[LETTERHEAD THIRD AVENUE VALUE FUND]
December 28, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Re: Third Avenue Value Fund, Inc.
(File No. 811-6086)
Dear Ladies and Gentlemen:
On behalf of Third Avenue Fund, Inc. (the "Fund"), an open-end investment
company registered under the Investment Company Act of 1940, as amended, (the
"Act"), and pursuant to Rule 30b2-1 of the Act, enclosed herewith and filed
electronically is a copy of the October 31, 1995 Annual Report mailed to
shareholders on or about December 22, 1995.
Sincerely,
/s/ Jill Kopin
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Jill Kopin
Fund Administrator
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THIRD AVENUE VALUE FUND
ANNUAL REPORT
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October 31, 1995
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Dear Fellow Shareholders:
At October 31, 1995, the audited net asset value attributable to the 14,524,055
common shares outstanding of Third Avenue Value Fund, Inc. ("TAVF", or the
"Fund") was $21.53 per share. This compares with a net asset value at October
31, 1994, as adjusted for subsequent shareholder distributions, of $17.62 per
share; and an unaudited net asset value of $20.98 at July 31, 1995. At December
7,1995 the unaudited net asset value was $22.39 per share.
QUARTERLY ACTIVITY
During the quarter ended October 31, 1995, TAVF acquired new positions in eight
issues, and increased its holdings of six issues. Four issues were eliminated
completely, and three positions were reduced, two of which, Eljer Industries,
Inc. Bank Debt ("Eljer Bank Debt") and Olympia & York Maiden Lane Finance Corp.
Secured Notes ("O & Y Debt") represent prepayments of debt.
PRINCIPAL AMOUNT
OR
NUMBER OF SHARES NEW POSITIONS ACQUIRED
25,000 shares Carver Federal Savings Bank Common
Stock ("Carver Common")
582,800 shares Charming Shoppes, Inc. Common Stock
("Charming Shoppes Common")
57,000 shares Evans & Sutherland Computer Corp.
Common Stock ("Evans & Sutherland Common")
3,200 shares EVEREN Capital Corp. Series A Preferred
Stock ("EVEREN Preferred")
50,000 shares Ford Motor Company Common Stock
("Ford Common")
15,000 shares H.B. Fuller Company Common Stock
("Fuller Common")
191,200 shares Kentucky Medical Insurance Company
Common Stock ("KMI Common")
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PRINCIPAL AMOUNT
OR
NUMBER OF SHARES NEW POSITIONS ACQUIRED (CONTINUED)
45,000 shares Progressions Health Systems, Inc. Common
Stock ("PHS Common")
INCREASES IN EXISTING POSITIONS
$2,000,000 U.S. Government Agency Inverse Floaters
("Inverse Floaters")
90,000 shares Capital Guaranty Corp. Common Stock
("Cap Guaranty Common")
50,000 shares Cummins Engine Company, Inc. Common
Stock ("Cummins Common")
45,000 shares Sbarro, Inc. Common Stock ("Sbarro
Common")
10,000 shares Tricord Systems, Inc. Common Stock
("Tricord Common")
24,200 shares Weis Markets, Inc. Common Stock ("Weis
Markets Common")
POSITIONS ELIMINATED
380,952 shares Fidelity Federal Bank, Class A Common
Stock ("Fidelity Common")
114,500 shares Micronics Computers, Inc. Common Stock
("Micronics Common")
809,859 shares UnionFed Financial Corp. Common Stock
("UnionFed Common")
53,900 shares Walker Interactive Systems, Inc. Common
Stock ("Walker Common")
POSITIONS REDUCED
$471,376 Eljer Bank Debt
$215,137 O & Y Debt
55,000 shares Apple Computer, Inc. Common Stock
("Apple Common")
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Of the new positions acquired, EVEREN Preferred and PHS Common are
insignificant. EVEREN Preferred was received as a dividend paid to holders of
Kemper Corp. Common Stock. PHS Common was acquired at a cost of 75 cents per
share. At the time of acquisition, I was hopeful that the Fund might acquire
around 1,000,000 shares of PHS Common, something that now appears to be remote.
Carver Common, the common stock of a very well-capitalized community bank
headquartered in Harlem in New York City, was available at a huge discount from
book value. Given skill, and perhaps some luck, the new Carver management might
be able to enable the bank to earn average returns, or even above-average
returns, in the years ahead by employing its large amount of high quality assets
in the African-American community. If so, Carver Common is likely to be a big
winner.
Thank Goodness for Dan Dorfman and his television broadcasts. His bullish
recommendation of Walker Common gave TAVF a window in which to sell Walker
Common, a high tech-small cap "venture capital" type of issue where I had lost
confidence in the company. More importantly, Mr. Dorfman's bearish stance on
Charming Shoppes, reporting that it was a candidate for Chapter 11, gave the
Fund a window in which it could acquire Charming Shoppes Common at perhaps half
its price of a few months earlier. Retailing is an inordinately tough business,
but one necessary condition for success appears to be that a retailer have so
much basic financial strength that the company can operate without being a
supplicant to institutional lenders, trade creditors and landlords. I think
Charming Shoppes probably continues to meet this test even though 1995 sales and
earnings, at least through November, fell off a cliff. There is no question that
Sbarro and Weis Markets comfortably meet this necessary condition of financial
strength. We added to our positions in Sbarro Common and Weis Markets Common
during the quarter.
The market prices of the equity and fixed income securities of many retailers
are currently as depressed as I have ever seen them, perhaps as depressed as the
market prices are buoyant now for many high tech-small cap common stocks. If the
Fund can invest in selected retailing equity issues at these prices and avoid
recapitalizations, or suffer minimal or no dilution in a recapitalization, the
total return on such investments over the long term ought to be pretty good.
Charming Shoppes seems to be such a situation. Further, TAVF ought to fare
pretty well investing in the equities of retailers with super-strong financial
positions, provided those companies use their superior finances to acquire
others, or open new stores, during this depressed period. Sbarro and Weis
Markets seem to be situations characterized by excess cash holdings while
Charming Shoppes' financial position seems to be only adequate.
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Evans & Sutherland, basically a smaller-sized competitor of Silicon Graphics,
easily met all of the criteria of financial strength and common stock pricing
that the Fund had set up for its "venture capital" portfolio. If we and our
outside electronics consultant are right, Evans & Sutherland has outstanding
long-term growth prospects, in part because we are so favorably impressed with
Evans & Sutherland's new (since the end of 1994) management.
Management of Ford seems to be under some pressure from the Ford family to do
things to "enhance shareholder value", i.e., get Ford Common to sell at higher
prices than current levels in the high 20's and low 30's. Management is moving
to sell off, or otherwise distribute, certain parts of Ford's financial service
subsidiaries which, in the aggregate, appear as if they have a value of at least
$10 per share of Ford Common, and maybe as much as $15. Ford is a cash-rich
company whose basic, though highly cyclical, automotive operations probably have
an earning power on a long-term basis of, say $2.50 to $3.50 per year per share
of Ford Common. The negative on Ford is that it is almost the only equity issue
in the TAVF portfolio where I think growth will be very hard to come by.
A number of years ago, in the early 1980's, I had been retained as an investment
banker by a small adhesives manufacturer. The most memorable thing about that
engagement was my discovery of the existence of Fuller, the very paradigm of
what an adhesives, and related products, manufacturer should be. Seemingly,
because earnings per share in the quarter ended May 31, 1995 were well below
"street" estimates, the price of Fuller Common declined materially and the issue
became available to the Fund at what seems to be a reasonable price. Fuller has
enjoyed stable, long-term growth; prospects seem reasonable that Fuller will
continue to grow. I wish the Fuller balance sheet were stronger, but it probably
is okay.
KMI Common is a risk arbitrage security, where assuming everything goes
according to plan (as seems to be the case), TAVF will receive $12.37 per share
in cash as soon as the proposed merger with Michigan Physicians Mutual Liability
Insurance Co. closes. The closing is scheduled for sometime in December. If
payment is received in December, the compounded annual return to the Fund will
be in excess of 30%. Even if the cash merger is not consummated, I don't think
that there is much long-term investment risk in holding KMI Common.
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The Fund now owns approximately 5.7% of the outstanding Cap Guaranty Common. In
September, TAVF filed a Schedule 13-D notice of its holdings with the Securities
and Exchange Commission. The Fund disclosed in that filing that TAVF will vote
against the proposed acquisition of Cap Guaranty by Financial Security Assurance
Holdings Ltd. ("FSA") unless the price offered-$23 per share of Cap Guaranty
Common-was increased. The acquisition consideration is to be mostly FSA Common.
Whether or not the price is increased, the Fund will end up as a large holder of
FSA as long as FSA is combined with Cap Guaranty. At current market, the value
of TAVF's holdings of Cap Guaranty Common and FSA Common combined, assuming the
merger is consummated, will exceed $13 million.
Micronics Common, a "venture capital" investment, was sold because Micronics had
dissipated its strong cash position, mostly through an acquisition, and because
the company's principal product line, computer motherboards, is going to have to
withstand an aggressive competitive onslaught from Intel, Inc.
As I've pointed out in previous reports, the investments in Fidelity Common and
UnionFed Common were mistakes; neither depository institution was well
capitalized. We disposed of these issues this year so as to realize capital
losses for income tax purposes in order to offset realized capital gains. In
order to realize further capital losses, TAVF also disposed of 55,000 shares of
Apple Common for which the Fund's cost basis was in excess of $43 per share.
TAVF continues to hold 95,000 shares of Apple Common. I don't think Apple Common
is going to be a mistake, because of my continuing belief that Apple ought to be
a valuable property either as a going-concern or as a takeover candidate.
DEFINING VALUE INVESTING
The way TAVF defines value investing seems to have little relationship to the
way value investing is defined conventionally, either by Frank Russell Company,
publishers of the Russell Indices, or by the Association for Investment
Management and Research which recently published a monograph, Value and Growth
Styles in Equity Investing. The non-TAVF definition of value investing seems
neatly summarized in the criteria for "The Russell 1000 Value Index" published
by Dean Witter Reynolds, Inc. ("Dean Witter"). According to Dean Witter, the
Russell Value Index contains "1000 securities with a less-than-average growth
orientation. Securities in this index generally have lower price-to-book and
price-earnings ratios, higher dividend yields and lower forecasted growth values
than the more growth-oriented securities in the Russell 1000 Growth Index. It
represents the universe of stocks from which Value Managers typically select."
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For TAVF, value investing in equities is best defined as buying "what is" safe
and cheap, with a primary emphasis on safe. Other definitions of value investing
sometimes include, as does the TAVF definition, relying more on "what is" in an
analysis and relying correspondingly less on predictions of future corporate or
securities events. However, I have never seen a non-TAVF definition of value
investing which emphasizes safe.
The first, and most important, criterion for safe is an emphasis on a strong
financial position for an issuer. Thus, the Fund tends to be far more interested
in the quality of an issuer's net asset or book value than in the quantity of
book value.
The vast majority of common stock issues held in the TAVF portfolio are equities
of issuers which enjoy strong financial positions. While the TAVF analyses place
a primary emphasis on existing asset values rather than on predictions of future
flows, whether cash or earnings, that emphasis on asset values is on the quality
of such asset values rather than the quantity of such asset values. By contrast,
book value is strictly a quantitative yardstick.
The role of book value in a fund analysis depends on the industry being
analyzed. When acquiring the common stocks of well-capitalized depository
institutions, TAVF generally does not pay more than 80% of pro-forma book value,
while in the case of "venture capital" situations the pricing for those common
stocks generally goes to a maximum of 160% of book value. In the cases of real
estate, broker/dealer, financial insurance and title insurance equities, book
value is ignored and the quantitative emphasis is placed on either appraised
values or estimated sales values. And I think that most TAVF investments, except
perhaps for the few risk arbitrage securities held, qualify as value investments
despite a failure to emphasize rigid general rules about book value. (The rule
in value investing is do not pay up, but in risk arbitrage where there are
reasonably determinant workouts in reasonably determinant periods of time, you
cannot be a player unless you are willing to pay up, e.g., in the first half of
calendar 1995 prior to the merger announcement, KMI Common was selling around a
high of $7 per share, but post merger announcement, TAVF believed that KMI
Common was very attractive in a risk arbitrage context at a cost of $11.13 per
share.)
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There are trade-offs involved in having TAVF focus on strong financial positions
for purposes of being safe. First, the managements of the companies in which
TAVF invests tend to be quite conservative and non-promotional, frequently
uninterested in the market price of the common stock. This is certainly
understandable because the companies tend to have no need to access capital
markets and insiders are generally not seeking exits for their positions by a
sale into public markets. Second, Returns on Equity ("ROE") tend to be sub-par
because the companies are unlevered on the right-hand side of the balance sheet
and cash-rich, rather than return-on-the-employment-of-assets rich, on the
left-hand side of the balance sheet. These are managements which tend to
sacrifice ROE for safety.
The Fund measures cheap by examining the prices to be paid for a common stock
against the background of what we estimate a common stock would be worth were
the business a private company, or a takeover candidate. The criteria for
measuring such values revolve around perceived abilities to finance a
transaction, long-term outlooks and exit strategies, with exit strategies
ranging from pure operating forecasts, i.e., converting present strong financial
positions, and other positive asset attributes, into future earnings or cash
flows; liquidating values; refinancing values; and merger and acquisition values
including going-privates and leveraged buy-outs. The Fund pays little or no
attention to stock market factors, including industry identifications, reported
earnings per share, dividends, sponsorship, marketability of securities,
technical and chartist considerations, and macro factors such as interest rate
predictions, the level of the Dow-Jones Industrial Average, Employment or GDP
data.
There are also trade-offs involved in meeting the Fund's standards for cheap. In
practically every buy situation for TAVF, the immediate profitability outlook is
poor, or the recent past has been disappointing in terms of operations. Further,
dividend yields tend to range between small and non-existent. In these regards,
the Fund's value investing picks are in direct conflict with Russell Value Index
criteria which identifies value investors as seeking a "lower (current)
price-earnings ratio and higher dividend yields." At the time TAVF acquires
securities, I would bet that current price-earnings ratios are way above average
(due to temporarily weak earnings) and dividend yields are way below average,
even though TAVF is a value investor. For example, among the securities acquired
during the last quarter, I would guess that the immediate profit outlooks are
poor for Charming Shoppes, Ford, Cummins, Sbarro and Weis Markets.
The Fund concentrates on corporate considerations and all but ignores stock
market considerations, a point brought forcefully home during the last quarter
when I decided to retain TAVF's high tech-small cap "venture capital" portfolio
pretty much intact, despite my fears that substantial speculative excesses may
exist in the general market for high tech-small cap common stocks.
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An astute observer commented that the stock market is, in the short run, a
voting machine reflecting speculators' sentiments, and, in the long run, a
weighing machine, measuring individual business' performances. TAVF's entire
emphasis is on the weighing machine aspect of the market, not the voting machine
aspect. Our interest is in how the businesses in which we will invest will
perform over the long term, rather than what investor-speculator sentiment might
be short term.
My bearishness about high tech-small cap, in general, stems from scanning the
huge numbers of Initial Public Offering ("IPO") preliminary prospectuses,
commonly called "red herrings", that come across my desk. It appears as if lower
and lower quality issues are being marketed as IPO's at higher and higher
prices. The last time I observed such a dangerous "red herring" environment was
for new issues of junk bonds in the late 1980's, just before that market
cratered. Looking only at the voting machine, prices in the market for high
tech-small cap stocks seem quite vulnerable to me, probably including the issues
held in the TAVF portfolio. Looking at the weighing machine, though, most of the
specific issues held by the Fund seem to have very promising long-term growth
prospects as participants in the "digital revolution". Further, few seem grossly
overpriced based on current results which, by and large, reflect considerable
growth for these companies in the last two or three years. The market, as a
voting machine, may cause the TAVF high tech-small cap portfolio to perform
poorly in the months just ahead. So what! If we are right about the businesses,
the relevant securities are "holds", not "sells". TAVF is not in the business of
selling the equities of good companies contained in its portfolio because I have
a feeling that a specific market, e.g. high tech-small cap, might be high.
Rather, the Fund is in the business of averaging down when the common stocks
that trade in that market are available at prices that are cheap. That is what a
buy and hold strategy is really about.
If this is a valid viewpoint, TAVF ought to fare well with these securities, the
near-term market outlook notwithstanding, provided, of course, that my analyses
of these companies are reasonable. Money managers who strive to maximize
performance consistently pretty much have to be traders, acting and reacting
based on their market judgments. Most money managers who share my fears about
the market for high tech-small cap issues probably would dispose of their
positions in these issues. That is just not the TAVF game.
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Incidentally, my comments in this letter seem to demonstrate why it is so hard
for a fundamentalist to comment meaningfully on general markets. At the same
time that there exists a strong bull market for high tech-small cap equities,
the securities of many retailers are trading at prices that reflect a
panic-stricken bear market. The investment art is not an easy one because even
the most extreme bull and bear markets always seem to be grounded, at least in
part, in corporate reality. Many, even if only a small minority, of high
tech-small cap companies will participate fully in the forthcoming growth in
computers, networking, multi-media and biotechnology; while, with the country as
overstored as it is, retailing seems likely to remain a problem area for some
time to come.
THE SIGNIFICANCE OF PAST PERFORMANCE
TAVF completed the first five years of its existence on October 31. Overall, the
Fund's performance appears to have been outstanding. The average annual return
over the five-year period was 22.31%, in the top 3% of those mutual funds which
are equity funds or balanced funds, on a load-adjusted basis. On an after-tax
basis for its shareholders who are U.S. taxpayers, TAVF probably did even better
compared with other mutual funds. Unlike funds whose portfolio management is
characterized by high turnover, the Fund is able to, and does, plan its
investment strategies with a view towards minimizing, in each given year, the
income tax liabilities to which TAVF shareholders who are also U.S. taxpayers
would be subject. TAVF's portfolio turnover numbers were 15% and 5% in fiscal
1995 and 1994, respectively.
So, if I say, as I do, that the significance of past performance is overrated,
and the significance of comparative (with other mutual funds) past performance
is vastly overrated as a factor that ought to influence investment decisions by
holders of mutual fund shares, I can hardly be accused of having a "sour grapes"
attitude.
I think that what the intelligent investor in mutual funds wants, or ought to
want, as a base case is reasonable long-term performance, combined with safety
and good service. If superior long-term performance can also be delivered for
the investor, that's well and good, but achieving superior performance ought not
to be the primary goal, nor can it be the sole goal for the thoughtful long-term
investor. This is certainly true for investors with long-term goals such as
saving for retirement or childrens' educations. TAVF will continue to be managed
with a multiplicity of goals; superior performance if we can get it, without
striving so hard for superior performance that prospects for reasonable
performance and safety are sacrificed. In this respect, I'm much like the
managements of many of our portfolio companies--willing to sacrifice ROE in
order to reduce investment risk. One management goal of the Fund is to continue
to seek to earn, on average over the long term, a total return of 20% per annum.
It never will be TAVF's sole goal.
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Further, TAVF will continue to place its sole emphasis on trying to ascertain
fundamental corporate and securities values. The Fund will not base its
investment decisions on having views about general markets or specific sectors
of markets. It is tough enough to analyze corporate phenomena without getting
involved in reading stock market "tea leaves".
One of the things TAVF will not do is try to outperform other funds, the market,
or an index, consistently. "Consistently" is an academic word that really means
very short term--maybe weekly, monthly, or certainly no longer than annually. As
has been shown in virtually all price studies, no one can beat the market
consistently; one certainly can't beat the market consistently by trying to beat
the market consistently, unless that person has a promoter's edge. Trying to
outperform any standard consistently inexorably has lead to speculative
excesses, it seems to me. TAVF's minimum objective is to earn, on average,
reasonable long-term returns in an environment where TAVF is assuming a low
level of long-term investment risk. I am hopeful that the Fund can continue to
earn on average at least 20% per year, and also give our shareholders the well
above-average returns that characterized the first five years of TAVF's life.
There are no guarantees. Averaging 20% long-term will not be easy. In any event,
earning well above-average returns is far from TAVF's sole investment objective.
If it were, I think I would be doing a disservice to our shareholders, including
my family and myself, who are among the Fund's largest shareholders.
The methodology used by the Fund to try to deliver to its shareholders a
combination of superior performance and superior safety, both measured on a
long-term basis rather than by consistency, is embodied in the following basic
precepts:
1)Investment practices will continue to be in line with the safe and
cheap concepts discussed previously under Defining Value Investing.
2)Expenses of operation will be kept at minimums. If commission and
trading costs are added to expenses, TAVF, with its ultra-low
portfolio turnover ought to be among the lower cost equity funds in
the industry.
3)Expenses to investors will be kept to a minimum. The Fund itself is
no-load, and the fees charged by those financial planners who
recommend TAVF tend to be modest.
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The Investment Company Act of 1940, as amended, is a remarkable piece of
legislation in that it resulted in a regulatory framework where investors in
mutual funds (including closed-end funds) obtain tremendously valuable
substantive protections, while at the same time fund sponsors and managers (such
as myself) are very well compensated if they are able to attract and retain
money over the long term. These 1940 Act protections which TAVF, and all other
funds, deliver to investors include the following:
o Strict limitations on borrowing
o Portfolio diversification (required by the Internal Revenue Code)
o Managers bound by fund's fundamental investment policies
o Limitations on transactions with affiliates
o Independents serving on Boards of Directors
o Practical limitations on churning (based on the short-short rules
under the Internal Revenue Code)
o Strict bookkeeping and custodial requirements
o Annual audits
Because of these substantive protections, investors in mutual funds, including
TAVF, are unlikely to be "ripped off", as had happened so often when outside
investors were induced to part with money in order to acquire limited
partnership interests in tax shelters, penny-stock promotions, IPO portfolios,
trading systems which involved churning, private hedge funds, and other
esoterica. The same abuses are not going to happen to anywhere near the same
extent in mutual funds, in my opinion. If investors lose in mutual funds, it is
likely to be because managements were stupid, not because investors were
cheated. (Speaking of stupid, a professional on Wall Street is not defined as
anyone with special training or knowledge but rather is someone who works in the
financial community full-time and collects, or shares, in compensation not
available to outside investors.)
DIVIDEND AND SHARE INFORMATION
On November 21, 1995, TAVF declared a dividend from the Fund's net investment
income through the period ending December 31, 1995 in the amount of
approximately $0.391 per Fund share. TAVF also declared distributions of
approximately $0.065, representing short-term capital gains through the period
ended October 31, 1995; and approximately $0.089 per share, representing
long-term capital gains through the period ended October 31, 1995. These
distributions are payable January 4, 1996 to Fund shareholders of record on
December 28, 1995. The precise amount of each distribution will be determined
based on the number of total Fund shares outstanding on the close of business on
the record date, December 28, 1995. The distributions are payable in cash or,
for those shareholders who have elected the reinvestment option, in additional
Fund shares at the Fund's net asset value on December 29, 1995, the "ex" date,
or valuation date, for reinvestment.
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I will write you again when we publish the report for the quarter to end January
31, 1996.
Best wishes for a healthy and prosperous holiday season.
Sincerely yours,
/s/ Martin J. Whitman
Martin J. Whitman
Chairman of the Board
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
AT OCTOBER 31, 1995
PRINCIPAL VALUE % OF
AMOUNT ($) ISSUES (NOTE 1) NET ASSETS
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BANK DEBT - 5.05%
Oil 1,889,887 Cimarron Petroleum Corp. (c) (d)$1,909,112 0.61%
Plumbing Fixtures
14,306,696 Eljer Industries, Inc. (c) (e) 13,877,495 4.44%
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TOTAL BANK DEBT (Cost $15,008,611)
15,786,607
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BONDS - 0.77%
Memberships 2,891,000 USTrails Inc.,
Sports & Secured Notes 12%, 07/15/98 1,922,515 0.62%
Recreation Clubs
Real Estate 1,016,717 Olympia & York Maiden Lane Finance Corp.,
Secured Notes 10.375%, 12/31/95 482,941 0.15%
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TOTAL BONDS (Cost $3,192,644) 2,405,456
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GOVERNMENT AGENCY BONDS - 4.10%
2,058,631 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-129 S, Inverse Floater
3.53233% due 8/25/08 (f) 1,315,362
2,889,650 Federal Home Loan Mortgage Corp.
Collateralized Mortgage Obligation,
Series 1635 K, Inverse Floater
5.18325% due 12/15/08 (f) 1,704,316
6,600,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-229 SB, Inverse Floater
4.73485% due 12/25/08 (f) 3,770,448
300,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-221 SG, Inverse Floater
2.39322% due 12/25/08 (f) 172,083
3,000,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1994-13 SM, Inverse Floater
6.90637% due 2/25/09 (f) 1,975,440
2,683,270 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1994-13 SK, Inverse Floater
6.31117% due 2/25/09 (f) 1,682,303
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1995
PRINCIPAL VALUE % OF
AMOUNT ($) ISSUES (NOTE 1) NET ASSETS
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GOVERNMENT AGENCY BONDS (CONTINUED)
5,000,000 Federal Home Loan Mortgage Corp.
Collateralized Mortgage Obligation,
Series 1518 G, Inverse Floater
3.4% due 5/15/23 (f) $ 2,190,650
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TOTAL GOVERNMENT AGENCY BONDS
(Cost $11,248,089) 12,810,602 4.10%
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SHARES
OR UNITS
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COMMON STOCKS AND
LIMITED PARTNERSHIP UNITS - 69.37%
Annuities 100,000 SunAmerica Inc. 6,225,000 1.99%
& Mutual Fund ----------
Management & Sales
Business 43,200 Capital Southwest Corp. 1,987,200 0.64%
Development ----------
Companies
Cogeneration 176,900 Destec Energy, Inc. (b) 2,498,712 0.80%
Services & ----------
Small Power Producers
Computer & 95,000 Apple Computer, Inc. 3,449,687
Office Equipment 55,000 Cray Research, Inc. (b) 1,141,250
195,000 Digital Equipment Corp. (b) 10,554,375
----------
15,145,312 4.84%
----------
Contract 141,900 Perini Corp. (b) 1,649,587 0.53%
Construction ----------
Depository
Institutions 26,500 Astoria Financial Corp. 1,136,187
25,000 Carver Federal Savings Bank (b) 218,750
149,227 Glendale Federal Bank 2,387,632
53,480 Glendale Federal Bank Warrants (b)374,360
100,000 GP Financial Corp. 2,700,000
10,000 Letchworth Independent
Bancshares Corp 282,500
10,000 Letchworth Independent
Bancshares Corp.
Warrants (b) 55,000
34,783 People's Heritage
Financial Group, Inc. 660,877
80,000 Security Capital Corp. (b) 4,380,000
----------
12,195,306 3.90%
----------
Financial 100,000 AMBAC Inc. 4,212,500
Insurance
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1995
SHARES VALUE % OF
OR UNITS ISSUES (NOTE 1) NET ASSETS
- --------------------------------------------------------------------------------
Financial Insurance (continued)
500,000 Capital Guaranty Corp. (a) $11,062,500
244,100 Enhance Financial Services
Corp. 4,973,537
177,000 Financial Security Assurance
Holdings Ltd. 4,602,000
120,000 MBIA Inc. 8,355,000
----------
33,205,537 10.62%
----------
Forest Products 54,400 St. Joe Paper Co. 3,298,000 1.05%
----------
General
Manufacturing 125,000 Cummins Engine Co., Inc. 4,390,625
15,000 H.B. Fuller Co. 472,500
----------
4,863,125 1.56%
----------
Holding Companies 50,000 Aristotle Corp. (b) 156,250
21,400 White River Corp. (b) 743,650
----------
899,900 0.29%
----------
Insurance Holding 100,000 ACMAT Corp. Class A (b) 1,175,000
Companies 803,669 Danielson Holding Corp.
(a) (b) (c) 5,726,142
50,000 Fund American Enterprises
Holdings, Inc. (b) 3,450,000
5,490 Sen-Tech Int'l Holdings, Inc.
(b) (c) 1,749,718
----------
12,100,860 3.87%
----------
Life Insurance 138,000 ReliaStar Financial Corp. 5,761,500
107,600 Security-Connecticut Corp. 2,797,600
----------
8,559,100 2.74%
----------
Manufactured
Housing 89,000 Liberty Homes, Inc. Class A 1,017,937
40,000 Liberty Homes, Inc. Class B 460,000
8,640 Palm Harbor Homes, Inc. (b) 163,080
----------
1,641,017 0.52%
----------
Medical Supplies 68,800 Acuson Corp. (b) 799,800
and Services 187,300 Datascope Corp. (b) 4,448,375
45,000 Progressions Health Systems,
Inc. (b) 39,375
60,500 St. Jude Medical, Inc. (b) 3,221,625
----------
8,509,175 2.72%
----------
Membership 107,172 USTrails, Inc. (b) 87,077 0.03%
Sports & ----------
Recreation Clubs
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1995
SHARES VALUE % OF
OR UNITS ISSUES (NOTE 1) NET ASSETS
- --------------------------------------------------------------------------------
Mortgage Insurance 76,400 CMAC Investment Corp. $3,629,000 1.16%
---------
Motor Vehicles & 50,000 Ford Motor Co. 1,437,500 0.46%
Cars' Bodies ---------
Real Estate 31,000 Consolidated-Tomoka Land Co. 484,375
117,600 Forest City Enterprises, Inc.
Class A 4,351,200
2,500 Forest City Enterprises, Inc.
Class B 91,875
150,000 Price Enterprises, Inc. 2,175,000
10,000 Royal Palm Beach Colony,
Limited Partnership Units (b) 13,750
---------
7,116,200 2.28%
---------
Real Estate 480,336 Koger Equity, Inc. (b) 4,623,234
Investment Trusts 105,000 Mellon Participating Mortgage
Trust Co. 223,125
5,100 Public Storage Properties XV,
Inc. 84,787
16,300 Public Storage Properties XVI,
Inc. 246,537
5,200 Public Storage Properties XVII,
Inc. 84,500
15,000 Public Storage Properties XVIII,
Inc. 251,250
---------
5,513,433 1.76%
---------
Reinsurance 20,000 LaSalle Re Limited (c) 2,000,000 0.64%
Companies ---------
Retail 582,800 Charming Shoppes, Inc. (b) 1,675,550
60,000 Sbarro, Inc. 1,252,500
31,200 Weis Markets, Inc. 869,700
---------
3,797,750 1.21%
---------
Risk Arbitrage 58,000 Applied Immune Sciences,
Inc. (b) 667,000
100,000 Kemper Corp. 4,850,000
191,200 Kentucky Medical Insurance
Co. (a) (b) 2,246,600
571,429 UnionFed Financial Corp.
Warrants (b) (c) 0
---------
7,763,600 2.48%
---------
Security Brokers, 118,100 Alex. Brown Inc. 5,772,142
Dealers 55,900 Jefferies Group, Inc. 2,194,075
& Flotation 167,200 Legg Mason Inc. 4,807,000
Companies
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1995
SHARES VALUE % OF
OR UNITS ISSUES (NOTE1) NET ASSETS
- --------------------------------------------------------------------------------
Security Brokers, 339,800 Piper Jaffray Companies
Dealers Inc. (a) $ 4,035,125
& Flotation 525,000 Raymond James Financial, Inc. 11,287,500
Companies 154,230 Ryan, Beck & Co., Inc. (a) (c) 1,137,446
(continued) ----------
29,233,288 9.35%
----------
Title Insurance 310,000 Stewart Information Services
Corp. (a) 6,393,750
515,000 The First American Financial
Corp. 12,038,125
----------
18,431,875 5.89%
----------
Venture Capital 44,000 Central Sprinkler Corp. (b) 1,452,000
19,200 Emerging Markets Infrastructure
Fund, Inc. 182,400
57,000 Evans & Sutherland Computer
Corp. (b) 1,197,000
100,000 Gish Biomedical, Inc. (b) 850,000
80,000 H & Q Life Sciences
Investors (b) 1,000,000
100,000 Handex Environmental Recovery,
Inc. (b) 625,000
77,400 Integrated Systems, Inc. (b) 2,709,000
300,000 Interphase Corp. (a) (b) 3,450,000
130,000 Meadowbrook Rehabilitation
Group, Inc. (b) 162,500
50,000 Metricom, Inc. (b) 831,250
190,000 NetFRAME Systems Inc. (b) 1,068,750
269,600 PharmChem Laboratories, Inc. (b)1,449,100
150,000 Photronics, Inc. (b) 4,425,000
100,000 Telco Systems, Inc. (b) 1,112,500
122,500 Tricord Systems, Inc. (b) 459,375
100,000 UTILX Corp. (b) 237,500
131,250 Zygo Corp. (b) 3,937,500
-----------
25,148,875 8.04%
-----------
TOTAL COMMON STOCKS AND
LIMITED PARTNERSHIP UNITS 216,936,429
(Cost $157,577,544) -----------
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1995
SHARES VALUE % OF
OR UNITS ISSUES (NOTE 1) NET ASSETS
- --------------------------------------------------------------------------------
PREFERRED STOCK - 0.29%
Depository
Institutions 20,000 Glendale Federal Bank
Convertible, Non-Cumulative,
8 3/4%, Series E $ 842,500 0.27%
---------
Security Brokers,
Dealers & 3,200 EVEREN Capital Corp.
Flotation Companies Cumulative, 13 1/2%, Series A 69,200 0.02%
---------
TOTAL PREFERRED STOCK
(Cost $566,600) 911,700
---------
PRINCIPAL
AMOUNT ($)
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 20.13%
30,000,000 U.S. Treasury Bill 4.85%,
11/02/95 29,995,958
33,000,000 U.S. Treasury Bill 4.90%,
11/09/95 32,964,067
-----------
(Cost $62,960,025) 62,960,025 20.13%
-----------
TOTAL INVESTMENT
PORTFOLIO - 99.71% 311,810,819
(Cost $250,553,513) -----------
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.29% 911,546
-----------
NET ASSETS - 100.00% $312,722,365
(Applicable to 14,524,055 ===========
shares outstanding)
Notes:
(a) Affiliated issuers-as defined under the Investment Company Act of 1940
(ownership of 5% or more of the outstanding common stock of these issuers.)
(b) Non-income producing securities.
(c) Restricted/fair valued securities.
(d) Interest accrued at current rate of prime + 2%.
(e) Interest accrued at current rate of prime + 4%.
(f) Inverse floaters-coupon rate moves inversely to a designated index, such as
LIBOR or COFI, typically at a multiple of the changes of the relevant index
rate.
* Issuer in default.
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $225,088,554) $277,759,256
Affiliated issuers (identified cost of $25,464,959) 34,051,563
-----------
Total investments (identified cost of $250,553,513) 311,810,819
Cash and cash equivalents (Note 1) 1,335,900
Receivable for fund shares sold 630,245
Dividends and interest receivable 325,200
Other assets 12,112
-----------
Total assets 314,114,276
-----------
LIABILITIES:
Payable for securities purchased 551,239
Payable for fund shares redeemed 393,905
Payable to investment adviser 245,322
Accounts payable and accrued expenses 179,136
Payable to affiliates 22,309
-----------
Total liabilities 1,391,911
-----------
Net assets $312,722,365
===========
SUMMARY OF NET ASSETS:
Common stock, $ 0.001 par value, authorized
200,000,000 shares, outstanding 14,524,055 shares $ 14,524
Additional paid in capital 246,557,232
Accumulated undistributed net investment income 4,586,481
Accumulated undistributed net realized gains from
investment transactions 306,822
Net unrealized appreciation of investments 61,257,306
-----------
Net assets applicable to outstanding capital shares $312,722,365
===========
Net asset value offering and redemption price per share $21.53
======
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME:
Interest-unaffiliated issuers $ 5,216,544
Dividends-unaffiliated issuers 2,724,946
Dividends-affiliated issuers 292,557
Miscellaneous Income 31,655
----------
Total investment income 8,265,702
EXPENSES:
Investment advisory fees (Note 3) 1,926,686
Administration (Note 3) 195,078
Transfer agent fees 175,708
Reports to shareholders 153,046
Auditing and tax consulting fees 83,900
Legal fees 70,645
Accounting services 68,635
Registration and filing fees 64,658
Custodian fees (Note 4) 52,305
Miscellaneous expenses 46,797
Insurance expenses 37,375
Directors' fees and expenses 34,814
Amortization of organization expenses (Note 1) 26,964
Service fees (Note 4) 13,097
----------
Total operating expenses 2,949,708
----------
Net investment income 5,315,994
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investments-affiliated issuers (1,838,180)
Net realized gains on investments-unaffiliated issuers 3,953,960
Net change in unrealized appreciation on investments 41,324,327
----------
Net realized and unrealized gains on investments 43,440,107
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,756,101
==========
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
OPERATIONS:
Net investment income $ 5,315,994 $ 2,821,408
Net realized gains (losses) on investments-
affiliated issuers (1,838,180) 593,030
Net realized gains (losses) on investments-
unaffiliated issuers 3,953,960 (881,546)
Net change in unrealized appreciation
on investments 41,324,327 2,536,222
------------ ------------
Net increase in net assets resulting
from operations 48,756,101 5,069,114
------------ ------------
DISTRIBUTIONS:
Dividends to shareholders from net
investment income (2,643,291) (1,693,747)
Distributions to shareholders from
net realized
gains on investments (1,518,034) (1,049,977)
------------ ------------
(4,161,325) (2,743,724)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 112,183,260 94,274,948
Net asset value of shares issued in
reinvestment of dividends and distributions 3,493,053 2,236,939
Cost of shares redeemed (34,741,140) (30,602,448)
------------ ------------
Net increase in net assets resulting from
capital share transactions 80,935,173 65,909,439
------------ ------------
Net increase in net assets 125,529,949 68,234,829
Net assets at beginning of year 187,192,416 118,957,587
------------ ------------
Net assets at end of year
(including undistributed net investment
income of $4,586,481 and $1,913,778
respectively) $312,722,365 $187,192,416
============ ============
The accompanying notes are an integral part of the financial statements.
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THIRD AVENUE VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Third Avenue Value Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified management
investment company. Investment operations commenced on November 1, 1990.
ACCOUNTING POLICIES:
The policies described below are followed consistently by the Fund in the
preparation of its financial statements in conformity with generally accepted
accounting principles.
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. Non-NASDAQ securities are valued at the mean between the closing bid
and asked price. Temporary cash investments are valued at cost plus accrued
interest, which approximates market.
The Fund may invest up to 15% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition
under securities law ("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 Directors of the Fund, although actual evaluations may be made by
personnel acting under procedures established by the Board. Such securities
had a fair value of $26,399,913 or 8.44% of net assets, at October 31, 1995.
Among the factors considered by the Board of Directors in determining fair
value are the type of security, the financial condition of the issuer, the
Fund's cost at the date of purchase, the 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income to shareholders and distributions from
realized gains on sales of securities are recorded on the ex-dividend date.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with Federal income tax
regulations which may differ with generally accepted accounting principles.
These "book/tax" differences are either temporary or permanent in nature. To
the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their tax-basis treatment.
Temporary differences do not require a reclassification. For the year ended
October 31, 1995, there were no permanent "book/tax" differences.
FEDERAL INCOME TAXES:
The Fund has complied and intends 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.
ORGANIZATIONAL COSTS:
The initial costs incurred by the Fund in connection with its organization
and registration were amortized over a period of sixty months from
commencement of operations on a straight-line basis.
CASH AND CASH EQUIVALENTS:
The Fund has defined cash and cash equivalents as cash in interest bearing
and non-interest bearing accounts.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SECURITIES TRANSACTIONS
PURCHASES AND SALES:
The aggregate cost of purchases of unaffiliated and affiliated issuers (as
defined in the Investment Company Act of 1940, ownership of 5% or more of the
outstanding common stock of the issuer) for the period ended October 31,
1995, was $65,532,247 and $6,852,012 respectively. The aggregate proceeds
from sales of investments of unaffiliated and affiliated issuers for the
period ended October 31, 1995, was $31,319,841 and $113,660, respectively.
At October 31, 1995, cost for federal income tax purposes amounted to
$252,769,868. Accordingly, the net unrealized appreciation based on cost for
federal income tax purposes of $59,040,951 was comprised of gross unrealized
appreciation and depreciation of $64,510,255 and $5,469,304 respectively.
3. INVESTMENT ADVISORY SERVICES AND DISTRIBUTION AGREEMENT
The Fund has an Investment Advisory Agreement with EQSF Advisers, Inc. (the
"Adviser") for investment advice and certain management functions. From the
inception of the Fund through April 25, 1995, the terms of the Investment
Advisory Agreement provided for a monthly fee of 1/12 of .75% (an annual fee
rate of .75%) on the first $100,000,000 of the average daily net assets of
the Fund payable each month, 1/12 of .625% (an annual rate of .625%) on the
next $100,000,000 of the average daily net assets of the Fund and 1/12 of
.50% (an annual rate of .50%) on the average daily net assets of the Fund in
excess of $200,000,000. On April 26, 1995, the Fund's shareholders approved
an amendment to the Advisory Agreement to provide for a monthly fee of 1/12
of .90% (an annual fee rate of .90%) of the total average daily net assets of
the Fund payable each month. Additionally, under the terms of the Investment
Advisory Agreement, the Adviser pays certain expenses on behalf of the Fund
which are reimbursable by the Fund, which include salaries of non-officer
employees, rent and other miscellaneous expenses. Amounts reimbursed with
respect to non-officer salaries and rent are included under the caption
Administration. At October 31, 1995, the Fund had a payable of $22,309 to
affiliates for reimbursement of expenses paid by affiliates.
24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Whenever, in any fiscal year, the total cost to the Fund of normal operating
expenses chargeable to its income account, including the investment advisory
fee and the amounts reimbursable to the Adviser for the administration of the
Fund, but excluding interest and taxes, exceeds 2 1/2% of the first
$30,000,000 of the average daily net assets of the Fund for the fiscal year,
plus 2% of the next $70,000,000, plus 1 1/2% of the remaining balance of the
average daily net assets of the Fund, the Adviser is obligated under the
Investment Advisory Agreement to reimburse the Fund in an amount equal to
that excess. No expense reimbursement was required for the year ended October
31, 1995.
Pursuant to a distribution agreement, which was amended on February 28, 1995
when the Fund became no load, M.J. Whitman, Inc. ("MJW, Inc.", formerly M.J.
Whitman, L.P.), a registered broker-dealer and an affiliate of the Fund,
acted as agent in arranging for the sale of the Fund's shares and bore all
advertising and promotional expenses incurred in the sale of shares. For its
services, the Distribution Agreement provided for MJW, Inc. to receive and
retain the portion of the sales load which was imposed on sales of shares and
not reallowed to other dealers. For the year ended October 31, 1995, MJW,
Inc. has advised the Fund that as underwriter and distributor it retained
sales charges of $68,970.
4. RELATED PARTY TRANSACTIONS
BROKERAGE COMMISSIONS:
Martin J. Whitman, the Chairman and a director of the Fund, is the Chairman
and Chief Executive Officer of M.J. Whitman Holding Corp., which is the
parent of both MJW, Inc. and M.J. Whitman Sr. Debt Corp., a dealer in the
trading of bank debt and other private claims. For the year ended October 31,
1995, the Fund incurred total brokerage commissions of $320,517 of which
approximately $269,152 was earned by MJW, Inc. and $22,689 was earned by M.J.
Whitman Sr. Debt Corp. The Fund also paid brokerage commissions of $2,310 to
Piper Jaffray Companies Inc., an affiliate of the Fund.
INVESTMENT SECURITIES:
At October 31, 1995, the Fund owned 803,669 shares of Danielson Holding Corp.
("DHC"), representing 5.23% of its outstanding common stock. Martin J.
Whitman is the Chairman and a director of DHC.
25
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At October 31, 1995, the Fund owned 300,000 shares of Interphase Corp.,
representing 6.58% of its outstanding common stock.
At October 31, 1995, the Fund owned 310,000 shares of Stewart Information
Services Corp., representing 5.38% of its outstanding common stock.
At October 31, 1995, the Fund owned 500,000 shares of Capital Guaranty Corp.,
representing 5.69% of its outstanding common stock.
At October 31, 1995, the Fund, along with a group of affiliated investment
vehicles, owned 1,446,680 shares of Piper Jaffray Companies Inc.,
representing 8.29% of its outstanding common stock.
At October 31, 1995, the Fund, along with an affiliated company, owned
200,000 shares of Ryan, Beck & Co., Inc., representing 6.47% of its
outstanding common stock.
At October 31, 1995, the Fund owned 191,200 shares of Kentucky Medical
Insurance Co., Inc., representing 9.53% of its outstanding common stock.
CUSTODIAN:
Danielson Trust Company ("DTC"), a wholly owned subsidiary of DHC, serves as
the custodian for the Fund. For these services, DTC was paid fees of $52,305
for the year ended October 31, 1995, of which $10,050 was payable to DTC at
October 31, 1995.
SERVICE FEES:
The Fund entered into an administration agreement with MJW, Inc. on April 26,
1995. The terms of the Agreement provide for the Fund to pay MJW, Inc. a
quarterly fee of 1/4 of .10% (an annual fee rate of .10% ) of average daily
net assets invested in the Fund by MJW, Inc. customers in an omnibus account.
In exchange for this fee, MJW, Inc. renders to such customers, various
administrative services, which the Fund would otherwise be obligated to
supply directly. For these services, MJW, Inc. was paid fees of $13,097 for
the year ended October 31, 1995, of which $2,240 was payable to MJW, Inc. at
October 31, 1995.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
Increase in Fund shares:
Shares outstanding at beginning of year 10,396,658 6,638,255
Shares sold 5,699,436 5,381,944
Shares reinvested from dividends and
distributions 205,837 128,045
Shares redeemed (1,777,876) (1,751,586)
---------- ----------
Net increase in Fund shares 4,127,397 3,758,403
---------- ----------
Shares outstanding at end of year 14,524,055 10,396,658
========== ==========
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THIRD AVENUE VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR) AND RATIOS ARE AS FOLLOWS:
YEARS ENDED OCTOBER 31,
---------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Net Asset Value, Beginning of Year $18.01 $17.92 $13.57 $12.80 $10.00
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income .38 .29 .18 .19 .15
Net gain on securities (both
realized and unrealized) 3.53 .16 4.77 .64 4.65
----- ----- ----- ----- -----
Total from Investment Operations 3.91 .45 4.95 .83 4.80
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment
income (.25) (.22) (.24) (.02) (.15)
Distributions from realized gains (.14) (.14) (.36) (.04) (1.85)
----- ----- ----- ----- -----
Total Distributions (.39) (.36) (.60) (.06) (2.00)
----- ----- ----- ----- -----
Net Asset Value, End of Year $21.53 $18.01 $17.92 $13.57 $12.80
===== ===== ===== ===== =====
Total Return (not including
sales load) 22.31% 2.56% 37.36% 6.50% 49.16%
Ratios/Supplemental Data:
Net Assets, End of Year
(in thousands) $312,722 $187,192 $118,958 $31,387 $17,641
Ratio of Expenses to
Average Net Assets 1.25% 1.16% 1.42% 2.32% 2.50%
Ratio of Net Income to
Average Net Assets 2.24% 1.85% 1.45% 1.71% 1.71%
Portfolio Turnover Rate 15% 5% 17% 31% 67%
The accompanying notes are an integral part of the financial statements.
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REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
Third Avenue Value Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Third Avenue Value Fund, Inc. (the
"Fund") at October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1995, by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
As explained in Note 1, the financial statements include securities, valued at
$26,399,913 (8.4% of net assets) at October 31, 1995, whose estimated values
have been approved by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Board
of Directors in arriving at their estimate of value and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market value
for the securities existed, and the differences could be material to the
financial statements.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 13, 1995
29
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[logo]
BOARD OF DIRECTORS
Phyllis W. Beck
Tibor Fabian
Gerald Hellerman
Marvin Moser
Donald Rappaport
Myron M. Sheinfeld
Martin Shubik
Jack Weprin
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer, President
Michael Carney
Chief Financial Officer, Treasurer
Allison Cutler, Assistant Treasurer
Jill Kopin, Secretary
TRANSFER AGENT
Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428-0874
(610) 834-3500
(800) 441-6580 (toll-free)
CUSTODIAN
Danielson Trust Co.
525 B Street
San Diego, CA 92101-4492
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
767 THIRD AVENUE
NEW YORK, NY 10017
Phone (212) 888-6685
Toll Free (800) 443-1021
