Sterling
Johnston has prepared and presented this report in compliance
with the Global Investment Performance Standards (GIPS). Each
composite, the Sterling Micro cap, Small cap and SMid cap composites
have been verified by BDO Seidman since inception. A copy of the
verification report and additional information regarding the firm’s
policies and procedures for calculating and reporting performance is
available upon request. A complete list and description of
Sterling’s composites is available upon request.
Organization and General
Sterling
Johnston Capital Management, L.P. is a Delaware limited
partnership, the sole general partner of which is Sterling Johnston
Capital Management, Inc., a California corporation (together “SJCM”).
Sterling Johnston Capital Management, Inc. was incorporated on April
24, 1985, and registered on July 2, 1985 as an independent adviser with
the Securities and Exchange Commission under the Investment Advisers
Act of 1940. Pursuant to reorganization on January 1, 2001, Sterling
Johnston Capital Management, L.P. succeeded to Sterling Johnston
Capital Management, Inc.’s investment adviser registration. The Company
was originally incorporated and registered as Sterling Financial Group,
Inc. by Mr. Johnston, its founder and owner, and operated as an
independent registered investment advisor from July 1, 1985 through
December 31, 1992. The corporation was inactive from January 1, 1993
until September 26, 1996, while Scott S. Johnston, its 100% owner, was
Chief Investment Officer of another investment advisor, Apodaca
Johnston Capital Management. It was re-activated October 1, 1996.
The
accompanying schedules
conform to the Global Investment Performance Standards (“GIPS”) which
utilizes the following criteria:
(a) The
calculations are made on a
time-weighted basis, cash flows consist principally of contributions,
withdrawals and management fees, and are weighted for the amount of time they impact the calculation.
(b) The
rate of return reflects realized and unrealized gains and losses and
includes
portfolio income (interest and dividends).
(c) The
calculations are weighted
for the size of each client’s account as a relationship to the total
composite.
(d) Rates
of return are compiled monthly using the Modified Dietz method, as
defined in
GIPS. The monthly results are then geometrically linked to derive the
quarterly
rates of return and the quarterly rates of return are geometrically
linked to
derive the annual rates of return. Geometric linking is the method used
to combine
rates of return for multiple periods.
Fair Value
Fair
value of the composite is the sum of the
Portfolio Accounts’ total assets, including cash, cash equivalents,
short-term
investments and securities valued at current market prices on a trade
date
basis.
Leverage, Derivatives
& Currency
Leverage
has not been used in Portfolio Accounts
included in the composite. Derivatives
are not used in Sterling’s
Micro, Small or SMid strategy. The US
dollar is used for all valuations.
Annual Dispersion
Composite
dispersion measures represent the
consistency of the Company’s composite performance results with respect
to the
individual portfolio returns within the composite. Annual composite
dispersion
is calculated through the use of an asset weighted standard deviation
for
portfolios included in the composite for the entire year. Only
portfolios that
have been managed for the full year are included in the dispersion
calculation. A composite must have more
than 5 accounts to measure dispersion. The calculation is an
asset weighted standard deviation.
Management Fees
In
accordance with GIPS, a comparative presentation
before fees provides for the most efficient judgment of manager
contribution to
client investment returns, and provides performance comparability with
similar
market indices and with other performance measurement services. Net of fees, composite returns are reduced by
the advisory fee and any applicable incentive fees.
Comparison with Market
Indices (Unaudited)
The Russell Micro Cap Growth, Russell 2000 Growth,
Russell 2500 Growth and Standard & Poor’s 500 indices are used for
comparison purposes to illustrate the investment environment existing
during
the time periods shown. For comparison purposes, the indices are fully
invested
(i.e., includes reinvestment of dividends) and have been time-linked in
the
manner described above for the composite’s rates of return. The rates
of return
for the indices do not include any transaction costs, management fees
or other
costs. Each Sterling composite can invest in
equities not
included in the respective index.
Future Performance
Past
Performance is not indicative of future results. Investment results
will vary
from time to time depending upon market conditions, the composition of
the
composite portfolios, and trading expenses, so that any investment
results
reported should not be considered representative of what an investment
may earn
in any future period. Investment results will vary among the individual
portfolios in the composite. These factors and possible differences in
calculation methods should be considered when comparing the composite
results
with those published by other investment advisors, other investment
vehicles
and unmanaged indices. Also, the rates of return should be considered
relative to
the risks associated with the investment objectives of the portfolios
in the
composite.
Organization and General
The
general investment selection criteria, management style, and market
capitalization range of portfolios managed have been consistent
throughout the history presented.
Composite Description
The
Sterling Johnston Micro Cap Growth Equity composite includes all
accounts that are long-only equity and focused on equities typically
between $50 million and $1 billion in market capitalization. The
performance inception date for the composite is October 1, 1996.
Accounts eligible to be included in the composite must be fully
discretionary and fully invested (cash is less than 10%).
Annual Dispersion
Annual
dispersion is not applicable for the periods October 1, 1996 through
December 31, 2002, since there was only one portfolio in the composite
for the full period.
Management Fees
Management
fees are generally 0.75% of assets based on the market value on the
last business day of each calendar quarter, but may vary depending on
the size of the portfolio. Performance fees, if taken, are
calculated as a percentage of the return in excess of the Russell Micro
Cap Growth Index as of the last day of the year. The management and
performance fee schedules are set forth in Part II of the firm’s Form
ADV, which is available upon request.
*Represents the
three-month period
from October 1, 1996 to December 31, 1996.
**The Russell
Micro Cap Growth Benchmark is applied since 2001 through 2006.
For years prior to 2001 the Russell 2000 Growth is applied. The
Russell Micro cap Growth benchmark was created in 2005 and included
return data dating back to 2001. SJCM converted to the Russell
Micro Cap Growth benchmark as its primary benchmark in
2006.
***Net returns are calculated assuming the standard fee schedule as
stated in the ADV part II and are calculated annually. The
standard fee schedule includes a base management fee 0.75% per annum
and a performance incentive fee of 20% of the out-performance after
management fees above the benchmark per annum.
