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Small Cap Focused Growth

Portfolio Manager Commentary

2nd Quarter 2015

During the second quarter the GIM Small Cap Focused Growth strategy composite rose 3.0%,

outperforming the Russell 2000 Growth index which was up 2.0% in the quarter. Below I discuss

performance for the second quarter and share our view of the portfolio's positioning going forward.

Second Quarter Performance

As noted above, the portfolio rose approximately 3%, outperforming the benchmark. Standing out

on the positive side was strong stock selection in Producer Durables led by Taser International

(TASR). As we discussed in the first quarter letter, we had added to our position following a

pullback in the stock in early April. TASR shares rose 37% in Q2 on continued strong wins with

major municipalities for the company's on-officer video cameras and Evidence.com software

platform. We are gaining confidence that Taser will extend its position meaningfully as it seeks to

become the leading cloud-based software platform for law-enforcement agencies worldwide.

Given the sharp rise in TASR shares in Q2, we trimmed the position based on a diminished

risk/reward, but it remains a good-sized holding. Paylocity (PCTY) was also a strong contributor

within Producer Durables, as the share price of this payroll and human capital software rose 25%

following strong Q3 results reported in March.

Consumer Discretionary also was a positive contributor, aided by strong stock selection,

particularly in two holdings: 2U Inc. (TWOU) and IMAX Corporation (IMAX). 2U provides a

comprehensive platform enabling colleges and universities to offer traditional programs online

(e.g., University of North Carolina MBA or Georgetown Masters in Nursing). TWOU shares

climbed 26% as investors grew increasingly convinced the company could sustain, and perhaps

accelerate, the pace of new program launches with leading universities. IMAX shares appreciated

as investors gained confidence in the company's box office results, operating leverage, and

prospects for an IPO of the company's Chinese subsidiary. We have pared back the position based

on diminished risk/reward, though it remains a good-sized holding in the portfolio.

On the negative side, also within Consumer Discretionary and partially offsetting the above

positive contributions, was a 24% decline in Constant Contact (CTCT). CTCT shares retreated as

the company experienced a setback in its transition from a one product e-mail solution provider to

a marketing solutions platform for small businesses. We expect the company to regain its business

momentum, although it may take a couple of more quarters. We had reduced our position in CTCT

shares meaningfully in recent months, and have used the recent price correction to rebuild the

position. As a reminder, the Focused Growth process adheres to a tight valuation discipline

centered on probability-weighted expected returns. This is an integral part of our overall

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investment process. The high growth small cap stocks in which we invest have meaningful

volatility both in terms of their business operations, and even more so in their share prices. It is

the goal of the strategy to capitalize on the swings in stock prices due to investor sentiment. To

give some context, I have included below the 3-year price chart for CTCT. Although the holding

was a significant detractor to performance (-120 basis points) in the second quarter, over the past

three years (including Q2) the stock has been a significant positive contributor to performance

(+79 basis points). I must note that we DO NOT get this right anywhere near 100% of the time.

We sell stocks plenty of times when in hindsight we should have bought, and vice versa. However,

the expected-return discipline has proven quite constructive over the years and has been a

meaningful contributor to our ability to add returns (alpha) and protect capital in down markets.

Returning to our attribution review, on the negative side, Healthcare continued to lead the market

in Q2 and therefore again represented a substantial headwind. With a current weight of 16.8%,

Biotech was the Russell 2000 Growth's strongest performing industry, contributing over 50% of

the Index’s return. This represented a little over 100 basis points of a headwind since the Focused

Growth portfolio has no direct exposure to Biotech (this is consistent with the portfolio's footprint;

for more on this, please review the Q1 letter). At any given time, the Focused Growth strategy

may face sector headwinds or benefit from sector tailwinds; however, true to the investment

process underlying the strategy, stock selection is apt to be the primary source of relative

performance for the portfolio.

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Technology in the quarter was a negative for the portfolio, principally due to two stocks that each

fell approximately 25%: GrubHub (GRUB) and Monotype Holdings (TYPE). Shares of GrubHub

– the country's largest food delivery network – dropped due to fears of competition and costs

associated with the company's move to possibly vertically integrate into in-house delivery. Despite

the lower price, we've cut the position size anticipating a better opportunity to carry a larger

position in the stock. Monotype Holdings (TYPE), the world's leading provider of typefaces and

technology related to typefaces, fell 26% as investors are growing fatigued by the company's

depressed margins and weak revenue growth. We had trimmed much of our position earlier this

year, and have used the share decline to add modestly based on a more attractive entry point.

Perspective and Outlook

Despite a world featuring much Greek drama and Chinese volatility, the U.S. economy continues

to click along at what might be termed a "Goldilocks’ pace"…not too hot, not too cold. The

backdrop appears reasonably constructive for the secular growth companies in which we invest.

But the "main thing" for us is to continue to identify companies capable of sustaining 15%+ secular

growth (i.e., Desert Island companies), and to remain disciplined regarding when to own/not own

the stocks of these Desert Island companies.

Thank you for your interest and, as always, please don't hesitate to reach out if you have questions

or comments.

Sincerely,

Andrew L. Beja, CFA

dbeja@granahan.com

(781) 902-1409

Life Cycle Diversification: Adds stability

Annualized Performance: Net of Fees

Graphs and Statistics are Supplemental Information.

Please reference fully compliant GIPS Presentation on reverse side.

Small Cap Focused Growth Product June 30, 2015

GIM Small Cap Focused Growth Russell 2000 Growth As of June 30, 2015

Selected Portfolio Statistics

At a Glance Product Assets: $254 Million Minimum Investment : $3 Million Status: Open Inception Date: August 1, 2007 Benchmark: Russell 2000 Growth Capitalization: Typically, $200 Mil - $2 Bil at purchase Portfolio Manager: Andrew L. Beja, CFA Typical Number of Holdings: ± 40

Distinguishing Factors • By investing in businesses with sustainable growth,

we reduce the risk of significant capital loss. • We invest in exceptional businesses – those with

solid balance sheets, high incremental margins and strong customer value propositions.

• Our expected return methodology is a mechanism for mispricing and has proven successful over the course of several investment cycles.

• We believe conviction leads to outperformance, 60%-80% portfolio held in top 15 holdings.

Investment Philosophy Granahan Investment Management (GIM) believes that small dynamic companies provide excellent potential for superior long-term performance. GIM’s Focused Growth strategy is grounded in the belief that superior long term returns are best achieved through a select portfolio of smaller companies poised to grow at 15% or more.

Within this philosophy we seek to own companies with large open ended opportunities, a favorable competitive landscape, products or services providing a significant value proposition to the customer, and that have clean balance sheets. This company analysis is combined with a rigorous valuation discipline centered on a stock's expected return and risk/reward. The net result is a portfolio of 40-50 attractively priced stocks of some of the most exciting and innovative companies in the economy, and a portfolio that has generated consistent, strong risk-adjusted returns over time. Firm History Founded in 1985, Granahan Investment Management, Inc. is a 100% employee-owned firm specializing in smaller cap equity investments for large institutions and wealthy individuals. The firm utilizes fundamental, bottom-up research to uncover and invest in fast growing companies under $6 billion in market cap. The firm manages over $3.5 billion in institutional assets and the founding principals are part of an investment team which now totals ten professionals.

Trailing 5-years through June 30, 2015 Quarterly Returns - Gross of Fees

Annualized Alpha 6.41% Upside Capture 108.06% Downside Capture 57.07% Tracking Error 8.05 Information Ratio 0.78 Beta 0.96

Source: Informais

Performance prior to 12/31/2011 is from PM’s prior firm.

Characteristic Portfolio Russell 2000 Growth

Median Market Cap $1,264.5 mil $923.3 mil

Weighted Avg. Market Cap $2,740.4 mil $2,089.2 mil

Active Share 96.31% -

Est 3-5 Yr EPS Growth 21.6% 15.0%

Forward P/E Ratio 34.5x 23.0x

Dividend Yield 0.07% 0.63%

Price to Book 4.77x 4.55x

Granahan Investment Management, Inc. Small Cap Equity Specialist Since 1985

404 Wyman St., Suite 460, Waltham MA 02451 781-890-4412 www.granahan.com info@granahan.com

Holdings and Characteristics are Supplemental Information. Please reference fully compliant GIPS Presentation above.

June 30, 2015 Small Cap Focused Growth Product

Source: FactSet

June 30, 2015

Top Ten Holdings

Security Life Cycle Category Percent of Portfolio

ADVISORY BOARD Core Growth 6.8%

AFFILIATED MANAGERS GROUP Core Growth 6.4%

CONSTANT CONTACT Pioneer 6.3%

COSTAR CORP Core Growth 5.5%

SPS COMMERCE Pioneer 5.2%

2U, INC Pioneer 5.0%

LIVEPERSON Pioneer 4.6%

DEMANDWARE Pioneer 4.4%

VIRTUSA CORP Core Growth 4.3%

IMAX CORP Pioneer 3.9%

Composite Footnotes Granahan Investment Management claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Granahan Investment Management has been independently verified for the periods January 1, 1993 through December 31, 2013. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. GIM is an independent, SEC- registered investment firm that oversees small and mid-cap equity portfolios for large institutions and wealthy individuals. The Small Cap Focused Growth product utilizes fundamental, bottom-up research and analysis to invest in companies in the small cap sector of the market that exhibit sustainable high earnings growth, with a focus on the technology services, internet, consumer, and business services sectors. The benchmark for the Small Cap Focused Growth product is the Russell 2000 Growth. The composite, created in December 2011, is calculated by asset-weighting the performance of each account on a monthly basis. The composite includes returns from the portfolio manager’s prior firm, from inception of August 1, 2007 through December 31, 2011. Accounts are included beginning with the first full month under management and terminated accounts are included in the composite. Performance calculations, expressed in U.S. dollars, produce a total return including cash and the reinvestment of dividends and interest. The dispersion is a standard deviation using equal-weighted total returns for accounts in the composite the entire year. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Leverage is not utilized. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Returns are gross of investment management fees, which when included, reduce investment returns. Beginning 10/31/2012, net returns are total returns reduced by actual investment management fees. Prior to 10/31/12 and for accounts which pay no management fee, the standard management fee applicable is applied to calculate the net return. The standard fee for accounts managed in the Small Cap Focused Growth style is payable quarterly in arrears and is calculated by applying the ANNUAL rate of 1.00% times the average value of the assets in the account on the last day of each month in the quarter. Fees are collected quarterly, which produces a compounding effect on the total rate of return net of management fees. Market value is based on trade date and security pricing is supplied by Telemet. A complete list and description of all of the firm's composites is available upon request. Past performance is no guarantee of future results.

Date

Small Cap Focused Growth Composite

Composite

Gross Return

Russell 2000

Growth Return

Composite

Assets $ Mil

Composite

# Accts

Composite

3-Yr. Std. Dev.

Russell 2000

Growth 3-Yr.

Std. Dev.

Composite Dispersion

Composite Net Return

Non-Fee Assets

Firm

Assets $ Mil

YTD 2015 3.43% 8.74% $254.1 6 16.27 13.01 NA 3.14% 0.4% $3,643.0

2014 2.17% 5.60% $211.8 6 15.87 13.82 NA 1.61% 0.4% $3,516.6

2013 65.19% 43.30% $93.0 <5 16.73 17.27 NA 64.49% 1% $4,056.7

2012 24.55% 14.59% $26.5 <5 21.23 20.72 NA 23.36% 2% $3,049.4

2011 13.19% -2.91% $0.4 <5 23.12 24.31 NA 12.07% 100% $2,741.5

2010 30.06% 29.08% $5.4 8 29.56 27.70 0.15 28.81% 7%

2009 53.80% 34.47% $4.2 8 NA 24.85 0.06 52.33% 10%

2008 -46.34% -38.54% $1.9 6 NA 21.26 NA -46.91% 10%

2007* 18.24% 3.27% $.4 <5 NA 14.23 NA 17.76% 100%

NA – Dispersion information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year; Standard deviation information has fewer than three years’ data. *Partial year performance: August 1, 2007 through December 31, 2007

June 30, 2015