SJCM: Peformance - SMid Cap: Performance Statistics

Performance Disclosure
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.

The Russell 2500 Growth Index measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values. The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. The indices depicted have not been selected to represent appropriate benchmarks to compare SJCM’s performance, but rather are disclosed to allow for comparison of SJCM’s performance to that of well-known and widely recognized indices. Inherent in any investment is the possibility of loss.

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.

smid cap comp

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 SMid Cap Growth Equity composite includes all accounts that are long-only equity and focused on equities typically between $1.5 billion and $7.5 billion in market capitalization. The performance inception date for the composite is December 18, 2003. Since inception, there have been a total of four accounts included in the composite. While some of the accounts overlapped for a given time period, there are periods in which the composite prior to December 31, 2006 included just one account. One of the accounts included in the composite was a long/short account- a performance carve-out excludes the impact of short positions. Accounts eligible to be included in the composite must be fully discretionary, fully invested (cash is less than 10%), and daily valued. From the date of inception to December 31, 2003 the return for the period was 3.3%.

Portfolio Accounts
The performance statistics disclosed in the accompanying schedules are calculated based on the rate of return from accounts managed by the Company, as defined below. These accounts (“Portfolio Accounts”) consist of fee and non fee paying discretionary accounts managed by the Company. The Portfolio Accounts do not have restrictions which affect investment strategies and achieve their objective of capital appreciation through the use of equity securities, cash and cash equivalents. The equity securities are selected according to the Company’s aggressive growth strategy. A Portfolio Account is excluded from the composite if it has not been under management for a full month or fully invested.

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 accounts for the entire year. Only portfolios that have been managed for the full year are included in the dispersion calculation. The Company does not calculate dispersion percentages because the number of active portfolios as of year end is less than the minimum required threshold (5) as outlined in paragraph 5A.1d.

Management Fees and Performance Fees
For the period ended December 31, 2004, the Sterling Johnston SMid Cap Growth Equity composite included one account. The one account ended December 31, 2004 was a non-fee paying account and compromised 100% of the composite. For the periods ended December 31, 2006 and 2005, the accounts within the composite were fee paying accounts. Furthermore, during July 20, 2006 and September 30, 2006, The Sterling Johnston SMid Growth Equity composite consisted of one account, which was a non-fee paying account. Management fees are generally 0.50% of assets based on the market value the last day of each calendar quarter, but may also vary depending on the size of the portfolio. Performance fees, if taken, are calculated as 20% of the excess return after management fees as of the last day of the year. The management and performance fee schedule is set forth in Part II of the firm’s ADV, which is available upon request.

*Net returns are calculated assuming the standard management fee of 0.85% per annum as stated in the ADV part II.