kmf-ncsra.htm

KELLNER LONG/SHORT FUND

Class A

Institutional Class

ANNUAL REPORT

December 31, 2013

Kellner Long/Short Fund

STATEMENT OF ASSETS AND LIABILITIES

at December 31, 2013

ASSETS
Cash	$	50,000
Receivable for fund shares sold		1,000,000
Total assets		1,050,000
NET ASSETS	$	1,050,000
CALCULATION OF NET ASSET VALUE PER SHARE
Class A Shares
Net assets applicable to shares outstanding	$	10,000
Shares issued and outstanding [unlimited number of shares
(par value $0.01) authorized]		1,000
Net asset value and redemption price per share	$	10.00
Maximum offering price per share (Net asset value per share divided by 94.25%)	$	10.61
Institutional Class Shares
Net assets applicable to shares outstanding	$	1,040,000
Shares issued and outstanding [unlimited number of shares
(par value $0.01) authorized]		104,000
Net asset value, offering and redemption price per share	$	10.00
COMPONENTS OF NET ASSETS
Paid-in capital	$	1,050,000
NET ASSETS	$	1,050,000

The accompanying notes are an integral part of these financial statements.

Kellner Long/Short Fund

STATEMENT OF CHANGES IN NET ASSETS

			Period
			through
			December 31, 2013*
NET INCREASE IN NET ASSETS FROM:
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a)			$	1,050,000
Total increase in net assets				1,050,000
NET ASSETS
Beginning of period				—
End of period			$	1,050,000
Includes undistributed net investment income of			$	—
(a) A summary of share transactions is as follows:

Class A Shares
	Period
	through
	December 31, 2013*
	Shares		Paid-in Capital
Shares sold		1,000	$	10,000
Net increase		1,000	$	10,000

Institutional Class Shares
	Period
	through
	December 31, 2013*
	Shares		Paid-in Capital
Shares sold		104,000	$	1,040,000
Net increase		104,000	$	1,040,000

* Commencement of operations.

The accompanying notes are an integral part of these financial statements.

Kellner Long/Short Fund

NOTES TO FINANCIAL STATEMENTS at December 31, 2013

NOTE 1 – ORGANIZATION

The Kellner Long/Short Fund (the “Fund”) is a non-diversified series of Advisors Series Trust (the “Trust”), which is registered under the Investment Company Act of 1940 (“1940 Act”), as amended, as an open-end management investment company. The investment objective of the Fund is to seek long-term capital appreciation in all market environments. The Fund commenced operations on December 31, 2013. The Fund did not earn any income or incur any expenses during the period ended December 31, 2013.

The Fund offers Class A and Institutional Class shares. Class A shares are subject to a maximum sales load of 5.75%. The sales load charged decreases depending on the amount invested.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America.

	A.	Security Valuation: All investments in securities are recorded at their estimated fair value, as described in note 3.

	B.	Federal Income Taxes: It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income or excise tax provision is required.

		The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2013 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal and the state of Wisconsin; however, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.


	C.	Securities Transactions, Income and Distributions: Securities transactions are accounted for on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. Interest income is recorded on an accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

		The Fund distributes substantially all net investment income, if any, and net realized capital gains, if any, annually. The amount of dividends and distributions to shareholders from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which differs from accounting principles generally accepted in the United States of America. To the extent these book/tax differences are permanent, such amounts are reclassified within the capital accounts based on their Federal tax treatment.

		Investment income, expenses (other than those specific to the class of shares), and realized and unrealized gains and losses on investments are allocated to the separate classes of the Fund shares based upon their relative net assets on the date income is earned or expensed and realized and unrealized gains and losses are incurred.

	D.	Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets during the reporting period. Actual results could differ from those estimates.

	E.	Leverage and Short Sales: The Fund may use leverage in connection with its investment activities and may affect short sales of securities. Leverage can increase the investment returns of the Fund if the securities purchased increase in value in an amount exceeding the cost of the borrowing. However, if the securities decrease in value, the Fund will suffer a greater loss than would have resulted without the use of leverage.

		A short sale is the sale by the Fund of a security which it does not own in anticipation of purchasing the same security in the future at a lower price to close the short position. A short sale will be successful if the price of the shorted security decreases. However, if the underlying security goes up in price during the period in which the short position is outstanding, the Fund will realize a loss. The risk on a short sale is unlimited because the Fund must buy the shorted security at the higher price to complete the transaction. Therefore, short sales may be subject to greater risks than investments in long positions. With a long position, the maximum sustainable loss is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. The Fund would also incur increased transaction costs associated with selling securities short. In addition, if the Fund sells securities short, it must maintain a segregated account with its custodian containing cash or high-grade securities equal to (i) the greater of the current market value of the securities sold short or the market value of such securities at the time they were sold short, less (ii) any collateral deposited with the Fund’s broker (not including the proceeds from the short sales). The Fund may be required to add to the segregated account as the market price of a shorted security increases. As a result of maintaining and adding to its segregated account, the Fund may maintain higher levels of cash or liquid assets (for example, U.S. Treasury bills, repurchase agreements, high quality commercial paper and long equity positions) for collateral needs thus reducing its overall managed assets available for trading purposes.

	F.	Reclassification of Capital Accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.

	G.	Derivatives: The Fund has adopted the financial accounting reporting rules as required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification. The Fund is required to include enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position.

		The Fund may utilize options for hedging purposes as well as direct investment. Some options strategies, including buying puts, tend to hedge the Fund’s investments against price fluctuations. Other strategies, such as writing puts and calls and buying calls, tend to increase market exposure. Options contracts may be combined with each other in order to adjust the risk and return characteristics of the Fund’s overall strategy in a manner deemed appropriate to the Adviser and consistent with the Fund’s investment objective and policies. When a call or put option is written, an amount equal to the premium received is recorded as a liability. The liability is marked-to-market daily to reflect the current fair value of the written option. When a written option expires, a gain is realized in the amount of the premium originally received. If a closing purchase contract is entered into, a gain or loss is realized in the amount of the original premium less the cost of the closing transaction. If a written call option is exercised, a gain or loss is realized from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. If a written option is exercised, the amount of the premium originally received reduces the cost of the security which is purchased upon the exercise of the option.
		With options, there is minimal counterparty credit risk to the Fund since the options are covered or secured, which means that the Fund will own the underlying security or, to the extent they do not hold

		such a portfolio, will maintain a segregated account with the Fund’s custodian consisting of high quality liquid debt obligations equal to the market value of the option, marked to market daily.

		Options purchased are recorded as investments and marked-to-market daily to reflect the current fair value of the option contract. If an option purchased expires, a loss is realized in the amount of the cost of the option contract. If a closing transaction is entered into, a gain or loss is realized to the extent that the proceeds from the sale are greater or less than the cost of the option. If a purchase put option is exercised, a gain or loss is realized from the sale of the underlying security by adjusting the proceeds from such sale by the amount of the premium originally paid. If a purchased call option is exercised, the cost of the security purchased upon exercise is increased by the premium originally paid.

	H.	Events Subsequent to the Fiscal Period End: In preparing the financial statements as of December 31, 2013, management considered the impact of subsequent events for potential recognition or disclosure in the financial statements.

NOTE 3 – SECURITIES VALUATION

The Fund has adopted authoritative fair value accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value, a discussion in changes in valuation techniques and related inputs during the period and expanded disclosure of valuation levels for major security types. These inputs are summarized in the three broad levels listed below:

	Level 1 –	Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

	Level 2 –	Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

	Level 3 –	Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

Following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis.

Equity Securities: The Fund’s investments are carried at fair value. Equity securities, including common stocks, which are primarily traded on a national securities exchange, shall be valued at the last sale price on the exchange on which they are primarily traded on the day of valuation or, if there has been no sale on such day, at the mean between the bid and asked prices. Securities primarily traded in the NASDAQ Global Market System for which market quotations are readily available shall be valued using the NASDAQ Official Closing Price (“NOCP”). If the NOCP is not available, such securities shall be valued at the last sale price on the day of valuation, or if there has been no sale on such day, at the mean between the bid and asked prices. Over-the-counter securities which are not traded in the NASDAQ Global Market System shall be valued at the most recent sales price. Investments in open-end mutual funds are valued at their net asset value per share. To the extent, these securities are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy.

Options: Exchange-traded options are valued at the composite price, using the National Best Bid and Offer quotes. Specifically, composite pricing looks at the last trades on the exchanges where the options are traded. If there are no trades for the option on a given business day, composite option pricing calculates the mean of the highest bid price and the lowest ask price across the exchanges where the option is traded. Exchange-traded options that are actively traded are categorized in level 1 of the fair value hierarchy.

Short-Term Securities: Short-term securities having a maturity of 60 days or less are valued at amortized cost, which approximates market value. To the extent the inputs are observable and timely, these securities would be classified in level 2 of the fair value hierarchy

The Board of Trustees (“Board”) has delegated day-to-day valuation issues to a Valuation Committee of the Trust which is comprised of representatives from U.S. Bancorp Fund Services, LLC, the Fund’s administrator. The function of the Valuation Committee is to value securities where current and reliable market quotations are not readily available or the closing price does not represent fair value by following procedures approved by the Board. These procedures consider many factors, including the type of security, size of holding, trading volume and news events. All actions taken by the Valuation Committee are subsequently reviewed and ratified by the Board.

Depending on the relative significance of the valuation inputs, fair valued securities may be classified in either level 2 or level 3 of the fair value hierarchy.

As of December 31, 2013, the Fund held only cash, and had not yet invested in any securities.

NOTE 4 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Kellner Management, L.P. (the “Advisor”) provides the Fund with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space, facilities, and provides most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a fee, computed daily and payable monthly. The Fund pays fees calculated at an annual rate of 1.85% based upon the average daily net assets of the Fund.

The Fund is responsible for its own operating expenses. The Advisor has contractually agreed to reduce fees payable to it by the Fund and to pay Fund operating expenses to the extent necessary to limit the Fund’s aggregate annual operating expenses to 2.24% and 1.99% of average daily net assets for Class A shares and Institutional Class shares, respectively.

Any such reductions made by the Advisor in its fees or payment of expenses which are the Fund’s obligation are subject to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in subsequent fiscal years if the aggregate amount actually paid by the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on the Fund’s expenses. The Advisor is permitted to be reimbursed for fee reductions and expense payments made in the previous three fiscal years. Any such reimbursement is also contingent upon Board of Trustees review and approval at the time the reimbursement is made. Such reimbursement may not be paid prior to the Fund’s payment of current ordinary operating expenses.

U.S. Bancorp Fund Services, LLC (the “Administrator” or the “Transfer Agent”) acts as the Fund’s Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the Trustees; monitors the activities of the Fund’s custodian, transfer agent and accountants; coordinates the preparation and payment of the Fund’s expenses and reviews the Fund’s expense accruals.

U.S. Bancorp Fund Services, LLC (“USBFS”) also serves as the fund accountant and transfer agent to the Fund. U.S. Bank N.A., an affiliate of USBFS, serves as the Fund’s custodian.

Quasar Distributors, LLC (the “Distributor”) acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares. The Distributor is an affiliate of the Administrator.

Certain officers of the Fund are employees of the Administrator.

NOTE 5 – DISTRIBUTION AGREEMENT AND PLAN

The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 (the “Plan”). The Plan permits the Fund to pay for distribution and related expenses at an annual rate of up to 0.25% of the average daily net assets of the Fund’s Class A shares. The expenses covered by the Plan may include the cost in connection with the promotion and distribution of shares and the provision of personal services to shareholders, including, but not necessarily limited to, advertising, compensation to underwriters, dealers and selling personnel, the printing and mailing of prospectuses to other than current Fund shareholders, and the printing and mailing of sales literature. Payments made pursuant to the Plan will represent compensation for distribution and service activities, not reimbursements for specific expenses incurred.

NOTE 6 – SECURITIES TRANSACTIONS

The Fund did not purchase or sell any securities for the fiscal period ended December 31, 2013.

NOTE 7 – INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS

At December 31, 2013, the Fund did not have any distributable earnings or accumulated losses on a tax basis. The Fund did not make any distributions for the fiscal period ended December 31, 2013.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees of Advisors Series Trust and

Shareholders of Kellner Long/Short Fund

We have audited the accompanying statement of assets and liabilities of the Kellner Long/Short Fund (the “Fund”), a series of Advisors Series Trust as of December 31, 2013, and the related statement of changes for the one day in the period ended December 31, 2013. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audit 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 and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Kellner Long/Short Fund as of December 31, 2013, and the changes in its net assets for the one day in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania

March 3, 2014

Kellner Long/Short Fund

Approval of Investment Advisory Agreement (Unaudited)

At a meeting held on December 3-5, 2013, 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 (the “Advisory Agreement”) between the Trust and Kellner Management, L.P. for the Kellner Long/Short 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 Advisor and the services expected to be provided by the Advisor 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 full Board, 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 Advisor under the Advisory Agreement. The Board considered the Advisor’s specific responsibilities in all aspects of day-to-day management of the Fund. The Board considered the qualifications, experience and responsibilities of the portfolio managers, as well as the responsibilities of other key personnel of the Advisor that would be involved in the day-to-day activities of the Fund, noting that the Advisor currently serves as investment adviser to two other mutual funds within the Trust, one of which was in operation and one of which was scheduled to become effective with the U.S. Securities and Exchange Commission on or about December 30, 2013. The Board also considered the resources and compliance structure of the Advisor, including information regarding its compliance program, its chief compliance officer, the Advisor’s compliance record and the Advisor’s business continuity plan. The Board also considered the Advisor’s business plan, noting that the Advisor began managing a separate account with three component strategies, one of which is a long/short strategy with substantially similar objectives, policies, strategies and risks as the Fund. The Board considered that as the Advisor just recently began managing this strategy, it did not have a meaningful long-term performance record involving the strategy. After discussion, the Board concluded that the Advisor 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 and extent of such management services will be satisfactory.

The Trustees then discussed the expected costs of the services to be provided by the Advisor and the structure of the Advisor’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 Advisor. The Board viewed such information as a whole as useful in assessing whether the Advisor 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 Advisor was agreeing to waive its advisory fees and reimburse the Fund for certain of its expenses to the extent necessary to maintain an annual expense ratio, excluding acquired fund fees and expenses, of 2.24% for Class A shares and 1.99% for Institutional Class shares (the “Expense Caps”).

The Board noted that the Fund’s expected total operating expenses for Class A shares and Institutional Class shares were above the peer group median and average. The Board also noted that the expected contractual advisory fee was above the peer group median and average and the Fund’s expected contractual advisory fee was in line with the fees charged by the Advisor to the other account with a component strategy that has substantially similar objectives, policies, strategies and risks as the Fund.

The Board determined that it would continue to monitor the appropriateness of the advisory fee and concluded that, at this time, the fees to be paid to the Advisor were fair and reasonable.

The Board also considered economies of scale that would be expected to be realized by the Advisor as the assets of the Fund grow. The Board noted that the Advisor 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 Advisor at this time, but indicated that this issue would be revisited in the future as circumstances changed and asset levels increased.

The Board then considered the expected profitability to the Advisor from its relationship with the Fund. The Board reviewed the Advisor’s financial information and took into account both the expected direct benefits and the indirect benefits to the Advisor from advising the Fund, such as benefits received in exchange for Rule 12b-1 fees and the use of soft dollars. The Board considered the estimated profitability to the Advisor from its relationship with the Fund and considered any additional benefits that may be derived by the Advisor from its relationship with the Fund. After such review, the Board determined that the expected profitability to the Advisor with respect to the Advisory Agreement was not excessive, and that the Advisor should be able to obtain adequate funding to support the services it provides to the Fund.

No single factor was determinative of the Board’s decision to approve the Advisory Agreement; rather, the Trustees based their determination on the total mix of information available to them. Based on a consideration of all the factors in their totality, the Trustees determined that the advisory arrangement with the Advisor, including advisory fees, was fair and reasonable to the Fund. 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.

INFORMATION ABOUT TRUSTEES AND OFFICERS (Unaudited)

This chart provides information about the Trustees and Officers who oversee the Fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.

		Term		Number of
		of Office		Portfolios	Other
		and		in Fund	Directorships
	Position	Length	Principal	Complex	Held
Name, Address	Held with	of Time	Occupation During	Overseen by	During Past
and Age	the Trust	Served	Past Five Years	Trustee(2)	Five Years


Independent Trustees(1)

Donald E. O’Connor	Trustee	Indefinite	Retired; former	3	Trustee,
(age 77)		term	Financial Consultant		Advisors Series
615 E. Michigan Street		since	and former Executive		Trust (for series
Milwaukee, WI 53202		February	Vice President and		not affiliated
		1997.	Chief Operating		with the Funds);
			Officer of ICI Mutual		Trustee, The
			Insurance Company		Forward Funds
			(until January 1997).		(31 portfolios).

George J. Rebhan	Trustee	Indefinite	Retired; formerly	3	Trustee,
(age 79)		term	President, Hotchkis and		Advisors Series
615 E. Michigan Street		since	Wiley Funds (mutual		Trust (for series
Milwaukee, WI 53202		May	funds) (1985 to 1993).		not affiliated
		2002.			with the Funds);
					Independent
					Trustee from
					1999 to 2009,
					E*TRADE
					Funds.

George T. Wofford	Trustee	Indefinite	Retired; formerly	3	Trustee,
(age 74)		term	Senior Vice President,		Advisors Series
615 E. Michigan Street		since	Federal Home Loan		Trust (for series
Milwaukee, WI 53202		February	Bank of San Francisco.		not affiliated
		1997.			with the Funds).

Interested Trustee

		Term		Number of
		of Office		Portfolios	Other
		and		in Fund	Directorships
	Position	Length	Principal	Complex	Held
Name, Address	Held with	of Time	Occupation During	Overseen by	During Past
and Age	the Trust	Served	Past Five Years	Trustee(2)	Five Years


Joe D. Redwine(3)	Interested	Indefinite	President, CEO,	3	Trustee,
(age 66)	Trustee	term	U.S. Bancorp Fund		Advisors Series
615 E. Michigan Street		since	Services, LLC (May		Trust (for series
Milwaukee, WI 53202		September	1991 to present).		not affiliated
		2008.			with the Funds).

Officers

		Term of Office
Name, Address	Position Held	and Length	Principal Occupation
and Age	with the Trust	of Time Served	During Past Five Years

Joe D. Redwine	Chairman and	Indefinite term since	President, CEO, U.S. Bancorp
(age 66)	Chief Executive	September 2007.	Fund Services, LLC
615 E. Michigan Street	Officer		(May 1991 to present).
Milwaukee, WI 53202

Douglas G. Hess	President and	Indefinite term since	Senior Vice President,
(age 46)	Principal	June 2003.	Compliance and Administration,
615 E. Michigan Street	Executive Officer		U.S. Bancorp Fund Services, LLC
Milwaukee, WI 53202			(March 1997 to present).

Cheryl L. King	Treasurer and	Indefinite term since	Vice President, Compliance and
(age 52)	Principal	December 2007.	Administration, U.S. Bancorp
615 E. Michigan Street	Financial Officer		Fund Services, LLC
Milwaukee, WI 53202			(October 1998 to present).

Kevin J. Hayden	Assistant	Indefinite term since	Assistant Vice President,
(age 42)	Treasurer	September 2013.	Compliance and Administration,
615 E. Michigan Street			U.S. Bancorp Fund Services, LLC
Milwaukee, WI 53202			(June 2005 to present).

Albert Sosa	Assistant	Indefinite term since	Assistant Vice President,
(age 43)	Treasurer	September 2013.	Compliance and Administration,
615 E. Michigan Street			U.S. Bancorp Fund Services, LLC
Milwaukee, WI 53202			(June 2004 to present).

Michael L. Ceccato	Vice President,	Indefinite term since	Senior Vice President,
(age 56)	Chief Compliance	September 2009.	U.S. Bancorp Fund Services, LLC
615 E. Michigan Street	Officer and		(February 2008 to present);
Milwaukee, WI 53202	AML Officer		General Counsel/Controller,
			Steinhafels, Inc. (September 1995
			to February 2008).

Jeanine M. Bajczyk, Esq.	Secretary	Indefinite term since	Senior Vice President
(age 48)		June 2007.	and Counsel, U.S. Bancorp
615 E. Michigan Street			Fund Services, LLC
Milwaukee, WI 53202			(May 2006 to present).

(1)	The Trustees of the Trust who are not “interested persons” of the Trust as defined under the 1940 Act (“Independent Trustees”).
(2)	As of December 31, 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 Kellner Event Fund and the Kellner Merger Fund. The Funds do not hold themselves out as related to any other series within the Trust for investment purposes, nor do they share the same investment adviser with any other series.
(3)	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.

NOTICE TO SHAREHOLDERS at December 31, 2013 (Unaudited)

How to Obtain a Copy of the Fund’s Proxy Voting Policies

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 855-KELLNER (855-535-5637) or on the U.S. Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

How to Obtain a Copy of the Fund’s Proxy Voting Records for the 12-Month Period Ended June 30

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 855-KELLNER (855-535-5637). Furthermore, you can obtain the Fund’s proxy voting records on the SEC’s website at http://www.sec.gov.

Quarterly Filings on Form N-Q

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-202-551-8090. Information included in the Fund’s Form N-Q is also available, upon request, by calling 855-KELLNER (855-535-5637).

HOUSEHOLDING

In an effort to decrease costs, the Fund intends to reduce the number of duplicate prospectuses, annual and semi-annual reports, proxy statements and other similar documents you receive by sending only one copy of each to those addresses shared by two or more accounts and to shareholders the Transfer Agent reasonably believes are from the same family or household. Once implemented, if you would like to discontinue householding for your accounts, please call toll-free at 855-KELLNER (855-535-5637) to request individual copies of these documents. Once the Transfer Agent receives notice to stop householding, the Transfer Agent will begin sending individual copies thirty days after receiving your request. This policy does not apply to account statements.

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.

Investment Advisor

Kellner Management, L.P.

900 Third Avenue, Suite 1000

New York, New York 10022

Distributor

Quasar Distributors, LLC

615 East Michigan Street

Milwaukee, Wisconsin 53202

Custodian

U.S. Bank National Association

Custody Operations

1555 North River Center Drive, Suite 302

Milwaukee, Wisconsin 53212

Transfer Agent

U.S. Bancorp Fund Services, LLC

615 East Michigan Street

Milwaukee, Wisconsin 53202

Independent Registered Public Accounting Firm

Tait, Weller & Baker LLP

1818 Market Street, Suite 2400

Philadelphia, Pennsylvania 19103

Legal Counsel

Paul Hastings LLP

75 East 55th Street

New York, New York 10022

This report is intended for shareholders of the Fund and may not be used as sales literature unless preceded or accompanied by a current prospectus. For a current prospectus please call 1-855-535-5637.

			Annualized
	3-Month	1 Year	Since Inception
GAKAX – Class A	0.89%	4.45%	4.30%
GAKAX – Class A (with load)*	-4.87%	-1.53%	0.28%
GAKIX – Institutional Class	0.99%	4.74%	4.56%
BofA Merrill Lynch 3-Month
Treasury Bill Index	0.02%	0.07%	0.10%
HFRX ED: Merger Arbitrage Index	1.15%	4.04%	2.64%

		Average
Annual Total Return:	1 Year	Since Inception1
Kellner Merger Fund – Class A (with sales load)	-1.53%	0.28%
Kellner Merger Fund – Class A (without sales load)	4.45%	4.30%
Kellner Merger Fund – Institutional Class	4.74%	4.56%
BofA Merrill Lynch 3-month Treasury Bill Index	0.07%	0.10%
HFRX ED: Merger Arbitrage Index	4.04%	2.64%

	Beginning	Ending	Expenses Paid
	Account Value	Account Value	During Period(1)
	7/1/13	12/31/13	7/1/13 – 12/31/13
Actual(2)
Class A	$1,000.00	$1,022.50	$14.32
Institutional Class	$1,000.00	$1,024.40	$13.06
Hypothetical (5% return
before expenses)(3)
Class A	$1,000.00	$1,011.04	$14.24
Institutional Class	$1,000.00	$1,012.30	$12.98

Shares		COMMON STOCKS – 94.6%	Value

		Administrative and Support Services – 3.8%
	4,400	Lender Processing Services, Inc. (c)	$	164,472

		Apparel Manufacturing – 3.4%
	9,900	Jones Group, Inc. (c)		148,104

		Chemical Manufacturing – 24.1%
	9,700	Cornerstone Therapeutics, Inc. (a)(c)		92,053
	6,700	Life Technologies Corp. (a)(c)		507,860
	2,500	Paladin Labs, Inc. (a)(b)		278,818
	7,800	Patheon, Inc. (a)(b)		72,034
	1	Perrigo Co. PLC (b)		143
	2,100	ViroPharma, Inc. (a)(c)		104,685
				1,055,593

		Clothing and Clothing Accessories Stores – 5.8%
	4,600	Jos. A Bank Clothiers, Inc. (a)(c)(d)		251,758

		Computer and Electronic
		Product Manufacturing – 2.7%
	5,000	LSI Corp.		55,100
	3,500	RDA Microelectronics, Inc. – ADR (c)		62,580
				117,680

		Credit Intermediation and Related Activities – 10.5%
	26,400	Hudson City Bancorp, Inc. (c)		248,952
	3,300	KKR Financial Holdings, LLC (a)		40,227
	7,000	StellarOne Corp. (c)		168,490
				457,669

		Depository Credit Intermediation – 4.0%
	5,100	Sterling Financial Corp. (c)		173,808

		Electrical Equipment,
		Appliance, and Component – 4.2%
	10,900	Zoltek Companies, Inc. (a)(c)		182,575

		Food and Beverage Stores – 11.1%
	9,800	Harris Teeter Supermarkets, Inc. (c)		483,630

		Funds, Trusts, and Other Financial Vehicles – 1.4%
	4,400	Cole Real Estate Investments, Inc. (c)		61,776

		Hospitals – 1.9%
	6,500	Health Management Associates, Inc. –
		Class A (a)(c)		85,150

Shares		COMMON STOCKS – 94.6% (Continued)	Value

		Machinery Manufacturing – 4.6%
	50,000	Flow International Corp. (a)(c)	$	202,000

		Merchant Wholesalers, Durable Goods – 6.3%
	5,000	Shoppers Drug Mart Corp. (b)		273,900

		Miscellaneous Manufacturing – 1.1%
	1,600	Given Imaging Ltd. (a)(b)(c)		48,128

		Other Information Services – 0.5%
	1,700	AsiaInfo-Linkage, Inc. (a)		20,332

		Pipeline Transportation – 4.9%
	8,000	PVR Partners, L.P. (c)		214,640

		Professional, Scientific, and Technical Services – 0.7%
	4,500	Pactera Technology International Ltd. – ADR (a)		32,175

		Publishing Industries (Except Internet) – 0.9%
	3,400	Giant Interactive Group, Inc. – ADR		38,216

		Utilities – 2.7%
	2,000	UNS Energy Corp. (c)		119,700
		TOTAL COMMON STOCKS (Cost $3,946,635)		4,131,306

		MONEY MARKET FUNDS – 5.1%

	223,681	Fidelity Institutional Money Market
		Portfolio, Class I, 0.03% (e)		223,681
		TOTAL MONEY MARKET FUNDS
		(Cost $223,681)		223,681
		TOTAL INVESTMENTS IN SECURITIES
		(Cost $4,170,316) – 99.7%		4,354,987
		Other Assets in Excess of Liabilities – 0.3%		14,764
		NET ASSETS – 100.0%	$	4,369,751

Shares		COMMON STOCKS – 31.1%	Value

		Chemical Manufacturing – 6.3%
	4,082	Endo Health Solutions, Inc. (a)	$	275,372

		Credit Intermediation and Related Activities – 13.5%
	2,218	M&T Bank Corp.		258,220
	8,522	Umpqua Holdings Corp.		163,111
	6,819	Union First Market Bankshares Corp.		169,179
				590,510

		Food and Beverage Stores – 2.7%
	2,982	Loblaw Companies Ltd. (a)(b)		118,971

		Hospitals – 0.4%
	450	Community Health Systems, Inc. (a)		17,671

		Insurance Carriers and Related Activities – 0.9%
	1,242	Fidelity National Financial, Inc. – Class A		40,303

		Oil and Gas Extraction – 4.9%
	8,160	Regency Energy Partners L.P.		214,282

		Real Estate – 1.4%
	4,808	American Realty Capital Properties, Inc.		61,831

		Securities, Commodity Contracts, and Other
		Financial Investments and Related Activities – 1.0%
	1,683	KKR & Co., L.P.		40,964
		TOTAL COMMON STOCKS
		(Proceeds $1,218,264)		1,359,904
		TOTAL SECURITIES SOLD SHORT
		(Proceeds $1,218,264)	$	1,359,904

Contracts		CALL OPTIONS	Value

	2	Jos. A Bank Clothiers, Inc.	$	145
		Expiration: April 2014, Exercise Price: $60.00
		TOTAL CALL OPTIONS WRITTEN
		(Premiums received $316)	$	145

ASSETS
Investments in securities, at value (identified cost $4,170,316)	$	4,354,987
Cash		125
Deposit at broker		1,709,846
Receivables
Securities sold		183
Dividends and interest		2,744
Dividend tax reclaim		134
Due from Advisor (Note 4)		15,606
Other receivables		928
Prepaid expenses		13,010
Total assets		6,097,563

LIABILITIES
Options written, at value (proceeds $316)		145
Securities sold short (proceeds $1,218,264)		1,359,904
Payables
Securities purchased		110,724
Fund shares redeemed		23,841
Dividends on short positions		1,278
Payable to broker		145,064
Administration and fund accounting fees		31,432
Transfer agent fees and expenses		15,228
Audit fees		19,500
Chief Compliance Officer fee		4,000
Custody fees		803
Legal fees		1,451
Distribution fees		8,148
Reports to shareholders		4,000
Accrued other expenses		2,294
Total liabilities		1,727,812
NET ASSETS	$	4,369,751

	May 1, 2013			June 29, 2012**
	through			through
	December 31, 2013*			April 30, 2013
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld and issuance
fees of $408 and $9, and $103 and $0, respectively)	$	73,724		$	28,219
Interest		73			1,072
Total income		73,797			29,291
Expenses
Administration and fund accounting fees (Note 4)		63,106			78,293
Advisory fees (Note 4)		37,148			34,924
Transfer agent fees and expenses (Note 4)		31,356			39,204
Registration fees		21,800			29,039
Audit fees		19,500			14,900
Chief Compliance Officer fee (Note 4)		8,001			10,000
Distribution fees – Class A (Note 5)		5,542			6,384
Legal fees		5,022			5,000
Custody fees (Note 4)		4,871			5,886
Miscellaneous		3,936			3,165
Printing and mailing expense		3,102			1,716
Trustee fees		2,258			3,412
Pricing fees (Note 4)		1,512			1,265
Total expenses before dividends and interest
on short positions		207,154			233,188
Dividends expense on short positions		25,129			15,144
Interest expense		12,105			5,245
Total expenses before reimbursement
from Advisor		244,388			253,577
Less: expenses waived and reimbursed by
Advisor (Note 4)		(157,035	)		(184,895	)
Net expenses		87,353			68,682
Net investment loss		(13,556	)		(39,391	)

	May 1, 2013			June 29, 2012*
	through			through
	December 31, 2013			April 30, 2013
Net asset value, beginning of period	$	10.29		$	10.00

Income from investment operations:
Net investment loss^		(0.04	)		(0.12	)
Net realized and unrealized
gain on investments		0.40			0.41
Total from investment operations		0.36			0.29

Less distributions:
From net realized gain on investments		(0.44	)		—
Total distributions		(0.44	)		—
Net asset value, end of period	$	10.21		$	10.29

Total return		3.54	%+		2.90	%+

Ratios/supplemental data:
Net assets, end of period (thousands)	$	3,343		$	3,197
Ratio of expenses to average net assets:
Before expense reimbursement		8.29	%++		9.23	%++
After expense reimbursement		3.00	%++		2.50	%++
Ratio of expenses excluding interest expense and
dividends on short positions to average net assets:
Before expense reimbursement		7.04	%++		8.48	%++
After expense reimbursement		1.75	%++		1.75	%++
Ratio of net investment loss to average net assets:
Before expense reimbursement		(5.81	%)++		(8.20	%)++
After expense reimbursement		(0.52	%)++		(1.47	%)++
Portfolio turnover rate		143.51	%+		37.59	%+

Undistributed
Net Investment	Accumulated Net
Income/(Loss)	Realized Gain/(Loss)	Paid-in Capital
$13,556	$(13,556)	$—

Derivative Type	Statement of Assets and Liabilities Location		Value
Equity Contract	Options written, at value		$	145

	Location of Gain/(Loss)
Derivative Type	on Derivatives Recognized in Income	Value
Equity Contract	Realized loss on purchased options	$	(7,078	)
Equity Contract	Realized gain on written options		3,527
Equity Contract	Change in unrealized appreciation
	on written options		171

	Contracts			Premiums Received
Beginning Balance		—		$	—
Options written		17			3,843
Options expired		(15	)		(3,527	)
Outstanding at December 31, 2013		2		$	316

								Gross Amounts not
								Offset in the Statement
								of Assets & Liabilities
				Gross		Net
				Amounts		Amounts
		Gross		Offset		Presented
		Amounts		in the		in the
		of		Statement		Statement				Collateral
		Recognized		of Assets &		of Assets &		Financial		Pledged		Net
Description		Assets		Liabilities		Liabilities		Instruments		(Received)		Amount
Written Options	$	145	$	—	$	145	$	—	$	145	$	—
	$	145	$	—	$	145	$	—	$	145	$	—

	Level 1		Level 2		Level 3		Total
Common Stocks
Administrative Support	$	164,472	$	—	$	—	$	164,472
Finance and Insurance		693,253		—		—		693,253
Healthcare and Social
Assistance		85,150		—		—		85,150
Information		58,548		—		—		58,548
Manufacturing		1,754,080		—		—		1,754,080
Professional, Scientific and
Technical Services		32,175		—		—		32,175
Retail Trade		735,388		—		—		735,388
Transportation and
Warehousing		214,640		—		—		214,640
Utilities		119,700		—		—		119,700
Wholesale Trade		273,900		—		—		273,900
Total Common Stocks		4,131,306		—		—		4,131,306
Short-Term Investments		223,681		—		—		223,681
Total Investments in Securities	$	4,354,987	$	—	$	—	$	4,354,987
Securities Sold Short	$	1,359,904	$	—	$	—	$	1,359,904

Written Options
Call Options	$	—	$	145	$	—	$	145
Total Written Options	$	—	$	145	$	—	$	145

	Period Ended		Period Ended
	December 31, 2013		April 31, 2013
Administration and
Fund Accounting	$	63,106	$	78,293
Transfer agency (a)		24,171		30,063
Custody		4,871		5,886
Chief Compliance Officer		8,001		10,000

Cost of investments (a)	$	4,170,316
Gross unrealized appreciation		361,805
Gross unrealized depreciation		(177,134	)
Net unrealized appreciation		184,671
Net unrealized depreciation on short sales
and written options		(141,732	)
Undistributed ordinary income		23,409
Undistributed long-term capital gain		277
Total distributable earnings		23,686
Other accumulated gains/(losses)		—
Total accumulated earnings/(losses)	$	66,625

	FYE 12/31/2013	FYE 4/30/2013
Audit Fees	$17,400	$11,900
Audit-Related Fees	N/A	N/A
Tax Fees	$3,600	$3,000
All Other Fees	N/A	N/A

Non-Audit Related Fees	FYE 12/31/2013	FYE 4/30/2013
Registrant	N/A	N/A
Registrant’s Investment Adviser	N/A	N/A