N-Q 1 formnq.htm N-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number:  811-09395

Third Avenue Variable Series 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: December 31, 2018
 
Date of reporting period: March 31, 2018

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
 
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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 the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
 
Item1.
Schedule of Investments.

The Trust’s schedule of investments is as follows:
 
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Portfolio of Investments
at March 31, 2018 (Unaudited)
 
Principal
 Amount($)
  
Security†
  
Value
 (Note 1)
  
       
Corporate Notes- 0.20%
      
   
Consumer Products - 0.20%
      
 
732,078
  
Home Products International, Inc., 2nd Lien, 6.000%, due 12/20/22 (a)(b)(c)
  
$
165,084
  
               
     
Total Corporate Notes
        
     
(Cost $1,612,484)
    
165,084
  
               
Shares
            
             
Common Stocks - 78.29%
        
     
Asset Management - 7.84%
        
 
66,203
  
Bank of New York Mellon Corp. (The)
    
3,411,441
  
 
80,948
  
Brookfield Asset Management, Inc., Class A (Canada)
    
3,156,972
  
           
6,568,413
  
     
Automotive - 4.43%
        
 
15,779
  
Bayerische Motoren Werke AG (Germany)
    
1,716,279
  
 
33,007
  
Toyota Industries Corp. (Japan)
    
1,995,416
  
           
3,711,695
  
               
     
Banks - 5.08%
        
 
32,945
  
Comerica, Inc.
    
3,160,414
  
 
56,067
  
KeyCorp
    
1,096,110
  
           
4,256,524
  
               
     
Consumer Products - 0.00%*
        
 
33,915
  
Home Products International, Inc. (a)(b)(c)(d) .
    
1
  
               
     
Diversified Holding Companies-12.89%
        
 
348,316
  
CK Hutchison Holdings, Ltd. (Cayman Islands)
    
4,185,111
  
 
65,807
  
Investor AB, Class B (Sweden)
    
2,923,381
  
 
20,630
  
Pargesa Holding S.A. (Switzerland)
    
1,830,475
  
 
253,747
  
Wheelock & Co., Ltd. (Hong Kong)
    
1,861,246
  
           
10,800,213
  
           
 
  
     
Forest Products & Paper - 7.04%
        
 
93,548
  
Interfor Corp. (Canada) (d)
    
1,705,625
  
 
119,782
  
Weyerhaeuser Co., REIT
    
4,192,370
  
           
5,897,995
  
               
     
Insurance & Reinsurance - 5.20%
        
 
4,519
  
Alleghany Corp
    
2,776,654
  
 
1,922
  
White Mountains Insurance Group, Ltd. (Bermuda)
    
1,580,884
  
           
4,357,538
  
               
     
Manufactured Housing - 3.87%
        
 
18,675
  
Cavco Industries, Inc. (d)
    
3,244,781
  
               
     
Metals & Mining - 7.03%
        
 
1,262,658
  
Capstone Mining Corp. (Canada) (d)
    
1,176,070
  
 
400,629
  
Lundin Mining Corp. (Canada)
    
2,627,636
  
 
74,290
  
Warrior Met Coal, Inc.
    
2,080,863
  
           
5,884,569
  
               
     
Non-U.S. Real Estate Operating Companies - 5.07%
        
 
284,263
  
CK Asset Holdings, Ltd. (Cayman Islands)
    
2,398,916
  
 
281,857
  
Henderson Land Development Co., Ltd. (Hong Kong)
    
1,848,158
  
            4,247,074  
Shares
  
Security†
  
Value
 (Note 1)
  
   
 
      
     
Oil & Gas Production & Services - 11.55%
        
 
377,390
  
Borr Drilling Ltd. (Bermuda) (d)
   $
1,858,352
  
 
54,065
  
Ocean Rig UDW, Inc., Class A (Cayman Islands) (d)
    
1,364,060
  
 
70,973
  
Petroleum Geo-Services ASA (Norway) (d)
    
220,898
  
 
101,693
  
Tidewater, Inc. (d)
    
2,909,437
  
 
57,919
  
Total S.A. (France)
    
3,319,902
  
           
9,672,649
  
     
 
        
     
U.S. Homebuilder - 3.83%
        
 
53,500
  
Lennar Corp., Class A
    
3,153,290
  
 
1,070
  
Lennar Corp., Class B
    
51,028
  
           
3,204,318
  
     
 
        
     
U.S. Real Estate Investment Trusts - 2.29%
        
 
94,874
  
Forest City Realty Trust, Inc., Class A
    
1,922,147
  
     
 
        
     
U.S. Real Estate Operating Companies - 2.17%
        
 
78,585
  
Tejon Ranch Co. (d)
    
1,816,099
  
     
 
        
     
Total Common Stocks
        
     
(Cost $58,683,990)
    
65,584,016
  
               
               
Preferred Stocks - 0.00%*
        
     
Consumer Products - 0.00%*
        
 
827,257
  
Home Products International, Inc., Series A, Convertible, 8.000% Cash or Payment-in-kind(a)(b)(c)(e)
     1  
               
     
Total Preferred Stocks
        
     
(Cost $0)
     1  
               
               
Short-Term Investments - 14.31%        
       U.S. Government Obligations - 14.31%        
 
12,000,000
  
U.S Treasury Bill, 1.607%, due 4/26/18 (f)
     11,985,555  
           
     
Total Short-Term Investments
      
     
(Cost $11,985,555)
     11,985,555  
     
 
        
     
Total Investment Portfolio - 92.80%
        
     
(Cost $72,282,029)
    
77,734,656
  
     
Other Assets less Liabilities - 7.20%
    
6,031,477
  
     
NET ASSETS - 100.00%
        
     
(Applicable to 4,549,713 shares outstanding)
  
$
83,766,133
  
     
NET ASSET VALUE PER SHARE
  
$
18.41
  
 
Notes:
(a) Fair-valued security.
(b) Security subject to restrictions on resale.
 
 
 
 
 
See accompanying notes to the Portfolio of Investments.
 
1
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Portfolio of Investments (continued)
at March 31, 2018 (Unaudited)
 

Shares/
Principal
Amount($)
  
Issuer
  
Acquisition
Date
  
Cost
    
Market
Value
Per Unit
  
 
33,915
  
Home Products International, Inc.
  
5/30/07
  
$
3,749,309
    
$
0.00
  1
$
732,078
  
Home Products International, Inc. 2nd Lien, 6.000%, due 12/20/22
  
3/16/07 - 10/2/17
    
1,612,484
      
22.55
  
 
827,257
  
Home Products International, Inc., Series A, Convertible Preferred Stock, 8.000% Cash or Payment-in-kind
  
3/16/07 - 10/2/17
    
—
      
0.00
  1
 
1)
Amount less than $0.01.
At March 31, 2018, these restricted securities had a total market value of $165,086 or 0.20% of net assets.
(c)
Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy.
(d)
Non-income producing security.
(e)
Payment-in-kind security. Income may be paid as additional securities or cash at the discretion of the issuer.
(f)
Annualized yield at date of purchase.
†
U.S. issuer unless otherwise noted.
*
Amount represents less than 0.01% of net assets.
REIT: Real Estate Investment Trust.
 
Country Concentration
 
   
% of
Net Assets
  
United States**
    
50.10
%
Canada
    
10.35
  
Cayman Islands
    
9.49
  
Hong Kong
    
4.43
  
Bermuda
    
4.11
  
France
    
3.96
  
Sweden
    
3.49
  
Japan
    
2.38
  
Switzerland
    
2.18
  
Germany
    
2.05
  
Norway
    
0.26
  
Total
    
92.80
%
 
**
Includes cash equivalents, classified as Short-Term Investments on the Portfolio of Investments.
 
See accompanying notes to the Portfolio of Investments.
 
2
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Notes to Portfolio of Investments
March 31, 2018 (Unaudited)
 
1.
SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization:
Third Avenue Variable Series Trust (the “Trust”) is an open-end, management investment company organized as a Delaware statutory trust pursuant to a Trust Instrument dated June 16, 1999. The Trust currently consists of one diversified (within the meaning of Section 5(b)(2) of the Investment Company Act) investment series, Third Avenue Value Portfolio (the “Portfolio”). Third Avenue Management LLC (the “Adviser”) provides investment advisory services to the Portfolio.
 
Accounting policies:
The policies described below are followed consistently by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Trust is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 946-Investment Companies, which is part of U.S. GAAP.
 
Security valuation:
Generally, the Portfolio’s investments are valued at market value. Securities traded on a principal stock exchange, including The NASDAQ Stock Market, Inc. (“NASDAQ”), are valued at the last quoted sales price, the NASDAQ official closing 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 “Board”), the Portfolio has retained a third party provider that applies a statistical model to provide fair value pricing for foreign equity securities with principal markets that are no longer open when the Portfolio calculates its net asset value (“NAV”). Debt instruments with maturities greater than 60 days are valued on the basis of prices obtained from a pricing service approved by the Board or otherwise pursuant to policies and procedures approved by the Board. Investments in derivative instruments are valued independently by service providers or by broker quotes based on pricing models. Short-term cash investments are valued at cost, plus accrued interest, which approximates market value. Short-term debt securities with 60 days or less to maturity may be valued at amortized cost.
 
The Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value determinations (and oversight of third parties used in valuation determinations), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
 
Securities for which market quotations are not readily available are valued at "fair value," as determined in good faith by the Committee as authorized by the Board, under policies and procedures approved by the Board. At March 31, 2018, such securities had a total fair value of $165,086, or 0.20% of net assets. Among the factors that may be considered by the Committee in determining fair value are: prior trades in the security in question, trades in similar securities of the same or other issuers, the type of security, trading in marketable securities of the same issuer, the financial condition of the issuer, comparable multiples of similar issuers, the operating results of the issuer and the liquidation value of the issuer. See Fair Value Measurements below for additional detail on fair value measurements for financial reporting purposes. The fair values determined in accordance with these policies and procedures may differ significantly from the amounts which would be realized upon disposition of the securities.
 
Fair value measurements:
In accordance with FASB ASC 820-10, Fair Value Measurements and Disclosures, the Portfolio discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. Fair value is defined as the price that the Portfolio would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment under current market conditions. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
•
Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Portfolio has the ability to access at the measurement date;
 
•
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
 
•
Level 3 - Significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments)
 
3
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Notes to Portfolio of Investments (continued)
March 31, 2018 (Unaudited)

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Portfolio. The Portfolio considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.
 
The Portfolio uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
 
The following are certain inputs and techniques that the Portfolio generally uses to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with U.S. GAAP.
 
Equity Securities (Common Stocks and Preferred Stocks) — Equity securities traded in inactive markets and certain foreign equity securities are valued using inputs which include broker-dealer quotes, recently executed transactions adjusted for changes in the benchmark index, or evaluated prices received from independent pricing services or brokers that take into account the integrity of the market sector and issuer, the individual characteristics of the security, and information received from broker-dealers and other market sources pertaining to the issuer or security. To the extent that these inputs are observable, the values of equity securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
 
U.S. Government Obligations — U.S. Government obligations are valued by independent pricing services based on pricing models that evaluate the mean between the closing bid and asked price. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable U.S. Government issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Government obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
 
Corporate Bonds — Corporate bonds are generally comprised of two main categories: investment grade bonds and high yield bonds. Investment grade bonds are valued by independent pricing services or brokers using various inputs and techniques, which include broker-dealer quotations, live trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent pricing services or brokers based primarily on broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector specific trends. To the extent that these inputs are observable, the values of corporate bonds are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
 
The following is a summary by level of inputs used to value the Portfolio’s investments as of March 31, 2018:

Level 1: Quoted Prices†
Investments in Securities:
Common Stocks:
      
Oil & Gas Production & Services
  
$
6,131,849
  
Other**
    
37,152,384
  
Total for Level 1 Securities
    
43,284,233
  
 
Level 2: Other Significant Observable Inputs†
Investments in Securities:
Common Stocks:
      
Automotive
    
3,711,695
  
Diversified Holding Companies
    
10,800,213
  
Non-U.S. Real Estate Operating Companies
    
4,247,074
  
Oil & Gas Production & Services
    
3,540,800
  
Short-Term Investments:
    
 
  
U.S. Government Obligations
    
11,985,555
  
Total for Level 2 Securities
    
34,285,337
  
 
4
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Notes to Portfolio of Investments (continued)
March 31, 2018 (Unaudited)
 
Summary by Level of Inputs (continued)
 
Level 3: Significant Unobservable Inputs
Investments in Securities:
Common Stocks:
      
Consumer Products
  
$
1
  
Preferred Stocks:
        
Consumer Products
    
1
  
Corporate Notes:
        
Consumer Products
    
165,084
  
Total for Level 3 Securities
    
165,086
  
Total Value of Investments
  
$
77,734,656
  
 
†
There were no securities that were transferred from Level 1 to Level 2 or from Level 2 to Level 1.
**
Please refer to the Portfolio of Investments for industry specifics of the portfolio holdings.
 
Transfers from Level 1 to Level 2, or from Level 2 to Level 1 would be recorded utilizing values as of the beginning of the period.
 
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
 
   
Balance as of
12/31/17
(Fair Value)
    
Net Change in
Unrealized
Appreciation/
 (Depreciation)
    
Balance as of
3/31/18
 (Fair Value)
    
Net Change in
Unrealized
Appreciation/
(Depreciation)
Attributable to
Securities Still
Held at
 Period End
  
Common Stocks -
                        
Consumer Products
  
$
1
 
  
$
—
    
$
 1    
$
—
  
Preferred Stocks -                                
 Consumer Products
     1      
—
       1      
—
  
Corporate Notes -
                                
Consumer Products
    
492,908
      
(327,824
)
    
165,084
      
(327,824
)
Total
  
$
492,910
    
$
(327,824
)
  
$
165,086
    
$
(327,824
)

Quantitative Information about Level 3 Fair Value Measurements
(amounts in thousands)
 
 
  
Fair Value at
 3/31/18
  
Valuation Technique(s)
Unobservable Input(s)
  
Range
  
Corporate Notes
  
$
165
  
Liquidation Value
Liquidation Rate
  
20% - 85%
 
Other (a)
    
—
*
 
 
        
 
  
$
165
  
 
 
        
 
(a)
Includes securities less than 0.50% of net assets of the Portfolio.
*
Amount less than $1,000.
 
The significant unobservable inputs used in the fair value measurement of the Portfolio’s investments are listed above. Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the unobservable inputs may significantly impact the fair value measurement. The impact is based on the relationship between each unobservable input and the fair value measurement. Significant increases (decreases) in liquidation rate may increase (decrease) the fair value measurement.
 
Security transactions:
Security transactions are accounted for on a trade date basis.
 
Foreign currency translation and foreign investments:
The books and records of the Portfolio are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars as follows:
 
•
Investments and assets and liabilities denominated in foreign currencies: At the prevailing rates of exchange on the valuation date.

•
Investment transactions: At the prevailing rates of exchange on the date of such transactions.
 
5
Third Avenue Variable Series Trust
Third Avenue Value Portfolio
Notes to Portfolio of Investments (continued)
March 31, 2018 (Unaudited)

Payment-in-kind securities ("PIKs"):
The Portfolio may invest in PIKs. PIKs may make a payment at each payment date in either cash or additional securities. Those additional securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original securities. The daily market quotations of the original securities may include the accrued income (referred to as a “dirty” price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to dividends and interest receivable.
 
For additional information regarding the accounting policies of the Portfolio, refer to the most recent financial statements in the N-CSR filing at www.sec.gov.
 
6
Item 2.
Controls and Procedures.

(a)
The Trust's principal executive officer and principal financial officer have evaluated the Trust's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “Act”)) within 90 days of this filing and have concluded that the Trust's disclosure controls and procedures (required by Rule 30a-3(b) under the Act) are reasonably designed to ensure that information required to be disclosed by the Trust in this Form N-Q is recorded, processed, summarized, and reported within the required time periods and that information required to be disclosed by the Trust in the report that it files or submits on Form N-Q is accumulated and communicated to the Trust’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
(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 Trust's most recently ended fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting.

Item 3.
Exhibits.
 
Separate certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2(a) under the Act.
 
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 Variable Series Trust
   
By:
/s/ W. James Hall
   
Name:
W. James Hall
   
Title:
Principal Executive Officer
   
Date:
May 18, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:
/s/ W. James Hall
   
Name:
W. James Hall
   
Title:
Principal Executive Officer
   
Date:
May 18, 2018

By:
/s/ Michael A. Buono
   
Name:
Michael A. Buono
   
Title:
Principal Financial Officer
   
Date:
May 18, 2018