As filed with the Securities and Exchange Commission on February 28, 1996
Registration Nos. 33-34418
811-6086
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective____________ [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 [X]
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THIRD AVENUE VALUE FUND, INC.
(Exact name of registrant as specified in Charter)
767 Third Avenue, New York, New York 10017-2023
(Address of Principal Executive Offices including zip code)
Registrant's Telephone Number, including Area Code:
(800) 443-1021 (toll-free) (212) 888-6685
Martin J. Whitman Please send copies of communications to:
767 Third Avenue Richard T. Prins, Esq.
New York, New York 10017-2023 Skadden, Arps, Slate, Meagher & Flom
(Name and Address of Agent for Service) 919 Third Avenue, New York, NY 10022
(212) 735-3000
It is proposed that this filing will become effective
[X] Immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on pursuant to paragraph (a), of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously elected to register an indefinite number of its shares
of beneficial interest. The Registrant filed a notice under such Rule for its
fiscal year ended October 31, 1995 on November 14, 1995.
Exhibit Index on Page 49 Total Number of Pages 50
<PAGE>
THIRD AVENUE VALUE FUND, INC.
CROSS-REFERENCE SHEET
[as required by Rule 495]
Form N-1A Location
PART A. PROSPECTUS
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Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Overview; Expense and Fee Summary
Item 3. Condensed Financial Information... Financial Highlights
Item 4. General Description of Registrant. More About The Fund
Item 5. Management of the Fund............ Management of the Fund;
Discussion of Fund Performance
Item 6. Capital Stock and Other
Securities...................... More about the Fund; Shareholder
Services; Dividends, Capital Gain
Distributions and Taxes
Item 7. Purchase of Securities Being
Offered......................... How to Purchase Shares
Item 8. Redemption or Repurchase.......... How to Redeem Shares
Item 9. Legal Proceedings................. Not applicable
PART B. STATEMENT OF ADDITIONAL INFORMATION
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Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and History... General Information
Item 13. Investment Objectives and
Policies........................ Description of Securities;
Investment Restrictions
Item 14. Management of the Fund............ Management of the Fund; The
Investment Adviser
Item 15. Control Persons and Principal
Holders of Securities........... Management of the Fund; The
Investment Adviser
Item 16. Investment Advisory and Other
Services........................ The Investment Adviser; Investment
Advisory Agreement
Item 17. Brokerage Allocation.............. Portfolio Trading Practices
Item 18. Capital Stock and Other
Securities ..................... Not Applicable (See Prospectus)
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered .... Redemption of Shares; (See
Prospectus)
Item 20. Tax Status........................ Dividends, Capital Gain
Distributions and Taxes
Item 21. Underwriters...................... Distributor
Item 22. Calculations of Performance Data.. Performance Information
Item 23. Financial Statements.............. Financial Statements
PART C. OTHER INFORMATION
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Item 24. Financial Statements and
Exhibits ...................... Financial Statements and Exhibits
Item 25. Persons Controlled by or Under Persons Controlled by or Under
Common Control ................ Common Control with Registrant
Item 26. Number of Holders of Securities.. Number of Holders of Securities
Item 27. Indemnification.................. Indemnification
Item 28. Business and Other Connections Business and Other Connections
of Investment Adviser ......... of Investment Adviser
Item 29. Principal Underwriters........... Principal Underwriter
Item 30. Location of Accounts and
Records ....................... Location of Accounts and Records
Item 31. Management Services.............. Management Services
Item 32. Undertakings..................... Undertakings
<PAGE>
THIRD AVENUE VALUE FUND, INC. THIRD AVENUE
767 Third Avenue VALUE FUND,
New York, NY 10017-2023 INC.
(212) 888-6685
(800) 443-1021 (toll free)
BOARD OF DIRECTORS PROSPECTUS
Phyllis W. Beck
Tibor Fabian
Gerald Hellerman
Marvin Moser Dated February 28, 1996
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
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) 443-1021 (toll-free)
CUSTODIAN
Danielson Trust Company
525 B Street
San Diego, CA 92101-4492
<PAGE>
PROSPECTUS
February 28, 1996
Contents
ABOUT THE FUND ...................................................... 3
OVERVIEW OF THE FUND ................................................ 4
EXPENSE AND FEE SUMMARY ............................................. 4
FINANCIAL HIGHLIGHTS ................................................ 5
MORE ABOUT THE FUND ................................................. 6
Investment Objective ..... ........................................ 6
Investment in Equity Securities ................................... 6
Investment in Debt Securities ..................................... 7
Mortgage-Backed Securities ........................................ 7
Floating Rate, Inverse Floating
Rate and Index Obligations ..................................... 8
Investment in High Yield Debt Securities .......................... 8
Loans and Other Direct Debt Instruments ........................... 9
Trade Claims ...................................................... 9
Foreign Securities ................................................ 10
Restricted and Illiquid Securities ................................ 10
Investment in Relatively New Issues ............................... 10
Temporary Defensive Investments ................................... 10
Borrowing ......................................................... 10
Investment in Other Investment Companies .......................... 11
Restrictions on Investments ....................................... 11
Portfolio Turnover ................................................ 11
MANAGEMENT OF THE FUND .............................................. 11
The Investment Adviser ............................................ 11
Advisory Fees ..................................................... 12
Distributor ....................................................... 12
Portfolio Trading Practices ....................................... 12
PERFORMANCE INFORMATION ............................................. 12
Performance Illustration .......................................... 13
Custodian and Transfer Agent ...................................... 13
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES ..................... 14
General ........................................................... 14
Distribution Option ............................................... 15
Withholding ....................................................... 15
BUSINESS POLICIES ................................................... 15
Business Hours .................................................... 15
Determining Net Asset Value ....................................... 15
Share Certificates ................................................ 16
HOW TO PURCHASE SHARES .............................................. 16
Through an Authorized Broker-Dealer or Investment Adviser ......... 16
New Accounts ...................................................... 16
Initial Investment ................................................ 16
By Mail ........................................................... 16
By Wire ........................................................... 17
Additional Investments By Mail .................................... 17
Additional Investments Through the Automatic Investment Plan ...... 17
Individual Retirement Accounts .................................... 17
Other Retirement Plans ............................................ 17
HOW TO REDEEM SHARES ................................................ 18
By Mail ........................................................... 18
Telephone Redemption Service ...................................... 18
Money Market Exchange Privilege ................................... 18
Fees .............................................................. 19
Redemption Without Notice ......................................... 19
Account Minimum ................................................... 19
Payment of Redemption Proceeds .................................... 19
Wired Proceeds .................................................... 19
Signature Guarantees/Other Documents .............................. 19
Systematic Withdrawal Plan ........................................ 20
SHAREHOLDER SERVICES ............................................... 20
Statements and Reports ............................................ 20
Telephone Information ............................................. 20
Transfer of Ownership ............................................. 20
APPENDIX A .......................................................... 21
DESCRIPTION OF CORPORATE BOND RATINGS ............................... 21
Standard & Poor's Rating Services ................................. 21
Moody's Investors Service, Inc. ................................ 22
2
<PAGE>
February 28, 1996
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 seeks to
identify and invest in securities that the Fund's investment adviser believes
are undervalued by the marketplace.
The Fund may, to the extent permitted by its fundamental policies, invest in a
portfolio of equity securities, including common and preferred stock 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 February 28, 1996
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 767 Third Avenue, New York, NY
10017-2023, (800) 443-1021 or (212) 888-6685.
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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.
----------
3
<PAGE>
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."
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. 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
"Investment in High Yield Debt Securities."
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) .43%
----
Total Fund Operating Expenses 1.33%
====
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
1.33% during each year covered by the example, based upon expenses incurred for
the fiscal year ended October 31, 1995. 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
------ ------- ------- --------
$ 14 $ 42 $ 73 $ 161
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 reimbursements or waiver arrangements, see "Management of the
Fund."
- ----------
(a) Other expenses are estimated based on the Fund's actual other expenses for
the fiscal year ended October 31, 1995.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following sets forth information regarding per share income and capital
changes for each of the five years in the period ended October 31, 1995, which
have been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report on the October 31, 1995, financial statements appears in the
Fund's Annual Report to shareholders. This information should be read in
conjunction with the financial statements and accompanying notes appearing in
the Annual Report to shareholders which are incorporated by reference into the
Statement of Additional Information.
SELECTED DATA AND RATIOS (Years Ended October 31,)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $18.01 $17.92 $13.57 $12.80 $10.00
Income from Investment Operations:
Net investment income .38 .29 .18 .19 .15
Net gain on securities
(both realized and unrealized) 3.53 .16 4.77 .64 4.65
------ ------ ------ ------ ------
Total from Investment
Operations 3.91 .45 4.95 .83 4.80
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.25) (.22) (.24) (.02) (.15)
Distributions from net realized gains (.14) (.14) (.36) (.04) (1.85)
------ ------ ------ ------ ------
Total Distributions (.39) (.36) (.60) (.06) (2.00)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $21.53 $18.01 $17.92 $13.57 $12.80
====== ====== ====== ====== ======
TOTAL RETURN (not including sales load) 22.31% 2.56% 37.36% 6.50% 49.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $312,722 $187,192 $118,958 $31,387 $17,641
Ratio of Expenses to Average Net Assets 1.25% 1.16% 1.42% 2.32% 2.50%
Ratio of Net Income to Average Net Assets 2.24% 1.85% 1.45% 1.71% 1.71%
Portfolio Turnover Rate 15% 5% 17% 31% 67%
</TABLE>
5
<PAGE>
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."
The Adviser's research efforts in connection with the Fund's investment
objective 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) 1 "Debt Service"
means the current annual required payment of interest and principal to
creditors.
(2) Responsible management and control groups, as gauged by managerial
competence as operators and investors as well as by an apparent
absence of intent to profit at the expense of stockholders.
(3) Availability of comprehensive and meaningful financial and related
information. The availability of financial statements and information
which provide the Adviser with 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 a takeover or
merger and acquisition candidate.
- ----------
1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
6
<PAGE>
INVESTMENT IN DEBT SECURITIES
The Fund intends to invest for the most part in debt securities which 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, and
(2) Appraisals of the business' financial position and operating outlook,
as well as the Fund's appraisal of values that might be realized in a
reorganization or upon the sale of assets or the liquidation of the issuer.
In acquiring fixed income securities, the Adviser often will seek covenants
which protect holders of the debt issue from possible adverse future events such
as for example, the addition of new debt senior to the issue under
consideration. Also, the investment adviser will seek to analyze the possible
impacts of possible extraordinary events such as corporate restructuring,
refinancing or acquisitions. The Adviser will also use its best judgment as to
the most favorable range of maturities. In general, the Fund will acquire debt
issues which have a senior position in an issuer's capitalization and will avoid
"mezzanine" issues such as non-convertible subordinated debentures and preferred
stock.
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
7
<PAGE>
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.
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 cannot or will
not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. The reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. Inverse
floating rate securities are similar to floating rate securities except that
their coupon payments vary inversely with an underlying index by use of a
formula. Inverse floating rate securities tend to exhibit greater price
volatility than other floating rate securities. The Fund 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.
INVESTMENT IN HIGH YIELD DEBT SECURITIES
The Fund will not purchase or hold in excess of 35% of its net assets in high
yield debt securities, including those rated below Baa by Moody's Investors
Service, Inc. ("Moody's") and below BBB by Standard & Poor's Ratings Services
("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 price 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
8
<PAGE>
measuring the probability of whether a money default will occur, but also
measuring how the creditor would fare in a reorganization or liquidation in the
event of a money default.
Before investing in any high yield debt instruments, the Adviser will evaluate
the issuer's ability to pay interest and principal, as well as the seniority
position of such debt in the issuer's capital structure vis-a-vis any other
outstanding debt or potential debts. There appears to be a direct cause and
effect relationship between the weak financial conditions of issuers of high
yield bonds and the market valuation and prices of their credit instruments, as
well as a direct relationship between the weak financial conditions of such
issuers and the prospects that principal or interest may not be paid.
The market price and yield of bonds rated below Baa by Moody's and below BBB by
Standard & Poor's are more volatile than those of higher rated bonds. 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.
The Fund may also purchase or retain debt obligations of issuers not currently
paying interest or in default. In addition, the Fund may purchase securities
that have filed for protection under Chapter 11 of the United States Bankruptcy
Code. Defaulted securities will be purchased or retained if, in the opinion of
the Adviser, they may present an opportunity for subsequent price recovery, the
issuer may resume payments, or other advantageous developments appear likely.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
The Fund may invest in loans and other direct debt instruments owed by a
corporate borrower to another party. They represent amounts owed to lenders or
lending syndicates (loans and loan participations) or to other parties. Direct
debt instruments may involve a risk of loss in case of default or insolvency of
the borrower and may offer less legal protection to the Fund in the event of
fraud or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. The markets in
loans are not regulated by federal securities laws or the SEC.
TRADE CLAIMS
The Fund may invest in trade claims. Trade claims are interests in amounts owed
to suppliers of goods or services and are purchased from creditors of companies
in financial difficulty. For purchasers such as the Fund, trade claims offer the
potential for profits since they are often purchased at a significant discount
from face value and, consequently, may generate capital appreciation in the
event that the market value of the claim increases as the debtor's financial
position improves or the claim is paid.
An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid securities which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain other
creditors in a bankruptcy proceeding.
9
<PAGE>
FOREIGN SECURITIES THE
Fund does not intend to 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 in
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 value) would be
invested in securities that are illiquid. An illiquid security is any asset or
investment which the Fund cannot sell in the ordinary course of business within
seven days at approximately the value at which the Fund has valued the asset or
investment, including securities that cannot be sold publicly due to legal or
contractual restrictions.
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 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.
INVESTMENT IN RELATIVELY NEW ISSUES
The Fund intends to invest occasionally in the common stock of selected new
issuers. If the Fund is to invest in credit instruments of relatively new
issuers, it will only be in those issues where the Adviser 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.
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.
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INVESTMENT 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 Adviser will
charge an advisory fee on the portion of the Fund's assets that are invested in
securities of other investment companies. 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 Statement of Additional Information.
Except as expressly stated, none of the Fund's policies or restrictions are
fundamental. In the event the Fund changes an operating investment restriction,
the new restriction may not meet the investment needs of every shareholder.
PORTFOLIO TURNOVER
The Fund's investment policies and objectives, which emphasize long-term
holdings, would tend to keep the number of portfolio transactions relatively
low. The Fund's portfolio turnover rate for the year ended October 31, 1995 was
15%. See "Financial Highlights" for a statement of the Fund's expenses for the
year ended October 31, 1995.
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.
Mr. Whitman, the Chairman, President and Chief Executive Officer 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 and Chief Executive Officer of M.J. Whitman Holding Corp., a holding
company managing various investment businesses including M.J. Whitman, Inc., the
Fund's affiliated broker-dealer and M.J. Whitman Advisers, Inc., an investment
adviser to individual and institutional clients; Member of the Advisory Board
and Distinguished Management Fellow at the Yale School of Management; Director
of Danielson Trust Company, a trust company serving as the Fund's Custodian
since December 1993; Director of Herman's Holdings, Inc., a holding company, and
Herman's Sporting Goods, Inc., a retail sporting goods chain; Director of Nabors
Industries, Inc.; Chairman, President and Chief Investment Officer of Danielson
Holding Corporation ("DHC"), a holding company; 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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The portfolio manager and certain other persons related to the Adviser and the
Fund are subject to written policies and procedures designed to prevent abusive
personal securities trading. The Fund's Code of Ethics establishes procedures
for personal investing and restricts certain transactions.
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. The fee paid to the Adviser for the fiscal year ended October
31, 1995, was $1,926,686. Had the present Advisory Agreement been in effect for
the entire year, the fee for such period would have been $2,130,222.
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 and 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, 1995, no expense reimbursement was
required.
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. 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.
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 SAI.
PERFORMANCE INFORMATION
Mr. Whitman, the Chief Investment Officer, reviews the investment strategies and
techniques pursued by the Adviser, as well as 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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PERFORMANCE ILLUSTRATION
COMPARISION OF CHANGE IN VALUE OF A $10,000
INVESTMENT IN THE FUND AND THE STANDARD & POOR'S
500 INDEX (S&P 500)
SEE CHART
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 ("Danielson Trust"), a subsidiary of Danielson Holding
Corporation ("DHC"), is Custodian of the Fund's assets. Mr. Whitman, the
Chairman, President and Chief Executive Officer of the Fund and its Adviser is a
Director of Danielson Trust and DHC and beneficially owned 104,560 shares of DHC
as of October 31, 1995. The Fund held 803,669 shares of common stock of DHC
representing 1.83% of the Fund's aggregate net assets as of October 31, 1995.
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) 443-1021 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, 1995, 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, 1995, the Fund distributed net investment income
of approximately $2,643,291 and net realized capital gains on investments of
approximately $1,518,034.
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 gains 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 a 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 gain 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.
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.
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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
reinvested;
(3) income dividends reinvested with capital gain distributions paid
in cash;
(4) both distributions automatically reinvested in additional shares
of the Fund.
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 their place of residence as well as citizenship status when
completing the application.
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 regular trading on
the NYSE, normally 4:00 p.m., Eastern time each day the NYSE is open for
trading. 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
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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.
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.
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 by the Fund or its authorized
service agent or sub-agent. 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 broker-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 third business day following receipt of the purchase order. Telephone
purchase orders will only be accepted from financial institutions which have
been approved previously by the 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.
P. O. Box 874
Conshohocken, PA 19428-0874
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Checks will be accepted if drawn in U.S. currency on a domestic bank. 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 (800-443-1021) 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
and mailed to:
THIRD AVENUE VALUE FUND, INC.
c/o Fund/Plan Services, Inc.
P.O. Box 412797
Kansas City, MO 64141-2797
At the sole discretion of the Adviser, the initial and any additional investment
minimums may be waived in new accounts opened by existing shareholders for
additional family members and by officers, directors or employees of the Fund,
MJW, the Adviser or any affiliate of the Adviser (including their spouses and
children under age 21).
ADDITIONAL INVESTMENTS THROUGH THE AUTOMATIC INVESTMENT PLAN
This Plan provides shareholders with a convenient method by which they may
automatically make subsequent monthly 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 ACCOUNTS
The Fund's Individual Retirement Account ("IRA") application and additional
forms required may be obtained by contacting FPS at (800) 443-1021. 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
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their compensation for investment on a tax-deferred basis until distributions
are made from the plan.
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 requests
generally require a signature guarantee and additional documents. See "Signature
Guarantees/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) 443-1021
prior to 4:00 p.m. Eastern 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/Other Documents."
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.
Shareholders who wish to use this exchange privilege may elect the service on
the account application. 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.
The Fund reserves the right to reject any exchange request or otherwise modify,
restrict or terminate the exchange privilege at any time upon at least 60 days
prior written notice.
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Shareholders should be aware that an exchange is treated for federal income tax
purposes as a sale and a purchase of shares, which may result in realization of
a gain or loss.
Exchanges of Fund shares are subject to the other requirements of the Money
Market Fund into which the exchange is made.
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, and 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.
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
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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) 443-1021.
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, 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)
443-1021.
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 the Chairman of the Board'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 FPS, the transfer agent,
Monday through Friday, 9:00 AM to 7:00 PM (Eastern time).
Call toll free (800) 443-1021 or (610) 834-3500.
The Fund: Questions about Third Avenue Value Fund, Inc. can be answered
by the Fund's telephone representatives Monday through Friday
9:00 AM to 5:00 PM (Eastern time). Call toll free (800)
443-1021 or (212) 888-6685.
To Redeem Shares: To redeem shares by telephone, call FPS toll free (800)
443-1021 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 RATINGS SERVICES
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 obligation.
II. Nature and provisions of the obligation.
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC", and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt 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.
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B - Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied "BB" or "BB-" rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
C1 - The rating "C1" is reserved for income bonds on which no interest is
being paid.
D - Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
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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THIRD AVENUE
VALUE FUND, INC.
STATEMENT OF
ADDITIONAL
INFORMATION
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Dated February 28, 1996
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THIRD AVENUE VALUE FUND, INC.
767 Third Avenue
New York, NY 10017-2023
(212) 888-6685
(800) 443-1021 (toll free)
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
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) 443-1021 (toll-free)
CUSTODIAN
Danielson Trust Company
525 B Street
San Diego, CA 92101-4492
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STATEMENT OF ADDITIONAL INFORMATION
Dated February 28, 1996
THIRD AVENUE VALUE FUND, INC.
767 Third Avenue
New York, NY 10017
(212) 888-6685
(800) 443-1021 Toll Free
This Statement of Additional Information is in addition to and serves to
expand and supplement the current Prospectus of Third Avenue Value Fund, Inc.
(the "Fund") dated February 28, 1996. It should be read in conjunction with the
Prospectus, which may be obtained without charge by contacting the Fund at 767
Third Avenue, New York, NY 10017-2023, (800) 443-1021 or (212) 888-6685.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION ......................................................... 1
DESCRIPTION OF SECURITIES ................................................... 1
Residential Mortgage-Backed Securities ................................... 1
Guaranteed Mortgage Pass-Through Securities .............................. 1
Ginnie Mae Certificates ............................................... 1
Fannie Mae Certificates ............................................... 2
Freddie Mac Certificates .............................................. 2
Private Mortgage Pass-Through Securities ................................. 2
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities 3
Stripped Mortgage-Backed Securities ...................................... 3
RTC Securities ........................................................... 3
Floating Rate, Inverse Floating Rate and Index Obligations ............... 3
INVESTMENT RESTRICTIONS ..................................................... 4
MANAGEMENT OF THE FUND ...................................................... 6
INVESTMENT ADVISER .......................................................... 10
INVESTMENT ADVISORY AGREEMENT ............................................... 11
DISTRIBUTOR ................................................................. 12
PORTFOLIO TRADING PRACTICES ................................................. 12
PURCHASE ORDERS ............................................................. 13
REDEMPTION OF SHARES ........................................................ 13
REDEMPTION IN KIND ....................................................... 13
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES ............................. 14
General .................................................................. 14
Distributions ............................................................ 14
Redemption of Shares ..................................................... 14
Backup Withholding ....................................................... 15
PERFORMANCE INFORMATION ..................................................... 15
FINANCIAL STATEMENTS ........................................................ 15
</TABLE>
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GENERAL INFORMATION
The Fund was incorporated as "767 Third Avenue Fund, Inc." on November 27, 1989.
Its present name was adopted by amendment of its Articles of Incorporation on
May 18, 1992.
DESCRIPTION OF SECURITIES
The following further describes certain types of mortgage-backed securities in
which the Fund may invest:
RESIDENTIAL MORTGAGE-BACKED SECURITIES The Fund expects to invest in residential
mortgage-backed securities representing participation interests in pools of
one-to-four family residential mortgage loans originated by private mortgage
originators. Traditionally, residential mortgage-backed securities have been
issued by governmental agencies such as Fannie Mae, Freddie Mac and Ginnie Mae.
The Fund intends to invest only in those securities guaranteed by governmental
agencies. The Fund does not intend to invest in commercial mortgage-backed
securities. Non-governmental entities that have issued or sponsored residential
mortgage-backed securities offerings include savings and loan associations,
mortgage banks, insurance companies, investment banks and special purpose
subsidiaries of the foregoing. The Fund intends to invest in securities that are
either AAA rated or guaranteed by the U.S. government or one of its agencies or
instrumentalities. See "Appendix A--Description of Corporate Bond Ratings" in
the Prospectus.
While residential loans do not typically have prepayment penalties or
restrictions, they are often structured so that subordinated classes may be
locked out of prepayments for a period of time. However, in a period of
extremely rapid prepayments, during which senior classes may be retired faster
than expected, the subordinated classes may receive unscheduled payments of
principal and would have average lives that, while longer than the average lives
of the senior classes, would be shorter than originally expected.
The types of residential mortgage-backed securities which the Fund may invest in
may include the following:
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES The Fund may invest in mortgage
pass-through securities representing participation interests in pools of
residential mortgage loans originated by the U.S. government and guaranteed, to
the extent provided in such securities, by the U.S. government or one of its
agencies or instrumentalities. Such securities, which are ownership interests in
the underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Fund will invest
are those issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac.
GINNIE MAE CERTIFICATES Ginnie Mae is a wholly-owned corporate instrumentality
of the United States Government within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act, or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans'
Administration under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the U.S. government is pledged to the payment
of all amounts that may be required to be paid under any guarantee. In order to
meet its obligations under such guarantee, Ginnie Mae is authorized to borrow
from the U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
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reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on
one-to-four family housing units.
FANNIE MAE CERTIFICATES Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act. Fannie Mae was originally established in 1938 as a U.S.
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. Fannie Mae provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.
Each Fannie Mae Certificate entitles the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such Fannie Mae Certificate's pass-through
rate, which is net of any servicing and guarantee fees on the underlying
mortgage loans), and any principal prepayments on the mortgage loans in the pool
represented by such Fannie Mae Certficate and such holder's proportionate
interest in the full principal amount of any foreclosed or otherwise finally
liquidated mortgage loan. The full and timely payment of principal of and
interest on each Fannie Mae Certficate will be guaranteed by Fannie Mae, which
guarantee is not backed by the full faith and credit of the U.S. government.
Each Fannie Mae Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., Mortgage
Loans that are not insured or guaranteed by any governmental agency) of the
following types; (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.
FREDDIE MAC CERTIFICATES Freddie Mac is a corporate instrumentality of the
United States Government created pursuant to the Emergency Home Finance Act of
1970, as amended (the "FHLMC Act"). Freddie Mac was established primarily for
the purpose of increasing the availability of mortgage credit for the financing
of needed housing. The principal activity of Freddie Mac currently consists of
the purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily Freddie Mac
Certificates.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate, whether or not received. Freddie Mac also guarantees to each
registered holder of a Freddie Mac Certificate ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not generally guarantee the timely payment of scheduled principal. Freddie
Mac may remit the amount due on account of its guarantee of collection of
principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (i) foreclosure sale, (ii) payment of a claim by
any mortgage insurer, or (iii) the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for acceleration of payment of principal. The
obligations of Freddie Mac under its guarantee are obligations solely of Freddie
Mac and are not backed by the full faith and credit of the U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of mortgage
loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates will consist of fixed rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on
one-to-four family residential properties or multifamily projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private Pass-Throughs are usually
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since Private Pass-Throughs typically are not guaranteed by an entity having the
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credit status of Ginnie Mae, Fannie Mae or Freddie Mac, such securities
generally are structured with one or more types of credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates,
but also may be collateralized by whole loans or Private Pass-Throughs (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a fund composed of
Mortgage Assets. Unless the context indicates otherwise, all references herein
to CMOs include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be sponsored by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Under current law, every newly created CMO issuer must elect to
be treated for federal income tax purposes as a Real Estate Mortgage Investment
Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche", is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturites or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
The Fund may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its payments of a specified amount of principal
on each payment date.
STRIPPED MORTGAGE-BACKED SECURITIES Stripped mortgage-backed securities ("SMBS")
may be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. SMBS issued by parties other than
agencies or instrumentalities of the U.S. Government are considered, under
current guidelines of the staff of the Securities and Exchange Commission, to be
illiquid securities. The Fund will only invest in stripped mortgage-backed
securities of the U.S. Government and certain of its agencies and
instrumentalities.
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 only a small portion of the principal.
RTC SECURITIES The Resolution Trust Corporation ("RTC") was organized by the
U.S. Government in connection with the savings and loan crisis. RTC holds assets
of failed savings and loans either as conservator or receiver for such
institutions or acquires such assets in its corporate capacity. These assets
include, among other things, single family and multifamily mortgage loans as
well as commercial mortgage loans. In order to dispose of such assets in an
orderly manner, RTC has established a vehicle registered with the Securities and
Exchange Commission ("SEC") through which it sells credit-enhanced
Mortgage-Backed Securities ("RTC Securities"). These securities represent pro
rata interests in pools of single family and multifamily mortgage loans which
RTC holds or has acquired as described above. It is expected that commercial
mortgage loans may also be included in discrete pools in the near future. Credit
enhancement of RTC Securities is obtained from external sources (including pool
insurance policies, letters of credit and surety guarantees), internal sources
(including subordination and spread accounts) and independent sources (including
reserve funds and cash collateral accounts).
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
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collateral such as mortgages. In certain cases, a change in the underlying index
or price may have a leveraging effect on the periodic coupon payments, creating
larger possible swings in the prices of such securities than would be expected
when taking into account their maturities alone. The indices and prices upon
which such securities can be based include interest rates, currency rates and
commodities prices. However, the Fund will not invest in any instrument whose
value is computed based on a multiple of the change in price or value of an
asset or an index of or relating to assets in which the Fund cannot 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. The
coupon is usually reset daily, weekly, monthly, quarterly or semi-annually, but
other schedules are possible. 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. If their underlying index is not
an interest rate, or the reset mechanism lags the movement of rates in the
current market, greater price volatility may be experienced.
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. Because the changes in the
coupon are usually negatively correlated with changes in overall interest rates,
interest rate risk and price volatility on inverse floating rate obligations can
be high, however, especially if leverage is used in the formula. THE FUND WILL
NOT INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN INVERSE FLOATING RATE SECURITIES.
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 is
realized. The risk of index obligations depends on the volatility of the
underlying index, the coupon payment and the maturity of the obligation.
INVESTMENT RESTRICTIONS
For the benefit of shareholders, the Fund has adopted the following restrictions
which are fundamental policies and cannot be changed without the approval of a
majority of the Fund's outstanding voting securities1. The Fund may not:
1. Make short sales of securities or maintain a short position.
2. Borrow money or pledge, mortgage or hypothecate any of its assets except
the Fund may borrow on a secured or unsecured basis as a temporary measure
for extraordinary or emergency purposes. Such temporary borrowings may not
exceed 5% of the value of the Fund's total assets when the borrowing is
made.
3. Buy or sell commodities or commodity contracts, futures contracts or real
estate or interests in real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies
which invest or deal in real estate.
4. Act as underwriter of securities issued by other persons, except to the
extent that, in connection with the disposition of portfolio securities, it
may technically be deemed to be an underwriter under certain federal
securities laws.
5. Participate on a joint or joint and several basis in any trading account in
securities.
6. Invest in securities of other investment companies if the Fund, after such
purchase or acquisition owns, in the aggregate, (i) more than 3% of the
total outstanding voting stock of the acquired company; (ii) securities
issued by the acquired company having an aggregate value in excess of 5% of
the value of the total assets of the Fund, or (iii) securities issued by
the acquired company and all other investment companies (other than
treasury stock of the Fund) having an aggregate value in excess of 10% of
the value of the total assets of the Fund.
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1 As used in this Statement of Additional Information as to any matter
requiring shareholder approval, the phrase "majority of the outstanding
securities" means the vote at a meeting of (i) 67% or more of the shares present
or represented, if the holders of more than 50% of the outstanding voting
securities are present in person or represented by proxy, or (ii) more than 50%
of the outstanding voting securities, whichever is less.
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7. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable securities
of companies which invest in or sponsor such programs.
8. Make loans, except through (i) the purchase of bonds, debentures,
commercial paper, corporate notes, and similar evidences of indebtedness of
a type commonly sold to financial institutions, and (ii) repurchase
agreements. The purchase of a portion of an issue of securities described
under (i) above distributed publicly, whether or not the purchase is made
on the original issuance, is not considered the making of a loan.
9. Issue any senior security (as defined in the Investment Company Act of
1940, as amended). Borrowings permitted by Item 2 above are not senior
securities.
10. Invest 25% or more of the value of its total assets in the securities
(other than Government Securities or the securities of other regulated
investment companies) of any one issuer, or of two or more issuers which
the Fund controls and which are determined to be engaged in the same
industry or similar trades or businesses or related trades or businesses.
11. Invest 25% or more of the value of its total assets in any one industry.
The Fund is required to comply with all of the above fundamental investment
restrictions only at the time the relevant action is taken. The Fund need not
liquidate an existing position solely because a change in the market value of an
investment or a change in the value of the Fund's net or total assets causes it
not to comply with the restriction at a future date, except with respect to the
Fund's borrowing restriction (Item 2) which requires that if the Fund's assets
become, at any time, less than three times the amount of the Fund's outstanding
bank debt, the Fund will reduce its bank debt, within three business days, to
meet the required 300% asset coverage.
In addition to the above policies, the Fund also has adopted the following
operating policies, which are not fundamental policies of the Fund and may be
changed without shareholder approval.
NOTWITHSTANDING THE ABOVE STATED FUNDAMENTAL POLICIES:
(1) the Fund will not invest in oil, gas or other mineral exploration,
development programs OR LEASES; (TX)
(2) the Fund will not acquire, retain or invest in the securities of any
open-end investment company; (CA)
(3) the Fund will not engage in short sales or margin purchases or in
writing puts and calls on securities, stock index futures, options and
stock index futures and financial futures contracts or options
thereon; (CA)
(4) the Fund will not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence
of a readily available market, including repurchase agreements
maturing in more than seven days; (OH)
THE FUND MAY NOT:
(5) with respect to 50% of the value of its total assets, invest in more
than 10% of the outstanding voting securities of any issuer;
(6) invest more than 33% of the value of its total assets in securities of
issuers outside the jurisdiction of the United States and Canada;
(7) invest more than 10% of the value of its total assets in securities of
issuers in developing countries;
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MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation During Past 5 Years
Name and Address Registrant
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<S> <C> <C>
PHYLLIS W. BECK2 Director An Associate Judge (1981 to Present) of the Superior Court of Pennsylvania;
The Superior Court of PA Director of the Fund since November, 1992.
GSB Bldg.--Suite 800
City Line & Belmont Avenues
Bala Cynwyd, PA 19004-1611
TIBOR FABIAN Director A Consultant (1984 to Present) on financial and organizational matters; Director
Box 7097 (1984 to Present) of Rex Stores, Inc., a chain of discount
Princeton, NJ 08543-7097 electronic stores, formerly Audio/Video Affiliates, Inc.; Director (1984 to
4/94) of Equity Strategies Fund, Inc., an investment company which dissolved 4/94;
Director (1985 to Present) of Consco Enterprises, Inc., a computer software
company; Member, Board of Trustees (1979 to Present) of the Hospital for Joint
Diseases Orthopedic Institute, NY; Director of the Fund since its inception.
GERALD HELLERMAN Director Chief Financial Analyst (1976 to 7/93) of the Antitrust Division of U.S. Department
10965 Eight Bells Lane of Justice; Managing Director (8/93 to Present) of Hellerman Associates, a
Columbia, MD 21044 financial and corporate consulting firm; Director of the Fund since September,
1993.
MARVIN MOSER, M.D. Director Trustee (1992 to Present) of the Trudeau Institute, a medical research institute;
13 Murray Hill Road Clinical Professor of Medicine (1984 to Present) at Yale University School of
Scarsdale, NY 10583 Medicine; Senior Medical Consultant (1972 to Present) for the National High Blood
Pressure Education Program of the National Heart, Lung and Blood Institute;
continued Emeritus Chief of Cardiology, Attending Physician in Medicine and
Cardiology (1954 to 1995) of the White Plains, NY Hospital Medical Center; Chairman
(1977) and a member of the Committee in 1980, 1984, 1988 and 1992 of the Joint
National Committee on Detection, Evaluation and Treatment of High Blood Pressure
for the National Heart, Lung and Blood Institute; Director of the Fund since
November, 1994.
</TABLE>
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2 Ms. Beck is an "interested director" (as defined in Section 2 (a) (19) of the
Investment Company Act of 1940, as amended (the "1940 Act")) by virtue of being
an immediate family member (sister) of an affiliated person (Mr. Whitman) of the
Fund and the Adviser.
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation During Past 5 Years
Name and Address Registrant
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<S> <C> <C>
DONALD RAPPAPORT Director President & Chief Operating Officer (3/90 to 12/90) of the Fund and Equity
3121 South Street, NW Strategies Fund, Inc. (1984 to 12/90); Director (1987 to 4/94) of Equity Strategies
Washington, DC 20007 Fund, Inc.; President (1989 to 12/90) of Whitman Advisors, Ltd., an investment
adviser; Registered Securities Representative (1989 to 1991) of M.J. Whitman & Co.,
Inc., a former broker-dealer; A private investor (1987 to Present); Director of the
Fund since its inception.
MYRON M. SHEINFELD Director Attorney and Shareholder (1986 to Present) of Sheinfeld, Maley & Kay P.C., a law
1001 Fannin St., Suite 3700 firm; Adjunct Professor (1975 to 1991) the University of Texas Law School; Director
Houston, TX 77002 (1984 to 1992) of Equity Strategies Fund, Inc.; Director (1988 to Present) of
Nabors Industries, Inc., an international drilling contractor; Former Consultant
(11/90 to 4/95) Meyer Hendricks Victor Osborn & Maledon, a law f in Phoenix,
Arizona; Director of the Fund since its inception. Position(s)
MARTIN SHUBIK Director Seymour H. Knox Professor (1975 to Present) of Mathematical and Institutional
Yale University Economics, Yale University; Director (1984 to 4/94) of Equity Strategies Fund,
Dept. of Economics Inc.; Director of the Fund since its inception.
Box 2125, Yale Station
New Haven, CT 06520
JACK WEPRIN Director Attorney, Partner (1966 to Present) of Goldberg, Weprin and Ustin, a law firm;
1501 Broadway Director (1990 to Present) of Builders Transport, Inc.; Director (1984 to 4/94) of
New York, NY 10036 Equity Strategies Fund, Inc.; A private investor in real estate in New York City;
Director of the Fund since its inception.
</TABLE>
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation During Past 5 Years
Name and Address Registrant
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<S> <C> <C>
MARTIN J. WHITMAN4 Chairman, Chairman, Chief Executive Officer (CEO) (1/1/95 to Present) and President (1/1/95
767 Third Avenue Chief Executive to 6/29/95) of M.J. Whitman Holding Corp.,(MJWHC), a holding company managing
New York, NY 10017-2023 Officer and investment subsidiaries, and of M.J. Whitman, Inc., a subsidiary of MJWHC and the
President successor broker-dealer of M.J. Whitman, L.P. (MJWLP), a Delaware limited
partnership which has been dissolved; Chairman, CEO (1/1/95 to Present) President
(1/1/95 to 6/29/95) and Chief Investment Officer (10/92 to Present) of M.J.
Whitman Advisers, Inc., a subsidiary of MJWHC and an investment adviser to private
and institutional clients; Distinguished Management Fellow (1972 to Present) and
Member of the Advisory Board (10/94 to Present) of the Yale School of Management
at Yale University; Director (3/26/93 to Present) of Danielson Trust Company, a
trust company serving as the Fund's custodian Director (3/12/93 to Present) of
Herman's Holdings, Inc., a holding company, and of Herman's Sporting Goods, Inc.,
a retail sporting goods chain; President (1/91 to Present), Chairman and CEO (3/90
to Present) of the Fund; Chairman and Managing Director (8/91 to 1/31/96) of WHR
Management Corporation, an investment adviser; Director (3/91 to Present) of
Nabors Industries, Inc., an international drilling contractor; Director and
Chairman (8/90 to Present), President (8/90 to 12/90) and Chief Investment Officer
(12/90 to Present) of Danielson Holding Corporation (DHC), a holding company;
Director (9/87 to Present) of KCP Holding Company (KCP), an insurance holding
company and subsidiary of DHC, and of National American Insurance Company of
California, an insurance company and subsidiary of DHC and KCP; Minority General
Partner (5/87 to Present) of Carl Marks Management Company L.P., general partner
of two private investment partnerships; Managing Director (3/87 to Present) of
Whitman Heffernan Rhein & Co., Inc., a financial advisory firm; Chairman and CEO
(4/86 to Present) and President (1/91 to Present) of EQSF Advisers, Inc.,
investment adviser to the Fund; President and CEO (10/74 to Present) of Martin J.
Whitman & Co., Inc., (formerly M.J. Whitman & Co., Inc.), a private investment
company; Director of the Fund since its inception; Chartered Financial Analyst.
</TABLE>
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4 Mr. Whitman is an "interested director" (as defined in Section 2 (a) (19)
of the 1940 Act) by virtue of his position with the Fund and Adviser.
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<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation During Past 5 Years
Name and Address Registrant
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<S> <C> <C>
MICHAEL CARNEY Treasurer, Chief Financial Officer (CFO) Treasurer, Director (1/1/95 to Present) and
767 Third Avenue Chief Financial Executive Vice President (6/29/95 to Present) of M.J. Whitman Holding Corp. and of
New York, NY 10017-2023 Officer M.J. Whitman, Inc.; Treasurer, Director (1/1/95 to Present), Executive Vice
President (6/29/95 to Present) and CFO (10/92 to Present) of M.J. Whitman
Advisers, Inc.; Treasurer (12/93 to Present) of Longstreet Investment Corp.; CFO
(3/26/93 to 6/95) of Danielson Trust Company; Limited Partner (1/92 to 12/31/94)
of M.J. Whitman, L.P.; CFO of WHR Management Corporation (8/91 to Present),
Danielson Holding Corporation (8/90 to Present) and Carl Marks Strategic
Investments, L.P., an investment partnership (1/90 to 4/94); CFO (1/90 to 4/94) of
Carl Marks & Co., Inc. a broker-dealer; CFO (8/89 to 12/90) of Whitman Advisors,
Ltd.; CFO and Treasurer (5/89 to 4/94) of Equity Strategies Fund, Inc.; CFO and
Treasurer (5/89 to Present) of EQSF Advisers, Inc.; CFO (5/89 to Present) of
Whitman Heffernan Rhein & Co., Inc., Martin J. Whitman & Co., Inc., (formerly M.J.
Whitman & Co., Inc.) and WHR Management Company, L.P., a firm managing investment
partnerships.
ALLISON CUTLER Assistant Controller (10/94 to Present) of Longstreet Investment Corp. and Emerald
767 Third Avenue Treasurer Investment Partners, L.P.; Controller (7/93 to Present) of M.J. Whitman Advisers,
New York, NY 10017-2023 Inc.; Controller (3/93 to Present) of Herman's Holdings, Inc.; Controller 1/93 to
Present) and Assistant Controller (7/92 to 12/92) of Whitman continued Heffernan &
Rhein Workout Fund II, L.P., Whitman Heffernan & Rhein Workout Fund II-A, L.P. and
WHR Management Corporation; Controller (1/93 to Present) and Assistant Controller
(5/91 to 12/92) of Whitman Heffernan Rhein & Co, Inc.; Controller (1/93 to 12/95)
and Assistant Controller (5/91 to 12/92) of EQSF Advisers, Inc.; Assistant
Treasurer (5/95 to Present), Controller (1/93 to 12/95) and Assistant Controller
(5/91 to 12/92) of the Fund; Controller (1/93 to 4/94) and Assistant Controller
(5/91 to 12/92) of Equity Strategies Fund, Inc.; Senior Accountant (4/89 to 4/91)
at PaineWebber.
JILL KOPIN Secretary and Secretary (6/95 to Present) and Assistant Compliance Director (8/93 to 6/95) of
767 Third Avenue Fund EQSF Advisers, Inc.; Secretary, Administrator (6/95 to Present) and Assistant
New York, NY 10017-2023 Administrator Administrator (8/93 to 6/95) of the Fund; Student (1/93 to 7/93) at Adelphi
University's School of Paralegal Studies; Operations assistant (9/92 to 12/92) at
M.J. Whitman, L.P.; Floor Manager (3/91 to 7/92) at Brooks Brothers.
</TABLE>
The Fund does not pay any fees to its officers for their services as such, but
does pay directors who are not affiliated with the Investment Adviser a fee of
$1,500 for each meeting of the Board of Directors that they attend, in addition
to reimbursing all directors for travel and incidental expenses incurred by them
in connection with their attendance at Board meetings. The Fund also pays the
non-interested Board of Directors an annual stipend of $1,200 in January of each
year for the previous year's service. The Fund paid Directors, in aggregate,
$34,814 in such fees and expenses for the year ended October 31, 1995. Directors
do not receive any pension or retirement benefits.
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The following persons beneficially own of record or are known to beneficially
own of record 5 percent or more of the outstanding common stock of the Fund as
set forth below as of October 31, 1995.
NAME AND ADDRESS PERCENTAGE OF FUND NUMBER OF SHARES
Charles Schwab & Co., Inc.3
101 Montgomery Street
San Francisco, CA 94104 21.40% 3,108,491
------ ---------
National Financial Services Corp.4
200 Liberty Street, 5th Fl.
New York, NY 10281 11.21% 1,628,688
------ ---------
Donaldson Lufkin & Jenrette5
Securities Corporation
Mutual Funds Dept. 5th Floor
PO Box 2052, Jersey City, NJ 07303 13.88% 2,016,634
------ ---------
INVESTMENT ADVISER
The Investment Adviser to the Fund is EQSF Advisers, Inc. (the "Adviser").
Martin J. Whitman is a controlling person of the Adviser. His control is based
upon an irrevocable proxy signed by his children, who own in the aggregate 75%
of the outstanding common stock of the Adviser, pursuant to a shareholders'
agreement entered into by and among them. Mr. Whitman is Chairman, Chief
Executive Officer and President of the Adviser.
The following individuals are affiliated persons of the Fund and Adviser:
Capacity With Fund Capacity With Adviser
------------------ ---------------------
Martin J. Whitman Chairman, Chief Executive Chairman, Chief Executive
Officer and President Officer and President
Michael Carney Treasurer, Chief Financial Treasurer, Chief Financial
Officer Officer
Jill Kopin Secretary Secretary
- ----------
3 Charles Schwab & Co., Inc. is a discount broker-dealer acting as a nominee for
its clients, including registered investment advisers and retail clients.
4 National Financial Services Corp. is a broker-dealer holding shares of the
Fund as a nominee for its clients, including, at such time, clients of MJW, the
Fund's affiliated broker-dealer, principal underwriter and distributor.
5 Donaldson Lufkin & Jenrette Securities Corporation is a broker-dealer holding
shares of the Fund as a nominee for its clients.
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INVESTMENT ADVISORY AGREEMENT
The investment advisory services of the Adviser are furnished to the Fund
pursuant to an Investment Advisory Agreement dated April 26, 1995 (the
"Agreement") providing for an initial term of two years. The Agreement was
initially approved on February 8, 1995 by the Board of Directors of the Fund,
including a majority of the Directors who are not "interested persons" as
defined in the 1940 Act, and by shareholders of the Fund on April 26, 1995. The
Adviser has provided investment advisory services to the Fund since its
inception.
After the initial two-year term the Agreement will continue from year to year if
approved annually by the Board of Directors of the Fund or a majority of the
outstanding voting securities of the Fund, and by vote of a majority of the
Directors who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of such parties, cast in person at a meeting called for
the purpose of voting on such approval. The Agreement may be terminated at any
time without penalty, upon 60 days written notice by either party to the other,
and will automatically be terminated upon any assignment thereof.
Under the Agreement, the Adviser supervises and assists in the management of the
Fund, provides investment research and research evaluation and makes and
executes recommendations for the purchase and sale of securities. The Adviser
furnishes at its expense all necessary office equipment and personnel necessary
for performance of the obligations of the Adviser and pays the compensation of
officers of the Fund. However, in the event that any person serving as an
officer of the Fund has both executive duties attendant to such offices and
administrative duties to the Fund apart from such office, the Adviser does not
pay any amount relating to the performance of such administrative duties.
All other expenses incurred in the operation of the Fund and the continuous
offering of its shares, including taxes, fees and commissions, bookkeeping
expenses, fund employees, expenses of redemption of shares, charges of
custodians and transfer agents, auditing and legal expenses, fees of outside
directors and rent are borne by the Fund.
Effective April 26, 1995, for the services provided by the Adviser, the Fund
pays the Adviser a monthly fee of 1/12 of .90% (an annual rate of .90%) on the
average daily net assets in the Fund. The Adviser's fee is paid at the beginning
of the month for the previous month. During the fiscal years ended October 31,
1995, 1994 and 1993, the Fund paid an investment advisory fee to the Adviser of
$1,926,686, $1,080,459 and $558,365, respectively.
Whenever in any fiscal year, the total cost to the Fund of normal operating
expenses chargeable to its income account, including the investment advisory
fee, and the fee for administrative services but excluding brokerage
commissions, interest, and taxes exceeds 2 1/2% of the first $30,000,000 of
average daily net assets of the Fund, plus 2% of the next $70,000,000, plus 1
1/2% of the balance of the average daily net assets of the Fund for the fiscal
year, the Adviser is obligated under the Advisory Agreement to reimburse the
Fund in an amount equal to that excess. No expense reimbursement was required
for the fiscal years ended October 31, 1995, 1994 and 1993.
Expenses of the Fund shall be calculated and accrued daily. If, at the end of
any month, the accrued expenses of the Fund exceed a pro rata portion of the
above-described expense limitation, based upon the average net asset value from
the beginning of the fiscal year through the end of the month for which the
calculation is made, the amount of such excess shall be withheld from the
advisory fee which is paid to the Adviser at the end of such month, and such
amount shall not be paid until the end of a month when such accrued expenses are
less than the pro rata portion of such expense limitation. If at the end of any
month, the accrued expenses exceed the pro rata portion of the expense
limitation by more than the amount of the advisory fee for such month, the
Adviser shall promptly pay such excess to the Fund. If, after any portion or all
of the advisory fee payable at the end of any month has been withheld from
payment, and the accrued expenses of the Fund at the end of a subsequent month
are less than the pro rata portion of the expense limitation, the Fund shall pay
to the Adviser the amounts previously withheld, up to the pro rata portion of
the expense limitation. Any necessary final adjusting payments, whether from the
Adviser to the Fund or from the Fund to the Adviser, shall be made as soon as
reasonably practicable after the end of the fiscal year.
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DISTRIBUTOR
Effective February 28, 1995, M.J. Whitman, Inc. 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. The Distribution Agreement will remain in
effect provided that it is approved at least annually by the Board of Directors
or by a majority of the Fund's outstanding shares, and in either case, by a
majority of the Directors who are not parties to the Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not less than 60 days written notice.
PORTFOLIO TRADING PRACTICES
Under the Investment Advisory Agreement between the Fund and the Adviser, the
Adviser has the responsibility of selecting brokers and dealers. The Adviser
must place portfolio transactions with brokers and dealers who render
satisfactory service in the execution of orders at the most favorable prices and
at reasonable commission rates, but has discretion to pay a greater amount if
it, in good faith, determines that such commission was reasonable in relation to
the value of the brokerage and research service provided by such broker or
dealer, either in terms of that particular transaction or in fulfilling the
overall responsibilities of the Adviser to the Fund. Where transactions are
executed in the over-the-counter market, or in the "third market" (the
over-the-counter market in listed securities), the Fund will normally first seek
to deal with the primary market makers. However, when the Fund considers it
advantageous to do so, it will utilize the services of brokers, but will, in all
cases, attempt to negotiate the best price and execution. The determination of
what may constitute the most favorable price and execution in a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to the Fund (involving both
price paid or received and any commissions or other costs paid), the efficiency
with which the transaction is effected, the ability to effect the transaction at
all if selling large blocks is involved, the availability of the broker to stand
ready to execute possibly difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. In allocating any such portfolio brokerage on a national
securities exchange, the Fund may consider the research, statistical and other
factual information and services provided by brokers from time to time to the
Adviser of the Fund. Such services and information are available to the Adviser
for the benefit of all clients of the Adviser and its affiliates and it is not
practical for the Adviser to assign a particular value to any such service.
The Fund intends to use MJW as its primary broker where, in the judgment of its
management (whose members are affiliated with MJW), such firm will be able to
obtain a price and execution at least as favorable as other qualified brokers.
Officers of the Fund and the Adviser are also affiliates of MJW. Martin J.
Whitman and Michael Carney, who are executive officers of the Fund and the
Adviser, are also executive officers of MJW and M.J. Whitman Senior Debt Corp.
("Senior Debt Corp"), a broker of private debt instruments and wholly owned
subsidiary of M.J. Whitman Holding Corp.
In determining the commissions to be paid to MJW, it is the policy of the Fund
that such commissions will, in the judgment of the Adviser and the Fund's
management, be (i) at least as favorable as those which would be charged by
other qualified brokers having comparable execution capability and (ii) at least
as favorable as commissions contemporaneously charged by MJW on comparable
transactions for its most favored unaffiliated customers, except for any
customers of MJW considered by a majority of the disinterested Directors not to
be comparable to the Fund. The Fund does not deem it practicable and in its best
interest to solicit competitive bids for commission rates on each transaction.
However, consideration is regularly given to information concerning the
prevailing level of commissions charged on comparable transactions by other
qualified brokers.
The directors from time to time, at least on a quarterly basis, will review,
among other things, all the Fund's portfolio transactions including information
relating to the commissions charged by MJW to the Fund and to its customers, and
information concerning the prevailing level of commissions charged by other
qualified brokers. In addition, the procedures pursuant to which MJW effects
brokerage transactions for the Fund must be reviewed and approved no less often
than annually by a majority of the disinterested directors.
The Fund expects that it will execute a portion of its transactions through
qualified brokers other than MJW. In selecting such brokers, the management of
the Fund will consider the quality and reliability of the brokerage services,
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including execution capability and performance, financial responsibility, and
investment information and other research provided by such brokers. Accordingly,
the commissions charged by any such broker may be greater than the amount
another firm might charge if the management of the Fund determines in good faith
that the amount of such commissions is reasonable in relation to the value of
the brokerage services and research information provided by such broker to the
Fund. The management of the Fund believes that the research information received
in this manner provides the Fund with benefits by supplementing the research
otherwise available to the Fund. Over-the-counter purchases and sales will be
transacted directly with principal market makers, except in those circumstances
where the Fund can, in the judgment of its management, otherwise obtain better
prices and execution of orders. During the fiscal year ended October 31, 1995,
the amount of brokerage transactions and related commissions that the Fund
directed to brokers due to research services provided were $666,491 and $3,528,
respectively.
To the knowledge of the Fund, no affiliate of the Fund receives give-ups or
reciprocal business in connection with security transactions of the Fund. The
Fund does not effect security transactions through brokers in accordance with
any formula, nor will it take the sale of Fund shares into account in the
selection of brokers to execute security transactions. However, brokers who
execute brokerage transactions for the Fund, including MJW (which is affiliated
with the Fund's investment adviser), may from time to time effect purchases of
Fund shares for their customers.
For the year ended October 31, 1995, the Fund incurred total brokerage
commissions of $320,517 of which approximately $269,152 was paid to MJW and
$22,689 was paid to Senior Debt Corp. Martin J. Whitman and Michael Carney are
executive officers of the Fund and Senior Debt Corp. For the year ended October
31, 1994, the Fund incurred total brokerage commissions of $250,901, of which
approximately $184,209 was paid to MJW and $32,007 was paid to Senior Debt Corp.
For the year ended October 31, 1993, the Fund incurred total brokerage
commissions of $145,391, of which approximately $34,330 was paid to MJW and
$107,813 was paid to Senior Debt Corp. These amounts include fees paid by MJW to
its clearing agents. Commissions paid by the Fund to MJW are paid at an average
discount of at least 20% to the normal fees charged by MJW.
At October 31, 1995, the Fund held securities of the following of the Fund's
regular broker-dealers or their parents: Legg Mason Inc. (the market value of
which was $4,807,000 as of October 31, 1995); Piper Jaffray Companies Inc. (the
market value of which was $4,035,125 as of October 31, 1995); Jefferies Group,
Inc. (the market value of which was $2,194,075 as of October 31, 1995); Alex.
Brown Inc. (the market value of which was $5,772,142 as of October 31, 1995);
and Raymond James Financial, Inc. (the market value of which was $11,287,500 as
of October 31, 1995).
PURCHASE ORDERS
The Fund reserves the right, in its sole discretion, to refuse purchase orders.
Without limiting the foregoing, management of the Fund will consider exercising
such refusal right when it determines that it cannot effectively invest the
available funds on hand in accordance with the Fund's investment policies.
REDEMPTION OF SHARES
The procedure for redemption of Fund shares under ordinary circumstances is set
forth in the Prospectus. In unusual circumstances, such as in the case of a
suspension of the determination of net asset value, the right of redemption is
also suspended and, unless redeeming shareholders withdraw their certificates
from deposit, they will receive payment of the net asset value next determined
after termination of the suspension. The right of redemption may be suspended or
payment upon redemption deferred for more than seven days: (a) when trading on
the New York Stock Exchange (the "NYSE") is restricted; (b) when the NYSE is
closed for other than weekends and holidays; (c) when the Securities and
Exchange Commission (the "SEC") has by order permitted such suspension; or (d)
when an emergency exists making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; provided that applicable
rules and regulations of the SEC shall govern as to whether the conditions
prescribed in (a), (c) or (d) exist.
REDEMPTION IN KIND The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated during
any 90 day period to redeem shares for any one shareholder of record solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of such period. Should a redemption exceed such limitation, the
Fund may deliver, in lieu of cash, readily marketable securities from its
portfolio. The securities delivered will be selected at the sole discretion of
the Fund, will not necessarily be representative of the entire portfolio and may
be securities which the Fund would otherwise sell. The redeeming shareholder
will usually incur brokerage costs in converting the securities to cash.
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The method of valuing securities used to make the redemptions in kind will be
the same as the method of valuing portfolio securities and such valuation will
be made as of the same time the redemption price is determined. See "Calculation
of Net Asset Value."
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
GENERAL The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. If it so
qualifies, the Fund will not be subject to Federal income tax on its net
investment income and net short-term capital gain, if any, realized during any
fiscal year to the extent that it distributes such income and gain to its
shareholders.
The Fund will either distribute or retain for reinvestment all or part of any
net long-term capital gain. If any such net capital gain is retained, the Fund
will be subject to a tax of 35% of such amount. In that event, the Fund expects
to designate the retained amount as undistributed capital gains in a notice to
its shareholders, each of whom (1) will be required to include in income for tax
purposes, as long-term capital gains, its share of such undistributed amount,
(2) will be entitled to credit its proportionate share of the tax paid by the
Fund against its Federal income tax liability and to claim refunds to the extent
the credit exceeds such liability, and (3) will increase its basis in its shares
of the Fund by an amount equal to 65% of the amount of the undistributed capital
gains included in such shareholder's gross income.
A distribution will be treated as paid during any calendar year if it is
declared by the Fund in October, November or December of that year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following year will be deemed to be received on December 31 of the year the
distributions are declared, rather than when the distributions are received.
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a 4% excise tax. To avoid
the tax, the Fund must distribute during each calendar year, an amount equal to
at least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year, (unless an election is made by a fund with a November or
December year end to use the Fund's fiscal year) and (3) all ordinary income and
net capital gains for previous years that were not previously distributed.
Gains or losses on the sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.
DISTRIBUTIONS Distributions of investment company taxable income (which includes
taxable interest income and the excess of net short-term capital gain over net
long-term capital loss) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or in additional Fund shares. Dividends paid by the Fund
will qualify for the 70% deduction for dividends received by corporations to the
extent the Fund's income consists of qualified dividends received from U.S.
corporations. Distributions of net capital gain (which consists of the excess of
net long-term capital gain over net short-term capital loss), if any, are
taxable as long-term capital gain, whether paid in cash or in shares, regardless
of how long the shareholder has held the Fund's shares, and are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a basis in such shares of the Fund equal
to the fair market value of such shares on the distribution date. If the net
asset value of shares is reduced below a shareholder's cost as a result of a
distribution by the Fund, such distribution may be taxable even though it
represents a return of invested capital. The price of shares purchased at any
time may reflect the amount of a forthcoming distribution. Those purchasing
shares just prior to distribution will receive a distribution which will be
taxable to them, even though the distribution represents in part a return of
their invested capital.
REDEMPTION OF SHARES Upon a redemption of shares, a shareholder will realize a
taxable gain or loss equal to the difference between the redemption proceeds and
the basis in the shares redeemed. Shareholders should consult their tax advisors
regarding the determination of the basis in any shares redeemed. Such gain or
loss will generally be treated as long-term capital gain or loss if the shares
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[LOGO]
have been held for more than one year. Any loss realized on a sale will be
disallowed to the extent the shares disposed of are replaced within a 61-day
period beginning 30 days before and ending 30 days after the date the shares are
disposed of. In such case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to such shares.
BACKUP WITHHOLDING The Fund may be required to withhold Federal income tax at a
rate of 31% on all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Backup withholding is not
an additional tax; any amounts withheld may be credited against the
shareholder's Federal income tax liability.
PERFORMANCE INFORMATION
Performance information for the Fund may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual total return" and "total return."
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the SEC. The average annual total
return for a specific period is found by first taking a hypothetical $1,000
investment ("initial investment") in the Fund's shares on the first day of the
period and computing the redeemable value of that investment at the end of the
period. The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and is subtracted by the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period.
Calculation of the Fund's total return is not subject to a standardized formula.
Total return performance for a specific period is calculated by taking an
initial investment in the Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge, and computing the
redeemable value of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
redeemable value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge would be
reduced if such charge was included.
The Fund's total return from inception (October, 1990), through fiscal year
ended October 31, 1995, was 173.69%. The Fund's average annual return from
inception through fiscal year ended October 31, 1995, was 22.31%.
FINANCIAL STATEMENTS
The Fund's 1995 financial statements and notes thereto appearing in its Annual
Report to Shareholders and report thereon of Price Waterhouse LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information. The Fund will issue unaudited semi-annual and audited
annual financial statements.
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15
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<PAGE>
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Included in Part A:
Financial Highlights for each of the five
years in the period ended October 31, 1995.
Included in Part B of the Registration Statement: Portfolio of
Investments at October 31, 1995, Statement of Assets and
Liabilities at October 31, 1995, Statements of Operations
for the year ended October 31, 1995, Statement of Changes
in Net Assets for the year ended October 31, 1995,
Statement of Changes in Net Assets for the years ended
October 31, 1995 and October 31, 1994, Financial
Highlights for ht years ended October 31, 1995, October
31, 1994 and October 31, 1993, October 31, 1992 and
October 31, 1991 and Notes to Financial Statement for the
year ended October 31, 1995. Reports of Independent
Accountants. Incorporated by reference to the Statement of
Additional Information.
(b) EXHIBITS:
EXHIBIT NUMBER
(1) (a) COPY OF CERTIFICATE OF INCORPORATION.
Incorporated by reference to the Fund's
initial Registration Statement.
(b) COPY OF AMENDMENTS TO CERTIFICATE OF INCORPORATION.
Incorporated by reference to Post-Effective Amendment No. 7
(2) (a) COPY OF BY-LAWS OF THE FUND.
Incorporated by reference to the Fund's
initial Registration Statement.
(b) COPY OF AMENDMENTS TO THE BY-LAWS OF THE FUND.
Incorporated by reference to Post-Effective Amendment No. 4.
(3) Not Applicable.
(4) SPECIMEN CERTIFICATE OF COMMON STOCK OF THE FUND (PAR VALUE
$.001 PER SHARE).
Incorporated by reference to Post-Effective Amendment No. 7
(5) COPY OF INVESTMENT ADVISORY CONTRACT BETWEEN THE FUND AND
EQSF ADVISERS, INC.
Incorporated by reference to Post-Effective Amendment No. 8.
(6) COPY OF DISTRIBUTION AGREEMENT.
Incorporated by reference to Post-Effective Amendment No. 8.
(7) Not Applicable.
(8) COPY OF CUSTODY AGREEMENT BETWEEN THE FUND AND DANIELSON TRUST
COMPANY.
Incorporated by reference to Post-Effective Amendment No. 6.
<PAGE>
(9) (a) COPY OF SHAREHOLDERS' SERVICES AGREEMENT BETWEEN
THE FUND AND FUND/PLAN SERVICES, INC.
Incorporated by reference to Pre-Effective Amendment No. 7.
(b) COPY OF ACCOUNTING SERVICES AGREEMENT BETWEEN THE
FUND AND FUND/PLAN SERVICES, INC.
Incorporated by reference to Pre-Effective Amendment No. 7.
(10) COPY OF OPINION AND CONSENT OF COUNSEL. Incorporated by
reference to Pre-Effective Amendment No. 4 dated August 22, 1990.
(11) CONSENT OF INDEPENDENT ACCOUNTANTS.
Enclosed with this Post-Effective Amendment No. 10.
(12) Not Applicable.
(13) SUBSCRIPTION AGREEMENT BETWEEN THE FUND AND MARTIN J. WHITMAN
DATED MARCH 1, 1990.
Incorporated by reference to the Fund's initial Registration
Statement.
(14) INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT AND CUSTODIAL
ACCOUNT AGREEMENT.
Incorporated by reference to Post-Effective Amendment No. 8
(15) Not Applicable.
(16) PERFORMANCE CALCULATIONS.
Incorporated by reference to Post-Effective Amendment No. 7
Item 25. Persons Controlled By or Under Common Control with Registrant.
Not Applicable.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Class As of February 1, 1996
Common Stock 13,103
(Par Value $.001)
Item 27. INDEMNIFICATION.
Incorporated by reference to Post-Effective Amendment No. 7.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Incorporated by reference to Post-Effective Amendment No. 7.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Not Applicable.
(b) Not Applicable.
(C) Not Applicable.
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All records described in Section 31 (a) of the Investment Company Act of 1940,
as amended and Rules 17 CFR 270.31a-1 to 31a-31 promulgated thereunder, are
maintained by the Fund's Investment Adviser, EQSF Advisers, Inc. 767 Third
Avenue, NY NY 10017-2023, except for those records maintained by the Fund's
Custodian, Danielson Trust Company, 525 B Street, San Diego, CA 92101-4492, and
the Fund's Shareholder Service and Fund Accounting and Pricing Agent, Fund/Plan
Services, Inc., 2 Elm Street, Conshohocken, PA 19428-0874.
Item 31. MANAGEMENT SERVICES.
None.
Item 32. UNDERTAKINGS.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment No. 9 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized on this 28th
day of February, 1996.
THIRD AVENUE VALUE FUND, INC.
BY /s/ MARTIN J. WHITMAN
----------------------
Martin J. Whitman, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
appoints Martin J. Whitman his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for the undersigned, place and
stead, of the undersigned, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which together shall constitute one
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on this 28th day of February, 1996,
by the following:
SIGNATURE AND TITLE
/s/ MARTIN J. WHITMAN /s/ DONALD RAPPAPORT
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Marin J. Whitman, Chairman of the Board Donald Rappaport, Director
/s/ PHYLLIS W. BECK /s/ MARTIN SHUBIK
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Phyllis W. Beck, Director Martin Shubik, Director
/s/ TIBOR FABIAN /s/ MYRON M. SHEINFELD
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Tibor Fabian, Director Myron M. Sheinfeld, Director
/s/ GERALD HELLERMAN /s/ JACK WEPRIN
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Gerald Hellerman, Director Jack Weprin, Director
/S/ MARVIN MOSER
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Marvin Moser, Director
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibit
NUMBER EXHIBIT PAGE
NUMBER
1 (a) Not Applicable
1 (b) Not Applicable
2. Not Applicable
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Not Applicable
7. Not Applicable
8. Not Applicable
9. Not Applicable
10. Not Applicable
11. Consent of Independent Accountants
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
CONSENT OF INDEPENDENT ACCOUNTANTS
WE HEREBY CONSENT TO THE INCORPORATION BY REFERENCE IN THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION CONSTITUTING PARTS OF THIS POST-EFFECTIVE
AMENDMENT NO. 10 TO THE REGISTRATION STATEMENT ON FORM N-1A (THE "REGISTRATION
STATEMENT") OF OUR REPORT DATED DECEMBER 13, 1995, RELATING TO THE FINANCIAL
STATEMENTS AND FINANCIAL HIGHLIGHTS APPEARING IN THE OCTOBER 31, 1995 ANNUAL
REPORT TO SHAREHOLDERS OF THIRD AVENUE VALUE FUND, INC., WHICH ARE ALSO
INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT. WE ALSO CONSENT TO
THE REFERENCE TO US UNDER THE HEADING "FINANCIAL HIGHLIGHTS" IN SUCH PROSPECTUS
AND "FINANCIAL STATEMENT" IN SUCH STATEMENT OF ADDITIONAL INFORMATION.
/s/ Price Waterhouse LLP
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PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 15, 1996
