Shareholder Letter

January 31, 2017

Dear Shareholder,

During the fourth quarter of 2016, the Osterweis Emerging Opportunity Fund (the Fund) generated a total return of 1.00% versus 3.57% for the Russell 2000 Growth Index (the Index). The Fund’s annualized total returns over the one year and since inception (10/1/2012) periods ending December 31, 2016 were 9.76% and 12.51%, respectively, compared to 11.32% and 12.73% for the Index over the same periods.

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 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 Adviser has contractually agreed to waive certain fees through November 30, 2018. Performance prior to December 1, 2016 is that of another investment vehicle (the Predecessor Fund) before the commencement of the Fund’s operations. The Predecessor Fund was converted into the Fund on November 30, 2016. The Predecessor Fund’s performance shown includes the deduction of the Predecessor Fund’s actual operating expenses. In addition, the Predecessor Fund’s performance shown has been recalculated using the management fee that applies to the Fund, which has the effect of reducing the Predecessor Fund’s performance. The Predecessor Fund was not a registered mutual fund and so was not subject to the same operating expenses or investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower.The Fund’s gross expense ratio was 1.61% and net expense ratio was 1.50% as of November 30, 2016.

The big news during the quarter was clearly the surprising election results, which put pressure on health care names and pushed up the consumer, financials and industrials sectors. Technology slightly trailed the market. In the fourth quarter, the Index significantly lagged the Russell 2000 Value Index. It is interesting to note that in 2016, the slowest growers in the Russell 2000 Value Index substantially outperformed the fastest growers in the Index, which were down 1% for the year. As a consequence, value stocks in the small cap category now carry a much higher price-to-earnings (P/E) ratio relative to historical averages than growth stocks.

As noted above, the Fund commenced operations as a mutual fund on November 30, 2016 after the conversion of a Predecessor Fund. During the quarter, the Fund benefited from strong security selection in the health care sector and our overweight in financials. While the health care sector as a whole was down for the quarter due to concerns about the potential repeal of the Affordable Care Act, our health care holdings did significantly better overall than the health care sector in the Index. Our financial holdings bounced after the election with the market on expectations of rising rates and reduced regulatory burdens while holdings in technology and consumer discretionary detracted from performance. We think this was primarily driven by investor rotation from strong performers for the year into laggard sectors.

We are excited about prospects for 2017. Valuations and revenue growth rates of our holdings are at about an average level. They continue to have revenue growth of about 30% per year on a trailing basis. We think the economy is set to grow and that growth may be accelerated by pro-business policies, which should be positive for our smaller cap portfolio. As the new administration implements its policies, we are likely to see market volatility in various sectors. This volatility should allow us to pick up some interesting new names or add to positions at attractive valuations.

Best wishes for a prosperous and healthy 2017.

Sincerely,
 
Jim Callinan

Investment Team

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This commentary contains the current opinions of the author 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 S&P 500 Index is an unmanaged index that is widely regarded as the standard for measuring large-cap U.S. stock market performance. The index does not incur expenses, is not available for investment, and includes the reinvestment of dividends.

Fund holdings are subject to change and should not be considered a recommendation to buy or sell any security.

Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain and expand the company’s asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.

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 Emerging Opportunity Fund may invest in unseasoned companies, which involve additional risks such as abrupt or erratic price movements. The Fund may invest in small and mid-sized companies, which may involve greater volatility than large-sized companies. The Fund may invest in IPOs and unseasoned companies that are in the early stages of their development and may pose more risk compared to more established companies. The Fund may invest in ETFs, which involve risks that do not apply to conventional funds. Higher turnover rates may result in increased transaction costs, which could impact performance. From time to time, the Fund may have concentrated positions in one or more sectors subjecting the Fund to sector emphasis risk including the health care sector, which may be affected by government regulation, restrictions, pricing and other market developments and the technology sector, which tends to be more volatile than the overall market. The Fund may invest in foreign and emerging market securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets.

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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