AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000.
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. [10]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [11]
THIRD AVENUE TRUST
------------------
(Exact name of Registrant as Specified in Charter)
767 THIRD AVENUE, NEW YORK, NEW YORK 10017-2023
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(Address of Principal Executive Offices including Zip Code)
(TOLL-FREE) (800)443-1021, (212)888-5222
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(Registrant's Telephone Number, including Area Code)
Please send copies of communications to:
David M. Barse Richard T. Prins, Esq.
767 Third Avenue Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York 10017-2023 919 Third Avenue, New York, NY 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] 60 days after filing (or a later date determined by Registrant), pursuant
to paragragh (a)(1) of Rule 485.
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[LOGO FOR THIRD AVENUE FUNDS]
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE REAL ESTATE VALUE FUND
PROSPECTUS
==========
FEBRUARY 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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ABOUT THE FUNDS 1
General
Investment Philosophy
Who May Want to Invest
THIRD AVENUE VALUE FUND 2
Objective and Approach
Past Performance
Main Risks
Expenses
THIRD AVENUE SMALL-CAP VALUE FUND 4
Objective and Approach
Past Performance
Main Risks
Expenses
THIRD AVENUE REAL ESTATE VALUE FUND 6
Objective and Approach
Past Performance
Main Risks
Expenses
MANAGEMENT OF THE FUNDS 8
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 12
HOW TO EXCHANGE SHARES 14
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS & TAXES 15
SHAREHOLDER SERVICES 16
FINANCIAL HIGHLIGHTS 17
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ABOUT THE FUNDS
================================================================================
GENERAL
INVESTMENT PHILOSOPHY OF THIRD AVENUE FUNDS
The Funds adhere to a strict value discipline in selecting securities. This
means seeking securities whose prices are low in relation to what the Funds'
Adviser believes is the true value of the securities. The Funds' Adviser
believes this both lowers risk and increases appreciation potential. The Funds
identify investment opportunities through intensive research of individual
companies and ignore general stock market conditions and other macro factors.
For these reasons, the Funds may seek investments in the securities of companies
in industries that are temporarily depressed. The Funds follow a strategy of
"buy and hold." The Funds will generally sell an investment only when there has
been a fundamental change in the business or capital structure of the company
which significantly affects the investment's inherent value.
The Funds are all non-diversified. This generally means that the Funds will have
fewer investments than diversified mutual funds of comparable size.
Non-diversified funds can be more volatile than diversified funds. When the
Funds' Adviser believes that 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. This does not constitute a change in such
Fund's investment objective, but could prevent it from achieving its objective.
WHO MAY WANT TO INVEST
Third Avenue Funds may be appropriate for investors seeking long-term capital
appreciation.
1
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THIRD AVENUE VALUE FUND
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OBJECTIVE AND APPROACH
Third Avenue Value Fund seeks long-term capital appreciation. The Fund seeks to
achieve its objective mainly by acquiring common stocks of well-financed
companies (meaning companies without significant debt in comparison to their
cash resources) at a substantial discount to what the Adviser believes is their
true value. The Fund also seeks to acquire senior securities, such as preferred
stocks and debt instruments, that it believes are undervalued. Acquisitions of
these senior securities will generally be limited to those providing (1)
protection against the issuer taking certain actions which could reduce the
value of the security and (2) above-average current yields, yields to events
(e.g., acquisitions and recapitalizations), or yields to maturity. The Fund
invests in companies regardless of market capitalization. It also invests in
both domestic and foreign securities. The mix of the Fund's investments at any
time will depend on the industries and types of securities the Adviser believes
hold the most value.
PAST PERFORMANCE
The tables below show the annual returns of Third Avenue Value Fund and compare
those returns to relevant broad measures of market performance. This information
gives an indication of the risks involved in investing in Third Avenue Value
Fund by showing how performance has changed from year to year. All figures
assume reinvestment of dividends and distributions. As with all mutual funds,
past performance does not indicate future results.
- ------------------------------
FUND CODES
Ticker TAVFX
CUSIP 884116104
- ------------------------------
[BAR CHART OMITTED]
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----- ----- ----- ------ ----- ----- ----- ---- -----
34.41% 21.29% 23.66% -1.46% 31.73% 21.92% 23.87% 3.92% 12.82%
During the 9-year period in the bar chart, the highest return for a quarter was
26.98% (quarter ending March 31, 1991) and the lowest return for a quarter was
- -14.29% (quarter ending September 30, 1998).
Average Annual Total Returns Past Past Since
for the periods ending 12/31/99 One Year 5 Years Inception
Third Avenue Value Fund 12.82% 18.45% 19.26%
S&P 500 Index 20.89% 28.24% 21.60%
Russell 2000 Index 21.11% 17.00% 17.90%
Russell 2000 Value Index -1.49% 13.14% 17.89%
2
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MAIN RISKS
Prices of securities (and stocks in particular) have historically fluctuated.
The value of the Fund will similarly fluctuate and you could lose money. The
Fund frequently finds value in industries that are temporarily depressed. The
prices of securities in these industries may tend to go down more than those of
companies in other industries. The Fund also invests in companies with smaller
capitalizations, whose securities tend to be more volatile than those of larger
companies. In addition to general market risks, foreign securities are subject
to risks such as currency fluctuations and controls, adverse political
developments and potentially greater illiquidity. Since the Fund is not limited
to investing in stocks, the Fund may own significant non-equity instruments in a
rising stock market, thereby producing smaller gains than a Fund invested solely
in stocks.
EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Operating Expenses (expenses that are deducted from Fund assets):
Management Fees 0.90%
Other Expenses 0.20%
- -------------------------------------------------------------
Total Fund Operating Expenses 1.10%
EXAMPLE
The following example is intended to help you compare the cost of investing in
Third Avenue Value Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
Year 1 Year 3 Year 5 Year 10
$112 $350 $606 $1,340
3
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THIRD AVENUE SMALL-CAP VALUE FUND
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OBJECTIVE AND APPROACH
Third Avenue Small-Cap Value Fund seeks long-term capital appreciation. The Fund
seeks to achieve its objective by acquiring common stocks of well-financed small
companies at a substantial discount to what the Adviser believes is their true
value. A small company is one whose outstanding shares have a market value of
less than $1 billion at the time of the Fund's investment. The Fund intends to
invest at least 65% of its total assets in the common stocks of small companies.
PAST PERFORMANCE
The tables below show the annual returns of Third Avenue Small-Cap Value Fund
and compare those returns to a broad measure of market performance. This
information gives some indication of the risks involved in investing in Third
Avenue Small-Cap Value Fund by showing how performance has changed from year to
year. All figures assume dividend reinvestment. As with all mutual funds, past
performance does not indicate future results.
- ---------------------------
FUND CODES
Ticker TASCX
CUSIP 884116203
- ---------------------------
[BAR CHART OMITTED]
1998 1999
- ---- ----
- -2.77% 11.29%
During the 2-year period shown in the bar chart, the highest return for a
quarter was 17.11% (quarter ending June 30, 1999) and the lowest return for a
quarter was -18.31% (quarter ending September 30, 1998).
- --------------------------------------------------------------------------------
Average Annual Total Returns Past Since
for the periods ending 12/31/99 One Year Inception
- --------------------------------------------------------------------------------
Third Avenue Small-Cap Value Fund 11.29% 8.95%
Russell 2000 Index 21.11% 16.58%
Russell 2000 Value Index -1.49% 7.42%
- --------------------------------------------------------------------------------
4
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MAIN RISKS
Prices of securities have historically fluctuated. The value of the Fund will
similarly fluctuate and you could lose money. The Fund invests in smaller
companies, whose securities tend to be more volatile than those of larger
companies. The markets for these securities are also less liquid than those for
larger companies. This can adversely affect the prices at which the Fund can
purchase and sell these securities, and thus the value of the Fund's shares. The
Fund frequently finds value in industries that are temporarily depressed. The
prices of securities in these industries may tend to go down more than those of
companies in other industries.
- --------------------------------------------------------------------------------
EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Operating Expenses (expenses that are deducted from Fund assets):
Management Fees 0.90%
Other Expenses 0.38%
- -------------------------------------------------------------
Total Fund Operating Expenses 1.28%
EXAMPLE
The following example is intended to help you compare the cost of investing in
Third Avenue Small-Cap Value Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Year 1 Year 3 Year 5 Year 10
$130 $406 $702 $1,545
5
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THIRD AVENUE REAL ESTATE VALUE FUND
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OBJECTIVE AND APPROACH
Third Avenue Real Estate Value Fund seeks long-term capital appreciation. The
Fund seeks to achieve its objective by investing at least 65% of its total
assets in equity and debt securities of well-financed companies in the real
estate industry or related industries or in companies which own significant real
estate assets at the time of investment. The Fund seeks to acquire these
securities at a substantial discount to the Adviser's estimate of the issuing
company's takeover value or liquidation value.
o A company is considered to be in the real estate industry if at least 50%
of its gross revenues or net profits at the time of investment come 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.
o A company is considered to be in a related industry if 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 real estate companies.
o A company is considered to own significant real estate assets if at least
50% of the fair market value of its assets at the time of investment 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 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 companies that might qualify under one of these categories include:
o Real estate development companies (including commercial/industrial develop-
ers 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.
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PAST PERFORMANCE
The tables below show the annual return of Third Avenue Real Estate Value Fund
for its only full calendar year of performance. This information gives some
indication of the risks involved in investing in the Fund by comparing the
return to a broad measure of market performance. You should be aware that the
performance of Third Avenue Real Estate Value Fund will fluctuate from year to
year and may or may not perform as well as a comparable broad market index. All
figures assume dividend reinvestment. As with all mutual funds, past performance
does not indicate future results.
- ------------------------------
FUND CODES
Ticker TAREX
CUSIP 884116401
- ------------------------------
[BAR CHART OMITTED]
1999
5.17%
During the 1-year period shown in the bar chart, the highest return for a
quarter was 10.71% (quarter ending June 30, 1999) and the lowest return for a
quarter was -6.73% (quarter ending September 30, 1999).
- --------------------------------------------------------------------------------
Average Annual Total Returns Past Since
for the periods ending 12/31/99 One Year Inception
- --------------------------------------------------------------------------------
Third Avenue Real Estate Value Fund 5.17% 9.98%
Bloomberg REIT Small Cap Index -4.35% -0.63%
Bloomberg Real Estate Operating Co. Index -3.63% 4.62%
Wilshire Real Estate Securities Index -3.17% 2.13%
- --------------------------------------------------------------------------------
6
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MAIN RISKS
Prices of stocks have historically fluctuated. The value of the Fund will
similarly fluctuate and you could lose money. In addition to general market
conditions, the value of the Fund will be affected by the strength of the real
estate market. Factors that could affect the value of real estate include the
following:
o overbuilding and increased competition;
o increases in property taxes and operating expenses;
o changes in zoning laws;
o casualty or condemnation losses;
o variations in rental income;
o changes in neighborhood values; and
o the appeal of properties to tenants and increases in interest rates.
Prices of commodities such as timber have historically been very volatile.
Reductions in commodity prices will likely cause the prices of companies in
those industries to drop.
- --------------------------------------------------------------------------------
EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees (fees paid directly from your investment):
Redemption Fee (as a percentage of amount redeemed) 1.00%*
Exchange Fee 1.00%*
Annual Operating Expenses (expenses that are deducted from Fund assets):
Management Fees 0.90%
Other Expenses 4.48%**
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 5.38%**
* This fee is charged only on redemptions or exchanges of shares held less than
one year.
** These expenses do not reflect reimbursements by the Adviser. The Adviser
reimbursed the Fund for all expenses incurred by the Fund in excess of 1.87% of
Fund assets and has agreed, effective October 15, 1999 to reimburse the Fund for
all expenses incurred by the Fund in excess of 1.5% of Fund assets. The Fund
will repay the Adviser the amount of its reimbursement for up to three years
following the reimbursement to the extent Fund expenses drop below 1.5%. The
Adviser expects to continue to reimburse the Fund for these expenses for the
forseeable future. Either the Fund or the Adviser can terminate this arrangement
at any time. Other expenses are based on estimated amounts for the current
fiscal year.
EXAMPLE
The following example is intended to help you compare the cost of investing in
Third Avenue Real Estate Value Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Year 1 Year 3 Year 5 Year 10
$637 $1,605 $2,665 $5,279
You would pay the following expenses if you did not redeem your shares:
Year 1 Year 3 Year 5 Year 10
$537 $1,605 $2,665 $5,279
7
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MANAGEMENT OF THE FUNDS
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THE INVESTMENT ADVISER
EQSF Advisers, Inc. (the "Adviser"), 767 Third Avenue, New York, NY 10017-2023,
is the investment adviser for each of the Funds. The Adviser manages each Fund's
investments, provides various administrative services and supervises the Funds'
daily business affairs, subject to the authority of Third Avenue Trust's (the
"Trust") Board of Trustees. The Adviser has been an investment adviser for
mutual funds since its organization in 1986 and is controlled by Martin J.
Whitman.
MARTIN J. WHITMAN
Mr. Whitman, the Chairman and Chief Executive Officer of the Trust and its
Adviser, is the portfolio manager of Third Avenue Value Fund and the co-manager
of Third Avenue Small-Cap Value Fund and Third Avenue Real Estate Value Fund
since each Fund's inception. 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, currently including Danielson Holding Corporation,
an insurance holding company, Nabors Industries, Inc., an international oil
drilling contractor, and Tejon Ranch Company, an agricultural and land
management company.
CURTIS JENSEN
Curtis Jensen has served as co-manager of Third Avenue Small-Cap Value Fund
since its 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, and was an investment banker with Manufacturers Trust Company and
Enright & Co.
MICHAEL WINER
Michael Winer has served as the co-manager of Third Avenue Real Estate Value
Fund since its 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-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.
ADVISORY FEES
Each of the Funds paid the Adviser a fee equal to .90% of its average daily net
assets for the fiscal year ended October 31, 1999.
8
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HOW TO PURCHASE SHARES
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PRICE OF SHARES
The price you will pay for a share of a Fund is the Fund's net asset value per
share. Net asset value per share is calculated as of the close of regular
trading on the New York Stock Exchange, normally 4:00 p.m., Eastern time. Net
asset value of each Fund is determined by dividing the value of all portfolio
securities, cash, and other assets, including accrued interest and dividends,
owned by the Fund, less all liabilities, including accrued expenses of the Fund,
by the total number of outstanding shares of the Fund. Your order will be priced
at the next net asset value calculated following receipt of your order. A Fund's
investments are generally valued at market value. Certain short-term securities
are valued based on amortized cost. 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. Foreign securities held by a Fund
generally trade on foreign markets which may be open on days when the New York
Stock Exchange is closed. This means that the Fund's net asset value can change
on a day that you cannot purchase or redeem your shares.
BUSINESS HOURS
The Funds are open for business each day the New York Stock Exchange is open.
The New York Stock Exchange 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.
PURCHASING SHARES
Shares of a Fund can be purchased either directly from the Fund or through your
broker-dealer or investment adviser.
To purchase shares directly from a Fund, you need to complete and sign an
account application and send it, together with your payment for the shares, to
the Funds' transfer agent:
PFPC, Inc.
211 South Gulph Rd.
P.O. Box 61503
King of Prussia, PA 19406
To purchase shares from a broker-dealer, it must be a member in good standing
with the NASD and have entered into a selling agreement with the Funds'
distributor, M.J. Whitman, Inc. Investment advisers must be registered under
federal securities laws. You may or may not need to complete and sign an account
application when purchasing through a broker-dealer or investment adviser,
depending on its arrangements with the Funds. The Funds reserve the right to
reject any purchase order.
9
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MINIMUM INVESTMENTS
The minimum initial investment for each Fund is $1,000 for a regular account and
$500 for an Individual Retirement Accout (IRA). Additional investments must be
at least $1,000 for a regular account and $200 for an IRA, unless you use the
Funds' Automatic Investment Plan. Under this plan, a predetermined amount,
selected by you, will be deducted from your checking account.
Subsequent investments under this Plan are subject to a monthly minimum of $200.
The Automatic Investment Plan option may be elected on the application.
Transactions in Fund shares made through your broker-dealer or investment
adviser may be subject to charges imposed by the broker-dealer or investment
adviser, who may also impose higher initial or additional amounts for investment
than those established by the Funds. 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, M.J. Whitman, Inc., the Adviser or any
affiliate of the Adviser (including their spouses and children under age 21).
PAYING FOR SHARES
When purchasing shares directly from a Fund, you may pay by check or money order
payable to "Third Avenue Funds." The Funds will only accept checks drawn in U.S.
currency on a domestic bank. The Funds will not accept a check endorsed over by
a third-party. You will be charged (minimum of $20) for any check used for the
purchase of Fund shares that is returned unpaid. If you purchase Fund shares by
check or money order, you 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 the purchase date.
If you purchase shares through a broker-dealer or investment adviser, the
broker-dealer or investment adviser is responsible for forwarding payment or
arranging for payment promptly. The Funds reserve the right to cancel any
purchase order for which payment has not been received by the third business day
following receipt of the purchase order. Telephone purchase orders will only be
accepted from financial institutions which have been approved previously by the
Funds or the Adviser.
10
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- --------------------------------------------------------------------------------
PAYING FOR SHARES BY MAIL
INITIAL PAYMENTS
Initial payments, together with your account application, should be sent to:
Third Avenue Funds
c/o PFPC, Inc.
211 South Gulph Rd.
P.O. Box 61503
King of Prussia, PA 19406
ADDITIONAL PAYMENTS
Additional payments, together with the payment stub from your account statement,
should be sent to:
Third Avenue Funds
c/o PFPC, Inc.
P.O. Box 412797
Kansas City, MO 64141-2797
PAYING FOR SHARES BY WIRE
Prior to sending wire instructions, notify PFPC, Inc. at (800) 443-1021, Option
2 to insure proper credit to your account. Direct your bank to wire funds as
follows:
Boston Safe Deposit & Trust
ABA #: 011001234
Acct#: 003514
For further credit to: Third Avenue Value Fund, Third Avenue Small-Cap Value
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.
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds' IRA application and additional forms required may be obtained by
contacting PFPC, Inc. at (800) 443-1021, Option 1. 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
If you are self-employed, you may purchase shares of the Funds through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh 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.
11
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HOW TO REDEEM SHARES
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GENERAL
You may redeem your shares on any day during which the New York Stock Exchange
is open, either directly from the Fund or through your broker-dealer or
investment adviser. Fund shares will be redeemed at the net asset value next
calculated after your order is received in proper form by the Fund's transfer
agent. 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. You
can redeem less than all of your shares, but if you retain shares with a value
of less than $500 ($200 for IRAs) your account will be closed.
BY MAIL
Send a written request, together with any share certificates that have been
issued, to:
PFPC, Inc.
211 South Gulph Road
P.O. Box 61503
King of Prussia, PA 19406
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
You may redeem shares by telephone by electing this service on the application.
You may thereafter redeem shares on any business day by calling PFPC, Inc. at
(800) 443-1021, Option 2, prior to 4:00 PM Eastern time.
The Funds and PFPC, Inc. will not be liable for following telephone instructions
reasonably believed to be genuine. In this regard, PFPC, Inc. will require
personal identification information before accepting a telephone redemption
order.
Please contact your broker-dealer or investment adviser for information on how
to redeem your shares through them.
FEES
You will not be charged for redeeming your shares directly from the Funds,
except as described below under "Early Redemption Fee." The transfer agent
currently charges a wire fee of $9 for payment of redemption proceeds by federal
funds. The transfer agent will automatically deduct the wire fee from the
redemption proceeds. Broker-dealers handling redemption transactions generally
will charge a service fee.
REDEMPTION BY THE FUNDS
The Funds have the right to redeem your shares at current net asset value at any
time and without prior notice if and to the extent that such redemption is
necessary to reimburse the Funds for any loss sustained by reason of your
failure to make full payment for shares of the Funds you previously purchased or
subscribed for. The Funds may also redeem your shares in any account (other than
those in an IRA account), upon 30 days prior written notice, if they have 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 a
redemption request. You should note that payment for 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 the purchase date.
WIRED PROCEEDS
If you request payment of redemption proceeds by wire transfer, payment will be
transmitted only on days that commercial banks are open for business and only to
the bank and account previously authorized by you on your application or
separate signature guaranteed letter of instruction. Neither the Funds nor the
transfer agent will be responsible for any delays in wired redemption proceeds
due to heavy wire traffic over the Federal Reserve System.
12
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SIGNATURE GUARANTEES/OTHER DOCUMENTS
Signatures must be guaranteed by an "eligible guarantor institution", which
includes certain banks, brokers, dealers, credit unions, securities exchanges
and associations, clearing agencies and savings associations 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. 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 PFPC, Inc. toll free at (800)
443-1021, Option 2.
CHANGING INFORMATION
If you did not previously elect the Telephone Redemption Service on your
application, or wish to change any information previously provided to the Funds,
including the address of record or the bank to which redemption proceeds are to
be wired, you must submit a signature guaranteed letter of instruction.
SYSTEMATIC WITHDRAWAL PLAN
If you own or are purchasing shares of the Funds having a current value of at
least $10,000, you may participate in a Systematic Withdrawal Plan. This Plan
provides for automatic redemption of at least $100 monthly, quarterly,
semi-annually, or annually. You may establish a Systematic Withdrawal Plan by
sending a letter to PFPC, Inc. Notice of all changes concerning the Systematic
Withdrawal Plan must be received by PFPC, Inc. 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 PFPC, Inc. at (800)
443-1021, Option 2.
EARLY REDEMPTION FEE
If you redeem or exchange shares of Third Avenue Real Estate Value Fund which
you have 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 this Fund, to avoid transaction and other expenses caused by early
redemptions, and to facilitate portfolio management. The fee is not a deferred
sales charge, is not a commission paid to the Adviser, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time. The fee applies to redemptions from the Fund and
exchanges to other Third Avenue Funds, but not to dividend or capital gains
distributions which have been automatically reinvested in the Fund. The fee is
applied to the shares being redeemed or exchanged in the order in which they
were purchased. For these 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.
13
<PAGE>
HOW TO EXCHANGE SHARES
================================================================================
INTER-FUND EXCHANGE PRIVILEGE
You may exchange shares of one Fund of the Trust for shares of another Fund, in
writing or by telephone, at net asset value without the payment of any fee or
charge, except that a fee will be applicable upon the exchange of shares of
Third Avenue Real Estate Value Fund that you held for less than one year. See
"How to Redeem Shares - Early Redemption Fee" for details. An exchange is
considered a sale of shares and may result in capital gain or loss for federal
and state income tax purposes. If you want to use this exchange privilege, you
should elect the service on your account application.
If the transfer agent 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 your 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
Until March 31, 2000 you 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.
You should not order shares of the Money Market Fund without first receiving the
current prospectus for the Money Market Fund. By giving exchange instructions,
you will be deemed to have represented that you have 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.
Effective April 1, 2000, the Money Market Fund will be closed and all shares in
the Money Market Fund will, at your election, be exchanged for shares of another
Fund or redeemed for cash.
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.
14
<PAGE>
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS & TAXES
================================================================================
The Funds expect to pay dividends from their net investment income and to
distribute any realized net capital gains. Each Fund will make these
distributions annually.
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 are taxable to shareholders as a
long-term capital gain. Short-term gains apply to assets held for up to one year
and long-term gains apply to assets held for more than one year. Those gains are
currently taxed at different rates.
The Funds will notify you of the tax status of dividends and capital gain
distributions after the end of each calendar year. The tax status of
distributions will be the same no matter how long you have held your shares.
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.
You will generally recognize taxable gain or loss on a redemption of shares in
an amount equal to the difference between the redemption proceeds and your basis
in the shares redeemed. This gain or loss will generally be capital 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. You
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
and be subject to federal income tax. You should consult your tax advisers as to
the federal, state and local tax consequences to you of ownership of shares of
the Funds.
DISTRIBUTION OPTIONS
You should specify on your account application how you wish to receive
distributions. If no election is made on the account application, all
distributions will automatically be reinvested. Each Fund offers four options:
(1) all income dividends and capital gain distributions paid in cash;
(2) income dividends paid in cash with capital gain distributions reinvested;
(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.
15
<PAGE>
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 automatic voice response service.
o On-line account access though the Funds' web site:
www.thirdavenuefunds.com.
The Funds pay for shareholder services but not for special services such as
requests for historical transcripts of accounts. The Funds' transfer agent,
PFPC, Inc., 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 PFPC, Inc. 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 and literature requests 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, option 1 or (212) 888-5222.
TO REDEEM SHARES
To redeem shares by telephone, call PFPC, Inc. prior to 4:00 PM on the day you
wish to redeem, toll free (800) 443-1021, Option 2, or (610) 239-4600.
TRANSFER OF OWNERSHIP
You may transfer Fund shares or change the name or form in which the shares are
registered by writing to PFPC, Inc. 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."
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
The following Financial Highlights tables are intended to help you understand
each Fund's financial performance, for the last five fiscal years for Third
Avenue Value Fund, and from each of the other Fund's commencement of operations
to October 31, 1999, the end of each Fund's most recent fiscal year. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Fund (assuming reinvestment of all dividends and
distributions). The Financial Highlights for the fiscal years included herein
have been audited by PricewaterhouseCoopers LLP, independent accountants, whose
unqualified report on the October 31, 1999 financial statements appears in the
Funds' Annual Report to Shareholders. This information should be read in
conjunction with the financial statements and accompanying notes appearing in
the 1999 Annual Report to Shareholders, which is available upon request.
THIRD AVENUE VALUE FUND: SELECTED DATA AND RATIOS
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
BEGINNING OF PERIOD $ 30.16 $ 31.94 $ 24.26 $ 21.53 $ 18.01
---------- ---------- ---------- -------- --------
Income From Investment Operations:
Net investment income .47 .48 .48 .53 .38
Net gain (loss) on securities
(both realized and unrealized) 4.59 (1.69) 7.92 2.76 3.53
---------- ---------- ---------- -------- --------
Total From Investment Operations 5.06 (1.21) 8.40 3.29 3.91
---------- ---------- ---------- -------- --------
Less Distributions:
Dividends (from net investment income) (.40) (.41) (.57) (.41) (.25)
Distributions (from capital gains) -- (.16) (.15) (.15) (.14)
---------- ---------- -------- --------
Total Distributions (.40) (.57) (.72) (.56) (.39)
---------- ---------- ---------- -------- --------
Net Asset Value, End of Period $ 34.82 $ 30.16 $ 31.94 $ 24.26 $ 21.53
========== ========== ========== ======== ========
Total Return 16.89% (3.86%) 35.31% 15.55% 22.31%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $1,340,272 $1,540,711 $1,646,240 $566,847 $312,722
Ratio of Expenses to Average
Net Assets 1.10% 1.08% 1.13% 1.21% 1.25%
Ratio of Net Income to Average
Net Assets 1.27% 1.44% 2.10% 2.67% 2.24%
Portfolio Turnover Rate 5% 24% 10% 14% 15%
</TABLE>
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
THIRD AVENUE SMALL-CAP VALUE FUND: SELECTED DATA AND RATIOS
Period from
Years Ended April 1, 1997*
October 31, to October 31,
1999 1998 1997
Net Asset Value, Beginning Of Period $10.66 $12.37 $10.00
-------- -------- --------
Income From Investment Operations:
Net investment income .09 .08 .05
Net gain (loss) on securities
(both realized and unrealized) .67 (1.73) 2.32
-------- -------- --------
Total From Investment Operations .76 (1.65) 2.37
-------- -------- --------
Less Distributions:
Dividends from net investment income (.09) (.06) --
-------- -------- --------
Net Asset Value, End of Period $11.33 $10.66 $12.37
======== ======== =========
Total Return 7.12% (13.36)% 23.70%(1)
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $121,895 $139,557 $107,256
Ratio of Expenses to
Average Net Assets 1.28% 1.28% 1.65%(2)
Ratio of Net Income to
Average Net Assets 0.72% 0.72% 1.44%(2)
Portfolio Turnover Rate 10% 6% 7%(1)
* Commencement of investment operations
1 Not Annualized
2 Annualized
18
<PAGE>
================================================================================
THIRD AVENUE REAL ESTATE VALUE FUND: SELECTED DATA AND RATIOS
Period from
Year Ended September 17, 1998*
October 31, 1999 to October 31, 1998
Net Asset Value, Beginning of Period $10.28 $10.00
--------- ---------
Income From Investment Operations:
Net investment income .20 .02
Net gain on securities
(both realized and unrealized) .71 .26
--------- ---------
Total from Investment Operations .91 .28
--------- ---------
Less Distributions:
Dividends from net investment income (.10) --
--------- ---------
Net Asset Value, End of Period $11.09 $10.28
========= =========
Total Return 8.86% 2.80%(1)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $8,312 $713
Ratio of Expenses to Average Net Assets
Before expense reimbursement 5.38% 81.89%(2)
After expense reimbursement 1.87% 1.90%(2)
Ratio of Net Income to Average Net Assets
Before expense reimbursement (0.31%) (77.33%)(2)
After expense reimbursement 3.20% 2.66%(2)
Portfolio Turnover Rate 5% 0%(1)
* Commencement of investment operations
1 Not Annualized
2 Annualized (Note that annualized expense and income (loss) before expense
reimbursement are not neccessarily indicative of expected expenses due to the
annualization of certain fund expenses.)
19
<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Donald Rappaport
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
PFPC, Inc.
211 Gulph Road
P.O. Box 61503
King of Prussia, PA 19406
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE FUNDS
767 THIRD AVENUE
NEW YORK, NY 10017-2023
PHONE (212) 888-5222
TOLL FREE (800) 443-1021
Www.thirdavenuefunds.com\
<PAGE>
More information about the Funds is available in the Funds' reports to
shareholders and Statement of Additional Information (SAI). The Funds' Annual
Report contains a discussion of the market conditions and investment strategies
that significantly affected the Funds' performances during the last fiscal year.
The SAI is on file with the SEC and is incorporated by reference (is legally
considered part of this Prospectus).
You can obtain the SAI and the Funds' reports to shareholders without charge and
otherwise make inquiries to the Funds by writing or calling the Funds at 767
Third Avenue, New York, NY 10017-2023, (800) 443-1021 or (212) 888-5222.
Information about the Funds, including the SAI, can be reviewed and copied at
the SEC's Public Reference Room in Washington D.C. (phone 202-942-8090 for
information). Copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the E-mail address [email protected],
or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Reports and other information about the Funds are available on the SEC's
Internet Web site (http://www.sec.gov).
SEC file number 811-8039
<PAGE>
[GRAPHIC OMITTED]
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 28, 2000
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE REAL ESTATE VALUE FUND
This Statement of Additional Information (SAI) is not a Prospectus and should be
read together with the Funds' Prospectus dated February 28, 2000. The Funds'
Annual Report to Shareholders is incorporated by reference in this SAI (is
legally considered part of this SAI). A copy of the Prospectus and the Funds'
reports to shareholders may be obtained without charge by writing to the Funds
at 767 Third Avenue, New York, NY 10017-2023, or by calling the Funds at (800)
443-1021 (toll free) or (212) 888-5222.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION 3
INVESTMENT POLICIES 3
INVESTMENT RESTRICTIONS 11
MANAGEMENT OF THE TRUST 12
COMPENSATION TABLE 17
PRINCIPAL STOCKHOLDERS 17
INVESTMENT ADVISER 19
INVESTMENT ADVISORY AGREEMENT 20
DISTRIBUTOR 21
ADMINISTRATOR 21
CUSTODIAN 22
TRANSFER AGENT 22
INDEPENDENT ACCOUNTANTS 22
PORTFOLIO TRADING PRACTICES 22
PURCHASE ORDERS 24
REDEMPTION OF SHARES 24
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 25
SHARE INFORMATION 27
PERFORMANCE INFORMATION 27
FINANCIAL STATEMENTS 28
APPENDIX 29
-2-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information is in addition to and serves to expand
and supplement the current Prospectus of Third Avenue Trust (the "Trust"). The
Trust is an open-end, non-diversified management investment company which
currently consists of three separate investment series: THIRD AVENUE VALUE FUND,
THIRD AVENUE SMALL-CAP VALUE FUND, and THIRD AVENUE REAL ESTATE VALUE FUND (each
a "Fund" and collectively, the "Funds").
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
The Prospectus discusses the investment objectives of the Funds and the
principal strategies to be employed to achieve those objectives. This section
contains supplemental information concerning certain types of securities and
other instruments in which the Funds may invest, additional strategies that the
Funds may utilize and certain risks associated with such investments and
strategies.
The Funds, and particularly THIRD AVENUE VALUE FUND, expect to invest in a broad
range of securities (subject to each Fund's fundamental investment objective).
The particular types of securities and the percentage of a Fund's assets
invested in each type, will vary depending on where the Adviser sees the most
value at the time of investment. The following is a description of the different
types of securities that the Adviser may invest in and certain of the risks
relating to those securities.
INVESTMENT IN EQUITY SECURITIES
In selecting common stocks, the Adviser generally 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.
(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.
1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
-3-
<PAGE>
Investing in common stock has certain risks, including the risk that the
financial condition of the issuers of the Funds' securities may become impaired
or that the general condition of the stock market may worsen (both of which may
contribute directly to a decrease in the value of the securities and thus in the
value of the Funds' shares). Common stocks are especially susceptible to general
stock market movements and to increases and decreases in value as market
confidence in and perceptions of the issuers change. These perceptions are based
on unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or banking crises.
The value of the common stocks owned by the Funds thus may be expected to
fluctuate.
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. Preferred stocks are usually entitled to rights on
liquidation which are senior to those of common stocks. For these reasons,
preferred stocks generally entail less risk than common stocks of the same
issuer. Such securities may pay cumulative dividends. Because the dividend rate
is pre-established, and as they are senior to common stocks, such securities
tend to have less possibility of capital appreciation.
Although the Adviser does not pay attention to market factors in making
investment decisions, the Funds are, of course, subject to the vagaries of the
markets. In particular, small-cap stocks have less market liquidity and tend to
have more price volatility than larger capitalization stocks.
INVESTMENT IN DEBT SECURITIES
Each of THIRD AVENUE VALUE FUND and THIRD AVENUE 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 as
non-convertible subordinated debentures. 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 VALUE FUND and THIRD AVENUE REAL ESTATE VALUE FUND may 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
-4-
<PAGE>
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. Convertible securities generally
are subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock of the same issuer. However, because
of the subordination feature, convertible bonds and convertible preferred stock
typically have lower ratings than similar non-convertible securities.
MORTGAGE-BACKED SECURITIES
THIRD AVENUE VALUE FUND and THIRD AVENUE REAL ESTATE VALUE FUND may invest in
mortgage-backed securities and derivative mortgage-backed securities, but do not
intend to invest in "principal only" and "interest only" components.
Mortgage-backed securities are securities that directly or indirectly represent
a participation in, or are secured by and payable from, mortgage loans on real
property. Those Funds intend to invest in these securities only when they
believe, after analysis, that there is unlikely to ever be permanent impairment
of capital as measured by whether there will be a money default by either the
issuer or the guarantor of these securities. These securities do, nonetheless,
entail considerable market risk (meaning 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 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 relation to risk levels.
ASSET-BACKED SECURITIES
THIRD AVENUE VALUE 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
THIRD AVENUE VALUE FUND may invest in debt securities with interest payments or
maturity values that are not fixed, but float in conjunction with (or inversely
to) an underlying index or price. These securities may be backed by U.S.
Government or corporate issuers, or by collateral such as
-5-
<PAGE>
mortgages. The indices and prices upon which such securities can be based
include interest rates, currency rates and commodities prices. However, the Fund
will not 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 the 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.
The Fund does not intend to invest more than 5% of its total assets in inverse
floating rate securities. Floating rate obligations generally exhibit a low
price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. Interest rate risk and price
volatility on inverse floating rate obligations can be high, especially if
leverage is used in the formula. Index securities pay a fixed rate of interest,
but have a maturity value that varies by formula, so that when the obligation
matures a gain or loss may be realized. The risk of index obligations depends on
the volatility of the underlying index, the coupon payment and the maturity of
the obligation.
INVESTMENT IN HIGH YIELD DEBT SECURITIES
THIRD AVENUE VALUE FUND and THIRD AVENUE REAL ESTATE VALUE FUND may 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". 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. THIRD AVENUE VALUE FUND
and THIRD AVENUE REAL ESTATE VALUE FUND do not intend to invest more than 35% of
their total assets in such securities. The ratings of Moody's and Standard &
Poor's represent their opinions as to the credit quality of the securities which
they undertake to rate (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
-6-
<PAGE>
that issue such bonds often are highly leveraged and may not have available to
them more traditional methods of financing. Under adverse economic conditions,
there is a risk that highly leveraged issuers may be unable to service their
debt obligations or to repay their obligations upon maturity. Under
deteriorating economic conditions or rising interest rates, the capacity of
issuers of lower-rated securities to pay interest and repay principal is more
likely to weaken significantly than that of issuers of higher-rated securities.
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities are generally not meant for
short-term investing.
THIRD AVENUE VALUE 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 of C or lower or Standard & Poor's
of C1 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 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 of 1986, as amended (the "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 and THIRD AVENUE REAL ESTATE VALUE FUND may invest in
loans and other direct debt instruments owed by a borrower to another party.
THIRD AVENUE REAL ESTATE VALUE FUND may also from time to time make loans. These
instruments represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to a Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC. 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.
TRADE CLAIMS
THIRD AVENUE VALUE 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
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<PAGE>
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.
FOREIGN SECURITIES
Each 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
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
Each Fund may, from time to time, engage in foreign currency transactions in
order to hedge the value of its 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 hedge) 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 blockage by the governments involved, and any failure on their
part could result in losses to a Fund. The requirements for qualification as a
regulated investment company under the Code, may cause a Fund to restrict the
degree to which it engages in currency hedging transactions.
RESTRICTED AND ILLIQUID SECURITIES
None of the Funds 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.
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<PAGE>
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. The sale of illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. Restricted securities
may sell at a price lower than similar securities that are not subject to
restrictions on resale.
Over the past several years, strong institutional markets have developed for
various types of restricted securities, including repurchase agreements,
commercial paper, and some corporate bonds and notes. Securities freely salable
among qualified institutional investors under special rules adopted by the SEC
or otherwise determined to be liquid, may be treated as liquid if they satisfy
liquidity standards established by the Board of Trustees. The continued
liquidity of such securities is not as well assured as that of 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. Investments in relatively new issuers, i.e., those having
continuous operating histories of less than three years, may carry special risks
and may be more speculative because such companies are relatively unseasoned.
Such companies may also lack sufficient resources, may be unable to generate
internally the funds necessary for growth and may find external financing to be
unavailable on favorable terms or even totally unavailable. Those companies will
often be involved in the development or marketing of a new product with no
established market, which could lead to significant losses. The securities of
such issuers may have a limited trading market which may adversely affect their
disposition and can result in their being priced lower than might otherwise be
the case. If other investors who invest in such issuers trade the same
securities when a Fund attempts to dispose of its holdings, the Fund may receive
lower prices than might otherwise be the case.
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
Each Fund may also make use of bank borrowing as a temporary measure for
extraordinary or emergency purposes, such as for liquidity necessitated by
shareholder redemptions, and may use securities as collateral for such
borrowing. Such temporary borrowing may not exceed 5% of the value of the
applicable Fund's total assets at the time of borrowing.
INVESTMENT IN OTHER INVESTMENT COMPANIES
THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE 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
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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 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.
SECURITIES LENDING
THIRD AVENUE SMALL-CAP VALUE 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.
If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Portfolio could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially.
A Fund will not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 33 1/3% of the value of its total assets (including such loans).
Loan arrangements made by a Fund will comply with all other applicable
regulatory requirements. All relevant facts and circumstances, including the
creditworthiness of the qualified institution, will be monitored by the Adviser,
and will be considered in making decisions with respect to lending of
securities, subject to review by the Fund's Board of Trustees.
A Fund may pay reasonable negotiated fees in connection with loaned securities,
so long as such fees are set forth in a written contract and approved by its
Board of Trustees. In addition, the Fund shall, through the ability to recall
securities prior to any required vote, retain voting rights over the loaned
securities.
On behalf of THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE 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, 1998 and 1999 was 24% and 5%, respectively. THIRD AVENUE SMALL-CAP
VALUE FUND'S portfolio turnover rate for the years ended October 31, 1998
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and 1999 was 6% and 10%. The portfolio turnover rate for THIRD AVENUE REAL
ESTATE VALUE FUND for the period ended October 31, 1998 was 0% and for the year
ended October 31, 1999 was 5%.
SHORT SALES
THIRD AVENUE SMALL-CAP VALUE 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 and THIRD AVENUE REAL ESTATE VALUE FUND may,
but currently do not intend to, invest in commodities or commodity contracts and
futures contracts.
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 Fund. No Fund may:
1. Borrow money or pledge, mortgage or hypothecate any of its assets
except that each Fund may borrow on a secured or unsecured basis as a
temporary measure for extraordinary or emergency purposes. Such
temporary borrowing may not exceed 5% of the value of such Fund's total
assets when the borrowing is made.
2. Act as underwriter of securities issued by other persons, except to the
extent that, in connection with the disposition of portfolio
securities, it may technically be deemed to be an underwriter under
certain securities laws.
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable
securities of companies which invest in or sponsor such programs.
4. Issue any senior security (as defined in the Investment Company Act of
1940, as amended) (the "1940 Act"). Borrowings permitted by Item 1
above are not senior securities.
5. Invest 25% or more of the value of its total assets in the securities
(other than Government Securities or the securities of other regulated
investment companies) of any one issuer, or of two or more issuers
which the Fund controls and which are determined to be engaged in the
same industry or similar trades or businesses or related trades or
businesses.
6. Invest 25% or more of the value of its total assets in any one
industry, 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.
- ----------------
(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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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.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Funds oversees the management of the Funds. The
Trustees are responsible for such matters as reviewing and approving fundamental
operating, financial, and corporate governance policies; evaluating the
Adviser's performance; determining management fees; and reviewing and approving
procedures for providing financial and operational information to the Board.
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
NAME & ADDRESS AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
<S> <C> <C> <C>
PHYLLIS W. BECK*1 73 Trustee An Associate Judge (1981 to Present) of
GSB Bldg. Suite 800 the Superior Court of Pennsylvania;
City Line & Belmont Ave. Trustee of Third Avenue Variable Series
Bala Cynwyd, PA Trust (1999 to Present); Trustee or
19004-1611 Director of the Trust or its predecessor
since November, 1992.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
LUCINDA FRANKS 53 Trustee Journalist (1969 to Present); Author
64 East 86th Street "Wild Apples" (1990), "Waiting Out a War;
New York, NY 10028 The Exile of Private John Picciano
(1974); Winner of the 1971 Pulitzer Prize
for Journalism; Trustee of Third Avenue
Variable Series Trust (1999 to Present);
Trustee of the Trust since February,
1998.
GERALD HELLERMAN 62 Trustee Managing Director (8/93 to Present) of
10965 Eight Bells Lane Hellerman Associates, a financial and
Columbia, MD 21044 corporate consulting firm; Chief
Financial Analyst (1976 to 7/93) of the
Antitrust Division of U.S. Department of
Justice; Director of Clemente Global
Strategic Value Fund (9/98 to Present);
Trustee of Third Avenue Variable Series
Trust (1999 to Present); Trustee or
Director of the Trust or its predecessor
since September, 1993.
MARVIN MOSER, M.D. 76 Trustee Trustee (1992 to Present) of the Trudeau
13 Murray Hill Road Institute, a medical research institute;
Scarsdale, NY 10583 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;
Chairman (1977) and a member in 1980,
1984, 1988, 1992 and 1996 of the Joint
National Committee on Detection,
Evaluation and Treatment of High Blood
Pressure for the National Heart, Lung and
Blood Institute; Director of AMBI Corp.
(1997 to Present); Trustee of Third
Avenue Variable Series Trust (1999 to
Present); Trustee or Director of the
Trust or its predecessor since November,
1994.
DONALD RAPPAPORT 73 Trustee Private investor and consultant (1987 to
1619 31st Street, N.W. May, 1997 and May, 1999 to Present);
Washington, D.C. 20007 Chief Financial and Chief Information
Officer for the U.S. Department of
Education (May, 1997 to May, 1999);
President and Chief Operating Officer
(3/90 to 12/90) of Third Avenue Value
Fund, Inc. and Equity Strategies Fund,
Inc. (1984 to 12/90); Director (1987 to
4/94) of Equity Strategies Fund, Inc.;
President (1989 to 12/90) of Whitman
Advisors, Ltd., an investment adviser;
Registered Securities Representative
(1989 to 1991) of M.J. Whitman & Co.,
Inc. a former broker-dealer; Trustee of
Third Avenue Variable Series Trust (1999
to Present); Trustee or Director of the
Trust or its predecessor from November,
1991 to May, 1997 and since June, 1999.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
MYRON M. SHEINFELD 69 Trustee Counsel to (12/96 to present) and
1001 Fannin St., Suite 3700 Attorney and Shareholder (1968 to 12/96)
Houston, TX 77002 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;
Director (11/98 to present) of Anchor
Glass Container Corp.; Director (6/99 to
present) of Repap Enterprises Inc.;
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 of Third
Avenue Variable Series Trust (1999 to
Present); Trustee or Director of the
Trust or its predecessor since its
inception.
MARTIN SHUBIK 73 Trustee Seymour H. Knox Professor (1975 to
Yale University Dept. of Present) of Mathematical and
Economics Institutional Economics, Yale University;
Box 2125, Yale Station Director (1984 to 4/94) of Equity
New Haven, CT 06520 Strategies Fund, Inc.; Trustee of Third
Avenue Variable Series Trust (1999 to
Present); Trustee or Director of the
Trust or its predecessor since its
inception.
CHARLES C. WALDEN 55 Trustee Executive Vice-President--Investments
11 Williamsburg Circle (1973 to Present) (Chief Investment
Madison, CT 06443 Officer) of Knights of Columbus, a
fraternal benefit society selling life
insurance and annuities; Chartered
Financial Analyst; Trustee of Third
Avenue Variable Series Trust (1999 to
Present); Trustee or Director of the
Trust or its predecessor since May, 1996.
BARBARA WHITMAN*1 41 Trustee Registered Securities Representative
767 Third Avenue (11/96 to Present) of M.J. Whitman, Inc.,
New York, NY 10017-2023 a broker-dealer and the Funds'
underwriter; Director (4/95 to Present)
of EQSF Advisers, Inc., the Funds'
investment adviser; Director (4/99 to
Present) of M.J. Whitman Holding Corp.
(MJWHC), a holding company managing
investment subsidiaries and an investment
adviser to private and institutional
clients; Director (12/99 to Present) of
The Beck Institute; Director (8/97 to
6/98) of Riverside Stage Company, a
theater; 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 Third Avenue Variable Series
Trust (1999 to Present); Trustee of the
Trust since September, 1997.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
MARTIN J. WHITMAN*1 75 Chairman, Chairman and CEO (3/90 to Present),
767 Third Avenue Chief President (1/91 to 5/98), of the Trust;
New York, NY 10017-2023 Executive Chairman and CEO (3/90 to Present),
Officer, and President (1/91 to 2/98), of EQSF
Trustee Advisers, Inc.; Chairman, 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 MJWHC; Chairman, CEO
(1/1/95 to Present) and President (1/1/95
to 6/29/95) of MJWHC and of M.J. Whitman,
Inc., a subsidiary of MJWHC and the
successor broker-dealer of 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; 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; Chairman of the Board
and Trustee of Third Avenue Variable
Series Trust (1999 to Present); Trustee
or Director of the Trust or its
predecessor since its inception;
Chartered Financial Analyst.
DAVID M. BARSE 37 President President (5/98 to Present), and
767 Third Avenue and Chief Executive Vice President (4/95 to 5/98)
New York, NY 10017-2023 Operating of the Trust; President, Chief Operating
Officer Officer and Director (7/96 to Present) of
(COO) Danielson Holding Corporation; Director
(8/96 to Present) of National American
Insurance Company of California;
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.; President (6/99 to
Present) of Third Avenue Variable Series
Trust; 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MICHAEL CARNEY 46 Treasurer, Treasurer and CFO of the Trust (3/90 to
767 Third Avenue Chief Present); Treasurer and CFO (6/99 to
New York, NY 10017-2023 Financial Present) of Third Avenue Variable Series
Officer Trust; Director (1/1/95 to Present),
(CFO) Executive Vice President, Chief Financial
Officer (6/29/95 to Present) of MJWHC and
of M.J. Whitman, Inc.; Treasurer,
Director (1/1/95 to Present), Executive
Vice President (6/29/95 to Present) and
CFO (10/92 to Present) of M.J. Whitman
Advisers, Inc.; Treasurer (12/93 to 4/96)
of Longstreet Investment Corp.; CFO
(3/26/93 to 6/95) of Danielson Trust
Company; Limited Partner (1/92 to
12/31/94) of M.J. Whitman, L.P.; CFO of
WHR Management Corporation (8/91 to
Present), Danielson Holding Corporation
(8/90 to Present) and Carl Marks
Strategic 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 32 Assistant Assistant Treasurer (5/96 to Present),
767 Third Avenue Treasurer Controller (1/96 to Present), Assistant
New York, NY 10017-2023 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.; Assistant Treasurer (6/99
to Present) of Third Avenue Variable
Series Trust; Controller (8/96 to
Present), of Danielson Holding Corp.;
Controller (5/96 to Present) and
Assistant Controller (1/95 to 5/96) of
Whitman Heffernan & Rhein Workout Fund
II, L.P. and Whitman Heffernan & Rhein
Workout Fund II-A, L.P.; Controller (5/96
to Present) of WHR Management Corp.;
Controller (5/96 to present), Assistant
Controller (1/93 to 5/96) and Staff
Accountant (5/91 to 12/92), of 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
IAN M. KIRSCHNER 44 General General Counsel and Secretary (8/96 to
767 Third Avenue Counsel and Present) of Danielson Holding
New York, NY 10017-2023 Secretary Corporation; General Counsel and
Secretary (1/96 to Present) of MJWHC,
M.J. Whitman, Inc., and M. J. Whitman
Advisers, Inc.; General Counsel and
Secretary (1/97 to Present) of the Trust;
General Counsel and Secretary (1/97 to
Present) of EQSF Advisers, Inc.; General
Counsel and Seceretary (6/99 to Present)
of Third Avenue Variable Series Trust;
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>
1 Phyllis W. Beck is the sister of Martin J. Whitman, Chairman, Chief Executive
Officer and a Trustee of the Trust and the Aunt of Barbara Whitman, a Trustee of
the Trust; Barbara Whitman is the daughter of Martin J. Whitman.
The Trust does not pay any fees to its officers for their services as such, but
does pay Trustees who are not affiliated with the Investment Adviser a fee of
$1,500 per Fund for each meeting of the Board of Trustees that they attend, in
addition to reimbursing all Trustees for travel and incidental expenses incurred
by them in connection with their attendance at Board meetings. The Trust also
pays the non-interested Trustees an annual stipend of $2,000 per Fund in January
of each year for the previous year's service. The Trust paid Trustees in the
aggregate, $229,735 in such fees and expenses for the year ended October 31,
1999. Trustees do not receive any pension or retirement benefits.
For the fiscal year ended October 31, 1999, the aggregate amount of compensation
paid to each Trustee by the Trust is listed below.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Compensation From Total Compensation From
Registrant for Fiscal Year Ended Registrant and Fund Complex
Name and Position Held October 31, 1999* Paid to Trustees*
---------------------- ----------------- -----------------
<S> <C> <C>
Phyllis W. Beck, Trustee $ 0 $ 0
Lucinda Franks, Trustee $31,499 $31,499
Gerald Hellerman, Trustee $31,833 $33,333
Marvin Moser, M.D., Trustee $31,833 $33,333
Donald Rappaport, Trustee $12,000 $13,500
Myron M. Sheinfeld, Trustee $30,333 $31,833
Martin Shubik, Trustee $31,833 $33,333
Charles C. Walden, Trustee $31,833 $33,333
Barbara Whitman, Trustee $ 0 $ 0
Martin J. Whitman, Chairman $ 0 $ 0
and Chief Executive Officer
</TABLE>
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $10,234 for all Trustees as a group.
PRINCIPAL STOCKHOLDERS
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 REAL ESTATE VALUE
FUND as of February 11, 2000:
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<PAGE>
THIRD AVENUE VALUE FUND
PERCENTAGE OF
NAME AND ADDRESS THIRD AVENUE VALUE FUND NUMBER OF SHARES
- ---------------- ----------------------- ----------------
Charles Schwab & Co., Inc.2 41.29% 15,903,870
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities Corp.3 9.91% 3,815,541
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Donaldson Lufkin & Jenrette
Securities Corporation3 9.32% 3,548,481
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
Bear Stearns Securities Corp.4 6.29% 2,397,207
One Metrotech Center North
Brooklyn, NY 11201-3859
THIRD AVENUE SMALL-CAP VALUE FUND
PERCENTAGE OF
THIRD AVENUE
NAME AND ADDRESS SMALL-CAP VALUE FUND NUMBER OF SHARES
- ---------------- -------------------- ----------------
Charles Schwab & Co., Inc.2 32.78% 3,324,382
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities Corp.3 17.33% 1,757,607
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Bear Stearns Securities Corp.4 8.09% 820,633
One Metrotech Center North
Brooklyn, NY 11201-3859
Donaldson Lufkin & Jenrette Securities 5.05% 512,369
Corporation3
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
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<PAGE>
THIRD AVENUE REAL ESTATE VALUE FUND
PERCENTAGE OF
THIRD AVENUE
NAME AND ADDRESS REAL ESTATE VALUE FUND NUMBER OF SHARES
- ---------------- ---------------------- ----------------
Bear Stearns Securities Corp.4 28.61% 300,794
One Metrotech Center North
Brooklyn, NY 11201-3859
Charles Schwab & Co., Inc.2 18.61% 195,761
101 Montgomery Street
San Francisco, CA 94104
First Union National Bank 12.67% 133,257
FBO Bernard Rotko
1525 W. WT Harris Blvd # 1151
Charlotte, NC 28262-8522
National Financial Securities Corp.3 7.28% 76,596
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.
The officers and Trustees of the Funds own in the aggregate 2.75% of THIRD
AVENUE VALUE FUND, 1.08% of THIRD AVENUE SMALL-CAP VALUE FUND, and 9.91% of
THIRD AVENUE REAL ESTATE VALUE FUND.
INVESTMENT ADVISER
The Investment Adviser to the Trust is EQSF Advisers, Inc. (the "Adviser").
Martin J. Whitman is a controlling person of the Adviser. His control is based
upon an irrevocable proxy signed by his children, who own in the aggregate 74%
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 Operating Officer President, Chief Operating
Officer, Director
Michael Carney Treasurer, Chief Financial Officer Treasurer, Chief Financial
Officer
Ian M. Kirschner General Counsel and Secretary General Counsel and
Secretary
Kerri Weltz Assistant Treasurer Assistant Treasurer
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<PAGE>
Barbara Whitman Trustee Director
INVESTMENT ADVISORY AGREEMENT
The investment advisory services of the Adviser are furnished to each of the
Funds pursuant to an Investment Advisory Agreement approved by the Board of
Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" as defined in the 1940 Act, and by the sole shareholder of
each Fund on the same date. The Adviser has provided investment advisory
services to the Funds since their inception.
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.
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, 1999, 1998 and 1997, THIRD AVENUE VALUE FUND paid investment
advisory fees to the Adviser of $12,805,667, $15,893,039, and $9,303,435,
respectively. During the fiscal years ended October 31, 1999 and 1998 and the
period from inception to October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND
paid investment advisory fees to the Adviser of $1,247,500, $1,248,794, and
$252,298, respectively. During the fiscal year ended October 31, 1999 and the
period from inception to October 31, 1998, THIRD AVENUE REAL ESTATE VALUE FUND
paid investment advisory fees to the Adviser of $47,874 and $568, respectively.
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 and
fees of outside Trustees are borne by the Funds. 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, the normal operating expenses, including the investment
advisory fee, but excluding brokerage commissions and interest and taxes, of
THIRD AVENUE VALUE FUND or THIRD AVENUE SMALL-CAP VALUE FUND 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. Under current arrangements, whenever in any fiscal
year, the normal operating expenses, including the investment advisory fee, but
excluding brokerage
-20-
<PAGE>
commissions and interest and taxes, of THIRD AVENUE REAL ESTATE VALUE FUND
exceeds 1.5% of average daily net assets of the Fund, 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.
DISTRIBUTOR
The distribution services of M.J. Whitman, Inc., 767 Third Avenue, New York, NY
10017 ("MJW" or the "Distributor") are furnished to each Fund pursuant to a
Distribution Agreement (the "Distribution Agreement"). 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.
ADMINISTRATOR
The Funds have entered into a Services Agreement (the "Services Agreement") with
PFPC Inc. (including its predecessors in interest "PFPC"). The Services
Agreement provides that PFPC shall provide certain accounting, transfer agency
and shareholder 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 Services Agreement has an
initial three 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. The
Funds have entered into an Administration Agreement (the "Administration
Agreement") with the Adviser, which provides that the Adviser shall provide all
other adminsitrative services to the Funds other than those relating to the
investment portfolio of the Funds, the distribution of the Funds and the
maintenance of the Funds' financial records and those performed by PFPC under
the Services Agreement. The Adviser has entered into a Sub-Administration
Agreement with PFPC pursuant to which PFPC performs certain of those services on
behalf of the Adviser. The Administration Agreement has an initial three 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. The Trust has
agreed to pay the Adviser an amount equal to $170,000 per annum plus an amount
equal to 50% of the difference between (i)(x) $186,000 plus (y) an amount equal
to .01% of the Fund's average net assets in excess of $1 billion minus (ii)
$170,000, and the Adviser has agreed to pay PFPC $170,000 per annum pursuant to
the Sub-Administration Agreement. During the fiscal year ended October 31, 1999
(the first year in which the Administration Agreement was in effect) the Funds
paid fees to the Adviser for these services in the following amounts: THIRD
AVENUE VALUE FUND $2,164, THIRD AVENUE SMALL-CAP VALUE FUND $201, and THIRD
AVENUE REAL ESTATE VALUE FUND $13. During the fiscal years ended October 31,
1999, 1998 and 1997, THIRD AVENUE VALUE FUND paid fees to PFPC of $201,570,
$236,033, and $143,175 respectively, for its services. During the fiscal years
ended October 31, 1999 and 1998 and the period from inception to October 31,
1997, THIRD AVENUE SMALL-CAP VALUE FUND paid fees to PFPC of $16,926, $18,586,
and $8,116 respectively, for its services. During the fiscal year ended October
31, 1999 and the period from inception to
-21-
<PAGE>
October 31, 1998, THIRD AVENUE REAL ESTATE VALUE FUND paid fees to PFPC of
$12,195 and $1,434, respectively for its services.
CUSTODIAN
Custodial Trust Company, 101 Carnegie Center, Princeton, NJ 08540-6231, serves
as custodian for the Funds pursuant to a custodian agreement. Under such
agreement, the Custodian (1) maintains a separate account or accounts in the
name of each Fund; (2) holds and transfers portfolio securities on account of
each Fund; (3) accepts receipts and makes disbursements of money on behalf of
each Fund; (4) collects and receives all income and other payments and
distributions on account of each Fund's securities; and (5) makes periodic
reports to the Board of Trustees concerning each Fund's operations.
TRANSFER AGENT
PFPC, Inc., 211 South Gulph Road, P.O. Box 61767, King of Prussia, PA 19406, is
the transfer agent for each of the Funds.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036, is
the independent public accountants for the Funds. The independent public
accountants audit the financial statements of the Funds following the end of
each fiscal year and provide a report to the Board of Trustees of the results of
the audit.
PORTFOLIO TRADING PRACTICES
Under the Investment Advisory Agreement between the Trust and the Adviser, the
Adviser has the responsibility of selecting brokers and dealers. The Adviser
must place portfolio transactions with brokers and dealers who render
satisfactory service in the execution of orders at the most favorable prices and
at reasonable commission rates, but has discretion to pay a greater amount if
it, in good faith, determines that such commission was reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer, either in terms of that particular transaction or in fulfilling the
overall responsibilities of the Adviser to the Funds. Where transactions are
executed in the over-the-counter market, or in the "third market" (the
over-the-counter market in listed securities), the Fund will normally first seek
to deal with the primary market makers. However, when the Funds consider it
advantageous to do so, they will utilize the services of brokers, but will, in
all cases, attempt to negotiate the best price and execution. The determination
of what may constitute the most favorable price and execution in a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to the Funds (involving both
price paid or received and any commissions or other costs paid), the efficiency
with which the transaction is effected, the ability to effect the transaction at
all if selling large blocks is involved, the availability of the broker to stand
ready to execute possibly difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. In allocating any such portfolio brokerage on a national
securities exchange, the Funds may consider the research, statistical and other
factual information and services provided by brokers from time to time to the
Adviser. Such services and information are available to the 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
-22-
<PAGE>
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 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.
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, 1999, THIRD AVENUE VALUE FUND incurred
total brokerage commissions of $1,071,112, of which approximately $672,971 (or
63%) was paid to MJW. For the fiscal year ended October 31, 1998, THIRD AVENUE
VALUE FUND incurred total brokerage commissions of $1,261,197 of which
approximately $1,026,034 (or 81%) was paid to MJW and $38,637 (or 3%) was paid
to Senior Debt Corp. 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%) was paid to MJW and $18,047 (or 3%) was paid to
Senior Debt Corp.
For the fiscal year ended October 31, 1999, THIRD AVENUE SMALL-CAP VALUE FUND
incurred total brokerage commissions of $78,630 of which approximately $61,498
(or 78%) was paid to MJW. For
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<PAGE>
the fiscal year ended October 31, 1998, THIRD AVENUE SMALL-CAP VALUE FUND
incurred total brokerage commissions of $205,990 of which approximately $113,016
(or 55%) was paid to MJW. For the period from inception through October 31,
1997, THIRD AVENUE SMALL-CAP VALUE FUND incurred total brokerage commissions of
$78,938 of which approximately $50,977 (or 65%) was paid to MJW.
For the fiscal year ended October 31, 1999, THIRD AVENUE REAL ESTATE VALUE FUND
incurred total brokerage commissions of $28,707 of which approximately $25,568
(or 89%) was paid to MJW. For the period from inception through October 31,
1998, THIRD AVENUE REAL ESTATE VALUE FUND incurred total brokerage commissions
of $1,670 of which approximately $1,470 (or 88%) 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, 1999, THIRD AVENUE VALUE FUND effected 38%
of its total transactions for which commissions were paid through MJW. For the
fiscal year ended October 31, 1999, THIRD AVENUE SMALL-CAP VALUE FUND effected
45% of its total transactions for which commissions were paid through MJW. For
the fiscal year ended October 31, 1999, THIRD AVENUE REAL ESTATE VALUE FUND
effected 80% of its total transactions for which commissions were paid through
MJW.
At October 31, 1999, THIRD AVENUE VALUE FUND held securities of the following of
the Fund's regular broker-dealers: Raymond James Financial, Inc. (the market
value of which was $21,996,562 at October 31, 1999).
PURCHASE ORDERS
Each Fund reserves the right, in its sole discretion, to refuse purchase orders.
Without limiting the foregoing, a Fund will consider exercising such refusal
right when it determines that it cannot effectively invest the available funds
on hand in accordance with the Fund's investment policies.
REDEMPTION OF SHARES
The procedure for redemption of Fund shares under ordinary circumstances is set
forth in the Prospectus. In unusual circumstances, such as in the case of a
suspension of the determination of net asset value, the right of redemption is
also suspended and, unless redeeming shareholders withdraw their certificates
from deposit, they will receive payment of the net asset value next determined
after termination of the suspension. The right of redemption may be suspended or
payment upon redemption deferred for more than seven days: (a) when trading on
the New York Stock Exchange (the "NYSE") is restricted; (b) when the NYSE is
closed for other than weekends and holidays; (c) when the Securities and
Exchange Commission (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
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<PAGE>
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.
For purposes of determining a Fund's net asset value per share, readily
marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no bid or asked
prices are quoted on such day, then the security is valued by such method as the
Board of Trustees shall determine in good faith to reflect its fair market
value. Readily marketable securities not listed on the NYSE but listed on other
national securities exchanges or admitted to trading on the National Association
of Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are
valued in a like manner. Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Adviser to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair value.
United States Government obligations and other debt instruments having sixty
days or less remaining until maturity are stated at amortized cost. Debt
instruments having a greater remaining maturity will be valued at the highest
bid price obtained from a dealer maintaining an active market in that security
or on the basis of prices obtained from a pricing service approved as reliable
by the Board of Trustees. All other investment assets, including restricted and
not readily marketable securities, are valued under procedures established by
and under the general supervision and responsibility of the Funds' Board of
Trustees designed to reflect in good faith the fair value of such securities.
As indicated in the Prospectus, the net asset value per share of the Funds'
shares will be determined on each day that the NYSE is open for trading. The
NYSE annually announces the days on which it will not be open for trading; the
most recent announcement indicates that it will not be open on the following
days: New Year's Day, President's Day, Martin Luther King, Jr. Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the NYSE may close on days not included in that announcement.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Each Fund intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If they so qualify, the Funds will not be subject to
Federal income tax on their net investment income and net short-term capital
gain, if any, realized during any fiscal year to the extent that they distribute
such income and gain to their shareholders. If for any taxable year a Fund does
not qualify for the special tax treatment afforded regulated investment
companies, all of its taxable income, including any net capital gains, would be
subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).
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<PAGE>
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.
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 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.
At October 31, 1999, THIRD AVENUE SMALL-CAP VALUE FUND had $69,341 of available
capital loss carryforwards to offset future net capital gains, to the extent
provided by regulations, through
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<PAGE>
October 31, 2006. To the extent that capital loss carryforwards are used to
offset any future capital gains realized during the carryover period as provided
by U.S. Federal income tax regulations, no capital gains tax liability will be
incurred by a Fund for gains realized and not distributed. To the extent that
capital gains are offset, such gains will not be distributed to the
shareholders.
SHARE INFORMATION
All shares of the Funds have one vote and when duly issued will be fully paid
and non-assessable. Shares have no preemptive, subscription or conversion rights
and are freely transferable. The Trustees are authorized to re-classify and
issue any unissued shares to any number of additional series without shareholder
approval. Accordingly, the Trustees in the future, for reasons such as the
desire to establish one or more additional funds with different objectives,
policies, risk considerations or restrictions, may create additional series or
classes of shares. Any issuance of shares of such additional series would be
governed by the Investment Company Act of 1940, as amended, and the laws of the
State of Delaware.
Shares of the Funds have equal noncumulative voting rights which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Trustees will not be able to elect any person or persons to the Board of
Trustees. The Shares of each Fund also have equal rights with respect to
dividends, assets and liquidation of that Fund and are subject to any
preferences, rights or privileges of any classes of shares of that Fund. The
Trust is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes
requiring shareholder approval, such as changing fundamental investment policies
or upon the written request of 10% of the shares of the Funds to replace its
Trustees.
PERFORMANCE INFORMATION
Performance information for the Funds may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual return" and "total return."
Each Fund's average annual return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual return
for a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Fund's shares on the first day of the period and
computing the redeemable value of that investment at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is then subtracted from 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.
THIRD AVENUE VALUE FUND'S average annual total return for the one year, five
year and since inception periods ending October 31, 1999 are 16.89%, 16.52% and
19.06%, respectively. THIRD AVENUE SMALL-CAP VALUE FUND'S average annual total
return for the one year and since inception periods ending October 31, 1999 are
7.12% and 5.49%, respectively. THIRD AVENUE REAL ESTATE VALUE FUND'S average
annual total return for the one year and since inception periods ending October
31, 1999 are 8.86% and 10.56%, respectively.
Calculation of a Fund's total return is 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
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<PAGE>
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.
A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the SEC. The Fund's yield is computed by dividing the net investment
income per share earned during the specified one month or 30-day period by the
net asset value per share on the last day of the period, according to the
following formula:
YIELD = 2[a-b + 1] 6 - 1
---
[ cd ]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
FINANCIAL STATEMENTS
The Funds' financial statements and notes thereto appearing in their Annual
Report to Shareholders and the report thereon of PricewaterhouseCoopers LLP,
independent accountants, appearing therein, are incorporated by reference in
this Statement of Additional Information. The Funds will issue unaudited
semi-annual and audited annual financial statements.
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<PAGE>
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 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 such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
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<PAGE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, fluctuation
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risk appear somewhat greater than
the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of 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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<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Donald Rappaport
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
PFPC, Inc.
211 South Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[THIRD AVENUE FUNDS LOGO]
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 23. EXHIBITS
Exhibits filed pursuant to Form N-1A:
(a) 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.
(b) By-Laws are incorporated by reference to Exhibit No.
(2) of Registration Statement No. 333-20891 filed on
January 31, 1997.
(c) Reference is made to Article II of the Trust's Trust
Instrument and Articles IV and V of the Trust's
By-Laws.
(d) 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
Real Estate Value Fund is incorporated by reference
to Exhibit No. (6) of Post-Effective Amendment No. 5
to the Registration Statement No. 333-20891 filed
September 11, 1998.
(e) 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 the Third Avenue Real
Estate Value Fund is incorporated by reference to
Exhibit No. (6) of Post-Effective Amendment No. 5 to
the Registration Statement No. 333-20891 filed
September 11, 1998.
(g) 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 Real Estate Value Fund is incorporated by
reference to Exhibit No. (8)(b) of Post-Effective
Amendment No. 5 to the Registration Statement No.
333-20891 filed September 11, 1998.
Amendment to Custody Agreement to include Third
Avenue Value Fund is incorporated by reference to
Exhibit (g) of Post-Effective Amendment No. 8 to the
Registration Statement No. 333-20891 filed February
26, 1999.
(h) (1) Services Agreement between Third
Avenue Trust and First Data Investor
Services Group, Inc. is incorporated
by reference to Exhibit (h)(1) of
Post-Effective Amendment No. 9 to
the Registration Statement No.
333-20891 filed December 30, 1999.
(2) Administration Agreement between
Third Avenue Trust and EQSF
Advisers, Inc. is incorporated by
reference to Exhibit (h)(2) of
Post-Effective Amendment No. 9 to
the Registration Statement No.
333-20891 filed December 30, 1999.
(3) Sub-Administration Agreement between
EQSF Advisers, Inc. and First Data
Investor Services Group, Inc. is
incorporated by reference to Exhibit
(h)(3) of Post-Effective Amendment
No. 9 to the Registration Statement
No. 333-20891 filed December 30,
1999.
(i) Opinion and Consent of Counsel regarding the legality
of the securities being issued is incorporated by
reference to Exhibit (i) of Post-Effective Amendment
No. 8 to the Registration Statement No. 333-20891
filed February 26, 1999.
(j) Consent of Independent Auditors is filed herewith.
<PAGE>
Item 24. Persons Controlled By or Under Common Control with Registrant.
Not Applicable.
Item 25. 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 26. Business and other connections of investment adviser.
EQSF Advisers, Inc., 767 Third Avenue, New York, New York
10017-2023 provides investment advisory services to investment
companies and as of February 16, 2000 had approximately $1,721
million in assets under management.
For information as to any other business, vocation or
employment of a substantial nature in which each Director or
officer of the Registrant's investment adviser has been
engaged for his own account or in the capacity of Director,
officer, employee, partner or trustee, reference is made to
Form ADV (File #801-27792) filed by it under the Investment
Advisers Act of 1940.
Item 27. Principal underwriters.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
Item 28. 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
Custodian, Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540-6231, and the Trust's Shareholder Service and Fund Accounting and Pricing
Agent, PFPC Inc., 211 South Gulf Road, , P.O. Box 61503, King of Prussia, PA
19406-0903.
Item 29. Management services.
None.
Item 30. Undertakings.
Not applicable
<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. 10 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 18th day of February, 2000.
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. 10 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 Trustee 2/18/00
- ------------------------------
Martin J. Whitman
/s/ MICHAEL CARNEY Chief Financial Officer 2/18/00
- ------------------------------
Michael Carney
/s/ PHYLLIS W. BECK Trustee 2/18/00
- ------------------------------
Phyllis W. Beck
/s/ MARTIN SHUBIK Trustee 2/18/00
- ------------------------------
Martin Shubik
/s/ MYRON M. SHEINFELD Trustee 2/18/00
- ------------------------------
Myron M. Sheinfeld
/s/ GERALD HELLERMAN Trustee 2/18/00
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Gerald Hellerman
/s/ CHARLES C. WALDEN Trustee 2/18/00
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Charles C. Walden
/s/ MARVIN MOSER Trustee 2/18/00
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Marvin Moser
/s/ BARBARA WHITMAN Trustee 2/18/00
- ------------------------------
Barbara Whitman
/s/ LUCINDA FRANKS Trustee 2/18/00
- ------------------------------
Lucinda Franks
/s/ DONALD RAPPAPORT Trustee 2/18/00
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Donald Rappaport
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement for Third Avenue Trust on Form N-1A of our report dated December 17,
1999, relating to the financial statements and financial highlights which
appears in the October 31, 1999 Annual Report to Shareholders of Third Avenue
Value Fund, Third Avenue Small-Cap Value Fund and Third Avenue Real Estate Value
Fund, which are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights", "Independent Accountants" and "Financial Statements" in such
Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 22, 2000
