Disruptive ChangeAreas of Opportunity in

2018 & Beyond

James L. CallinanOsterweis Capital Management

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Disruption in My Career

1990s: EmergenceofComputer Services

• Rise ofconsumerInternet madepossiblebylowcostcomputers• Internetasacontentarea – adsandcommercebecomebusinessmodels• Online orderingbecomesadistributionmechanism• Modemsgivewaytopacketswitches andlateropticalswitches

2000s: DotcomBust– Disinvestment &ExcessCapacityGive WaytoOpportunity

• Internetbecomesplacetodotasks• Googleestablishesleadershiprole• Interactivewebflourishes(e.g.,Googlemaps,YouTube)• Expediacreatesvertical e-commerce

2010&Beyond

• CompetitorstoGoogleforadvertisinggrow(i.e.,Facebook)• Increasingbandwidthallowsformorevideo• Customizedshoppingexperiences– ipsy,stitchfix,etc.• Snapchat…

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Opportunity in Small Cap Growth

Note:ValuationmodelconsistsofrelativeTrailingandForwardP/E,PricetoBook,PriceToSalesandfrom2002PricetoCashFlow.FromMarch31,2016forwardestimatesarefromJeffries.LastdatapointasofMarch31,2018.PastPerformanceisnotindicativeoffutureresults.Source:FTSERussell;Jefferies

RelativeValuation

Percen

tileRa

nk

Russell2000Growthvs.Russell2000Value

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Jun-93 Dec-94 Jun-96 Dec-97 Jun-99 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14 Dec-15 Jun-17

Percentile (LHS) Relative Performance (RHS)

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1.00

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Low P/E Stocks High P/E Stocks

Beta (Current)S&P500

0.96x

1.23x

High-P/E Stocks Are Rarely This Safe!

Low-P/E Stocks Are Seldom This

Risky!

Long-TermAverage

Long-TermAverage

... But Low P/E Has Rarely Been This Risky!

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1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Avg NTM PE of Low Beta (S&P 500)

Yes, Defense Has Rarely Been This Expensive ...

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Low P/E Stocks High P/E Stocks

Beta (Current)S&P500

Times Are Changing ... “Cheap” Valuations Isn’t The Potential “Safety Net” It Used To Be

Opportunity in Small Cap Growth

Source:CornerstoneMacro.DatainbothchartsisfromJanuary1990throughFebruary2018

HighP/E StocksRarelyHaveaBeta

thisLow

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Retail Companies Founded by Decade

Source:KPCB,Retailindustry.about.com(1900s– 1980s),Ranker(1990s),InternetRetailer“2016Top500Guide”(2000s– 2010s)Note:Companiesshownaboveinchronologicalorderbyfoundingyearbydecade.Companiesfrom2000sonwardsselectedasdiversesetoffast-growingcompaniesbasedonwebsalesdatafromtheInternetRetailer“2016Top500Guide.”GenZdefinedasthosebornafter2000.In 2015,theyareages0-15.Millennialsdefinedasthosebornbetween1980and2000.In2015,theyareages15-35.GenXdefinedasthosebornbetween1965and1979.In2015,theyareages36-50.Boomersdefinedasthosebornbetween1946-1964.In2015,theyareages51-70.Silentsdefinedasthosebornbetween1925– 1945.In2015,theyareages71– 90.GIGenerationdefinedasthosebornbetween1900– 1924.In2015,theyareage91– 115.Notethere arevaryingopinionsonwhatyearseachgenerationbeginandend.

IllustrationSource:KPCB

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Internet-Related Dislocations = Still Early Stage

IllustrationSource:KPCB

Source:KPCB,CapIQ,PublicFilings*2015revenueforallcompaniesreflectsCY2015.Currentmarketcapsasof5/31/16.HistoricalmarketcapsforWal-Mart/AmazonshownasofdateofAmazonIPO(5/15/1997).HistoricalmarketcapsforViacom/NetflixshownasofdateofCBSspinofffromViacom(1/3/2006).

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Why Invest in Disruptors?

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Successful Ongoing Disruptors

Amazon Introduced onlineshoppingforbooksresultingthebirthofonlineshopping

Illumina Caught firmslikeAffymetrixbysurprisewiththeirlowcostgenemappingtechnology

Year ActiveAccounts Revenue PerAcct.1997 1.5million $1802017 310million $439

CosttoSequenceHumanGenome #ofGenomes Sequenced

2006 $300,000 2014 65,0002017 $1,000 2016 500,000

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Concentrated Small Cap

Disruption in the Lending Market

10 Largest Mortgage Originators

1996WellsFargoCountrywideFleetMortgageChaseManhattanBAMortgageResourceBancsharesMortgageStandard FederalGroupNorthAmericanMortgageFlagstarBankFTMortgage

Highlightingindicatesnon-traditionallenders.Source:WellsFargoSecurities,LLC

2017WellsFargoChaseManhattanQuickenLoansPennyPacUSBankCaliber FundingAmerihomeMortgageUnited ShoreFinancialServicesSunTrustMortgageFlagstar Bank

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The LendingTree Model

AccesstoMultipleOffers

Cost-EfficientCustomerAcquisition

RetailBanks

AutoLenders

HighlyTargeted,PredictableVolume

Clicks,CallsandDataReferrals

Real-TimeReporting&Analytics

FreeCreditScores

Tools&Resources

Ratings&Reviews

Mortgage

P2PLenders

ATrueOnlineMarketplaceEnablingConsumersandLenderstoShopforEachOther

SmallBusinessLenders

StudentLoans

CreditCards

Borrow

ers Lenders

IllustrationSource:LendingTree

Leadgenerationsubstitutesforthe“Trusted”Lender– MultipleOffers=MoreTrusted

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Massive Market Opportunity

~$2.0bn(1)

CoreTargetMarket

~18%MarketShare(4)

~$10.4bn(2)

USFinancialServicesOnlineAdvertising

~3.5%Penetration(4)

~$19bn(3)

USBank&CreditUnionMarketingSpending

~1.9%Penetration(4)

Core

TotalAddressableMarket

AdjacentOpportunities

Sources:1)MortgageBrokersAssociation,WallStreetresearch,WallStreetJournal,DepartmentofEducation,FederalReserve,ScotsmanGuide,RealtyTrac,

Booz&Co.,companyfilings,internalestimates.2)eMarketer,May2015,includesadvertisingthatappearsondesktopandlaptopcomputersaswellasmobilephonesandtablets;inclusiveof$2.0bn

coretargetmarketasperinternalestimates.3)TheFinancialBrandandAiteGroup,"2015StateofBank&CreditUnionMarketing"ascitedinAiteGroupblogpost,Jan28,2015.4)MarketshareandpenetrationpercentagesarebasedonLTMrevenue(asofSeptember30,2016)of$361.9mm.

IllustrationSource:LendingTreepresentation

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Source:InternetTrends- 2016,KPCB

PopularityofBusinessContactChannelsbyGeneration

Dealing with Changing Consumer Preferences

IllustrationSource:LendingTreepresentation

(

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Source:LendingTree

LendingTree Market Expansion

IllustrationSource:LendingTreepresentation

Pre-2007Post-2007

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TotalMarketSize

Est.OnlineAdMarket

FragmentedSuppliers/Buyers

HighValuePurchase

Frequency

MobileAdoption

InventoryDifferentiation

KeyOnlinePlayers

MarketCap(4)

Expedia/Priceline Paved the Way for Vertical Disruption

13

Substantialvalueupsiderelativetosimilarmarkets

3

Significantloanoriginationvolume

todriveTAMexpansion

1

Meaningfulopportunityforincreaseddigitalpenetration

2

Travel Lending

$1.3tr(1) $2.4tr(2)

$13bn(1) $10bn(3)

C EB EE DD CC C

$102.9bn(5) $1.9bn(6)

1

2

3$97.6bn(5) $2.2bn(6)

$1.3tr(1)

$13bn(1) $10bn(3)

$2.4tr(2)

Source:LendingTree

B

IllustrationSource:LendingTreepresentation

Source:CapitalIQandWallStreetResearch.1)WallStreetResearch.2)BoardofGovernorsoftheFederalReserveSystem,DepartmentofEducation,FederalReserveBankofNewYork,MortgageBrokers Association,ScotsmanGuide,WallStreetJournal,internaldata.3)eMarketer,U.S.FinancialServicesIndustryDigitalAdSpending,2014-2020,March2016.Inclusiveofinternalestimateof~$2.0bnforonlineleadgeneration.4)CapitalIQ.5)CombinationofPricelinemarketcap:$73.4bn,Expediamarketcap:$17.1bnandTripAdvisormarketcap:$7.1bn.Marketcapasof January 4,2017.6)CombinationofLendingTreemarketcap:$1.2bnandBankratemarketcap:$1.0bn.MarketcapasofJanuary4,2017. 14

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Current Market

U.S.VC-backedIPOsbyYear

Source:NVCA 2017Yearbook,DataProvidedbyPitchBook

CapitalInvested($B)

#ofDealsClosed

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CapitalInvested($B)

#ofDealsClosed

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Current Market: West Coast Focused55% of Capital Invested was in West Coast States

Source:NVCA2018Yearbook,DataProvidedbyPitchBook

2017VCDeals&CompanyCountsbyState

CompanyCount %ofTotal

CapitalInvested($1M) %ofTotal

California 2,749 34.23% 43,360.69 51.03%

NewYork 925 11.52% 12,265.25 14.43%

Massachusetts 555 6.91% 8,972.81 10.56%

Texas 396 4.93% 1,811.04 2.13%

Florida 226 2.81% 1,515.31 1.78%

Washington 314 3.91% 1,762.18 2.07%

Illinois 218 2.71% 1,948.13 2.29%

Utah 106 1.32% 1,050.24 1.24%

Pennsylvania 230 2.86% 901.80 1.06%

Colorado 276 3.44% 1,220.47 1.44%

AllOthers 2,036 25.35% 10,166.62 11.96%

Totals 8,031 84,974.54

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SecularRevenueGrowth

DisciplinedSecuritySelection

ConcentratedPositions

Concentrated Small Cap

Emerging Opportunity Philosophy

Alpha

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Concentrated Small Cap

The Three “M’s”

Rapidly growing companies can suffer from three “M”s

Mysterious Mistakes Management

Newercompaniesandindustriescanbehardtounderstandandmaybeignoredearlyon

Rapidlygrowing,innovativecompaniescanmakeshort-term missteps

Earlystagecompanieswithfounder-CEOsmayhavedifficultymanagingthroughtheirgrowthphase

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Process seeks to identify:Anchor Points

Focusedgrowthplans,ideallyarticulatedbytopmanagement

Quantifiablegoalandideallymultiplesofpresentsize

Attainablewithin3-5yearinvestmenthorizon

Abilitytocaptureintermediatesuccess

Achievablewithpresentcorporateresources1

1.

2.

3.

4.

5.

1 Jim Collins, From Good to Great, Why Some Companies Make the Leap and Others Don’t, Harper Collins Publishers Inc., 2001.

Anchor Points Can Provide Conviction

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Sample Anchor Points

Based on OCM’s research. Holdings are subject to change and should not be interpreted as a recommendation to buy or sell any security. Past performance is not indicative of future results.

LendingTreeconnectsconsumerswithmultiplelenders.Itexpectstoreach$3billioninsalesin5yearsasthefirmgrowsfrom6%to20%ofthe$15billionspentadvertingonlinebyfinancialinstitutions.

U.S.opportunityis3millionAFib cardiacmonitoringpatchesperyear.Estimatedtorampfrom270,000in2017to1.2millionat$400perpatch.

Globalopportunitytodeliverover1millionportableoxygenunitsperyearby2025generating$1.1billioninrevenue.

Enovausesanonlinestrategytomakeloanstomiddleclassborrowers.Its$3billionloanoriginationgoalistogenerate$500millionofEBITDAinfiveyears.

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• FinTech (E-Commerce for loans, banking, investments)

• Health Care:– Medical Devices – Selling to consumers and bypassing traditional gatekeepers

– Biotech – Gene therapy, targeted therapy, M&A

– Services – Value based care

• Consumer Internet Services

• Technology:– AI

– Data Lakes

– Software Security

– Cloud Infrastructure

Concentrated Small Cap

Future Areas to Watch

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Disclosures

TheEmergingOpportunityFundisavailablebyprospectusonly.TheFund’sinvestmentobjectives,risks,chargesandexpensesmustbeconsideredcarefullybeforeinvesting.ThesummaryandstatutoryprospectusescontainthisandotherimportantinformationabouttheFund,anditmaybeobtainedbycallingtoll-free(800)700-3316,orvisitingwww.osterweis.com.PleasereadtheprospectuscarefullybeforeinvestingtoensuretheFundisappropriateforyourgoalsandrisktolerance.

Earningsgrowthisnotameasureofthefund'sfutureperformance.Pastperformancedoesnotguaranteefutureresults.

Diversificationdoesnotassureaprofit,nordoesitprotectagainstalossinadecliningmarket.

TheRussell3000IndexisamarketcapitalizationweightedequityindexmaintainedbyFTSERussellthatseekstobeabenchmarkoftheentireU.S.stockmarket.

TheRussell2000Indexisanindexmeasuringtheperformanceofthe2,000smallestcompaniesintheRussell3000Index.

TheOsterweisEmergingOpportunityFundmayinvestinunseasonedcompanies,whichinvolveadditionalriskssuchasabruptorerraticpricemovements.TheFundmayinvestinsmallandmid-sizedcompanies,whichmayinvolvegreatervolatilitythanlarge-sizedcompanies.TheFundmayinvestinIPOsandunseasonedcompaniesthatareintheearlystagesoftheirdevelopmentandmayposemoreriskcomparedtomoreestablishedcompanies.TheFundmayinvestinETFs,whichinvolverisksthatdonotapplytoconventionalfunds.Higherturnoverratesmayresultinincreasedtransactioncosts,whichcouldimpactperformance.Fromtimetotime,theFundmay haveconcentratedpositionsinoneormoresectorssubjectingtheFundtosectoremphasisriskincludingthehealthcaresector,whichmaybeaffectedbygovernmentregulation,restrictions,pricingandothermarketdevelopmentsandthetechnologysector,whichtends to bemorevolatilethantheoverallmarket.TheFundmayinvestinforeignandemergingmarketsecurities,whichinvolvegreatervolatilityandpolitical,economicandcurrencyrisksanddifferencesinaccountingmethods.Theserisksmayincreaseforemergingmarkets.

OsterweisCapitalManagementistheadvisertotheOsterweisFunds,whicharedistributedbyQuasarDistributors, LLC.[33040]

ForRegisteredprofessionaluseonly:Notfordistributiontothepublic.

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Asof3/31/2018,theFund’stoptenholdingsasapercentageoftotalassetswere:

Fundholdingsandsectorallocationsaresubjecttochangeandarenotrecommendationstobuyorsellanysecurity.Currentandfutureholdingsaresubjecttorisk.FurtherinformationabouttheFund’sportfolioallocationasofthelastdayofthemost recentcalendarquarterisavailablebyvisitingwww.osterweis.com.

Disclosures

Holding %ofTotalPortfolioBio-Techne Corp. 4.5LigandPharmaceuticals 4.0PlanetFitnessInc.- ClassA 3.6Nutanix Inc.- ClassA 3.5GTT CommunicationsInc. 3.4ZillowGroupInc.- ClassA 3.3InogenInc. 3.1Rapid7Inc. 3.1EtsyInc. 3.0PetIQ Inc. 2.9