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The Shepherd Street Equity Fund
- --------------------------------------------------------------------------------
Shepherd
Street
Equity
Fund
Dear Fellow Shareholder:
Thank you for your investment in the Shepherd Street Equity Fund. We are very
pleased to announce the results of operations for the six-month period ending
March 31, 1999, and to provide you with this semi-annual report.
The Shepherd Street Equity Fund began investing on October 2, 1998 and has
obtained a total return of 20.8% through March 31, 1999. The total assets of the
Fund grew over this six-month period from $100,000 to $3,886,127. You will find
included in this report a complete list of the companies owned in the Fund on
March 31.
As Investment Advisor to the Fund, Salem Investment Counselors, Inc.
continues to make long term investments for growth of capital. We look for and
invest in companies with above average prospects for growth, along with strong
performance records, solid market positions, high margins and return on equity
and reasonable financial strength. While the domestic stock markets continue to
be volatile with considerable speculation in certain segments, we adhere to a
discipline and style that guides us to invest in companies we can buy at a
reasonable price and leaves us secure in the knowledge that our shareholders
will be rewarded over the long term.
Thank you for entrusting us with your assets. If you know of someone who
might be interested in the Fund, please have them call or write for a brochure
and prospectus.
Sincerely yours,
David B. Rea
--------------------------------
David B. Rea
President
The Shepherd Street Equity Fund
1
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The Shepherd Street Equity Fund
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SCHEDULE OF INVESTMENTS
March 31, 1999 (Unaudited)
Shares Value
- ------- -------
COMMON STOCK -- 98.31%
Airlines -- 4.40%
3,500 US Airways Group, Inc.* ............................. $170,844
--------
Banks-- 8.21%
3,750 First American Corp. ................................ 138,281
11,250 FirstFed Financial Corp. ............................ 180,703
--------
318,984
--------
Broadcasting -- 4.94%
3,025 MediaOne Group, Inc.* ............................... 192,088
--------
Chemicals-- 4.26%
4,500 Great Lakes Chemical Corp. .......................... 165,375
--------
Computer Hardware -- 4.28%
2,450 Hewlett-Packard Co. ................................. 166,141
--------
Computer Services And Software -- 9.71%
2,250 Microsoft Corp.* .................................... 201,656
8,875 Wallace Computer Services, Inc. ..................... 175,836
--------
377,492
--------
Commercial Services -- 4.78%
9,150 Servicemaster Co. ................................... 185,859
--------
Containers-- 4.19%
7,075 Sonoco Products Co. ................................. 162,725
--------
Diversified Conglomerates -- 4.92%
17,000 Walter Industries, Inc.* ............................ 191,250
--------
Electronics Equipment -- 9.59%
4,475 Hubbell, Inc. ....................................... 179,000
2,350 Koninklijke Philips Electronics - ADR ............... 193,728
--------
372,728
Food & Beverage -- 9.66%
4,675 Pepsico, Inc. ....................................... 183,202
1,000 Pepsi Bottling Group, Inc. .......................... 21,812
6,475 SYSCO Corp. ......................................... 170,373
--------
375,387
--------
See notes to financial statements
2
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The Shepherd Street Equity Fund
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SCHEDULE OF INVESTMENTS (Continued)
March 31, 1999 (Unaudited)
Shares Value
------ --------
Insurance-- 3.77%
10,800 Triad Guaranty, Inc.* ............................... $ 146,475
----------
Linen Supply & Related Items -- 4.27%
7,850 UniFirst Corp. ...................................... 165,831
----------
Medical Products-- 8.51%
2,750 Guidant Corp. ....................................... 166,375
2,050 Merck & Co. ......................................... 164,384
----------
330,759
----------
Mining and Building Materials -- 3.87%
2,125 Minnesota Mining and Manufacturing Co. .............. 150,344
----------
Miscellaneous-- 4.66%
21,800 Latin American Discovery Fund ....................... 181,213
----------
Publishing -- 4.29%
2,550 Tribune Co. ......................................... 166,866
----------
Total Common Stock (Cost $3,827,806) 3,820,361
----------
MISCELLANEOUS ASSETS -- 5.99%
Evergreen Money Market Trust (Cost $232,993) ........ 232,993
----------
Total Investments (Cost $4,060,799) -- 104.30% ...... $4,053,354
Other Assets and Liabilities, Net -- (4.30%) ........ (167,227)
----------
NET ASSETS -- 100.00% ............................... $3,886,127
==========
* Non-income producing security.
ADR -- American Depository Receipt
See notes to financial statements
3
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The Shepherd Street Equity Fund
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STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
Assets:
Investments, at market (identified cost $4,060,799) ......... $4,053,354
Receivables:
Dividends and interest ..................................... 5,786
Fund shares sold ........................................... 9,600
----------
Total assets .............................................. 4,068,740
----------
Liabilities:
Payables:
Investment securities purchased ............................ 176,448
Accrued distribution fees .................................. 1,860
Accrued expenses ........................................... 4,305
----------
Total liabilities ......................................... 182,613
----------
Net Assets ..................................................... $3,886,127
==========
Net assets consist of:
Common stock ................................................ $ 32
Additional capital paid-in .................................. 3,809,040
Undistributed net investment income ......................... 6,777
Accumulated realized gain on investments .................... 77,723
Net unrealized loss on investments .......................... (7,445)
----------
Net Assets, for 321,637 shares outstanding ..................... $3,886,127
==========
Net Asset Value and redemption price per share ................. $ 12.08
==========
See notes to financial statements
4
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The Shepherd Street Equity Fund
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STATEMENT OF OPERATIONS
For the Period Ended March 31, 1999* (Unaudited)
Investment Income:
Interest .................................................... $ 4,668
Dividends ................................................... 11,409
----------
Total investment income .................................... 16,077
----------
Expenses:
Investment advisory fees .................................... 1,860
Distribution fees ........................................... 4,464
Administration fee .......................................... 2,976
----------
Total expenses ............................................. 9,300
----------
Net investment income ....................................... 6,777
----------
Realized gain on investments:
Net realized gain on investments ............................ 77,723
Net change in unrealized depreciation on investments ........ (7,445)
----------
70,278
----------
Net increase in net assets resulting from operations ........... $ 77,055
==========
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
See notes to financial statements
5
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The Shepherd Street Equity Fund
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STATEMENTS OF CHANGES IN NET ASSETS
For the Period
Ended
March 31, 1999*
(Unaudited)
---------------
Increase in net assets
Operations:
Net investment income $ 6,777
Net realized gain on investments ............................ 77,723
Net change in unrealized depreciation on investments ........ (7,445)
----------
Net increase in net assets resulting from operations ........... 77,055
----------
Increase in net assets from Fund share transactions ............ 3,809,072
----------
Increase in net assets ......................................... 3,886,127
Net Assets:
Beginning of period ......................................... 0
----------
End of period ............................................... $3,886,127
==========
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
See notes to financial statements
6
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The Shepherd Street Equity Fund
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FINANCIAL HIGHLIGHTS
Per Share Data (For a Share Outstanding from October 2, 1998
through March 31, 1999)
For the Period
Ended
March 31, 1999*
(Unaudited)
---------------
Net Asset Value, Beginning of Period ........................... $ 10.00
----------
Investment Operations:
Net investment income ....................................... 0.02
Net realized and unrealized gain on investments ............. 2.06
----------
Total from investment operations ........................... 2.08
----------
Net Asset Value, End of Period ................................. $12.08
----------
Total Return ................................................... 20.80%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........................ $3,886
Ratio of expenses to average net assets ..................... 1.25%(1)
Ratio of net investment income to average net assets ........ 0.88%(1)
Portfolio turnover rate ..................................... 31.47%
(1) Annualized
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
See notes to financial statements
7
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The Shepherd Street Equity Fund
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NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Shepherd Street Funds, Inc. (the "Company") was incorporated under the
laws of the state of Maryland on July 16, 1998, and consists solely of The
Shepherd Street Equity Fund (the "Fund"). The Company is registered as a
no-load, open-end diversified management investment company of the series type
under the Investment Company Act of 1940 (the "1940 Act"). The Fund's investment
strategy is to emphasize growth of capital. The Fund became effective with the
SEC on October 1, 1998 and commenced operations on October 2, 1998.
The costs incurred in connection with the organization, initial registration
and public offering of shares have been paid by Salem Investment Counselors,
Inc. (the "Advisor"). Accordingly, no organization costs have been recorded by
the Fund.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation -- Common stocks and other equity-type securities listed
on a securities exchange are valued at the last quoted sales price on the day of
the valuation. Price information on listed stocks is taken from the exchange
where the security is primarily traded. Securities that are listed on an
exchange but which are not rated on the valuation date are valued at the most
recent bid prices. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
Investment Manager under the supervision of the Board of Directors. Short-term
instruments (those with remaining maturities of 60 days or less) are valued at
amortized cost, which approximates market.
b) Federal Income Taxes -- No provision for federal income taxes has been made
since the Fund has complied to date with the provision of the Internal Revenue
Code applicable to regulated investment companies and intends to so comply in
the future and to distribute substantially all of its net investment income and
realize capital gains in order to relieve the Fund from all federal income
taxes.
c) Distributions to Shareholders -- Dividends from net investment income and
distributions of net realized capital gains, if any, will be declared and paid
at least annually. Income and capital gain distributions are determined in
accordance with income tax regulations that may differ from generally accepted
accounting principles.
d) Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
e) Other -- Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from the investment transactions
by comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date or as soon as
information is available to the Fund, and interest income is recognized on an
accrual basis.
8
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The Shepherd Street Equity Fund
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
March 31, 1999 (Unaudited)
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended March 31, 1999 were
as follows:
Shares Amount
------- ----------
Sold .............................. 323,367 $3,830,072
Redeemed .......................... (1,730) (21,000)
---------- ----------
Net Increase ...................... 321,637 $3,809,072
========== ==========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the period ended March 31, 1999, were as follows:
Purchases:
U.S. Government ................. $ 0
Other ........................... 4,208,215
Sales:
U.S. Government .................. 0
Other ............................ 478,105
At March 31, 1999, gross unrealized appreciation of investments for tax purposes
were as follows:
Appreciation ..................... $195,962
Depreciation ..................... (203,407)
----------
Net depreciation on investments .. $(7,445)
==========
At March 31, 1999, the cost of investments for federal income tax purposes was
$4,060,799.
9
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The Shepherd Street Equity Fund
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
March 31, 1999 (Unaudited)
4. AGREEMENTS
The Fund has entered into a Management Agreement with Salem Investment
Counselors, Inc., (the "Advisor") to provide investment management services to
the Fund. Pursuant to the Advisory Agreement, the Advisor is entitled to receive
a fee, calculated daily and payable monthly at the annual rate of 0.40% as
applied to the Fund's daily net assets.
The Fund has entered into an Operating Services Agreement (the "Servicing
Agreement") with the Advisor to provide or arrange for day-to-day operational
services to the Fund. Pursuant to the Servicing Agreement, the Advisor is
entitled to receive a fee, calculated daily and payable monthly at the annual
rate of 0.60% as applied to the Fund's daily net assets.
The Fund and the Advisor have entered into an Investment Company Services
Agreement (the "ICSA") with Declaration Service Company to provide day-to-day
operational services to the Fund including, but not limited to, accounting,
administrative, transfer agent, dividend disbursing, registrar and recordkeeping
services.
The Fund and the Advisor have entered into a Distribution Agreement with
Declaration Distributors, Inc. to provide distribution services to the Fund.
Declaration Distributors, Inc. acts as underwriter/distributor of the Fund.
First Union National Bank, Philadelphia, PA serves as custodian for the Fund.
10
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(This page intentionally left blank.)
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Investment Adviser: -----------------------
Salem Investment Counselors, Inc.
480 Shepherd Street
Winston-Salem, North Carolina 27103
Shareholder Services:
Declaration Service Company Shepherd
555 North Lane, Suite 6160 Street
Conshohocken, PA 19428 Equity
Fund
Legal Counsel:
The Law Offices of David D. Jones, P.C.
518 Kimberton, #134
Phoenixville, PA 19460
Independent Auditors:
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, PA 19103-2108 -----------------------
Custodian:
First Union National Bank
1339 Chestnut Street
Philadelphia, PA 19101-7618
THE SHEPHERD STREET EQUITY FUND(TM)
Semi Annual Report
March 31, 1999
