Shareholder Letter

July 16, 2019

Dear Shareholders,

During the second quarter of 2019, the Osterweis Strategic Income Fund (the Fund) generated a total return of 1.43%, compared to 3.08% for the Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg). The Fund’s annualized total returns over the one-year, five-year and ten-year periods ending June 30, 2019 were 3.62%, 3.59% and 6.22%, respectively, compared to 7.87%, 2.95% and 3.90% for the BC Agg over the same periods.

The performance data quoted above 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 lower or higher 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 the basis of returns. The Fund’s gross expense ratio was 0.85% as of March 31, 2019.

Fixed income performed well during the second quarter, largely driven by a flight-to-quality Treasury rally and a “risk on” buying spree, which drove both equities and non-investment grade bonds higher. The record supply of global issues with negative yields ($13 trillion), combined with persistently low inflation, motivated fixed income investors to lock in rates before they fell even further.

One reason inflation is so low in the developed world is the increasing population of workers who are either retired or rapidly approaching retirement. As interest rates fall, this cohort is saving more and spending less – reducing aggregate demand and putting downward pressure on prices. We do not expect this trend to reverse itself anytime soon.

Although it is uncommon for Treasury rallies and equity rallies to coincide, it makes sense given that economic data has been decidedly mixed recently, fueling both markets. Our view is that the status quo will likely hold and that the slow-growth recovery should continue, albeit with some potential volatility, primarily due to an accommodative Federal Reserve and historically low unemployment.

Nonetheless, we feel that prudence is warranted at present. We are reducing our exposure to the high yield market and increasing the credit quality of the portfolio. We are also lowering our duration by raising our cash position, adding shorter maturity bonds and buying investment grade commercial paper, which allows us to take advantage of elevated short-term rates and the inverted yield curve, while giving us liquid reserves to buy on pullbacks.

Thank you for your continued support.

Carl Kaufman
Bradley Kane
Craig Manchuck

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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 Osterweis Strategic Income Fund may invest 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. 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Small- and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. 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. 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 that is widely regarded as a standard for measuring U.S. investment grade bond market performance. This index includes reinvestment of dividends and/or interest income. The index does not incur expenses and is not available for investment.

This index does not incur expenses and is not available for investment. This index includes reinvestment of dividends and/or interest income.

Duration measures the sensitivity of a fixed income security’s price (or the aggregate market value of a portfolio of fixed income securities) to changes in interest rates. Fixed income securities with longer durations generally have more volatile prices than those of comparable quality with shorter durations.

Investment grade refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's. Anything below this 'BBB' rating is considered non-investment grade. If the company or bond is rated 'BB' or lower it is known as junk grade, in which case the probability that the company will repay its issued debt is deemed to be speculative.

Yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year, 10-year and 30-year U.S. Treasury debt.

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.

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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 Strategic Income Fund may invest 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. 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Small- and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. 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. 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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