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Small Cap Focused Growth

Portfolio Manager Commentary 3rd Quarter 2015

The third quarter was a difficult one for small cap stocks broadly as well as for the GIM Focused

Growth strategy. The Russell 2000 Growth benchmark was down 13.1% and the GIM Small Cap

Focused Growth strategy composite was down 13.6%. Below I discuss performance for the third

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

Third Quarter Performance

As noted above, the portfolio fell 13.6% in Q3, underperforming the benchmark by 0.57%. While

the margin of underperformance in the quarter is not huge, it is disappointing. This is particularly

so since the portfolio benefitted from a 1.23% tailwind in Healthcare, as biotechs reversed their

long period of outperformance toward the end of Q3. Recall that we don't typically own biotech or

med-device stocks in the Focused Growth strategy, as they fall outside the philosophy of the

product: We believe that by investing in sustainable growth companies within my areas of

expertise, we can generate strong absolute, relative, and risk-adjusted returns.

In the quarter, the main cause of the portfolio's underperformance relative to the benchmark was a

difficult Q2 earnings report season for a number of our portfolio companies in several sectors

(companies typically report Q2 between mid-July and mid-August). Every earnings season

inevitably carries its share of surprises. This one, however, saw an unusually high number of

portfolio companies reporting negative surprises, and they came in the midst of a stock market

environment in which misses of any kind were severely punished. For example, within Producer

Durables, Power Solutions (PSIX, a manufacturer of natural gas and other alternative engines) fell

58%, as weak demand led the company to miss Q2 results and significantly cut forward estimates.

While the demand drivers for Power Solutions are in flux short-term, we continue to hold PSIX

shares, as the intermediate and long-term outlook and risk/reward appear favorable. Taser

International shares (TASR - Smart Weapons and On-officer video cameras, and its related

Evidence.com software platform) fell 34% in the wake of good Q2 results but lower-than-

consensus Q3 guidance. Taser's business has its natural ebbs and flows, but we believe the

company is well-positioned to sustain 15%+ growth; we purchased shares in TASR on the

weakness. In Consumer Staples, FreshPet Inc. (FRPT - all natural fresh and refrigerated pet food)

saw its stock drop 43% as the company revealed that the number of fridge-additions/stores would

be below expectations in 2015. This in turn led to estimate cuts and investor concerns about the

company's consumer appeal and ultimate market opportunity. Similar to the circumstance at Taser,

we believe these issues are part of the normal course of paving the way in a new product category,

and we used the price weakness to add to our position in FRPT shares. In Financial Services,

Affiliated Managers Group (AMG - a holding company for boutique asset managers) fell 22%, as

investors anticipate lower forward earnings following the stock market's decline.

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Offsetting some of these headwinds was strong performance in Consumer Discretionary. In the

sector, 2U, Inc (TWOU - provides a comprehensive platform enabling traditional colleges and

universities to offer online graduate degrees) climbed 12% on the heels of strong Q2 earnings and

the company's announcement of a new multiple degree program relationship with NYU. Also

within Consumer Discretionary, the shares of restaurant chain Buffalo Wild Wings (BWLD) rose

23% after reporting good Q2 results and a good start to same-store-sales in Q3.

Perspective and Outlook

Today, despite an environment with much macro uncertainty, we believe the underlying secular

growth prospects of the Focused Growth's portfolio companies remain robust. The portfolio has

underperformed the benchmark in 2014 and year-to-date in 2015. While some of this is a function

of poor stock selection, much has to do with the outsized appreciation in the portfolio in prior

years (particularly in 2013) – gains meaningfully above trend line and above the inherent growth

of the Focused Growth's portfolio companies. Net, the basic math of continued 15%+ enterprise

growth, together with the contraction we have seen in multiples, finds the portfolio's inherent

risk/reward improved.

While we consider macro information with respect to specific holdings, we do not spend a lot of

time trying to forecast macro events. This is in part because we don't believe we have a particular

edge in doing so, but even more because we don't believe it is necessary for us to generate good

returns over time. Rather we seek to identify companies capable of sustaining healthy growth

(typically 15%+) for many years to come. We call these "desert island" companies as we believe

they are companies which, if we went away to a desert island for 5-7 years, we'd come back and

find they'd have experienced significant enterprise growth.

If we are able to successfully identify such desert island companies, and remain disciplined in

executing our process which seeks to own the stocks of such sustainable growers when

risk/reward is good, and not own them when risk/reward is bad, we believe that the Granahan

Small Cap Focused Growth strategy can continue to deliver good returns for its investors in the

intermediate and long-term.

As an example of a desert island company, consider a recent addition to the 100-name desert

island monitored list, MindBody, Inc. (MB). MindBody provides cloud-based business

management and payment processing solutions to the health and wellness services industry. The

company started in yoga where it became the market leader, and has since expanded into health

and fitness, salon/spa, fine arts/instruction, children's activities and corporate wellness. The market

is large (there are 4.2 million wellness businesses worldwide, Mindbody has 42,000 subscribers,

or roughly 1% penetration) and the company's value proposition for such small businesses is

compelling. Beyond a comprehensive platform for scheduling, online booking, staff management,

customer relationship management, analytics, and point-of-sale and payments, MindBody’s

mobile app and other marketing tools help these small businesses attract and retain customers.

MindBody has the characteristics we seek in a desert island company: strong value proposition to

the customer, large market potential, solid management team and a strong balance sheet with the

capability to fund growth. With respect to the stock, as with all companies on our desert island

monitored list of about 100 companies, we utilize a strict expected-return methodology to guide us

to buy the stock for the portfolio when risk/reward is attractive.

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Lastly, I'm excited to share two recent additions to the Granahan Investment Team. Jeff Harrison,

a seasoned portfolio manager most recently with Wells Fargo, joined in July as one of the sleeve

PMs on the Granahan Small Cap and SMID Cap strategies; Jeff is already making a solid positive

impact. And in early October, David Dineen brought his very successful Small Cap International

strategy to Granahan from his prior firm, Pinnacle. Both Jeff and David are terrific additions to our

firm.

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

GIM Small Cap Focused Growth Russell 2000 Growth

Product Assets: $204 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

• 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.

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.

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 billion in institutional assets and

the founding principals are part of an investment team

which now totals ten professionals.

Trailing 5-years through September 30, 2015

Quarterly Returns - Gross of Fees

Annualized Alpha 6.30%

Upside Capture 113.68%

Downside Capture 71.46%

Tracking Error 7.57

Information Ratio 0.91

Beta 1.02

Source: Informais

Characteristic PortfolioRussell 2000

Growth

Median Market Cap $1,400.5 mil $760.7 mil

Weighted Avg. Market Cap $2,468.0 mil $1,956.0 mil

Active Share 97.22% 0.00%

Est 3-5 Yr EPS Growth 22.5% 15.5%

Forward P/E Ratio 34.6x 21.2x

Dividend Yield 0.11% 0.72%

Price to Book 5.31x 3.97x

Source: FactSet

September 30, 2015Top Ten Holdings

Security Life Cycle CategoryPercent of Portfolio

SPS COMMERCE Pioneer 7.5%

2U, INC Pioneer 6.7%

ADVISORY BOARD Core Growth 6.3%

COSTAR CORP Core Growth 5.9%

ULTIMATE SOFTWARE GROUP Core Growth 5.8%

AFFILIATED MANAGERS GROUP

Core Growth 5.7%

DEMANDWARE Pioneer 4.9%

BUFFALO WILD WINGS Core Growth 4.6%

IMAX CORP Pioneer 4.5%

CONSTANT CONTACT Pioneer 4.2%

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, 2014.

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.

September 30, 2015

DateSmall 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

2015-10.67% -5.47% $204.4 5 17.35 14.49 NA -11.05% 0.4% $3,347.0

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