PIA Short-Term Securities Fund
Information About Trustees and Officers (continued)
(Unaudited)
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Term of Office
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Name, Address
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Position Held
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and Length of
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Principal Occupation
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and Age
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with the Trust
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Time Served
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During Past Five Years
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Officers
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Joe D. Redwine
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Chairman and
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Indefinite term
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President, CEO, U.S. Bancorp Fund Services, LLC
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(age 66)
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Chief Executive
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since
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(May 1991 to present).
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615 E. Michigan Street
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Officer
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September 2007.
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Milwaukee, WI 53202
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Douglas G. Hess
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President and
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Indefinite term
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Senior Vice President, Compliance and Administration,
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(age 46)
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Principal
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since
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U.S. Bancorp Fund Services, LLC (March 1997 to present).
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615 E. Michigan Street
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Executive
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June 2003.
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Milwaukee, WI 53202
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Officer
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Cheryl L. King
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Treasurer and
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Indefinite term
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Vice President, Compliance and Administration,
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(age 52)
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Principal
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since
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U.S. Bancorp Fund Services, LLC (October 1998 to present).
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615 E. Michigan Street
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Financial
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December 2007.
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Milwaukee, WI 53202
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Officer
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Kevin J. Hayden
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Assistant
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Indefinite term
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Assistant Vice President, Compliance and Administration,
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(age 42)
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Treasurer
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since
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U.S. Bancorp Fund Services, LLC (June 2005 to present).
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615 E. Michigan Street
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September 2013.
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Milwaukee, WI 53202
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Albert Sosa
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Assistant
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Indefinite term
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Assistant Vice President, Compliance and Administration,
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(age 43)
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Treasurer
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since
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U.S. Bancorp Fund Services, LLC (June 2004 to present).
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615 E. Michigan Street
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September 2013.
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Milwaukee, WI 53202
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Michael L. Ceccato
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Vice President,
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Indefinite term
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Senior Vice President, U.S. Bancorp Fund Services, LLC
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(age 56)
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Chief
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since
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(February 2008 to present); General Counsel/Controller,
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615 E. Michigan Street
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Compliance
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September 2009.
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Steinhafels, Inc. (September 1995 to February 2008).
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Milwaukee, WI 53202
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Officer and
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AML Officer
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Jeanine M. Bajczyk, Esq.
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Secretary
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Indefinite term
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Senior Vice President and Counsel, U.S. Bancorp Fund
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(age 48)
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since
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Services, LLC (May 2006 to present).
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615 E. Michigan Street
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June 2007.
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Milwaukee, WI 53202
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(1)
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The Trustees of the Trust who are not “interested persons” of the Trust as defined under the 1940 Act (“Independent Trustees”).
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(2)
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As of November 30, 2013, the Trust is comprised of 40 active portfolios managed by unaffiliated investment advisors. The term “Fund Complex” applies only to the Fund and the PIA BBB Bond Fund, the PIA High Yield Fund, the PIA High Yield (MACS) Fund, the PIA MBS Bond Fund and the PIA Short-Term Duration Bond Fund. The Funds do not hold themselves out as related to any other series within the Trust for investment purposes, nor does it share the same investment adviser with any other series.
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(3)
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Mr. Redwine is an “interested person” of the Trust as defined by the 1940 Act. Mr. Redwine is an interested Trustee of the Trust by virtue of the fact that he is an interested person of Quasar Distributors, LLC who acts as principal underwriter to the series of the Trust.
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The Statement of Additional Information includes additional information about the Fund’s Trustees and Officers and is available, without charge, upon request by calling 1-800-251-1970.
PIA Short-Term Securities Fund
Approval of Investment Advisory Agreement
(Unaudited)
At a meeting held on June 11-12, 2012, the Board of Trustees (the “Board”) of Advisors Series Trust (the “Trust”), including all the persons who are Independent Trustees as defined under the Investment Company Act of 1940, as amended, considered and approved the initial investment advisory agreement (“Advisory Agreement”) between the Trust and Pacific Income Advisers, Inc. (the “Adviser”) for the PIA Short Duration Bond Fund (the “Fund”) for a period not to exceed two years. Prior to this meeting, the Board received and reviewed substantial information regarding the Fund, the Adviser and the services expected to be provided by the Adviser to the Fund under the Advisory Agreement. This information formed the primary (but not exclusive) basis for the Board’s determinations. Below is a summary of the factors considered by the Board and the conclusions that formed the basis for the Board’s approval of the initial Advisory Agreement:
The Board members present, which includes a majority of Independent Trustees, took into consideration, among other things, the nature, extent and quality of the services to be provided by the Adviser under the Advisory Agreement. The Board considered the Adviser’s specific responsibilities in all aspects of day-to-day management of the Fund. In this regard, the Board considered the qualifications, experience and responsibilities of the portfolio managers, as well as the responsibilities of other key personnel of the Adviser that would be involved in the day-to-day activities of the Fund. The Board also considered the resources and compliance structure of the Adviser, including information regarding the compliance program, chief compliance officer and the Adviser’s compliance record and business continuity plan. The Board also considered the Adviser’s business plan, noting that the Adviser currently manages several other active mutual funds which are each a separate series of Advisors Series Trust. After discussion, the Board concluded that the Adviser has the quality and depth of personnel, resources, investment methods and compliance policies and procedures essential to performing its duties under the Advisory Agreement and that the nature, overall quality, cost and extent of such management services will be satisfactory.
The Trustees then discussed the expected costs of the services to be provided by the Adviser and the structure and level of the Adviser’s fees under the Advisory Agreement. In considering the advisory fee and anticipated total fees and expenses of the Fund, the Board reviewed and compared the Fund’s anticipated fees and expenses to those funds in its Lipper peer group, as well as the fees and expenses for similar types of accounts managed by the Adviser. The Board viewed such information as a whole as useful in assessing whether the Adviser would be able to provide services at a cost that was competitive with other similar funds and consistent with an arm’s length bargaining process. The Trustees also took into account the proposed expense waivers.
The Board noted that the Adviser was agreeing to waive its advisory fees or reimburse the Fund for certain of the Fund’s expenses to the extent necessary to maintain an annual expense ratio of 1.00% for Class A shares and 0.75% for Class I shares (the “Expense Caps”).
The Board noted that the Fund’s expected total operating expenses for Class I shares were below the peer group median and average, though the contractual advisory fee was above the peer group median and average and the Fund’s expected total operating expenses for Class A shares were above the peer group median and average. The Board also noted that the Fund’s expected contractual advisory fee was in-line with the fee charged by the Adviser to many of its separately managed account clients.
PIA Short-Term Securities Fund
Approval of Investment Advisory Agreement (continued)
(Unaudited)
The Board concluded that the fees to be paid to the Adviser were fair and reasonable.
The Board also considered economies of scale that would be expected to be realized by the Adviser as the assets of the Fund grew. The Board noted that the Adviser would be contractually agreeing to reduce its advisory fees or reimburse Fund expenses indefinitely, but in no event for less than a one year term, so that the Fund does not exceed the Expense Caps. The Board concluded that there were no effective economies of scale to be shared by the Adviser at this time, but indicated that they would continue to examine this issue to ensure that economies of scale are being shared with the Fund as asset levels increase.
The Board then considered the profits expected to be realized by the Adviser from its relationship with the Fund. The Board reviewed the Adviser’s financial information and took into account both the expected direct benefits and the indirect benefits to the Adviser from advising the Fund. The Board considered the expected profitability to the Adviser from its relationship with the Fund and considered any additional benefits that may be derived by the Adviser from its relationship with the Fund. After such review, the Board determined that the expected profitability to the Adviser with respect to the Advisory Agreement was not excessive, and that the Adviser had sufficient resources to support the services it provides to the Fund.
No single factor was determinative of the Board’s decision to approve the Advisory Agreement, but rather the Board based its determination on the total mix of information available to them. Based on a consideration of all the factors in their totality, the Board determined that the advisory arrangement with the Adviser, including the advisory fee, was fair and reasonable. The Board, including a majority of Independent Trustees, therefore determined that the approval of the Advisory Agreement was in the best interests of the Fund and its shareholders.
PRIVACY NOTICE
The Fund collects non-public information about you from the following sources:
• Information we receive about you on applications or other forms;
• Information you give us orally; and/or
• Information about your transactions with us or others.
We do not disclose any non-public personal information about our customers or former customers without the customer’s authorization, except as permitted by law or in response to inquiries from governmental authorities. We may share information with affiliated and unaffiliated third parties with whom we have contracts for servicing the Fund. We will provide unaffiliated third parties with only the information necessary to carry out their assigned responsibilities. We maintain physical, electronic and procedural safeguards to guard your non-public personal information and require third parties to treat your personal information with the same high degree of confidentiality.
In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared by those entities with unaffiliated third parties.
(This Page Intentionally Left Blank.)
Adviser
Pacific Income Advisers, Inc.
1299 Ocean Avenue, Suite 210
Santa Monica, CA 90401
Distributor
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
(800) 251-1970
Custodian
U.S. Bank N.A.
1555 North River Center Drive, Suite 302
Milwaukee, WI 53212
Independent Registered Public Accounting Firm
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Legal Counsel
Paul Hastings LLP
75 East 55th Street
New York, NY 10022
Past performance results shown in this report should not be considered a representation of future performance. Share price and returns will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are dated and are subject to change.
PIA Funds
– PIA High Yield Fund
Investor Class
Annual Report
November 30, 2013
PIA High Yield Fund
Dear Shareholder:
We are pleased to provide you with this annual report for the twelve month period ended November 30, 2013 regarding the following series of the PIA Mutual Funds for which Pacific Income Advisers, Inc. (PIA) is the adviser: the PIA High Yield Fund.
During the periods ended November 30, 2013, the High Yield Fund’s total return, including the reinvestment of dividends, was as follows:
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Since Inception
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24 Months
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(12/31/10)
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6 Months
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12 Months
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(Annualized)
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(Annualized)
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PIA High Yield Fund
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2.60%
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9.06%
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11.71%
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8.77%
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Barclays Capital U.S. Corporate High-Yield Index
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2.61%
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8.55%
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12.72%
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9.40%
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Performance data quoted represents past performance; does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 1-800-251-1970. Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.
The Fund returned 9.06% after fees and expenses during the year ended November 30, 2013, exceeding the Barclays Capital U.S. Corporate High-Yield Index (the “Index”), which returned 8.55%. The Fund’s total return includes 0.98% in Fund fees and expenses for the year ended November 30, 2013, compared to the benchmark index, which does not incur fees and expenses. As stated in the current prospectus, the Fund’s gross expense ratio is 1.31% and the Fund’s Net Annual Fund Operating Expenses including acquired fund fees and expenses is 0.99%.
PIA has contractually agreed to waive all or a portion of its management fees and pay Fund expenses to ensure that Net Annual Fund Operating Expenses (excluding acquired fund fees and expenses, interest, taxes and extraordinary expenses) do not exceed 0.98% of the Fund’s average daily net assets through March 29, 2014.
The Fund’s portfolio benefited from its overweighting of relatively small bond issues, which significantly outperformed larger issues, and from its significant underweighting of BB rated bonds. We continue to believe the greatest total return opportunities and lowest vulnerability to inflation are in our favored subsectors. The maturity and duration of the Fund are shorter than the Index, and its weighted average coupon is higher. The Fund also benefited from its deliberate underweighting of several industries which underperformed: housing, communications, gaming, utilities, and metals. The Fund did experience the first default in its 35 month history, an oil service company called Platinum Energy Solutions, but its holding of Platinum bonds amounted to less than half a percent of the portfolio net asset value.
High yield bonds, returning 8.55% during the year ended November 2013, were by far the highest performing major sector in the U.S. fixed income universe; the second highest performing sector was the other major debt class with exposure to high yield issuers, senior secured leveraged loans, at 5.65%. By contrast, investment grade corporates returned -1.44%, Treasuries returned -2.28%, emerging markets bonds returned -3.46%, and the U.S. Aggregate returned -1.61%, all using Barclays Capital indices.
PIA High Yield Fund
Conditions in the high yield market have continued the benign trends observed over the last several years. Issuance of new bonds has been very high. According to Credit Suisse, new primary high yield bond issuance during 2013 was $340 billion, just behind 2012’s record level of $347 billion.
Defensive refinancing has been the primary use of proceeds, and as a result the vast majority of bond maturities have been pushed several years into the future and corporate interest burdens have been reduced. Corporate profitability has continued at historically strong levels, driving the average coverage of interest by operating cash flow, a key metric for our universe, near its all-time high. Focusing on the credit quality of year-to-date issues in 2013, which by themselves constitute almost a quarter of the entire Index, credit statistics have been consistent with the last few years’ healthy levels, and are in fact slightly better than 2012. Although the financial press frequently publishes anecdotal evidence of credit market deterioration and indiscipline, the objective marketwide data provides no evidence of “bubble” conditions in the high yield market.
The result of the above trends is that even in a macro environment of five straight years of subpar growth, marketwide default losses for the last twelve months, as measured by Credit Suisse, have been only 1.35%, and after unusually strong recoveries (post-default market prices) on defaults, the net loss rate has been just 0.64%. This is the fourth straight year in which default losses have been less than half the long-term average, and as of November 30, 2013, less than one percent of high yield bonds (measured at market values) are distressed (defined as a bond which has defaulted or is rated CC or C.) Market participants expect defaults to trend up slightly in future years, remaining well below average until the next recession. In such an environment, we believe that current credit spreads in the high yield market, compensate bondholders fairly for the credit risk borne.
Please take a moment to review the Fund’s statement of assets and liabilities and the results of operations for the year ended November 30, 2013. We look forward to reporting to you again with the semi-annual report dated May 31, 2014.
Lloyd McAdams
Chairman of the Board
Pacific Income Advisers, Inc.
Past performance is not a guarantee of future results.
Opinions expressed above are those of the adviser and are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security and should not be considered investment advice.
Must be preceded or accompanied by a prospectus.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in Asset-Backed and Mortgage-Backed Securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. The Fund may invest in foreign securities which involve greater volatility and political, economic
PIA High Yield Fund
and currency risks and differences in accounting methods. Investment by the Fund in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities. The Fund may also use options and future contracts, which have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. The Fund may invest in swap investment derivatives. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments.
The Barclays Capital U.S. Corporate High-Yield Index measures the market of USD-denominated, non-investment grade, fixed rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below after dropping the highest and lowest available ratings. The index excludes emerging markets debt. You cannot invest directly in an index.
The Barclays Capital Emerging Markets USD Aggregate Bond Index is a flagship hard currency Emerging Markets debt benchmark that includes fixed and floating-rate U.S. dollar denominated debt issued from sovereign, quasi-sovereign, and corporate emerging markets issuers.
The Barclays Capital U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
The Barclays Capital U.S. Corporate Investment Grade Index is a sub-index of the Barclays U.S. Credit Index, and includes U.S. dollar denominated securities publicly issued by U.S. and non-U.S. industrial, utility, and financial issuers that meed the specified maturity, liquidity, and quality requirements.
The Barclays Capital U.S. High-Yield Loans Index, also known as the Bank Loan Index, provides broad and comprehensive total return metrics of the universe of syndicated term loans. To be included in the Index, a bank loan must be dollar denominated, have at least $150 million funded loan, a minimum term of one year, and a minimum initial spread of LIBOR +125.
The Barclays Capital U.S. Treasury Index includes public obligations of the U.S. Treasury with a remaining maturity of one year or more.
Bond ratings provide the probability of an issuer defaulting based on the analysis of the issuer’s financial condition and profit potential. Bond rating services are provided by Standard & Poor’s, Moody’s Investors Service, and Fitch Investors Service. Bond ratings start at AAA (denoting the highest investment quality) and usually end at D (meaning payment is in default).
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.
Current and future portfolio holdings are subject to risk.
Quasar Distributors, LLC, Distributor
PIA High Yield Fund
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PIA HIGH YIELD FUND
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Comparison of the change in value of a $10,000 investment in the
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PIA High Yield Fund vs the Barclays Capital U.S. Corporate High-Yield Bond Index
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Average Annual Total Return*
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1 Year
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Since Inception
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PIA High Yield Fund
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9.06%
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8.77%
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Barclays Capital U.S. Corporate High-Yield Bond Index
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8.55%
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9.40%
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Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 1-800-251-1970.
This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund on its inception date, December 31, 2010.
Returns reflect the reinvestment of dividends and capital gain distributions. Fee waivers are in effect. In the absence of fee waivers, returns would be reduced. The performance data and graph do not reflect the deduction of taxes that a shareholder may pay on dividends, capital gain distributions, or redemption of Fund shares. This chart does not imply any future performance.
The Barclays Capital U.S. Corporate High-Yield Bond Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below after dropping the highest and lowest available ratings. The index excludes emerging markets debt.
Indices do not incur expenses and are not available for investment.
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*
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Average Annual Total Return represents the average change in account value over the periods indicated.
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PIA High Yield Fund
Expense Example – November 30, 2013
(Unaudited)
As a shareholder of a mutual fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, redemption fees, and exchange fees, and (2) ongoing costs, including management fees, distribution and/or service fees, and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the PIA High Yield 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 and held for the entire period (6/1/13 – 11/30/13).
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses, with actual net expenses being limited to 0.98% per the operating expenses limitation agreement for the PIA High Yield Fund. Although the Fund charges no sales loads or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks, and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent. The Example below includes, but is not limited to, management fees, fund accounting, custody and transfer agent fees. You may use the information in the first 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 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 ratios and an assumed rate of return of 5% per year before expenses, which is different from the Fund’s actual returns. 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 transaction 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 transaction costs were included, your costs would have been higher.
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Beginning Account
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Ending Account
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Expenses Paid During
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Value 6/1/13
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Value 11/30/13
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Period 6/1/13 – 11/30/13*
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PIA High Yield Fund
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Actual
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$1,000.00
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$1,026.00
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$4.98
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Hypothetical (5% return before expenses)
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$1,000.00
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$1,020.16
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$4.96
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*
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Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183 (days in most recent fiscal half-year) / 365 days to reflect the one-half year expense. The annualized expense ratio of the PIA High Yield Fund is 0.98%.
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PIA High Yield Fund
Allocation of Portfolio Assets – November 30, 2013
(Unaudited)
Investments by Sector
As a Percentage of Total Investments