N-CSR 1 c51079_n-csr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-08039 THIRD AVENUE TRUST (Exact name of registrant as specified in charter) 622 Third Avenue, 32nd Floor, New York, NY 10017 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) W. James Hall III, General Counsel, 622 Third Avenue, New York, NY 10017 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 800-443-1021 ------------ Date of fiscal year end: October 31, 2007 ---------------- Date of reporting period: October 31, 2007 ---------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the "1940 Act") is as follows: ================================================================================ THIRD AVENUE VALUE FUND THIRD AVENUE SMALL-CAP VALUE FUND THIRD AVENUE REAL ESTATE VALUE FUND THIRD AVENUE INTERNATIONAL VALUE FUND ANNUAL REPORT ------------- October 31, 2007 ================================================================================ [THIRD AVENUE FUNDS LOGO] THIRD AVENUE FUNDS PRIVACY POLICY Third Avenue Funds respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms and from the transactions you make with us, our affiliates, or third parties. We do not disclose any information about you or any of our former customers to anyone, except to our affiliates (which may include the Funds' affiliated money management entities) and service providers, or as otherwise permitted by law. To protect your personal information, we permit access only by authorized employees. Be assured that we maintain physical, electronic and procedural safeguards that comply with federal standards to guard your personal information. PROXY VOTING POLICIES AND PROCEDURES The Funds have delegated the voting of proxies relating to their voting securities to the Funds' investment adviser pursuant to the adviser's proxy voting guidelines. A description of these proxy voting guidelines and procedures, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by August 31 each year (i) without charge, upon request, by calling (800) 443-1021, (ii) on the website of the Securities and Exchange Commission http://www.sec.gov., and (iii) the Funds' website www.thirdavenuefunds.com. SCHEDULE OF PORTFOLIO HOLDINGS--FORM N-Q Third Avenue Funds files their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Third Avenue Funds Form N-Q will be available on the Commission's website at http://www.sec.gov, and may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION - OCTOBER 31, 2007 (UNAUDITED) At October 31, 2007, the audited net asset value attributable to each of the 178,201,270 common shares outstanding of the Third Avenue Value Fund ("TAVFX") was $68.04 per share. This compares with an audited net asset value at October 31, 2006 of $56.95 per share, adjusted for a subsequent distribution to shareholders. AVERAGE ANNUAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2007 ----------------------------------------- ONE YEAR SINCE ENDED THREE FIVE TEN INCEPTION 10/31/07 YEAR YEAR YEAR (11/1/90) -------- ------ ------ ------ --------- Third Avenue Value Fund 19.25% 18.55% 22.35% 12.63% 16.83% S&P 500 Index 14.56% 13.16% 13.88% 7.10% 12.33% Russell 2500 Index 12.71% 15.08% 19.39% 10.02% 15.17% The Third Avenue Value Fund (the "Fund") seeks to achieve long-term capital appreciation and does not attempt to track any benchmark. Various comparative indices are included above for illustrative purposes both for the most recent year and over longer periods. Although the Fund is managed for the long term and does not seek to maximize short-term performance, during this year, the Fund outperformed these indices. We believe that the Fund's performance should be judged over the long term and in the absolute, rather than against any of these indices. Based on such criteria, we are very pleased with Fund performance over the long term and with this year's gains. During the twelve-month period ended October 31, 2007, the Fund's total return was 19.25% . Much of the positive absolute performance during the year is attributable to securities from companies based outside the United States, notably in Hong Kong, where the real estate market continued to rebound. Beneficiaries were Cheung Kong Holdings, Henderson Land Development, Wheelock & Company and Wharf Holdings. The Fund's top contributor was Korean steel maker Posco, which benefited from robust steel fundamentals. The Fund was also positively impacted by three resource conversions--the acquisitions of Trammell Crow, American Power Conversion Corp. and TXU (which was a private equity buyout). On the downside, key detractors to performance included Radian Group, MBIA Inc., and St. Joe Company, all down in the ongoing credit crunch and housing market decline. While the near-term situation may seem dire, we are patient long-term investors willing to ride out short-term volatility. We believe financial guarantors Radian and MBIA remain well-capitalized to weather the downturn, and should emerge as survivors when the dust settles. With respect to St. Joe, we have also been encouraged by recent cost cutting efforts, including a sales force reduction and a dividend cut. Other detractors in the one year time frame included Nabors Industries and Tejon Ranch Co. The Fund continues to look for investment opportunities that meet our strict investment criteria within the United States as well as abroad. 1 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION (CONTINUED) (UNAUDITED) THE INFORMATION IN THE PORTFOLIO MANAGEMENT DISCUSSION REPRESENTS A FACTUAL OVERVIEW OF THE FUND'S PERFORMANCE AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS NOR INVESTMENT ADVICE. VIEWS EXPRESSED ARE THOSE OF THE INVESTMENT TEAM AND MAY DIFFER FROM THOSE OF OTHER INVESTMENT TEAMS OR THE FIRM AS A WHOLE. ALSO, PLEASE NOTE THAT ANY DISCUSSION OF THE PORTFOLIO'S HOLDINGS, THE FUND'S PERFORMANCE, AND THE INVESTMENT TEAM'S VIEWS ARE AS OF OCTOBER 31, 2007, AND ARE SUBJECT TO CHANGE. Third Avenue Value Fund IS OFFERED BY PROSPECTUS ONLY. The prospectus contains more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before investing or sending money. Please read the prospectus carefully before you send money. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. The Fund's returns should be viewed in light of its investment policy and objectives and quality of its portfolio securities and the periods selected. M.J. Whitman LLC Distributor. 12/21/07 If you should have any questions, or for updated information or a copy of our prospectus, please call 1-800-443-1021 or go to our web site at www.thirdavenuefunds.com. Current performance may be lower or higher than performance quoted. The S&P 500 Index is an unmanaged index (with no defined investment objective) of common stocks. The Russell 2500 Index measures the performance of small to mid-sized companies. The S&P 500 Index and the Russell 2500 Index are not securities that can be purchased or sold, and their total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. 2 [THIRD AVENUE FUNDS LOGO] PERFORMANCE INFORMATION (UNAUDITED) PERFORMANCE ILLUSTRATION COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THIRD AVENUE VALUE FUND, THE STANDARD & POOR'S 500 INDEX (S&P 500) AND THE RUSSELL 2500 INDEX FOR THE TEN YEARS ENDED OCTOBER 31, 2007 Average Annual Total Return 1 Year 3 Years 5 Years 10 Years 19.25% 18.55% 22.35% 12.63% TAVF S&P 500 Index Russell 2500 Index 10/31/97 $10,000 $10,000 $10,000 9,614 12,199 9,230 10/31/99 11,237.8 15,330.1 10,891.4 13,942.7 16,263.9 13,426.9 10/31/01 13,523.1 12,213.5 11,792.9 11,981.4 10,368 10,716.2 10/31/03 16,505.6 12,524.6 15,183.8 19,720.9 13,704.4 17,057.4 10/31/05 24,365.2 14,899.4 19,599 27,552.2 17,334 23,064.1 10/31/07 32,856 19,857.8 25,995.5 * All returns include reinvestment of all distributions. As with all mutual funds, past performance does not indicate future results. The returns shown in the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND INDUSTRY DIVERSIFICATION AT OCTOBER 31, 2007 THE SUMMARY OF THE FUND'S INVESTMENTS AS OF OCTOBER 31, 2007 IS AS FOLLOWS: (UNAUDITED) [The following table represents a bar chart in the printed piece.] Holding Companies 22.71 Real Estate 20.09 Annuities & Mutual Fund Management & Sales 6.17 Automotive 5.58 Steel & Specialty Steel 5.4 Oil & Gas Production & Services 4.27 Financial Insurance/Credit Enhancement 3.95 Non-Life Insurance-Japan 3.59 Utilities, Utility Service Companies & Waste Management 2.72 Electronics Components 1.93 Other 9.72 Cash and Equivalents (Net) 13.87 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 2007
PRINCIPAL VALUE AMOUNT ($) ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ CORPORATE DEBT INSTRUMENTS - 0.23% Auto Supply - 0.01% 1,000,000 ISE Corp., Convertible Promissory Note, 10.000%, due 2/23/09 (b) $ 1,000,000 --------------- Automotive - 0.01% 2,005,000 General Motors Corp., step bond, 0.000% until 3/15/16 (7.750% thereafter), due 3/15/36 756,888 --------------- Consumer Products - 0.12% 14,220,011 Home Products International, Inc., 2nd Lien, Convertible, PIK, 6.000%, due 3/20/17 (b) 14,220,011 --------------- Energy & Utilities - 0.08% 10,000,000 Mirant Americas Generation LLC, 8.500%, due 10/1/21 9,875,000 --------------- Hard Goods Retail - 0.01% Hechinger Co.: 18,648,000 6.950%, due 10/15/03 (a) (b) * 471,662 14,752,000 9.450%, due 11/15/12 (a) (b) * 373,121 --------------- 844,783 --------------- Retail - 0.00%# 700,736 Sears Holding Corp. Trade Claims (a) (b) 701,684 --------------- TOTAL CORPORATE DEBT INSTRUMENTS (Cost $22,249,471) 27,398,366 --------------- SHARES ----------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS - 0.02% Auto Supply - 0.02% 759,866 ISE Corp. Series B (b) 2,499,959 --------------- Financial Insurance/Credit 6,045,667 CGA Group, Ltd. Series C (a) (b) (Bermuda) - --------------- Enhancement - 0.00%# Insurance & Reinsurance - 0.00%# 4,775 Ecclesiastical Insurance, 8.625% (United Kingdom) 12,287 1,022,245 RS Holdings Corp., Convertible, Class A (a) (b) 436,447 --------------- 448,734 --------------- TOTAL PREFERRED STOCKS (Cost $13,040,362) 2,948,693 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS - 85.87% Annuities & Mutual Fund 5,500,000 Bank of New York Mellon Corp. $ 268,675,000 Management & Sales - 6.17% 1,451,598 Legg Mason, Inc. 120,395,538 2,489,900 Nuveen Investments, Inc. Class A 161,345,520 4,487,800 Power Corp. of Canada (Canada) 192,500,562 139,212 Westwood Holdings Group, Inc. 5,290,056 --------------- 748,206,676 --------------- Auto Supply - 0.00%# 22,624 ISE Corp. Warrants, expires 8/23/12 (a) (b) -- --------------- Automotive - 5.58% 15,922,200 Toyota Industries Corp. (Japan) 676,277,727 --------------- Building Products - 0.98% 3,000,000 USG Corp. (a) (e) 119,250,000 --------------- Business Services - 0.11% 337,082 Fair Isaac Corp. 12,782,149 --------------- Commercial Services - 0.99% 1,486,200 Alliance Data Systems Corp. (a) 119,490,480 --------------- Computerized Securities 132,800 Investment Technology Group, Inc. (a) 5,564,320 --------------- Trading - 0.05% Consumer Products - 0.01% 526,368 Home Products International, Inc. (a) (b) (c) 584,268 47,250 JAKKS Pacific, Inc. (a) 1,252,125 --------------- 1,836,393 --------------- Depository Institutions - 0.70% 390,800 Berkshire Hills Bancorp, Inc. 10,891,596 529,600 Brookline Bancorp, Inc. (e) 5,698,496 218,500 Carver Bancorp, Inc. (c) 3,456,670 26,127,450 Chong Hing Bank, Ltd. (c) (Hong Kong) 61,018,270 54,704 Tompkins Financial Corp. (e) 2,272,404 16,354 Toronto-Dominion Bank (The) (Canada) (e) 1,233,092 --------------- 84,570,528 --------------- Electronics Components - 1.93% 9,046,200 AVX Corp. (c) (e) 139,763,790 3,500,000 Intel Corp. 94,150,000 --------------- 233,913,790 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Financial Insurance/ 3,806,722 ACA Capital Holdings, Inc. (a) (b) (c) (g) $ 12,907,834 Credit Enhancement - 3.95% 300,000 Ambac Financial Group, Inc. 11,049,000 7,077,906 MBIA, Inc. (c) 304,633,074 1,000,000 MGIC Investment Corp. (e) 19,360,000 10,359,150 Radian Group, Inc. (c) 130,421,699 --------------- 478,371,607 --------------- Financial Services - 0.36% 1,250,000 CIT Group, Inc. 44,050,000 --------------- Holding Companies - 22.71% 1,387,200 Alexander & Baldwin, Inc. 72,661,536 10,000,000 Brookfield Asset Management, Inc., Class A (Canada) 407,900,000 83,370 Capital Southwest Corp. 10,184,479 53,819,000 Cheung Kong Holdings, Ltd. (Hong Kong) 1,046,485,378 3,951,800 Guoco Group, Ltd. (Hong Kong) (1) 60,677,294 12,713,000 Hutchison Whampoa, Ltd. (Hong Kong) 158,456,282 10,665,000 Investor AB, Class A (Sweden) 258,563,771 2,200,000 Jardine Matheson Holdings, Ltd. (Hong Kong) (1) 67,100,000 359,250 Pargesa Holding SA (Switzerland) 40,905,624 4,628,913 RHJ International (a) (c) (Belgium) 81,266,641 42,953,000 Wharf (Holdings), Ltd. (The) (Hong Kong) 256,601,258 90,996,500 Wheelock & Co., Ltd. (Hong Kong) 293,527,628 --------------- 2,754,329,891 --------------- Housing Development - 0.33% 1,000,000 MDC Holdings, Inc. (e) 40,510,000 --------------- Industrial & Agricultural 594,300 Alamo Group, Inc. (c) 12,884,424 Equipment - 0.28% 360,100 Mestek, Inc. (a) 5,491,525 360,100 Omega Flex, Inc. 5,837,221 480,500 Standex International Corp. (e) 10,301,920 --------------- 34,515,090 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Information Services - 0.22% 726,718 Ceridian Corp. (a) $ 26,118,245 --------------- Insurance & Reinsurance - 0.71% 87,035 ACE, Ltd. (Bermuda) (2) 5,275,191 432,300 Arch Capital Group, Ltd. (a) (Bermuda) 32,323,071 15,675 ESG Re, Ltd. Warrants, expires 12/07 (a) (b) (Bermuda) -- 65,000 Helicon Re Holdings, Ltd. (a) (b) (Bermuda) 8,257,600 480,000 Montpelier Re Holdings, Ltd. (Bermuda) 8,592,000 127,500 Olympus Re Holdings, Ltd. (a) (b) (Bermuda) 856,800 32,089 RS Holdings Corp., Class A (a) (b) 13,700 58,300 White Mountains Insurance Group, Ltd.(1) 31,342,663 --------------- 86,661,025 --------------- Life Insurance - 0.23% 2,009,900 Phoenix Cos., Inc. (The) 27,696,422 --------------- Medical Supplies 342,300 Datascope Corp. 12,367,299 & Services - 0.89% 598,000 PAREXEL International Corp. (a) (e) 27,508,000 1,275,000 Pharmaceutical Product Development, Inc. 53,856,000 363,000 St. Jude Medical, Inc. (a) 14,784,990 --------------- 108,516,289 --------------- Mutual Holding Companies - 0.15% 637,122 Brooklyn Federal Bancorp, Inc. 8,594,776 36,890 Colonial Bankshares, Inc. (a) 428,846 353,109 FedFirst Financial Corp. (a) (c) 3,206,230 205,511 Gouverneur Bancorp, Inc. (c) 2,234,932 137,000 Home Federal Bancorp, Inc. 1,390,550 242,800 SFSB, Inc. (a) (c) 2,033,450 --------------- 17,888,784 --------------- Non-Life 9,159,100 Aioi Insurance Co., Ltd. (Japan) 52,875,314 Insurance-Japan - 3.59% 5,290,500 Millea Holdings, Inc., ADR (e) (Japan) 207,705,030 10,857,140 Mitsui Sumitomo Insurance Co., Ltd. (Japan) 123,473,910 4,420,560 Sompo Japan Insurance, Inc. (Japan) 51,499,438 --------------- 435,553,692 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Oil & Gas 2,000,630 Cimarex Energy Co. $ 81,045,521 Production & Services - 4.27% 626,800 EnCana Corp. (e) (Canada) 43,687,960 10,090,000 Nabors Industries, Ltd. (a) (Bermuda) 283,327,200 1,000,000 Suncor Energy, Inc. (e) (Canada) 109,230,000 --------------- 517,290,681 --------------- Pharmaceuticals - 0.64% 1,000,000 Daiichi Sankyo Co., Ltd. (Japan) 28,344,819 2,000,000 Pfizer, Inc. 49,220,000 --------------- 77,564,819 --------------- Real Estate - 20.09% 139,000 Alico, Inc. (e) 6,594,160 31,000 Consolidated-Tomoka Land Co. (e) 2,124,120 18,975,821 FNC Realty Corp. (a) (b) 14,231,866 5,431,951 Forest City Enterprises, Inc., Class A (c) (e) 309,186,651 1,017,031 Forest City Enterprises, Inc., Class A (c) (d) (e) 57,889,405 562,876 Forest City Enterprises, Inc., Class A (b) (c) (d) (e) 31,077,735 22,500 Forest City Enterprises, Inc., Class B 1,280,475 23,919,000 Hang Lung Group, Ltd. (Hong Kong) 140,114,525 30,534,000 Hang Lung Properties, Ltd. (Hong Kong) 145,179,562 63,328,000 Henderson Land Development Co., Ltd. (c) (Hong Kong) 563,805,297 50,000,000 Henderson Land Development Co., Ltd. (c) (d) (Hong Kong) 445,146,931 47,348 Homefed Corp. (a) (e) 2,888,228 7,151,000 Mitsubishi Estate Co., Ltd. (Japan) 211,991,679 5,151,000 Mitsui Fudosan Co., Ltd. (Japan) 141,092,706 6,666,078 St. Joe Co. (The) (c) (e) 225,713,401 3,420,106 Tejon Ranch Co. (a) (c) 137,077,848 --------------- 2,435,394,589 --------------- Real Estate Investment Trusts - 0.40% 676,607 ProLogis 48,539,786 846 Public Storage, Inc. 68,501 --------------- 48,608,287 --------------- Retail - 0.23% 206,627 Sears Holding Corp. (a) (e) 27,851,253 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Security Brokers, Dealers 894,400 Jefferies Group, Inc. (e) $ 23,907,312 & Flotation Companies - 0.95% 2,444,062 Raymond James Financial, Inc. 91,041,310 --------------- 114,948,622 --------------- Semiconductor 700,000 Applied Materials, Inc. 13,594,000 --------------- Equipment Manufacturers - 0.11% Software - 0.61% 2,000,000 Microsoft Corp. (e) 73,620,000 --------------- Steel & Specialty Steel - 5.40% 445,714 Haynes International, Inc. (a) (e) 39,008,889 3,350,000 POSCO, ADR (e) (South Korea) 615,562,500 --------------- 654,571,389 --------------- Telecommunications - 0.15% 2,008,200 Tellabs, Inc. (a) 17,692,242 --------------- Title Insurance - 0.36% 1,000,000 First American Corp. (e) 30,100,000 479,800 Stewart Information Services Corp. (e) 13,914,200 --------------- 44,014,200 --------------- Utilities, Utility Service 8,816,889 Covanta Holding Corp. (a) (c) 239,025,861 Companies & Waste 27,482,000 Henderson Investment, Ltd. (Hong Kong) 54,678,551 Management - 2.72% 861,208 Mirant Corp. (a) 36,480,771 --------------- 330,185,183 --------------- TOTAL COMMON STOCKS AND WARRANTS (Cost $6,356,769,641) 10,411,438,373 --------------- INVESTMENT AMOUNT ($) ----------------------------------------------------------------------------------------------------------------------------------- LIMITED PARTNERSHIPS - 0.00%# Insurance & Reinsurance - 0.00%# 1,805,000 Insurance Partners II Equity Fund, LP (a) (b) 710,147 --------------- TOTAL LIMITED PARTNERSHIPS (Cost $276,158) 710,147 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 PRINCIPAL VALUE AMOUNT (+) ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS - 13.82% Foreign Government 168,000,000 GBP United Kingdom Treasury Bills, 5.60%-5.75%++, due 11/26/07-1/21/08 $ 346,225,199 Obligations - 12.18% 544,200,000 GBP United Kingdom Treasury Bonds, 5.00%-7.25%, due 12/7/07-3/7/08 1,130,833,556 --------------- 1,477,058,755 --------------- U.S. Government 25,000,000 U.S. Treasury Bills, 4.99%++, due 11/1/07 (e) 25,000,000 Obligations - 1.64% 175,000,000 U.S. Treasury Bills, 4.93%++, due 12/13/07 (e) (f) 174,031,739 --------------- 199,031,739 --------------- TOTAL SHORT TERM INVESTMENTS (Cost $1,606,425,297) 1,676,090,494 --------------- ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED - 4.51% Repurchase 546,498,403 Bear Stearns, 2.47%-4.94%, dated 10/31/07, Agreements - 4.51% due 11/1/07 (h) 546,498,403 --------------- TOTAL INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $546,498,403) 546,498,403 --------------- TOTAL INVESTMENT PORTFOLIO - 104.45% (Cost $8,545,259,332) 12,665,084,476 --------------- LIABILITIES IN EXCESS OF OTHER ASSETS - (4.45%) (540,136,736) --------------- NET ASSETS - 100.00% (Applicable to 178,201,270 shares outstanding) $12,124,947,740 =============== Notes: ADR: American Depository Receipt. GBP: Great British Pound. PIK: Payment-in kind. STRIPS: Separate trading of registered interest and principal securities. (a) Non-income producing securities. (b) Fair-valued securities: Carrying Value Security Per Unit Acquisition Date Acquisition Cost -------- -------------- ---------------- ---------------- ACA Capital Holdings, Inc. $3.39 9/24/1997 to 11/10/2006 $43,774,056 CGA Group, Ltd., Series C Pfd. -- 3/2/1999 7,039,179 ESG Re, Ltd. Warrants, expires 12/07 -- 1/28/1997 to 12/3/1997 -- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007
Carrying Value Acquisition Security Per Unit Acquisition Date Cost -------- -------------- ---------------- ----------- FNC Realty Corp. $ 0.75 7/27/2005 $20,988,717 Forest City Enterprises, Inc., Class A 55.21 12/14/2006 31,521,056 Hechinger Co. 6.950%, due 10/15/03 2.53 7/9/2003 -- Hechinger Co. 9.450%, due 11/15/12 2.53 7/9/2003 -- Helicon Re Holdings, Ltd. 127.04 1/4/2006 & 1/6/2006 6,500,000 Home Products International, Inc. 1.11 5/30/2007 54,667,471 Home Products International, Inc., 2nd Lien, Convertible, PIK, 6.000%, due 3/20/17 100.00 3/16/2007 to 9/20/2007 14,220,011 Insurance Partners II Equity Fund, LP 0.39 12/15/1998 to 7/26/2004 276,158 ISE Corp. Series B Pfd. 3.29 3/8/2006 4,999,994 ISE Corp., Convertible Promissory Note, 10.000%, due 2/23/09 100.00 8/23/2007 1,000,000 ISE Corp. Warrants, expires 8/23/12 -- 8/23/2007 -- Olympus Re Holdings, Ltd. 6.72 12/20/2001 12,750,008 RS Holdings Corp., Class A 0.43 4/20/2004 5/9/2003 to 30,853 RS Holdings Corp., Convertible, Class A Pfd. 0.43 3/18/2002 to 4/20/2004 991,392 Sears Holding Corp. Trade Claims 100.14 1/22/2002 to 4/30/2003 --
(c) Affiliated issuers-as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of these issuers). (d) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. (e) Securities in whole or in part on loan. (f) A portion of this security is segregated for future fund commitments. (g) Security is subject to restrictions on resale. (h) Repurchase agreements collateralized by U.S. Strips Principal (STRIPS), par value $885,070,000, due 2/15/11 - 5/15/23, value $562,350,181. * Issuer in default. # Amount represents less than 0.01% of total net assets. + Denominated in U.S. Dollars unless otherwise noted. ++ Annualized yield at date of purchase. 1 Incorporated in Bermuda. 2 Incorporated in Cayman Islands. The aggregate cost for federal income tax purposes is $9,024,851,130. The aggregate gross unrealized appreciation is $3,961,970,270. The aggregate gross unrealized depreciation is ($321,736,924). Country Concentration % of Net Assets ------------ United States 35.56% Hong Kong 27.16 Japan 12.32 United Kingdom 12.18 Canada 6.22 South Korea 5.08 Bermuda 2.79 Sweden 2.13 Belgium 0.67 Switzerland 0.34 ------------ Total 104.45% ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2007 ASSETS: Investments at value (Notes 1 and 4): Unaffiliated issuers (cost of $5,922,955,178) $ 9,355,251,662 Affiliated issuers (cost of $2,075,805,751) 2,763,334,411 Collateral on loaned securities (cost of $546,498,403) 546,498,403 --------------- Total investments (cost of $8,545,259,332) 12,665,084,476 Dividends and interest receivable 36,543,552 Receivable for fund shares sold 20,107,558 Other receivables 465,628 Other assets 164,466 --------------- Total assets 12,722,365,680 --------------- LIABILITIES: Due to custodian 2,148,781 Payable for collateral on securities loaned (Note 1) 546,498,403 Payable for fund shares redeemed 19,351,252 Payable for securities purchased 17,990,408 Payable to investment adviser 9,089,366 Accounts payable and accrued expenses 1,313,334 Payable for other shareholder servicing fees (Note 3) 1,001,286 Payable to Trustees 25,110 Commitments (Note 6) -- --------------- Total liabilities 597,417,940 --------------- Net assets $12,124,947,740 =============== SUMMARY OF NET ASSETS: Capital stock, unlimited shares authorized, $0.001 par value, 178,201,270 shares outstanding $ 8,187,807,028 Accumulated distributions in excess of net investment income (266,420,39) Accumulated undistributed net realized gains from investments and foreign currency transactions 83,302,489 Net unrealized appreciation of investments and translation of foreign currency denominated assets and liabilities 4,120,258,614 --------------- Net assets applicable to capital shares outstanding $12,124,947,740 =============== Net asset value, offering and redemption price per share $68.04 ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 13 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007 INVESTMENT INCOME: Interest $ 122,086,289 Dividends - unaffiliated issuers (net of foreign withholding tax of $4,354,959) 104,860,089 Dividends - affiliated issuers (Note 4) 29,427,755 Securities lending income (Note 1) 2,537,865 Other income 646,006 -------------- Total investment income 259,558,004 -------------- EXPENSES: Investment advisory fees (Note 3) 97,198,464 Other shareholder servicing fees (Note 3) 11,129,214 Transfer agent fees 2,004,721 Custodian fees 2,004,562 Reports to shareholders 1,647,146 Administration fees (Note 3) 614,108 Trustees' and officers' fees and expenses 423,777 Registration and filing fees 353,207 Accounting services 343,276 Legal fees 317,081 Auditing and tax consulting fees 203,804 Insurance expenses 86,508 Miscellaneous expenses 221,108 -------------- Total operating expenses 116,546,976 -------------- Net investment income 143,011,028 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments - unaffiliated issuers (215,990) Net realized gain on investments - affiliated issuers 87,612,500 Net realized gain on foreign currency transactions 57,475,941 Net change in unrealized appreciation on investments 1,588,973,021 Net change in unrealized appreciation on translation of other assets and liabilities denominated in foreign currency 660,870 -------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions 1,734,506,342 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,877,517,370 ============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 14 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- OPERATIONS: Net investment income $ 143,011,028 $ 225,899,738 Net realized gain (loss) on investments - unaffiliated issuers (215,990) 49,968,282 Net realized gain on investments - affiliated issuers 87,612,500 2,318,979 Net realized gain on foreign currency transactions 57,475,941 17,934,232 Net change in unrealized appreciation on investments 1,588,973,021 643,785,382 Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currency 660,870 (147,307) --------------- --------------- Net increase in net assets resulting from operations 1,877,517,370 939,759,306 --------------- --------------- DISTRIBUTIONS: Dividends to shareholders from net investment income (503,986,709) (184,620,893) Distributions to shareholders from net realized gains (15,884,314) (444,291,930) --------------- --------------- Decrease in net assets from distributions (519,871,023) (628,912,823) --------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from sale of shares 2,849,769,349 3,398,645,067 Net asset value of shares issued in reinvestment of dividends and distributions 472,646,793 596,947,045 Redemption fees 285,999 354,473 Cost of shares redeemed (1,830,974,752) (1,400,455,286) --------------- --------------- Net increase in net assets resulting from capital share transactions 1,491,727,389 2,595,491,299 --------------- --------------- Net increase in net assets 2,849,373,736 2,906,337,782 Net assets at beginning of year 9,275,574,004 6,369,236,222 --------------- --------------- Net assets at end of year (including undistributed net investment income of $0 and $34,123,465, respectively) $12,124,947,740 $ 9,275,574,004 --------------- ---------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 15 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE VALUE FUND FINANCIAL HIGHLIGHTS SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) AND RATIOS ARE AS FOLLOWS:
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ----------- ---------- ---------- ---------- ---------- Net asset value, beginning of year $60.29 $58.62 $48.16 $40.62 $29.90 ------ ------ ------ ------ ------ Income from investment operations: Net investment income 1.52 2.40 0.60 0.16 0.40 Net gain on securities (both realized and unrealized) 9.57(1) 4.76(1) 10.64(1) 7.70(1) 10.75 ------ ------ ------ ------ ------ Total from investment operations 11.09 7.16 11.24 7.86 11.15 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (3.24) (1.61) (0.78) (0.32) (0.39) Distributions from realized gains (0.10) (3.88) -- -- (0.04) ------ ------ ------ ------ ------ Total distributions (3.34) (5.49) (0.78) (0.32) (0.43) ------ ------ ------ ------ ------ Net asset value, end of year $68.04 $60.29 $58.62 $48.16 $40.62 ------ ------ ------ ------ ------ Total return 19.25% 13.08% 23.55% 19.48% 37.76% Ratios/Supplemental Data: Net assets, end of year (in thousands) $12,124,948 $9,275,574 $6,369,236 $3,797,964 $3,018,013 Ratio of expenses to average net assets 1.08% 1.08% 1.10% 1.12% 1.11% Ratio of net investment income to average net assets 1.32% 2.83% 0.77% 0.34% 1.23% Portfolio turnover rate 5% 7% 16% 8% 11%
(1) Includes redemption fees of less than $0.01 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 16 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION - OCTOBER 31, 2007 (UNAUDITED) At October 31, 2007, the audited net asset value attributable to each of the 81,182,322 common shares outstanding of the Third Avenue Small-Cap Value Fund ("TASCX") was $27.66 per share. This compares with an audited net asset value at October 31, 2006 of $25.12 per share, adjusted for a subsequent distribution to shareholders.
AVERAGE ANNUAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2007 ----------------------------------------------------- ONE YEAR ENDED THREE FIVE TEN SINCE INCEPTION 10/31/07 YEAR YEAR YEAR (4/1/97) -------------- ------ ------ ------ --------------- Third Avenue Small-Cap Value Fund 9.93% 12.84% 18.84% 10.66% 12.28% Russell 2000 Value Index 2.05% 12.34% 18.60% 10.49% 12.35% Russell 2000 Index 9.27% 13.69% 18.67% 8.01% 10.06% S&P Small-Cap 600 Index 11.55% 14.29% 18.42% 10.10% 12.37%
The Third Avenue Small-Cap Value Fund (the "Fund") seeks to achieve long-term capital appreciation and does not attempt to track any benchmark. Various comparative indices are included above for illustrative purposes, both for the most recent year and over longer periods. Although the Fund is managed for the long term and does not seek to maximize short-term performance, during this year, the Fund outperformed two of the three indices listed above: the Russell 2000 Value Index and to a lesser extent the Russell 2000 Index. The Fund underperformed the S&P Small Cap 600 Index. However, due to Fund management's long-term focus as well as its benchmark-indifferent approach, we believe that the Fund's performance should be judged over the long term and in the absolute, rather than against any of these indices. Based on such criteria, we are generally pleased with Fund performance over the long term. During the twelve-month period ended October 31, 2007, the Fund's total return was 9.93% . This positive absolute performance is attributable to the meaningful appreciation of several securities, including real estate related holdings Brookfield Asset Management (where we continue to like management's strong execution) and Vail Resorts (which has significantly strengthened its balance sheet through the monetization of some of its real estate assets). The Fund's performance was also boosted by strong returns in diversified holding company Leucadia National Corp., which has benefited from an iron ore investment, and Agrium, the shares of which were lifted by strength in agricultural commodities. Note that Fund management sold shares of Agrium due to valuation. Notable resource conversions occurred with American Power Conversion Corp., as the company was acquired by French electrical power equipment-maker Schneider Electric late last year, and Pogo Producing Company, which was acquired by Plains Exploration & Production Co. Other holdings that were acquired for cash during the year included Bandag, Sabre Group and Trammell Crow. Significant detractors to performance during the year included K-Swiss Inc, which has been negatively affected by some of the competitive challenges in athletic footware, St. Joe Company ("St. Joe"), Catalyst Paper, Lexmark International and Haverty Furniture. The Fund has been negatively impacted by two key industry trends--the ongoing malaise in the 17 [THIRD AVENUE FUNDS LOGO] housing sector (which has weighed on shares of St. Joe and Haverty Furniture) and the challenges in the newsprint industry (which has been faced with declining demand in North America and excess supply, affecting holdings such as Catalyst Paper). On the former, while the housing market recovery may not be a near-term event, we believe St. Joe will be a survivor as it possesses an irreplaceable, if out of favor, land asset. With respect to the paper industry, capacity has begun to rationalize with the merger of Abitibi and Bowater, making for a more balanced supply/demand environment. With respect to Catalyst, we note that a new CEO, chairman, and several directors joined the company in the past year. We continue to like the stock's valuation (relative to its replacement cost), as well as the company's access to low-cost power (it partially owns a hydropower plant and has locked in long-term power contracts at low prices) and competitive fiber costs. We believe Catalyst's balance sheet is among the best in the industry and expect it to emerge as a survivor. The Fund continues to look for suitable investment opportunities that meet our strict investment criteria, both in the United States and abroad. THE INFORMATION IN THE PORTFOLIO MANAGEMENT DISCUSSION REPRESENTS A FACTUAL OVERVIEW OF THE FUND'S PERFORMANCE AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS NOR INVESTMENT ADVICE. VIEWS EXPRESSED ARE THOSE OF THE INVESTMENT TEAM AND MAY DIFFER FROM THOSE OF OTHER INVESTMENT TEAMS OR THE FIRM AS A WHOLE. ALSO, PLEASE NOTE THAT ANY DISCUSSION OF THE PORTFOLIO'S HOLDINGS, THE FUND'S PERFORMANCE, AND THE INVESTMENT TEAM'S VIEWS ARE AS OF OCTOBER 31, 2007, AND ARE SUBJECT TO CHANGE. Small-cap companies carry additional risks because their share prices may be more volatile, and their securities less liquid than larger, more established companies. Such investments may increase the risk of greater price fluctuations. These and other risks are described more fully in the Fund's prospectus. Third Avenue Small-Cap Value Fund IS OFFERED BY PROSPECTUS ONLY. The prospectus contains more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before investing or sending money. Please read the prospectus carefully before you send money. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. The Fund's returns should be viewed in light of its investment policy and objectives and quality of its portfolio securities and the periods selected. M.J. Whitman LLC Distributor. 12/21/07 If you should have any questions, or for updated information or a copy of our prospectus, please call 1-800-443-1021 or go to our web site at www.thirdavenuefunds.com. Current performance may be lower or higher than performance quoted. The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Index measures the performance of small companies. The S&P Small-Cap 600 Index is a small cap index that covers approximately 3% of the U.S. equities market and is designed to be an efficient portfolio of companies that meet specific inclusion criteria to ensure that they are investable and financially viable. The Russell 2000 Value Index, Russell 2000 Index, and the S&P Small-Cap 600 Index are not securities that can be purchased or sold, and their total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. 18 [THIRD AVENUE FUNDS LOGO] PERFORMANCE INFORMATION (UNAUDITED) PERFORMANCE ILLUSTRATION COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THIRD AVENUE SMALL-CAP VALUE FUND, THE RUSSELL 2000 INDEX, THE RUSSELL 2000 VALUE INDEX AND THE S&P SMALL-CAP 600 INDEX FOR THE TEN YEARS ENDED OCTOBER 31, 2007 Average Annual Total Return 1 Year 3 Years 5 Years 10 Years 9.93% 12.84% 18.84% 10.66% [The following table represents a line chart in the printed piece.] RUSSELL 2000 RUSSELL 2000 S&P SM-CAP TASCX INDEX VALUE INDEX 600 INDEX 10/31/97 $10,000 $10,000 $10,000 $10,000 8,664.00 8,816 9,231 8,894 10/31/99 9,280.88 10,126.9 9,297.46 9,964.84 11,443.3 11,890 10,905.9 12,483 10/31/01 12,649.5 10,380 11,860.2 11,680.3 11,622.3 9,179.04 11,560.1 11,238.8 10/31/03 16,373.5 13,160 16,217.7 15,012.8 19,175 14,703.6 19,135.3 17,531.9 10/31/05 22,312 16,479.8 21,630.5 20,209 25,063.1 19,772.5 26,583.9 23,462.7 10/31/07 27,551.9 21,605.4 27,128.9 26,172.6 * All returns include reinvestment of all distributions. As with all mutual funds, past performance does not indicate future results. The returns shown in the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 19 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND INDUSTRY DIVERSIFICATION AT OCTOBER 31, 2007 THE SUMMARY OF THE FUND'S INVESTMENTS AS OF OCTOBER 31, 2007 IS AS FOLLOWS: (UNAUDITED) [The following table represents a bar chart in the printed piece.] % OF NET ASSETS --------------- Oil & Gas 16.93 Real Estate 13.6 Forest Products & Paper 8.65 Holding Companies 6.99 Energy/Services 4.59 Consumer Products 3.89 Electronics Components 3.51 Insurance & Reinsurance 3.21 Software 2.71 Life Insurance 2.63 Agriculture 2.29 Industrial Equipment 2.01 Chemicals & Allied Products 1.74 Semiconductor Equipment Manufacturers & Related 1.73 Energy/Coal 1.71 Cable Television Equipment 1.7 Other 10.95 Cash & Equivalents (Net) 11.16 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 20
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 2007 PRINCIPAL VALUE AMOUNT ($) ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ BANK DEBT - 0.00%# Technology - 0.00%# 4,942,604 Insilco Technologies Bank Debt (a) (b) (d) $ 20,841 --------------- TOTAL BANK DEBT (Cost $0) 20,841 --------------- SHARES ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS - 88.13% Aerospace & Defense - 0.95% 1,398,130 Herley Industries, Inc. (a) (c) 21,377,408 --------------- Agriculture - 2.29% 3,799,687 Saskatchewan Wheat Pool (a) (f) (Canada) 51,365,059 --------------- Agriculture Chemicals - 0.81% 286,100 Agrium, Inc. (Canada) 18,187,377 --------------- Auto Parts - 0.58% 642,200 Superior Industries International, Inc. 12,978,862 --------------- Banking - 0.78% 1,259,961 NewAlliance Bancshares, Inc. 17,626,854 --------------- Cable Television 809,400 CommScope, Inc. (a) 38,179,398 --------------- Equipment - 1.70% Chemicals & Allied 1,588,529 Westlake Chemical Corp. 38,982,502 --------------- Products - 1.74% Computer Peripherals - 1.00% 532,834 Lexmark International, Inc., Class A (a) 22,373,700 --------------- Consumer Products - 3.89% 1,212,189 JAKKS Pacific, Inc. (a) 32,123,009 1,688,331 K-Swiss, Inc., Class A (c) 39,506,945 901,300 Russ Berrie & Co., Inc. (a) 15,772,750 --------------- 87,402,704 --------------- Diversified Media - 0.60% 1,515,751 Journal Communications, Inc., Class A 13,505,342 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) Electronics Components - 3.51% 707,092 Bel Fuse, Inc., Class B (c) $ 22,499,667 659,239 Electronics for Imaging, Inc. (a) 15,030,649 1,065,350 Ingram Micro, Inc., Class A (a) 22,628,034 593,100 Park Electrochemical Corp. 18,575,892 --------------- 78,734,242 --------------- Energy/Coal - 1.71% 1,055,000 Fording Canadian Coal Trust (Canada) 38,423,100 --------------- Energy/Services - 4.59% 571,432 Bristow Group, Inc. (a) 28,508,742 2,172,932 Bronco Drilling Co., Inc. (a) (c) 29,551,875 1,903,315 Pioneer Drilling Co. (a) 23,182,377 437,400 Precision Drilling Trust (Canada) 7,978,176 252,800 Tidewater, Inc. 13,820,576 --------------- 103,041,746 --------------- Financial Insurance/Credit 802,697 ACA Capital Holdings, Inc. (a) (b) 2,721,785 --------------- Enhancement - 0.12% Forest Products & Paper - 8.65% 4,165,700 Canfor Corp. (a) (Canada) 38,585,587 809,344 Canfor Pulp Income Fund (Canada) 10,606,763 12,107,879 Catalyst Paper Corp. (a) (b) (c) (f) (Canada) 17,836,579 680,367 Deltic Timber Corp. (c) 38,046,123 2,196,177 Glatfelter 35,292,564 3,390,400 TimberWest Forest Corp. (Canada) 53,835,812 --------------- 194,203,428 --------------- Healthcare Services - 1.12% 734,219 Cross Country Healthcare, Inc. (a) 11,534,580 323,230 Pharmaceutical Product Development, Inc. 13,653,235 --------------- 25,187,815 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) Holding Companies - 6.28% 2,102,287 Brookfield Asset Management, Inc., Class A (Canada) $ 85,752,287 449,743 IDT Corp. 3,642,918 1,706,400 IDT Corp., Class B 13,702,392 3,111,000 JZ Equity Partners PLC (United Kingdom) 9,314,952 495,300 Leucadia National Corp. 25,091,898 7,542,000 PYI Corp., Ltd. (Hong Kong) (1) 3,425,417 --------------- 140,929,864 --------------- Home Furnishings - 0.68% 1,116,324 Stanley Furniture Co., Inc. (c) 15,248,986 --------------- Industrial Equipment - 2.01% 321,816 Alamo Group, Inc. 6,976,971 1,142,139 A.S.V., Inc. (a) 13,294,498 688,800 Trinity Industries, Inc. 24,893,232 --------------- 45,164,701 --------------- Information Services - 0.49% 308,400 Ceridian Corp. (a) 11,083,896 --------------- Insurance & Reinsurance - 3.21% 322,900 Arch Capital Group, Ltd. (a) (Bermuda) 24,143,233 59,974 E-L Financial Corp., Ltd. (Canada) 39,680,040 65,000 Helicon Re Holdings, Ltd. (a) (b) (Bermuda) 8,257,600 --------------- 72,080,873 --------------- Life Insurance - 2.63% 179,000 FBL Financial Group, Inc., Class A 7,245,920 201,126 National Western Life Insurance Co., Class A (c) 43,700,657 589,400 Phoenix Cos., Inc. (The) 8,121,932 --------------- 59,068,509 --------------- Metals Manufacturing - 0.99% 1,054,836 Encore Wire Corp. 22,151,556 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) Oil & Gas - 16.93% 2,080,809 Cimarex Energy Co. $ 84,293,573 130,800 CNX Gas Corp. (a) 4,175,136 405,000 CNX Gas Corp. (a) (g) 12,927,600 1,661,873 Comstock Resources, Inc. (a) 60,741,458 1,541,017 Pogo Producing Co. 91,782,973 1,804,500 St. Mary Land & Exploration Co. 76,438,620 920,043 Whiting Petroleum Corp. (a) 49,737,525 --------------- 380,096,885 --------------- Real Estate - 13.60% 755,446 Alexander & Baldwin, Inc. 39,570,261 279,531 Alico, Inc. 13,260,951 749,200 Forest City Enterprises, Inc., Class A 42,644,464 3,959,300 Parco Co., Ltd. (Japan) 54,980,268 10,148,000 Sapporo Holdings, Ltd. (Japan) 76,089,108 777,700 St. Joe Co. (The) 26,332,922 322,646 Tejon Ranch Co. (a) 12,931,652 653,170 Vail Resorts, Inc. (a) 39,640,887 --------------- 305,450,513 --------------- Retail - 0.72% 1,891,945 Haverty Furniture Cos., Inc. (c) 16,081,533 --------------- Security Brokers & 283,843 Nuveen Investments, Inc., Class A 18,393,026 --------------- Asset Management - 0.82% Semiconductor 280,700 Coherent, Inc. (a) 9,206,960 Equipment Manufacturers 1,139,062 Electro Scientific Industries, Inc. (a) 24,854,333 & Related - 1.73% 504,799 GSI Group, Inc. (a) (Canada) 4,745,111 --------------- 38,806,404 --------------- Software - 2.71% 4,552,252 Borland Software Corp. (a) (c) 19,938,864 379,700 Sybase, Inc. (a) 10,859,420 1,067,736 Synopsys, Inc. (a) 30,174,219 --------------- 60,972,503 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) Telecommunications 3,858,740 Sycamore Networks, Inc. (a) $ 16,476,820 Equipment - 1.29% 1,414,396 Tellabs, Inc. (a) 12,460,829 --------------- 28,937,649 --------------- TOTAL COMMON STOCKS (Cost $1,478,022,663) 1,978,758,220 --------------- INVESTMENT AMOUNT ($) ------------------------------------------------------------------------------------------------------------------------------------ LIMITED PARTNERSHIPS - 0.71% Holding Companies - 0.71% 1,000,000 AP Alternative Assets LP (a) (b) (Guernsey) 16,017,000 --------------- TOTAL LIMITED PARTNERSHIPS (Cost $20,000,000) 16,017,000 --------------- PRINCIPAL AMOUNT ($) ------------------------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS - 11.40% Repurchase Agreement - 0.77% 17,194,689 Bear Stearns, 4.55%, dated 10/31/07, due 11/1/07 (e) 17,194,689 --------------- U.S. Government 240,000,000 U.S. Treasury Bills, 4.96%-5.03%+, due 11/8/07-1/17/08 238,651,129 --------------- Obligations - 10.63% TOTAL SHORT TERM INVESTMENTS (Cost $255,549,328) 255,845,818 --------------- TOTAL INVESTMENT PORTFOLIO - 100.24% (Cost $1,753,571,991) 2,250,641,879 --------------- LIABILITIES IN EXCESS OF OTHER ASSETS - (0.24%) (5,299,951) --------------- NET ASSETS - 100.00% $ 2,245,341,928 (Applicable to 81,182,322 shares outstanding) =============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 Notes: (a) Non-income producing securities. (b) Fair-valued securities:
Carrying Value Acquisition Security Per Unit Acquisition Date Cost -------- -------------- ---------------- ----------- ACA Capital Holdings, Inc. $ 3.39 11/10/2006 $ 8,333,333 AP Alternative Assets LP 16.02 6/8/2006 20,000,000 Catalyst Paper Corp. 1.47 10/23/2006 36,007,695 Helicon Re Holdings, Ltd. 127.04 1/4/2006 & 1/6/2006 6,500,000 Insilco Technologies Bank Debt 0.42 9/18/2002 --^ ^ Acquisition Cost has been adjusted for return of capital.
(c) Affiliated issuers-as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of these issuers). (d) Cost has been reduced to $0 due to distributions received. (e) Repurchase agreement collateralized by U. S. Treasury Note, par value $645,000, due 8/31/11, value $663,217. U.S. Inflation Indexed Bond, par value $10,720,000, due 4/15/28, value $17,028,639. (f) Security is subject to restrictions on resale. (g) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. # Amount represents less than 0.01% of total net assets. + Annualized yield at date of purchase. 1 Incorporated in Bermuda. The aggregate cost for federal income tax purposes is $1,761,102,879. The aggregate gross unrealized appreciation is $586,537,569. The aggregate gross unrealized depreciation is ($96,998,569). Country Concentration % of Net Assets ---------- United States 75.33% Canada 16.35 Japan 5.84 Bermuda 1.44 Guernsey 0.71 United Kingdom 0.42 Hong Kong 0.15 ---------- Total 100.24% ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 26 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2007 ASSETS: Investments at value (Notes 1 and 4): Unaffiliated issuers (cost of $1,463,103,455) $1,986,853,242 Affiliated issuers (cost of $290,468,536) 263,788,637 -------------- Total investments (cost of $1,753,571,991) 2,250,641,879 Receivable for fund shares sold 1,750,475 Dividends and interest receivable 1,026,018 Other assets 37,640 -------------- Total assets 2,253,456,012 -------------- LIABILITIES: Payable for fund shares redeemed 4,916,771 Payable to investment adviser 1,744,075 Payable for securities purchased 943,057 Accounts payable and accrued expenses 309,252 Payable for other shareholder servicing fees (Note 3) 194,045 Payable to Trustees 6,884 Commitments (Note 6) -- -------------- Total liabilities 8,114,084 -------------- Net assets $2,245,341,928 ============== SUMMARY OF NET ASSETS: Capital stock, unlimited shares authorized, $0.001 par value, 81,182,322 shares outstanding $1,545,791,767 Accumulated undistributed net investment income 6,598,417 Accumulated undistributed net realized gains from investments, options written and foreign currency transactions 195,880,771 Net unrealized appreciation of investments and translation of foreign currency denominated assets and liabilities 497,070,973 -------------- Net assets applicable to capital shares outstanding $2,245,341,928 ============== Net asset value, offering and redemption price per share $27.66 ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 27 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007 INVESTMENT INCOME: Interest $ 23,221,837 Dividends - unaffiliated issuers (net of foreign withholding tax of $981,917) 23,655,057 Dividends - affiliated issuers (Note 4) 1,588,077 Securities lending income (Note 1) 1,558 Other income 280,896 ------------ Total investment income 48,747,425 ------------ EXPENSES: Investment advisory fees (Note 3) 21,517,031 Other shareholder servicing fees (Note 3) 2,429,748 Transfer agent fees 753,900 Reports to shareholders 393,422 Custodian fees 343,518 Accounting services 146,436 Administration fees (Note 3) 136,425 Trustees' and officers' fees and expenses 96,767 Auditing and tax consulting fees 96,000 Registration and filing fees 38,722 Legal fees 38,200 Insurance expenses 21,957 Miscellaneous expenses 23,164 ------------ Total operating expenses 26,035,290 ------------ Net investment income 22,712,135 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments - unaffiliated issuers 188,515,754 Net realized gain on investments - affiliated issuers 10,147,421 Net realized loss on written options (2,550,991) Net realized gain on foreign currency transactions 268,355 Net change in unrealized appreciation on investments 5,947,736 Net change in unrealized appreciation on written options 1,006,062 Net change in unrealized depreciation on translation of other assets and liabilities denominated in foreign currency (755) ------------ Net realized and unrealized gain (loss) on investments, written options and foreign currency transactions 203,333,582 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $226,045,717 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 28 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- OPERATIONS: Net investment income $ 22,712,135 $ 38,478,080 Net realized gain on investments - unaffiliated issuers 188,515,754 88,998,021 Net realized gain on investments - affiliated issuers 10,147,421 -- Net realized loss on written options (2,550,991) -- Net realized gain (loss) on foreign currency transactions 268,355 (34,051) Net change in unrealized appreciation on investments 5,947,736 125,017,576 Net change in unrealized appreciation (depreciation) on written options 1,006,062 (1,349,640) Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currency (755) 1,840 -------------- -------------- Net increase in net assets resulting from operations 226,045,717 251,111,826 -------------- -------------- DISTRIBUTIONS: Dividends to shareholders from net investment income (38,284,487) (24,795,444) Distributions to shareholders from net realized gains (88,482,951) (26,684,469) -------------- -------------- Decrease in net assets from distributions (126,767,438) (51,479,913) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from sale of shares 194,177,477 701,999,810 Net asset value of shares issued in reinvestment of dividends and distributions 118,575,359 48,852,018 Redemption fees 183,035 758,307 Cost of shares redeemed (576,496,310) (415,133,712) -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions (263,560,439) 336,476,423 -------------- -------------- Net increase (decrease) in net assets (164,282,160) 536,108,336 Net assets at beginning of year 2,409,624,088 1,873,515,752 -------------- -------------- Net assets at end of year (including undistributed net investment income of $6,598,417 and $21,853,203, respectively) $2,245,341,928 $2,409,624,088 ========== ============ ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 29 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE SMALL-CAP VALUE FUND FINANCIAL HIGHLIGHTS SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) AND RATIOS ARE AS FOLLOWS:
YEARS ENDED OCTOBER 31, ----------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ------ ------ ------ ------ ------ Net asset value, beginning of year $26.54 $24.23 $20.98 $18.02 $12.92 ------ ------ ------ ------ ------ Income from investment operations: Net investment income 0.27 0.44 0.17 0.05 0.03 Net gain on securities (both realized and unrealized) 2.27(1) 2.50(1) 3.25(2) 3.02(2) 5.21(1) ------ ------ ------ ------ ------ Total from investment operations 2.54 2.94 3.42 3.07 5.24 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (0.43) (0.30) (0.09) (0.03) (0.14) Distributions from realized gains (0.99) (0.33) (0.08) (0.08) -- ------ ------ ------ ------ ------ Total distributions (1.42) (0.63) (0.17) (0.11) (0.14) ------ ------ ------ ------ ------ Net asset value, end of year $27.66 $26.54 $24.23 $20.98 $18.02 ====== ====== ====== ====== ====== Total return 9.93% 12.33% 16.36% 17.11% 40.88% Ratios/Supplemental Data: Net assets, end of year (in thousands) $2,245,342 $2,409,624 $1,873,516 $956,945 $541,832 Ratio of expenses to average net assets 1.09% 1.09% 1.13% 1.14% 1.17% Ratio of net investment income to average net assets 0.95% 1.67% 0.80% 0.28% 0.21% Portfolio turnover rate 27% 15% 11% 10% 22%
(1) Includes redemption fees of less than $0.01 per share. (2) Includes redemption fees of $0.01 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 30 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION - OCTOBER 31, 2007 (UNAUDITED) At October 31, 2007, the audited net asset value attributable to each of the 82,735,662 common shares outstanding of the Third Avenue Real Estate Value Fund ("TAREX") was $35.47 per share. This compares with an audited net asset value at October 31, 2006 of $32.82 per share, adjusted for a subsequent distribution to shareholders.
AVERAGE ANNUAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2007 -------------------------------------------------------- ONE YEAR ENDED THREE FIVE SINCE INCEPTION 10/31/07 YEAR YEAR (9/17/98) -------------- ------ ------ --------------- Third Avenue Real Estate Value Fund 7.68% 17.93% 22.92% 19.01% Morgan Stanley REIT Index -0.29% 17.35% 22.89% 16.28% Bloomberg Real Estate Operating Co. Index -7.57% 9.55% 21.85% 14.59% DJ Wilshire Real Estate Securities Index -1.20% 18.07% 24.00% 17.00% Bloomberg World Real Estate Index 42.23% N/A* N/A* N/A*
* The Bloomberg World Real Estate Index was not constituted and calculated for these periods. The Third Avenue Real Estate Value Fund (the "Fund") seeks to achieve long-term capital appreciation. Although the Fund does not attempt to track any benchmark, various comparative indices are included above for illustrative purposes, both for the most recent year and over longer periods. While the Fund does not seek to maximize short-term performance, it outperformed the indices above over the last year except for the Bloomberg World Real Estate Index. The Fund underperformed the Bloomberg World Real Estate Index due to the index being heavily weighted toward the Asian markets, which outperformed the Fund, and lack of real estate investment trusts (REITs) exposure, which tended to underperform for the period. The Fund's long-term deep value investment philosophy, focusing on capital appreciation rather than on income generation, typically leads us to invest in real estate operating companies (REOCs) rather than in REITs. Since the widely recognized benchmarks--the Morgan Stanley REIT Index and the Wilshire Real Estate Securities Index--are comprised almost entirely of REITs, they do not provide a particularly useful comparison to the Fund. We believe that the Fund's performance should be judged over the long term and in the absolute, rather than against any of these indices. Based on such criteria, we are pleased with Fund performance over the long term and, particularly in light of the global credit crisis and housing downturn, we are not displeased with this year's gains. During the twelve-month period ended October 31, 2007, the Fund's total return was 7.68% . The Fund has benefited from its rising international exposure, with top returns coming from Hong Kong and to a lesser extent, Canada. The Hong Kong market has been propelled by a rebound in the local real estate market and investor excitement about the compelling growth prospects in the region overall. Top contributors to performance over the fiscal year were Canadian holding company Brookfield Asset Management and several Hong Kong-based companies, including Henderson Land Development, Wharf Holdings, Hang Lung Properties and Wheelock & Company. In contrast, the Fund's holdings in the U.S. presented the most significant drag on performance. This is not surprising given the ongoing housing and credit related malaise. The most significant detractor to Fund performance during the year was 31 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION (CONTINUED) (UNAUDITED) The St. Joe Company ("St. Joe"). St. Joe is a diversified real estate operating company that is the largest private landowner in Florida. Shares of St. Joe continued to languish in the ongoing downturn in the housing market, which has been particularly acute in the company's primary market of Florida. While we have been encouraged by some of the company's restructuring and cost cutting efforts, we believe that the near-term outlook for the U.S. housing market in general, remains challenged. Still, we remain patient long-term investors, and as such are willing to ride out short-term volatility. THE INFORMATION IN THE PORTFOLIO MANAGEMENT DISCUSSION REPRESENTS A FACTUAL OVERVIEW OF THE FUND'S PERFORMANCE AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS NOR INVESTMENT ADVICE. VIEWS EXPRESSED ARE THOSE OF THE INVESTMENT TEAM AND MAY DIFFER FROM THOSE OF OTHER INVESTMENT TEAMS OR THE FIRM AS A WHOLE. ALSO, PLEASE NOTE THAT ANY DISCUSSION OF THE PORTFOLIO'S HOLDINGS, THE FUND'S PERFORMANCE, AND THE INVESTMENT TEAM'S VIEWS ARE AS OF OCTOBER 31, 2007, AND ARE SUBJECT TO CHANGE. Real estate investments may be subject to special risks, including risks related to general and local economic conditions, and changes in real estate values that may have negative effects on issuers related to the real estate industry. The Fund's investments in small and medium capitalizations stocks may experience more volatility than larger capitalization stocks. These and other risks are described more fully in the Fund's prospectus. Third Avenue Real Estate Value Fund IS OFFERED BY PROSPECTUS ONLY. The prospectus contains more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before investing or sending money. Please read the prospectus carefully before you send money. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. The Fund's returns should be viewed in light of its investment policy and objectives and quality of its portfolio securities and the periods selected. M.J. Whitman LLC Distributor. 12/21/07 If you should have any questions, or for updated information or a copy of our prospectus, please call 1-800-443-1021 or go to our web site at www.thirdavenuefunds.com. Current performance may be lower or higher than performance quoted. The Morgan Stanley REIT Index is a total-return index comprised of the most actively traded real estate investment trusts and is designed to be a measure of real estate equity performance. The Bloomberg Real Estate Operating Companies Index is a capitalization-weighted index of Real Estate Operating Companies having a market capitalization of $15 million or greater. The DJ Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs) and is capitalization weighted. The Bloomberg World Real Estate Index is a capitalization-weighted index of the leading real estate stocks in the world. The Morgan Stanley REIT Index, Bloomberg Real Estate Operating Co. Index, DJ Wilshire Real Estate Securities Index and Bloomberg World Real Estate Index are not securities that can be purchased or sold, and their total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. 32 [THIRD AVENUE FUNDS LOGO] PERFORMANCE INFORMATION (UNAUDITED) PERFORMANCE ILLUSTRATION COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THIRD AVENUE REAL ESTATE VALUE FUND, THE MORGAN STANLEY REIT INDEX, THE BLOOMBERG REAL ESTATE OPERATING COMPANY INDEX AND THE DJ WILSHIRE REAL ESTATE SECURITIES INDEX FROM INCEPTION OF THE FUND (9/17/98) THROUGH OCTOBER 31, 2007 Average Annual Total Return Since Inception 1 Year 3 Years 5 Years (9/17/98) 7.68% 17.93% 22.92% 19.01% [The following table represents a line chart in the printed piece.] Bloomberg Real Estate DJ Wilshire TAREX Morgan Stanley Operating Co. Real Estate Index* REIT Index Index* Securities 9/17/98 10000 10000 10000 10000 10/31/98 10280 10534 10471.4 10567 10/31/99 11190.8 9874.57 10428.4 10060.5 10/31/00 14157.5 11671.7 11990.6 12280.8 10/31/01 16268.4 13219.4 13087.8 13538 10/31/02 17434.8 14103.8 12891.4 14300.2 10/31/03 23040.1 18890.6 18677.1 19389.7 10/31/04 29830 24459.6 26340.3 25466.4 10/31/05 35008.5 28774.2 34979.9 30582.6 10/31/06 45434.1 39642.3 37488 42519 10/31/07 48923.4 39527.3 34650.2 42008.8 * All returns include reinvestment of all distributions. As with all mutual funds, past performance does not indicate future results. The returns shown in the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 33 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND INDUSTRY DIVERSIFICATION AT OCTOBER 31, 2007 THE SUMMARY OF THE FUND'S INVESTMENTS AS OF OCTOBER 31, 2007 IS AS FOLLOWS: (UNAUDITED) [The following table represents a bar chart in the printed piece.] Non-U.S. Real Estate Operating Companies 42.02 U.S. Real Estate Investment Trusts 20.46 U.S. Real Estate Operating Companies 19.68 Non-U.S. Real Estate Investment Trusts 8.02 Homebuilders 0.65 Cash & Equivalents (Net) 9.17 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 34
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS - 0.50% U.S. Real Estate 125,000 RAIT Financial Trust, 7.750% Series A $ 1,505,000 Investment Trusts - 0.16% 250,000 RAIT Financial Trust, 8.375% Series B 3,312,500 --------------- 4,817,500 --------------- U.S. Real Estate Operating 400,000 Forest City Enterprises, Inc., $25 par, 7.375%, due 2/1/34 9,888,000 --------------- Companies - 0.34% TOTAL PREFERRED STOCKS (Cost $19,375,000) 14,705,500 ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 90.33% Homebuilders - 0.65% 408,775 Avatar Holdings, Inc. (a) 19,028,476 --------------- Non-U.S. Real Estate 3,830,622 British Land Co. PLC (United Kingdom) 86,340,928 Investment Trusts - 8.03% 2,089,905 Derwent London PLC (United Kingdom) 72,223,029 1,280,404 Hammerson PLC (United Kingdom) 29,605,332 1,904,066 Liberty International PLC (United Kingdom) 47,351,235 --------------- 235,520,524 --------------- Non-U.S. Real Estate Operating 7,443,454 Brookfield Asset Management, Inc., Class A (Canada) 303,618,489 Companies - 42.02% 3,215,850 Brookfield Properties Corp. (Canada) 80,299,775 3,362,200 Daibiru Corp. (Japan) 44,590,352 80,000 First Capital Realty, Inc. (Canada) 2,173,080 21,894,000 Hang Lung Properties, Ltd. (Hong Kong) 104,099,081 17,395,000 Henderson Land Development Co., Ltd. (Hong Kong) 154,866,617 1,845,100 Killam Properties, Inc. (c) (Canada) 17,188,250 2,679,000 Mitsubishi Estate Co., Ltd. (Japan) 79,419,061 750,000 Mitsui Fudosan Co., Ltd. (Japan) 20,543,492 3,959,400 Parco Co., Ltd. (Japan) 54,981,656 3,215,764 Quintain Estates & Development PLC (United Kingdom) 41,088,869 7,543,700 Sapporo Holdings, Ltd. (Japan) 56,562,220 1,617,365 Unite Group PLC (United Kingdom) 13,998,465 25,345,800 Wharf (Holdings), Ltd. (The) (Hong Kong) 151,415,830 32,049,500 Wheelock & Co., Ltd. (Hong Kong) 103,382,149 4,240,000 Wheelock Properties, Ltd. (Hong Kong) 4,923,712 --------------- 1,233,151,098 =============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) U.S. Real Estate 2,436,810 Acadia Realty Trust (c) $ 64,575,465 Investment Trusts - 20.29% 2,922,017 American Financial Realty Trust 19,694,395 1,348,100 Associated Estates Realty Corp. (c) 16,365,934 1,561,738 Crystal River Capital, Inc. (c) 22,723,288 357,141 EastGroup Properties, Inc. 17,028,483 1,385,000 First Potomac Realty Trust (c) 28,946,500 2,251,800 JER Investors Trust, Inc. (c) 25,152,606 914,300 One Liberty Properties, Inc. (c) 18,697,435 2,016,792 ProLogis 144,684,658 900,400 PS Business Parks, Inc. 52,493,320 2,235,800 Quadra Realty Trust, Inc. (c) 18,490,066 3,000,000 RAIT Financial Trust 27,300,000 1,248,200 Vornado Realty Trust 139,448,904 --------------- 595,601,054 --------------- U.S. Real Estate Operating 5,000 Atlantic American Realty Capital Advisors, Inc. (a) (b) -- Companies - 19.34% 500,500 Consolidated-Tomoka Land Co. (c) 34,294,260 12,982,327 FNC Realty Corp. (a) (b) 9,736,745 5,497,933 Forest City Enterprises, Inc., Class A (c) 312,942,346 1,017,031 Forest City Enterprises, Inc., Class A (c) (d) 57,889,405 3,070,861 St. Joe Co. (The) 103,979,353 485,584 Tejon Ranch Co. (a) 19,462,207 2,411,373 Thomas Properties Group, Inc. (c) 29,394,637 --------------- 567,698,953 --------------- TOTAL COMMON STOCKS (Cost $1,669,655,475) 2,651,000,105 =============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
36
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 PRINCIPAL VALUE AMOUNT ($) ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS - 9.39% Repurchase Agreement - 3.95% 115,931,973 Bear Stearns, 4.55%, dated 10/31/07, due 11/1/07 (e) $ 115,931,973 --------------- U.S. Government 160,000,000 U.S. Treasury Bill, 3.95%+, due 11/29/07 (f) 159,516,533 --------------- Obligations - 5.44% TOTAL SHORT TERM INVESTMENTS (Cost $275,448,506) 275,448,506 --------------- TOTAL INVESTMENT PORTFOLIO - 100.22% (Cost $1,964,478,981) 2,941,154,111 --------------- LIABILITIES IN EXCESS OF OTHER ASSETS - (0.22%) (6,445,867) --------------- NET ASSETS - 100.00% $ 2,934,708,244 (Applicable to 82,735,662 shares outstanding) ---------------
Notes: (a) Non-income producing securities. (b) Fair-valued securities:
Carrying Value Acquisition Security Per Unit Acquisition Date Cost -------- -------------- ---------------------- ----------- Atlantic American Realty Capital Advisors, Inc. $ -- 10/22/2004 $ 500,000 FNC Realty Corp. 0.75 5/22/2002 to 1/30/2007 10,726,689
(c) Affiliated issuers - as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of those issuers). (d) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registra- tion, normally to qualified institutional buyers. (e) Repurchase agreement collateralized by: U.S. Treasury Bill, par value $11,220,000, due 1/17/08, value $11,128,894. U.S. Inflation Indexed Notes, par value $103,385,000, due 1/15/16, value $108,138,271. (f) A portion of this security is segregated for future fund commitments. + Annualized yield at date of purchase. The aggregate cost for federal income tax purposes is $1,996,682,732. The aggregate gross unrealized appreciation is $1,019,104,000. The aggregate gross unrealized depreciation is ($74,632,621). Country Concentration % of Net Assets ---------- United States 52.91% Hong Kong 17.67 Canada 11.01 United Kingdom 9.90 Japan 8.73 ---------- Total 100.22% ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 37 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2007 ASSETS: Investments at value (Notes 1 and 4): Unaffiliated issuers (cost of $1,556,583,527) $2,294,493,919 Affiliated issuers (cost of $407,895,454) 646,660,192 -------------- Total investments (cost of $1,964,478,981) 2,941,154,111 Foreign currency at value (cost of $9,708) 9,725 Dividends and interest receivable 5,571,045 Receivable for fund shares sold 2,938,856 Other assets 71,585 Receivable for securities sold 6,960 Other receivables 3,573 -------------- Total assets 2,949,755,855 -------------- LIABILITIES: Payable for fund shares redeemed 9,294,047 Payable for securities purchased 2,813,624 Payable to investment adviser 2,226,781 Accounts payable and accrued expenses 431,455 Payable for other shareholder servicing fees (Note 3) 272,499 Payable to Trustees 9,205 Commitments (Note 6) -- -------------- Total liabilities 15,047,611 -------------- Net assets $2,934,708,244 ============== SUMMARY OF NET ASSETS: Capital stock, unlimited shares authorized, $0.001 par value, 82,735,662 shares outstanding $1,694,221,036 Accumulated undistributed net investment income 820,960 Accumulated undistributed net realized gains from investments and foreign currency transactions 262,997,448 Net unrealized appreciation of investments and translation of foreign currency denominated assets and liabilities 976,668,800 -------------- Net assets applicable to capital shares outstanding $2,934,708,244 ============== Net asset value, offering and redemption price per share $35.47 ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 38 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007 INVESTMENT INCOME: Interest $ 15,956,007 Dividends - unaffiliated issuers (net of foreign withholding tax of $867,066) 42,029,981 Dividends - affiliated issuers (net of foreign witholding tax of $97,504) (Note 4) 14,341,008 Other income 4,830 ------------- Total investment income 72,331,826 ------------- EXPENSES: Investment advisory fees (Note 3) 28,960,859 Other shareholder servicing fees (Note 3) 3,549,188 Custodian fees 852,235 Transfer agent fees 837,192 Reports to shareholders 578,364 Administration fees (Note 3) 183,843 Accounting fees 183,448 Trustees' and officers' fees and expenses 126,276 Auditing and tax consulting fees 96,825 Registration and filing fees 87,809 Insurance expenses 28,499 Legal fees 24,287 Miscellaneous expenses 36,011 ------------- Total operating expenses 35,544,836 ------------- Net investment income 36,786,990 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments - unaffiliated issuers 286,086,212 Net realized gain on investments - affiliated issuers 15,379,774 Net realized loss on written options (4,166,382) Net realized gain on foreign currency transactions 1,145,375 Net change in unrealized depreciation on investments (117,362,845) Net change in unrealized appreciation on written options 1,675,388 Net change in unrealized depreciation on translation of other assets and liabilities denominated in foreign currency (13,751) ------------- Net realized and unrealized gain (loss) on investments, written options and foreign currency transactions 182,743,771 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 219,530,761 ============= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 39 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- OPERATIONS: Net investment income $ 36,786,990 $ 23,957,946 Net realized gain on investments - unaffiliated issuers 286,086,212 203,598,721 Net realized gain on investments - affiliated issuers 15,379,774 29,850,357 Net realized loss on written options (4,166,382) -- Net realized gain on foreign currency transactions 1,145,375 63,357 Net change in unrealized appreciation (depreciation) on investments (117,362,845) 519,758,298 Net change in unrealized appreciation (depreciation) on written options 1,675,388 (2,247,560) Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currency (13,751) 2,620 -------------- -------------- Net increase in net assets resulting from operations 219,530,761 774,983,739 -------------- -------------- DISTRIBUTIONS: Dividends to shareholders from net investment income (77,266,724) (42,842,566) Distributions to shareholders from net realized gains (227,517,049) (99,226,293) -------------- -------------- Decrease in net assets from distributions (304,783,773) (142,068,859) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from sale of shares 680,667,169 489,149,784 Net asset value of shares issued in reinvestment of dividends and distributions 290,080,206 135,438,214 Redemption fees 1,414,148 946,937 Cost of shares redeemed (1,091,984,552) (992,434,879) --------------- -------------- Net decrease in net assets resulting from capital share transactions (119,823,029) (366,899,944) -------------- -------------- Net increase (decrease) in net assets (205,076,041) 266,014,936 Net assets at beginning of year 3,139,784,285 2,873,769,349 -------------- -------------- Net assets at end of year (including undistributed net investment income of $820,960 and $4,442,770, respectively) $2,934,708,244 $3,139,784,285 ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 40 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE REAL ESTATE VALUE FUND FINANCIAL HIGHLIGHTS SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) AND RATIOS ARE AS FOLLOWS:
YEARS ENDED OCTOBER 31, ---------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ------ ------ ------ ------ ------ Net asset value, beginning of year $36.34 $29.41 $25.47 $20.17 $15.73 ------ ------ ------ ------ ------ Income from investment operations: Net investment income 0.85 0.32 0.33 0.06 0.46 Net gain on securities (both realized and unrealized) 1.80(2) 8.08(1) 4.05(2) 5.77(2) 4.46(2) ------ ------ ------ ------ ------ Total from investment operations 2.65 8.40 4.38 5.83 4.92 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (0.89) (0.44) (0.18) (0.45) (0.18) Distributions from realized gains (2.63) (1.03) (0.26) (0.08) (0.30) ------ ------ ------ ------ ------ Total distributions (3.52) (1.47) (0.44) (0.53) (0.48) ------ ------ ------ ------ ------ Net asset value, end of year $35.47 $36.34 $29.41 $25.47 $20.17 ====== ====== ====== ====== ====== Total return 7.68% 29.78% 17.36% 29.47% 32.15% Ratios/Supplemental Data: Net assets, end of year (in thousands) $2,934,708 $3,139,784 $2,873,769 $1,693,294 $646,979 Ratio of expenses to average net assets 1.10% 1.11% 1.14% 1.15% 1.19% Ratio of net investment income to average net assets 1.14% 0.80% 1.15% 0.47% 3.27% Portfolio turnover rate 19% 10% 13% 8% 11%
1 Includes redemption fees of $0.01 per share. 2 Includes redemption fees of $0.02 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 41 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION - OCTOBER 31, 2007 (UNAUDITED) At October 31, 2007, the audited net asset value attributable to each of the 93,109,562 common shares outstanding of the Third Avenue International Value Fund ("TAVIX") was $25.01 per share. This compares with an audited net asset value at October 31, 2006 of $20.95 per share, adjusted for a subsequent distribution to shareholders.
AVERAGE ANNUAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2007 --------------------------------------- ONE YEAR ENDED THREE FIVE SINCE INCEPTION 10/31/07 YEAR YEAR (12/31/01) ----------------------------------------------------- Third Avenue International Value Fund 18.86% 19.58% 25.45% 20.88% Morgan Stanley Capital International All Country World Free ex-USA Index 32.97% 27.38% 26.39% 18.66%
The Third Avenue International Value Fund (the "Fund") seeks to achieve long-term capital appreciation and does not attempt to track any benchmark. A comparative index is included above for illustrative purposes both for the most recent year and over longer periods. The Fund is managed for the long term and does not seek to maximize short-term performance. During the twelve-month period ended October 31, 2007, the Fund's total return was 18.86% . It under-performed relative to the Morgan Stanley All Country World Free ex-USA Index over the same time frame, although since inception, the Fund has slightly outperformed the index. The Fund's largest positive contributor to performance in the one year timeframe was Saskatchewan Wheat Pool. The company is an integrated Canadian agri-business with operations that include modern grain handling and marketing terminals, one of Western Canada's largest agri-products retail marketing networks, and one of the world's largest industrial oat millers. Following the 2Q07 acquisition of its largest competitor, Agricore United, the combined entity should benefit from significantly enhanced breadth and scale. Another positive contributor was recent addition ABB Grain Limited, which operates a grain handling network in South Australia and markets Australian barley exports around the world. Other positive contributors to performance included Guoco Group Ltd, Antarchile SA and Golar LNG Ltd. Notable resource conversion activity during the year included the privatization of Toll New Zealand Limited which became a wholly-owned subsidiary of parent company Toll Holdings Ltd. The Fund was negatively impacted by the continued downturn in the paper and forest products industry. Key detractors to performance were Catalyst Paper Corp. and, to a lesser extent, Canfor Corp. In the case of Catalyst Paper, we have been encouraged by early signs of meaningful capacity closures in the newsprint industry which is marked by significant overcapacity. Canfor Corp.'s valuation continues to suffer from a decline in demand for lumber as a result of the depression in U.S. residential construction. We are of the opinion that both Catalyst and Canfor will be survivors in their respective industries, which are both undergoing a significant transformation. Other detractors included Seino Holdings Corp, WBL Corp Ltd, and Netia. 42 [THIRD AVENUE FUNDS LOGO] THE INFORMATION IN THE PORTFOLIO MANAGEMENT DISCUSSION REPRESENTS A FACTUAL OVERVIEW OF THE FUND'S PERFORMANCE AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS NOR INVESTMENT ADVICE. VIEWS EXPRESSED ARE THOSE OF THE INVESTMENT TEAM AND MAY DIFFER FROM THOSE OF OTHER INVESTMENT TEAMS OR THE FIRM AS A WHOLE. ALSO, PLEASE NOTE THAT ANY DISCUSSION OF THE PORTFOLIO'S HOLDINGS, THE FUND'S PERFORMANCE, AND THE INVESTMENT TEAM'S VIEWS ARE AS OF OCTOBER 31, 2007, AND ARE SUBJECT TO CHANGE. The Fund's performance may be influenced by a foreign country's political, social and economic situation. Other risks include currency fluctuations, political uncertainty, less liquidity, lack of efficient trading markets, and different auditing and legal standards. These risks may result in more volatility for the Fund. These and other risks are described more fully in the Fund's prospectus. Third Avenue International Value Fund IS OFFERED BY PROSPECTUS ONLY. The prospectus contains more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before investing or sending money. Please read the prospectus carefully before you send money. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. The Fund's returns should be viewed in light of its investment policy and objectives and quality of its portfolio securities and the periods selected. M.J. Whitman LLC Distributor. 12/21/07. If you should have any questions, or for updated information or a copy of our prospectus, please call 1-800-443-1021 or go to our web site at www.thirdavenuefunds.com. Current performance may be lower or higher than performance quoted. The Morgan Stanley Capital International All Country World Free ex-USA Index is an unmanaged index of common stocks and includes securities representative of the market structure of over 50 developed and emerging market countries (other than the United States) in North America, Europe, Latin America and the Asian Pacific Region. This index is not a security that can be purchased or sold, and its total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. 43 [THIRD AVENUE FUNDS LOGO] PERFORMANCE INFORMATION (UNAUDITED) PERFORMANCE ILLUSTRATION COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THIRD AVENUE INTERNATIONAL VALUE FUND AND MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY WORLD FREE EX-USA INDEX FROM INCEPTION OF THE FUND (12/31/01) THROUGH OCTOBER 31, 2007 [Graphic Appears Here] Average Annual Total Return Since Inception 1 Year 3 Years 5 Years (9/17/98) 18.86% 19.58% 25.45% 20.88% [The following table represents a line chart in the printed piece.] Morgan Stanley Capital International All Country TAVIX World Free Ex USA Index 12/31/01 10000 10000 10/31/02 9730 8413 10/31/03 13606.4 10970.5 10/31/04 17681.6 13128.5 10/31/05 21260.3 15829 10/31/06 25433.7 20405.1 10/31/07 30230.5 27132.7 * Includes reinvestment of all distributions. As with all mutual funds, past performance does not indicate future results. The returns shown in the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 44 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND INDUSTRY DIVERSIFICATION AT OCTOBER 31, 2007 THE SUMMARY OF THE FUND'S INVESTMENTS AS OF OCTOBER 31, 2007 IS AS FOLLOWS: (UNAUDITED) [The following table represents a bar chart in the printed piece.] Agriculture 12.17 Holding Companies 9.11 Diversified Operations 7.02 Real Estate 6.66 Transportation 6.41 Forest Products & Paper 6.38 Insurance 5.42 Building & Construction Products/Services 4.46 Securities Brokerage 4.44 Metals & Mining 4.04 Other Financial 4.01 Electronics 2.88 Engineering/Construction 2.27 Electronics Components 2.27 Telecommunications 1.9 Advertising 1.69 Other 5.05 Cash & Equivalents (Net) 13.82 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 45
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK - 0.02% Holding Companies - 0.02% 9,660 LG Corp. (South Korea) $ 420,420 --------------- TOTAL PREFERRED STOCK (Cost $227,399) 420,420 --------------- ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS - 86.16% Advertising - 1.69% 1,177,400 Asatsu-DK, Inc. (Japan) 39,292,593 --------------- Agriculture - 12.17% 10,760,924 ABB Grain, Ltd. (c) (Australia) 75,471,278 12,246,464 Saskatchewan Wheat Pool (a) (c) (e) (Canada) 165,550,569 374,296 United International Enterprises, Ltd. (c) (Denmark) (1) 42,482,798 --------------- 283,504,645 --------------- Building & Construction 216,342 Imerys SA (France) 21,030,943 Products/Services - 4.46% 13,696,300 Nippon Sheet Glass Co., Ltd. (Japan) 82,867,572 --------------- 103,898,515 --------------- Corporate Services - 0.39% 22,522,784 Boardroom, Ltd. (c) (Singapore) 9,029,040 --------------- Diversified Operations - 7.02% 2,570,626 Antarchile S.A. (Chile) 58,377,077 4,120,095 CSR, Ltd. (Australia) 13,085,755 6,648,200 Hutchison Whampoa, Ltd. (Hong Kong) 82,863,923 2,806,000 Straits Trading Co., Ltd. (Singapore) 9,154,216 --------------- 163,480,971 --------------- Electronics - 2.88% 1,624,300 Futaba Corp. (Japan) 35,973,532 2,615,800 Nichicon Corp. (Japan) 31,040,872 --------------- 67,014,404 --------------- Electronics Components - 2.27% 19,290,300 WBL Corp., Ltd. (c) (Singapore) 52,798,996 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
46
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Energy/Coal - 1.64% 541,300 Fording Canadian Coal Trust (Canada) $ 19,714,146 1,152,700 Westshore Terminals Income Fund (Canada) 18,364,616 --------------- 38,078,762 --------------- Energy/Services - 0.84% 723,000 Farstad Shipping A/S (Norway) 19,533,987 --------------- Engineering/Construction - 2.27% 261,900 Aker Kvaerner ASA (Norway) 9,125,606 1,789,700 Chudenko Corp. (Japan) 36,378,854 1,165,000 Tokyo Energy & Systems, Inc. (Japan) 7,321,328 --------------- 52,825,788 --------------- Food & Beverage - 0.84% 44,520,000 Vitasoy International Holdings, Ltd. (Hong Kong) 19,588,168 --------------- Forest Products & Paper - 6.38% 5,590,700 Canfor Corp. (a) (Canada) 51,784,920 483,904 Canfor Pulp Income Fund (Canada) 6,341,747 40,080,245 Catalyst Paper Corp. (a) (b) (c) (e) (Canada) 59,043,740 44,893,185 Rubicon, Ltd. (a) (c) (New Zealand) 31,505,678 --------------- 148,676,085 --------------- Holding Companies - 9.09% 902,712 Compagnie Nationale a Portefeuille (Belgium) 64,596,180 5,041,400 Guoco Group, Ltd. (Hong Kong) (2) 77,407,387 680,000 LG Corp. (South Korea) 61,529,921 71,000 Pargesa Holding S.A. (Switzerland) 8,084,340 --------------- 211,617,828 --------------- Insurance - 5.42% 124,876 Blue Ocean Reinsurance, Ltd. (a) (b) (c) (Bermuda) 5,430,841 9,731,415 BRIT Insurance Holdings PLC (United Kingdom) 65,661,202 70,000 Millea Holdings, Inc. (Japan) 2,742,600 771,224 Montpelier Re Holdings, Ltd. (Bermuda) 13,804,910 7,828 Norton Holdings, Ltd. (b) (Bermuda) 9,108,739 2,520,050 Sompo Japan Insurance, Inc. (Japan) 29,358,533 --------------- 126,106,825 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
47
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Metals & Mining - 4.04% 3,792,832 Dundee Precious Metals, Inc. (a) (c) (Canada) $ 38,705,235 1,025,000 Dundee Precious Metals, Inc. (a) (c) (f) (Canada) 10,459,959 512,500 Dundee Precious Metals, Inc. Warrants, expires 6/29/12 (a) (e) (Canada) 1,573,334 853,742 Newmont Mining Corp. 43,421,318 --------------- 94,159,846 --------------- Other Financial - 4.01% 606,050 Aiful Corp. (Japan) 14,210,248 107,731,000 Yuanta Financial Holding Co., Ltd. (a) (Taiwan) 79,135,735 --------------- 93,345,983 --------------- Real Estate - 6.66% 2,098,000 Daibiru Corp. (Japan) 27,824,210 103,667,023 GuocoLeisure, Ltd. (a) (c) (Singapore) (2) 98,880,627 19,670,000 Liu Chong Hing Investment, Ltd. (c) (Hong Kong) 28,323,886 --------------- 155,028,723 --------------- Securities Brokerage - 4.44% 97,017,800 Asia Plus Securities Public Co., Ltd. (Thailand) 12,218,219 3,002,900 Capital Nomura Securities Public Co., Ltd., NVDR (Thailand) 3,644,832 51,957,605 Capital Securities Corp. (Taiwan) 33,034,774 38,126,960 Hotung Investment Holdings, Ltd. (Taiwan) (2) 6,672,218 652,300 Ichiyoshi Securities Co., Ltd. (Japan) 7,067,785 82,857,200 KGI Securities Public Co., Ltd., NVDR (Thailand) 7,850,528 37,874,790 President Securities Corp. (Taiwan) 27,880,054 3,065,000 UOB-Kay Hian Holdings, Ltd. (Singapore) 5,126,693 --------------- 103,495,103 --------------- Technology - Hardware - 1.34% 37,628,000 Gigabyte Technology Co., Ltd. (c) (Taiwan) 31,182,463 --------------- Telecommunications - 1.90% 30,050,529 Netia S.A. (a) (c) (Poland) 44,316,469 --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
48
[THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 VALUE SHARES ISSUES (NOTE 1) ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) Transportation - 6.41% 4,578,800 BW Gas ASA (Norway) $ 61,854,923 1,378,700 Golar LNG, Ltd. (Norway)(2) 35,322,958 6,117,000 Seino Holdings Co., Ltd. (Japan) 52,121,623 --------------- 149,299,504 --------------- TOTAL COMMON STOCKS AND WARRANTS (Cost $1,560,330,223) 2,006,274,698 --------------- PRINCIPAL AMOUNT ($) ----------------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 13.50% Repurchase Agreement - 4.09% 95,342,849 Bear Stearns, 4.55%, dated 10/31/07, due 11/1/07 (d) 95,342,849 --------------- U.S. Government 220,000,000 U.S. Treasury Bills, 3.82%-4.95%+, due 11/8/07-1/17/08 219,081,98 --------------- Obligations - 9.41% TOTAL SHORT TERM INVESTMENTS (Cost $314,382,604) 314,424,835 --------------- TOTAL INVESTMENT PORTFOLIO - 99.68% (Cost $1,874,940,226) 2,321,119,953 --------------- OTHER ASSETS LESS LIABILITIES - 0.32% 7,463,389 --------------- NET ASSETS - 100.00% $ 2,328,583,342 (Applicable to 93,109,562 shares outstanding) --------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
49 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AT OCTOBER 31, 2007 Notes: NVDR: Non-Voting Depository Receipt. (a) Non-income producing securities. (b)Fair valued securities:
Carrying Value Acquisition Security Per Unit Acquisition Date Cost ------------------------------------------------------------------------------------------ Blue Ocean Reinsurance, Ltd. $ 43.49 12/30/2005 to 2/9/2006 $ 4,568,674 Catalyst Paper Corp. 1.47 1/3/2006 to 10/23/2006 114,161,857 Norton Holdings, Ltd. 1,163.61 12/14/2006 7,828,000
(c) Affiliated issuers - as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of those issuers). (d) Repurchase agreement collateralized by U.S. Inflation Indexed Bonds and Notes, par value $62,615,000, due 1/15/12 - 4/15/29, value $98,101,166. (e) Security is subject to restrictions on resale. (f) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. + Annualized yield at date of purchase. 1 Incorporated in Bahamas. 2 Incorporated in Bermuda. The aggregate cost for federal income tax purposes is $1,972,730,611. The aggregate gross unrealized appreciation is $432,331,694. The aggregate gross unrealized depreciation is ($83,942,352). Country Concentration % of Net Assets ------------- Canada 15.96% Japan 15.73 United States * 15.37 Hong Kong 8.94 Taiwan 7.64 Singapore 7.52 Norway 5.40 Australia 3.80 United Kingdom 2.82 Belgium 2.77 South Korea 2.66 Chile 2.51 Poland 1.90 Denmark 1.82 New Zealand 1.35 Bermuda 1.22 Thailand 1.02 France 0.90 Switzerland 0.35 ------------- Total 99.68% ============= * Includes cash equivalents. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 50 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2007 ASSETS: Investments at value (Notes 1 and 4): Unaffiliated issuers (cost of $1,312,865,247) $1,627,938,374 Affiliated issuers (cost of $562,074,979) 693,181,579 -------------- Total investments (cost of $1,874,940,226) 2,321,119,953 Foreign currency at value (cost of $8,075,062) 8,159,345 Receivable for fund securities sold 6,734,757 Dividends and interest receivable 3,778,909 Receivable for fund shares sold 734,606 Other assets 46,495 Other receivables 419 -------------- Total assets 2,340,574,484 -------------- LIABILITIES: Payable for fund shares redeemed 4,967,844 Payable for securities purchased 3,803,913 Payable to investment adviser 2,434,515 Accounts payable and accrued expenses 311,277 Deferred tax liability payable (Note 1) 303,404 Payable for other shareholder servicing fees (Note 3) 163,517 Payable to Trustees 6,672 Commitments (Note 6) -- -------------- Total liabilities 11,991,142 -------------- Net assets $2,328,583,342 ============== SUMMARY OF NET ASSETS: Capital stock, unlimited shares authorized, $0.001 par value, 93,109,562 shares outstanding $1,635,376,294 Accumulated distributions in excess of net investment income (22,966,386) Accumulated undistributed net realized gains from investments and foreign currency transactions 270,192,970 Net unrealized appreciation of investments and translation of foreign currency denominated assets and liabilities 445,980,464 -------------- Net assets applicable to capital shares outstanding $2,328,583,342 ============== Net asset value, offering and redemption price per share $25.01 ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 51 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007 INVESTMENT INCOME: Interest $ 19,685,202 Dividends - unaffiliated issuers (net of foreign withholding tax of $3,435,931) 40,361,161 Dividends - affiliated issuers (net of foreign witholding tax of $71,974) (Note 4) 7,950,236 Other income 129,041 ------------ Total investment income 68,125,640 ------------ EXPENSES: Investment advisory fees (Note 3) 29,138,463 Other shareholder servicing fees (Note 3) 2,055,483 Custodian fees 1,074,425 Transfer agent fees 498,144 Reports to shareholders 309,150 Accounting fees 171,554 Administration fees (Note 3) 131,299 Auditing and tax consulting fees 106,317 Trustees' and officers' fees and expenses 92,994 Registration fees 58,138 Legal fees 53,608 Insurance expense 2,527 Miscellaneous expenses 35,769 ------------ Total operating expenses 33,727,871 ------------ Net investment income 34,397,769 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain on investments - unaffiliated issuers 237,450,012 Net realized gain on investments - affiliated issuers 39,587,052 Net realized loss on written options (3,600,000) Net realized loss on foreign currency transactions (1,390,466) Net change in unrealized appreciation on investments 94,412,983 Net change in unrealized appreciation on translation of other assets and liabilities denominated in foreign currency (278,703) ------------ Net realized and unrealized gain (loss) on investments and foreign currency transactions 366,180,878 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $400,578,647 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 52 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 -------------- -------------- OPERATIONS: Net investment income $ 34,397,769 $ 73,157,419 Net realized gain on investments - unaffiliated issuers 237,450,012 172,462,933 Net realized gain on investments - affiliated issuers 39,587,052 7,704,137 Net realized loss on written options (3,600,000) -- Net realized gain (loss) on foreign currency transactions (1,390,466) 458,938 Net change in unrealized appreciation on investments 94,412,983 130,565,434 Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities denominated in foreign currency (278,703) 95,988 -------------- -------------- Net increase in net assets resulting from operations 400,578,647 384,444,849 -------------- -------------- DISTRIBUTIONS: Dividends to shareholders from net investment income (105,951,673) (43,828,096) Distributions to shareholders from net realized gains (170,052,532) (9,495,160) -------------- -------------- Decrease in net assets from distributions (276,004,205) (53,323,256) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from sale of shares 208,010,930 400,071,663 Net asset value of shares issued in reinvestment of dividends and distributions 245,564,779 48,449,070 Redemption fees 478,265 1,691,983 Cost of shares redeemed (607,689,400) (358,649,442) -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions (153,635,426) 91,563,274 -------------- -------------- Net increase (decrease) in net assets (29,060,984) 422,684,867 Net assets at beginning of year 2,357,644,326 1,934,959,459 -------------- -------------- Net assets at end of year (including undistributed net investment income of $0 and $46,755,252, respectively) $2,328,583,342 $2,357,644,326 ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 53 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST THIRD AVENUE INTERNATIONAL VALUE FUND FINANCIAL HIGHLIGHTS SELECTED DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) AND RATIOS ARE AS FOLLOWS:
YEARS ENDED OCTOBER 31, ----------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ------ ------ ------ ------ ------ Net asset value, beginning of year $23.77 $20.40 $17.17 $13.49 $ 9.73 ------ ------ ------ ------ ------ Income from Investment Operations: Net investment income 0.37 0.86+ 0.30 0.25 0.08 Net gain on securities (both realized and unrealized) 3.69(2) 3.07(1) 3.15(1) 3.73(1) 3.76(1) ------ ------ ------ ------ ------ Total from investment operations 4.06 3.93 3.45 3.98 3.84 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (1.08) (0.46) (0.22) (0.30) (0.08) Distributions from realized gains (1.74) (0.10) -- -- -- ------ ------ ------ ------ ------ Total distributions (2.82) (0.56) (0.22) (0.30) (0.08) ------ ------ ------ ------ ------ Net asset value, end of year $25.01 $23.77 $20.40 $17.17 $13.49 ------ ------ ------ ------ ------ Total return 18.86% 19.63% 20.24% 29.95% 39.84% Ratios/Supplemental Data: Net assets, end of year (in thousands) $2,328,583 $2,357,644 $1,934,959 $437,361 $ 97,285 Ratio of expenses to average net assets Before expense reimbursement/recovery 1.45% 1.45% 1.52% 1.58% 2.21% After expense reimbursement/recovery N/A N/A 1.53% 1.75% 1.75% Ratio of net investment income to average net assets Before expense reimbursement/recovery 1.48% 3.25%+ 1.19% 0.75% 0.06% After expense reimbursement/recovery N/A N/A 1.18% 0.58% 0.52% Portfolio turnover rate 23% 34% 3% 11% 4%
(1) Includes redemption fees of $0.02 per share. (2) Includes redemption fees of less than $0.01 per share. + Investment income per share reflects a special dividend which amounted to $0.22 per share. Excluding this special dividend, the ratio of net invest- ment income to average net assets would have been 2.25%. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 54 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2007 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION: Third Avenue Trust (the "Trust") is an open-end, non-diversified management investment company organized as a Delaware business trust pursuant to a Trust Instrument dated October 31, 1996. The Trust currently consists of four, non-diversified (within the meaning of Section 5(b)(2) of the Investment Company Act), separate investment series: Third Avenue Value Fund, Third Avenue Small-Cap Value Fund, Third Avenue Real Estate Value Fund and Third Avenue International Value Fund (each a "Fund" and, collectively, the "Funds"). Third Avenue Management LLC (the "Adviser") provides investment advisory services to each of the Funds in the Trust. The Funds seek to achieve their investment objectives of long-term capital appreciation by adhering to a strict value discipline when selecting securities. While the Funds pursue a capital appreciation objective, each Fund has a distinct investment approach. Third Avenue Value Fund seeks to achieve its objective mainly by acquiring common stocks of well-financed companies (meaning companies without significant liabilities in comparison to their liquid resources) at a discount to what the Adviser believes is their intrinsic value. The Fund also seeks to acquire senior securities, such as preferred stocks, and debt instruments (including high-yield securities) that the Adviser believes are undervalued. Third Avenue Small-Cap Value Fund seeks to achieve its objective by acquiring equity securities, including common stocks and convertible securities, of well-financed small companies at a discount to what the Adviser believes is their intrinsic value. Under normal circumstances, the Fund expects to invest at least 80% of its assets in equity securities (which may include both common and preferred stocks, and convertible securities) of companies that are considered small. The Fund considers a "small company" to be one whose market capitalization is no greater than nor less than the range of capitalizations of companies in the Russell 2000 Index, the S&P Small Cap 600 Index or the Dow Jones Wilshire U.S. Small-Cap Index at the time of investment. Third Avenue Real Estate Value Fund, under normal circumstances, seeks to achieve its objective by investing at least 80% of its assets in securities of real estate and real estate-related companies, or in companies which own significant real estate at the time of investment ("real estate companies"). These securities will primarily be equity securities (which may include both common and preferred stocks, and convertible securities) of well-financed real estate companies. The Fund seeks to acquire these securities at a discount to what the Adviser believes is their intrinsic value. The Fund may also invest a portion of its assets in debt securities (which may include high-yield and mortgage-backed securities) in real estate companies or loans secured by real estate that the Adviser believes have above average yield potential. Third Avenue International Value Fund seeks to achieve its objective by primarily acquiring equity securities, including common stocks and convertible securities, of well-financed companies located outside of the United States. While the Fund may invest in companies located anywhere in the world, it currently expects that most of its assets will be 55 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 invested in the more developed countries, and under normal circumstances, at least 80% of its assets will be invested in securities of issuers located outside of the United States at the time of investment. Because of the Funds' disciplined and deliberate investing approach, there may be times when the Funds will have significant cash positions. A substantial cash position can impact Fund performance in certain market conditions, and may make it more difficult for a Fund to achieve its investment objective. ACCOUNTING POLICIES: The policies described below are followed consistently by the Funds in the preparation of their financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. SECURITY VALUATION: Generally, the Funds' investments are valued at market value. Securities traded on a principal stock exchange or the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") are valued at the last quoted sales price, the NASDAQ official close price or, in the absence of closing sales prices on that day, securities are valued at the mean between the closing bid and asked price. In accordance with procedures approved by the Trust's Board of Trustees, the Funds may adjust the prices of securities traded in foreign markets, as appropriate, to reflect the fair value as of the time the Funds' net asset values are calculated. Temporary cash investments are valued at cost, plus accrued interest, which approximates market. Short-term debt 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 debt securities with 60 days or less to maturity are amortized to maturity based on their cost. The Funds may invest up to 15% of their total net assets in securities which are not readily marketable, including those which are restricted as to disposition under applicable securities laws ("restricted securities"). Restricted securities and other securities and assets for which market quotations are not readily available are valued at "fair value", as determined in good faith by the Funds' Valuation Committee as authorized by the Board of Trustees of the Funds, under procedures established by the Board of Trustees. At October 31, 2007, such securities had a total fair value of $88,342,834 or 0.73% of net assets of Third Avenue Value Fund, $44,853,805 or 2.00% of net assets of Third Avenue Small-Cap Value Fund, $9,736,745 or 0.33% of net assets of Third Avenue Real Estate Value Fund and $73,583,320 or 3.16% of net assets of Third Avenue International Value Fund. Among the factors considered by the Valuation Committee in determining fair value are the type of security, trading in unrestricted securities of the same issuer, the financial condition of the issuer, the Fund's cost at the date of purchase, the percentage of the Fund's beneficial ownership of the issuer's common stock and debt securities, the operating results of the issuer, the discount from market value of any 56 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 similar unrestricted securities of the issuer at the time of purchase and liquidation values of the issuer. The fair values determined in accordance with these procedures may differ significantly from the amounts which would be realized upon disposition of the securities. Restricted securities often have costs associated with subsequent registration. The restricted securities currently held by the Funds are not expected to incur any material future registration costs. SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date and interest income, including, where applicable, amortization of premium and accretion of discount on investments, is accrued daily, except when collection is not expected. Payments received from certain investments held by the Funds may be comprised of dividends, capital gains and return of capital. The Funds originally estimate the expected classification of such payments. The amounts may subsequently be reclassified upon receipt of information from the issuer. Realized gains and losses from securities transactions are reported on an identified cost basis. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows: o INVESTMENTS AND ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES: At the prevailing rates of exchange on the valuation date. o INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: At the prevailing rates of exchange on the date of such transactions. The net assets of the Funds are presented at the foreign exchange rates and market values at the close of the period. The Funds do not generally isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held. Similarly, the Funds do not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of equity securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) are included in the reported net realized and unrealized gains (losses) on investments. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statement of Assets and Liabilities. The change in net unrealized currency gains (losses) for the period is reflected on the Statement of Operations. 57 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 Pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are generally treated as ordinary income for U.S. Federal income tax purposes. OPTION CONTRACTS: An option contact gives the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying item at a fixed exercise price on a certain date or during a specified period. The cost of securities acquired through the exercise of a call option is increased by the premium paid. The proceeds from securities sold through the exercise of a purchased put option are decreased by the premium paid. Investments in options contracts require the Funds to fair value or mark-to market the options on a daily basis, which reflects the change in the market value of the contracts at the close of each day's trading. The cost of options that expire unexercised are treated by the Funds, on expiration date, as realized losses on investments. When the Funds write an option, an amount equal to the premium received by the Funds is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Funds, on the expiration date, as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Funds have a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Funds. The Funds as writer of an option bear the market risk of an unfavorable change in the price of the security underlying the written option. LOANS OF PORTFOLIO SECURITIES: The Funds may loan securities to certain brokers, with the Funds' custodian acting as the lending agent. Upon such loans, the Funds receive collateral which is maintained by the custodian. The Funds earn interest on such collateral and earn income in the form of negotiated lenders' fees, both of which are included in securities lending income in the Statement of Operations. Securities loaned are required to be secured at all times by collateral at least equal to the market value of the securities loaned. Risks may arise upon entering into securities lending to the extent that the value of the collateral is less than the value of the securities loaned due to changes in the value of collateral or the loaned securities. Dividends or other distributions on loaned securities may also receive different tax treatment than would otherwise be the case. The Funds may receive collateral in the form of cash or other eligible securities, such as a letter of credit issued by a U.S. bank, or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the value of securities loaned. 58 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 During the year ended October 31, 2007, the following Funds had securities lending income, which is included in the Statement of Operations, totaling: FUND ---- Third Avenue Value Fund $2,537,865 Third Avenue Small Cap Value Fund 1,558 The value of loaned securities and related collateral outstanding at October 31, 2007, was as follows: VALUE OF VALUE OF FUND SECURITIES LOANED COLLATERAL ---- ----------------- ------------ Third Avenue Value Fund $537,854,192 $562,350,181 REPURCHASE AGREEMENTS: The Funds may invest excess cash in repurchase agreements whereby the Funds purchase securities, which serve as collateral, with an agreement to resell such collateral at the maturity date of the repurchase agreement. Securities pledged as collateral for repurchase agreements are held by the Funds' custodian bank until maturity of the repurchase agreement. Provisions in the agreements require that the market value of the collateral is at least equal to the repurchase value in the event of default. In the event of default, the Funds have the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income paid to shareholders and distributions from realized gains on sales of securities paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with Federal income tax law and regulations which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their tax-basis treatment. Temporary differences do not require reclassification. 59 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 For the year ended October 31, 2007, permanent differences were reclassified as shown below:
DECREASE TO INCREASE ACCUMULATED UNDISTRIBUTED TO ACCUMULATED NET REALIZED GAIN/(LOSS) UNDISTRIBUTED NET ON INVESTMENTS AND INVESTMENT INCOME/(LOSS) FOREIGN CURRENCY ------------------------ ------------------------- Third Avenue Value Fund $60,431,825 $(61,365,981) Third Avenue Small-Cap Value Fund $ 317,566 $ (317,566) Third Avenue Real Estate Value Fund $36,857,924 $(36,827,962) Third Avenue International Value Fund $ 1,832,266 $ (1,832,066)
The primary reasons for such reclassifications are foreign currency gain (loss), market discount and premium, real estate investment trust ("REIT") distributions and investments in partnerships. INCOME TAXES: The Funds have complied and intend to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies. Therefore, no Federal income tax provision is required. Income, including gains, from investments in foreign securities received by the Funds may be subject to income, withholding or other taxes imposed by foreign countries. EXPENSE ALLOCATION: Expenses attributable to a specific Fund are charged to that Fund. Expenses attributable to the Trust are generally allocated using the ratio of each Fund's net assets relative to the total net assets of the Trust. Certain expenses are shared with Third Avenue Variable Series Trust, an affiliated fund group. Such costs are allocated using the ratio of the Funds' net assets relative to the total net assets of Third Avenue Variable Series Trust. TRUSTEES' AND OFFICERS' FEES: The Trust does not pay any fees to its officers for their services as such, except for the Chief Compliance Officer, to whom the Trust paid $132,774 for the year ended October 31, 2007. The Trust does pay, together with its affiliate Third Avenue Variable Series Trust, Trustees who are not affiliated with the Adviser a fee of $4,000 for each meeting of the Board of Trustees that they attend, in addition to reimbursing all Trustees for travel and incidental expenses incurred by them in connection with their attendance at meetings. If a special meeting is required, Trustees will each receive $2,500. Prior to July 1, 2007, if a special meeting was required, each Trustee received $2,000. The Trust, together with Third Avenue Variable Series Trust, also pays non-interested Trustees an annual stipend of $59,000, effective July 1, 2007. Prior to July 1, 2007, the annual stipend was $50,000 for each trustee. The Trustees 60 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 on the Audit Committee each receive $1,500 for each audit committee meeting and the audit committee chairman receives an annual retainer of $4,000. Prior to July 1, 2007, the audit committee chairman received an annual retainer of $2,000. ACCOUNTING PRONOUNCEMENTS: In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement on Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Adviser has begun to evaluate the application of the Fair Value Measurements to the Funds, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds' financial statements. On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax return to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the year of determination. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Securities and Exchange Commission (the "SEC") has permitted investment companies to delay implementation of FIN 48. The Funds will have until April 30, 2008 to implement FIN 48. At this time, the Adviser is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined. 2. SECURITIES TRANSACTIONS PURCHASES AND SALES/CONVERSIONS: The aggregate cost of purchases and aggregate proceeds from sales and conversions of investments, excluding short-term investments, from unaffiliated and affiliated issuers (as defined in the Investment Company Act, as amended, as ownership of 5% or more of the outstanding common stock of the issuer) for the year ended October 31, 2007 were as follows: 61 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 PURCHASES SALES -------------- ------------ Third Avenue Value Fund: Affiliated $ 905,455,697 $ 0 Unaffiliated 1,558,026,201 440,471,872 Third Avenue Small-Cap Value Fund: Affiliated 81,524,988 10,594,558 Unaffiliated 440,895,271 510,427,975 Third Avenue Real Estate Value Fund: Affiliated 66,443,163 31,822,549 Unaffiliated 491,661,625 920,541,621 Third Avenue International Value Fund: Affiliated 116,564,305 40,017,826 Unaffiliated 330,864,954 507,804,733 Written options transactions during the period are summarized as follows: THIRD AVENUE SMALL-CAP VALUE FUND NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------------------------------------------------------------------ Options outstanding at October 31, 2006 1,467 $ 2,514,738 ------------------------------------------------------------------------------ Options written -- -- Options terminated in closing purchase transactions (67) (115,035) Options exercised (1,400) (2,399,703) ------------------------------------------------------------------------------ Options outstanding at October 31, 2007 -- $ -- ------------------------------------------------------------------------------ 62 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 THIRD AVENUE REAL ESTATE VALUE FUND NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------------------------------------------------------------------ Options outstanding at October 31, 2006 2,443 $ 4,187,812 ------------------------------------------------------------------------------ Options written -- -- Options terminated in closing purchase transactions -- -- Options exercised (2,443) (4,187,812) ------------------------------------------------------------------------------ Options outstanding at October 31, 2007 -- $ -- ------------------------------------------------------------------------------ 3. INVESTMENT ADVISORY SERVICES, ADMINISTRATION AND SERVICE FEE AGREEMENTS Each Fund has an Investment Advisory Agreement with the Adviser for investment advice and certain management functions. The terms of the Investment Advisory Agreement provide for a monthly fee of 1/12 of 0.90% (an annual fee of 0.90%) of the total average daily net assets of Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and Third Avenue Real Estate Value Fund, and 1/12 of 1.25% (an annual fee of 1.25%) of the total average daily net assets of Third Avenue International Value Fund. Additionally, under the terms of the Investment Advisory Agreements, the Adviser pays certain expenses on behalf of the Funds which are partially reimbursed by the Funds, including service fees due to third parties, the compensation expense for the Funds' Chief Compliance Officer and other miscellaneous expenses. At October 31, 2007, Third Avenue Value Fund, Third Avenue Small-Cap Value Fund, Third Avenue Real Estate Value Fund and Third Avenue International Value Fund had amounts payable to the Adviser of $1,188,581, $256,352, $281,172 and $206,791, respectively, for reimbursement of expenses paid by the Adviser. Under current arrangements for Third Avenue Value Fund and Third Avenue Small-Cap Value Fund, whenever, in any fiscal year, the Fund's normal operating expenses, including the investment advisory fee, but excluding brokerage commissions and interest and taxes, exceeds 1.90% of the first $100 million of the Fund's average daily net assets, and 1.50% of average daily net assets in excess of $100 million, the Adviser is obligated to reimburse the Fund in an amount equal to that excess. Whenever, in any fiscal year, Third Avenue Real Estate Value Fund's normal operating expenses, including the investment advisory fee, but excluding brokerage commissions and taxes, exceeds 1.50% of the Fund's average daily net assets, the Adviser is obligated to reimburse the Fund in an amount equal to that excess. Whenever, in any fiscal year, Third Avenue International Value Fund's normal operating expenses, including the investment advisory fee, but excluding brokerage commissions and taxes exceed 1.75% of the Fund's average daily net assets, the Adviser is obligated to reimburse the Fund in an amount equal to the excess. Such waived and reimbursed expenses may be paid to the Adviser during the following three-year period to the extent that the payment of such expenses 63 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 would not cause the Funds to exceed the preceding limitations. No expense reimbursement was required for the year ended October 31, 2007. The Trust has entered into an Administration Agreement with the Adviser pursuant to which the Adviser, as administrator, is responsible for providing various administrative services to the Trust. The Adviser has in turn entered into a Sub-Administration Agreement with PFPC Inc. pursuant to which PFPC Inc. provides certain of these administrative services on behalf of the Adviser. The Adviser earns a fee from the Trust equal to $174,590 plus 50% of the difference between (i) $191,022 plus .01% of the Fund's average net assets in excess of $1 billion and (ii) $174,590. The Adviser pays PFPC Inc. a sub-administration fee for sub-administration services provided to the Trust equal to $180,775. Both the Trust and the Adviser have entered into agreements with financial intermediaries to provide recordkeeping, processing, shareholder communications and other services to customers of the intermediaries and have agreed to compensate the intermediaries for providing those services. Certain of those services would be provided by the Funds if the shares of each customer were registered directly with the Funds' transfer agent. Accordingly, the Adviser has agreed to pay and the Funds to reimburse a portion of the intermediary fees pursuant to provisions adopted by the Board of Trustees. Each Fund pays a portion of the intermediary fees attributable to shares of the Fund not exceeding the estimated expense the Fund would have paid its transfer agent had each customer's shares been registered directly with the transfer agent instead of held through the intermediary accounts. The Adviser pays the remainder of the fees. The fees incurred by the Funds are reflected as other shareholder servicing fees in the Statements of Operations. For the year ended October 31, 2007, such fees amounted to $11,129,214 for Third Avenue Value Fund, $2,429,748 for Third Avenue Small-Cap Value Fund, $3,549,188 for Third Avenue Real Estate Value Fund and $2,055,483 for Third Avenue International Value Fund. 4. RELATED PARTY TRANSACTIONS BROKERAGE COMMISSIONS: M.J. Whitman, LLC, a registered broker-dealer, and Private Debt LLC, a dealer in the trading of bank debt and other private claims, operate under common control with the Adviser. For the year ended October 31, 2007, the Funds incurred brokerage commissions, paid to related parties as follows: FUND M.J. WHITMAN LLC PRIVATE DEBT LLC ---------------------------------------------------------------------------- Third Avenue Value Fund $2,623,606 -- Third Avenue Small-Cap Value Fund 1,097,079 -- Third Avenue Real Estate Value Fund 1,424,104 -- Third Avenue International Value Fund 654,913 -- 64 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 INVESTMENT IN AFFILIATES: A summary of the Funds' transactions in securities of affiliated issuers for the year ended October 31, 2007 is set forth below: THIRD AVENUE VALUE FUND
SHARES SHARES HELD AT HELD AT DIVIDEND INCOME OCT. 31, SHARES SHARES OCT. 31, VALUE AT NOV. 1, 2006 - NAME OF ISSUER: 2006 PURCHASED SOLD 2007 OCT. 31, 2007 OCT. 31, 2007 -------------- ---------- ---------- ---------- ----------- ------------- --------------- ACA Capital Holdings, Inc. 118,812 3,687,910(1) -- 3,806,722 $ 12,907,834 $ -- ACA Capital Holdings, Inc. Convertible Pfd. 259 -- 259 -- -- -- ACA Capital Holdings, Inc. Senior Convertible Pfd. 123 -- 123(3) -- -- -- ACA Capital Holdings, Inc. Series B Senior Convertible Pfd. 133,783 -- 133,783(3) -- -- -- Alamo Group, Inc. 594,300 -- -- 594,300 12,884,424 142,632 AVX Corp. 9,046,200 -- -- 9,046,200 139,763,790 1,764,009 Carver Bancorp, Inc. 218,500 -- -- 218,500 3,456,670 80,845 Chong Hing Bank, Ltd. 26,127,450 -- -- 26,127,450 61,018,270 2,177,098 Covanta Holding Corp. 8,816,889 -- -- 8,816,889 239,025,861 -- FedFirst Financial Corp. 169,104 184,005 -- 353,109 3,206,230 -- Forest City Enterprises, Inc., Class A 4,847,557 2,164,301 -- 7,011,858 398,153,791 1,657,738 Gouverneur Bancorp, Inc. 142,200 63,311 -- 205,511 2,234,932 55,201 Henderson Land Development Co., Ltd. 53,328,000 60,000,000 -- 113,328,000 1,008,952,228 13,932,268 Home Products International, Inc. -- 526,368(2) -- 526,368 584,268 -- MBIA, Inc. 3,477,409 3,600,497 -- 7,077,906 304,633,074 5,509,123 Radian Group, Inc. 1,576,580 8,782,570 -- 10,359,150 130,421,699 202,422 RHJ International 4,505,945 122,968 -- 4,628,913 81,266,641 -- SFSB, Inc. 197,800 45,000 -- 242,800 2,033,450 -- St. Joe Co. (The) 6,072,168 593,910 -- 6,666,078 225,713,401 3,906,419 Tejon Ranch Co. 3,420,106 -- -- 3,420,106 137,077,848 -- Trammell Crow Co.* 2,150,000 -- 2,150,000 -- -- -- -------------- ------------ Total Affiliates $2,763,334,411 $29,427,755 ============== ============
65 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 THIRD AVENUE SMALL-CAP VALUE FUND
SHARES SHARES HELD AT HELD AT DIVIDEND INCOME OCT. 31, SHARES SHARES OCT. 31, VALUE AT NOV. 1, 2006 - NAME OF ISSUER: 2006 PURCHASED SOLD 2007 OCT. 31, 2007 OCT. 31, 2007 -------------- ---------- ---------- ---------- ----------- -------------- --------------- Bandag, Inc.* 1,126,284 -- 1,126,284 -- $ -- $ 746,498 Bel Fuse, Inc., Class B 690,643 16,449 -- 707,092 22,499,667 154,738 Borland Software Corp. 3,939,252 622,700 9,700 4,552,252 19,938,864 -- Bronco Drilling Co., Inc. -- 2,172,932 -- 2,172,932 29,551,875 -- Catalyst Paper Corp. 12,107,879 -- -- 12,107,879 17,836,579 -- Deltic Timber Corp. 750,875 -- 70,508 680,367 38,046,123 219,974 Haverty Furniture Cos., Inc. 1,617,166 274,779 -- 1,891,945 16,081,533 473,730 Herley Industries, Inc. 1,088,351 309,779 -- 1,398,130 21,377,408 -- K-Swiss, Inc., Class A 1,259,648 428,683 -- 1,688,331 39,506,945 274,527 Magma Design Automation, Inc. * 2,386,734 -- 2,386,734 -- -- -- National Western Life Insurance Co., Class A 148,742 52,384 -- 201,126 43,700,657 72,405 Stanley Furniture Co., Inc. 748,046 732,404 364,126 1,116,324 15,248,986 392,703 -------------- ------------ Total Affiliates $ 263,788,637 $2,334,575 ============== ============ THIRD AVENUE REAL ESTATE VALUE FUND SHARES SHARES HELD AT HELD AT DIVIDEND INCOME OCT. 31, SHARES SHARES OCT. 31, VALUE AT NOV. 1, 2006 - NAME OF ISSUER: 2006 PURCHASED SOLD 2007 OCT. 31, 2007 OCT. 31, 2007 -------------- ---------- ---------- ---------- ----------- -------------- --------------- Acadia Realty Trust 2,293,800 143,010 -- 2,436,810 $ 64,575,465 $ 1,921,559 American Land Lease, Inc.* 642,148 -- 642,148 -- -- 642,148 Associated Estates Realty Corp. 1,348,100 -- -- 1,348,100 16,365,934 916,708 Avatar Holdings, Inc. * 434,690 -- 25,915 408,775 19,028,476 -- Capital Lease Funding, Inc.* 1,640,450 -- 1,640,450 -- -- 549,616 Columbia Equity Trust, Inc. * 1,000,000 -- 1,000,000 -- -- 220,000 Consolidated-Tomoka Land Co. 510,000 -- 9,500 500,500 34,294,260 188,700 Crystal River Capital, Inc. 1,100,000 461,738 -- 1,561,738 22,723,288 3,283,982 First Potomac Realty Trust 563,400 821,600 -- 1,385,000 28,946,500 1,324,912 Forest City Enterprises, Inc., Class A 7,029,931 -- 514,967 6,514,964 370,831,751 2,734,971 JER Investors Trust, Inc. 2,251,800 -- -- 2,251,800 25,152,606 4,638,708 Killam Properties, Inc. 7,380,400 -- 5,535,300(4) 1,845,100 17,188,250 650,027 Midland Realty (Holdings), Ltd. * 49,926,000 -- 49,926,000 -- -- 294,839 One Liberty Properties, Inc. 938,200 -- 23,900 914,300 18,697,435 1,954,625 PS Business Parks, Inc. * 1,150,400 -- 250,000 900,400 52,493,320 1,569,584 Quadra Realty Trust, Inc. -- 2,235,800 -- 2,235,800 18,490,066 223,580 St. Joe Co. (The) * 5,070,861 -- 2,000,000 3,070,861 103,979,353 3,245,351 Thomas Properties Group, Inc. 2,000,000 411,373 -- 2,411,373 29,394,637 542,119 Trammell Crow Co.* 1,579,950 -- 1,579,950 -- -- -- Unite Group PLC * 7,757,487 -- 6,140,122 1,617,365 13,998,465 146,179 -------------- ------------ Total Affiliates $ 836,159,806 $ 25,047,608 ============== ============
66 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 THIRD AVENUE INTERNATIONAL VALUE FUND
SHARES SHARES HELD AT HELD AT DIVIDEND INCOME OCT. 31, SHARES SHARES OCT. 31, VALUE AT NOV. 1, 2006 - NAME OF ISSUER: 2006 PURCHASED SOLD 2007 OCT. 31, 2007 OCT. 31, 2007 -------------- ---------- ---------- ---------- ----------- -------------- --------------- ABB Grain, Ltd. 6,096,663 4,664,261 -- 10,760,924 $ 75,471,278 $ 1,154,144 Blue Ocean Reinsurance, Ltd. 124,876 -- -- 124,876 5,430,841 3,525,034 Boardroom, Ltd. 22,522,784 -- -- 22,522,784 9,029,040 147,449 Catalyst Paper Corp. 40,080,245 -- -- 40,080,245 59,043,740 -- Dundee Precious Metals, Inc. 3,792,832 1,025,000 -- 4,817,832 49,165,194 -- Gigabyte Technology Co., Ltd. 31,351,000 6,277,000 -- 37,628,000 31,182,463 685,204 GuocoLeisure, Ltd. 103,667,023 -- -- 103,667,023 98,880,627 -- Liu Chong Hing Investment, Ltd. 21,374,000 -- 1,704,000 19,670,000 28,323,886 738,480 Netia S.A. 29,703,256 347,273 -- 30,050,529 44,316,469 -- Oslo Bors Holding ASA* 351,700 -- 351,700 -- -- -- Rubicon, Ltd. 44,893,185 -- -- 44,893,185 31,505,678 -- Saskatchewan Wheat Pool 10,559,300 4,486,764(2) 2,799,600 12,246,464 165,550,569 -- Toll NZ, Ltd.* 18,671,113 -- 18,671,113 -- -- -- United International Enterprises, Ltd. 444,406 -- 70,110 374,296 42,482,798 322,390 WBL Corp., Ltd. 16,216,000 3,074,300 -- 19,290,300 52,798,996 1,377,535 -------------- ------------ Total Affiliates $ 693,181,579 $ 7,950,236 ============== ============
* As of October 31, 2007, no longer an affiliate. (1) Increase due to exchange and forward stock split. (2) Increase due to exchange. (3) Decrease due to exchange. (4) Decrease due to reverse stock split. Certain employees of the Adviser serve as members of the Board of Directors of companies in which the Funds have investments. For the year ended October 31, 2007, the Funds received the following fees: $44,447 Third Avenue Value Fund, $1,457 Third Avenue Small-Cap Value Fund and $2,015 Third Avenue Real Estate Value Fund, which are included in Other income on the accompanying Statement of Operations. 67 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 5. CAPITAL SHARE TRANSACTIONS Each Fund is authorized to issue an unlimited number of shares of beneficial interest with $0.001 par value. Transactions in capital stock were as follows:
THIRD AVENUE THIRD AVENUE VALUE FUND SMALL-CAP VALUE FUND ----------------------------------- ----------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- ---------------- ---------------- Increase (decrease) in Fund shares: Shares outstanding at beginning of year 153,848,187 108,658,702 90,805,077 77,319,265 ------------ ------------ ------------ ------------ Shares sold 45,597,343 58,685,754 7,228,330 27,806,946 Shares reinvested from dividends and distributions 8,012,366 10,828,087 4,585,307 1,984,280 Shares redeemed (29,256,626) (24,324,356) (21,436,392) (16,305,414) ------------ ------------ ------------ ------------ Net increase (decrease) in Fund shares 24,353,083 45,189,485 (9,622,755) 13,485,812 ------------ ------------ ------------ ------------ Shares outstanding at end of year 178,201,270 153,848,187 81,182,322 90,805,077 ============ ============ ============ ============ THIRD AVENUE THIRD AVENUE REAL ESTATE VALUE FUND INTERNATIONAL VALUE FUND ----------------------------------- ----------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- ---------------- ---------------- Increase (decrease) in Fund shares: Shares outstanding at beginning of year 86,401,434 97,702,927 99,168,233 94,865,602 ------------ ------------ ------------ ------------ Shares sold 19,139,548 15,254,843 9,021,508 17,893,198 Shares reinvested from dividends and distributions 8,499,274 4,617,657 11,274,840 2,312,692 Shares redeemed (31,304,594) (31,173,993) (26,355,019) (15,903,259) ------------ ------------ ------------ ------------ Net increase (decrease) in Fund shares (3,665,772) (11,301,493) (6,058,671) 4,302,631 ------------ ------------ ------------ ------------ Shares outstanding at end of year 82,735,662 86,401,434 93,109,562 99,168,233 ============ ============ ============ ============
68 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 Third Avenue Value Fund charges a redemption fee of 1% for shares held 60 days or less. Third Avenue Small-Cap Value Fund and Third Avenue Real Estate Value Fund charge a redemption fee of 1% for shares held one year or less. Third Avenue International Value Fund charges a redemption fee of 2% for shares held one year or less. 6. COMMITMENTS AND CONTINGENCIES Third Avenue Value Fund has committed a $1,755,000 capital investment to RS Holdings of which $1,022,245 has been funded as of October 31, 2007. Under certain circumstances this commitment may be payable to RS Holdings, although the Adviser believes that this commitment is no longer enforceable. Third Avenue Real Estate Value Fund has committed up to $10,500,000 to Atlantic American Realty Capital Advisors, Inc., of which $500,000 has been funded as of October 31, 2007. Under certain circumstances this commitment may be payable to Atlantic American Realty Capital Advisors, Inc. Accordingly, Third Avenue Value Fund and Third Avenue Real Estate Value Fund have segregated securities valued at $4,972,335 and $14,954,675 respectively, to meet each of these contingencies. In the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. 7. RISKS RELATING TO CERTAIN INVESTMENTS FOREIGN SECURITIES: Investments in the securities of foreign issuers may involve investment risks different from those of U.S. issuers including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, the possibility of currency exchange controls, the possible imposition of foreign taxes on income from and transactions in such instruments, the possible establishment of foreign controls, the possible seizure or nationalization of foreign deposits or assets, or the adoption of other foreign government restrictions that might adversely affect the foreign securities held by the Funds. Foreign securities may also be subject to greater fluctuations in price than securities of domestic corporations or the U.S. Government. HIGH YIELD DEBT: The Funds may invest in high yield, lower grade debt. The market values of these higher yielding debt securities tend to be more sensitive to economic conditions and individual corporate developments than those of higher rated securities. In addition, the secondary market for these bonds is generally less liquid. 69 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 LOANS AND OTHER DIRECT DEBT INSTRUMENTS: The Funds may invest in loans and other direct debt instruments issued by corporate borrowers. These loans represent amounts owed to lenders or lending syndicates (loans and loan participations) or to other parties. Direct debt instruments may involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to the Fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. The markets in loans are not regulated by federal securities laws or the SEC. TRADE CLAIMS: An investment in trade claims is very speculative and carries a high degree of risk. Trade claims are illiquid instruments 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. FUND CONCENTRATION: The Funds hold a relatively concentrated portfolio that may contain fewer securities than the portfolios of other mutual funds. Holding a relatively concentrated portfolio may increase the risk that the value of the Fund could go down because of the poor performance of one or a few investments. In addition, the Funds may encounter some difficulty in liquidating these types of positions. 8. FEDERAL INCOME TAXES The tax character of distributions paid during the period ended October 31, 2007 was as follows: ORDINARY NET LONG-TERM INCOME CAPITAL GAINS ------------ ------------- Third Avenue Value Fund $505,249,331 $ 14,621,692 Third Avenue Small-Cap Value Fund 49,009,478 77,757,960 Third Avenue Real Estate Value Fund 75,924,345 228,859,428 Third Avenue International Value Fund 121,976,814 154,027,391 The tax character of distributions paid during the fiscal year ended October 31, 2006 was as follows: ORDINARY NET LONG-TERM INCOME CAPITAL GAINS ------------ ------------- Third Avenue Value Fund $184,620,893 $444,291,930 Third Avenue Small-Cap Value Fund 32,394,132 19,085,781 Third Avenue Real Estate Value Fund 64,992,122 77,076,737 Third Avenue International Value Fund 43,828,096 9,495,160 70 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2007 At October 31, 2007, the tax basis components of distributable earnings were:
UNDISTRIBUTED ACCUMULATED UNREALIZED ORDINARY INCOME CAPITAL GAINS APPRECIATION ------------ ------------ -------------- Third Avenue Value Fund $215,747,277 $ 80,726,619 $3,640,666,816 Third Avenue Small-Cap Value Fund 32,288,231 177,721,845 489,540,085 Third Avenue Real Estate Value Fund 46,022,321 249,999,838 944,465,049 Third Avenue International Value Fund 68,165,382 276,851,590 348,190,079
The difference between book basis and tax basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable primarily to mark-to market treatment of certain passive foreign investment companies, differences in the treatment of amortization of bond discount and premium, REIT and partnership adjustments and other timing differences. Actual distributions to shareholders may differ from the amounts above. 71 [THIRD AVENUE FUNDS LOGO] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE TRUSTEES AND SHAREHOLDERS OF THIRD AVENUE TRUST In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Third Avenue Value Fund, Third Avenue Small-Cap Value Fund, Third Avenue Real Estate Value Fund and Third Avenue International Value Fund (constituting Third Avenue Trust, hereafter referred to as the "Fund") at October 31, 2007, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 300 Madison Avenue New York, New York December 21, 2007 72 [THIRD AVENUE FUNDS LOGO] ANNUAL RENEWAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED) (UNAUDITED) At a meeting of the Board of Trustees of the Trust held on June 7, 2007, the Trustees, by a unanimous vote (including a separate vote of those Trustees who are not "interested persons" (as the term is defined in the Investment Company Act) (the "Independent Trustees")), approved the renewal of each Fund's Investment Advisory Agreement (collectively, the "Agreements"). In advance of the meeting, the Independent Trustees, through their independent legal counsel, requested extensive materials, and the Adviser provided them, to assist the Board in considering the renewal of the Agreements. The Board engaged in a detailed discussion of the materials with the Adviser. The Independent Trustees then met separately with their independent legal counsel for a discussion of the Adviser's presentation and materials. In considering the Agreements, the Trustees did not identify any single overriding factor and instead considered all factors collectively. As a part of their decision-making process, the Trustees noted that the Adviser has managed each Fund since its inception, and that the Trustees believe that a long-term relationship with a capable, conscientious adviser is in the best interest of the Funds. Following this session, the full Board reconvened and approved the continuation of each Agreement as being in the best interests of the relevant Fund and its shareholders. The following is a summary of the discussions and conclusions regarding the material factors that formed the basis for the Board's approval. FACTORS CONSIDERED A. FINANCIAL CONDITION OF THE ADVISER; ADVISORY FEES: PROFITABILITY. The Trustees received a presentation from representatives of the Adviser, including a report prepared by Lipper Inc., and reviewed: 1. the financial condition of the Adviser to determine that the Adviser is solvent and sufficiently well capitalized to perform its ongoing responsibilities to the Funds; 2. the information sources and methodology used in the selection of funds to be included in the comparison universe and the competitive fund group used in comparative analyses of each Fund's advisory fees and expense ratio and in analyzing the Fund's performance; 3. each Fund's advisory fee and total expenses versus those of the comparison universe and competitive fund group, noting, for each Fund, the Fund's below median management fees within the universe and that its fees and expenses generally were well within the range of those of the funds in its competitive group funds; 4. performance/expense analysis of each Fund and funds in its competitive fund group; 5. a comparison of fees paid to the Adviser versus fees paid by similar funds advised and sub-advised by the Adviser; 6. information presented in respect of economies of scale, noting the competitive expense ratios, the extensive resources that the Adviser dedicates to its investment advisory process to the benefit of the Funds and the trend of declining or generally stable gross expense ratios of each Fund since inception; 73 [THIRD AVENUE FUNDS LOGO] ANNUAL RENEWAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED) (UNAUDITED) 7. the profitability to the Adviser resulting from each Agreement, reviewing the dollar amount of expenses allocated and revenue received by the Adviser and the method used to determine such expenses and corresponding profit; and 8. brokerage commission revenue to the Adviser's affiliated broker-dealer from transactions executed for the Funds, including the quarterly brokerage analysis performed by a third party service and provided to the Trustees analyzing, among other things, the affiliated broker-dealer's per share commission and execution costs. B. DESCRIPTION OF PERSONNEL AND SERVICE PROVIDED BY THE ADVISER. The Trustees reviewed with representatives of the Adviser, and considered: 1. the nature, extent and quality of services rendered to the Funds, including the Adviser's investment, senior management and operational personnel and the oversight of day-to-day operations of the Funds provided by the Adviser; 2. the Adviser's research and portfolio management capabilities, particularly the intensive research undertaken in connection with the Adviser's deep value philosophy; and 3. the value added through the Adviser's active management style that includes participation in corporate restructurings. C. COMPLIANCE MATTERS 1. The Trustees met in private session with the Trust's Chief Compliance Officer and reviewed the operation of the Trust's and the Adviser's compliance programs. D. INVESTMENT PERFORMANCE OF THE FUNDS AND ADVISER. 1. The Trustees reviewed total return information for each Fund versus the comparison universe and competitive funds group and compared to the Fund's benchmark index for various periods and since inception. 2. It was noted that each Fund's performance was favorable both on an absolute basis and, since inception, relative to that of funds in the comparison universe and competitive group and the Fund's benchmark. 74 [THIRD AVENUE FUNDS LOGO] ANNUAL RENEWAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED) (UNAUDITED) CONCLUSIONS The Trustees concluded that the nature, extent and quality of the services provided by the Adviser are adequate and appropriate. The Trustees considered, evaluated and were satisfied with each Fund's historical performance. They also considered the advisory fee and expense ratio of each Fund and evaluated the comparisons to those of funds in the comparable universe and competitive group and the performance/expense analysis, as discussed in the Adviser's presentation. The Trustees discussed the Adviser's profitability, and it was noted that the profitability percentage for each Fund was within ranges in relevant court cases upholding board approval of particular advisory agreements. The Trustees concluded that each Fund's fee paid to the Adviser was reasonable in light of comparative performance and advisory fee and expense information, costs of the services provided and profits and other benefits derived by the Adviser and its affiliates from their relationship with the Fund, including brokerage fees paid to the Adviser's affiliates. The Trustees also considered the advisory fees charged for similar funds advised and sub-advised by the Adviser and reviewed the nature of the services provided and differences, from the Adviser's perspective, in management of the Funds as compared to advisory services provided to other advised and sub-advised funds. The Trustees recognized that any differences in fees paid were consistent with the differences in services provided by the Adviser. The Trustees considered whether economies of scale are shared with the Funds and considered each Fund's competitive fee structure, the extensive resources that the Adviser dedicates to its investment advisory process to the benefit of the Fund, and the size of the Fund. The Trustees concluded that operational economies of scale had benefited the Funds and that there were no other material economies of scale in which the Funds should share. 75 [THIRD AVENUE FUNDS LOGO] MANAGEMENT OF THE TRUST Information pertaining to the Trustees and officers of the Trust is set forth below. The fund complex includes four portfolios in the Third Avenue Trust and one portfolio in the Third Avenue Variable Series Trust. The Statement of Additional Information (SAI) includes additional information about the Trustees and is available without charge upon request, by calling (800) 443-1021.
INTERESTED TRUSTEES ------------------- TERM OF OFFICE POSITION(S) AND LENGTH OF HELD WITH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS NAME, AGE & ADDRESS TIME SERVED* REGISTRANT DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- ------------------ --------------- ---------------------------------------- --------------------- MARTIN J. WHITMAN** (83) Trustee since Chairman and Chairman (3/90 to Present) Chief Director (8/90 to 622 Third Avenue 7/99 Trustee Executive Officer (CEO) (3/90 to 10/04) of Danielson New York, NY 9/03), President (1/91 to 5/98) of Holding Corporation; 10017 Third Avenue Trust; Chairman (7/99 Director (3/91 to to Present) CEO (7/99 to 9/03) of Present) of Nabors Third Avenue Variable Series Trust; Industries, Ltd., Co-Chief Investment Officer (2/03 to (international oil Present), Chief Investment Officer drilling services). (CIO) (1/91 to 2/03), Chairman and CEO (3/90 to 8/02), President (1/91 to 2/98), of EQSF Advisers, Inc. and its successor, Third Avenue Management LLC; CEO, President and Director (10/74 to Present) of Martin J. Whitman & Co., Inc. (pri- vate investment company); CEO (7/96 to 6/02) and Chairman (8/90 to 8/99) of Danielson Holding Corporation; Distinguished Management Fellow (1972 to Present) and Member of the Advisory Board (10/94 to 6/95) of the Yale School of Management at Yale University; Adjunct Professor (1/01 to 12/01) of the Columbia University Graduate School of Business; Chartered Financial Analyst.
76 [THIRD AVENUE FUNDS LOGO] INTERESTED TRUSTEES -------------------
TERM OF OFFICE POSITION(S) AND LENGTH OF HELD WITH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS NAME, AGE & ADDRESS TIME SERVED* REGISTRANT DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- ------------------ --------------- ---------------------------------------- --------------------- DAVID M. BARSE** (45) Trustee since President, President (5/98 to Present), Trustee Director (7/96 to 622 Third Avenue 9/01 CEO and (9/01 to Present), CEO (9/03 to Present) of Covanta New York, NY Trustee Present) and Executive Vice President Holding Corporation, 10017 (4/95 to 5/98) of Third Avenue Trust; formerly Danielson President (7/99 to Present), Trustee Holding Corporation; (9/01 to Present) and CEO (9/03 to Director (3/01 to Present) of Third Avenue Variable Present) of ACA Series Trust; CEO (4/03 to Present), Capital Holdings, President (2/98 to Present), Director Inc. (credit (4/95 to 12/02) and Executive Vice enhancement). President (4/95 to 2/98) of EQSF Advisers, Inc. and its successor, Third Avenue Management LLC and sub- sidiaries; CEO (7/99 to Present), President (6/95 to Present), Director (1/95 to Present) of M.J. Whitman, Inc. and its successor, M.J. Whitman LLC (registered broker-dealer) and subsidiaries. INDEPENDENT TRUSTEES -------------------- JACK W. ABER (70) Trustee since Trustee Professor of Finance (1972 to Present) Trustee, The 51 Columbia Street 8/02 of Boston University School of Managers Funds Brookline, MA 02446 Management, Trustee of Third (1999 to Present) Avenue Variable Series Trust (8/02 to (9 portfolios); Present); Trustee of Third Avenue Trustee of Managers Trust (8/02 to Present). AMG Funds (1999 to Present) (6 portfolios), Managers Trust I (2000 to Present) (10 portfolios) and Managers Trust II (2000 to Present) (6 portfolios); Trustee of Appleton Growth Fund.
77 [THIRD AVENUE FUNDS LOGO] INDEPENDENT TRUSTEES --------------------
TERM OF OFFICE POSITION(S) AND LENGTH OF HELD WITH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS NAME, AGE & ADDRESS TIME SERVED* REGISTRANT DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- ------------------ --------------- ---------------------------------------- --------------------- WILLIAM E. CHAPMAN, II (66) Trustee since Trustee Trustee; President and Owner (1998 Trustee, The 380 Gulf of Mexico Drive, 8/02 to Present) of Longboat Retirement Managers Funds #531 Planning Solutions (consulting firm); (1999 to Present) Longboat Key, FL 34228 part-time employee delivering retire- (9 portfolios); ment and investment education semi- Trustee of Managers nars (1/00 to Present) for Hewitt AMG Funds Associates, LLC (consulting firm); (1999 to Present) Trustee (5/02 to Present) of Bowdoin (6 portfolios), College; various roles, the last of Managers Trust I which was President of the (2000 to Present) Retirement Plans Group (1990 to (10 portfolios) and 1998) with Kemper Funds (mutual Managers Trust II funds group); investment sales, mar- (2000 to Present) keting and general management roles (6 portfolios). (1966 to 1990) with CIGNA (insur- ance group). Trustee of Third Avenue Variable Series Trust (8/02 to Present); Trustee of Third Avenue Trust (8/02 to Present). LUCINDA FRANKS (61) Trustee since Trustee Journalist (1969 to Present); Special N/A 64 East 86th Street 7/99 Correspondent, Talk Magazine (1999- New York, NY 2000); Trustee of Third Avenue 10028 Variable Series Trust (7/99 to Present); Trustee of Third Avenue Trust (2/98 to Present). EDWARD J. KAIER (62) Trustee since Trustee Partner (7/07 to Present) at Teeters Trustee, The 111 N. Lowry's Lane 8/02 Harvey Gilboy & Kaier LLP (law Managers Funds Rosemont, PA 19010 firm); Partner (1977 to 7/07) at (1999 to Present) Hepburn Willcox Hamilton & (9 portfolios), Putnam (law firm); Trustee of Third Trustee of Managers Avenue Variable Series Trust (8/02 to AMG Funds (1999 to Present); Trustee of Third Avenue Present) Trust (8/02 to Present). (6 portfolios), Managers Trust I (2000 to Present) (10 portfolios) and Managers Trust II (2000 to Present) (6 portfolios).
78 [THIRD AVENUE FUNDS LOGO] INDEPENDENT TRUSTEES --------------------
TERM OF OFFICE POSITION(S) AND LENGTH OF HELD WITH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS NAME, AGE & ADDRESS TIME SERVED* REGISTRANT DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- ------------------ --------------- --------------------------------------- --------------------- MARVIN MOSER, M.D. (83) Trustee since Trustee Clinical Professor of Medicine (1984 Director (1997 to 13 Murray Hill Road 7/99 to Present) at Yale University School Present) of Nutrition Scarsdale, NY of Medicine; Trustee (1992 to 2002) 21 Co. (marketing); 10583 of the Trudeau Institute (medical Director (2002 to research institute); Senior Medical Present) of Compre- Consultant (1974 to 2002) for the hensive Neuroscience National High Blood Pressure (research and phar- Education Program of the National maceutical site man- Heart, Lung and Blood Institute; agement company). Trustee of Third Avenue Variable Series Trust (7/99 to Present); Trustee or Director of Third Avenue Trust or its predecessor (11/94 to Present). ERIC RAKOWSKI (49) Trustee since Trustee Professor (1990 to Present) at Trustee, The Managers 571 Woodmont Avenue 8/02 University of California at Berkeley Funds (1999 to Present) Berkeley, CA 94708 School of Law; Visiting Professor (9 portfolios), Trustee (1998-1999) at Harvard Law School. of Managers AMG Funds Trustee of Third Avenue Variable Series (1999 to Present) Trust (8/02 to Present); Trustee of (6 portfolios), Third Avenue Trust (8/02 to Present). Managers Trust I (2000 to Present) (10 portfolios) and Managers Trust II (2000 to Present) (6 portfolios). MARTIN SHUBIK (81) Trustee since Trustee Seymour H. Knox Professor (1975 to N/A Yale University 7/99 Present) of Mathematical and Dept. of Economics Institutional Economics, Yale Box 2125, Yale Station University; Trustee of Third Avenue New Haven, CT Variable Series Trust (7/99 to 06520 Present); Trustee or Director of Third Avenue Trust or its predecessor (11/90 to Present). CHARLES C. WALDEN (63) Trustee since Trustee President and Owner (2006 to Present) N/A Sound Capital Associates, LLC 7/99 of Sound Capital Associates, LLC P.O. Box 1250 (consulting firm); Executive Vice- Madison, CT President of Investments and Chief 06443 Investment Officer (1973 to 2007) Knights of Columbus (fraternal benefit society selling life insurance and annuities); Trustee of Third Avenue Variable Series Trust (7/99 to Present); Trustee or Director of Third Avenue Trust or its predecessor (5/96 to Present); Chartered Financial Analyst.
--------------------------------- * Each trustee serves until his successor is duly elected and qualified. ** Messrs. Whitman and Barse are "interested trustees" of the Trust and the Adviser, Third Avenue Management LLC, due to their employment with and indirect ownership interests in the Adviser. 79 [THIRD AVENUE FUNDS LOGO] PRINCIPAL TRUST OFFICERS WHO ARE NOT TRUSTEES ---------------------------------------------
POSITION(S) HELD WITH OTHER DIRECTORSHIPS NAME, AGE & ADDRESS REGISTRANT PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY OFFICER ---------------------------- ------------------ ----------------------------------------------------------- --------------------- VINCENT J. DUGAN (42) Treasurer and Treasurer and Chief Financial Officer (CFO) (9/04 to N/A 622 Third Avenue CFO Present) of Third Avenue Trust; Treasurer and CFO (9/04 New York, NY 10017 to Present) of Third Avenue Variable Series Trust; Chief Operating Officer (COO) and CFO (8/04 to Present) of Third Avenue Management LLC and subsidiaries; COO and CFO (8/04 to Present) of Third Avenue Holdings Delaware LLC; COO and CFO (8/04 to Present) of MJ Whitman LLC and subsidiaries; Partner Ernst & Young LLP (6/02 to 8/04); Partner Arthur Andersen LLP (9/98 to 6/02). MICHAEL A. BUONO (40) Controller Controller (5/06 to Present) of Third Avenue Trust; N/A 622 Third Avenue Controller (5/06 to Present) of Third Avenue Variable New York, NY 10017 Series Trust; Vice President and Assistant Controller (12/05 to 5/06) of Legg Mason Partners Funds; Vice President and Assistant Controller (12/98 to 12/05) Citigroup Asset Management. W. JAMES HALL III (43) General Counsel General Counsel and Secretary (6/00 to Present) of Third N/A 622 Third Avenue and Secretary Avenue Trust; General Counsel and Secretary New York, NY 10017 (9/00 to Present) of Third Avenue Variable Series Trust; General Counsel and Secretary (9/00 to Present) of EQSF Advisers, Inc., and its successor, Third Avenue Management LLC and subsidiaries; General Counsel and Secretary (12/00 to 7/02) of Danielson Holding Corporation; General Counsel and Secretary (5/00 to Present) of M.J. Whitman, Inc. and its successor, M.J. Whitman LLC and subsidiaries. JOSEPH J. REARDON (47) Chief Chief Compliance Officer (CCO) (4/05 to Present) of N/A 622 Third Avenue Compliance Third Avenue Trust; CCO (4/05 to Present) Third Avenue New York, NY 10017 Officer Variable Series Trust; CCO Third Avenue Management LLC and subsidiaries (4/05 to Present); CCO (10/04 - 3/05) Weiss, Peck & Greer Funds Trust; CCO (10/94 - 3/05) Weiss, Peck & Greer Tudor Fund; Principal (10/94 - 10/04) Weiss, Peck & Greer; Vice President and Secretary (10/94 - 10/04) Weiss, Peck & Greer Funds Trust, Weiss, Peck & Greer Tudor Fund, Weiss, Peck & Greer International Fund, Weiss, Peck & Greer International Fund.
80 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE FUNDS SCHEDULE OF SHAREHOLDER EXPENSES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, such as redemption fees; and (2) ongoing costs, including management fees; other shareholder servicing fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period, May 1, 2007 and held for the entire reporting period ended October 31, 2007. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During the Period Account Value Account Value May 1, 2007 to Annualized May 1, 2007 October 31, 2007 October 31, 2007* Expense Ratio ----------- ---------------- ----------------- ------------- Third Avenue Value Fund Actual $1,000 $1,073 $5.70 1.09% Hypothetical $1,000 $1,020 $5.55 1.09% Third Avenue Small Cap Value Fund Actual $1,000 $1,010 $5.47 1.08% Hypothetical $1,000 $1,020 $5.50 1.08% Third Avenue Real Estate Value Fund Actual $1,000 $ 965 $5.55 1.12% Hypothetical $1,000 $1,020 $5.70 1.12% Third Avenue International Value Fund Actual $1,000 $1,088 $7.63 1.45% Hypothetical $1,000 $1,018 $7.38 1.45%
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184) divided by 365. 81 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST FEDERAL TAX STATUS OF DIVIDENDS (UNAUDITED) The following information represents the tax status of dividends and distributions paid by the Funds during the fiscal year ended October 31, 2007. This information is presented to meet regulatory requirements and no current action on your part is required. The information and distributions reported below will differ from the information and distributions taxable to shareholders for the calendar year ending December 31, 2007. Information necessary to complete your income tax returns for the calendar year ending December 31, 2007 will be issued by the Funds in the early part of 2008. THIRD AVENUE VALUE FUND Of the $3.343 per share paid to you in cash or reinvested into your account during the fiscal year ended October 31, 2007, $3.241 was derived from net investment income, $0.008 from short-term capital gains, which are taxed as ordinary income and $0.094 from long-term capital gains. Foreign taxes of $0.0198 are included in arriving at the net investment income of $3.241. Of the total ordinary income (including net investment income and short-term capital gains) distributed 8.98% or the maximum amount allowable, is qualified dividend income for purposes of Internal Revenue Code Section 1(h)(11). 5.57% of the ordinary income distributed qualifies for the Corporate Dividends Received Deduction. THIRD AVENUE SMALL-CAP VALUE FUND Of the $1.417 per share paid to you in cash or reinvested into your account during the fiscal year ended October 31, 2007, $0.428 was derived from net investment income, $0.120 from short-term capital gains, which are taxed as ordinary income and $0.869 from long-term capital gains. Of the total ordinary income (including short-term capital gains) distributed 47.71% or the maximum amount allowable, is qualified dividend income for purposes of Internal Revenue Code Section 1(h)(11). 20.01% of the ordinary income distributed qualifies for the Corporate Dividends Received Deduction. THIRD AVENUE REAL ESTATE VALUE FUND Of the $3.524 per share paid to you in cash or reinvested into your account during the fiscal year ended October 31, 2007, $0.812 was derived from net investment income, $0.066 from short-term capital gains, which are taxed as ordinary income and $2.646 from long-term capital gains. Of the total ordinary income (including short-term capital gains) distributed 18.59% or the maximum amount allowable, is qualified dividend income for purposes of Internal Revenue Code Section 1(h)(11). 7.72% of the ordinary income distributed qualifies for the Corporate Dividends Received Deduction. THIRD AVENUE INTERNATIONAL VALUE FUND Of the $2.825 per share paid to you in cash or reinvested into your account during the fiscal year ended October 31, 2007, $1.084 was derived from net investment income, $0.164 from short-term capital gains, which are taxed as ordinary income and $1.577 from long-term capital gains. Foreign taxes of $0.0121 are included in arriving at the net investment income of $1.084. Of the total ordinary income (including net investment income and short-term capital gains) distributed 26.51% or the maximum amount allowable, is qualified dividend income for purposes of Internal Revenue Code Section 1(h)(11). None of the ordinary income distributed qualifies for the Corporate Dividends Received Deduction. 82 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE TRUST FEDERAL TAX STATUS OF DIVIDENDS (CONTINUED) (UNAUDITED) For the fiscal year ended October 31, 2007, the Third Avenue Value Fund intends to elect to pass through to shareholders the income tax credit for eligible taxes paid to foreign countries. Gross income and foreign tax expenses by country for the year ended October 31, 2007 are as follows: FOREIGN TAX COUNTRY GROSS INCOME PASS THROUGH ------- ------------ ------------ Bermuda $ 2,526,575 $ -- Canada 8,140,468 1,036,662 Hong Kong 63,770,273 -- Japan 13,482,064 943,691 Korea 7,539,867 1,240,667 Sweden 6,861,904 1,029,286 Switzerland 697,687 104,653 United Kingdom 73,827,125 -- ------------ ------------ Totals $176,845,963 $ 4,354,959 ============ ============ For the fiscal year ended October 31, 2007, the Third Avenue International Value Fund intends to elect to pass through to shareholders the income tax credit for eligible taxes paid to foreign countries. Gross income and foreign tax expenses by country for the year ended October 31, 2007 are as follows: FOREIGN TAX COUNTRY GROSS INCOME PASS THROUGH ------- ------------ ------------ Argentina $ 18,288 $ -- Australia 1,154,144 -- Bahamas 322,390 -- Belgium 834,424 125,164 Bermuda 17,312,131 -- Canada 11,837,407 645,705 Chile 1,061,356 230,208 France 597,827 90,613 Hong Kong 3,357,134 -- Japan 3,900,406 273,028 Netherlands 896,474 -- New Zealand 4,902,230 -- Norway 4,902,322 735,348 Singapore 3,523,275 -- Sweden 112,596 16,889 Switzerland 137,887 20,683 Taiwan 2,266,384 551,723 Thailand 991,744 99,174 United Kingdom 3,281,814 -- ----------- ----------- Totals $61,410,233 $ 2,788,535 =========== =========== 83 BOARD OF TRUSTEES Jack W. Aber David M. Barse William E. Chapman II Lucinda Franks Edward J. Kaier Marvin Moser Eric Rakowski Martin Shubik Charles C. Walden Martin J. Whitman OFFICERS Martin J. Whitman Chairman of the Board David M. Barse President, Chief Executive Officer Vincent J. Dugan Chief Financial Officer, Treasurer Michael A. Buono Controller W. James Hall General Counsel, Secretary Joseph J. Reardon Chief Compliance Officer TRANSFER AGENT PFPC Inc. P.O. Box 9802 Providence, RI 02940-8002 (610) 239-4600 (800) 443-1021 (toll-free) INVESTMENT ADVISER Third Avenue Management LLC 622 Third Avenue New York, NY 10017 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017 CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 [THIRD AVENUE FUNDS LOGO] THIRD AVENUE FUNDS 622 THIRD AVENUE NEW YORK, NY 10017 PHONE (212) 888-5222 TOLL FREE (800) 443-1021 FAX (212) 888-6757 www.thirdavenuefunds.com ITEM 2. CODE OF ETHICS. At October 31, 2007, the Trust had a code of ethics (the "Code of Ethics") that applies to its principal executive officer and principal financial officer. This Code of Ethics is attached as Exhibit (a) (1) hereto. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Trust's Board of Trustees has determined that Messrs. Jack Aber, Martin Shubik and Charles Walden, members of the Audit Committee of the Board, are "audit committee financial experts" ("ACFE") as defined by the Securities and Exchange Commission ("SEC") and has designated Mr. Aber as the Committee's ACFE. Each of the Messrs. Aber, Shubik and Walden are "independent" as defined by the SEC for purposes of ACFE determinations. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Trust's principal accountant for the audit of the Trust's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $233,000, including out of pocket expenses of approximately $12,000, for the fiscal year ended October 31, 2007 and $224,500, including out of pocket expenses of approximately $12,000, for the fiscal year ended October 31, 2006. (b) AUDIT-RELATED FEES. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the Trust's principal accountant that are reasonably related to the performance of the audit of the Trust's financial statements and are not reported above in Item 4(a) were $0 for the fiscal year ended October 31, 2007 and $0 the fiscal year ended October 31, 2006. (c) TAX FEES. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the Trust's principal accountant for tax compliance, tax advice and tax planning were $153,200 for the fiscal year ended October 31, 2007 and $142,600 for the fiscal year ended October 31, 2006. These services related to the preparation of tax returns and the review of tax-related issues. (d) ALL OTHER FEES. The aggregate fees billed in each of the last two fiscal years for products and services provided by the Trust's principal accountant, other than the services reported above in Items 4(a) through (c) were $0 for the fiscal year ended October 31, 2007 and $0 for the fiscal year ended October 31, 2006. (e) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES. (i) The Audit Committee's pre-approval policies and procedures are addressed in the Audit Committee's Charter, attached as Exhibit C and hereto incorporated by reference. (ii) The percentage of services described in each of Items 4(b) through (d) that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was 100% for the fiscal years ended October 31, 2007 and October 31, 2006. (f) Not Applicable. (g) The aggregate non-audit fees billed by the Trust's accountant for services rendered to the Trust, the Advisor or any entity controlling, controlled by, or under common control with the Advisor that provides ongoing services to the registrant (except for any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) for each of the last two fiscal years were $78,000 for the fiscal year ending October 31, 2007 and $65,000 for the fiscal year ending October 31, 2006. (h) Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. 2 ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) The Trust's principal executive officer and principal financial officer have evaluated the Trust's disclosure controls and procedures within 90 days of this filing and have concluded that the Trust's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The Trust's principal executive officer and principal financial officer are aware of no changes in the Trust's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Trust's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of Ethics (a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. (c) Audit Committee Charter 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) THIRD AVENUE TRUST By: /s/ David M. Barse Name: David M. Barse Title: Principal Executive Officer Date: December 21, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ David M. Barse Name: David M. Barse Title: Principal Executive Officer Date: December 21, 2007 By: /s/ Vincent J. Dugan Name: Vincent J. Dugan Title: Principal Financial Officer Date: December 21, 2007 4