFR 270.31a-1 to 31a-31 promulgated thereunder, are
maintained by the Trust's Investment Adviser, EQSF Advisers, Inc. 767 Third
Avenue, NY, NY 10017-2023, except for those records maintained by the Trust's
Custodians, North American Trust Company, 525 B Street, San Diego, CA 92101-4492
and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ 08540-6231, and
the Trust's Shareholder Service and Fund Accounting and Pricing Agent, FPS
Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903.
Item 31. Management services.
None.
<PAGE>
Item 32. Undertakings.
a) THIRD AVENUE HIGH YIELD FUND hereby
undertakes to file a post-effective
amendment within four to six months from the
effective date of Post-Effective Amendment
No. 3 under the Securities Act of 1933.
THIRD AVENUE HIGH YIELD FUND understands
that such post-effective amendment will
contain reasonably current financial
statements which need not be certified by
independent public accountants.
b) THIRD AVENUE HIGH YIELD FUND hereby
undertakes to provide each person to whom a
prospectus is delivered with a copy of the
Fund's latest annual report to shareholders,
containing the information called for by
Item 5A, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 3 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York on the 9th day of February, 1998.
THIRD AVENUE TRUST
Registrant
/s/ Martin J. Whitman
---------------------
Martin J. Whitman, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 3 to the Registration Statement of Third Avenue Trust has been
signed below by the following persons in the capacities and on the date
indicated.
Signature Capacity Date
/s/ MARTIN J. WHITMAN
- ---------------------
Martin J. Whitman Trustee 2/9/98
/s/ PHYLLIS W. BECK
- -------------------
Phyllis W. Beck Trustee 2/9/98
/s/ MARTIN SHUBIK
- -----------------
Martin Shubik Trustee 2/9/98
/s/ MYRON M. SHEINFELD
- ----------------------
Myron M. Sheinfeld Trustee 2/9/98
/s/ GERALD HELLERMAN
- --------------------
Gerald Hellerman Trustee 2/9/98
/s/ CHARLES C. WALDEN
- ---------------------
Charles C. Walden Trustee 2/9/98
/s/ MARVIN MOSER
- ----------------
Marvin Moser Trustee 2/9/98
/s/ BARBARA WHITMAN
- -------------------
Barbara Whitman Trustee 2/9/98
/s/ LUCINDA FRANKS
- ------------------
Lucinda Franks Trustee 2/9/98
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibit
Number Exhibit
Item 24(b)
(5) Investment Advisory Contract for THIRD AVENUE HIGH YIELD
FUND
(6) Distribution Agreement for THIRD AVENUE HIGH YIELD FUND
(8)(b) Amendment to Custody Agreement to include THIRD AVENUE
HIGH YIELD FUND
(9)(a) Amendment to Transfer Agent Services Agreement to
include THIRD AVENUE HIGH YIELD FUND
(9)(b) Amendment to Administration Agreement to include THIRD
AVENUE HIGH YIELD FUND
(9)(c) Amendment to Accounting Services Agreement to include
THIRD AVENUE HIGH YIELD FUND
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(17) Financial Data Schedules for THIRD AVENUE VALUE FUND and
THIRD AVENUE SMALL-CAP VALUE FUND
EXHIBIT ITEM 24(b)(5)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") made this 9th day of February,
1998, by and between THIRD AVENUE TRUST, a Delaware trust (the "Trust"), on
behalf of the Third Avenue High Yield Fund series of the Trust (the "Fund"), and
EQSF ADVISERS, INC., a New York corporation (the "Adviser").
RECITALS:
The Fund and the Adviser wish to enter into an Agreement setting forth the terms
and conditions under which the Adviser will perform certain investment advisory
and management services for the Fund, and be compensated for such services by
the Fund.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the Fund and the Adviser hereby agree as follows:
1. Investment Advisory Services.
1.1 During the Term (as such term is defined in Section 5 hereof) of this
Agreement, the Adviser shall serve as the investment adviser (within the meaning
of the Investment Advisers Act of 1940, as amended) of the Fund. In such
capacity, the Adviser shall render the following services and perform the
following functions for and on behalf of the Fund:
(a) Furnish continuous advice and recommendations to the Fund with respect to
the acquisition, holding or disposition of any or all of the securities or other
assets which the Fund may own or contemplate acquiring from time to time;
(b) Cause its officers to attend meetings and furnish oral or written reports,
as the Fund reasonably may request, in order to keep the Trustees and
appropriate officers of the Fund fully informed regarding the investment
portfolio of the Fund, the investment recommendations of the Adviser, and the
considerations which form the basis for such recommendations; and
(c) Supervise the purchase and sale of securities in accordance with the
direction of the appropriate officers of the Fund.
1.2 The services of the Adviser to the Fund are not exclusive, and nothing
contained herein shall be deemed or construed to prohibit, limit, or otherwise
restrict the Adviser from rendering investment or other advisory services to any
third person, whether similar to those to be provided to the Fund hereunder or
otherwise.
2. Compensation of Adviser.
2.1 For its services hereunder, the Fund shall pay the Adviser a fee (the
"Fee"), payable monthly in arrears, in an amount which shall be calculated as
follows, subject to the provisions of Section 2.2 hereof:
(a) 1/12 of .90% of the average daily net assets of the Fund for such month.
2.2 Notwithstanding the provisions of Section 2.1 hereof, the amount of the Fee
to be paid with respect to the first and last months of this Agreement shall be
pro rated based on the number of calendar days in such month.
3. Expenses Paid by the Adviser.
3.1 Subject to the provisions of Section 3.2 hereof, the Adviser shall pay the
following expenses relating to the management and operation of the Fund:
(a) All reasonable fees, charges, costs and expenses (collectively, "Costs") and
all reasonable compensation of all officers and trustees of the Fund relating to
the performance of their duties to the Fund; provided, however, that the Adviser
shall not pay any such amounts to any Outside Trustees (for purposes of this
Agreement, an "Outside Trustee" is any trustee of the Fund who is not an
"Interested Person," within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act")); and provided, further, that
in the event that any person serving as an officer of the Fund has both
executive duties attendant to such office and administrative duties to the Fund
apart from such office, the Adviser shall not pay any amounts relating to the
performance of such administrative duties;
<PAGE>
(b) All Costs of office equipment and personnel necessary for and allocable to
the performance of the obligations of the Adviser hereunder.
3.2 Except as provided in this Section 3 hereof, nothing contained in this
Agreement shall be deemed or construed to impose upon the Adviser any obligation
to incur, pay, or reimburse the Fund for any other Costs of or relating to the
Fund.
4. Expenses Paid by the Fund.
4.1 Except as provided in Section 3 hereof, the Fund hereby assumes and shall
pay all fees, costs and expenses incurred by, or on behalf, or for the benefit
of the Fund, including without limitation:
(a) All Costs of any custodian or depository;
(b) All Costs for bookkeeping, accounting and auditors' services;
(c) All Costs of leased office space of or allocable to the Fund within the
offices of the Adviser or in such other place as may be mutually agreed upon
between the parties from time to time;
(d) All Costs of any transfer agent and registrar of shares of the
Fund("Shares");
(e) All Costs incurred by any Outside Trustee of the Fund in connection with the
performance of his duties relating to the affairs of the Fund in such capacity
as an Outside Trustee of the Fund, and Costs relating to the performance by any
officer of the Fund, performing duties on behalf of the Fund apart from such
office, all in accordance with Section 3.1 (a) hereof;
(f) All brokers' commissions and other Costs incurred in connection with the
execution of Fund portfolio transactions;
(g) All taxes and other Costs payable by or on behalf of the Fund to federal,
state or other governmental agencies;
(h) All Costs of printing, recording and transferring certificates representing
Shares;
(i) All Costs in connection with the registration of the Fund and the Shares
with the Securities and Exchange Commission ("SEC"), and the continuous
maintenance of the effectiveness of such registrations, and the registration and
qualification of shares of the Fund under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the SEC and other authorities;
(j) All Costs of preparing, printing and mailing prospectuses, statements of
additional information and reports to holders of Shares;
(k) All Costs of shareholders' and Trustees' meetings and of preparing, printing
and mailing all information and documents, including without limitation all
notices, financial reports and proxy materials, to holders of Shares;
(l) All Costs of legal counsel for the Fund and for Trustees of the Fund in
connection with the rendering of legal advice to or on behalf of the Fund,
including, without limitation, legal services rendered in connection with the
Fund's existence, corporate and financial structure and relations with its
shareholders, registrations and qualifications of securities under federal,
state and other laws, issues of securities, expenses which the Fund has herein
assumed whether customary or not, and extraordinary matters, including, without
limitation, any litigation involving the Fund, Trustees, or officers of the Fund
relating to the affairs of the Fund, employees or agents of the Fund; and
(m) All Costs of filing annual and other reports with the SEC and other
regulatory authorities.
In the event that the Adviser provides any of the foregoing services or pays any
of these expenses, the Fund promptly shall reimburse the Adviser therefor.
5. Term; Termination.
5.1 This Agreement shall continue in effect, unless sooner terminated in
accordance with the provisions of Section 5.2 hereof, for a period of two years
beginning the date hereof, and shall continue in effect from year to year
thereafter (collectively, the "Term"); provided, however, that any such
continuation shall be expressly approved at least annually either
<PAGE>
by the Board of Trustees of the Fund, including a majority of the trustees who
are not parties hereto or Interested Persons of any such party, cast at a
meeting called for the purpose of voting on such renewal, or the affirmative
vote of a majority of the Outstanding Voting Securities (as such term is defined
in Section 2(a)(42) of the 1940 Act) of the Fund.
(a) Any continuation of this Agreement pursuant to Section 5.1 hereof shall be
deemed to be specifically approved if such approval occurs:
(i) with respect to the first continuation hereof, during the 60 days prior to
and including the earlier of (A) the date specified herein for the termination
of this Agreement in the absence of such approval, or (B) the second anniversary
of the execution of this Agreement; and
(ii) with respect to any subsequent continuation hereof, during the 60 days
prior to and including the first anniversary of the date upon which the most
recent previous annual continuance of this Agreement became effective; or
(iii) at such other date or time provided in or permitted by Rule 15a-2 of the
1940 Act.
5.2 This Agreement may be terminated at any time, without penalty, as follows:
(a) By a majority of the Trustees of the Fund who are not parties hereto or
Interested Persons of any such party, or by the affirmative vote of a majority
of the Outstanding Voting Securities of the Fund, upon at least 60 days' prior
written notice to the Adviser at its principal place of business; and
(b) By the Adviser, upon at least 60 days' written notice to the Fund at its
principal place of business.
6. Retention of Control by Fund. The Fund acknowledges that the investment
advice and recommendations to be provided by the Adviser hereunder are advisory
in nature only. The Fund further acknowledges that, at all times during the Term
hereof, the Fund (and not the Adviser) shall retain full control over the
investment policies of the Fund. Nothing contained herein shall be deemed or
construed to limit, prohibit or restrict the right or ability of the trustees of
the Fund to delegate to the appropriate officers of the Fund, or to a committee
of trustees of the Fund, the power to authorize purchases, sales or other
actions affecting the portfolio of the Fund between meetings of the Board of
Trustees of the Fund; provided, however, that all such purchases, sales or other
actions so taken during such time shall be consistent with the investment policy
of the Fund and shall be reported to the Board of Trustees of the Fund at its
next regularly scheduled meeting.
7. Brokers and Brokerage Commissions.
7.1 For purposes of this Agreement, brokerage commissions paid by the Fund upon
the purchase or sale of the Fund's portfolio securities shall be considered a
cost of securities of the Fund and shall be paid by the Fund in accordance with
Section 4.1(e) hereof.
7.2 The Adviser shall place Fund portfolio transactions with brokers and dealers
who render satisfactory service in the execution of orders at the most favorable
prices and at reasonable commission rates; provided, however, that the Adviser
may pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting such transaction, if the Adviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, in terms
of either that particular transaction or the overall responsibilities of the
Adviser.
7.3 In placing portfolio business with broker-dealers for or on behalf of the
Fund, the Adviser shall seek the best execution of each such transaction, and
all such brokerage placements shall be consistent with the Rules of Conduct of
the National Association of Securities Dealers, Inc. Notwithstanding the
foregoing, the Fund shall retain the right to direct the placement of all
portfolio transactions for or on behalf of the Fund, and, in furtherance
thereof, the Fund may establish policies or guidelines to be followed by the
Adviser in its placement of Fund portfolio transactions pursuant to the
foregoing provisions. The Adviser shall report to the Board of Trustees of the
Fund at least on a quarterly basis regarding the placement of Fund portfolio
transactions.
7.4 The Adviser shall not deal with any affiliate in any transaction hereunder
in which such affiliate acts as a principal, nor shall the Adviser, in rendering
services to the Fund hereunder, execute any negotiated trade with any affiliate
if execution thereof involves such affiliate's acting as a principal with
respect to any part of an order for or on behalf of the Fund.
<PAGE>
8. Purchases by Affiliates. Neither the Adviser nor any officer or director
thereof shall take a short position in Shares of the Fund. Any direct purchase
of Shares of the Fund by any officer or director of the Fund (or by any defined
benefit plan established for the benefit of such officer or director) shall be
made for investment purposes at the current price for such Shares available to
the public.
9. Assignment. This Agreement may not be assigned by either party hereto. This
Agreement shall terminate automatically in the event of any assignment (as such
term is defined in Section 2(a)(4) of the 1940 Act). Any attempted assignment of
this Agreement shall be of no force and effect.
10. Amendments. This Agreement may be amended in writing signed by both parties
hereto; provided, however, that no such amendment shall be effective unless
approved by a majority of the trustees of the Fund who are not parties hereto or
Interested Persons of any such party cast at a meeting called for the purpose of
voting on such amendment and by the affirmative vote of a majority of the
outstanding Voting Securities of the Fund.
11. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York, without
reference to the conflict of laws provisions thereof. In the event of any
inconsistency between this Agreement and the 1940 Act, the 1940 Act shall
govern, and the inconsistent provisions of this Agreement shall be construed so
as to eliminate such inconsistency.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
The Fund:
THIRD AVENUE TRUST, for the Third Avenue High Yield Fund series
By:
David M. Barse
Executive Vice President
The Adviser:
EQSF ADVISERS, INC.
By:
Martin J. Whitman
President
EXHIBIT ITEM 24(b)(6)
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of the 9th day of February,
1998 between THIRD AVENUE TRUST, a Delaware trust (the "Trust") on behalf of the
Third Avenue High Yield Fund series of the Trust (the "Fund"), and M.J. WHITMAN,
INC., a New York corporation (the "Distributor").
RECITALS
1. The Trust is registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), as an open-end management investment company and
it is affirmatively in the interest of the Fund to offer its shares for sales
continuously.
2. The Distributor is a broker-dealer registered under the Securities Exchange
Act of 1934, as amended.
3. The Fund and the Distributor wish to enter into an agreement with each other
with respect to the continuous offering of the Fund's Common Stock, no par
value, (the "shares") in order to assist in the sale and distribution of shares
of the Fund.
In consideration of the promises and the covenants hereinafter contained, the
Fund and the Distributor hereby agree as follows:
1. Appointment of the Distributor. The Fund hereby appoints the Distributor as
agent for the Fund, to assist in the sale and distribution of shares of the Fund
to the public, upon the terms and conditions and during the term of this
Agreement, and the Distributor hereby accepts such appointment and agrees to act
hereunder.
2. Nature of Duties. The Distributor shall (i) assist in the sale and
distribution of the Fund's shares and (ii) qualify and maintain the
qualification as a broker-dealer in such states where shares of the Fund are
registered for sale.
3. Sale of Shares of the Fund.
3.1. The Distributor will have the right to sell on behalf of the Fund, as its
agent, any shares needed but not more than the shares needed (except for
clerical errors in transmission) to fill unconditional orders for shares of the
Fund placed with the Distributor by investors. The Distributor agrees that the
Fund shall receive 100% of the net asset value, determined as set forth in the
Prospectus, for all shares sold by the Distributor.
3.2. The shares are to be sold by or through the Distributor to investors at a
price per share ("offering price") equal to the sum of the net asset value per
share determined as set forth in the Prospectus.
3.3. The Fund shall have the right to suspend the sale of shares at times when
redemption is suspended pursuant to the conditions set forth in subsection 4.2.
The Fund shall also have the right to suspend the sale of shares if a banking
moratorium shall have been declared by federal or New York authorities, if there
shall have been some other event, that, in the judgment of the Trustees of the
Fund makes it impracticable or inadvisable to sell shares, or if in the judgment
of the Trustees, the suspension of the sale of shares is in the best interests
of the Fund.
3.4. The Fund, or any agent of the Fund designated in writing by the Fund, shall
be promptly advised of all purchase orders for shares received by the
Distributor. Any order may be rejected by the Fund for any reason whatsoever.
The Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its agent) of payment
therefore, will deliver deposit receipts or certificates for such shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund in New York Clearing House funds, or by federal funds wire, cashiers check
or certified check. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
4. Repurchase or Redemption of Shares of the Fund.
4.1. Any of the outstanding shares may be tendered for redemption at any time,
and the Fund agrees to repurchase or redeem the shares so tendered in accordance
with its obligations set forth in Article IX of the Trust Instrument of the
Trust, as amended from time to time, and the applicable provision set forth in
the Prospectus.
<PAGE>
4.2. Redemption of shares or payment may be suspended: 1) at times when the New
York Stock Exchange is closed other than customary weekend closings and holiday
closings, 2) when pursuant to rules and regulations of the Securities and
Exchange Commission (the "SEC"), trading on said Exchange is restricted or an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or 3) during any other
period when the SEC, by order, so permits.
5. Duties of the Fund.
5.1. The Fund shall make available to the Distributor, at the Fund's expense,
such number of copies of its Prospectus, quarterly reports and annual financial
statements as the Distributor shall reasonably request.
5.2. The Fund will qualify and maintain the qualifications, at the Fund's
expense, of an appropriate number of its shares for sale under the securities
laws of such state as selected by the Fund.
6. Duties of the Distributor.
6.1. The Distributor shall devote reasonable time and effort to effect sales of
shares of the Fund, but shall not be obligated to sell any specific number of
shares. The Distributor will qualify and maintain the qualifications, at the
Distributor's expense, of its registration as a broker-dealer in such states
where shares of the Fund are qualified for sale.
The services of the Distributor to the Fund hereunder are not to be deemed
exclusive and nothing contained herein shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
6.2. In selling the shares of the Fund, the Distributor shall use all reasonable
efforts to conform in all respects with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any other person is authorized by the Fund to give any information or to make
any representations other than those contained in the Registration Statement or
related Prospectus or in any sales literature specifically approved in writing
by the Fund.
6.3. The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors, the collection
of amounts payable by investors on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
6.4. The Distributor warrants and represents that it is, and agrees to use all
commercially reasonable efforts to remain at all times, a member in good
standing of the NASD with authority to act as the Distributor.
7. Allocation of Expenses.
7.1. The Distributor shall bear all expenses incurred by it in connection with
its duties and activities under this Agreement, including the costs and expenses
of qualifying and maintaining the qualifications of its registration as a
broker-dealer in such states where shares of the Fund are qualified for sale,
preparing, printing and distributing any sales literature, advertising and other
materials which it creates for its use as Distributor.
7.2. Except as provided in subsection 7.1 hereof, nothing contained in this
Agreement shall be deemed or construed to impose upon the Distributor any
obligation to incur, pay, or reimburse the Fund for any other costs and
expenses.
7.3. The Fund shall bear the following costs and expenses related to the
continuous offering of its shares, including fees and disbursements of its
counsel and auditors, in connection with the preparation and filing of any
required registration statements and Prospectuses under the Investment Company
Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, Prospectuses, annual or interim reports or proxy
materials).
7.4. Except as provided in subsection 7.3 hereof, nothing contained in this
Agreement shall be deemed or construed to impose upon the Fund any obligation to
incur, pay, or reimburse the Distributor for any other costs and expenses.
8. Indemnification.
<PAGE>
8.1. The Fund agrees to indemnify, defend and hold harmless the Distributor, its
officers, directors, employees, agents, and any person who controls the
Distributor, if any, within the meaning of Section 15 of the Securities Act
(each, an "Indemnified Distributor Party" and collectively, the "Indemnified
Distributor Parties"), from and against any and all claims, demands, actions,
liabilities, losses, costs and expenses (including the cost of investigating or
defending same, and any reasonable attorneys' fees and expenses incurred in
connection therewith) (collectively, "Liabilities") which the Indemnified
Distributor Parties may incur which arise out of or are based upon (a) any
untrue statement of a material fact contained in the Registration Statement,
Prospectus or annual or interim report or (b) any omission to state a material
fact required to be stated in any thereof or necessary to make the statements in
any thereof not misleading, except insofar as such Liabilities arise out of or
are based upon any such untrue statement or omission or untrue statement or
omission made in reliance upon and in conformity with information furnished to
the Fund in writing in connection therewith by or on behalf of the Distributor;
provided, however, that the indemnity agreement in this Section 8.1 shall not
inure to the benefit of any Indemnified Distributor Party unless (i) a court of
competent jurisdiction shall have determined, in a final unappealable decision
on the merits, that such Indemnified Distributor Party was not liable, by reason
of willful misfeasance, bad faith, or gross negligence in the performance of its
or his duties, or by reason of its or his reckless disregard of its or his
obligations under this Agreement (collectively, "disabling conduct"), or (ii) in
the absence of such a judicial decision, a reasonable determination, based upon
a review of the facts, that the indemnified person was not liable by reason of
disabling conduct, evidenced by either (A) the vote of a majority of trustees
who are neither "interested persons" of the Fund as defined in Section 2(a) (19)
of the Securities Act nor parties to the proceeding or matter in question, or
(B) the written opinion of independent legal counsel. The Fund's indemnification
obligation as aforesaid is expressly conditioned upon the Fund's being promptly
notified, by letter or telegram addressed to the Fund at its principal business
office, of any Liability of or against any Indemnified Distributor Person. The
Fund agrees promptly to notify the Distributor of the commencement of any
litigation or proceeding against the Fund or any Indemnified Fund Parties (as
defined below) in connection with the issue and sale of any Fund shares.
8.2. The Distributor agrees to indemnify, defend and hold harmless the Fund, its
officers, directors, employees, agents and any person who controls the Fund, if
any, within the meaning of Section 15 of the Securities Act (each, an
"Indemnified Fund Party" and collectively, the "Indemnified Fund Parties"), from
and against any and all Liabilities which the Indemnified Fund Parties may incur
which arise out of or are based upon (a) any untrue statement of a material fact
contained in information furnished to the Fund in writing by or on behalf of the
Distributor for use in the Registration Statement or Prospectus or any omission
to state a material fact in connection with such information required to be
stated in the Registration Statement, Prospectus or annual or interim report or
necessary to make such information not misleading; or (b) any acts or omissions
by the Indemnified Distributor Parties in connection with the performance of the
Distributor's obligations hereunder. The Distributor's indemnification agreement
as aforesaid is expressly conditioned upon the Distributor's being promptly
notified, by letter or telegram addressed to the Distributor at its principal
business office, of any Liability of or against any Indemnified Distributor
Party.
9. Duration and Termination of the Agreement.
9.1. This Agreement shall become effective as of the date first written above
and shall remain in force from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Fund's Board
of Trustees or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) by the vote of a majority of those trustees who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting or meetings called for the purpose of voting on such
approval.
9.2. This Agreement may be terminated at any time, without the payment of any
penalty, by the Fund's Board of Trustees or by vote of a vote of a majority of
the outstanding voting securities of the Fund, or by the Distributor, on sixty
days written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
10. Definition of Certain Terms. The terms "vote of a majority of the
outstanding voting securities," "assignment," "affiliated person," and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act and the rules and regulations
of the Commission thereunder.
11. Amendments of This Agreement. This Agreement may be amended by the parties
only if such amendment is specifically approved by (i) the Fund's Board of
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those trustees of the Fund who are
not interested persons of either party to this Agreement, cast in person at a
meeting or meetings called for the purpose of voting on such approval.
<PAGE>
12. Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York, and the
applicable provisions of the Investment Company Act. To the extent that the
applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act or the
rules and regulations thereunder, the latter shall control.
The parties hereto have executed this Agreement as of the day and year first
above written.
THIRD AVENUE TRUST, for the Third Avenue High Yield Fund series
By:
Name: Martin J. Whitman
Title: President
M. J. WHITMAN, INC
By:
Name: David Barse
Title: President
EXHIBIT ITEM 24 (b)(8)(b)
AMENDED EXHIBIT A
PORTFOLIOS
Exhibit A to the Custody Agreement dated as of March 22, 1997,
between the undersigned is hereby amended, effective January 23, 1998, to list
the following two Portfolios:
-- Third Avenue Small-Cap Value Fund
-- Third Avenue High Yield Fund
As of January 23, 1998
THIRD AVENUE TRUST
By: __________________
Name: Martin J. Whitman
Title: President
CUSTODIAL TRUST COMPANY
By: __________________
Name: Ronald D. Watson
Title: President
EXHIBIT ITEM 24 (b)(9)(a)
AMENDMENT TO TRANSFER AGENT SERVICES AGREEMENT
This Amendment, dated as of the 9th day of February, 1998, made by
and between Third Avenue Trust ("Third Avenue"), a Delaware business trust
operating as a registered investment company under the Investment Company Act of
1940, as amended, and duly organized and existing under the laws of the State of
Delaware and FPS Services, Inc. ("FPS Services"), a corporation duly organized
and existing under the laws of the State of Delaware (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, the Parties are Parties to a Transfer Agent Services
Agreement dated March 24, 1997 (the "Agreement"); and
WHEREAS, the Parties wish to amend the Agreement to provide for the
addition of a new series of shares;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Parties hereto, intending to be legally bound,
do hereby agree as follows:
1. The Agreement is hereby amended to add a new series,
THIRD AVENUE HIGH YIELD FUND, by replacing Schedule "C"
of the Agreement with the attached amended Schedule "C".
2. Except as specifically amended hereby, the Agreement
shall not be modified or amended and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of one typewritten page, together with an amended Schedule "C", to be
signed by their duly authorized officers as of the day and year first above
written.
Third Avenue Trust
By: _____________________________________
David Barse, Executive Vice-President
FPS Services, Inc.
By: __________________________
Kenneth J. Kempf, President
<PAGE>
SCHEDULE "C"
IDENTIFICATION OF SERIES
Below are listed the Series to which services under this Agreement are to be
performed as of the execution date of this Agreement:
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
EXHIBIT ITEM 24 (b)(9)(b)
AMENDMENT TO ADMINISTRATION AND BLUE SKY SERVICES AGREEMENT
This Amendment, dated as of the 9th day of February, 1998, made by
and between Third Avenue Trust ("Third Avenue"), a Delaware business trust
operating as a registered investment company under the Investment Company Act of
1940, as amended, and duly organized and existing under the laws of the State of
Delaware and FPS Services, Inc. ("FPS Services"), a corporation duly organized
and existing under the laws of the State of Delaware (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, the Parties are Parties to an Administration and Blue Sky
Services Agreement dated January 1, 1997 (the "Agreement"), wherein FPS Services
agreed to provide certain administrative and Blue Sky services to Third Avenue;
and
WHEREAS, the Parties wish to amend the Agreement to provide for the
addition of a new series of shares;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Parties hereto, intending to be legally bound,
do hereby agree as follows:
1. The Agreement is hereby amended to add a new series,
THIRD AVENUE HIGH YIELD FUND, by replacing Schedule "C"
of the Agreement with the attached amended Schedule "C".
2. Except as specifically amended hereby, the Agreement
shall not be modified or amended and shall remain
in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of one typewritten page, together with an amended Schedule "C", to be
signed by their duly authorized officers as of the day and year first above
written.
Third Avenue Trust
By: _________________________________
David Barse, Executive Vice-President
FPS Services, Inc.
By:_________________________
Kenneth J. Kempf, President
<PAGE>
SCHEDULE "C"
IDENTIFICATION OF SERIES
Below are listed the Series to which services under this Agreement are to be
performed as of the execution date of this Agreement:
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
EXHIBIT ITEM 24 (b)(9)(c)
AMENDMENT TO ACCOUNTING SERVICES AGREEMENT
This Amendment, dated as of the 9th day of February, 1998, made by
and between Third Avenue Trust ("Third Avenue"), a Delaware business trust
operating as a registered investment company under the Investment Company Act of
1940, as amended, and duly organized and existing under the laws of the State of
Delaware and FPS Services, Inc. ("FPS Services"), a corporation duly organized
and existing under the laws of the State of Delaware (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, the Parties are Parties to an Administration and Blue Sky
Services Agreement dated January 1, 1997 (the "Agreement"); and
WHEREAS, the Parties wish to amend the Agreement to provide for the
addition of a new series of shares;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Parties hereto, intending to be legally bound,
do hereby agree as follows:
1. The Agreement is hereby amended to add a new series,
THIRD AVENUE HIGH YIELD FUND, by replacing Schedule "C"
of the Agreement with the attached amended Schedule "C".
2. Except as specifically amended hereby, the Agreement
shall not be modified or amended and shall remain
in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of one typewritten page, together with an amended Schedule "C", to be
signed by their duly authorized officers as of the day and year first above
written.
Third Avenue Trust
By: _______________________________
David Barse, Executive Vice-President
FPS Services, Inc.
By: ____________________________
Kenneth J. Kempf, President
<PAGE>
SCHEDULE "C"
IDENTIFICATION OF SERIES
Below are listed the Series to which services under this Agreement are to be
performed as of the execution date of this Agreement:
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
EXHIBIT ITEM 24 (b)(10)
OPINION AND CONSENT OF COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK 10022-3897
---
TEL:(212)735-3000
FAX:(212)735-2000
FIRM/AFFILIATE OFFICES
---
BOSTON
CHICAGO
HOUSTON
LOS ANGELES
NEWARK
SAN FRANCISO
WASHINGTON, D.C.
WILMINGTON
---
BEIJING
BRUSSELS
FRANKFURT
HONG KONG
LONDON
MOSCOW
PARIS
SINGAPORE
SYDNEY
TOKYO
TORONTO
February 9, 1998
Third Avenue Trust
767 Third Avenue
New York, New York 10017
Re: Third Avenue Trust -- Registration Statement on Form
N-1A (File Nos. 33-20891 and 811-8039)
Dear Sir:
We have acted as counsel to Third Avenue Trust, a Delaware business
trust (the "Trust"), in connection with the Trust's Registration Statement on
Form N-1A filed with the Securities and Exchange Commission (the "Commission")
on January 28, 1997 (the "Registration Statement") and relating to the issuance
by the Trust of an indefinite number of shares of beneficial interest no par
value per share (the "Shares") pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "Act"). Three series of the Trust have been
authorized, Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and
Third Avenue High Yield Fund.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement, (ii) the Trust Instrument of the Trust (the "Trust
Instrument") and the Bylaws of the Trust, (iii) the Trust's Certificate of
Trust, (iv) copies of the resolutions adopted by the Board of Trustees of the
Trust relating to the authorization, issuance and sale of the Shares, the filing
of any Registration Statement and any amendments or supplements thereto and
related matters, (v) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth herein. In such examination,
we have assumed the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified, conformed or photostatic copies and the authenticity of the originals
of such copies, the genuineness of all signatures, and the legal capacity of all
natural persons. As to any facts material to the opinions expressed herein which
we have not independently established or verified, we have relied upon
statements and representations of officers and other representatives of the
Trust and others.
<PAGE>
Third Avenue Trust
February 9, 1998
Page 2
Members of our firm are admitted to the Bar in the States of New
York and Delaware, and we do not express any opinion as to the laws of any other
jurisdiction other than the laws of the United States of America as referenced
herein.
Based on the foregoing and our examination of such questions of law
as we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Registration Statement and
in accordance with the Trust Instrument, (ii) all consideration for the Shares
will be actually received by the Trust, and (iii) all applicable securities laws
will be complied with, it is our opinion that, when issued and sold by the
Trust, the Shares will be legally issued, fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. Except as specifically set forth
herein, this opinion is not to be used, circulated, quoted or otherwise referred
to or relied on for any other purpose or by any other person without our express
written permission.
We hereby consent to the filing of this opinion with the Commission
as Exhibit 10 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Counsel" in the Registration Statement. In
giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
--------------------------------------------
Skadden, Arps, Slate, Meagher & Flom LLP
EXHIBIT ITEM 24 (b)(11)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 to the registration statement on Form N-1A (the "Registration
Statement") for Third Avenue Trust of our report dated December 19, 1997,
relating to the financial statements and financial highlights appearing in the
October 31, 1997 Annual Report to Shareholders, which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Financial Statements" in the Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 3, 1998
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<NAME> THIRD AVENUE TRUST
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