As filed with the Securities and Exchange Commission
on September 11, 1998 Registration Nos.: 333-20891
811-8039
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. [ ] ---
Post-Effective Amendment No. [5]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [6] X
--- ---
THIRD AVENUE TRUST
------------------
(Exact name of Registrant as Specified in Charter)
767 Third Avenue, New York, New York 10017-2023
------------------------------------------------
(Address of Principal Executive Offices including Zip Code)
(toll-free) (800)443-1021, (212)888-5222
----------------------------------------
(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] 75 days after filing (or a later date determined by Registrant), pursuant to
paragraph (a)(2) of Rule 485.
<PAGE>
THIRD AVENUE TRUST
CROSS-REFERENCE SHEET
[as required by Rule 481a]
<TABLE>
<CAPTION>
Part A.
Item No. Prospectus Caption
- -------- ------------------
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B. Statement of Additional
Item No. Information Caption
- -------- -------------------
<S> <C>
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 Purchase Orders; Redemption
of Securities Being Offered of Shares; (See 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
</TABLE>
Part C. Other Information
- --------------------------
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. 5 to the
Registration Statement.
<PAGE>
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THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
THIRD AVENUE REAL ESTATE VALUE FUND
PROSPECTUS
----------
SEPTEMBER 15, 1998
<PAGE>
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[GRAPHIC OMITTED]
CONTENTS
FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
ABOUT THE FUNDS 8
Investment Objectives 8
Risk Factors Specific to Third
Avenue Real Estate Value Fund 10
INVESTMENT PHILOSOPHY
AND APPROACH 11
Value Discipline 11
Intensive Research 11
Diversification 11
Buy and Hold 11
Investment in Equity Securities 11
Investment in Debt Securities 12
Convertible Securities 13
Mortgage-Backed Securities 13
Asset-Backed Securities 14
Floating Rate, Inverse Floating
Rate and Index Obligations 14
Investment in High Yield Debt Securities 15
Zero-Coupon and Pay-in-Kind Securities 17
Loans and Other Direct Debt Instruments 17
Trade Claims 18
Portfolio Practices 18
Foreign Securities 18
Foreign Currency Transactions 19
Restricted and Illiquid Securities 20
Investment in Relatively New Issues 20
Temporary Defensive Investments 21
Borrowing 21
Investment in Other Investment Companies 21
Simultaneous Investments 21
Restrictions on Investments 22
Securities Lending 22
Portfolio Turnover 23
MANAGEMENT OF THE FUNDS 24
The Investment Adviser 24
Advisory Fees 25
Administrator 26
Distributor 26
Custodian and Transfer Agent 26
Portfolio Trading Practices 27
PERFORMANCE INFORMATION 28
Performance Illustrations 28
DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS AND TAXES 30
Distribution Options 31
Withholding 32
HOW TO PURCHASE SHARES 33
Business Hours 33
Determining Net Asset Value 33
Share Certificates 34
Through an Authorized Broker-
Dealer or Investment Adviser 34
New Accounts 35
Initial Investment 35
By Mail 35
By Wire 36
Additional Investments By Mail 36
Additional Investments Through
the Automatic Investment Plan 36
Individual Retirement Accounts 37
Other Retirement Plans 37
HOW TO REDEEM SHARES 38
By Mail 38
Telephone Redemption Service 38
Fees 39
Redemption Without Notice 39
Account Minimum 39
Payment of Redemption Proceeds 39
Wired Proceeds 39
Signature Guarantees/Other Documents 40
Systematic Withdrawal Plan 40
Early Redemption Fee 40
HOW TO EXCHANGE SHARES 42
Inter-Fund Exchange Privilege 42
Money Market Exchange Privilege 42
Early Redemption Fee 43
SHAREHOLDER SERVICES 44
Telephone Information 44
TRANSFER OF OWNERSHIP 45
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS 46
Standard & Poor's Ratings Group 46
Moody's Investor's Service, Inc. 48
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<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 four separate investment series; THIRD AVENUE VALUE FUND, THIRD
AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND (each a "Fund" and, collectively, the "Funds"). Each Fund
seeks to achieve its investment objective by adhering to a strict value
discipline when selecting securities, although each Fund has a distinct
investment approach.
THIRD AVENUE VALUE FUND seeks to achieve its objective of long-term capital
appreciation 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 of long-term
capital appreciation by investing at least 65% of its total 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 of maximizing total
return through a combination of income and capital appreciation by investing at
least 65% of its total 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.
THIRD AVENUE REAL ESTATE VALUE FUND seeks to achieve its objective of long-term
capital appreciation by investing at least 65% of its total assets in a
portfolio of equity and debt securities of well-financed companies in the real
estate industry or related industries or that own significant real estate assets
at the time of investment.
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 September 15, 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) 888-5222. 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.
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1
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[GRAPHIC OMITTED]
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.
THIRD AVENUE VALUE FUND is currently closed to new investors. See "How to
Purchase Shares."
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2
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[GRAPHIC OMITTED]
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of the
Funds will incur.
<TABLE>
<CAPTION>
THIRD AVENUE THIRD AVENUE
THIRD AVENUE SMALL-CAP THIRD AVENUE REAL ESTATE
VALUE FUND VALUE FUND HIGH YIELD FUND VALUE FUND
---------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Sales Load Imposed
on Purchases None None None None
Sales Load Imposed on
Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fee Payable
to the Fund None None 1.00%* 1.00%*
ANNUAL FUND OPERATING
EXPENSES: (AS A PER-
CENTAGE OF NET ASSETS)
Management Fees .90% .90% .90% .90%
12b-1 Fees None None None None
Other Expenses .23% .75% 1.00% 1.00%
--- --- ---- ----
(after (after
reimburse- reimburse-
ments) ments)
Total Fund
Operating Expenses 1.13% 1.65% 1.90% 1.90%
==== ==== ==== ====
(after (after
reimburse- reimburse-
ments) ments)
</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
THIRD AVENUE REAL ESTATE VALUE FUND $30 $60
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3
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[GRAPHIC OMITTED]
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 on February 12, 1998. The other expenses of THIRD
AVENUE HIGH YIELD FUND are estimated based on actual expenses incurred for the
period February 12, 1998, commencement of operations, to August 31, 1998. THIRD
AVENUE REAL ESTATE VALUE FUND commenced operations on or about September 17,
1998. Because THIRD AVENUE REAL ESTATE VALUE 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 and THIRD AVENUE REAL ESTATE VALUE FUND,
without reimbursement, would be: "Other Expenses" 3.40% and 1.68%, respectively,
and "Total Fund Operating Expenses" 4.30% and 2.58%, respectively. 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.
- --------------------------------------------------------------------------------
* There will be a 1% fee retained by THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE 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."
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4
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[GRAPHIC OMITTED]
FINANCIAL HIGHLIGHTS
THIRD AVENUE TRUST
The following sets forth information for THIRD AVENUE VALUE FUND, THIRD AVENUE
SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND regarding per share income
and capital changes from each of the Fund's commencement of operations to April
30, 1998, the end of the Funds' most recent semi-annual period. The Financial
Highlights for the fiscal years included herein have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose unqualified report on
the October 31, 1997 financial statements appears in the Funds' Annual Report to
Shareholders. The Financial Highlights for the period ended April 30, 1998 have
not been audited. This information should be read in conjunction with the
financial statements and accompanying notes appearing in the 1997 Annual Report
to Shareholders and the Funds' Semi-Annual Report for the period ended April 30,
1998, which are incorporated by reference into the SAI.
Because the Trust's new Fund, THIRD AVENUE REAL ESTATE VALUE FUND, commenced
investment operations on or about September 17, 1998, no financial highlights
are available.
THIRD AVENUE VALUE FUND: SELECTED DATA AND RATIOS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
APRIL 30, (YEARS ENDED OCTOBER 31,)
------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $31.94 $24.26 $21.53 $18.01 $17.92 $13.57 $12.80 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .29 .48 .53 .38 .29 .18 .19 .15
Net gain on securities (both
realized and unrealized) 2.58 7.92 2.76 3.53 .16 4.77 .64 4.65
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 2.87 8.40 3.29 3.91 .45 4.95 .83 4.80
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from
net investment income (.41) (.57) (.41) (.25) (.22) (.24) (.02) (.15)
Distributions from
net realized gains (.16) (.15) (.15) (.14) (.14) (.36) (.04) (1.85)
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.57) (.72) (.56) (.39) (.36) (.60) (.06) (2.00)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End Of Period $34.24 $31.94 $24.26 $21.53 $18.01 $17.92 $13.57 $12.80
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 9.15% 35.31% 15.55% 22.31% 2.56% 37.36% 6.50% 49.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $2,001,489 $1,646,240 $566,847 $312,722 $187,192 $118,958 $31,387 $17,641
Ratio of Expenses to Average
Net Assets 1.08%1 1.13% 1.21% 1.25% 1.16% 1.42% 2.32% 2.50%
Ratio of Net Income to Average
Net Assets 1.83%1 2.10% 2.67% 2.24% 1.85% 1.45% 1.71% 1.71%
Portfolio Turnover Rate 4% 10% 14% 15% 5% 17% 31% 67%
- -------
1 Annualized
</TABLE>
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5
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THIRD AVENUE SMALL-CAP VALUE FUND: SELECTED DATA AND RATIOS
(Unaudited)
Six Months Period from
Ended April 1, 1997*
April 30, 1998 to October 31,1997
-------------- ------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $12.37 $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .03 .05
Net gain on securities
(both realized
and unrealized) .80 2.32
------ -----
Total from investment
operations .83 2.37
------ -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.06)
------
Total Distributions (.06)
------
Net Asset Value, End Of Period $13.14 12.37
====== =====
TOTAL RETURN 6.79% 23.70%1
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $165,916 $107,256
Ratio of Expenses to
Average Net Assets 1.30%2 1.65%2
Ratio of Net Income
to Average Net Assets 0.65%2 1.44%2
Portfolio Turnover Rate 2%1 7%1
- ---------
1 Not Annualized
2 Annualized
* Commencement of investment operations
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THIRD AVENUE HIGH YIELD FUND: SELECTED DATA AND RATIOS
(Period from February 12, 1998* to April 30,)
(Unaudited)
1998
----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .06
Net gain on securities (both realized and unrealized) .36
------
Total from Investment Operations .42
------
Net Asset Value, End Of Period $10.42
======
TOTAL RETURN 4.20%1
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $8,057
Ratio of Expenses to Average Net Assets
Before expense reimbursement 7.59%2
After expense reimbursement 1.90%2
Ratio of Net Income to Average Net Assets
Before expense reimbursement (0.37%)2
After expense reimbursement 5.32%2
Portfolio Turnover Rate 11%1
- ----------
1 Not Annualized
2 Annualized
* Commencement of investment operations
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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 and THIRD AVENUE HIGH YIELD
FUND, series of the Trust, commenced investment operations on April 1, 1997 and
February 12, 1998, respectively.
INVESTMENT OBJECTIVES
The investment objective of each of THIRD AVENUE VALUE FUND, THIRD AVENUE
SMALL-CAP VALUE FUND and THIRD AVENUE REAL ESTATE 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
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8
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[GRAPHIC OMITTED]
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 total 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."
THIRD AVENUE REAL ESTATE VALUE FUND seeks to achieve its objective by following
a value investing philosophy that seeks to acquire equity and debt securities of
well-financed companies at a substantial discount to the Adviser's estimate of
the issuing company's private market value or liquidation value. Under normal
conditions, the Fund intends to invest at least 65% of its total assets in
equity and debt securities of companies in the real estate industry or related
industries or in companies which own significant real estate assets at the time
of investment.
A company is considered to be in the real estate industry or a related industry
or considered to own significant real estate assets, respectively, if (i) at
least 50% of its gross revenues or net profits at the time of investment are
derived from (a) construction, ownership, management, operation, financing,
refinancing, sales, leasing, development or rehabilitation of real estate; or
(b) extraction of timber or minerals from real estate; (ii) at least 50% of its
gross revenues or net profits at the time of investment are derived from
providing goods (e.g. building materials and/or supplies) or services (e.g.
consulting, legal or insurance) to the foregoing companies; or (iii) at least
50% of the fair market value of its assets at the time of investment, as
determined by the Adviser, is attributable to one or more of the following: (a)
real estate owned or leased by the company as lessor or as lessee; (b) timber
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9
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<PAGE>
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[GRAPHIC OMITTED]
or minerals on such real estate; or (c) the discounted value of the stream of
fees or revenues to be derived from the management or operation of real estate
or the rights to extract timber or minerals from real estate. Examples of such
companies include, but are not limited to:
o Real estate development companies (including commercial/industrial
developers and homebuilders);
o Real estate investment trusts (REITs) and master limited partnerships;
o Hotel and hotel management companies;
o Real estate brokerage companies and/or management companies;
o Financial institutions that make or service mortgage loans;
o Title insurance companies;
o Lumber, paper, forest product, timber, mining and oil companies;
o Companies with significant real estate holdings such as supermarkets,
restaurant chains and retail chains; and
o Manufacturers or distributors of construction materials and/or building
supplies.
RISK FACTORS SPECIFIC TO THIRD AVENUE REAL ESTATE VALUE FUND
Because the Fund generally invests at least 65% of its total assets in real
estate-oriented companies, it is likely to be subject to risks normally
associated with the direct ownership of real estate. These risks include
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, variations in rental income, changes in neighborhood
values, the appeal of properties to tenants and increases in interest rates. The
value of securities of companies that service the real estate industry will also
be affected by these risks.
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10
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[GRAPHIC OMITTED]
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. For that reason, the Adviser may seek
investments in the securities of companies in industries that are temporarily
depressed.
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 common stocks, 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), where debt
service1 consumes a small part of such companies' cash flow.
(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.
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1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
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(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.
(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.
In selecting preferred stocks, the Adviser will use its selection criteria for
either common stocks or debt securities, depending on the Adviser's
determination as to how the particular issue should be viewed, based, among
other things, upon the terms of the preferred stock and where it fits in the
issuer's capital structure.
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, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE 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
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as non-convertible subordinated debentures. THIRD AVENUE HIGH YIELD FUND and
THIRD AVENUE REAL ESTATE VALUE FUND may invest in such "mezzanine" issues.
The market value of debt securities is affected by changes in prevailing
interest rates and the perceived credit quality of the issuer. When prevailing
interest rates fall or perceived credit quality is increased, the market values
of debt securities generally rise. Conversely, when interest rates rise or
perceived credit quality is lowered, 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.
CONVERTIBLE SECURITIES
THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND intend 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 and the operations of the issuer. 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
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE 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
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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 mortgage-backed securities and does not intend to invest
in commercial mortgage-backed securities. THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE 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 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 may also 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
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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.
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, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE 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, commonly referred to as "junk bonds". THIRD AVENUE HIGH YIELD FUND
intends to invest at least 65% of its total 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
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quality of the securities which they undertake to rate (see Appendix A for a
description of those ratings). 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, 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
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carefully consider the relative risks of investing in high yield securities and
understand that such securities are generally not meant for short term
investing.
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may also purchase or retain debt obligations of issuers not
currently paying interest or in default (i.e. with a rating from Moody's or
Standard & Poor's of C or C1, respectively, or lower). 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-COUPON 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 discounts 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
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE 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
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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 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, THIRD AVENUE HIGH
YIELD FUND and THIRD AVENUE REAL ESTATE VALUE 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 which, in the judgment of the
Adviser, otherwise provide financial information which provides the Adviser with
substantively similar financial information as 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
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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, THIRD AVENUE HIGH
YIELD FUND and THIRD AVENUE REAL ESTATE VALUE 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 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 block-
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age 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, THIRD AVENUE
HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE 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, including "principal only" and "interest
only" components of mortgage-backed securities, 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 publicly 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
THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE REAL
ESTATE 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
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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, THIRD AVENUE HIGH
YIELD FUND and THIRD AVENUE REAL ESTATE VALUE 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, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may invest in securities of other investment companies,
to the extent permitted 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
accounts advised by the Adviser and its affiliates. If, however, such other
accounts wish to invest in, or dispose of, the same securities as one of
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the Funds, available investments will be allocated equitably to each Fund and
other account. 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. Except as specifically described herein
or in the SAI, the Funds are not restricted in the amount of any type of
security they may acquire.
SECURITIES LENDING
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE 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 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).
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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, THIRD AVENUE HIGH YIELD FUND and
THIRD AVENUE REAL ESTATE VALUE 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 and THIRD AVENUE REAL
ESTATE VALUE 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 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, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE REAL
ESTATE 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.
Michael Winer has served as the co-manager of THIRD AVENUE REAL ESTATE VALUE
FUND since inception. Since 1994, Mr. Winer has been a managing director of M.J.
Whitman Senior Debt Corp. and a senior real estate analyst for M.J. Whitman,
Inc. From 1991 to 1994, Mr. Winer held senior-
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level positions with two financial institutions where he directed the workout,
collection and liquidation of distressed real estate loan and asset portfolios.
From 1986 to 1991, Mr. Winer was the chief financial officer, director and
co-owner of a southern California real estate development firm specializing in
the development, construction and management of commercial properties. From 1980
to 1986, Mr. Winer served as controller and financial officer for two large
Southern California real estate development firms. From 1978 to 1980, Mr. Winer
was a CPA and senior auditor with Touche Ross & Co.
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.
ADVISORY FEES
Each of THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE
HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND has agreed to pay the
Adviser an annual 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
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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
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly
owned subsidiary of First Data Corporation, which has its principal business
address at 4400 Computer Drive, Westboro MA 01581, serves as administrator of
the Funds pursuant to an Administrative Services Agreement. The services that
Investor Services Group 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.
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, THIRD
AVENUE HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND (each a
"Custodian" and, collectively, the "Custodians").
Investor Services Group serves as the Funds' Transfer Agent and also performs
certain accounting and pricing services for the Funds. Investor
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Services Group 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 Investor
Services Group. You may write to: First Data Investor Services Group, 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 affiliates 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
1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year
35.31% 25.00% 24.12% 18.34% 21.92% 19.20% 23.07%
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED PIECE]
TAVF S & P
10/31/90 10000.00 10000.00
10/31/91 14916.00 13350.00
10/31/92 15884.48 14679.66
10/31/93 21818.91 16872.80
10/31/94 22377.48 17525.78
10/31/95 27369.89 22159.59
10/31/96 31625.91 27498.71
10/31/97 42793.02 36328.55
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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
Total Return Since Inception
Seven Months -- 23.70%
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED PIECE]
TASCVF Russell 2000
4/1/97* 10000.00 10000.00
10/31/97 12370.00 12811.00
- ----------
* 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, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD
AVENUE REAL ESTATE 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, with
respect to shares sold prior to January 1, 1998, 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%. The holding period was subsequently reduced to twelve months effective
January 1, 1998. Capital gains from
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assets held for more than twelve months but not more than eighteen months were
taxed at a maximum 28% rate through December 31, 1997. 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. 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. 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:
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(1) all income dividends and capital gain distributions paid in cash;
(2) income dividends paid in cash with capital gain distributions
reinvested;
(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, First Data
Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903.
The Funds reserve the right to reject any purchase order.
THIRD AVENUE VALUE FUND is closed to new investors effective July 16, 1998,
except for eligible investors described below. From and after July 15, 1998, (i)
shareholders of THIRD AVENUE VALUE FUND as of the close of business on July 15,
1998, (ii) discretionary investment advisers that invest through existing
omnibus accounts at a financial intermediary, (iii) clients of a financial
intermediary which has an asset allocation program of which THIRD AVENUE VALUE
FUND is an investment option on July 15, 1998, and (iv) qualified defined
contribution retirement plans (e.g., 401(k) plans and profit sharing plans),
403(b) plans and 457 plans that invest through existing omnibus accounts at a
financial intermediary, may continue to make additional purchases and to
reinvest dividends and capital gain distributions in existing accounts. Once an
account is closed, additional investments will not be accepted.
Except as otherwise noted, these restrictions apply to investments made directly
with THIRD AVENUE VALUE FUND and investments made through financial
intermediaries. Investors may be required to demonstrate eligibility to purchase
shares of the Fund before an investment is accepted. THIRD AVENUE VALUE FUND may
resume sales of shares to new investors at some future date, but it has no
present intention to do so.
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
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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 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
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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", "THIRD AVENUE HIGH YIELD FUND" or "THIRD AVENUE REAL
ESTATE VALUE FUND."
BY MAIL
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND or
THIRD AVENUE REAL ESTATE VALUE FUND
c/o First Data Investor Services Group, Inc. 3200
Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903.
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, Investor
Services Group. 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.
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BY WIRE
Prior to sending wire instructions, notify Investor Services Group 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 Investor Services Group #: 98-7037-071-9
For further credit to: THIRD AVENUE VALUE FUND, THIRD AVENUE
SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND or THIRD
AVENUE REAL ESTATE VALUE 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
THIRD AVENUE HIGH YIELD FUND or
THIRD AVENUE REAL ESTATE VALUE FUND
c/o First Data Investor Services Group, 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 employees 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
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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 Investor Services Group 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 Investor Services Group.
Fund shares will be redeemed at the net asset value next calculated after such
request is received by Investor Services Group 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:
First Data Investor Services Group, 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 Investor Services Group
at (800) 443-1021, Option 2, prior to 4:00 p.m. Eastern time.
The Funds and Investor Services Group will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, Investor
Services Group will require personal identification information before accepting
a telephone redemption order. If the transfer agent fails to use reasonable
procedures, the Funds or Investor Services Group 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."
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FEES
There is no charge for redemption of shares tendered directly to Investor
Services Group, except as described below under "Early Redemption Fee." Investor
Services Group currently charges a wire fee of $9 for payment of redemption
proceeds by federal funds. Investor Services Group 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, 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 Investor Services Group will be responsible for any
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delays in wired redemption proceeds due to heavy wire traffic over the Federal
Reserve System.
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 Investor Services Group 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 Investor Services Group. Notice of all changes concerning the
Systematic Withdrawal Plan must be received by Investor Services Group 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
Investor Services Group at (800) 443-1021, Option 2.
EARLY REDEMPTION FEE
With respect to THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE
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 these Funds, 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 Funds reserve the right to
modify the terms of or
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terminate this fee at any time. The fee applies to redemptions from the Funds
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. 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 Investor Services Group 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.
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.
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.
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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 or THIRD AVENUE REAL ESTATE VALUE 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 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, 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.
o 24 hour automated voice response service.
The Funds pay for shareholder services but not for special services such as
requests for historical transcripts of accounts. The Funds' transfer agent,
Investor Services Group, 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 Investor Services Group
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) 888-5222.
To Redeem Shares: To redeem shares by telephone, call Investor Services Group
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 Investor Services Group. 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 obligor 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 rated "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
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such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
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.
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B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. 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
David M. Barse
President, Chief Operating Officer
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
First Data Investor Services Group, 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 THIRD AVENUE REAL ESTATE VALUE FUND
San Diego, CA 92101-4492 Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[logo]
767 THIRD AVENUE
NEW YORK, NY 10017-2023
Phone (212) 888-5222
Toll Free (800) 443-1021
www.thirdavenuefunds.com
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STATEMENT OF
ADDITIONAL
INFORMATION
--------------
SEPTEMBER 15, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 15, 1998
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
THIRD AVENUE REAL ESTATE VALUE 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 four separate investment series: THIRD
AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD
FUND and THIRD AVENUE REAL ESTATE VALUE FUND (each a "Fund" and collectively,
the "Funds").
This Statement of Additional Information, dated September 15, 1998, is not
a Prospectus and should be read in conjunction with the Prospectus dated
September 15, 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) 888-5222.
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 14
INVESTMENT ADVISORY AGREEMENT 14
ADMINISTRATOR 16
DISTRIBUTOR 16
CUSTODIAN 16
PORTFOLIO TRADING PRACTICES 17
PURCHASE ORDERS 20
REDEMPTION OF SHARES 20
Redemption in Kind 21
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 21
General 21
Distributions 24
Redemption of Shares 24
Backup Withholding 25
PERFORMANCE INFORMATION 25
FINANCIAL STATEMENTS 26
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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. Each of THIRD AVENUE HIGH YIELD
FUND and THIRD AVENUE REAL ESTATE VALUE FUND may from time to time make loans
and expects to invest in loans and other direct debt instruments.
SHORT SALES
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE 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
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may, but currently do not intend to, invest in
commodities or commodity contracts and futures contracts.
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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, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE 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.
- ----------
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.
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6. Invest 25% or more of the value of its total assets in any one industry,
except that THIRD AVENUE REAL ESTATE VALUE FUND will invest more than 25%
of its total assets in the real estate industry or related industries or
that own significant real estate assets at the time of investment.
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.
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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.
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
PHYLLIS W. BECK* 71 Trustee An Associate Judge (1981 to
GSB Bldg. Suite 800 Present) of the Superior Court of
City Line & Belmont Ave. Pennsylvania; Trustee or Director of
Bala Cynwyd, PA 19004-1611 the Trust or its predecessor since
November, 1992.
LUCINDA FRANKS 51 Trustee Journalist (1969 to Present); Author
64 East 86th Street "Wild Apples" (1990), "Waiting
New York, NY 10028 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 Present)
10965 Eight Bells Lane of Hellerman Associates, a financial
Columbia, MD 21044 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 research
Scarsdale, NY 10583 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, 1992 and
1996 of the Joint National Committee on
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
MARVIN MOSER, M.D. Detection, Evaluation and Treatment of
(continued) 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 68 Trustee Counsel to (12/96 to present) and
1001 Fannin St., Suite 3700 Attorney and Shareholder (1986 to
Houston, TX 77002 12/96) of Sheinfeld, 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 72 Trustee Seymour H. Knox Professor (1975
Yale University to Present) of Mathematical and
Dept. of Economics Institutional Economics, Yale Uni-
Box 2125, Yale Station versity; Director (1984 to 4/94) of
New Haven, CT 06520 Equity Strategies Fund, Inc.;
Trustee or Director of the Trust or
its predecessor since its inception.
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
CHARLES C. WALDEN 54 Trustee Senior Vice-President--Investments
Knights of Columbus (1973 to Present) (Chief Investment
1 Columbus Plaza Officer) of Knights of Columbus, a
New Haven, CT 06510 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 Representative
767 Third Avenue (11/96 to Present) of M.J. Whit-
New York, NY 10017-2023 man, 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 University Movement
Center, a university. Trustee of the
Trust since September, 1997.
MARTIN J. WHITMAN* 73 Chairman, Chairman and CEO (3/90 to
767 Third Avenue Chief Present), President (1/91 to 5/98), of
New York, NY 10017-2023 Executive the Trust; Chairman and CEO (3/90
Officer, to Present), President (1/91 to 2/98),
and of EQSF Advisers, Inc.; Chairman,
Trustee CEO (1/1/95 to Present), President
(1/1/95 to 6/29/95) 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,
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
MARTIN J. WHITMAN* Inc., a subsidiary of MJWHC and the
(continued) successor broker-dealer of M.J. Whitman,
L.P. (MJWLP), a 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 2/98) 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 36 President President (5/98 to Present), and Executive
767 Third Avenue and Chief Vice President (4/95 to 5/98) of the
New York, NY 10017-2023 Operating Trust; President, Chief Operating Officer and
Officer Director (7/96 to Present) of Danielson
(COO) Holding Corporation; Director (8/96 to Present)
of National American
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
DAVID M. BARSE Insurance Company of California;
(continued) President (2/98 to Present), Executive
Vice President (4/95 to 2/98), and
Director (4/95 to Present) of EQSF
Advisers, Inc.; President (6/95 to
Present), Director, Chief Operating
Officer (1/95 to Present), 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 Chief Executive Vice President, Chief
New York, NY 10017-2023 Financial Financial Officer (6/29/95 to
Officer Present) of MJWHC and of M.J.
(CFO) 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;
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
MICHAEL CARNEY Limited Partner (1/92 to 12/31/94) of
(continued) 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 Investments, L.P., an
investment 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 31 Assistant Assistant Treasurer (5/96 to Present),
767 Third Avenue Treasurer Controller (1/96 to Present), Assist-
New York, NY 10017-2023 ant 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 pre-
</TABLE>
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[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name and Address Age Registrant During Past 5 Years
==============================================================================================
<S> <C> <C> <C>
KERRI WELTZ sent) of WHR Management Corp.;
(continued) Controller (5/96 to Present), Assistant
Controller (1/93 to 5/96) and Staff
Accountant (5/91 to 12/92), of Whitman
Heffernan Rhein & Co., 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,
L.P.
IAN M. KIRSCHNER 42 General General Counsel and Secretary (8/96 to Present)
767 Third Avenue Counsel and of Danielson Holding Corporation; General
New York, NY 10017-2023 Secretary 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.
</TABLE>
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
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10
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[GRAPHIC OMITTED]
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.
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 or THIRD AVENUE REAL
ESTATE VALUE FUND because neither Fund had commenced operations as of that date.
COMPENSATION TABLE
AGGREGATE COMPENSATION TOTAL COMPENSATION
FROM REGISTRANT FOR FROM REGISTRANT AND
FISCAL YEAR ENDED FUND COMPLEX PAID
NAME AND POSITION HELD OCTOBER 31, 1997* TO TRUSTEES
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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
and Chief Executive Officer $ 0 $ 0
- ----------
* 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
and THIRD AVENUE REAL ESTATE VALUE FUND also shall receive compensation in
an estimated amount equal to $4,500 and $1,500 per Trustee, respectively,
and THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE 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.
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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, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE HIGH YIELD FUND
as set forth below as of August 28, 1998. THIRD AVENUE REAL ESTATE VALUE FUND
had not commenced operations as of August 28, 1998.
THIRD AVENUE VALUE FUND
PERCENTAGE OF
NAME AND ADDRESS THIRD AVENUE VALUE FUND NUMBER OF SHARES
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Charles Schwab & Co., Inc.2 42.54% 23,129,448
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin & Jenrette 11.50% 5,557,441
Securities Corporation3
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
National Financial Securities Corp.3 10.25% 6,250,366
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
THIRD AVENUE SMALL-CAP VALUE FUND
PERCENTAGE OF
NAME AND ADDRESS THIRD AVENUE SMALL-CAP VALUE FUND NUMBER OF SHARES
- --------------------------------------------------------------------------------
Charles Schwab & Co., Inc.2 34.43% 4,512,593
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities Corp.3 19.37% 2,539,726
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Bear Stearns Securities Corp.4 8.21% 1,075,975
One Metrotech Center North
Brooklyn, NY 11201-3859
Donaldson Lufkin & Jenrette
Securities Corporation3 5.92% 775,571
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
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THIRD AVENUE HIGH YIELD FUND
PERCENTAGE OF
NAME AND ADDRESS THIRD AVENUE HIGH YIELD FUND NUMBER OF SHARES
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Charles Schwab & Co., Inc.2 44.27% 473,231
101 Montgomery Street
San Francisco, CA 94104
Bear Stearns Securities Corp. 4 24.98% 267,033
One Metrotech Center North
Brooklyn, NY 11201-3859
National Financial Securities Corp.3 7.32% 78,248
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
- --------------------------------------------------------------------------------
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.
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[GRAPHIC OMITTED]
INVESTMENT ADVISOR
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 and Chief
Executive Officer of the Adviser.
The following individuals are affiliated persons of the Trust and Adviser:
CAPACITY WITH FUNDS CAPACITY WITH ADVISER
----------------- ---------------------
Martin J. Whitman Chairman and Chief Chairman and Chief
Executive Officer Executive Officer
David M. Barse President, Chief President, Chief
Operating Officer Operating Officer
Michael Carney Treasurer, Chief Treasurer, Chief
Financial Officer Financial Officer
Ian M. Kirschner General Counsel General Counsel
and Secretary and Secretary
Kerri Weltz Assistant Treasurer Assistant Treasurer
Barbara Whitman Trustee Director
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, to THIRD AVENUE HIGH
YIELD Fund pursuant to an Investment Advisory Agreement dated February 9, 1998
and to THIRD AVENUE REAL ESTATE VALUE FUND pursuant to an Investment Advisory
Agreement dated September 16, 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, the Investment Advisory Agreement
of THIRD AVENUE HIGH YIELD FUND was initially approved on February 9, 1998, and
the Investment Advisory Agreement of THIRD AVENUE REAL ESTATE VALUE FUND was
initially approved on September 16, 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
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14
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[GRAPHIC OMITTED]
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.
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.
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[GRAPHIC OMITTED]
ADMINISTRATOR
The Funds have entered into an Administration Services Agreement (the
"Administration Agreement") with First Data Investor Services Group, Inc., a
wholly owned subsidiary of First Data Corporation ("Investor Services Group").
The Administration Agreement provides that Investor Services Group 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, February 9, 1998 in the case of THIRD AVENUE
HIGH YIELD FUND, and September 16, 1998 in the case of THIRD AVENUE REAL ESTATE
VALUE 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
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16
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and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ 08540-6231,
serves as custodian for THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH
YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND pursuant to custodian
agreements. Under 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
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17
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[GRAPHIC OMITTED]
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 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. effects brokerage transactions for
the Funds must be reviewed and
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[GRAPHIC OMITTED]
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 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,
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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.
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 of
the 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
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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 (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
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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 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 on sales prior to January 1, 1998 tax-
- --------------------------------------------------------------------------------
22
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[GRAPHIC OMITTED]
able 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%. The holding
period was subsequently reduced to twelve months effective January 1, 1998.
Capital gains from assets held for more than twelve months but not more than
eighteen months were taxed at a maximum 28% rate through December 31, 1997.
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.
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 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
- --------------------------------------------------------------------------------
23
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<PAGE>
================================================================================
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.
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
- --------------------------------------------------------------------------------
24
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<PAGE>
================================================================================
[GRAPHIC OMITTED]
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. 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.
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 ini-
- --------------------------------------------------------------------------------
25
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<PAGE>
================================================================================
[GRAPHIC OMITTED]
tial 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 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%. THIRD AVENUE SMALL-CAP
VALUE FUND's average annual return from inception through fiscal year ended
October 31, 1997, was 43.97%.
FINANCIAL STATEMENTS
The Funds' financial statements and notes thereto appearing in (i) their Annual
Report to Shareholders and report thereon of PricewaterhouseCoopers LLP,
independent accountants, appearing therein, and (ii) their Semi-Annual Report
for the period ended April 30, 1998, are incorporated by reference in this
Statement of Additional Information. The Funds will issue unaudited semi-annual
and audited annual financial statements.
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26
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<PAGE>
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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
David M. Barse
President, Chief Operating Officer
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
First Data Investor Services Group, 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 THIRD AVENUE REAL ESTATE VALUE FUND
San Diego, CA 92101-4492 Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[GRAPHIC OMITTED]
767 THIRD AVENUE
NEW YORK, NY 10017
Phone (212) 888-5222
Toll Free (800) 443-1021
www.thirdavenuefunds.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 and the six
months ended April 30, 1998. Financial Highlights for THIRD
AVENUE SMALL-CAP VALUE FUND for the period from commencement of
operations to October 31, 1997 and for the six months ended April
30, 1998. Financial Highlights for THIRD AVENUE HIGH YIELD FUND
for the period from commencement of operations to April 30, 1998.
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 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. Portfolio of Investments at April 30,
1998, Statement of Assets and Liabilities at April 30, 1998,
Statements of Operations for the six months ended April 30, 1998,
Statement of Changes in Net Assets for the six months ended April
30, 1998 and the year ended October 31, 1997, Financial
Highlights for the six months ended April 30, 1998 and the years
ended October 31, 1997, 1996, 1995, 1994 and 1993 and Notes to
Financial Statements for the six months ended April 30, 1998.
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, 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.
Portfolio of Investments at April 30, 1998, Statement of Assets
and Liabilities at April 30, 1998, Statements of Operations for
the six months ended April 30, 1998, Statement of Changes in Net
Assets for the six months ended April 30, 1998 and the period
ended October 31, 1997, Financial Highlights for the six months
ended April 30, 1998 and the period ended October 31, 1997 and
Notes to Financial Statements for the six months ended April 30,
1998. Incorporated by reference to the Statement of Additional
Information.
THIRD AVENUE HIGH YIELD FUND Portfolio of Investments at April
30, 1998, Statement of Assets and Liabilities at April 30, 1998,
Statements of Operations for the period ended April 30, 1998,
Statement of Changes in Net Assets for the period ended April 30,
1998, Financial Highlights for the period ended April 30, 1998
and Notes to Financial Statements for the six months ended April
30, 1998. 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 incorporated by reference to Exhibit No.
(5) of Post-Effective Amendment No. 3 to the Registration
Statement No. 333-20891 filed February 9, 1998. Investment
Advisory Contract for the THIRD AVENUE REAL ESTATE VALUE
FUND is filed herewith.
<PAGE>
(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 incorporated by reference to Exhibit No. (6)
of Post-Effective Amendment No. 3 to the Registration
Statement No. 333-20891 filed February 9, 1998.
Distribution Agreement for the THIRD AVENUE REAL ESTATE
VALUE 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.
(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 incorporated by reference to
Exhibit No. (8)(b) of Post-Effective Amendment No. 3
to the Registration Statement No. 333-20891 filed
February 9, 1998.
Amendment to Custody Agreement to include THIRD AVENUE
REAL ESTATE VALUE 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 incorporated
by reference to Exhibit No. (9)(a) of Post-Effective
Amendment No. 3 to the Registration Statement No.
333-20891 filed February 9, 1998.
Amendment to Transfer Agent Services Agreement to
include THIRD AVENUE REAL ESTATE VALUE 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 incorporated by reference to
Exhibit No. (9)(b) of Post-Effective Amendment No. 3
to the Registration Statement No. 333-20891 filed
February 9, 1998.
Amendment to Administration Agreement to include THIRD
AVENUE REAL ESTATE VALUE 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 incorporated by
reference to Exhibit No. (9)(c) of Post-Effective
Amendment No. 3 to the Registration Statement No.
333-20891 filed February 9, 1998.
<PAGE>
Amendment to Accounting Services Agreement to include
THIRD AVENUE REAL ESTATE VALUE FUND is filed herewith.
(10) (a) Opinion and Consent of Counsel regarding the
legality of the securities being issued to be filed
with Post-Effective Amendment No. 6.
(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 incorporated by reference to
Exhibit No. (17) of Post-Effective Amendment No. 3 to the
Registration Statement No. 333-20891 filed February 9,
1998. THIRD AVENUE SMALL-CAP VALUE FUND is incorporated by
reference to Exhibit No. (17) of Post-Effective Amendment
No. 3 to the Registration Statement No. 333-20891 filed
February 9, 1998.
(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.
Item 26. Number of holders of securities.
Title of Class
Common Stock Number of Record Holders
(No Par Value) As of August 28 , 1998
THIRD AVENUE VALUE FUND 39,173
THIRD AVENUE SMALL-CAP VALUE FUND 4,617
THIRD AVENUE HIGH YIELD FUND 263
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 September 3, 1998 had approximately $1,655
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.
<PAGE>
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, First
Data Corporation, 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903.
Item 31. Management services.
None.
Item 32. Undertakings.
a) THIRD AVENUE REAL ESTATE VALUE 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. 5 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 10th day of September, 1998.
THIRD AVENUE TRUST
Registrant
/s/ Martin J. Whitman
---------------------------
Martin J. Whitman, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 5 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 9/10/98
/s/ PHYLLIS W. BECK
- -------------------
Phyllis W. Beck Trustee 9/10/98
/s/ MARTIN SHUBIK
- -----------------
Martin Shubik Trustee 9/10/98
/s/ MYRON M. SHEINFELD
- ----------------------
Myron M. Sheinfeld Trustee 9/10/98
/s/ GERALD HELLERMAN
- --------------------
Gerald Hellerman Trustee 9/10/98
/s/ CHARLES C. WALDEN
- ---------------------
Charles C. Walden Trustee 9/10/98
/s/ MARVIN MOSER
- ----------------
Marvin Moser Trustee 9/10/98
/s/ BARBARA WHITMAN
- -------------------
Barbara Whitman Trustee 9/10/98
/s/ LUCINDA FRANKS
- ------------------
Lucinda Franks Trustee 9/10/98
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibit
Number Exhibit
Item 24(b)
(5) Investment Advisory Contract for THIRD AVENUE
REAL ESTATE VALUE FUND
(6) Distribution Agreement for THIRD AVENUE REAL
ESTATE VALUE FUND
(8)(b) Amendment to Custody Agreement to include THIRD
AVENUE REAL ESTATE VALUE FUND
(9)(a) Amendment to Transfer Agent Services Agreement to
include THIRD AVENUE REAL ESTATE VALUE FUND
(9)(b) Amendment to Administration Agreement to include
THIRD AVENUE REAL ESTATE VALUE FUND
(9)(c) Amendment to Accounting Services Agreement to
include THIRD AVENUE REAL ESTATE VALUE FUND
(11) Consent of Independent Auditors
EXHIBIT NO. (5)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT (the "Agreement") made this 16th day of
September 1998, by and between THIRD AVENUE TRUST, a Delaware trust (the
"Trust), on behalf of the Third Avenue Real Estate Value 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.
<PAGE>
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 quarter.
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;
(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; and
-2-
<PAGE>
(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 administrative 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.
-3-
<PAGE>
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 by the Board
of Trustees of the Fund, including a majority of the directors 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 directors 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
-4-
<PAGE>
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.
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 deferred
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
-5-
<PAGE>
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
Real Estate Value Fund series
By:
-------------------------------------
David M. Barse
President
The Adviser:
EQSF ADVISERS, INC.
By:
-------------------------------------
Martin J. Whitman
Chairman
-6-
EXHIBIT NO. (6)
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of September 16, 1998
between THIRD AVENUE TRUST, a Delaware trust (the "Trust") on behalf of the
Third Avenue Real Estate Value 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
$.001 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.
<PAGE>
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.
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,
-2-
<PAGE>
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).
-3-
<PAGE>
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.
----------------
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
-4-
<PAGE>
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 Directors 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 directors 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.
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.
-5-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first above written.
THIRD AVENUE TRUST, for the Third Avenue
Real Estate Value Fund series
By:
---------------------------------
Name: Martin J. Whitman
Title: Chairman
M. J. WHITMAN, INC
By:
---------------------------------
Name: David Barse
Title: President
-6-
AMENDED EXHIBIT A
PORTFOLIOS
----------
Exhibit A to the Custody Agreement dated as of March 22, 1997, between
the undersigned is hereby amended, effective September 16, 1998, to list the
following three Portfolios:
- Third Avenue Small-Cap Value Fund
- Third Avenue High Yield Fund
- Third Avenue Real Estate Value Fund
As of September 16,1998
THIRD AVENUE TRUST
By:---------------------
Name: Martin J. Whitman
Title: Chairman
CUSTODIAL TRUST COMPANY
By:--------------------
Name: Ronald D. Watson
Title: President
Exhibit (9)(a)
AMENDMENT TO TRANSFER AGENT SERVICES AGREEMENT
This Amendment, dated as of the 16th day of September, 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 First Data Investor Services Group, Inc., a corporation duly
organized and existing under the laws of the Commonwealth of Massachusetts and
the successor in interest to FPS Services, Inc. (collectively, the "Parties").
WITNESSETH THAT
WHEREAS, the Parties are Parties to an Accounting Services Agreement
dated March 27, 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
REAL ESTATE VALUE 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 amended Schedule "C", to be signed by their
duly authorized officers as of the day and year first above written.
Third Avenue Trust First Data Investor Services Group, Inc.
By: By:
----------------------- -----------------------------------------
David Barse, President Kenneth J. Kempf, Senior Vice 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
THIRD AVENUE REAL ESTATE VALUE FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
Exhibit (9)(b)
AMENDMENT TO ADMINISTRATION AND BLUE SKY SERVICES AGREEMENT
This Amendment, dated as of the 16th day of September, 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 First Data Investor Services Group, Inc., a corporation duly
organized and existing under the laws of the Commonwealth of Massachusetts and
the successor in interest to FPS Services, Inc. (collectively, the "Parties").
WITNESSETH THAT
WHEREAS, the Parties are Parties to an Administration and Blue Sky
Service 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
REAL ESTATE VALUE FUND, by replacing Schedule "C" of the Agreement
with the attached amended Schedule "C".
2. Exept 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 amended Schedule "C", to be signed by their
duly authorized officers as of the day and year first above written.
Third Avenue Trust First Data Investor Services Group, Inc.
By: By:
------------------------ ----------------------------------------
David Barse, President Kenneth J. Kempf, Senior Vice 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
THIRD AVENUE REAL ESTATE VALUE FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
Exhibit (9)(c)
AMENDMENT TO ACCOUNTING SERVICES AGREEMENT
This Amendment, dated as of the 16th day of September, 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 First Data Investor Services Group, Inc., a corporation duly
organized and existing under the laws of the Commonwealth of Massachusetts and
the successor in interest to FPS Services, Inc. (collectively, the "Parties").
WITNESSETH THAT
WHEREAS, the Parties are Parties to an Accounting Services Agreement
dated March 27, 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
REAL ESTATE VALUE FUND, by replacing Schedule "B" of the Agreement
with the attached amended Schedule "B".
2. The Agreement is hereby amended to add a new series, THIRD AVENUE
REAL ESTATE VALUE FUND, by replacing Schedule "C" of the Agreement
with the attached amended Schedule "C".
3. 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 amended Schedules "B" and "C",
to be signed by their duly authorized officers as of the day and year first
above written.
Third Avenue Trust First Data Investor Services Group, Inc.
By: By:
----------------------- ----------------------------------------
David Barse, President Kenneth J. Kempf, Senior Vice President
<PAGE>
SCHEDULE B
FEES
FUND ACCOUNTING
- ---------------
THIRD AVENUE VALUE FUND
$24,000 Minimum to $10 Million of Average Net Assets
0.0004 On the Next $40 Million of Average Net Assets
0.0003 On the Next $50 Million of Average Net Assets
0.0001 On the Next $100 Million of Average Net Assets
0.00005 On the Next $800 Million of Average Net Assets
0.000025 Over $1 Billion of Average Net Assets
THIRD AVENUE SMALL-CAP VALUE FUND , THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE FUND
$24,000 Minimum to $20 Million of Average Net Assets
0.0003 On the Next $30 Million of Average Net Assets
0.0002 On the Next $50 Million of Average Net Assets
0.0001 On the Next $100 Million of Average Net Assets
0.00005 On the Next $800 Million of Average Net Assets
0.000025 Over $1 Billion of Average Net Assets
If any Fund holds 10 or less non-U.S. dollar denominated securities, the fee
schedule will remain unchanged.
If any Fund purchases more than 10 non-U.S. dollar denominated securities, the
annual minimum will increase from $24,000 to $34,000.
If any Fund holds more than 50% of its securities in non -U.S. dollar
denominated securities, the annual minimum will increase from $24,000 to
$40,000.
Assumes that Investor Services Group can use the automated return of capital
calculation for REITs which uses the prior year actual return of capital to
estimate current year return of capital. Should this not be the case, the annual
minimum will increase from $24,000 to $34,000.
<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
THIRD AVENUE REAL ESTATE VALUE FUND
This Schedule "C" may be amended from time to time by agreement of the parties.
Exhibit No. 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") 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 of Third Avenue Value Funds, 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
September 4, 1998
