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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE REAL ESTATE VALUE FUND
SEMI-ANNUAL REPORT
(Unaudited)
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April 30, 2000
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE VALUE FUND
Dear Fellow Shareholders:
At April 30, 2000, the unaudited net asset value attributable to the 39,527,097
common shares outstanding of the Third Avenue Value Fund ("TAVF", "Third
Avenue," or the "Fund") was $42.41 per share. This compares with an unaudited
net asset value of $37.23 per share at January 31, 2000, and an unaudited net
asset value, adjusted for a subsequent distribution to shareholders, of $31.12
per share at April 30, 1999. At June 2, 2000, the unaudited net asset value was
$38.15 per share, which net asset value is computed after the distribution of $4
per share, representing realized long-term capital gains.
QUARTERLY ACTIVITY
During the quarter, four initial securities positions were established of which
only one, Safelite Bank Debt, involved an investment of more than $300,000.
Additions were made to sixteen existing positions during this interim as the
Fund took advantage of what seems to be depressed prices for out of favor
securities. Seven positions were reduced. In one case, Repap Common, sales were
made because the holding may be unsuitable for Third Avenue. The other six sales
were of semi-conductor equipment common stocks which reached price levels which
seemed to reflect at least some of the speculative excesses currently extant in
the market prices of many small cap-high tech common stock issues. Four
positions were eliminated during the quarter, three of which were the results of
takeovers. The fourth issue, Evans & Sutherland Common, was disposed of in order
to realize a tax loss.
PRINCIPAL AMOUNT
OR
NUMBER OF SHARES NEW POSITIONS ACQUIRED
$7,260,767 Safelite Glass Bank Debt ("Safelite Bank Debt")
10,000 shares Atalanta/Sosnoff Capital Corp. Common Stock ("Atalanta/
Sosnoff Common")
18,300 shares Mestek, Inc. Common Stock ("Mestek Common")
1,500 shares Simione Central Holdings, Inc. Common Stock
("Simione Common")
INCREASES IN EXISTING POSITIONS
$14,560,000 CareMatrix Corp. 6.25% due 2004
("CareMatrix Subordinates")
5,800 shares Capital Southwest Corp. Common Stock
("Capital Southwest Common")
411,300 shares D.R. Horton, Inc. Common Stock ("Horton Common")
1,218,000 shares Enhance Financial Services Group, Inc. Common Stock
("Enhance Common")
50,000 shares Financial Security Assurance Holdings, Ltd. Common Stock
("FSA Common")
56,800 shares First American Financial Corp. Common Stock ("FAF Common")
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NUMBER OF SHARES INCREASES IN EXISTING POSITIONS (CONTINUED)
84,300 shares LaSalle Re Holdings, Ltd. Common Stock ("LaSalle Common")
206,900 shares Liberty Financial Companies, Inc. Common Stock
("Liberty Financial Common")
681,400 shares MBIA Inc. Common Stock ("MBIA Common")
112,100 shares PAREXEL International Corp. Common Stock
("PAREXEL Common")
193,900 shares Silicon Valley Group, Inc. Common Stock
("Silicon Valley Common")
85,400 shares Tecumseh Products Co. Class B Common Stock
("Tecumseh Common")
879,000 shares The Chiyoda Fire & Marine Insurance Co., Ltd. Common Stock
("Chiyoda Common")
1,000,000 shares The Nissan Fire & Marine Insurance Co., Ltd. Common Stock
("Nissan Common")
500,000 shares The Tokio Marine & Fire Insurance Co., Ltd. Common Stock
("Tokio Common")
255,900 shares Woronoco Bancorp Common Stock
("Woronoco Common")
REDUCTIONS IN EXISTING POSITIONS
33,300 shares AVX Corp. Common Stock
("AVX Common")
375,000 shares Electro Scientific Industries, Inc. Common Stock
("Electro Scientific Common")
490,200 shares Electroglas, Inc. Common Stock
("Electroglas Common")
300,000 shares GaSonics International Corp. Common Stock
("GaSonics Common")
100,000 shares KLA-Tencor Corp. Common Stock ("KLA-Tencor Common")
16,431,200 shares Repap Enterprises Inc. Common Stock
("Repap Common")
163,200 shares Veeco Instruments, Inc. Common Stock
("Veeco Common")
POSITIONS ELIMINATED
230,000 shares Evans & Sutherland Computer Corp. Common Stock
("Evans & Sutherland Common")
955,000 shares Imperial Credit Commercial Mortgage Investment Corp.
Common Stock ("ICMI Common")
154,800 shares Integrated Systems, Inc. Common Stock
("Integrated Systems Common")
306,900 shares Vertex Communications Corp. Common Stock ("Vertex Common")
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Safelite Bank Debt seems to be an interesting restructuring play. The Fund
created an initial position at about 60% of claim. Safelite markets and installs
replacement glass, primarily for automobiles, from 674 installation centers
located throughout the country. Safelite Bank Debt is secured by all of
Safelite's assets. Competitive pressures on the company are intense but the
business is likely to be either a) basically profitable or b) liquidatable in
whole or in part. In any restructuring Safelite Bank Debt seems likely to
receive both new debt instruments and a majority of a reorganized Safelite's
Common Stock.
TAVF has for a long time acquired the common stocks of money managers when their
issues were available at prices representing steep discounts from what the
businesses would be worth were control to be sold. Two such issues acquired
during the quarter were Atalanta/Sosnoff Common and Liberty Financial Common.
Two major investments for the Fund during the quarter were Enhance Common and
the common stocks of Japanese non-life insurance companies, especially Tokio
Common. TAVF's average cost for the increased position in Enhance Common was
around $10 per share. Adjusted book value for Enhance is around $23 per share.
Management has retained Morgan Stanley to examine scenarios to enhance
shareholder value. At the minimum, those subsidiaries not involved in financial
guaranty insurance seem likely to be sold at prices at least equal to book
value. The financial guaranty subsidiaries, if they maintain their claims paying
ratings, ought to have a take-over value at some premium over adjusted book
value. The realistic problems that exist for Enhance seem to revolve around the
possibility of ratings downgrades for the two subsidiaries which write financial
guaranty insurance and reinsurance. Ratings downgrades, though, appear unlikely
especially if the non-financial guaranty subsidiaries are disposed of. Some of
the weakness in the price of Enhance Common may be attributable to a lawsuit
brought by Creditrust Corporation. The Creditrust suit seems to lack material
significance because even if there were to be liability, which seems to be a
stretch, the Creditrust damage claims appear to be ludicrous.
Tokio Common has been a very disappointing investment for the Fund market-wise;
but a very pleasing investment in terms of the direction in which Tokio
management has taken the company since Third Avenue has been a stockholder. The
Fund acquired its original position in Tokio Common in January 1997 at a price
that represented about a 50% discount from Net Asset Value ("NAV"), where NAV is
computed as if Tokio were a closed-end investment company. As of April 30, 2000,
the Fund's return on its investment in Tokio had been about 2% compounded
annually.
Virtually every analysis about Tokio published by major Japanese and U.S.
investment firms analyzes the company as if it were strictly a non-life
insurance company facing ever intensifying competition in a stagnant overall
market. Examined only this way, Tokio Common certainly does not appear to be any
bargain. TAVF does not view Tokio this way. Rather, the Fund looks at Tokio as
an extremely well-financed, blue chip, financial institution, one of the few
capital rich financial institutions in a woefully capital short economy. The big
question to ask about Tokio is what has its management been doing, and what is
management doing, to exploit Tokio's position as a well-financed,
well-entrenched, financial institution. Are the surplus assets of Tokio being
used to diversify Tokio into new areas which appear to be more promising than
non-life insurance? In this regard it is hard for TAVF to complain about the
actions that Tokio management has taken during the three plus years that the
Fund has been an investor. In brief, Tokio has entered into a plethora of new
financial activities in the last three years. A partial list is as follows:
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o Highly successful launch of a new, wholly-owned, life insurance subsidiary.
o Enter stock brokerage business and internet trading in joint ventures with
Charles Schwab & Co.
o Enter financial guaranty insurance activities in partnership with FSA.
o Become part of a consortium headed by Softbank, a leading Japanese venture
capital company, which is seeking to create an "online financial service
mall."
o Invest in a management buyout fund with Sanwa Bank and Nichimen Corp.
o Obtain a tie-in with United Asset Management to market investment trusts
(i.e., mutual funds).
o Enter a joint venture with First Chicago NBD to provide Asian derivative
products.
A problem with having realized profits on a portion of the Fund's holdings in
semi-conductor equipment common stocks is that Third Avenue is unlikely to be as
tax-efficient on behalf of its shareholders in the fiscal year to end October
31, 2000, as it has been in prior years. TAVF, however, probably will remain
more tax efficient than other mutual funds, most of which seem to have much
higher turnover ratios. At April 30, the Fund's realized, long-term capital
gains for fiscal 2000, amounted to about $5 per share. TAVF shareholders will be
subject to U.S. income tax on realized long-term capital gains at a maximum rate
of 20% for 2000. In addition, FSA seems likely to be acquired this year in a
taxable transaction which, if it closes, will result in an additional realized
capital gain of approximately $1.30 per TAVF share. At this writing, there are
few capital losses that the Fund can realize to offset the likely capital gains.
As a result of this situation, Third Avenue is following three courses of action
and inaction. First, the Board has declared a capital gain distribution of $4
per share payable May 31, 2000 to stockholders of record on May 30, 2000.
Shareholders can receive the distribution either in cash, or have additional
Fund shares issued to them. Second, the Fund has no present intention of
realizing further capital gains before October 31, 2000, by the sale of
securities in the open market. Since as FAR AS I'M CONCERNED, THE MARKET OVER
ANY 5 OR 6 MONTH PERIOD IS NOTHING MORE THAN A RANDOM WALK, holding on to
overpriced securities for six months seems an easy decision. Third, Third Avenue
continues to invest in semi-conductor equipment common stocks. While some of
these issues appear to be richly valued, others remain bargains, having
participated hardly at all in THE ROARING BULL MARKET FOR THESE ISSUES. FOR
EXAMPLE, SILICON VALLEY COMMON CLOSED AT 281/2 on April 30. Things seem to be
going very right for this business. I think Silicon Valley has a shot, by no
means assured, of earning between $4 and $6 per share in 2001, 2002 or 2003.
Such earning power, if achieved, seems likely to be sustainable in most, but not
all, future years.
For TAVF, the general market is unimportant as seems to be the case for most
investors concentrating on fundamental values, whether those investors, like the
Fund are essentially passive; or are like others, essentially control investors.
In the long run, the performance of the Fund will be driven by the merits
inherent in the investments made, not by general market considerations. We, at
Third Avenue, certainly look at things quite differently than people like Julian
Robertson and Robert J. Shiller, who I think are living in the 1930's rather
than the 21st century.
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Julian Robertson had managed $21 billion in Tiger and related funds, but he
called it quits earlier this year when assets under management dwindled to $6
billion, mostly because of redemptions. He wrote his investors, "There is no
point in subjecting our investors to risk in a market, which I frankly do not
understand."
If understanding a market means, as it obviously means for Robertson,
understanding fluctuations in securities prices, then I can safely state that
I've been in the investment business for almost 50 years and I still don't
understand markets; never did, never will. Understanding the market belongs in
the realm of abnormal psychology, not corporate finance. I think I can do an
adequate job for the TAVF shareholders if I understand individual securities and
individual companies. Asking me further to understand markets or to predict
near-term outlooks for markets is not only asking too much by itself, but also
spending time and intellectual capital trying to understand or predict markets
detracts very much from one's abilities to understand securities and companies.
In fairness to Julian Robertson, though, it ought to be noted that Robertson's
goal in investing seems to have been to outperform on a comparative basis
certain benchmarks such as other funds or the S&P 500 on a reasonably consistent
basis. (Consistent is a word which in the stock market seems to mean "all the
time"). TAVF is different. If the Fund can continue to earn close to 20%
compounded on a long-term basis without taking meaningful investment risks, then
I think the TAVF shareholders will be satisfied regardless of the performance of
other benchmarks with which Third Avenue might be compared. Put otherwise, the
Fund failed to outperform the S&P 500 during 1998 and 1999, periods of extreme
speculative excesses. Unlike Robertson, I don't think this lack of relative
performance is an indication of failure. It just goes with the territory, and is
bound to recur from time to time.
Robert J. Shiller, a Yale economics professor, is the author of a book about
market psychology published during the quarter ENTITLED, IRRATIONAL EXUBERANCE.
The book decries the speculative excesses that Shiller thinks characterized all
equity SECURITIES MARKETS PRIOR TO APRIL 2000. THE BOOK PROBABLY SHOULD HAVE
BEEN ENTITLED RATIONAL OVEREXUBERANCE because it seems arrogant to suppose that
speculators, including day traders, do not have good reasons for doing what they
are doing. Most could not do what Third Avenue does even if they wanted to. They
are just untrained in security analysis.
The big point Shiller misses is that despite the general averages being what
they were - Dow 11,000 and NASDAQ 5000 - many common stocks issued by many well
- financed companies were dirt cheap as measured by the prices that would be
paid for the common stocks were the underlying businesses private or take-over
candidates. During the quarter, the Fund loaded up on just such common stock
issues: real estate-related companies such as Horton and FAF; financial
institutions such as Capital Southwest, Chiyoda, FSA (prior to the takeover
announcement), LaSalle, MBIA, Nissan and Woronoco; quality manufacturers such as
Mestek and Tecumseh; and clinical testing companies such as PAREXEL.
For long-term fundamentalists, it seems as if the general market has become
unimportant, and that this has been the case since the end of the Great
Depression of the 1930's. Since the end of World War II, general economic and
financial conditions have never deserved the great weight that people like
Shiller and the financial press assign to them. Top-down considerations have to
be low weighted for fundamentalists compared with bottom-up company-specific and
securities-specific factors. Put simply, for TAVF and people who analyze the way
TAVF does, Alan Greenspan is irrelevant.
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In the economy outside of Wall Street, it is easy to see why statistics about
the overall economy such as Gross Domestic Product, Interest Rates, and
Employment Data, ought to be down weighted. During the last thirty years, almost
every American industry has gone through depressions as severe as anything
experienced in the 1930's: automobiles, steel, aluminum, transportation, energy,
banking, real estate, savings and loan, retail, row crops, agricultural
equipment, semi-conductor equipment, machine tools, etc. The essential
difference between now and the 30's is that there has been no real domino effect
influencing the whole economy. The energy crash of the early to mid 1980's
virtually shut down Texas and caused insolvencies for almost all Texan banks.
Unlike the 1930's this Texas shut down did not seriously affect the way the rest
of the economy operated. For example, it had no apparent effect on the
speculative excesses that were occurring contemporaneously in real estate
syndications and junk bonds. I think this is the way things are likely to
continue to be. There is a strong parallel between what exists for the economy
and what exists in securities markets. Despite the huge speculative excesses
present today in the general market, there are certain securities that are
priced at extremely attractive levels, say 1974 or 1982 pricing. Industry groups
where this seems to be the case are real estate-related securities, certain
financial institutions and health care. I would hope that we, the management of
TAVF, are astute enough to benefit from this bifurcation of markets. Authors
like Shiller focus on general averages, not specific securities; they seem not
to see the forest; they certainly don't see the trees.
I will write you again when the report for the quarter to end July 31, 2000 is
published.
Sincerely yours,
/s/ Martin J. Whitman
Martin J. Whitman
Chairman of the Board
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF
AMOUNT ($) ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES - 1.53%
2,495,000 Chase Credit Card Master Trust
Series 1997-2 Class A, 6.30% due 4/15/03 $ 2,493,054
9,081,787 Ford Credit Auto Owner Trust
Series 1998-B Class A-3, 5.85% due 10/15/01 9,062,170
11,012,545 Ford Credit Auto Owner Trust
Series 1999-C Class A-3, 5.77% due 11/15/01 10,988,152
3,184,925 Ford Credit Auto Owner Trust
Series 1998-C Class A-4, 5.81% due 3/15/02 3,155,146
------------
TOTAL ASSET BACKED SECURITIES
(Cost $25,705, 25,698,522 1.53%
------------
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BANK AND OTHER DEBT - 0.27%
Insurance 4,064,333 Safelite Glass Bank Debt A (c) 1,930,558
1,598,217 Safelite Glass Bank Debt B (c) 759,153
1,598,217 Safelite Glass Bank Debt C (c) 759,153
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3,448,864 0.21%
------------
Oil Services 1,067,230 Cimarron Petroleum Corp. (c) (d) 1,086,455 0.06%
------------
Retail 284,760 Lechmere, Inc. Trade Claim (a) (c) 3,702
150,959 Montgomery Ward Trade Claim (a) (c) 41,212
------------
44,914 0.00%
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TOTAL BANK AND OTHER DEBT
(Cost $5,400,679) 4,580,233
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CONVERTIBLE BONDS - 1.38%
Assisted Living Facilities 39,399,000 CareMatrix Corp. 6.25%, due 8/15/04 7,141,069 0.43%
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Pharmaceutical Services 49,155,000 Innovative Clinical Solutions, Ltd. 6.75%, due 6/15/03 15,975,375 0.95%
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TOTAL CONVERTIBLE BONDS
(Cost $36,596,564) 23,116,444
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 0.59%
Bermuda Based Financial 7,500,000 CGA Special Account Trust (b) (c) $ 7,500,000 0.45%
Instititutions ---------------
Industrial 24,900,000 Hechinger Co. 6.95%, due 10/15/03* 1,743,000
8,500,000 Hechinger Co. 9.45%, due 11/15/12* 595,000
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2,338,000 0.14%
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TOTAL CORPORATE BONDS
(Cost $11,089,035) 9,838,000
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GOVERNMENT AGENCY BONDS - 0.83%
3,500,363 Fannie Mae, Collateralized Mortgage Obligation
Series 1997-8 AB, 7.00%, due 5/18/21 3,434,521
4,011,556 Freddie Mac, Collateralized Mortgage Obligation
Series 1675 E, 5.85%, due 9/15/17 3,990,214
257,890 Freddie Mac, Collateralized Mortgage Obligation
Series 1834 A, 7.00%, due 1/15/20 257,387
6,307,983 Freddie Mac, Collateralized Mortgage Obligation
Series 1902 J, 7.00%, due 8/15/21 6,290,321
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TOTAL GOVERNMENT AGENCY BONDS
(Cost $14,045,545) 13,972,443 0.83%
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SHARES
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COMMON STOCKS AND WARRANTS - 82.44%
Annuities & Mutual Fund 10,000 Atalanta/Sosnoff Capital Corp. (a) 97,500
Management & Sales 163,300 John Nuveen & Co., Inc. Class A 6,511,588
725,500 Liberty Financial Companies, Inc. 13,603,125
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20,212,213 1.21%
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Apparel Manufacturers 150,000 Kleinerts, Inc. (a) (c) 1,800,000 0.11%
---------------
Bermuda Based 3,341,703 CGA Group, Ltd. (a) (b) (c) 0
Financial Institutions 91,999 Cobalt Holdings, LLC (c) 920
118,449 ESG Re, Ltd. (a) 473,796
295,217 LaSalle Re Holdings, Ltd. 3,874,723
1,064,516 St. George Holdings, Ltd. Class A (a) (b) (c) 106,451
9,044 St. George Holdings, Ltd. Class B (a) (b) (c) 905
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4,456,795 0.27%
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONTINUED)
Business Development 78,245 Capital Southwest Corp. $ 4,381,720
and Investment Companies 432,300 Risk Capital Holdings, Inc. (a) 6,653,367
--------------
11,035,087 0.66%
--------------
Computerized Trading 223,600 Investment Technology Group, Inc. 8,385,000 0.50%
--------------
Computers, Networks 100,000 3Com Corp. (a) 3,943,750 0.23%
& Software --------------
Depository Institutions 53,000 Astoria Financial Corp. 1,460,813
218,500 Carver Bancorp, Inc. (b) 2,075,750
39,500 CNY Financial Corp. 720,875
61,543 Commercial Federal Corp. 957,763
197,307 Golden State Bancorp., Inc. (a) 3,033,595
53,480 Golden State Bancorp., Inc. Warrants, 9/17/00 (a) 220,605
197,307 Golden State Bancorp, Inc. Litigation Tracking Warrants (a) 203,473
69,566 Peoples Heritage Financial Group, Inc. 908,706
41,100 Tompkins Trustco, Inc. 1,006,950
348,200 Woronoco Bancorp (b) 3,525,525
--------------
14,114,055 0.84%
--------------
Financial Insurance 200,000 Ambac Financial Group, Inc. 9,600,000
1,826,500 Enhance Financial Services Group, Inc. 18,493,313
1,184,000 Financial Security Assurance Holdings, Ltd. 87,394,000
1,076,073 MBIA Inc. 53,198,359
--------------
168,685,672 10.06%
--------------
Food Manufacturers 328,000 J & J Snack Foods Corp. (a) 5,227,500
& Purveyors 109,100 Weis Markets, Inc. 3,627,575
--------------
8,855,075 0.53%
--------------
Home Building 444,300 D.R. Horton, Inc. 5,748,131 0.34%
--------------
Industrial Equipment 398,900 Alamo Group, Inc. 4,338,037
123,900 Cummins Engine Co., Inc. 4,406,194
18,300 Mestek, Inc. (a) 328,256
125,400 Tecumseh Products Co. Class A (b) 5,823,263
520,400 Tecumseh Products Co. Class B (b) 22,637,400
--------------
37,533,150 2.24%
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONTINUED)
Industrial-Japan 2,200,000 Toyoda Automatic Loom Works, Ltd. $ 43,590,575 2.60%
--------------
Insurance Holding 87,035 ACE Ltd. 2,083,400
Companies 200,678 ACMAT Corp. Class A (a) (b) 1,655,593
803,669 Danielson Holding Corp. (a) (b) (c) 4,420,180
5,490 Sen-Tech International Holdings, Inc. (a) (c) 3,294,000
50,000 White Mountains Insurance Group Inc. 6,953,125
--------------
18,406,298 1.10%
--------------
Manufactured Housing 89,000 Liberty Homes, Inc. Class A 611,875
40,000 Liberty Homes, Inc. Class B 293,750
--------------
905,625 0.05%
--------------
Medical Supplies 145,500 Analogic Corp. 5,920,031
& Services 342,300 Datascope Corp. (a) 11,338,688
554,950 Prime Medical Services, Inc. (a) 4,162,125
788,900 Protocol Systems, Inc. (a) (b) 9,762,638
90,750 St. Jude Medical, Inc. (a) 2,830,266
--------------
34,013,748 2.03%
--------------
Natural Resources & 1,160,000 Alexander & Baldwin, Inc. 24,360,000
Real Estate 179,600 Catellus Development Corp. (a) 2,334,800
31,000 Consolidated-Tomoka Land Co. 373,937
550,000 Forest City Enterprises, Inc. Class A 16,018,750
7,500 Forest City Enterprises, Inc. Class B 253,125
473,489 HomeFed Corp. (a) 303,033
1,180,336 Koger Equity, Inc. 20,655,880
14,600 LNR Property Corp. 314,812
846 Public Storage, Inc. 18,929
238,200 St. Joe Co. 6,863,137
3,045,508 Tejon Ranch Co. (b) (c) 66,620,487
--------------
138,116,890 8.24%
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONTINUED)
Non-Life Insurance-Japan 7,319,000 Mitsui Marine & Fire Insurance Co., Ltd. $ 32,188,556
7,399,000 The Chiyoda Fire & Marine Insurance Co., Ltd. 20,346,308
1,379,000 The Nissan Fire & Marine Insurance Co., Ltd. 3,613,323
3,246,000 The Sumitomo Marine & Fire Insurance Co., Ltd. 17,130,874
1,520,800 The Tokio Marine & Fire Insurance Co., Ltd.,
Sponsored ADR 73,378,600
3,000,000 The Yasuda Fire & Marine Insurance Co., Ltd. 12,138,327
--------------
158,795,988 9.47%
--------------
Oil Services 500,000 Nabors Industries, Inc. (a) 19,718,750 1.18%
--------------
Paper & Related 110,174,479 Repap Enterprises Inc. (a) (b) 8,263,086 0.49%
Products --------------
Pharmaceutical Services 347,000 Kendle International Inc. (a) 3,166,375
588,000 PAREXEL International Corp. (a) 5,292,000
400,000 Pharmaceutical Product Development, Inc. (a) 6,725,000
--------------
15,183,375 0.91%
--------------
Security Brokers, 223,600 Jefferies Group, Inc. 4,933,175
Dealers & 893,332 Legg Mason, Inc. 33,779,116
Flotation Companies 1,086,250 Raymond James Financial, Inc. 21,860,781
--------------
60,573,072 3.61%
--------------
Semiconductor 200,000 Applied Materials, Inc. (a) 20,362,500
Equipment Manufacturers 1,666,700 AVX Corp. 162,399,081
and Related 1,004,500 C.P. Clare Corp. (a) (b) 7,125,672
1,125,000 Electro Scientific Industries, Inc. (a) 70,945,313
1,392,300 Electroglas, Inc. (a) (b) 53,951,625
2,320,900 FSI International, Inc. (a) (b) 34,668,444
100,000 GaSonics International Corp. (a) 3,300,000
100,000 KLA-Tencor Corp. (a) 7,487,500
300,000 Photronics, Inc. (a) 9,993,750
3,928,400 Silicon Valley Group, Inc. (a) (b) 111,959,400
500,000 Veeco Instruments, Inc. (a) 31,062,500
--------------
513,255,785 30.62%
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
11
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONTINUED)
Small-Cap Technology 424,000 Hypercom Corp. (a) $ 6,201,000
247,200 Planar Systems, Inc. (a) 2,765,550
1,500 Simione Central Holdings, Inc. (a) 3,280
--------------
8,969,830 0.54%
--------------
Title Insurance 3,201,800 First American Financial Corp. (b) 49,427,790
1,951,400 Stewart Information Services Corp. (b) 27,807,450
--------------
77,235,240 4.61%
--------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $835,281,892) 1,381,797,190
--------------
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 1.38%
Bermuda Based 643,621 CGA Group, Ltd., Series A (b) (c) 16,090,526
Financial Institutions 6,045,667 CGA Group, Ltd., Series C (b) (c) 7,039,176
--------------
23,129,702 1.38%
--------------
Insurance Companies 4,775 Ecclesiastical Insurance, 8.625% 7,434 0.00%
--------------
(Cost $20,915,879) 23,137,136
--------------
INVESTMENT
AMOUNT
------------------------------------------------------------------------------------------------------------------------------------
LIMITED PARTNERSHIPS - 1.21%
Bermuda Based $ 2,215,000 ESG Partners, LP (c) 426,919 0.03%
Financial Institutions --------------
Financial Insurance $ 15,000,000 American Capital Access Holdings, LLC (c) 15,000,000 0.89%
--------------
Insurance Holding $ 3,667,341 Head Insurance Investors LP (c) 3,667,341
Companies $ 1,140,000 Insurance Partners II Equity Fund, LP (c) 1,140,000
--------------
4,807,341 0.29%
--------------
TOTAL LIMITED PARTNERSHIPS
(Cost $22,077,756) 20,234,260
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
NOTIONAL VALUE % OF
PRINCIPAL ($) ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN CURRENCY SWAP CONTRACTS - 0.08%
50,000,000 Bear Stearns Currency Swap,
Termination Date 10/27/00 (c) (e) $ 902,071
150,000,000 Bear Stearns Currency Swap,
Termination Date 4/17/01 (c) (f) 372,407
--------------
1,274,478 0.08%
--------------
TOTAL FOREIGN CURRENCY SWAP CONTRACTS
(Cost $0) 1,274,478
--------------
PRINCIPAL
AMOUNT ($)
------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 9.53%
Repurchase Agreements 80,219,794 Bear Stearns 5.72% , due date May 1, 2000 (g) 80,219,794 4.79%
------------
U.S. Treasury Bills 40,000,000 U.S. Treasury Bill 5.49%+, 07/27/00 39,454,320
40,000,000 U.S. Treasury Bill 5.88%+, 10/26/00 38,844,000
1,200,000 U.S. Treasury Bill 3.55%+, 12/07/00 (h) 1,156,917
--------------
79,455,237 4.74%
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $159,700,807) 159,675,031
--------------
TOTAL INVESTMENT PORTFOLIO - 99.24%
(Cost $1,130,813,818) 1,663,323,737
--------------
OTHER ASSETS
LESS LIABILITIES - 0.76% 12,829,730
--------------
NET ASSETS - 100.00% $1,676,153,467
==============
(Applicable to 39,527,097
shares outstanding)
NET ASSET VALUE PER SHARE $42.41
======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
Notes:
(a) Non-income producing securities.
(b) Affiliated issuers-as defined under the Investment Company Act of 1940
(ownership of 5% or more of the outstanding voting securities of these
issuers).
(c) Restricted/fair valued securities.
(d) Interest accrued at a current rate of prime + 2%.
(e) The Fund is selling 5.2 billion Yen and paying an interest rate of 0.22% in
exhange for 50 million U.S. Dollars and an interest rate of 6.29%.
(f) The Fund is selling 15.9 billion Yen and paying an interest rate of 0.38%
in exhange for 150 million U.S. Dollars and an interest rate of 6.85%.
(g) Repurchase agreement collateralized by:
U.S. Treasury Strips, par value $44,365,000, 6.78%, matures 11/15/10:
market value $22,626,150.
U.S. Treasury Strips, par value $50,000,000, 6.78%, matures 2/15/13: market
value $22,312,500.
U.S. Treasury Strips, par value $50,000,000, 6.78%, matures 2/15/20: market
value $14,906,500.
U.S. Treasury Strips, par value $33,072,000, 6.78%, matures 5/15/21: market
value $9,187,732.
U.S. Treasury Strips, par value $1,740,000, 6.78%, matures 2/15/22: market
value $463,814.
U.S. Treasury Strips, par value $50,000,000, 6.78%, matures 8/15/23: market
value $12,328,000.
(h) Security segregated for future Fund commitments.
* Issuer in default.
+ Annualized yield at date of purchase.
ADR: American Depository Receipt.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
(UNAUDITED)
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $834,205,156) $1,222,862,376
Affiliated issuers (identified cost of $296,608,662) 440,461,361
--------------
Total investments (identified cost of $1,130,813,818) 1,663,323,737
Receivable for securities sold 780,529
Receivable for fund shares sold 8,946,655
Dividends and interest receivable 5,696,107
Other assets 755,208
--------------
Total assets 1,679,502,236
--------------
LIABILITIES:
Payable for fund shares redeemed 1,697,222
Payable to investment adviser 1,188,864
Accounts payable and accrued expenses 387,799
Payable for service fees (Note 3) 58,995
Other liabilities 15,889
Commitments (Note 6) --
--------------
Total liabilities 3,348,769
--------------
Net assets $1,676,153,467
==============
SUMMARY OF NET ASSETS:
Common stock, unlimited shares authorized,
no par value, 39,527,097 shares outstanding $ 922,805,781
Accumulated undistributed net investment income 9,716,474
Accumulated undistributed net realized gains from
investment transactions 211,148,177
Net unrealized appreciation of investments and
translation of foreign currency denominated assets
and liabilities 532,483,035
--------------
Net assets applicable to capital shares outstanding $1,676,153,467
==============
Net asset value, offering and redemption price per share $42.41
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
INVESTMENT INCOME:
Interest - unaffiliated issuers $ 9,464,266
Interest - affiliated issuers 216,959
Dividends - unaffiliated issuers
(net of foreign withholding tax of $248,690) 5,670,170
Dividends - affiliated issuers 1,982,313
-------------
Total investment income 17,333,708
-------------
EXPENSES:
Investment advisory fees (Note 3) 6,572,591
Service fees (Note 3) 341,764
Transfer agent fees 278,366
Reports to shareholders 182,421
Administration fees (Note 3) 146,541
Custodian fees 87,290
Miscellaneous expenses 63,125
Accounting services 57,749
Insurance expenses 47,484
Directors' fees and expenses 45,487
Registration fees 40,392
Auditing and tax consulting fees 35,518
Legal fees 27,077
-------------
Total operating expenses 7,925,805
-------------
Net investment income 9,407,903
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments - unaffiliated issuers 187,353,038
Net realized gains on investments - affiliated issuers 10,746,943
Net realized losses on foreign currency transactions (216,600)
Net change in unrealized appreciation on investments 98,714,870
Net change in unrealized appreciation on foreign currency
swaps and option contracts 1,427,872
Net change in unrealized depreciation on translation of other
assets and liabilities denominated in foreign currency (26,698)
-------------
Net realized and unrealized gains on investments 297,999,425
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 307,407,328
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
4/30/00 ENDED
(UNAUDITED) 10/31/99
-------------- --------------
OPERATIONS:
Net investment income $ 9,407,903 $ 18,120,662
Net realized gains on investments -
unaffiliated issuers 187,353,038 73,612,251
Net realized gains (losses) on
investments - affiliated issuers 10,746,943 (25,736,873)
Net realized losses on foreign
currency transactions (216,600) (21,743,326)
Net change in unrealized appreciation
on investments 98,714,870 174,211,595
Net change in unrealized appreciation
(depreciation) on foreign currency swaps
and option contracts 1,427,872 (204,327)
Net change in unrealized depreciation
on translation of other assets and
liabilities denominated in foreign currency (26,698) (19,024)
-------------- --------------
Net increase in net assets resulting
from operations 307,407,328 218,240,958
-------------- --------------
DISTRIBUTIONS:
Dividends to shareholders from net
investment income -- (19,923,268)
Distributions to shareholders from net
realized gains on investments (16,225,592) --
-------------- --------------
(16,225,592) (19,923,268)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 279,946,431 237,803,848
Net asset value of shares issued in
reinvestment of dividends and distributions 15,430,983 18,679,630
Cost of shares redeemed (250,677,556) (655,240,361)
-------------- --------------
Net increase (decrease) in net assets
resulting from capital share transactions 44,699,858 (398,756,883)
-------------- --------------
Net increase (decrease) in net assets 335,881,594 (200,439,193)
Net assets at beginning of period 1,340,271,873 1,540,711,066
-------------- --------------
Net assets at end of period
(including undistributed net investment
income of $9,716,474 and $308,571,
respectively) $1,676,153,467 $1,340,271,873
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) AND RATIOS ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
4/30/00 ---------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 34.82 $ 30.16 $ 31.94 $ 24.26 $ 21.53 $ 18.01
---------- ---------- ---------- ---------- -------- --------
Income (loss) from Investment Operations:
Net investment income .24 .47 .48 .48 .53 .38
Net gain (loss) on securities (both realized
and unrealized) 7.77 4.59 (1.69) 7.92 2.76 3.53
---------- ---------- ---------- ---------- -------- --------
Total from Investment Operations 8.01 5.06 (1.21) 8.40 3.29 3.91
---------- ---------- ---------- ---------- -------- --------
Less Distributions:
Dividends from net investment income -- (.40) (.41) (.57) (.41) (.25)
Distributions from realized gains (.42) -- (.16) (.15) (.15) (.14)
---------- ---------- ---------- ---------- -------- --------
Total Distributions (.42) (.40) (.57) (.72) (.56) (.39)
---------- ---------- ---------- ---------- -------- --------
Net Asset Value, End of Period $ 42.41 $ 34.82 $ 30.16 $ 31.94 $ 24.26 $ 21.53
========== ========== ========== ========== ======== ========
Total Return 23.29%(1) 16.89% (3.86%) 35.31% 15.55% 22.31%
Ratios/Supplemental Data:
Net Assets, End of period (in thousands) $1,676,153 $1,340,272 $1,540,711 $1,646,240 $566,847 $312,722
Ratio of Expenses to Average Net Assets 1.09%(2) 1.10% 1.08% 1.13% 1.21% 1.25%
Ratio of Net Income to Average Net Assets 1.29%(2) 1.27% 1.44% 2.10% 2.67% 2.24%
Portfolio Turnover Rate 15%(1) 5% 24% 10% 14% 15%
</TABLE>
(1) Not Annualized
(2) Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE SMALL-CAP VALUE FUND
Dear Fellow Shareholders:
At April 30, 2000, the end of the second fiscal quarter, the unaudited net asset
value attributable to the 9,996,435 common shares outstanding of Third Avenue
Small-Cap Value Fund ("Small-Cap Value" or the "Fund") was $12.51 per share,
compared with the Fund's unaudited net asset value of $12.20 per share at
January 31,2000, and an unaudited net asset value, adjusted for a subsequent
distribution to shareholders, of $10.96 at April 30, 1999. At June 2, 2000, the
net asset value was $13.10.
QUARTERLY ACTIVITY
During the quarter, Small-Cap Value established one new position, added to eight
of its thirty-nine existing positions, and reduced its holdings in eight
companies. At April 30, 2000, Small-Cap Value held positions in 37 companies,
the top 10 positions of which accounted for approximately 41% of the Fund's net
assets.
NUMBER OF SHARES NEW POSITIONS ACQUIRED
27,500 Enhance Financial Services Group, Inc. Common Stock
("EFS Common")
INCREASES IN EXISTING POSITIONS
7,000 ACT Networks, Inc. Common Stock ("Act Common")
1,000 Bel Fuse, Inc. Class A Common Stock ("Bel Fuse A Common")
21,000 Bel Fuse, Inc. Class B Common Stock ("Bel Fuse B Common")
2,300 Century Aluminum Co. Common Stock ("Century Common")
6,500 Evans & Sutherland Computer Corp. Common Stock
("Evans & Sutherland Common")
5,000 Financial Security Assurance Holdings, Ltd. Common Stock
("FSA Common")
1,400 LaSalle Re Holdings, Ltd. Common Stock ("LaSalle Common")
30,000 MBIA, Inc. Common Stock ("MBIA Common")
30,100 PAREXEL International Corp. Common Stock
("PAREXEL Common")
5,000 Protocol Systems, Inc. Common Stock ("Protocol Common")
19
<PAGE>
[THIRD AVENUE FUNDS LOGO]
NUMBER OF SHARES REDUCTIONS IN EXISTING POSITIONS
10,000 Alico, Inc. Common Stock ("Alico Common")
59,000 Centigram Communications Corp. Common Stock
("Centigram Common")
54,500 Electroglas, Inc. Common Stock ("Electroglas Common")
123,500 FSI International, Inc. Common Stock ("FSI Common")
113,000 Planar Systems, Inc. Common Stock ("Planar Common")
746,300 Repap Enterprises, Inc. Common Stock ("Repap Common")
23,400 Sawako Corp., Sponsored ADR ("Sawako ADRs")
25,000 SpeedFam-IPEC, Inc. Common Stock ("SpeedFam Common")
POSITIONS ELIMINATED
161,600 Gleason Corp. Common Stock ("Gleason Common")
490,600 SpecTran Corp. Common Stock ("SpecTran Common")
Our new position in EFS common represents a quasi arbitrage investment. As Third
Avenue defines it, arbitrage means "a reasonably determinate workout in a
reasonably determinate period of time." We have known Enhance management for
many years and generally think very highly of their business acumen and track
record. However, the company has come to a crossroads of sorts and has hired
Morgan Stanley to advise it on strategic alternatives. For Enhance, these
strategic alternatives may take one of several forms, any one of which is quite
likely to produce values well in excess of the admittedly depressed current
market price of EFS common. Moreover, owing to pressure from rating agencies,
the clock is ticking, and a "value realization" event seems likely to happen by
late summer.
A large percentage of the capital deployed during the quarter went toward
existing positions, borne out of our conviction that many of these issues remain
undervalued and attractively priced. Volatile, short-term market swings afforded
the Fund favorable buying conditions for several issues. Unlike the popular
press, who often malign the market's volatility as an investor's enemy, we can
actually embrace short-term volatility as it produces some terrific buying
opportunities. It is true that the volatility may temporarily depress the value
of the Fund's holdings, though we care little about such short-term, market
risks. More than market risk, we are much more focused on long-term investment
risk - the risk that the businesses we own encounter some permanent
business-related problems.
Resource conversion remained an important theme during the quarter for the
Fund's portfolio holdings, following on the heels of a number of similar,
M&A-related events during the prior quarter. Protocol Systems, a maker of
patient monitors and other medical devices, announced that it had engaged a
financial advisor to explore strategic alternatives. Current business
fundamentals at Protocol appear to be very strong as evidenced by new product
announcements and earnings growth. FSA, one of the Fund's original holdings,
announced that it had agreed to be acquired by Dexia
20
<PAGE>
[THIRD AVENUE FUNDS LOGO]
Group, a European financial services firm. Dexia agreed to pay $76 per share
cash for each FSA share, versus the Fund's cost of $39. The FSA deal ought to
close in July. Lastly, ACT Networks, a maker of data networking equipment,
agreed to be acquired by Clarent Corporation. The stock for stock deal values
ACT at between $14 to $18 per share, versus the Fund's cost of $11 per share.
Interestingly, ACT Common today trades under $12 per share. Business
fundamentals appear to be reasonably strong - and improving - at ACT as well.
The Fund's disposals during the quarter of Gleason Common and SpecTran Common
were the result of cash tender offers for those companies' common stocks.
While the Fund's performance only partly reflects the values realized by these
resource conversion events, we believe that the portfolio has potential for a
great many more such events in the coming periods, though there are no
guarantees. As evidenced by the "resource conversion" activity in the Fund
during the quarter, we can be confident that the private markets will likely
find value in many of our holdings where the public markets act irrationally for
any prolonged periods.
I look forward to writing you again when we publish our Third Quarter Report
dated July 31, 2000.
Sincerely,
/s/ Curtis R. Jensen
Curtis R. Jensen
Co-manager, Third Avenue Small-Cap Value Fund
21
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS - 90.31%
Bermuda Based Financial 135,400 LaSalle Re Holdings, Ltd. $ 1,777,125 1.42%
Institutions ------------
Construction-Japan 293,900 Sawako Corp., Sponsored ADR (b) 1,451,131 1.16%
------------
Financial Insurance 27,500 Enhance Financial Services Group, Inc. 278,437
76,000 Financial Security Assurance Holdings Ltd. 5,609,750
154,822 MBIA Inc. (b) 7,654,013
------------
13,542,200 10.83%
------------
Industrial Equipment 310,000 Alamo Group, Inc. 3,371,250 2.70%
------------
Life Insurance 179,000 FBL Financial Group, Inc. Class A 2,774,500 2.22%
------------
Manufactured Housing 184,300 Skyline Corp. 3,755,113 3.00%
------------
Media 125,000 ValueVision International, Inc. Class A (a) 2,492,188 1.99%
------------
Medical Supplies 283,000 Protocol Systems, Inc. (a) 3,502,125 2.80%
------------
& Services
Metal & Metal Products 26,600 Century Aluminum Co. (b) 372,400 0.30%
------------
Natural Resources & 187,500 Alexander & Baldwin, Inc. 3,937,500
Real Estate 187,300 Alico, Inc. (b) 3,090,450
139,000 Avatar Holdings, Inc. (a) (b) 2,745,250
126,900 Cabot Industrial Trust (b) 2,442,825
227,400 Deltic Timber Corp. 5,002,800
206,000 Koger Equity, Inc. 3,605,000
200,000 Tejon Ranch Co. (d) 4,375,000
1,104,700 The TimberWest Forest Corp. (Canada) (b) 7,754,897
------------
32,953,722 26.35%
------------
Non-Life 2,025,000 The Nissan Fire & Marine
Insurance-Japan Insurance Co., Ltd. 5,306,004 4.24%
------------
Paper & Related 12,253,700 Repap Enterprises Inc. (a) 919,028 0.74%
Products ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks (continued)
Pharmaceutical Services 76,400 Kendle International Inc. (a) $ 697,150
58,100 PAREXEL International Corp. (a) 522,900
93,000 Pharmaceutical Product Development, Inc. (a) (b) 1,563,562
------------
2,783,612 2.23%
------------
Retail 426,100 HomeBase, Inc. (a) (b) 878,831
261,700 Value City Department Stores, Inc. (a) 2,666,069
------------
3,544,900 2.83%
------------
Semiconductor 484,800 C.P. Clare Corp. (a) (c) 3,439,050
Equipment Manufacturers 100,000 Electroglas, Inc. (a) 3,875,000
and Related 293,900 FSI International, Inc. (a) 4,390,131
99,000 Silicon Valley Group, Inc. (a) 2,821,500
150,000 SpeedFam-IPEC, Inc. (a) 2,371,875
------------
16,897,556 13.51%
------------
Technology 302,800 ACT Networks, Inc. (a) 3,747,150
26,000 Bel Fuse, Inc. Class A (a) 461,500
132,400 Bel Fuse, Inc. Class B (b) 2,325,275
189,300 Centigram Communications Corp. (a) 2,922,319
210,000 Evans & Sutherland Computer Corp. (a) 2,388,750
257,300 Planar Systems, Inc. (a) 2,878,544
------------
14,723,538 11.77%
------------
Title Insurance 179,800 First American Financial Corp. 2,775,662 2.22%
TOTAL COMMON STOCKS ------------
(Cost $112,973,419) 112,942,054
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
23
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
NOTIONAL VALUE % OF
PRINCIPAL ISSUES (NOTE 1) NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY SWAP CONTRACTS (0.22%)
<S> <C> <C> <C> <C>
6,000,000 Bear Stearns Currency Swap,
Termination Date 2/28/01 (d) (e) $ (280,021) (0.22%)
------------
TOTAL FOREIGN CURRENCY SWAP CONTRACTS
(Cost $0) (280,021)
------------
PRINCIPAL
AMOUNT ($)
------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 18.16%
Repurchase Agreements 10,510,247 Bear Stearns 5.72%, due date May 1, 2000 (f) 10,510,247 8.40%
------------
Repurchase Agreements - 58,190 Bear Stearns 3.06%, due date May 1, 2000 (g) 58,190
Collateral on Securities Loaned 12,151,000 Bear Stearns 6.35%, due date May 1, 2000 (g) 12,151,000
------------
12,209,190 9.76%
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $22,719,437) 22,719,437
------------
TOTAL INVESTMENT PORTFOLIO - 108.25%
(Cost $135,692,856) 135,381,470
------------
OTHER ASSETS
AND LIABILITIES - (8.25%) (10,316,421)
------------
NET ASSETS - 100.00% $125,065,049
(Applicable to 9,996,435 ============
shares outstanding)
NET ASSET VALUE PER SHARE $12.51
======
</TABLE>
Notes:
(a) Non-income producing securities.
(b) Securities in whole or in part on loan.
(c) Affiliated issuers-as defined under the Investment Company Act of 1940
(ownership of 5% or more of the outstanding voting securities of these
issuers).
(d) Restricted/fair valued securities.
(e) The Fund is selling 6.7 billion Yen and paying an interest rate of 0.25% in
exchange for 6 million U.S. Dollars and an interest rate of 6.73%.
(f) Repurchase agreement collateralized by:
U.S. Treasury Strips, par value $21,025,000, 6.78%, matures 11/15/10:
market value $10,722,750.
(g) Repurchase agreement collateralized by:
U.S. Treasury Strips, par value $120,000, 6.78%, matures 11/15/10: market
value $61,200.
U.S. Treasury Strips, par value $24,305,000, 6.78%, matures 11/15/10:
market value $12,395,550.
ADR: American Depository Receipt.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
(UNAUDITED)
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $130,174,953) $ 131,942,420
Affiliated issuers (identified cost of $5,517,903) 3,439,050
-------------
Total investments (identified cost of $135,692,856) 135,381,470
-------------
Receivable for fund shares sold 1,709,502
Dividends and interest receivable 321,927
Deferred organizational costs (Note 1) 20,806
Other assets 56,813
-------------
Total assets 137,490,518
-------------
LIABILITIES:
Payable for fund shares redeemed 45,783
Payable to investment adviser 89,852
Accounts payable and accrued expenses 75,536
Payable for service fees (Note 3) 5,108
Collateral on loaned securities (Note 1) 12,209,190
-------------
Total liabilities 12,425,469
-------------
Net assets $ 125,065,049
=============
SUMMARY OF NET ASSETS:
Common stock, unlimited shares authorized, no par
value, 9,996,435 shares outstanding $ 123,743,332
Accumulated undistributed net investment income 278,838
Accumulated undistributed net realized gains from
investment transactions 1,356,434
Net unrealized depreciation of investments and
translation of foreign currency denominated
assets and liabilities (313,555)
-------------
Net assets applicable to capital shares outstanding $ 125,065,049
=============
Net asset value, offering and redemption price per share $12.51
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 219,990
Dividends (net of foreign withholding tax of $5,102) 1,131,319
------------
Total investment income 1,351,309
------------
EXPENSES:
Investment advisory fees (Note 3) 566,013
Administration fees (Note 3) 49,425
Directors' fees and expenses 36,682
Transfer agent fees 33,043
Service fees (Note 3) 30,969
Accounting services 23,238
Reports to shareholders 21,530
Auditing and tax consulting fees 18,840
Registration fees 15,216
Custodian fees 13,305
Miscellaneous expenses 6,714
Amortization of organizational expenses (Note 1) 5,424
Insurance expenses 4,364
Legal fees 4,297
------------
Total operating expenses 829,060
------------
Net investment income 522,249
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments - unaffiliated issuers 1,785,206
Net realized losses on investments - affiliated issuers (51,246)
Net realized losses on foreign currency transactions (219,122)
Net change in unrealized appreciation on investments 11,540,344
Net change in unrealized depreciation on foreign currency
swaps and option contracts (64,221)
Net change in unrealized depreciation on translation of
other assets and liabilities denominated in
foreign currency (1,325)
------------
Net realized and unrealized gains on investments 12,989,636
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,511,885
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
4/30/00 ENDED
(UNAUDITED) 10/31/99
------------ ------------
OPERATIONS:
Net investment income $ 522,249 $ 1,002,937
Net realized gains on investments -
unaffiliated issuers 1,785,206 841,964
Net realized losses on investments -
affiliated issuers (51,246) --
Net realized losses on foreign
currency transactions (219,122) (151,197)
Net change in unrealized appreciation
on investments 11,540,344 7,651,526
Net change in unrealized depreciation on
foreign currency swaps and option contracts (64,221) (289,800)
Net change in unrealized appreciation
(depreciation) on translation of other
assets and liabilities denominated in
foreign currency (1,325) 2,959
------------ ------------
Net increase in net assets resulting
from operations 13,511,885 9,058,389
------------ ------------
DISTRIBUTIONS:
Dividends to shareholders from net
investment income (991,471) (1,130,515)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 46,361,621 54,380,491
Net asset value of shares issued in
reinvestment of dividends and
distributions 963,645 1,086,390
Cost of shares redeemed (56,675,642) (81,056,965)
------------ ------------
Net decrease in net assets resulting from
capital share transactions (9,350,376) (25,590,084)
------------ ------------
Net increase (decrease) in net assets 3,170,038 (17,662,210)
Net assets at beginning of period 121,895,011 139,557,221
------------ ------------
Net assets at end of period
(including undistributed net investment
income of $278,838 and $748,060,
respectively) $125,065,049 $121,895,011
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE SMALL-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) AND RATIOS ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FOR THE FOR THE
ENDED YEAR YEAR PERIOD
4/30/00 ENDED ENDED ENDED
(UNAUDITED) 10/31/99 10/31/98 10/31/1997*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.33 $ 10.66 $ 12.37 $ 10.00
----------- ----------- ----------- -----------
Income (loss) from Investment Operations:
Net investment income .06 .09 .08 .05
Net gain (loss) on securities (both realized and unrealized) 1.22 .67 (1.73) 2.32
----------- ----------- ----------- -----------
Total from Investment Operations 1.28 .76 (1.65) 2.37
----------- ----------- ----------- -----------
Less Distributions:
Dividends from net investment income (.10) (.09) (.06) .00
----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 12.51 $ 11.33 $ 10.66 $ 12.37
=========== =========== =========== ===========
Total Return 11.29%(1) 7.12% (13.36%) 23.70%(1)
Ratios/Supplemental Data:
Net Assets, End of period (in thousands) $ 125,065 $ 121,895 $ 139,557 $ 107,256
Ratio of Expenses to Average Net Assets 1.32%(2) 1.28% 1.28% 1.65%(2)
Ratio of Net Income to Average Net Assets 0.83%(2) 0.72% 0.72% 1.44%(2)
Portfolio Turnover Rate 6%(1) 10% 6% 7%(1)
</TABLE>
(1) Not Annualized
(2) Annualized
* The Fund commenced investment operations April 1, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE REAL ESTATE VALUE FUND
Dear Fellow Shareholders:
At April 30, 2000, the end of the second fiscal quarter of 2000, the unaudited
net asset value attributable to the 1,556,060 shares outstanding of the Third
Avenue Real Estate Value Fund (the "Fund") was $12.07 per share. This compares
with an unaudited net asset value of $10.85 per share at January 31, 2000, and
an unaudited net asset value, adjusted for a subsequent distribution to
shareholders, of $10.95 per share at April 30, 1999. At June 2, 2000, the
unaudited net asset value was $12.56 per share.
QUARTERLY ACTIVITY
During the second quarter of fiscal 2000, the Fund had significant inflows of
new dollars, increasing net assets to $18.8 million. At April 30, 2000,
approximately 27% of the Fund's net assets were held in cash primarily due to a
large investment (about $2.5 million) received just prior to quarter end.
Unfortunately, the Fund experienced its first taste of "hot money" as this
investor redeemed within about a week. At Third Avenue Funds, we are long-term
investors and try to discourage market timers from investing in the funds.
Luckily, the Fund had not yet invested the hot money, and we did not have to
sell any securities to meet the redemption.
During the quarter, the Fund established new positions in the common stock of
two companies and in the senior notes of one company. The Fund increased its
position in the common stocks of 11 companies and in the subordinated notes of
one company. The Fund eliminated its position in the common stock of three
companies as a result of resource conversions.
PRINCIPAL AMOUNT
OR
NUMBER OF SHARES NEW POSITIONS ACQUIRED
$3,500,000 ContiFinancial Corp. 8.375% Senior Unsecured Notes
due 8/15/03 ("ContiFinancial Notes")
40,200 shares Captec Net Lease Realty, Inc. Common Stock ("Captec Common")
21,000 shares Centex Corp. Common Stock ("Centex Common")
INCREASES IN EXISTING POSITIONS
$500,000 CareMatrix Corp. 6.25% Convertible Subordinated Notes
due 8/15/04 ("CareMatrix Notes")
10,300 shares Aegis Realty, Inc. Common Stock ("Aegis Common")
5,000 shares AMRESCO Capital Trust, Inc. Common Stock ("AMRESCO Common")
3,300 shares Avatar Holdings, Inc. Common Stock ("Avatar Common")
29
<PAGE>
[THIRD AVENUE FUNDS LOGO]
NUMBER OF SHARES INCREASES IN EXISTING POSITIONS (CONTINUED)
61,000 shares Catellus Development Corp. Common Stock ("Catellus Common")
28,300 shares Commercial Assets, Inc. Common Stock ("Commercial Common")
11,200 shares Consolidated-Tomoka Land Co. Common Stock
("Consolidated Common")
27,700 shares D.R. Horton, Inc. Common Stock ("Horton Common")
5,000 shares First American Financial Corp. Common Stock
("First American Common")
3,200 shares LNR Property Corp. Common Stock ("LNR Common")
5,000 shares Prime Group Realty Trust Common Stock ("Prime Common")
45,700 shares United Investors Realty Trust Common Stock ("United Common")
POSITIONS ELIMINATED
17,000 shares Echelon International Corp., Inc. Common Stock
("Echelon Common")
2,800 shares ElderTrust Common Stock ("ElderTrust Common")
72,000 shares Imperial Credit Commercial Mortgage Investment Corp.
Common Stock ("Imperial Common")
OVERVIEW OF NEW POSITIONS ESTABLISHED DURING THE QUARTER:
ContiFinancial Corp. is a sub-prime lender that has publicly acknowledged it can
no longer operate profitably in the current interest rate environment. The
company is in the process of disposing of certain assets and is expected to file
for bankruptcy protection within the next few months. We expect that the company
will propose a liquidation plan as opposed to a reorganization plan. The Fund
acquired ContiFinancial Notes at an average of about 10 cents on the dollar.
Based on using conservative assumptions in estimating the liquidation value of
ContiFinancial's assets (which primarily consist of whole mortgages and residual
interests in mortgage backed securities), our downside risk appears very limited
and our investment could very well double or better within a year.
Centex Corp. is a diversified residential and commercial real estate company
operating in five business segments: homebuilding (including conventional home
building and manufactured housing), financial services (retail mortgage
lending), investment real estate (office, industrial and multifamily),
construction products (primarily gypsum wallboard and cement) and general
contracting and construction services. Centex is one of the largest homebuilders
in the United States but with its diversified operations, conventional
homebuilding represents only about 56% of its operating income. Centex has a
very strong balance sheet with debt to total assets of about 45%. Excluding the
financial services division, the debt to total asset ratio is only 27%. The
financial services division carries a higher percentage of debt
30
<PAGE>
[THIRD AVENUE FUNDS LOGO]
because it generally uses warehouse facilities to fund mortgage loans prior to
selling them. At current prices, Centex Common is trading at a 4.2 PE ratio and
at book value. Over the last five years, Centex Common has traded as high as
23.7 times trailing earnings and at 2.6 times book value. As with the other
homebuilder common stocks in our portfolio, we expect that the home sales will
probably slow down in 2000 and 2001 as a result of interest rate increases.
However, it appears that these securities are ultra-depressed today with very
limited downside.
Captec Net Lease Realty, Inc. is a real estate investment trust (REIT) that owns
primarily free-standing properties leased pursuant to long-term triple-net
leases with national and regional chain and franchised restaurants and national
retailers. At the end of 1999, Captec announced its agreement to merge with two
affiliates in order to become a fully integrated real estate specialty finance
company focused on the net lease and franchise finance sectors. Since the new
business strategies were inconsistent with the REIT format, Captec planned to
change its tax status to a C Corporation. In an apparent response to the
company's announcement, many shareholders of Captec Common, especially those who
invested for dividends, sold shares and drove the market price down by about
40%. After the initial wave of selling, the market price recovered by about 20%,
but Captec Common continued trading at about 20% below the pre-announcement
level and about 40% below our estimate of net asset value. The Fund acquired its
position in Captec Common with the view that if Captec shareholders approved the
merger, the combined company could be an interesting growth vehicle - and we
were in very cheap. If shareholders voted against the merger and Captec retained
its REIT status, the 18% dividend yield looked very safe based on the quality of
the lease revenues. Subsequent to the Fund buying Captec Common, a Captec
shareholder filed a Contested Preliminary Proxy Statement with the SEC seeking
shareholder votes against the proposed merger and to elect a new slate of nine
directors. As a result of the imminent proxy contest, Captec scrapped its merger
plans (the stated reason was "less than overwhelming shareholder support"). The
market price for Captec Common has since recovered to pre-announcement levels,
which is still substantially below net asset value.
POSITIONS ELIMINATED DURING THE QUARTER:
Echelon Common was tendered pursuant to an all cash tender offer of $34 per
share. The Fund's average cost for Echelon Common was $22.47 per share.
ElderTrust Common was sold (at a small profit) shortly after acquiring it when
we determined that ElderTrust's largest tenant, Genesis Health Ventures, was in
a precarious financial position and would need to restructure its balance sheet.
The Fund was cashed out of its holdings in Imperial Common upon the closing of
the acquisition by Imperial Credit Industries. This turned out to be an
excellent investment for the Fund, starting out as a typical investment in an
undervalued and misunderstood security and finally becoming a terrific risk
arbitrage opportunity.
RECENT REBOUND IN PRICES OF REAL ESTATE COMPANY STOCKS
When I wrote my first letter to shareholders for the fiscal year ended October
31, 1998, real estate company stocks were already about one year into a
two-and-a-half-year bear market. Since that time, real estate stocks, in
general, have not been a very exciting place to invest. In the last eighteen
months the Morgan Stanley REIT index is up only 4.3% (the Fund has returned
21.9% during this period). The lure of huge profits in technology and Internet
stocks was too tempting for investors to have money tied up in real estate
stocks. However, with the NASDAQ Composite Index dropping about 30% in
March/April 2000, investors may have finally recognized the stability and value
in previously
31
<PAGE>
[THIRD AVENUE FUNDS LOGO]
out-of-favor REITs and other real estate companies. Until recently, REIT stocks
were trading about 15% to 25% below net asset value. Today, on average, REIT
stocks trade about 10% below net asset value. This is in stark contrast to the
20% to 30% premiums over net asset value that REIT stocks traded in 1997. REIT
prices have rebounded about 10% since March 1, 2000 while technology stocks have
clearly gone the other way. The obvious question being asked now is whether this
is really a recovery and the end of a bear market, or simply a temporary blip
while momentum investors take a breather from high volatility. I certainly do
not claim to know the answer. But it sure seems that REIT common stocks are
priced today at pretty reasonable levels for sustained annual returns of 10% to
15% (a combination of dividends and capital appreciation).
Real estate operating company (REOC) stocks, on the other hand, appear to have
much better opportunities for appreciation. REOC common stocks are still trading
at much larger discounts to net asset value than their REIT brethren.
Additionally, the REOCs in which the Fund has invested are capable of increasing
cash flow and earnings at a faster pace than REITs. A good example is Forest
City Enterprises, which recently reported its twentieth consecutive year of cash
flow growth, increasing 12.5%, 10.2% and 10.5% in 1999, 1998 and 1997,
respectively (Forest City reports "Earnings Before Depreciation, Amortization
and Deferred Taxes" or "EBDT" which is synonymous with "Funds From Operations"
("FFO") or cash flow). In 1999, Forest City generated EBDT of $132.6 million and
paid out only $5.7 million in dividends, leaving 96% of EBDT available for
reinvestment. This is a distinct advantage over REITs, which must distribute 95%
of their taxable income. With the window still closed for new REIT equity
offerings, most REITs will continue to be in a holding pattern, primarily
engaged in managing their existing portfolios. The combination of the large
discount to net asset value and the ability to grow by reinvesting cash flow
puts REOCs in a position for both near-term and long-term capital appreciation.
The Fund is in an excellent position to benefit from that appreciation.
I look forward to writing to you again when we publish our quarterly report for
the period ending July 31, 2000.
Sincerely,
/s/ Michael H. Winer
Michael H. Winer
Co-manager, Third Avenue Real Estate Value Fund
32
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF
AMOUNT ($) ISSUES (NOTE 1) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS - 3.06%
Assisted Living Facilities 1,000,000 CareMatrix Corp. 6.25%, due 8/15/04 $ 181,250 0.96%
------------
Financial Services 3,500,000 ContiFinancial Corp. 8.38%, due 8/15/03 393,750 2.10%
------------
TOTAL CONVERTIBLE BONDS
(Cost $647,715) 575,000
------------
SHARES
-----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 70.11%
Home Building 21,000 Centex Corp. 506,625
47,700 D.R. Horton, Inc. 617,119
14,700 U.S. Home Corp. (a) 526,444
------------
1,650,188 8.79%
------------
Natural Resources 11,500 Deltic Timber Corp. 253,000
4,000 The TimberWest Forest Corp. (Canada) (b) 28,080
------------
281,080 1.50%
------------
Real Estate Development 50,700 Avatar Holdings, Inc. (a) 1,001,325
99,000 Catellus Development Corp. (a) 1,287,000
21,900 Consolidated-Tomoka Land Co. 264,169
30,700 Forest City Enterprises, Inc. Class A 894,137
40,700 LNR Property Corp. 877,594
28,500 St. Joe Co. 821,156
60,700 Wellsford Real Properties, Inc. (a) 538,713
------------
5,684,094 30.26%
------------
Real Estate Holding Company 25,500 Security Capital Group, Inc. Class B (a) (b) 382,500 2.03%
------------
Real Estate Investment Trust 52,300 Aegis Realty, Inc. 523,000
69,000 AMRESCO Capital Trust Inc. (b) 724,500
75,500 Anthracite Capital, Inc. 537,937
40,200 Captec Net Lease Realty, Inc. 351,750
107,600 Commercial Assets, Inc. 544,725
22,000 Koger Equity, Inc. 385,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE % OF
SHARES ISSUES (NOTE 1) NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONTINUED)
Real Estate 60,800 Prime Group Realty Trust $ 900,600
Investment Trust 132,700 United Investors Realty Trust 646,912
(continued) ------------
4,614,424 24.57%
------------
Title Insurance 36,000 First American Financial Corp. 555,750 2.96%
------------
TOTAL COMMON STOCKS
(Cost $12,145,467) 13,168,036
------------
PRINCIPAL
AMOUNT ($)
------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 29.77%
Repurchase Agreements 5,473,788 Bear Stearns 5.72%, due date May 1, 2000 (c) 5,473,788 29.14%
------------
Repurchase Agreements - 194 Bear Stearns 3.06%, due date May 1, 2000 (d) 193
Collateral on 118,400 Bear Stearns 6.35%, due date May 1, 2000 (d) 118,400
Securities Loaned ------------
118,593 0.63%
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,592,381) 5,592,381
------------
TOTAL INVESTMENT PORTFOLIO - 102.94%
(Cost $18,385,563) 19,335,417
------------
OTHER ASSETS
LESS LIABILITIES - (2.94%) (552,583)
------------
NET ASSETS - 100.00% $ 18,782,834
============
(Applicable to 1,556,060
shares outstanding)
NET ASSET VALUE PER SHARE $12.07
======
</TABLE>
Notes:
(a) Non-income producing securities.
(b) Securities in whole or in part on loan.
(c) Repurchase agreements collateralized by:
U.S. Treasury Strips, par value $10,950,000, 6.78%, matures 11/15/10:
market value $5,584,500.
(d) Repurchase agreements collateralized by:
U.S. Treasury Strips, par value $5,000, 6.78%, matures 11/15/10:
market value $2,550.
U.S. Treasury Strips, par value $240,000, 6.78%, matures 11/15/10:
market value $122,400.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
34
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
(UNAUDITED)
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $18,385,563) $19,335,417
Receivable for fund shares sold 198,101
Receivable from investment adviser 8,961
Dividends and interest receivable 57,032
Other assets 499
-----------
Total assets 19,600,010
-----------
LIABILITIES:
Payable for securities purchased 648,271
Accounts payable and accrued expenses 50,312
Collateral on loaned securities (Note 1) 118,593
-----------
Total liabilities 817,176
-----------
Net assets $18,782,834
===========
SUMMARY OF NET ASSETS:
Common stock, unlimited shares authorized,
no par value, 1,556,060 shares outstanding $17,350,068
Accumulated undistributed net investment income 124,198
Accumulated undistributed net realized gains
from investment transactions 358,714
Net unrealized appreciation of investments
and translation of foreign currency denominated
assets and liabilities 949,854
-----------
Net assets applicable to capital shares outstanding $18,782,834
===========
Net asset value, offering and redemption price per share $12.07
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 37,936
Dividends (net of foreign withholding tax of $110) 253,592
-----------
Total investment income 291,528
-----------
EXPENSES:
Investment advisory fees (Note 3) 50,430
Administration fees (Note 3) 39,642
Directors' fees and expenses 35,904
Registration fees 16,211
Transfer agent fees 12,437
Accounting services 12,183
Auditing and tax consulting fees 10,529
Reports to shareholders 8,402
Custodian fees 5,285
Legal fees 3,736
Miscellaneous expenses 1,086
Amortization of Insurance expense 146
-----------
Total operating expenses 195,991
-----------
Expenses waived and reimbursed (Note 3) (111,799)
-----------
Net expenses 84,192
-----------
Net investment income 207,336
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments 359,105
Net realized losses on foreign currency transactions (5)
Net change in unrealized appreciation on investments 944,965
Net change in unrealized appreciation on translation
of other assets and liabilities denominated in
foreign currency 3
-----------
Net realized and unrealized gains on investments 1,304,068
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,511,404
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
36
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
4/30/00 ENDED
(UNAUDITED) 10/31/99
----------- -----------
OPERATIONS:
Net investment income $ 207,336 $ 170,060
Net realized gains on investments 359,105 55,843
Net realized gains (losses) on foreign
currency transactions (5) 183
Net change in unrealized appreciation
(depreciation) on investments 944,965 (14,517)
Net change in unrealized appreciation
on translation of other assets and
liabilities denominated in foreign currency 3 11
----------- -----------
Net increase in net assets resulting
from operations 1,511,404 211,580
----------- -----------
DISTRIBUTIONS:
Dividends to shareholders from net
investment income (233,622) (26,438)
Distributions to shareholders from net
realized gains on investments (54,698) --
----------- -----------
(288,320) (26,438)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 9,638,081 8,594,336
Net asset value of shares issued in
reinvestment of dividends and distributions 274,613 26,336
Cost of shares redeemed (665,257) (1,206,453)
----------- -----------
Net increase in net assets resulting from
capital share transactions 9,247,437 7,414,219
----------- -----------
Net increase in net assets 10,470,521 7,599,361
Net assets at beginning of period 8,312,313 712,952
----------- -----------
Net assets at end of period
(including undistributed net investment income
of $124,198 and $150,484, respectively) $18,782,834 $ 8,312,313
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
37
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
THIRD AVENUE REAL ESTATE VALUE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) AND RATIOS ARE AS
FOLLOWS:
FOR THE
SIX MONTHS FOR THE FOR THE
ENDED YEAR PERIOD
4/30/00 ENDED ENDED
(UNAUDITED) 10/31/99 10/31/98*
----------- -------- ---------
Net Asset Value, Beginning of Period $ 11.09 $10.28 $10.00
------- ------ ------
Income from Investment Operations:
Net investment income .13 .20 .02
Net gain on securities (both realized
and unrealized) 1.16 .71 .26
------- ------ ------
Total from Investment Operations 1.29 .91 .28
------- ------ ------
Less Distributions:
Dividends from net investment income (.25) (.10) --
Distributions from realized gains (.06) -- --
------- ------ ------
Total Distributions (.31) (.10) --
------- ------ ------
Net Asset Value, End of Period $ 12.07 $11.09 $10.28
======= ====== ======
Total Return 11.95%(1) 8.86% 2.80%(1)
Ratios/Supplemental Data:
Net Assets, End of period (in thousands) $18,783 $8,312 $713
Ratio of Expenses to Average Net Assets
Before expense reimbursement 3.50%(2) 5.38% 81.89%(2)
After expense reimbursement 1.50%(2) 1.87% 1.90%(2)
Ratio of Net Income (Loss) to
Average Net Assets
Before expense reimbursement 1.70%(2) (0.31%) (77.33%)(2)
After expense reimbursement 3.70%(2) 3.20% 2.66%(2)
Portfolio Turnover Rate 21%(1) 5% 0%(1)
(1) Not Annualized
(2) Annualized. Note that annualized expenses and net income (loss) before
expense reimbursement are not necessarily indicative of expected expenses
due to the annualization of certain fixed expenses.
* The Fund commenced investment operations September 17, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
38
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
(UNAUDITED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Third Avenue Trust (the "Trust") is an open-end, non-diversified management
investment company organized as a Delaware business trust pursuant to a Trust
Instrument dated October 31, 1996. The Trust 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"). At the close of business on March 31, 1997,
shareholders of Third Avenue Value Fund, Inc., a Maryland corporation which was
incorporated on November 27, 1989 and began operations on October 9, 1990,
became shareholders of Third Avenue Value Fund. Third Avenue Small-Cap Value
Fund commenced investment operations on April 1, 1997. Third Avenue Real Estate
Value Fund commenced investment operations on September 17, 1998. The Funds seek
to achieve their investment objectives of long-term capital appreciation by
adhering to a strict value discipline when selecting securities. While the Funds
pursue a capital appreciation objective, each Fund has a distinct investment
approach.
Third Avenue Value Fund seeks to achieve its objective by investing in a
portfolio of equity securities of well-financed companies believed to be priced
below their private market values and debt securities providing strong,
protective covenants and high, effective yields.
Third Avenue Small-Cap Value Fund seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of equity securities of well-financed
companies having market capitalizations of below $1 billion at the time of
investment and believed to be priced below their private market values.
Third Avenue Real Estate Value Fund seeks to achieve its objective by investing
at least 65% of its total assets in a portfolio of equity and debt securities of
well-financed companies in the real estate industry or related industries or
that own significant real estate assets at the time of investment.
ACCOUNTING POLICIES:
The policies described below are followed consistently by the Funds in the
preparation of their financial statements in conformity with accounting
principles generally accepted in the United States of America.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
SECURITY VALUATION:
Securities traded on a principal stock exchange or the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") are valued at the last
quoted sales price or, in the absence of closing sales prices on that day,
securities are valued at the mean between the closing bid and asked price.
Temporary cash investments are valued at
39
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
cost, plus accrued interest, which approximates market. Short-term securities
with original or remaining maturities in excess of 60 days are valued at the
mean of their quoted bid and asked prices. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity, or if already held by a Fund on that day, based on
the value determined on that day.
The Funds may invest up to 15% of their total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
applicable securities laws ("restricted securities"). Restricted 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 the Board
of Trustees of the Funds, although actual evaluations may be made by personnel
acting under procedures established by the Board of Trustees. At April 30, 2000,
such securities had a total fair value of $132,961,616 or 7.93% of net assets of
Third Avenue Value Fund and $4,094,979 or 3.27% of net assets of Third Avenue
Small-Cap Value Fund. Among the factors considered by the Board of Trustees in
determining fair value are the type of security, trading in unrestricted
securities of the same issuer, the financial condition of the issuer, the Fund's
cost at the date of purchase, a percentage of the Fund's beneficial ownership of
the issuer's common stock and debt securities, the operating results of the
issuer, the discount from market value of any similar unrestricted securities of
the issuer at the time of purchase and liquidation values of the issuer. The
fair values determined in accordance with these procedures may differ
significantly from the amounts which would be realized upon disposition of the
securities. Restricted securities often have costs associated with subsequent
registration. The restricted securities currently held by the Funds are not
expected to incur any future registration costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date and interest income, including, where
applicable, amortization of premium and accretion of discount on investments, is
accrued daily, except when collection is not expected. Realized gains and losses
from securities transactions are reported on an identified cost basis.
FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars as follows:
o INVESTMENTS: At the prevailing rates of exchange on the valuation date.
o INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: At the prevailing rates
of exchange on the date of such transactions.
Although the net assets of the Funds are presented at the foreign exchange rates
and market values at the close of the period, the Funds do not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end.
40
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
Similarly, the Funds do not isolate the effect of changes in foreign exchange
rates from the fluctuations arising from changes in the market prices of
securities sold during the period. Accordingly, realized and unrealized foreign
currency gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
FOREIGN CURRENCY SWAP CONTRACTS:
Third Avenue Value Fund and Third Avenue Small-Cap Value Fund have entered into
foreign currency swaps to exchange Japanese yen for U.S. dollars. A swap is an
agreement that obligates two parties to exchange a series of cash flows at
specified intervals based upon or calculated by reference to changes in
specified prices or rates for a specified amount of an underlying asset. These
swaps are used to hedge the Funds' exposure to Japanese yen denominated
securities and the Japanese market. The payment flows are usually netted against
each other, with the difference being paid by one party to the other.
Fluctuations in the value of open swap contracts are recorded daily as net
unrealized gains or losses. The Funds' realizes a gain or loss upon termination
or reset of the contracts. The Statements of Operations reflect net unrealized
gains (losses) on these contracts.
FORWARD FOREIGN CURRENCY CONTRACTS:
Third Avenue Value Fund has engaged in portfolio hedging with respect to changes
in currency exchange rates by entering into forward foreign currency contracts
to sell currencies. A forward currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate.
Fluctuations in the value of forward foreign currency contracts are recorded
daily as net unrealized gains or losses. The Fund realizes a gain or loss upon
settlement of contracts.
FOREIGN CURRENCY OPTION CONTRACTS:
An option contract gives the buyer the right, but not the obligation to buy
(call) or sell (put) an underlying item at a fixed exercise price on a certain
date or during a specified period. The use of foreign currency put option
strategies provide the Funds with protection against a rally in the U.S. dollar
versus the foreign currency while retaining the benefits (net of option cost) of
appreciation in foreign currency on equity holdings.
LOANS OF PORTFOLIO SECURITIES:
Third Avenue Small-Cap Value Fund and Third Avenue Real Estate Value Fund loaned
securities during the period to certain brokers, with the Funds' custodian
acting as lending agent. Upon such loans, the Funds receive collateral which is
maintained by the custodian and earns income in the form of negotiated lenders'
fees, which are included in interest income in the Statements of Operations. On
a daily basis, the Funds monitor the market value of securities loaned and
maintain collateral against the securities loaned in an amount not less than the
value of the securities loaned. The Funds may receive collateral in the form of
cash or other eligible securities. Risks may arise upon entering into
41
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
securities lending to the extent that the value of the collateral is less than
the value of the securities loaned due to changes in the value of collateral or
the loaned securities.
During the six months ended April 30, 2000, the following Funds had securities
lending income included in interest income totaling:
FUND
----
Third Avenue Small-Cap Value Fund $6,151
Third Avenue Real Estate Value Fund 515
The value of loaned securities and related collateral outstanding at April 30,
2000, was as follows:
VALUE OF VALUE OF
FUND SECURITIES LOANED COLLATERAL
---- -------------- --------
Third Avenue Small-Cap Value Fund $11,453,732 $12,209,190
Third Avenue Real Estate Value Fund 116,657 118,593
The collateral for the Third Avenue Small-Cap Value Fund and Third Avenue Real
Estate Value Fund consisted of cash which was invested in repurchase agreements
with Bear Stearns due May 1, 2000, collateralized by U.S. Treasury securities.
REPURCHASE AGREEMENTS:
Securities pledged as collateral for repurchase agreements are held by the
Funds' custodian bank until maturity of the repurchase agreement. Provisions in
the agreements ensure that the market value of the collateral is at least equal
to the repurchase value in the event of default. In the event of default, the
Funds have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
ORGANIZATIONAL COSTS:
Organizational costs of $56,000 for Third Avenue Small-Cap Value Fund are being
amortized on a straight line basis over five years from commencement of
operations.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income paid to shareholders and distributions from
realized gains on sales of securities paid to shareholders are recorded on the
ex-dividend date.
42
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
FEDERAL INCOME TAXES:
The Funds have complied and intend to continue to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies.
Therefore, no Federal income tax provision is required.
CASH AND CASH EQUIVALENTS:
The Funds have defined cash and cash equivalents as cash in interest bearing and
non-interest bearing accounts.
EXPENSE ALLOCATION:
Expenses attributable to a specific Fund are charged to that Fund. Expenses
attributable to the Trust are allocated using the ratio of each Fund's net
assets relative to the total net assets of the Trust, unless otherwise
specified.
TRUSTEES FEES:
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 non-interested Trustees an annual stipend of $2,000 per Fund in January of
each year for the previous year's service.
2. SECURITIES TRANSACTIONS
PURCHASES AND SALES/CONVERSIONS:
The aggregate cost of purchases, and aggregate proceeds from sales and
conversions of investments, excluding short-term investments, from unaffiliated
and affiliated issuers (as defined in the Investment Company Act of 1940, as
amended, ownership of 5% or more of the outstanding common stock of the issuer)
for the six months ended April 30, 2000 were as follows:
PURCHASES SALES
--------- -----
Third Avenue Value Fund:
Affiliated $ 13,775,296 $ 19,225,920
Unaffiliated 191,172,435 278,468,247
Third Avenue Small-Cap Value Fund:
Affiliated -- 440,201
Unaffiliated 7,134,926 22,901,748
Third Avenue Real Estate Value Fund:
Unaffiliated 6,903,025 2,136,927
43
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
3. INVESTMENT ADVISORY SERVICES AND SERVICE FEE AGREEMENT
Each Fund has an Investment Advisory Agreement with EQSF Advisers, Inc. (the
"Adviser") for investment advice and certain management functions. The terms of
the Investment Advisory Agreement provide for a monthly fee of 1/12 of 0.90% (an
annual fee of 0.90%) of the total average daily net assets of the applicable
Fund, payable each month. Additionally, under the terms of the Investment
Advisory Agreements, the Adviser pays certain expenses on behalf of the Funds,
which are reimbursable by the Funds, including salaries of non-officer employees
and other miscellaneous expenses. Amounts reimbursed with respect to non-officer
salaries are included under the caption Administration fees. At April 30, 2000,
Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and Third Avenue Real
Estate Value Fund had payables to affiliates of $114,237, $14,207 and $5,765,
respectively, for reimbursement of expenses paid by such affiliates. Under
current arrangements for the Third Avenue Value Fund, and Third Avenue Small-Cap
Value Fund, whenever, in any fiscal year, the Fund's normal operating expenses,
including the investment advisory fee, but excluding brokerage commissions and
interest and taxes, exceeds 1.90% of the first $100 million of the Funds average
daily net assets, and 1.50% of average daily net assets in excess of $100
million, the Adviser is obligated to reimburse the Fund in an amount equal to
that excess. Effective October 15, 1999, whenever, in any fiscal year, Third
Avenue Real Estate Value Fund's normal operating expenses, including the
investment advisory fee, but excluding brokerage commissions and taxes, exceeds
1.50% of the Fund's average net assets, the Adviser is obligated to reimburse
the Fund in an amount equal to that excess. Prior to this date, the Adviser was
obligated to reimburse Third Avenue Real Estate Value Fund per the agreement
stated above for the Third Avenue Value Fund and Third Avenue Small-Cap Value
Fund. Such waived and reimbursed expenses may be paid to the Adviser during the
following three year period to the extent that the payment of such expenses
would not cause the Funds to exceed the preceding limitations. No expense
reimbursement was required for Third Avenue Value Fund or Third Avenue Small-Cap
Value Fund for the six months ended April 30, 2000. The Adviser waived fees of
$50,430, and reimbursed $61,369 for Third Avenue Real Estate Value Fund, for the
six months ended April 30, 2000.
The Trust has entered into shareholder servicing agreements with certain service
agents for which the service agents receive a fee of up to 0.10% of the average
daily net assets invested into the Trust by the agent's customers in an omnibus
account. In exchange for these fees, the service agents render to such customers
various administrative services which the Trust would otherwise be obligated to
provide at its own expense.
44
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
4. RELATED PARTY TRANSACTIONS
BROKERAGE COMMISSIONS:
Martin J. Whitman, the Chairman and a director of the Funds, is the Chairman and
Chief Executive Officer of M.J. Whitman Holding Corp., which is the parent of
both M.J. Whitman, Inc., a registered broker-dealer and M.J. Whitman Senior Debt
Corp., a dealer in the trading of bank debt and other private claims. For the
six months ended April 30, 2000, the Funds incurred total brokerage commissions,
which include commissions earned by M.J. Whitman, Inc. as follows:
FUND TOTAL COMMISSIONS M.J. WHITMAN, INC.
---- ----------------- ------------------
Third Avenue Value Fund $432,782 $373,693
Third Avenue Small-Cap Value Fund 19,409 6,644
Third Avenue Real Estate Value Fund 25,374 20,394
INVESTMENT IN AFFILIATES:
A summary of the Funds' transactions in securities of affiliated issuers for the
six months ended April 30, 2000 is set forth below:
THIRD AVENUE VALUE FUND
<TABLE>
<CAPTION>
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL VALUE AT INCOME
HELD AT PRINCIPAL SHARES HELD AT APR. 30, NOV. 1, 1999 -
NAME OF ISSUER: OCT. 31, 1999 PURCHASED SOLD APR. 30, 2000 2000 APR. 30, 2000
------------------------- ------------- --------- ---------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
ACMAT Corp. Class A 200,678 -- -- 200,678 $ 1,655,593 --
Carver Bancorp, Inc. 218,500 -- -- 218,500 2,075,750 $ 10,925
CGA Group, Ltd. 3,341,703 -- -- 3,341,703 0 --
CGA Group, Ltd., Series A 601,554 42,067(1) -- 643,621 16,090,526 1,051,675
CGA Group, Ltd., Series C 6,045,667 -- -- 6,045,667 7,039,176 --
CGA Special Account Trust $ 7,500,000 -- -- $ 7,500,000 7,500,000 216,959
C.P. Clare Corp. 1,004,500 -- -- 1,004,500 7,125,672 --
Danielson Holding Corp. 803,669 -- -- 803,669 4,420,180 --
Electro Scientific Industries, Inc. 1,600,300 -- 475,300 1,125,000 + --
Electroglas, Inc. 1,882,500 -- 490,200 1,392,300 53,951,625 --
First American Financial Corp. 3,145,000 56,800 -- 3,201,800 49,427,787 380,808
FSI International, Inc. 2,320,900 -- -- 2,320,900 34,668,444 --
Protocol Systems, Inc. 788,900 -- -- 788,900 9,762,638 --
Repap Enterprises Inc. 126,605,679 -- 16,431,200 110,174,479 8,263,086 --
Silicon Valley Group, Inc. 3,734,500 193,900 -- 3,928,400 111,959,400 --
Stewart Information Services Corp. 1,951,400 -- -- 1,951,400 27,807,450 78,056
St. George Holdings, Ltd. Class A 1,064,516 -- -- 1,064,516 106,451 --
St. George Holdings, Ltd. Class B 9,044 -- -- 9,044 905 --
Tecumseh Products Co. Class A 125,400 -- -- 125,400 5,823,263 80,256
Tecumseh Products Co. Class B 417,300 103,100 -- 520,400 22,637,400 299,840
</TABLE>
45
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1999 -
NAME OF ISSUER: OCT. 31, 1999 PURCHASED SOLD APR. 30, 2000 APR. 30, 2000 APR. 30, 2000
-------------- ----------- --------- ------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Tejon Ranch Co. 3,045,508 -- -- 3,045,508 66,620,487 76,138
Vertex Communications Corp. 306,900 -- 306,900 -- +
Woronoco Bancorp -- 348,200 -- 348,200 3,525,525 4,615
------------ ----------
Total Affiliates $440,461,358 $2,199,272
============ ==========
</TABLE>
(1) 42,067 share increase due to pay-in-kind dividends
+ As of April 30, 2000, no longer an affiliate.
THIRD AVENUE SMALL-CAP VALUE FUND
<TABLE>
<CAPTION>
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1999 -
NAME OF ISSUER: OCT. 31, 1999 PURCHASED SOLD APR. 30, 2000 APR. 30, 2000 APR. 30, 2000
-------------- ----------- --------- ------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Centigram Communications Corp. 326,900 -- 137,600 189,300 + --
C.P. Clare Corp. 520,000 -- 35,200 484,800 $3,439,050 --
SpecTran Corp. 490,600 -- 490,600 -- + --
---------- ----------
Total Affiliates $3,439,050 $0
========== ==========
</TABLE>
+ As of April 30, 2000, no longer an affiliate.
5. CAPITAL SHARE TRANSACTIONS
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
THIRD AVENUE THIRD AVENUE
VALUE FUND SMALL-CAP VALUE FUND
------------------------------ -----------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, APRIL 30, 2000 OCTOBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase in Fund shares:
Shares outstanding at beginning
of period 38,490,806 51,081,171 10,761,465 13,096,406
Shares sold 7,237,393 7,411,681 3,723,250 4,834,365
Shares reinvested from dividends
and distributions 445,725 578,496 77,713 96,740
Shares redeemed (6,646,827) (20,580,542) (4,565,993) (7,266,046)
----------- ----------- ----------- -----------
Net increase (decrease) in Fund shares 1,036,291 (12,590,365) (765,030) (2,334,941)
----------- ----------- ----------- -----------
Shares outstanding at end of period 39,527,097 38,490,806 9,996,435 10,761,465
=========== =========== =========== ===========
</TABLE>
46
<PAGE>
[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
THIRD AVENUE
REAL ESTATE VALUE FUND
---------------------------
FOR THE FOR THE
PERIOD ENDED PERIOD ENDED
APRIL 30, 2000 OCTOBER 31,
(UNAUDITED) 1999
---------- --------
Increase in Fund shares:
Shares outstanding at beginning
of period 749,696 69,355
Shares sold 841,660 791,345
Shares reinvested from dividends
and distributions 25,217 2,473
Shares redeemed (60,513) (113,477)
---------- --------
Net increase in Fund shares 806,364 680,341
---------- --------
Shares outstanding at end of period 1,556,060 749,696
========== ========
6. COMMITMENTS
Third Avenue Value Fund has committed a $1,900,000 capital investment to
Insurance Partners II Equity Fund, LP of which $1,140,000 has been funded as of
April 30, 2000. Securities valued at $1,156,917 have been segregated to meet the
requirements of this commitment. This commitment may be payable upon demand of
Insurance Partners II Equity Fund, LP.
7. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN SECURITIES:
Investments in the securities of foreign issuers may involve investment risks
different from those of U.S. issuers including possible political or economic
instability of the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of currency exchange controls, the
possible imposition of foreign withholding tax on the dividend income and
interest income payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign deposits or
assets, or the adoption of other foreign government restrictions that might
adversely affect the foreign securities held by the Funds. Foreign securities
may also be subject to greater fluctuations in price than securities of domestic
corporations or the U.S. Government.
FOREIGN CURRENCY CONTRACTS:
The Funds may enter into foreign currency swap contracts, forward foreign
currency contracts and foreign currency option contracts. Such contracts are
over the counter contracts negotiated between two parties. There are both market
risks and credit risks associated with such contracts. Market risks are
generally limited to the movement in value of the foreign currency relative to
the U.S. dollar. Credit risks typically involve the risk that the counterparty
to the
47
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[THIRD AVENUE FUNDS LOGO]
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
transaction will be unable to meet the terms of the contract. Foreign currency
swap contracts and forward foreign currency contracts may have risk which
exceeds the amounts reflected on the statements of assets and liabilities.
HIGH YIELD DEBT:
Third Avenue Value Fund currently invests in high yield lower grade debt. 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. In addition, the secondary market for these bonds is
generally less liquid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS:
Third Avenue Value Fund invests in loans and other direct debt instruments
issued by a corporate borrower to another party. These loans 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 the
Fund in the event of fraud or misrepresentation. In addition, loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary. The markets in loans are not regulated by federal
securities laws or the SEC.
TRADE CLAIMS:
Third Avenue Value Fund invests 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. An investment in trade claims is
speculative and carries a high degree of risk. Trade claims are illiquid
securities which generally do not pay interest and there can be no guarantee
that the debtor will ever be able to satisfy the obligation on the trade claim.
The markets in trade claims are not regulated by federal securities laws or the
SEC. Because trade claims are unsecured, holders of trade claims may have a
lower priority in terms of payment than certain other creditors in a bankruptcy
proceeding.
48
<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
TRANSFER AGENT
PFPC Inc.
211 South Gulph Road
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
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
FAX (212) 888-6757
WWW.THIRDAVENUEFUNDS.COM
