Shareholder Letter

October 18, 2019

Dear Shareholder,

During the third quarter of 2019, the Osterweis Strategic Investment Fund (the Fund) generated a total return of 1.76%, slightly trailing the blended benchmark return of 1.96% (60% S&P 500 Index/40% Bloomberg Barclays U.S. Aggregate Bond Index (the “BC Agg”)).

Returns as of September 30, 2019

  QTD YTD 1 YR 5 YR INCEP
(8/31/2010)
 
OSTVX 1.76% 16.96% 5.01% 4.99% 8.92%
 
60% S&P 500 Index/40% Bloomberg Barclays U.S. Aggregate Bond Index 1.96 15.86 7.10 8.00 10.10
 
S&P 500 Index 1.70 20.55 4.25 10.84 14.53
 
Bloomberg Barclays U.S. Aggregate Bond Index 2.27 8.52 10.30 3.38 3.25

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 the original investment. 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 returns. The Fund’s gross expense ratio was 1.20% as of March 31, 2019.

Domestic stock markets modestly extended their gains during the third quarter, which was an impressive achievement in light of the multiple headwinds facing the economy. Uncertainty about the U.S./China trade conflict, unrest in Hong Kong and rising tensions in the Middle East each gave investors reason for concern, but equity markets still managed to eke out a positive quarter.

As we have discussed previously, we are in the late stages of a long, slow economic recovery, but we continue to believe the expansion has room to run, primarily due to accommodative fed policy and continued low unemployment.

Given where we are in the cycle, we are focused on domestic stocks we believe will outperform the market but that have less downside potential should the expansion falter. (We continue to feel U.S. equities offer more upside potential than international alternatives.) Specifically, as discussed in the enclosed outlook, we are investing in dominant companies with strong secular tailwinds, large/growing dividends and accelerating earnings growth. We are also investing in companies that we feel could benefit from a downturn.

In fixed income, we have generally been increasing the credit quality of our holdings and slightly increasing our duration to try to take advantage of the protracted Treasury rally. We have also boosted our cash position, which gives us the liquidity/flexibility to invest in any fat pitches that may emerge.

We thank you for your continued confidence in our management.

Sincerely,

John Osterweis
Carl Kaufman

___________________________________

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 Osterweis Strategic Investment Fund may invest in small- and mid-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies. 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. The Fund may invest in Master Limited Partnerships, which involve risk related to energy prices, demand and changes in tax code. The 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. 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 also make investments in derivatives that may involve certain costs and risks such as those related to liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Leverage may cause 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 typically 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.

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 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.

These indices do not incur expenses and are not available for investment. These indices include 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.

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.

Earnings growth is not representative of the fund’s future performance.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [41923]

Investment Team

John S. Osterweis

Founder, Chairman & Co-Chief Investment Officer – Core Equity

John S. Osterweis

Founder, Chairman & Co-Chief Investment Officer – Core Equity

John Osterweis graduated from Bowdoin College (B.A. in Philosophy, cum laude), and Stanford Graduate School of Business (M.B.A. with top honors in Finance).

After graduating from business school, he served as a Senior Analyst concentrating on the forest products and paper industry for several regional brokerage firms and later for E.F. Hutton & Company, Inc. In addition to his activities as an analyst, Mr. Osterweis served as Director of Research for two firms and managed equity portfolios for over ten years.

In late 1982, Mr. Osterweis decided to devote full time to his portfolio management activities, and in April of 1983 launched Osterweis Capital Management.

For a number of years Mr. Osterweis served as Director of the Lucas Museum of Narrative Art, Director on the Stanford Alumni Association Executive Board, Trustee of Bowdoin College, Director and Vice Chairman of Mt. Zion Hospital and Medical Center, and President of the Board of Directors for Summer Search Foundation. He currently serves as a Trustee of the San Francisco Ballet Association Director of the San Francisco Free Clinic, and President Emeritus of the San Francisco Ballet Endowment Foundation, as well as Trustee Emeritus of Summer Search Foundation and of Bowdoin College.

Mr. Osterweis is a member of the firm’s Management Committee, a principal of the firm and the co-lead Portfolio Manager for the core equity and flexible balanced strategies.

Carl P. Kaufman

Co-President, Co-Chief Executive Officer, Chief Investment Officer – Strategic Income & Managing Director – Fixed Income

Carl P. Kaufman

Co-President, Co-Chief Executive Officer, Chief Investment Officer – Strategic Income & Managing Director – Fixed Income

Carl Kaufman graduated from Harvard University (B.A. in Music, cum laude) and attended the New York University Graduate School of Business Administration.

Prior to joining Osterweis Capital Management in 2002, Mr. Kaufman was a senior member of the convertible bond team at Robertson Stephens, where he focused on technology and biotech securities. Before that, he spent nineteen years with Merrill Lynch in their Institutional Sales office, specializing in convertible bond and equity research sales and trading.

Mr. Kaufman is responsible for the President and CEO functions related to the firm’s investment matters and is a member of the firm’s Management Committee. He is a principal of the firm and the lead Portfolio Manager for the strategic income strategy, which he has managed since its inception in 2002. He is also the Managing Director of Fixed Income and a lead Portfolio Manager for the flexible balanced strategy.

Larry Cordisco

Co-Chief Investment Officer – Core Equity

Larry Cordisco

Co-Chief Investment Officer – Core Equity

Larry Cordisco graduated from the University of California, Santa Barbara (B.A. in Political Science), Georgetown University (M.P.P.) and Columbia Business School (M.B.A.).

Before joining Osterweis in 2019, he was a Co-Portfolio Manager of the Meridian Contrarian Fund at Arrowmark Partners/Meridian Funds. Prior to co-managing the Contrarian Fund, Larry was an equity analyst for 11 years, most recently as Vice President of Investment Research for the Meridian Contrarian Fund. Before that he was an analyst within the technology group at Banc of America Securities. He was also a business and technology consultant for Accenture in San Francisco and began his professional career in the public sector as a District Aide for Congressman George Miller.

Mr. Cordisco is a co-lead Portfolio Manager for the core equity strategy and portfolio manager for the flexible balanced strategy.

James L. Callinan

Chief Investment Officer – Emerging Growth

James L. Callinan

Chief Investment Officer – Emerging Growth

Jim Callinan graduated from Harvard College (B.A. Economics), New York University (M.S. Accounting) and Harvard Business School (M.B.A.). Mr. Callinan holds the Chartered Financial Analyst designation.

Prior to joining Osterweis Capital Management in 2016, Mr. Callinan managed the Emerging Growth Partnership, LP, a concentrated small cap growth strategy he founded at RS and transitioned to his own firm. Before that, he was Co-Founder & Chief Investment Officer at RS Investments. He also co-founded the RS Growth Group LLC at Robertson Stephens Investment Management in 1996 and managed the RS Emerging Growth Fund from 1996 until 2010.

He began his career at Putnam Investments as an equity research analyst in 1987 and served as portfolio manager for the Putnam OTC Emerging Growth Fund from 1994 to 1996.

Mr. Callinan is an Executive Committee member of the of Weatherbie Capital (an Alger Company) Advisory Board and the Friends of Harvard Football Board.

Mr. Callinan is a principal of the firm and a Portfolio Manager for the emerging growth strategy. He is also a Portfolio Manager for the flexible balanced strategy.

Eddy Vataru

Chief Investment Officer – Total Return

Eddy Vataru

Chief Investment Officer – Total Return

Eddy Vataru graduated from California Institute of Technology (B.S. Chemistry & Economics) and from Olin Business School at Washington University in St. Louis (M.B.A.). Mr. Vataru holds the Chartered Financial Analyst designation.

Prior to joining Osterweis Capital Management in 2016, Mr. Vataru worked in senior management positions at Incapture, LLC and Citadel, LLC. Before that he spent over 11 years at BlackRock (formerly Barclays Global Investors), where his last position was as Managing Director and Head of U.S. Rates and Mortgages. While in this role, BGI worked with the U.S. Treasury in implementing its Agency MBS Purchase Program, buying mortgages for the U.S. government from 2008-2009.

Over the course of his career as a fixed income investor, Mr. Vataru has developed extensive experience in managing passive, active and hedge fund portfolios.

Mr. Vataru is a principal of the firm and the lead Portfolio Manager for the total return fixed income strategy. He is also a Portfolio Manager for the flexible balanced strategy.

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.

Duration measures the sensitivity of a bond’s price (or the aggregate market value of a portfolio of bonds) to changes in interest rates. Bonds with longer durations generally have more volatile prices than bonds of comparable quality with shorter durations. Effective Duration is a duration calculation for bonds with embedded options and takes into account that expected cash flows will fluctuate as interest rates change. Effective duration is calculated only on the Fund’s fixed income holdings and cash.

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.

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.

These indices do not incur expenses and are not available for investment. These indices include reinvestment of dividends and/or interest income.

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 Strategic Investment Fund may invest in small- and mid-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies. 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. The Fund may invest in Master Limited Partnerships, which involve risk related to energy prices, demand and changes in tax code. The 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. 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 also make investments in derivatives that may involve certain costs and risks such as those related to liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Leverage may cause 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 typically 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.

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.