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FIRST QUARTER REPORT
(Unaudited)
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January 31, 1996
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Dear Fellow Shareholders:
At January 31, 1996, the unaudited net asset value attributable to the
16,531,701 common shares outstanding of Third Avenue Value Fund, Inc. ("TAVF",
or the "Fund") was $22.05. This compares with net asset values, as adjusted for
subsequent distributions, of $16.86 per share at January 31, 1995; and $20.98
per share at October 31, 1995. At February 13, 1996, the unaudited net asset
value was $22.53 per share.
QUARTERLY ACTIVITY
The most important happening during the first quarter of fiscal 1996 was the
acquisition by the Fund of $52,800,000 principal amount of unsecured obligations
of Kmart Corp. ("Kmart"). These obligations encompass Kmart Trade Payables and
Kmart Debentures (together "Kmart Credits"). Portfolio changes during the first
quarter were as follows:
PRINCIPAL AMOUNT
OR
NUMBER OF SHARES NEW POSITIONS ACQUIRED
$52,800,000 Kmart Credits
41,000 shares American Physicians Service
Group, Inc. Common Stock
("APS Common")
100,000 shares Analogic Corp. Common Stock
("Analogic Common")
25,000 shares Electroglas Inc. Common Stock
("Electroglas Common")
62,500 shares First Colorado Bancorp, Inc.
Common Stock ("FCB Common")
114,700 shares Sequoia Systems, Inc. Common
Stock ("Sequoia Common")
120,000 shares United Coasts Corp. Common Stock
("United Coasts Common")
47,000 shares Vertex Communications Corp.
Common Stock ("Vertex Common")
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PRINCIPAL AMOUNT OR
NUMBER OF SHARES POSITIONS ACQUIRED AND ELIMINATED
250,000 shares Kmart Corp. Common Stock
("Kmart Common")
INCREASES IN EXISTING POSITIONS
12,600 shares Acuson Corp. Common Stock
("Acuson Common")
55,000 shares Carver Federal Savings Bank Common
Stock ("Carver Common")
58,000 shares Evans & Sutherland Computer Corp.
Common Stock ("ESCC Common")
335,800 shares Financial Security Assurance
Holdings Ltd. Common Stock ("FSA
Common")
35,000 shares H.B. Fuller Co. Common Stock
("Fuller Common")
50,000 shares Legg Mason Inc. Common Stock
("Legg Mason Common")
25,000 shares Perini Corp. Common Stock
("Perini Common")
22,300 shares Piper Jaffray Companies Inc.
Common Stock ("Piper Common")
243,438 shares Progressions Health Systems, Inc.
Common Stock ("Progressions
Common")
POSITIONS ELIMINATED
3,200 shares EVEREN Capital Corp. Series A
Preferred Stock ("EVEREN
Preferred")
58,000 shares Applied Immune Sciences, Inc.
Common Stock ("Applied Immune
Common")
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PRINCIPAL AMOUNT OR
NUMBER OF SHARES POSITIONS ELIMINATED (CONTINUED)
500,000 shares Capital Guaranty Corp. Common
Stock ("Cap Guaranty Common")
100,000 shares GP Financial Corp. Common Stock
("GP Common")
100,000 shares Kemper Corp. Common Stock
("Kemper Common")
191,200 shares Kentucky Medical Insurance Co.
Common Stock ("KMI Common")
150,000 shares Price Enterprises, Inc. Common
Stock ("Price Common")
571,429 units UnionFed Financial Corp. Warrants
POSITIONS REDUCED
$313,671 Eljer Industries, Inc. Bank Debt
("Eljer Bank Debt")
$57,720 Olympia & York Maiden Lane
Finance Corp. Secured Notes
("O&Y Notes")
805,900 shares Charming Shoppes, Inc. Common
Stock ("Charming Common")
34,083 shares LaSalle Re Limited Common Stock
("LaSalle Common")
The acquisitions of common stock positions in Acuson, APS, Analogic,
Electroglas, ESCC, Sequoia and Vertex were part and parcel of the Fund's
attempts to build up its portfolio of equity interests in high tech issuers
which seem to be extremely well financed; which we believe have reasonably good
long-term growth prospects; and where the prices paid by TAVF for the common
stocks simulate, at least as measured by premiums over book value, the prices
that would be paid by first stage venture capitalists financing such companies
AB INITIO.
FCB Common and Carver Common are both small depository institutions, both are
extremely well capitalized, and the Fund was able to acquire common stock
positions at meaningful discounts from book value. GP Common was sold after that
bank concluded a large-sized acquisition at a price that represented a very
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substantial premium over tangible asset value. GP is attempting to expand
aggressively in the "low doc" and "no doc" home mortgage business outside its
home New York market.
United Coasts is expected to be merged with its parent, ACMAT Corp., probably in
the second or third quarter of calendar 1996. The acquisition of United Coasts
Common ought to permit TAVF to expand its position in ACMAT Class A Common Stock
("ACMAT Common") at a price that represents a discount from trading prices for
ACMAT Common. Progressions Common is a "penny stock" where the Fund probably
will never be able to accumulate a meaningful position. The purchase of small,
additional positions in the common stocks of Fuller, Legg Mason, Perini and
Piper took place as shares were offered to us on the bid sides of their markets.
I'm slightly nervous about Perini's inability to turn an operating profit so
far, and Piper's litigation/arbitration problems are disconcerting. But both
issues remain fairly attractive for TAVF--safe and cheap.
EVEREN Preferred was an insignificant holding received as part of the
consideration involved in the takeover of Kemper Corp. The O&Y and Eljer
reductions reflect pay downs of the O&Y Notes and Eljer Bank Debt. Cap Guaranty
was acquired by FSA during the quarter, in what was essentially an exchange of
stock transaction. This transaction resulted in the elimination of the Fund's
holdings of Cap Guaranty Common as well as the increase in TAVF's holdings of
FSA Common. LaSalle Re went public during the quarter. The Fund participated
with other original shareholders and sold a portion of its common stock position
in the initial public offering.
The environment for retailers in the US is probably as dismal as it has been
since the 1930's. I made the policy decisions that the Fund ought to concentrate
its retail holdings only in the common stocks of companies with exceptionally
strong finances--Sbarro, Inc. and Weis Markets, Inc.--and that where issuers did
not have impeccable finances, investments ought to be restricted to senior debt
instruments--Kmart Credits. TAVF, therefore, eliminated its positions in
Charming Common (completed subsequent to the end of the quarter), Kmart Common
and Price Common. It is likely that Charming Common and Kmart Common were cheap
at the prices at which they were sold by the Fund; however, they did not appear
to be safe enough given the prospects that lots of things conceivably could go
wrong in 1996 and/or 1997. The sale of Price Common may well prove to have been
a mistake in that this shopping center company is reasonably well-financed.
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Applied Immune Common, Kemper Common and KMI Common were each risk arbitrage
situations which worked out as planned. Each common stock was converted to cash
in merger and/or acquisition transactions.
THE REASONING BEHIND THE ACQUISITION OF KMART CREDITS
The US economy in the past 20 to 25 years has been characterized by industry
after industry going through difficult periods that, for the particular industry
at the time of difficulty, were as bad as, or worse than, anything experienced
by them during the Great Depression of the 1930's. Need I point out the economic
traumas in the last twenty years visited upon, among others, the energy
industry, real estate, savings and loans, commercial banks, automobiles, steel,
aluminum, machine tools, row crops and airlines.
A factor that distinguishes the 1980 to 1996 industry depressions from the
1930's is that in modern times, the depressions were self-contained, and
confined to particular industries without a domino effect. The severe downturn
in energy demand, and energy prices, after 1982, for example, did not lead to a
draconian drop in Gross Domestic Product ("GDP"), although by some measures,
energy and related activities had accounted for almost 10% of GDP.
Retailing is now experiencing just such a devastating depression. The country is
overstored; consumers in general have piled up much too much debt; and large
numbers of retail chains are unsoundly financed with heavy debt loads, owing
financial institutions, trade vendors and landlords. A huge number of retailing
companies have recently sought relief from creditors by filing under Chapter 11
or Chapter 7 of the Bankruptcy Code, including Barneys, Jamesway, Merry Go
Round, Bradlees, Caldors and Ames. Many more seem bound to seek such relief in
1996. In addition, over the long term, there may well be dramatic changes in
consumer shopping when, as and if interactive shopping in cyberspace replaces,
in part, in-person store shopping.
TAVF, and a previous fund also managed by the Adviser, have fared well by
acquiring securities of companies at the very time that these companies were
going through economic hard times. Indeed, these purchases generally were made
when immediate outlooks were quite bleak as, for example, the purchase of
secured bank debt issued by an oil service company in 1986 and 1987; the
acquisition of real estate common stocks and depository institution common
stocks in 1991 and 1992; the purchase of title insurance common stocks in 1994;
and even the acquisition of derivative instruments--inverse floaters--in late
1994 and early 1995.
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The strategy for faring well with the acquisition of securities of companies
operating in ultra-depressed industries, or which, like Kmart also had troubles
unique to themselves, was twofold: restrict the ownership of such securities to
the common stocks of issuers which had exceptional financial strength and
staying power; or else own only those debt instruments which were senior enough
so that in the event of a reorganization, either in Chapter 11 or out of court,
those credit instruments would be likely to work-out profitably compared with
the Fund's cost to acquire the credits. For practical purposes, Kmart Credits
are currently the most senior issue of Kmart.
Kmart is a monster-sized discount retailer operating approximately 2,500 stores
in all 50 US states, Puerto Rico and Canada; in addition, the Company has
interests in retailing operations in Mexico, the Czech Republic, Slovokia and
Singapore. Its retail facilities consist mostly of stand-alone "big boxes" of
100,000 or more square feet, of which about 70% are six years old or less, or
have been extensively refurbished since 1990. Under prior management--new
management has been in place since mid-1995-- Kmart appears to have been
dreadfully managed.
Annual Kmart revenues exceed $30 billion. Long-term debt, virtually all
unsecured, is around $2 billion. Trade accounts payable and notes payable, both
unsecured, probably approximate $3 billion during the low post-Christmas
inventory period. Stated stockholder equity is well over $5 billion. Minimum
lease rentals payable over the next 25 years, or so, probably aggregate $14
billion.
TAVF owns nine different Kmart Credits, one of which is a pool of trade
payables, and eight of which are debentures each of which are governed by the
same Trust Indenture. 57% of the principal amount of Kmart Credits acquired by
TAVF mature within the next 15 months; 20% in two years to ten years; and 23% in
26 and 27 years. The average price paid by the Fund for the Kmart Credits was
74% of the principal amount of claim. The indicated Yield To Maturity ("YTM")
for the Kmart Credits was around 18%. This YTM compares with the YTM for the
Standard & Poor's Bond Yield Index for Industrial Issues rated BB (the rating of
Kmart Credits) of 9%. Except in the case of zero coupon bonds, YTM is an
artificial calculation, because of the assumptions about the reinvestment of
interest payments. However, YTM is an essential tool for comparing yields
between, and among, different credit issues. The Fund's YTM for the Kmart
Credits it holds was, at the times of acquisition, about twice that of the most
comparable index.
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If Kmart were to seek relief under Chapter 11, and if, as seemed highly likely,
the Kmart Credits were to participate in the reorganization rather than be
reinstated, the key number to focus on in measuring return would be the dollar
price, I.E., 74% of the principal amount of claim. On the other hand, if the
Kmart Credits were to continue to be performing loans, the key number to focus
on is YTM, I.E., 18%.
At the times of acquisition by TAVF, mostly December 1995, I really did not have
a good judgment as to whether or not Kmart would seek relief from creditors
under Chapter 11. Whether or not Kmart would have to seek Chapter 11 relief
really bottomed directly on whether or not Kmart would continue to have access
to capital markets rather than specifically on how the business performed. Now a
Chapter 11 seems relatively unlikely. Rather, Kmart seems to have good prospects
for marketing a new issue of $500 million to $800 million of subordinated
convertibles, which would result in all issues held by the Fund benefiting from
a material credit enhancement.
The one thing I had a strong judgment about at the time the Fund purchased Kmart
Credits was that if Kmart did file for Chapter 11 relief, the creditors in the
reorganization would receive new securities with a value at least equal to the
principal amount or, more likely, a value equal to the principal amount plus
accrued interest. Assuming a 1 1/2 year Chapter 11 case filed in January 1996,
at the end of which the principal amount would be paid on the Kmart Credits, the
Fund would earn an annualized return of around 22%. Assuming a one year case,
and a return of principal plus 6% interest, TAVF's return would be 43%. While
unsecured creditors are not, as a matter of law, entitled to post-petition
interest, it is hard for me to see how Kmart Credits would be denied
post-petition interest as a practical matter if, in the Reorganization Plan, any
values were to be given to the existing Kmart Common.
In a reorganization, the values to be paid on Kmart Credits would be in new
issues of the reorganized Kmart, including new unsecured credits, and probably
new Kmart Common. Indeed, old Kmart creditors might well end up the control
shareholders of a reorganized Kmart, if that is what it would take in
reorganization value to obtain for Kmart Credits a value approximating the
principal amount of the claims of creditors.
A potential Kmart reorganization would be one of the more simple ones. For
practical purposes, there is only one class of creditors "similarly
situated"--that is, the unsecured creditors and lease obligations. Insofar as
lease obligations are rejected in a Chapter 11, the landlords mostly would
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become unsecured creditors entitled, at the maximum, to three years unpaid rent.
Kmart at present has no material secured debt; and no subordinate debt
outstanding.
Retail reorganizations under Chapter 11 tend to be relatively easy to do
(compared with many other businesses) and Kmart strikes me as one of the
easiest. In essence, Kmart consists of, say, 2,500 separate businesses (each
store), some good, some bad. The reorganization process would give Kmart a way
to get out of the bad businesses at minimal cost through disaffirming leases
where the maximum obligations would be three years unpaid rents. In addition,
conducting GOB, Going Out of Business, sales in stores to be closed might
generate substantial amounts of cash. Kmart might emerge from the reorganization
process well-financed, operating in its most profitable, say, 1,800 to 2,000
stores.
There could also be considerable value for Kmart if Kmart were to sublease
various stand alone "big boxes" - in such cases, these stores would be operated
in the future as, perhaps, "Home Depot", "Toys R Us", or even "Wal-Mart". "Big
boxes" are the one type of retail real estate where demand continues to be good.
If Kmart Credits remain performing loans, I think the prospects are fairly good
that returns to the Fund will be better than an 18% YTM. TAVF, in that instance,
might look forward to a "yield to an improved credit rating", something that
might result in substantial capital appreciation for the longer term Kmart
Credits held.
If Kmart were to seek Chapter 11 relief, there are quite a number of risks, or
unpredictables, that TAVF would face. I'd enumerate them as follows:
1) There are huge market risks. A number of institutional investors
have told me that they think I'm probably right about the workout
values for Kmart Credits, but they think they will acquire them a lot
cheaper if Kmart files. They would not buy just yet. Put otherwise,
the Kmart Credits for which the Fund paid 74% might become available
at, say, 40% or 45%.
2) Kmart might just dawdle along for a few years with its credit
rating gradually deteriorating as the Company goes deeper and deeper
into debt, with most of the new debt being secured and effectively
senior to the Kmart Credits. There are virtually no covenant
protections for the Kmart Credits.
3) In a Reorganization Plan, the proponent of the Plan might attempt
to reinstate long-term, low coupon, Kmart Credits rather than have
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such instruments participate in the Reorganization. If reinstated,
these Kmart Credits would remain intact as is, back interest would be
paid and probably the equivalent of interest on interest. The
appreciation potential of these Kmart Credits which were reinstated
would be materially less than would be the case if the Kmart Credits
participated in the Reorganization. Since, for reorganization
purposes, all Kmart Credits are "similarly situated", it seems
unlikely that a portion of such Kmart Credits could be chosen to
participate while others would be chosen for reinstatement.
4) $25 million of the Fund's $52.8 million of Kmart Credits represent
an interest in trade account payables. In a reorganization, trade
creditors might have a different agenda than TAVF in that it might be
much more important to the trade to keep shipping to Kmart rather than
pressing for full payment of their claims.
5) There is really no way of knowing how long a Chapter 11 Case will
last. Time would become excruciatingly important insofar as a holder
of Kmart Credits were not to receive post-petition interest or the
claim were to be paid less than in full.
6) The full value that I expect would be paid on the Fund's holdings
of Kmart Credits is a reorganization value, not a market value. The
differences between reorganization value and market value tend to be
quite small insofar as the securities issued in a reorganization are
new debt securities. However, the differences in common stock prices
can be huge. For example, say that in a Reorganization Plan, the
reorganization value for a new issue of Kmart Common, backed by an
Investment Banker's opinion, is deemed to be $10 per share. This might
not prevent initial market prices for the common stock from reflecting
a trading value of $3 or $5 or $6.
When all is said and done, I just don't think the commitment to Kmart Credits is
a high risk venture for the Fund as measured by investment, as distinct from
market, risk. One of the important safety factors is that it tends to be a lot
easier for trained analysts to deal in credits because so many of the variables
revolve around understanding precise contract rights rather than predicting
economic and financial outlooks.
While TAVF may have acquired its Kmart Credits on an attractive basis for the
Fund, it also was helpful to the sellers of Kmart Credits who tended to have
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different agendas than TAVF. The different agendas for these other investors
seem to encompass the following:
1) Investors unwilling to take market risk;
2) Investors required to sell securities which are no longer rated
investment grade;
3) Investors unable to hold debt securities where cash service might
be interrupted;
4) Investors, such as factors owning trade payables from retailers,
who need portfolio insurance or diversification given the huge number
of insolvencies, and near insolvencies, in the retail community.
An additional safety factor to consider is that the Kmart Credits are extremely
unlikely to ever be wiped-out. Suppose I am way off base about the economic
values inherent in Kmart and that I completely misread what is to happen in a
Kmart reorganization. Even so, considerable value ought to be left for Kmart
Credits, even if substantially less than 74% of principal. Kmart Common, on the
other hand, could well become a wipe-out. I think there is a tendency in the
financial community to reason that if Kmart Common is high risk, then IPSO
FACTO, Kmart Credits are high risk. This is just not reality.
Finally, the investment in Kmart Credits certainly ought to be market neutral,
even more so than many other securities in the TAVF portfolio. How the Fund
fares with the Kmart Credits ought to be a function of how Kmart fares and not a
function of what happens to the Dow-Jones Industrials or other indices. Perhaps
the Kmart Credits ought to be viewed as hedging TAVF against general market
risk.
DIVERSIFICATION
Despite the major commitment to Kmart Credits, the Fund remains well
diversified. A principal reason for retaining me as a money manager is to have
TAVF make large investments in situations when conservative analysis indicates
that securities such as Kmart Credits are safe and cheap. However, neither in
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Kmart, nor in any other situation, will the Fund commit so much money to one
situation as to "bet the company." The principal elements of the Fund's
portfolio at January 31, 1996, accounting for about 2/3 of net assets, were as
follows:
ASSET CLASS PERCENT OF NET ASSETS
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Cash & Equivalents 18.9%
High Tech Common Stocks 15.7
Broker/Dealer-Money Manager
Common Stocks 10.9
Kmart Credits 10.5
Financial Insurance Common Stocks 10.0
I will write you again when we publish the report for the quarter to end April
30, 1996.
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 JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL % OF
AMOUNT ($) ISSUES VALUE NET ASSETS
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BANK DEBT - 4.25%
<S> <C> <C> <C>
Oil 1,889,887 Cimarron Petroleum Corp. (c) (d) $ 1,909,112 0.52%
-----------
Plumbing Fixtures 13,993,025 Eljer Industries, Inc. (c) (e) 13,573,234 3.73%
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TOTAL BANK DEBT (Cost $14,694,941) 15,482,346
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BONDS - 11.19%
Membership Sports & 2,891,000 USTrails Inc., Secured Notes 12%,
Recreation Clubs 07/15/98 1,980,335 0.54%
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Real Estate 958,997 Olympia & York Maiden Lane Finance Corp.,
Secured Notes 10.375%, 12/31/95 * 445,933 0.13%
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Retail 25,000,000 Kmart Trade Claims, 1/22/97 (c) 19,920,000
3,350,000 Kmart Corp., 8.61%, 4/10/97 2,617,187
800,000 Kmart Corp., 8.56%, 4/21/97 625,000
850,000 Kmart Corp., 8.54%, 5/08/97 664,062
1,400,000 Kmart Corp., 9.55%, 6/30/98 1,093,750
8,000,000 Kmart Corp., 7.77%, 7/02/02 5,240,000
1,000,000 Kmart Corp., 8.125%, 12/01/06 652,500
3,000,000 Kmart Corp., 8.375%, 7/01/22 1,826,250
9,400,000 Kmart Corp., 7.95%, 2/01/23 5,722,250
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38,360,999 10.52%
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TOTAL BONDS (Cost $42,342,027) 40,787,267
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GOVERNMENT AGENCY BONDS - 3.93%
2,058,631 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-129 S, Inverse Floater
4.54157% due 8/25/08 (f) 1,454,320
2,889,650 Federal Home Loan Mortgage Corp.
Collateralized Mortgage Obligation,
Series 1635 K, Inverse Floater
5.23633% due 12/15/08 (f) 1,939,909
</TABLE>
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL % OF
AMOUNT($) ISSUES VALUE NET ASSETS
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GOVERNMENT AGENCY BONDS (CONTINUED)
<S> <C> <C> <C>
6,600,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-229 SB, Inverse Floater
4.77036% due 12/25/08 (f) $ 4,248,552
300,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1993-221 SG, Inverse Floater
3.077% due 12/25/08 (f) 189,750
3,000,000 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1994-13 SM, Inverse Floater
6.95816% due 2/25/09 (f) 2,220,480
2,683,270 Federal National Mortgage Association
Collateralized Mortgage Obligation,
Series 1994-13 SK, Inverse Floater
6.3585% due 2/25/09 (f) 1,786,333
5,000,000 Federal Home Loan Mortgage Corp.
Collateralized Mortgage Obligation,
Series 1518 G, Inverse Floater
3.71% due 5/15/23 (f) 2,482,800
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TOTAL GOVERNMENT AGENCY BONDS
(Cost $11,264,253) 14,322,144 3.93%
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SHARES
OR UNITS
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COMMON STOCKS AND
LIMITED PARTNERSHIP UNITS - 61.84%
Annuities & Mutual Fund 150,000 SunAmerica Inc. 7,387,500 2.03%
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Management & Sales
Business Development 43,200 Capital Southwest Corp. 2,386,800 0.65%
Companies -----------
</TABLE>
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES % OF
OR UNITS ISSUES VALUE NET ASSETS
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COMMON STOCKS AND LIMITED PARTNERSHIP UNITS (CONTINUED)
<S> <C> <C> <C>
Cogeneration Services & 176,900 Destec Energy, Inc. (b) $ 2,189,137 0.60%
-----------
Small Power Producers
Computer & 95,000 Apple Computer, Inc. 2,624,375
Office Equipment 55,000 Cray Research, Inc. (b) 1,375,000
195,000 Digital Equipment Corp. (b) 14,113,125
-----------
18,112,500 4.97%
-----------
Contract Construction 166,900 Perini Corp. (b) 1,376,925 0.38%
-----------
Depository Institutions 26,500 Astoria Financial Corp. 1,301,812
80,000 Carver Federal Savings Bank (b) 660,000
62,500 First Colorado Bancorp, Inc. (c) 757,812
149,227 Glendale Federal Bank 2,499,552
53,480 Glendale Federal Bank Warrants (b) 381,045
10,000 Letchworth Independent Bancshares Corp. 305,000
10,000 Letchworth Independent Bancshares Corp.
Warrants (b) 75,625
34,783 People's Heritage Financial Group, Inc. 695,660
80,000 Security Capital Corp. (b) 4,680,000
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11,356,506 3.12%
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Financial Insurance 100,000 AMBAC Inc. 4,787,500
244,100 Enhance Financial Services Corp. 5,919,425
512,800 Financial Security Assurance Holdings Ltd. 12,627,700
120,000 MBIA Inc. 8,850,000
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32,184,625 8.83%
-----------
Food Purveyors 60,000 Sbarro, Inc. 1,335,000
100,000 Weis Markets, Inc. 2,887,500
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4,222,500 1.16%
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Forest Products 54,400 St. Joe Paper Co. 3,032,800 0.83%
-----------
</TABLE>
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THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES % OF
OR UNITS ISSUES VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS AND LIMITED PARTNERSHIP UNITS (CONTINUED)
<S> <C> <C> <C>
General Manufacturing 125,000 Cummins Engine Co., Inc. $ 4,828,125
50,000 H.B. Fuller Co. 1,812,500
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6,640,625 1.82%
-----------
Holding Companies 50,000 Aristotle Corp. (b) 212,500
21,400 White River Corp. (b) 781,100
-----------
993,600 0.27%
-----------
Insurance Holding 100,000 ACMAT Corp. Class A (b) 1,275,000
Companies 803,669 Danielson Holding Corp. (a) (b) (c) 5,525,224
50,000 Fund American Enterprises
Holdings, Inc. (b) 3,850,000
5,490 Sen-Tech Int'l Holdings, Inc. (b) (c) 1,749,718
120,000 United Coasts Corp. (b) 915,000
-----------
13,314,942 3.65%
-----------
Life Insurance 138,000 ReliaStar Financial Corp. 6,503,250
107,600 Security-Connecticut Corp. 2,690,000
-----------
9,193,250 2.52%
-----------
Manufactured Housing 89,000 Liberty Homes, Inc. Class A 1,001,250
40,000 Liberty Homes, Inc. Class B 450,000
8,640 Palm Harbor Homes, Inc. (b) 180,900
-----------
1,632,150 0.45%
-----------
Medical Supplies 81,400 Acuson Corp. (b) 1,210,825
and Services 187,300 Datascope Corp. (b) 4,635,675
288,438 Progressions Health Systems, Inc. (b) 270,411
90,750 St. Jude Medical, Inc. (b) 4,004,344
-----------
10,121,255 2.78%
-----------
Membership Sports & 107,172 USTrails, Inc. (b) 100,474 0.03%
-----------
Recreation Clubs
Mortgage Insurance 76,400 CMAC Investment Corp. 4,393,000 1.21%
-----------
Motor Vehicles & Cars' 50,000 Ford Motor Co. 1,481,250 0.41%
Bodies -----------
</TABLE>
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15
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<PAGE>
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[LOGO]
THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES % OF
OR UNITS ISSUES VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS AND LIMITED PARTNERSHIP UNITS (CONTINUED)
<S> <C> <C> <C> <C>
Real Estate 31,000 Consolidated -Tomoka Land Co. $ 530,875
117,600 Forest City Enterprises, Inc. Class A 3,910,200
2,500 Forest City Enterprises, Inc. Class B 82,500
10,000 Royal Palm Beach Colony,
Limited Partnership Units (b) 8,125
-----------
4,531,700 1.24%
-----------
Real Estate 480,336 Koger Equity, Inc. (b) 5,764,032
Investment Trusts 105,000 Mellon Participating Mortgage Trust Co. 249,375
5,100 Public Storage Properties XV, Inc. 88,612
16,300 Public Storage Properties XVI, Inc. 258,762
5,200 Public Storage Properties XVII, Inc. 85,800
15,000 Public Storage Properties XVIII, Inc. 262,500
-----------
6,709,081 1.84%
-----------
Reinsurance Companies 85,917 LaSalle Re Limited (c) 2,008,310 0.55%
-----------
-----------
Retail 189,100 Charming Shoppes, Inc. (b) 520,025 0.14%
-----------
Security Brokers, Dealers 118,100 Alex. Brown Inc. 5,757,375
& Flotation Companies 55,900 Jefferies Group, Inc. 2,669,225
217,200 Legg Mason Inc. 6,543,150
362,100 Piper Jaffray Companies Inc. (a) 4,978,875
525,000 Raymond James Financial, Inc. 11,550,000
154,230 Ryan, Beck & Co., Inc. (a) (c) 1,098,889
-----------
32,597,514 8.94%
-----------
Title Insurance 310,000 Stewart Information Services Corp. (a) 6,510,000
515,000 The First American Financial Corp. 13,196,875
-----------
19,706,875 5.41%
-----------
Venture Capital 41,000 American Physicians Service Group, Inc. (b) 276,750
100,000 Analogic Corp. 1,825,000
44,000 Central Sprinkler Corp. (b) 1,496,000
25,000 Electroglas, Inc. 515,625
</TABLE>
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16
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<PAGE>
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[LOGO]
THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES % OF
OR UNITS ISSUES VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS AND LIMITED PARTNERSHIP UNITS (CONTINUED)
<S> <C> <C> <C> <C>
Venture Capital 19,200 Emerging Markets Infrastructure
(continued) Fund, Inc. $ 220,800
115,000 Evans & Sutherland Computer Corp. (b) 2,702,500
100,000 Gish Biomedical, Inc. (a) (b) 825,000
80,000 H & Q Life Sciences Investors (b) 1,330,000
100,000 Handex Environmental Recovery, Inc. (b) 556,250
77,400 Integrated Systems, Inc. (b) 2,999,250
300,000 Interphase Corp. (a) (b) 3,225,000
130,000 Meadowbrook Rehabilitation
Group, Inc. (b) 130,000
50,000 Metricom, Inc. (b) 637,500
190,000 NetFRAME Systems Inc. (b) 973,750
269,600 PharmChem Laboratories, Inc. (b) 1,179,500
150,000 Photronics, Inc. (b) 3,637,500
114,700 Sequoia Systems, Inc. (b) 516,150
100,000 Telco Systems, Inc. (b) 1,187,500
122,500 Tricord Systems, Inc. (b) 359,844
100,000 UTILX Corp. (b) 187,500
47,000 Vertex Communications Corp. (b) 804,875
131,250 Zygo Corp. (b) 3,625,781
------------
29,212,075 8.01%
------------
TOTAL COMMON STOCKS AND
LIMITED PARTNERSHIP UNITS 225,405,419
------------
(Cost $157,232,348)
- ---------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 0.24%
Depository Institutions 20,000 Glendale Federal Bank Convertible,
Non-Cumulative, 8 3/4%, Series E 880,000 0.24%
------------
TOTAL PREFERRED STOCK (Cost $500,000) 880,000
------------
</TABLE>
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<PAGE>
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[LOGO]
THIRD AVENUE VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT JANUARY 31, 1996
(UNAUDITED)
PRINCIPAL % OF
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNT ($) ISSUES VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS - 15.36%
39,000,000 U.S. Treasury Bill 4.90%, 2/1/96 $ 39,000,000
8,000,000 U.S. Treasury Bill 4.84%, 2/8/96 7,992,471
9,000,000 U.S. Treasury Bill 4.87%, 2/15/96 8,982,955
------------
TOTAL U.S. TREASURY BILLS 55,975,426 15.36%
------------
(Cost $55,975,426)
TOTAL INVESTMENT PORTFOLIO - 96.81% 352,852,602
------------
(Cost $282,008,995)
CASH AND OTHER ASSETS
LESS LIABILITIES - 3.19% 11,644,095
------------
NET ASSETS - 100.00% $364,496,697
============
(Applicable to 16,531,701
shares outstanding)
NET ASSET VALUE PER SHARE $22.05
=====
</TABLE>
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.
- --------------------------------------------------------------------------------
18
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<PAGE>
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) 443-1021 (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
[LOGO]
767 Third Avenue
New York, NY 10017
Phone (212) 888-6685
Toll Free (800) 443-1021
