Performance results shown include all accounts managed by Kevin O’Grady or Palo Capital with a capital appreciation objective (over 98% of all assets under management) for the period January 1, 1998 through December 31, 2007, including accounts managed prior to Palo Capital's operations. Results and benchmarks are shown on a total return basis which includes all dividends, interest, transactions costs, and realized and unrealized gains and losses. Results are presented net of investment advisory fees. Returns for non-fee paying accounts (e.g., accounts owned by the firm's principals) have been reduced by the amount of fees that would be charged under the fee schedule shown in Palo Capital's Form ADV. Additional details concerning performance measurement methods are available upon request. Past performance is no guarantee of future results.

Methodology. Returns shown are time-weighted rates of return, with annual returns calculated by linking returns for the year’s sub-periods (the method specified by the Global Investment Performance Standards). Accounts were valued quarterly until December 31, 2004, and monthly since that date. Time-weighted rates of return allow calculation of the dollar growth of an investment in a particular period, assuming reinvestment of dividends and interest. Within each sub-period, returns are calculated on an asset-weighted basis.

Investment Strategies. The investment strategies employed in generating the results shown are generally comparable to the approach used by Palo Capital in the management of Capital Appreciation Accounts. This approach allows the manager considerable latitude as to the types of investments used. For most taxable accounts included in the historical results, short-selling was permitted. Short-selling had a significant impact on results for the 1999-2001 period, with minimal impact since 2001. Some accounts used leverage in the form of margin debt in 1998-1999, but margin debt has been negligible since then.

Benchmark comparison. Comparison to the S&P 500 is included because: (i) this index is the most widely used benchmark; (ii) the investment strategies used by Palo Capital/Kevin O'Grady have used equities almost exclusively; and (iii) these strategies have varied significantly over time, thus making the choice of a single benchmark problematic. Use of the S&P 500 is not meant to suggest that the investments whose performance is presented here were comparable to the S&P 500's components. In most periods, portfolios differed significantly from the S&P 500 in terms of market capitalization, sector distribution, volatility, and/or country.

Performance variability among accounts. During 1998-2007, an average of 33 accounts were managed each year, with 115 accounts under management during the current year. Results varied significantly among accounts due to differences among accounts in investment timing, risk tolerance, use of short-selling, tax considerations, and stock selection.