Shareholder Letter

July 26, 2018

Dear Shareholder,

During the second quarter of 2018, the Osterweis Total Return Fund (the Fund) generated a total return of 1.28%, compared to -0.16% for the Bloomberg Barclays U.S. Aggregate Bond Index (the BC Agg). The Fund’s annualized total returns over the one year and since inception (12/30/2016) periods ending June 30, 2018 were 1.34% and 3.24%, respectively, compared to -0.40% and 1.24% for the index over the same periods.

Performance data quoted represent 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 higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling (866) 236-0050. An investment should not be made solely on returns. The Fund’s gross expense ratio was 0.71% and net expense ratio was 0.76% as of March 31, 2018. The Adviser has contractually agreed to waive fees through June 30, 2019. The net expense ratio is applicable to investors. The net expense ratio is higher than the gross expense ratio based on recoupment of previously waived fees.

The second quarter was a tale of two markets. In the first seven weeks of the quarter, interest rates rose sharply, with 10-year yields approaching 3.11% on May 17, nearly 37 basis points (bps) above their March 30 close. The rise was relatively uniform across the maturity spectrum greater than 1 year, with only 30-year yields rising less than 30 bps – these rose 27 bps to 3.25%. The second part of the quarter saw a substantial reversal, with yields retracing the majority of their gains. For the quarter, the 10-year yield rose 11 bps to 2.85%, while 30-year yields rose just 1 bp to 2.98%. The flattening of the yield curve was a major theme in this period and has brought the yield curve to its flattest level (by most measures) since the financial crisis.

With investment grade sectors, mortgages again emerged as the best performer, with returns that slightly outpaced duration-matched Treasuries. Corporates, on the other hand, struggled in the quarter, reversing April gains with significant underperformance in May and June. This followed a similar profile to the first quarter of 2018, when corporate bonds outperformed duration-matched Treasuries in January while trailing in February and March.

For the quarter, the Fund outperformed the benchmark as its interest rate hedges – especially in April – were well timed and additive to performance. The Fund also benefited from its sizable allocation to mortgage-backed securities and relatively low exposure to corporate spreads (as measured by spread duration) versus the benchmark. Finally, the Fund benefited from its allocation to TIPS, which outperformed Treasuries during the period as inflation breakevens widened.

Looking ahead, we believe the global economic recovery will continue. With the Underlying Inflation Gauge (published by the Federal Reserve Bank of New York) well over 3% and the Consumer Price Index approaching 3% on a year-over-year basis, the Federal Reserve must be vigilant on its tightening policy to ensure continued growth while keeping inflation in check. We have capitalized on recent outperformance of mortgages versus corporates, selling the former to buy the latter – primarily short floating rate corporate bonds that simultaneously benefit from increases in short-term interest rates as well as a recovery in corporate spreads. We feel these securities offer compelling yields in the interim and, if held to maturity, could afford the opportunity to invest in longer duration instruments at higher yields in the future. In the meantime, we expect to maintain a relatively short duration profile until interest rates rise further. We thank you for your continued support.

Best regards,

Eddy Vataru
John Sheehan
Daniel Oh

___________________________________

This commentary contains the current opinions of the authors as of the date above, which are subject to change at any time. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

Mutual Fund investing involves risk. Principal loss is possible. The Osterweis Total Return Fund may invest fixed income securities which are subject to credit, default, extension, interest rate and prepayment risks. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. Investments in foreign and emerging market securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets. Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used. Investments in preferred securities have an inverse relationship with changes in the prevailing interest rate. 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. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in municipal securities which are subject to the risk of default.

The Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) is an unmanaged index which is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.

Underlying Inflation Gauge (UIG) is a measure that captures sustained movements in inflation from information contained in a broad set of price, real activity, and financial data.

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services excluding food and energy.

Treasury inflation protected securities (TIPS) refer to a treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation.

A basis point is a unit that is equal to 1/100th of 1%.

Duration measures the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with longer durations generally have more volatile prices than securities of comparable quality with shorter durations.

The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting osterweis.com. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [34040]

Investment Team

Account Access

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This commentary contains the current opinions of the authors as of the date above, which are subject to change at any time. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

The Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) is an unmanaged index which is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.

The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting www.osterweis.com/statpro. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.

Mutual fund investing involves risk. Principal loss is possible.

The Osterweis Total Return Fund may invest in fixed income securities which are subject to credit, default, extension, interest rate and prepayment risks. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. Investments in foreign and emerging market securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets. Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used. Investments in preferred securities have an inverse relationship with changes in the prevailing interest rate. 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. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in municipal securities which are subject to the risk of default.

While the fund is no-load, management fees and other expenses still apply. Please refer to the prospectus for more information.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC.

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