THIRD AVENUE VALUE FUND, INC.
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SUPPLEMENT DATED JANUARY 2, 1996
TO THE PROSPECTUS DATED MAY 22, 1995
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THE FOLLOWING PROVIDES ADDITIONAL INFORMATION TO THE CONTENTS UNDER THE CAPTION
"HOW TO REDEEM SHARES" ON PAGE 25 OF THE PROSPECTUS.
MONEY MARKET EXCHANGE PRIVILEGE
Shareholders may redeem any or all shares of the Fund and automatically invest
the proceeds through the Third Avenue Money Market Fund account, in the Cash
Account Trust Money Market Portfolio, an unaffiliated, separately managed, money
market mutual fund. The exchange privilege with the money market portfolio does
not constitute an offering or recommendation of the shares of the money market
portfolio by the Fund or the Distributor. EQSF Advisers, Inc. is compensated for
administrative services it performs with respect to the money market portfolio.
Redemptions of shares in connection with money market fund exchanges are
effected at net asset value per share next determined after the exchange request
is received and are effected as of the end of the day on which such net asset
value is determined. A day or more delay may be experienced prior to the
investment of the proceeds into the money market portfolio. Each exchange
represents the sale of shares from one fund and the purchase of shares in
another, which may produce a gain or loss for income tax purposes. Fund
shareholders should not order shares of the Money Market Fund without first
receiving the current prospectus for the Money Market Fund. By giving exchange
instructions, a shareholder will be deemed to have represented that he has
received the current prospectus for the Money Market Fund.
Rule 497
File No. 33-34418
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THIRD AVENUE VALUE FUND
PROSPECTUS
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May 22, 1995
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Contents
ABOUT THE FUND 1
OVERVIEW OF THE FUND 2
EXPENSE AND FEE SUMMARY 3
FINANCIAL HIGHLIGHTS 4
MORE ABOUT THE FUND 5
Investment Objective 5
Investment in Equity Securities 5
Investment in Debt Securities 6
Mortgage-Backed Securities 7
Floating Rate, Inverse Floating
Rate and Index Obligations 8
Investment in High Yield Debt Securities 9
Foreign Securities 10
Restricted and Illiquid Securities 10
Investments in Relatively
New Issues 11
Temporary Defensive Investments 11
Borrowing 12
Investments in Other
Investment Companies 12
Restrictions on Investments 12
Portfolio Turnover 12
MANAGEMENT OF THE FUND 13
The Investment Adviser 13
Advisory Fees 14
Distributor 14
Portfolio Trading Practices 15
MANAGEMENT'S DISCUSSION OF
FUND PERFORMANCE 16
Custodian and Transfer Agent 16
Performance Illustration 16
DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS AND TAXES 17
General 17
Distribution Option 18
Withholding 19
BUSINESS POLICIES 20
Business Hours 20
Determining Net Asset Value 20
Share Certificates 21
HOW TO PURCHASE SHARES 22
Through an Authorized Dealer
or Investment Adviser 22
New Accounts 22
Initial Investment 22
By Mail 22
By Wire 23
Additional Investments By Mail 23
Additional Investments Through
The Automatic Investment Plan 24
Individual Retirement Account 24
Other Retirement Plans 24
HOW TO REDEEM SHARES 25
By Mail 25
Telephone Redemption Service 25
Fees 26
Redemption Without Notice 26
Account Minimum 26
Payment of Redemption
Proceeds 26
Wired Proceeds 27
Signature Guarantees/Other
Documents 27
Systematic Withdrawal Plan 27
SHAREHOLDER SERVICES 28
Statements and Reports 28
Telephone Information 28
Transfer of Ownership 29
APPENDIX A 30
DESCRIPTION OF CORPORATE
BOND RATINGS
Standard & Poor's Corporation 30
Moody's Investors Service, Inc. 32
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ABOUT THE FUND
Third Avenue Value Fund, Inc. (the "Fund") is an open-end, non-diversified,
investment company that seeks long-term capital appreciation. The Fund pursues a
long-term investment strategy characterized as "buy and hold". The Fund will
seek to identify and invest in securities that the management believes are
undervalued by the marketplace.
The Fund may, to the extent permitted by its fundamental policies, invest in a
portfolio of securities, including common and preferred stock, equity securities
of domestic companies deemed to be well capitalized, debt securities and senior
loans with strong protective covenants and, to a small degree, foreign
securities. Some of the securities in which the Fund may invest are regarded as
speculative. As with all mutual funds, there is no assurance the Fund will
achieve its objective. The Fund is not intended to be a complete investment
program.
Shares of the Fund are sold and redeemed at net asset value. See "How to
Purchase Shares" and "How to Redeem Shares."
This Prospectus contains important information about the Fund that a prospective
investor should know before investing. It should be read and retained for future
reference. A Statement of Additional Information ("SAI") dated May 22, 1995
about the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. You can obtain the SAI without
charge, by calling or writing to the Fund at the address and telephone numbers
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not a solicitation for the sale of Fund shares in any state
where Fund shares are not authorized for sale. No person is authorized by the
Fund to give any information or make any representation other than those
contained herein or in other printed or written material issued by the Fund, and
no person is entitled to rely upon any other information or representation.
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OVERVIEW OF THE FUND
The investment adviser to the Fund is EQSF Advisers, Inc. (the "Adviser"), whose
Chief Investment Officer is Martin J. Whitman. See "Management of the Fund."
OBJECTIVE
The Fund invests for long-term capital appreciation, not income. As such, the
Fund may be appropriate for investors who seek long-term growth of capital and
are willing to make a long-term commitment to pursue this financial objective.
STYLE
In searching for investments for the Fund, the Adviser employs a "value style"
that focuses on a low current price relative to the Adviser's view regarding
long-term future value. The Adviser gauges the ability of a company to build
long-term value while minimizing long-term investment risk, assesses the quality
and quantity of a company's resources, and estimates how those resources might
be converted into earnings over time.
STRATEGY
The Fund engages in a "buy and hold" strategy emphasizing long-term investment.
Its portfolio consists largely of equity securities and some debt securities.
See "Investment in Equity Securities", "Investment in Debt Securities" and "High
Yield Securities."
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EXPENSE AND FEE SUMMARY
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur.
SHAREHOLDER TRANSACTION EXPENSES (as a percentage of offering price)
None
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees .90%
Other Expenses (a) .47%
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Total Fund Operating Expenses 1.37%
The following example illustrates the expenses that a shareholder would pay on a
$1,000 investment assuming a 5% annual rate of return and redemption at the end
of each time period. The example reflects annual Fund operating expenses of
1.37% during each year covered by the example, based upon expenses incurred for
the fiscal year ended October 31, 1994. Expense information has been restated to
reflect changes in the Investment Advisory Agreement. See "Management of the
Fund."
1 Year 3 Years 5 Years 10 Years
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$ 14 $ 44 $ 75 $ 165
The purpose of this table is to assist investors in understanding the various
costs and expenses that investors will bear directly or indirectly. THIS EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. For a further
description of the various costs and expenses incurred in the Fund's operations
as well as any expenses, reimbursements or waiver arrangements, see "Management
of the Fund".
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(a) Other expenses are estimated based on the Fund's actual other
expenses for the fiscal year ended October 31, 1994.
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FINANCIAL HIGHLIGHTS
The following sets forth information regarding per share income and capital
changes for each of the four years in the period ended October 31, 1994, which
have been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report on the October 31, 1994, financial statements appears in the
Fund's Annual Report to shareholders. This information is supplemented by the
financial statements and accompanying notes appearing in the Annual Report to
shareholders which are incorporated by reference into the Statement of
Additional Information.
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SELECTED DATA AND RATIOS (YEARS ENDED OCTOBER 31,)
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1994 1993 1992 1991
NET ASSET VALUE, BEGINNING OF YEAR $ 17.92 $13.57 $12.80 $10.00
Income from Investment Operations:
Net investment income .29 .18 .19 .15
Net gain on securities
(both realized and unrealized) .16 4.77 .64 4.65
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Total from Investment Operations .45 4.95 .83 4.80
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.24) (.02) (.15)
Distributions from net realized
gains (.14) (.36) (.04) (1.85)
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Total Distributions (.36) (.60) (.06) (2.00)
NET ASSET VALUE, END OF YEAR $ 18.01 $17.92 $13.57 $12.80
TOTAL RETURN (NOT INCLUDING SALES LOAD) 2.56% 37.36% 6.50% 49.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $187,192 $118,958 $31,387 $17,641
Ratio of Expenses to Average
Net Assets 1.16% 1.42% 2.32% 2.50%*
Ratio of Net Income to Average
Net Assets 1.85% 1.45% 1.71% 1.71%*
Portfolio Turnover Rate 5.00% 17.00% 31.00% 67.00%
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* Annualized
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MORE ABOUT THE FUND
The Fund was incorporated on November 27, 1989, as a Maryland corporation, and
began operations on October 9, 1990. The Fund has authorized capital of 200
million common shares of $.001 par value. The shares of common stock of the Fund
are all of the same class and have equal rights as to voting, redemption,
dividends and liquidation. The shares have no conversion, preemptive or other
subscription rights and, when issued, are fully paid and non-assessable.
INVESTMENT OBJECTIVE
The Fund pursues long-term capital appreciation. This investment objective is a
fundamental policy and may not be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities. The Fund seeks to attain
its objective by following a value investing philosophy that seeks to acquire
common stocks at a substantial discount to the Adviser's estimate of the issuing
company's private value, preferred stocks and debt instruments providing strong
covenant protection and above average current yields or yields to maturity. See
"Investment in Equity Securities" and "Investment in Debt Securities."
Research efforts in connection with the Fund's investment objective will
emphasize analysis of documents, especially stockholder mailings and Securities
and Exchange Commission ("SEC") filings by issuers.
It is also likely that the Adviser will seek investments in the securities of
companies in industries that are depressed; equity securities of companies where
debt service1 consumes a small part of such companies' cash flow; and debt
securities which provide above average current yields or yields to maturity.
INVESTMENT IN EQUITY SECURITIES
The Fund stresses four criteria in selecting equity investments:
(1) A strong financial position, as measured not only by balance sheet
data but also measured by off-balance sheet liabilities and
contingencies (as disclosed in footnotes to financial statements and
as determined through research of public information).
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1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
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(2) Responsible management and control groups, as gauged by managerial
competence as operators as well as by an apparent absence of intent to
profit at the expense of stockholders.
(3) Availability of comprehensive and meaningful financial and related
information. The availability of financial statements and information
which provides the Fund's management reliable benchmarks to aid in
understanding the business, its values and its dynamics.
(4) Availability of the security at a market price which management
believes is at a substantial discount to the Adviser's estimate of
what the issuer is worth as a private company or as takeover or merger
and acquisition candidate.2
INVESTMENTS IN DEBT SECURITIES
The Fund intends to invest almost exclusively in debt securities that the
Adviser believes will provide above average current yields or yields to
maturity. When selecting debt instruments, the Fund stresses:
(1) Strong covenant protection as contained in loan agreements and
indentures;
(2) Appraisals of the business' financial position and operating outlook,
as well as the Fund's appraisal of values that might be realized upon
the sale of assets in reorganization or the liquidation of the issuer.
The Fund's investment adviser will seek covenants which protect holders of the
debt issue from possible adverse future events such as the addition of new debt
senior to the issue under consideration, the impact of corporate restructuring,
refinancing and acquisitions, as well as the covenants defining the
collateralizations, if any, of the debt and its relationship to existing and
future debt issues and loans. The Adviser will also use its best judgment as to
the most favorable range of maturities.
The Fund's non-fundamental investment policies, which may be changed without
shareholder approval, provide that the Fund will not invest in any security
which is in default or any issuer which has filed for protection under the
bankruptcy laws of the United States.
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2 Net asset value represents the fair market value of assets less the fair
market value of liabilities. Net asset value is not necessarily the same as book
value because, for the most part, book value is derived from historic cost, not
estimates of market value.
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MORTGAGE-BACKED SECURITIES
The Fund intends to invest in mortgage-backed securities and derivative
mortgage-backed securities, including "principal only" but not "interest only"
components. Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans on real property. These securities have special risk
characteristics. The Fund intends to invest in these securities only when it
believes, after analysis, that there is unlikely to ever be permanent impairment
of capital as measured by whether there will be a money default by either the
issuer or the guarantor of these securities. These securities do nonetheless
entail considerable market risk, i.e. fluctuations in quoted prices for the
instruments, interest rate risk, prepayment risk and inflation risk.
The Fund will invest in residential mortgage-backed securities representing
participation interests in pools of one-to-four family residential mortgage
loans originated by private mortgage originators including stripped
mortgage-backed securities ("SMBS") of the U.S. government and certain of its
agencies and instrumentalities. The Fund will not invest in non-investment grade
subordinated classes of residential mortgage-backed securities and does not
intend to invest in commercial mortgage-backed securities.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
none or only a small portion of the interest and all or a larger portion of the
principal from the Mortgage Assets, while the other classes will receive
primarily or entirely interest and none or only a small portion of the
principal.
Prepayments of principal generally may be made at any time without penalty on
residential mortgage-backed securities. Prepayment rates are influenced by
changes in current interest rates and a variety of economic, geographic, social
and other factors. Changes in prepayment rates may change the yield to maturity
of the security and amounts available for reinvestment from such securities by
the Fund are likely to be greater during periods of relatively low or declining
interest rates and therefore are likely to be reinvested at lower rates than
during a period of relatively high interest rates. As a result, the high credit
quality of many of these securities may provide little or no protection against
loss in market value. Due to the unprecedented volatility of prepayment and
interest rates during the past two years, many mortgage-backed securities have
experienced substantial losses in market value. The Fund's Adviser believes that
many of these securities are currently trading at prices below their inherent
value on a risk-adjusted basis and believes that selective purchases by the Fund
could provide high yield and total return in comparison to risk levels.
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Current federal income tax law requires that companies such as the Fund which
seek to qualify for pass-through federal income tax treatment as regulated
investment companies distribute substantially all of their net investment income
each year, including non-cash income such as income from principal only
mortgage-backed securities. Accordingly, the Fund may be required to distribute
to its shareholders each year the interest it is deemed to earn on principal
only mortgage-backed securities even though it receives no cash interest
payments. See "Dividends, Capital Gain Distributions and Taxes."
FLOATING RATE, INVERSE FLOATING RATE AND INDEX OBLIGATIONS
The Fund may invest in debt securities with interest payments or maturity values
that are not fixed, but float in conjunction with (or inversely to) an
underlying index or price. These securities may be backed by U.S. Government or
corporate issuers, or by collateral such as mortgages. The indices and prices
upon which such securities can be based include interest rates, currency rates
and commodities prices. However, the Fund will not invest in any instrument
whose value is computed based on a multiple of the change in price or value of
an asset or an index of or relating to assets in which the Fund can not or will
not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. The reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. Inverse
floating rate securities are similar to floating rate securities except that
their coupon payments vary inversely with an underlying index by use of a
formula. Inverse floating rate securities tend to exhibit greater price
volatility than other floating rate securities. The Fund will not invest more
than 5% of its total assets in inverse floating rate securities. Floating rate
obligations generally exhibit a low price volatility for a given stated maturity
or average life because their coupons adjust with changes in interest rates.
Interest rate risk and price volatility on inverse floating rate obligations can
be high, especially if leverage is used in the formula. Index securities pay a
fixed rate of interest, but have a maturity value that varies by formula, so
that when the obligation matures a gain or loss may be realized. The risk of
index obligations depends on the volatility of the underlying index, the coupon
payment and the maturity of the obligation.
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INVESTMENT IN HIGH YIELD DEBT SECURITIES
The Fund will not purchase or hold in excess of 25% of its net assets in high
yielding debt securities including those rated below Baa by Moody's Investors
Service, Inc. and below BBB by Standard & Poor's Corporation ("Standard &
Poor's") and unrated debt securities. See "Investment in Debt Securities" and
"Restricted and Illiquid Securities." Such securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation, and may in fact be in
default. See Appendix A. The ratings of Moody's and Standard & Poor's represent
their opinions as to the credit quality of the securities which they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and, although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these securities. In seeking to achieve its primary investment objective the
Fund depends on the Adviser's credit analysis to identify investment
opportunities. For the Fund, credit analysis is not a process of merely
measuring the probability of whether a money default will occur, but also
measuring how the creditor would fare in a reorganization or liquidation in the
event of a money default.
Before investing in any high yielding debt instruments the Adviser will evaluate
the issuer's ability to pay interest and principal and seniority position of
such debt in the issuer's capital structure vis-a-vis any other outstanding debt
or potential debts. There appears to be a direct cause and effect relationship
between the weak financial conditions of issuers of high yield bonds and the
market valuation and prices of their credit instruments, and also a direct
relationship between the weak financial condition of such issuers and the danger
that principal or interest may not be paid.
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The market price and yield of bonds rated below Baa by Moody's and below BBB by
Standard & Poor's are more volatile than those of higher rated bonds. In
addition, the secondary market for these bonds is generally less liquid than
that of higher rated bonds.
The market values of certain of these higher yielding debt securities tend to be
more sensitive to economic conditions and individual corporate developments than
do higher rated securities. Companies that issue such bonds often are highly
leveraged and may not have available to them more traditional methods of
financing. Furthermore, high yield bonds structured as zero coupon or
pay-in-kind securities are affected to a greater extent by interest rate changes
and therefore tend to be more volatile than securities which pay interest
periodically and in cash.
FOREIGN SECURITIES
The Fund will not invest more than 5% of its total assets in foreign securities.
The Fund's foreign securities investments will have characteristics similar to
those of domestic securities selected for the Fund. The Fund intends to limit
its investments in foreign securities to U.S. dollar-denominated American
Depository Receipts ("ADRs"), that are traded in the United States on a
securities exchange or in the over-the-counter market and with respect to which
the underlying issuer files financial statements stated in or readily comparable
to U.S. Generally Accepted Accounting Principles. By limiting its investments is
this manner, the Fund seeks to reduce its exposure to foreign trading markets
and potentially inadequate public financial information.
RESTRICTED AND ILLIQUID SECURITIES
The Fund will not purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets (taken at current market) would be invested in
securities that are illiquid. An illiquid security is any asset or investment
which the Fund can not sell in the ordinary course of business within seven days
at approximately the value at which the Fund has valued the asset or investment,
including securities that cannot be sold publicly due to legal or contractual
restrictions.
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Over the past several years strong institutional markets have developed for
various types of restricted securities, including repurchase agreements,
commercial paper, and some corporate bonds and notes. Although these securities
may be legally classified as "restricted," in recognition of the increased size
and liquidity of the institutional markets for unregistered securities and the
importance of institutional investors in the capital formation process, the
Securities and Exchange Commission ("SEC") has adopted a rule which allows for a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Pursuant to this rule, the Fund may
treat as liquid certain restricted securities which are determined, pursuant to
the policies adopted by the Fund's Board of Directors, to be liquid even if they
are legally "restricted" securities.
INVESTMENTS IN RELATIVELY NEW ISSUES
It is extremely unlikely that the Fund will invest in the common stock of new
issuers. If the Fund is to invest in credit instruments of relatively new
issuers, it will only be in those issues where management believes there are
strong covenant protections for the holder. If issuers meet the investment
criteria discussed above, the Fund may invest in securities without respect to
the age of the issuer. Investments in relatively new issuers i.e., those having
continuous operating histories of less than three years, may carry special risks
and may be more speculative because such companies are relatively unseasoned.
Such companies may also lack sufficient resources, may be unable to generate
internally the funds necessary for growth and may find external financing to be
unavailable on favorable terms or even totally unavailable. Those companies will
often be involved in the development or marketing of a new product with no
established market, which could lead to significant losses.
TEMPORARY DEFENSIVE INVESTMENTS
When, in the judgment of the Adviser, a defensive or conservative posture is
appropriate, the Fund may hold all or a portion of its assets in short-term U.S.
Government obligations, cash or cash equivalents. The adoption of such defensive
or conservative position does not constitute a change in the Fund's investment
objective.
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BORROWING
The Fund may also make use of bank borrowing as a temporary measure for
extraordinary or emergency purposes, such as for liquidity necessitated by
shareholder redemptions, and may use securities as collateral for such
borrowing. Such temporary borrowing may not exceed 5% of the value of the Fund's
total assets at the time of borrowing.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Up to 5% of its total assets may be invested in any one
investment company, provided that after its purchase no more than 3% of such
investment company's outstanding stock is owned by the Fund. The Fund's Adviser
will charge an advisory fee on the portion of the Fund's assets that are
invested in securities of other investment securities. Thus, shareholders will
be paying a "double fee" on such assets, as the advisers of such investment
companies will also be charging fees on such assets.
RESTRICTIONS ON INVESTMENTS
The Fund has adopted numerous investment restrictions, some of which are
fundamental policies that cannot be changed without shareholder approval and
others of which are operating investment restrictions that may be changed
without shareholder approval. Certain restrictions not described in this
Prospectus are set forth in full in the SAI. Except as expressly stated, none of
the Fund's policies or restrictions are fundamental.
PORTFOLIO TURNOVER
The Fund's investment policies and objectives, which emphasize long-term
holdings, would tend to keep the number of portfolio transactions at a
relatively low rate. The Fund's portfolio turnover rate for the year ended
October 31, 1994 was 5%. See "Financial Highlights" for a statement of the
Fund's expenses for the year ended October 31, 1994.
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MANAGEMENT OF THE FUND
THE INVESTMENT ADVISER
The Adviser manages the Fund's investments, provides various administrative
services and supervises the Fund's daily business affairs, subject to the
authority of the Fund's Board of Directors. EQSF Advisers, Inc. (the "Adviser"),
767 Third Avenue, New York, New York 10017-2023, serves as the Fund's investment
adviser. The Adviser, a New York corporation organized in 1986, is controlled by
Martin J. Whitman. In addition to serving as the Adviser to the Fund, EQSF
Advisers, Inc. also served as the Adviser to Equity Strategies Fund, Inc. until
April 5, 1994. Certain executive officers of the Fund are also executive
officers of the Adviser and M.J. Whitman, Inc., the distributor of Fund shares.
See "Distributor" below.
Mr. Whitman, the Chairman, Chief Executive Officer, President and Director of
the Fund and its Adviser is responsible for the day-to-day management of the
Fund's portfolio. His business experience during the past five years is as
follows:
Chairman, Chief Executive Officer and President of M.J. Whitman Holding Corp., a
holding company managing various investment businesses including M.J. Whitman,
Inc., the Fund's affiliated broker-dealer, M.J. Whitman Senior Debt Corp., a
broker of debt instruments, M.J. Whitman Realty Debt Corp., a firm brokering,
trading and investing in real estate notes, loans, mortgages and properties, and
M.J. Whitman Advisers, Inc., an investment adviser to individual and
institutional clients; Member of the Advisory Board and an Adjunct Professor at
the Yale School of Management; Director of Danielson Trust Company, a trust
company serving as the Fund's Custodian since December 1993, Herman's Holdings,
Inc., a holding company, and Herman's Sporting Goods, Inc., a retail sporting
goods chain; Managing Director of WHR Management Corporation, the general
partner and investment adviser to limited investment partnerships; Director of
Nabors Industries, Inc.; Chairman, President and Chief Investment Officer of
Danielson Holding Corporation ("DHC"), a holding corporation; President and
Chairman of Whitman Advisors, Ltd., an investment advisor; General Partner of
WHR Management Company, L.P., a firm managing investment partnerships; Director
of KCP Holding Company (KCP), an insurance holding company and subsidiary of
DHC, and National American Insurance Company of California, an insurance company
and subsidiary of KCP and DHC; Minority General Partner of Carl Marks Management
Company, L.P., the general partner of two investment partnerships; Managing
Director of Whitman Heffernan Rhein & Co., Inc., a financial advisory firm;
President and Chief Executive Officer of Martin J. Whitman & Co., Inc. (formerly
M.J. Whitman & Co., Inc.), a private investment company.
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ADVISORY FEES
On April 26, 1995, the Fund's shareholders approved a new Advisory Agreement
that was substantially identical to the previous Advisory Agreement except that
the advisory fee was increased to a flat rate of .90% of average daily net
assets of the Fund, and the Fund pays all costs of leased office space of or
allocable to the Fund. The Adviser's fee for the previous month is paid at the
beginning of the next month based upon the average daily net assets during the
previous month. Under the terms of the previous Advisory Agreement, the fee paid
to the Adviser for the fiscal year ended October 31, 1994, was $1,080,459 and
under the present Advisory Agreement the fee for such period would have been
$1,375,861.
The Fund pays all its expenses other than those assumed by the Adviser. Whenever
in any fiscal year, the total of the Fund's normal operating expenses, including
the investment advisory fee, but excluding brokerage commissions, interest and
taxes, exceeds 2 1/2% of the first $30 million of average daily net assets of
the Fund, plus 2% of the next $70 million and 1 1/2% of assets over $100
million, the Adviser is obligated to reimburse the Fund in an amount equal to
that excess. For the year ended October 31, 1994, no expense reimbursement was
required.
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DISTRIBUTOR
M.J. Whitman, Inc. ("MJW"), 767 Third Avenue, New York, NY 10017-2023, a New
York Corporation incorporated on November 30, 1994, is the successor
broker-dealer of M.J. Whitman, L.P., a Delaware limited partnership which was
dissolved in a corporate restructuring. Prior to February 28, 1995, shares of
the Fund were sold (with certain exceptions) with a maximum sales charge of
4.50% through MJW, acting as principal underwriter and exclusive agent of the
Fund. MJW is a registered broker-dealer and a member of the National Association
of Securities Dealers ("NASD"). MJW is a wholly-owned subsidiary of M.J. Whitman
Holding Corp. ("MJWHC"). Martin J. Whitman and Michael Carney are executive
officers of the Fund, MJW and MJWHC, as well as stockholders of MJWHC. Until
February 27, 1995, MJW retained the sales charges imposed on the sale of shares
and reallowed a portion of these charges to brokers who sold Fund shares.
Effective February 28, 1995, MJW and the Fund amended the terms of the
Distribution Agreement to provide distribution services to the Fund on an agency
basis without a sales charge. For the year ended October 31, 1994, the Fund was
advised that MJW received sales charges of approximately $1,503,000 of which
approximately $403,000 was retained by MJW and approximately $1,100,000 was
reallowed to non-affiliated broker-dealers who sold shares of the Fund.
PORTFOLIO TRADING PRACTICES
The Adviser is responsible on a day-to-day basis for executing the Fund's
portfolio transactions, and seeks to obtain the best available price and
execution. In principal trades it normally deals with market makers and will not
deal with any affiliated broker. In agency trades it seeks to obtain reasonable
commissions and may have the Fund pay a higher commission than the broker might
otherwise charge if the Fund determines that the commission is reasonable in
relation to the value of brokerage or research services provided by the broker
to the Adviser. In agency trades the Adviser generally uses the services of its
affiliated broker, if in the judgment of the Adviser its affiliate is able to
obtain a price and execution at least as favorable as other qualified brokers.
The Adviser intends to use MJW to effect portfolio transactions for the Fund.
For a more detailed description of the Fund's portfolio trading practices, see
"Portfolio Trading Practices" in the Statement of Additional Information.
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MANAGEMENT'S DISCUSSION OF
FUND PERFORMANCE
Mr. Whitman, the Chief Investment Officer reviews the investment strategies and
techniques pursued by the Adviser and the relevant market conditions and other
factors affecting the Fund's performance each quarter. These discussions are
made part of quarterly reports and semi-annual and annual financial statements
mailed to shareholders.
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CUSTODIAN AND TRANSFER AGENT
The Custodian acts as the depository for the Fund, is responsible for
safekeeping its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties. Danielson Trust Company, of San
Diego, California ("Daniel-son Trust"), a subsidiary of Danielson Holding
Corpora-tion ("DHC"), is Custodian of the Fund's assets. Mr. Whitman, the
Chairman, Chief Executive Officer, President and Direc-tor of the Fund and its
Adviser is a Director of Danielson Trust and DHC. As of October 31, 1994 the
Fund held 803,669 shares of common stock of DHC representing 3.43% of the Fund's
aggregate net assets.
Fund/Plan Services, Inc. ("FPS"), of Conshohocken, Pennsylvania, serves as the
Fund's Transfer Agent and also performs certain accounting and pricing services
for the Fund. FPS maintains shareholder records, answers shareholder inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
shareholder services. All shareholder inquiries should be directed to FPS. You
may write to: P.O. Box 874, Conshohocken, PA 19428-0874. You may telephone toll
free (800) 441-6580 or (610) 834-3500.
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DIVIDENDS,CAPITAL GAIN DISTRIBUTIONS
AND TAXES
GENERAL
The Fund expects to declare and pay distributions annually, normally in
December. The Fund will notify shareholders of the tax status of dividends and
capital gain distributions.
During the year ended October 31, 1994, the Fund qualified for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code,
and thus is not subject to Federal income tax on the portion of its net
investment income and net realized capital gain that it distributes to
shareholders. The Fund intends to continue its qualification as a regulated
investment company in future years, unless it determines that such tax treatment
would not be advantageous to the Fund and its shareholders. The Fund intends to
distribute substantially all of its net investment income and net realized
capital gain.
For the year ended October 31, 1994, the Fund distributed net investment income
of approximately $1,693,747 and net realized capital gains on investments of
approximately $1,049,977.
Distributions from net investment income and short-term capital gains are
taxable as ordinary income. A portion of these distributions may qualify for the
corporate dividends-received deduction available to corporate shareholders.
Distributions of net long-term capital gain realized by the Fund from the
purchase and sale of securities held by it for more than one year will be
taxable to shareholders as long-term capital gain (even if the shareholder has
held the shares for less than one year). However, if a shareholder who has
received a capital gain distribution suffers a loss on the sale of his shares
not more than six months after purchase, the loss will be treated as a long-term
capital loss to the extent of the capital gains distribution received.
Shareholders receiving distributions in the form of additional shares will be
treated for federal income tax purposes in the same manner as if they had
received cash distributions equal in value to the shares received, and will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Fund on the date of distribution.
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Shareholders will generally recognize taxable gain or loss on a redemption of
shares in an amount equal to the difference between the redemption proceeds and
the shareholder's basis in the shares redeemed. This gain or loss will generally
be capital, assuming that the shareholder held the shares as a capital asset,
and will be long-term capital gain or loss if the shares were held for longer
than one year. A loss recognized on the disposition of shares of the Fund will
be disallowed if identical (or substantially identical) shares are acquired in a
61-day period beginning 30 days before and ending 30 days after the date of
disposition.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes or withholding taxes. Shareholders
should consult their tax advisers as to the tax consequences to them of
ownership of shares of the Fund.
If a shareholder purchases shares shortly before the record date of a dividend
or capital gain distribution, such distribution will be taxable even though it
may represent in whole or in part a return of the purchase price and the value
of the shares drops by the approximate amount of the distribution.
DISTRIBUTION OPTION
Shareholders should specify on their account application how they wish to
receive distributions. If no election is made on the account application both
distributions will automatically be reinvested. The Fund offers four options:
(1) all income dividends and capital gain distributions paid in cash;
(2) income dividends paid in cash with capital gain distributions rein-
vested;
(3) income dividends reinvested at net asset value with capital gain
distributions paid in cash;
(4) both distributions automatically reinvested in additional shares of
the Fund.
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Any distribution payments returned by the post office as undeliverable will be
reinvested in additional shares of the Fund at the net asset value next
determined.
WITHHOLDING
The Fund may be required to withhold Federal income tax at the rate of 31%
(backup withholding) from dividend, capital gain and redemption payments to
shareholders (a) who fail to furnish the Fund with and to certify the payee's
correct taxpayer identification number or social security number, (b) when the
Internal Revenue Service notifies the Fund that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect or (c) when the payee fails to certify that he is not
subject to backup withholding. Investors should be sure to provide this
information when they complete the application. Certain foreign accounts may be
subject to U.S Withholding Tax on ordinary distributions. Investors should be
sure to provide the place of residence as well as citizenship status when
completing the application.
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BUSINESS POLICIES
BUSINESS HOURS
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The NYSE and the Fund will be closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
DETERMINING NET ASSET VALUE
Net asset value per share is calculated as of the close of trading (currently
4:00 P.M., New York time) of the regular session of the NYSE. Net asset value is
determined by totaling the value of all portfolio securities, cash, and other
assets, including accrued interest and dividends, owned by the Fund, and
subtracting from that total all liabilities, including accrued expenses. The
total net asset value is divided by the total number of shares outstanding to
determine the net asset value of each share. Securities in the Fund's portfolio
will be valued based on market quotes, or, if quotes are not available, by a
method the Board of Directors of the Fund believes would reflect most accurately
the securities' fair value.
Short-term securities with original or remaining maturities in excess of 60 days
are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are amortized to maturity based on
their cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund on the day, based on the value determined on the day. This
amortized cost method will be used unless the Board of Directors determines that
such method does not represent fair value.
Securities traded on any securities exchange or other market trading system
which reports actual transaction prices on a contemporaneous basis are valued at
the last quoted sales price or in the absence of closing sales prices on that
day, securities will be valued at the mean between the closing bid and asked
price. Other readily marketable securities are valued at the mean between the
closing bid and asked prices. Due to the nature of the over-the-counter market
for collateralized mortgage obligations, the Fund will use an independent
pricing service to value these securities. Illiquid securities and other
securities and assets for which market quotations are not readily available are
valued at "fair value", as determined in good faith by or under the direction of
the Board of Directors of the Fund.
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SHARE CERTIFICATES
No certificates representing shares of the Fund will be delivered to a
shareholder when shares are either purchased alone or in connection with the
Automatic Distribution and Dividend Reinvestment Plan, unless the shareholder
submits a written request for the issuance of share certificates. The investor
retains full dividend and voting rights in any case and will receive, in lieu of
a certificate, a statement from the Fund's transfer agent indicating the number
of full and fractional shares, if any that the investor owns. While there is no
charge for the issuance of share certificates, many shareholders choose not to
request them in order to facilitate redemptions and transfers and to avoid the
cost and inconvenience of replacing a certificate if it is lost.
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HOW TO PURCHASE SHARES
The price paid for shares is the net asset value next determined following
receipt of the purchase order in proper form. See "Determining Net Asset Value."
All purchase orders should be directed to the Fund's transfer
agent, Fund/Plan Services, Inc. ("FPS").
THROUGH AN AUTHORIZED BROKER-DEALER OR INVESTMENT ADVISER
Shares of the Fund may also be purchased through an investor's broker-dealer or
investment adviser. The broker-dealer must be a member in good standing with the
NASD and have entered into a selling agreement with the Fund's distributor, MJW.
Investment advisers must be registered under federal securities law and
authorized by the Fund or Adviser to sell Fund shares. Transactions in Fund
shares made through an investor's dealer or investment adviser may be subject to
postage or other charges imposed by the dealer or investment adviser and they
may also impose higher initial or additional amounts for investment than those
established by the Fund. An investor's broker-dealer or investment adviser is
responsible for forwarding payment promptly. The Fund reserves the right to
cancel any purchase order for which payment has not been received by the fifth
business day following receipt of the purchase order. Telephone purchase orders
will only be accepted from financial institutions which have been approved
previously by the Fund or Adviser.
NEW ACCOUNTS
An account application must be completed and signed for each new account opened,
regardless of the method chosen for making the initial investment.
INITIAL INVESTMENT
The minimum initial investment is $1,000. Payment may be made by check or money
order payable to "Third Avenue Value Fund, Inc."
BY MAIL Third Avenue Value Fund, Inc.
c/o Fund/Plan Services, Inc. (FPS)
P. O. Box 874
Conshohocken, PA 19428-0874
Checks will be accepted if drawn in U.S. currency on a domestic bank.
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Checks drawn against a non-U.S. bank may be subject to collection delays and
will be accepted only upon actual receipt of the funds by the transfer agent,
FPS. The Fund will not accept a check endorsed over by a third-party. A charge
(minimum of $20) will be imposed if any check used for the purchase of Fund
shares is returned unpaid. Investors who purchase Fund shares by check or money
order may not receive redemption proceeds until there is reasonable belief that
the check has cleared, which may take up to fifteen calendar days after payment
has been received.
BY WIRE
Prior to sending wire instructions, notify FPS (800-441-6580) to insure proper
credit to your account. Direct your bank to wire funds as follows:
United Missouri Bank KC N.A.
Kansas City, MO
ABA #: 10-10-00695
For FPS Account #: 98-7037-071-9
For further credit to: Third Avenue Value Fund, Inc.
(Your name, exact account title and account number)
Heavy wire traffic over the Federal Reserve System may delay the arrival of
purchase orders made by wire.
ADDITIONAL INVESTMENTS BY MAIL
Subsequent investments should be accompanied by the "payment stub" attached to
the shareholder's account statement and may be made in minimum amounts of $1,000
or more and mailed to:
Third Avenue Value Fund, Inc.
c/o Fund/Plan Services, Inc. ("FPS")
P.O. Box 412797
Kansas City, MO 64141-2797
At the sole discretion of the Fund, the initial and any additional investment
amounts may be waived in the new accounts opened by existing shareholders for
additional family members and by officers, directors or employees of the Fund,
MJW, the Adviser or any affiliate of the Adviser (including their spouses and
children under age 21).
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ADDITIONAL INVESTMENTS THROUGH THE AUTOMATIC INVESTMENT PLAN
This Plan provides shareholders with a convenient method by which they may
automatically make monthly subsequent purchases. A predetermined amount,
selected by the shareholder, will be deducted from the shareholder's checking
account. Subsequent investments under this Plan are subject to a monthly minimum
of $200. The Automatic Investment Plan option may be elected on the application.
INDIVIDUAL RETIREMENT ACCOUNT
The Fund's Individual Retirement Account ("IRA") application and additional
forms required may be obtained by contacting Fund/Plan Services at (800)
441-6580. For IRA's the initial minimum is $500 and the minimum subsequent
contribution required is $200. The account will be maintained by the custodian,
Semper Trust Company, which currently charges an annual maintenance fee of $12.
Fees are subject to change by Semper Trust Company.
OTHER RETIREMENT PLANS
Investors who are self-employed may purchase shares of the Fund through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. However, the Fund does not currently act as a
sponsor or administrator for such plans. Fund shares may also be purchased for
other types of qualified pension or profit sharing plans which are
employer-sponsored, including deferred compensation or salary reduction plans
known as "401(k) Plans" which give participants the right to defer portions of
their compensation for investment on a tax-deferred basis until distributions
are made from the plan. See "New Accounts" above.
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HOW TO REDEEM SHARES
Shareholders may redeem shares on any business day during which the NYSE is
open. All redemption requests should be directed to FPS. Fund shares will be
redeemed at the net asset value next calculated after such request is received
by FPS in proper form. Redemption requests that contain a restriction as to the
time, date or share price at which the redemption is to be effective will not be
honored.
BY MAIL
Send a written request, together with any share certificates that have been
issued, to: Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428-0874
Written redemption requests, stock powers and any share certificates issued must
be submitted and signed exactly as the account is registered. Such request
generally requires a signature guarantee and additional documents. See
"Signature Guarantee/Other Documents."
TELEPHONE REDEMPTION SERVICE
Shareholders who wish to redeem shares by telephone may elect this service on
the application. Such shareholders may thereafter redeem unissued shares valued
at not less than $1,000 on any business day by calling FPS at (800) 441-6580
prior to 4:00 p.m. New York time.
The Fund and its transfer agent, FPS, will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund's
transfer agent will require personal identification information before accepting
a telephone redemption order. If the transfer agent fails to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
Shareholders who did not previously elect the Telephone Redemption Service on
their application, or wish to change any information previously provided,
including the address of record or the bank to which redemption proceeds are to
be wired, must submit a signature guaranteed letter of instructions. See
"Signature Guarantees and Other Documents."
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FEES
There is no charge for redemption of shares tendered directly to the transfer
agent, FPS. FPS currently charges a wire fee of $9 for payment of redemption
proceeds by federal funds. FPS will automatically deduct the wire fee from the
redemption proceeds. Broker-dealers handling redemption transactions generally
will charge a service fee.
REDEMPTION WITHOUT NOTICE
The Fund has the right, at any time and without prior notice to a shareholder,
to redeem shares held in any account registered in the name of such shareholder
at current net asset value, if and to the extent that such redemption is
necessary to reimburse the Fund for any loss sustained by reason of the failure
of such shareholder to make full payment for shares of the Fund previously
purchased or subscribed for by such shareholder.
ACCOUNT MINIMUM
A shareholder selling a partial amount of shares must leave at least $500 worth
of shares to keep the account open, in the case of an IRA account, at least
$200. The Fund may also, upon 30 days' prior written notice to a shareholder,
redeem shares in any account, other than an IRA account, containing shares
currently having an aggregate net asset value, not attributed to market
fluctuations, of less than $500.
PAYMENT OF REDEMPTION PROCEEDS
The Fund will usually make payment for redemptions of Fund shares within one
business day, but not later than seven calendar days after receipt of such
redemption requests. However, if the Fund has not collected the purchase price
of the shares being redeemed, the redemption will not be processed until such
collection has been completed.
Redemption of recently purchased Fund shares that have been paid for by check
may be delayed until the Fund has reasonable belief that the check has cleared,
which may take up to fifteen calendar days after payment of the purchase.
Investors who anticipate that they may wish to redeem their shares before
fifteen calendar days are advised to pay for their shares by federal funds wire.
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WIRED PROCEEDS
In the case of redemption proceeds that are wired to a shareholder's bank,
payment will be transmitted only on days that commercial banks are open for
business and only to the bank and account previously authorized on the
application or shareholder's signature guaranteed letter of instructions.
Neither the Fund nor FPS will be responsible for any delays in wired redemption
proceeds due to heavy wire traffic over the Federal Reserve System.
SIGNATURE GUARANTEES/OTHER DOCUMENTS
Signatures on any (1) request for redemption, payable to the registered
shareholder involving $5,000 or more (2) redemption proceeds payable to and/or
mailed to other than the registered shareholder, or (3) requests to transfer
shares must be guaranteed by an "eligible guarantor institution" as such term is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, which
includes certain banks, brokers, dealers, credit unions, securities exchanges
and associations, clearing agencies and savings associations. A notary public is
not an acceptable guarantor. ADDITIONAL DOCUMENTS MAY BE REQUIRED WHEN SHARES
ARE REGISTERED IN THE NAME OF A CORPORATION, PARTNERSHIP, ASSOCIATION, AGENT,
FIDUCIARY, TRUST, ESTATE OR OTHER ORGANIZATION. Additional tax documents may
also be required in the case of redemptions from IRA accounts. For further
information call FPS toll free at (800) 441-6580.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders owning or purchasing shares of the Fund having a current value of
at least $10,000 may participate in a Systematic Withdrawal Plan which provides
for automatic redemption of at least $100 monthly, quarterly, semi-annually, or
annually. Shareholders may establish a Systematic Withdrawal Plan by sending a
letter to the Transfer Agent, Fund/Plan Services, Inc. ("FPS"). Notice of all
changes concerning the Systematic Withdrawal Plan must be received by FPS, at
least two weeks prior to the next scheduled payment. Further information
regarding the Systematic Withdrawal Plan and its requirements can be obtained by
contacting FPS at (800) 441-6580.
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SHAREHOLDER SERVICES
The Fund provides you with helpful services and information about your account.
STATEMENTS AND REPORTS
o A statement after every transaction.
o Annual account statement reflecting all transactions for the year.
o Tax information will be mailed by January 31 of each year, a copy of
which will also be filed with the Internal Revenue Service.
o At least twice a year, the financial statements of the Fund with a
summary of portfolio composition and performance.
o The Fund intends to continue to mail to shareholders quarterly reports
containing a President's letter and a summary of portfolio changes,
composition and performance.
The Fund pays for shareholder services but not for special services such as
requests for historical transcripts of accounts. The Fund's transfer agent, FPS
currently charges $10 per year for duplication of historical account activity
records, with a maximum fee of $100.
TELEPHONE INFORMATION
Your Account: Questions about your account, purchases, redemptions and
distributions can be answered by Fund/Plan Services, Inc., the
Transfer Agent.
Call toll free (800) 441-6580 or
(610) 834-3500.
The Fund: Questions about the Third Avenue Value Fund, Inc. can be
answered by the Fund's telephone representatives Monday
through Friday 9:00 AM to 5:00 PM (New York time). Call toll
free (800) 443-1021 or (212) 888-6580.
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To Redeem Shares: To redeem shares by telephone, call Fund/Plan Services, the
Transfer Agent. Call toll free (800) 441-6580 or (610)
834-3500.
TRANSFER OF OWNERSHIP
A shareholder may transfer Fund shares or change the name or form in which the
shares are registered by writing to the Fund's transfer agent, FPS. The letter
of instruction must clearly identify the account number, name(s) and number of
shares to be transferred, and provide a certified tax identification number by
way of a completed new account application or W-9 form, and include the
signature(s) of all registered owners, and any share certificates issued. The
signature(s) on the transfer instructions or any stock power must be guaranteed
as described under "Signature Guarantees/Other Documents."
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S CORPORATION
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such information
or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obliger as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligations.
II. Nature and provisions of the obligation.
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
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BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC", and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rate "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied "BB" or "BB" rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
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C1 - The rating "C1" is reserved for income bonds on which no interest is
being paid.
D - Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, fluctuation
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risk appear somewhat greater than
the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
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Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers: 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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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
Esther Vazquez, Secretary
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
DISTRIBUTOR
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
TRANSFER AGENT
Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428-0874
(610) 834-3500
(800) 441-6580 (toll-free)
CUSTODIAN
Danielson Trust Company
525 B Street
San Diego, CA 92101-4492
[logo]
THIRD AVENUE VALUE FUND
767 THIRD AVENUE
NEW YORK, NY 10017
Phone (212) 888-6685
Toll Free (800) 443-1021
