1933 Act Registration No. 811-8883
1940 Act Registration No. 333-59149
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [2]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [5]
THE SHEPHERD STREET FUNDS, INC.
(Exact name of registrant as specified in Charter)
480 Shepherd Street
Winston-Salem, North Carolina 27103
(Address of Principle Executive Offices and Zip Code)
336-768-7230
(Registrant's Telephone Number including Area Code)
Terence P. Smith
The Declaration Group
555 North Lane, Suite 6160
Conshohocken, PA 19428
(Name and Address of Agent for Service)
Please send copy of communications to:
DAVID D. JONES, ESQUIRE
4747 Research Forest Drive
Suite 180, # 303
The Woodlands, TX 77381
(281) 367-8409
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Approximate Date of Proposed Public Offering:
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As soon as practicable following effective date.
It is proposed that this filing will become effective (check appropriate box):
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/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(3)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant declares hereby that an indefinite number or amount of its securities
has been registered by this Registration Statement. A Rule 24f-2 Notice for the
year ended September 30, 1999 was filed on December 17, 1999.
TOTAL NUMBER OF PAGES _____
EXHIBIT INDEX BEGINS
ON PAGE _____
<PAGE>
THE SHEPHERD STREET EQUITY FUND
(the "Fund")
A Series of The Shepherd Street Funds, Inc.
480 Shepherd Street
Winston-Salem, North Carolina 27103
1-888-575-4800
PROSPECTUS
FEBRUARY 1, 2000
The Fund's primary investment objective is growth of capital. The Fund attempts
to achieve its investment objective by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks.
The minimum investment in the Fund is $1,000 for regular accounts and $1000 for
retirement accounts. The minimum subsequent investment is $500 for regular
accounts and $50 for retirement accounts. The Fund is a No-Load Fund. This means
that 100% of your initial investment is invested in shares of the Fund.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................
FEES AND EXPENSES......................................................
FINANCIAL HIGHLIGHTS...................................................
INVESTMENT OBJECTIVES AND POLICIES.....................................
THE FUND'S INVESTMENT ADVISER..........................................
INVESTING IN THE FUND..................................................
HOW TO SELL (REDEEM) SHARES............................................
DIVIDENDS AND DISTRIBUTIONS............................................
TAX CONSIDERATIONS.....................................................
GENERAL INFORMATION....................................................
FOR MORE INFORMATION...................................................
<PAGE>
RISK/RETURN SUMMARY
What is the Fund's Investment Objective?
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The Fund's primary investment objective is to achieve growth of capital.
How Does the Fund Intend to Achieve its Investment Objective?
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The Fund attempts to achieve its investment objectives by investing
primarily in a diversified portfolio of US common stocks and securities
convertible into common stocks.
The Fund invests at least 65% of its assets in domestic common stocks or
securities convertible into common stocks. The Fund's Adviser invests in
the securities of companies that, in the Adviser's opinion, have an
above-average potential for future earnings growth. Generally, the Adviser
will invest in:
(1) Established companies with above-average prospects for growth. These
companies will have strong performance records, solid market
positions, high margins and return on equity, and reasonable financial
strength;
(2) Small and medium-sized companies (less than $6 billion in total market
capitalization) that may be out of favor or not closely followed by
investors and are selling at prices which do not reflect adequately
their long-term business potential;
(3) Companies in industries that are undergoing consolidation, where the
likelihood of acquisitions is high.
In addition to common stock, the Fund may invest up to 25% of its assets in
foreign equity securities when, in the Adviser's opinion, such investments
would be advantageous to the Fund and help the Fund to achieve its
investment objective. However, the Fund will not invest in foreign markets
that are considered to be "emerging markets".
What are the Principal Risks of Investing in the Fund
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General Risks- You may lose money by investing in the Fund. Your risk of
loss is greater if you hold your investment for shorter time periods. The
value of the Fund's investments will vary from day-to-day, reflecting
changes in market conditions, interest rates and other company, political,
and economic news. When you sell your Fund shares, they may be worth more
or less than what you paid for them.
Stock Market Risk. The principal risk of investing in the Fund is the risk
of losses due to declines in the prices of the common stocks held by the
Fund. The Fund invests primarily in common stock, so the Fund will be
subject to the risks associated with common stocks, including price
volatility and the creditworthiness of the issuing company. The stock
market trades in cyclical price patterns, with prices generally rising or
falling over time. These cyclical periods may last for a significant period
of time.
<PAGE>
Small To Medium-Cap Stocks Risks- The Fund may invest in companies with
smaller market capitalizations (less than $6 billion in market
capitalization). These companies are relatively smaller, engaged in
business mostly within their own geographic region, and may be less
well-known to the investment community. Smaller, newer companies have more
volatile share prices for several reasons. Small companies often have less
liquidity, less management depth, narrower market penetrations, less
diverse product lines, and fewer resources than larger companies. As a
result, their stock prices react more violently to changes in the
marketplace.
Foreign Securities Risks- Investments in foreign securities involve greater
risks compared to domestic investments. Foreign companies are not subject
to the regulatory requirements of U.S. companies and, as such, there may be
less publicly available information about issuers than is available in the
reports and ratings published about companies in the U.S. Additionally,
foreign companies are not subject to uniform accounting, auditing and
financial reporting standards. Dividends and interest on foreign securities
may be subject to foreign withholding taxes. Such taxes may reduce the net
return to shareholders. Further, foreign securities are often denominated
in a currency other than the U.S. dollar. Accordingly, the Fund will be
subject to the risks associated with fluctuations in currency values.
Although the Fund intends to invest in securities of foreign issuers
domiciled in nations which the Adviser considers as having stable and
friendly governments, there is the possibility of expropriation,
confiscation, taxation, currency blockage or political or social
instability which could affect investments of foreign issuers domiciled in
such nations.
How Has the Fund Performed in the Past?
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The bar chart and table below help show the risks of investing in the Fund
by showing changes in the Fund's calendar year performance over the
lifetime of the Fund. They also compare the Fund's performance to the
performance of the S&P 500 Index** during each calendar year period. You
should be aware that the Fund's past performance may not be an indication
of how the Fund will perform in the future.
PERFORMANCE BAR
CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
+19.60%
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Year Ended
December 31, 1999
Best Quarter: Q 4 1999 +19.60%
Worst Quarter: Q 3 1999 + 0.33%
<PAGE>
Average Annual Total Returns (For Periods ending on December 31, 1999)
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Past One
Year
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The Fund +19.60%
S&P 500 Index +21.04%
** The S&P 500 Index is a widely recognized, unmanaged index of the 500 largest
capitalization companies in the United States. The Index assumes reinvestment of
all dividends and distributions and does not reflect any asset-based charges for
investment management or other expenses.
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
Shareholder Fees:
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(fees paid directly from your investment)
Redemption Fees 0.50%1
Annual Fund Operating Expenses:
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(expenses that are deducted from Fund assets)
Management Fees2 1.00%
Distribution (12b-1) Fees3 0.25%
Other Expenses 0.00%
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Total Annual Fund Operating Expenses 1.25%
1. The Fund will charge you a redemption fee of 0.5% of the value of your
redemption if you redeem your shares less than 6 months after purchasing
them. If charged, this fee would increase your costs. This fee is not a fee
to finance sales or sales promotion expenses, but is imposed to discourage
short-term trading of Fund shares. Furthermore, such fees, when imposed,
are credited directly to the assets of the Fund to help defray the expense
to the Fund of such short-term trading activities.
2. Management fees include a fee of 0.40% for investment advisory services and
0.60% for administrative and other services. Both fees are paid to the
Fund's Adviser.
3. Because 12b-1 fees are paid out of the assets of the Fund on an ongoing
basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
<PAGE>
Example of Expenses Over Time:
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
One Year Three Years
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$ 132 $ 412
A redemption fee of 0.50% of net assets redeemed prior to six months is not
included in these calculations. If that fee were included, your costs would be
higher.
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Fund's financial performance since it began investment operations on October 2,
1998 through its fiscal year ending September 30, 1999. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker. These
Financial Highlights, along with other information concerning the Fund, are
included in the Fund's annual report, which is available without charge upon
request.
THE SHEPHERD STREET EQUITY FUND
FINANCIAL HIGHLIGHTS
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Per Share Data (For a Share Outstanding from
October 2, 1998 through September 30, 1999)
FOR THE PERIOD
ENDED
SEPTEMBER 30, 1999*
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NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
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INVESTMENT OPERATIONS:
Net investment income 0.01
Net realized and unrealized gain on 2.83
investments
Total from investment operations 2.84
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NET ASSET VALUE, END OF PERIOD $ 12.84
TOTAL RETURN 28.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 5,707
Ratio of expenses to average net assets 1.25%
Ratio of net investment income
to average net assets 0.10%
Portfolio turnover rate 28.10%
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified mutual fund whose primary investment objective is
growth of capital. The Fund seeks to achieve its objective by investing
primarily in a diversified portfolio of common stock and securities convertible
into common stock. There can be no assurance that the Fund's investment
objective will be achieved.
Described below are the types of securities in which the Fund primarily invests.
A full listing of the Fund's investment restrictions and limitations, including
those that may be changed only by vote of the Fund's shareholders, can be found
in the Fund's Statement of Additional Information ("SAI").
COMMON STOCKS. The Fund will ordinarily invest at least 65% of its total assets
in common stock or securities convertible into common stock. The market value of
common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perceptions and general economic or financial
market movements. Smaller companies are especially sensitive to these factors.
Despite the risk of price volatility, however, common stocks historically have
offered the greatest potential for gain on investment, compared to other classes
of financial assets.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in common stock
of foreign issuers which are publicly traded on U.S. exchanges, either directly
or in the form of American Depository Receipts (ADRs). The Fund will only invest
in ADRs that are issuer sponsored. Sponsored ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation.
PREFERRED STOCK. The Fund may invest, without limitation, in preferred stock.
Preferred stock generally pays dividends at a specified rate and generally has
preference over common stock in the payments of dividends and the liquidation of
the issuer's assets. Dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Accordingly, Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are also sensitive to changes in interest rates and in the issuer's
creditworthiness. Accordingly, shareholders may experience a loss of value due
to adverse interest rate movements or a decline in the issuer's credit rating.
<PAGE>
THE FUND'S INVESTMENT ADVISER
Salem Investment Counselors, Inc., (the "Adviser") 480 Shepherd Street,
Winston-Salem, North Carolina 27103, an investment advisory company founded in
1979, is the investment adviser to the Fund. The Adviser is one of the largest
private financial counseling firms in North Carolina, providing financial
management services to individuals, corporations, and professional organizations
in North Carolina and throughout the United States. The Adviser has been
investment adviser to the Fund since its inception.
Portfolio Manager
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Mr. David B. Rea is President of the Adviser and acts as the portfolio manager
for the Fund. Mr. Rea is also President of The Shepherd Street Funds, Inc. (the
"Company"). Mr. Rea has been managing investment portfolios for individuals,
corporations, trusts and retirement accounts since joining the Adviser in 1984.
Mr. Rea has earned an MBA in finance, a law degree, and is a Chartered Financial
Analyst. He has also served as Treasurer to the North Carolina Society of
Chartered Financial Analysts.
For its investment advisory services to the Fund, the Company pays to the
Adviser, on the last day of each month, a fee equal to an annual rate of 0.40%
of average net asset value of the Fund, such fee to be computed daily based upon
the net asset value of the Fund.
INVESTING IN THE FUND
Determining Share Prices
- ------------------------
Shares of the Fund are offered at each share's net asset value ("NAV"). NAV per
share is calculated by adding the value of Fund investments, cash and other
assets, subtracting Fund liabilities, and then dividing the result by the number
of shares outstanding. The Fund generally determines the total value of its
shares by using market prices for the securities comprising its portfolio.
Securities for which quotations are not available and any other assets are
valued at fair market value as determined in good faith by the Adviser, subject
to the review and supervision of the Board of Directors. The Fund's per share
NAV is computed on all days on which the New York Stock Exchange ("NYSE") is
open for business at the close of regular trading hours on the Exchange,
currently 4:00 p.m. Eastern time. In the event that the NYSE closes early, the
share price will be determined as of the time of closing.
Distribution Fees
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The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plan") for its shares, pursuant to which the Fund pays the
Adviser a monthly fee for shareholder servicing expenses of 0.25% per annum of
the Fund's average daily net assets. The Adviser may, in turn, pay such fees to
third parties for eligible services provided by those parties to the Fund.
<PAGE>
Be aware that if you hold your shares for a substantial period of time, you may
indirectly pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers due to the
recurring nature of Distribution (12b-1) fees.
Minimum Investment Amounts
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Payments for Fund shares should be in U.S. dollars, and in order to avoid fees
and delays, should be drawn on a U.S. bank. Fund management may reject any
purchase order for Fund shares and may waive the minimum investment amounts in
its sole discretion.
Your purchase of Fund shares is subject to the following minimum investment
amounts:
MINIMUM MINIMUM
TYPE OF INVESTMENT SUBSEQUENT
ACCOUNT TO OPEN ACCOUNT INVESTMENTS
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REGULAR $1,000 $ 500
IRAs $ 500 $ 50
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AUTOMATIC INVESTMENT PLAN MEMBERS
MINIMUM MINIMUM
TYPE OF INVESTMENT SUBSEQUENT
ACCOUNT TO OPEN ACCOUNT INVESTMENTS
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REGULAR $1,000 $100 per month minimum
IRAs $ 500 $ 50 per month minimum
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Opening and Adding To Your Account
- ----------------------------------
You can invest in the Fund by mail, wire transfer and through participating
financial service professionals. After you have established your account and
made your first purchase, you may also make subsequent purchases by telephone.
You may also invest in the Fund through an automatic payment plan. Any questions
you may have can be answered by calling toll-free, 1-888-575-4800.
Purchasing Shares By Mail
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To make your initial investment in the Fund, simply complete the Application
Form included with this Prospectus, make a check payable to the Shepherd Street
Equity Fund, and mail the Form and check to:
Shepherd Street Funds, Inc.
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
To make subsequent purchases, simply make a check payable to the Shepherd Street
Equity Fund and mail the check to the above-mentioned address. Be sure to note
your Fund account number on the check.
<PAGE>
Your purchase order, if accompanied by payment, will be processed upon receipt
by Declaration Service Company, the Fund's Transfer Agent. If the Transfer Agent
receives your order and payment by the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time), your shares will be purchased at the Fund's
NAV calculated at the close of regular trading on that day. Otherwise, your
shares will be purchased at the NAV determined as of the close of regular
trading on the next business day.
Purchasing Shares by Wire Transfer
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To make an initial purchase of shares by wire transfer, you need to take the
following steps:
1. Call 1-888-575-4800 to inform us that a wire is being sent.
2. Fill out and mail or fax an Account Application to the Transfer Agent
3. Obtain an account number from the Transfer Agent
4. Ask your bank to wire funds to the account of:
First Union National Bank, N.A., ABA #: 031201467
Credit: Shepherd Street Funds, Inc., Acct. # 2014227236926
Further credit: The Shepherd Street Equity Fund,
Acct # [Your Account number]
Include your name(s), address and taxpayer identification number or Social
Security number on the wire transfer instructions. The wire should state that
you are opening a new Fund account.
To make subsequent purchases by wire, ask your bank to wire funds using the
instructions listed above, and be sure to include your account number on the
wire transfer instructions.
If you purchase Fund shares by wire, you must complete and file an Application
Form with the Transfer Agent before any of the shares purchased can be redeemed.
Either fill out and mail the Application Form included with this prospectus, or
call the transfer agent and they will send you an application. You should
contact your bank (which will need to be a commercial bank that is a member of
the Federal Reserve System) for information on sending funds by wire, including
any charges that your bank may make for these services.
Purchases through Financial Service Organizations
- -------------------------------------------------
You may purchase shares of the Fund through participating brokers, dealers, and
other financial professionals. Simply call your investment professional to make
your purchase. If you are a client of a securities broker or other financial
organization, such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Fund. If you are investing through a securities
broker or other financial organization, please refer to its program materials
for any additional special provisions or conditions that may be different from
those described in this Prospectus (for example, some or all of the services and
privileges described may not be available to you). Securities brokers and other
financial organizations have the responsibility of transmitting purchase orders
and funds, and of crediting their customers' accounts following redemptions, in
a timely manner in accordance with their customer agreements and this
Prospectus.
<PAGE>
Purchasing Shares by Automatic Investment Plan
- ----------------------------------------------
You may purchase shares of the Fund through an Automatic Investment Plan
("Plan"). The Plan provides a convenient way for you to have money deducted
directly from your checking, savings, or other accounts for investment in shares
of the Fund. You can take advantage of the Plan by filling out the Automatic
Investment Plan application included with this Prospectus. You may only select
this option if you have an account maintained at a domestic financial
institution which is an Automatic Clearing House member for automatic
withdrawals under the Plan. The Fund may alter, modify, amend or terminate the
Plan at any time, and will notify you at least 30 days in advance if it does so.
For more information, call the Transfer Agent at 1-888-575-4800.
Purchasing Shares by Telephone
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In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share NAV next determined after the Transfer Agent
receives your order for shares. Call the Transfer Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed within
three business days of your call. To preserve flexibility, the Company may
revise or eliminate the ability to purchase Fund shares by phone, or may charge
a fee for such service, although the Company does not currently expect to charge
such a fee.
The Fund's Transfer Agent employs certain procedures designed to confirm that
instructions communicated by telephone are genuine. Such procedures may include,
but are not limited to, requiring some form of personal identification prior to
acting upon telephonic instructions, providing written confirmations of all such
transactions, and/or tape recording all telephonic instructions. Assuming
procedures such as the above have been followed, neither the Transfer Agent nor
the Fund will be liable for any loss, cost, or expense for acting upon telephone
instructions that are believed to be genuine. The Company shall have authority,
as your agent, to redeem shares in your account to cover any such loss. As a
result of this policy, you will bear the risk of any loss unless the Fund has
failed to follow procedures such as the above. However, if the Fund fails to
follow such procedures, it may be liable for such losses.
Miscellaneous Purchase Information
- ----------------------------------
The Fund reserves the right to refuse to accept applications under circumstances
or in amounts considered disadvantageous to shareholders. Applications will not
be accepted unless they are accompanied by payment in U.S. funds. Payment must
be made by wire transfer, check or money order drawn on a U.S. bank, savings and
loan association or credit union. The Fund's custodian may charge a fee against
your account, in addition to any loss sustained by the Fund, for any payment
check returned to the custodian for insufficient funds. If you place an order
for Fund shares through a securities broker, and you place your order in proper
form before 4:00 p.m. Eastern time on any business day in accordance with their
procedures, your purchase will be processed at the NAV calculated at 4:00 p.m.
on that day, provided the securities broker transmits your order to the Transfer
Agent before 5:00 p.m. Eastern time. The securities broker must send to the
Transfer Agent immediately available funds in the amount of the purchase price
within three business days of placing the order.
<PAGE>
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
By Mail
- -------
Sale requests should be mailed via U.S. mail or overnight courier service to:
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
The selling price of the shares being redeemed will be the Fund's per share net
asset value next calculated after receipt of all required documents in Good
Order. Payment of redemption proceeds will be made no later than the third
business day after the valuation date unless otherwise expressly agreed by the
parties at the time of the transaction.
Good Order means that the request must include:
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
Signature Guarantees --
- --------------------
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
(i) if you change the ownership on your account;
(ii) when you want the redemption proceeds sent to a different address than is
registered on the account;
(iii) if the proceeds are to be made payable to someone other than the account's
owner(s);
(iv) any redemption transmitted by federal wire transfer to your bank; and
(v) if a change of address request has been received by the Company or
Declaration Service Company within 15 days previous to the request for
redemption.
In addition, signature guarantees are required for all redemptions of $10,000 or
more from any Fund shareholder account. A redemption will not be processed until
the signature guarantee, if required, is received in Good Order.
<PAGE>
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
By Telephone
- ------------
You may redeem your shares in the Fund by calling the Transfer Agent at
1-888-575-4800 if you elected to use telephone redemption on your account
application when you initially purchased shares. Redemption proceeds must be
transmitted directly to you or to your pre-designated account at a domestic
bank. You may not redeem by telephone if a change of address request has been
received by the Company or the Transfer Agent within 15 days previous to the
request for redemption. During periods of substantial economic or market
changes, telephone redemptions may be difficult to implement. If you are unable
to contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with the
telephone redemption option, you may be giving up a measure of security that you
might otherwise have had were you to redeem your shares in writing. In addition,
interruptions in telephone service may mean that you will be unable to effect a
redemption by telephone if desired.
Shares purchased by check for which a redemption request has been received will
not be redeemed until the check or payment received for investment has cleared,
a period that may last up to 15 days.
By Wire
- -------
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. The Custodian charges a $10 fee for outgoing wires.
Redemption At The Option Of The Fund
- ------------------------------------
If the value of the shares in your account falls to less than $1000, the Company
may notify you that, unless your account is increased to $1000 in value, it will
redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$1000 before any action is taken. This minimum balance requirement does not
apply to IRAs and other tax-sheltered investment accounts. This right of
redemption shall not apply if the value of your account drops below $1000 as the
result of market action. The Company reserves this right because of the expense
to the Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Fund are derived from its net investment income. Net
investment income will be distributed at least annually. The Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
<PAGE>
The Fund realizes capital gains when it sells a security for more than it paid
for it. The Fund may make distributions of its net realized capital gains (after
any reductions for capital loss carry forwards), generally, once a year.
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of the Fund. You may change the manner
in which your dividends are paid at any time by writing to Declaration Service
Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428.
TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Sub Chapter
M of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities, and distribute substantially
all of such income to its shareholders at least annually.
The Fund intends to distribute to shareholders, at least annually, usually in
December, substantially all net investment income and any net capital gains
realized from sales of the Fund's portfolio securities. Dividends from net
investment income and distributions from any net realized capital gains are
reinvested in additional shares of the Fund unless the shareholder has requested
in writing to have them paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to you as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time shares in
the Fund have been held. Distributions are taxable, whether received in cash or
reinvested in shares of the Fund.
You will be advised annually of the source of distributions for federal income
tax purposes.
If you fail to furnish your social security or other tax identification number
or to certify properly that it is correct, the Fund may be required to withhold
federal income tax at the rate of 31% (backup withholding) from your dividend,
capital gain and redemption payments. Dividend and capital gain payments may
also be subject to backup withholding if you fail to certify properly that you
are not subject to backup withholding due to the under-reporting of certain
income.
Taxable distributions generally are included in your gross income for the
taxable year in which they are received. However, dividends declared in October,
November and December and made payable to shareholders of record in such month
will be deemed to have been received on December 31st if paid by the Fund during
the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below your
cost basis, such distribution would be taxable to you as ordinary income or as a
long-term capital gain, even though, from an investment standpoint, it may
constitute a partial return of capital. In particular, you should be careful to
consider the tax implications of buying shares of the Fund just prior to a
distribution. The price of such shares include the amount of any forthcoming
distribution so that you may receive a return of investment upon distribution
which will, nevertheless, be taxable.
<PAGE>
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. You should consult a tax Adviser regarding the effect of
federal, state, local, and foreign taxes on an investment in the Fund.
GENERAL INFORMATION
The Fund will not issue stock certificates evidencing shares. Instead, your
account will be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued for all purchases of shares.
In reports or other communications to investors, or in advertising material, the
Fund may describe general economic and market conditions affecting the Fund and
may compare its performance with other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar nationally recognized
rating services and financial publications that monitor mutual fund performance.
The Fund may also, from time to time, compare its performance to the S&P 500, or
some other appropriate index.
According to the law of Maryland under which the Company is incorporated, and
the Company's bylaws, the Company is not required to hold an annual meeting of
shareholders unless required to do so under the Investment Company Act of 1940.
Accordingly, the Company will not hold annual shareholder meetings unless
required to do so under the Act. Shareholders do have the right to call a
meeting of shareholders for the purpose of voting to remove directors. Please
see the SAI for further information on your rights as a shareholder.
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund is available in the Funds' Statement of
Additional Information (SAI) and annual report. The SAI contains more detailed
information on all aspects of the Fund. A current SAI, dated February 1, 2000,
has been filed with the SEC and is incorporated by reference into this
prospectus. The Fund's annual report, dated September 30, 1999, contains
information concerning the Fund's performance during its first fiscal year of
operations. You may obtain a copy of the Fund's annual report, free of charge,
by requesting one from the Fund.
To receive information concerning the Fund, or to request a copy of the SAI or
other documents relating to the Fund, please contact the Fund at:
The Shepherd Street Funds, Inc.
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
1-888-575-4800
A copy of your requested document(s) will be sent to you within three days of
your request.
OR YOU MAY VISIT OUR WEB SITE ON THE INTERNET AT WWW.SHEPHERDSTREETFUND.COM:
You may also receive information concerning the Fund, or request a copy of the
SAI or other documents relating to the Fund, by contacting the Securities and
Exchange Commission:
IN PERSON: at the SEC's Public Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section, Securities and Exchange Commission,
Washington, D.C. 20549-6009 (duplicating fee required)
ON THE INTERNET: www.sec.gov
Investment Company Act No.
811-8883
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 2000
THE SHEPHERD STREET FUNDS, INC.
480 Shepherd Street
Winston-Salem, North Carolina 27103
1-888-575-4800
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of The Shepherd Street Equity Fund, dated
February 1, 2000. You may obtain a copy of the Prospectus, free of charge, by
writing to The Shepherd Street Funds, Inc, c/o The Declaration Group, 555 North
Lane, Suite 6160, Conshohocken, PA 19428 or by calling 1-888-575-4800.
TABLE OF CONTENTS
Management of the Fund
Investment Policies and Restrictions
Investment Adviser
Directors and Officers
Performance Information
Purchasing and Redeeming Shares
Tax Information
Portfolio Transactions
Custodian
Transfer Agent
Administration
Distributor
Legal Counsel
Distribution Plan
Financial Statements
<PAGE>
MANAGEMENT OF THE FUND
The Shepherd Street Funds, Inc. (the "Company"), an open-end, diversified
management investment company, was incorporated in Maryland on July 16, 1998.
The affairs of the Company are managed by a Board of Directors, which approves
all significant agreements between the Company and the persons and companies
that furnish services to the Fund, including agreements with the Fund's
custodian, transfer agent, investment Adviser and administrator. All such
agreements are subject to limitations imposed by state and/or federal securities
laws, and to the extent that any such contract may contradict such statutes, the
contract would be unenforceable. The day-to-day operations of the Fund are
delegated to the Adviser.
The Company's Articles of Incorporation permit the Board of Directors to issue
500,000,000 shares of common stock. The Board of Directors has the power to
designate one or more classes ("series") of shares of common stock and to
classify or reclassify any unissued shares with respect to such series.
Currently, the shares of the Fund are the only class of shares being offered by
the Company. Shareholders are entitled: (i) to one vote per full share; (ii) to
such distributions as may be declared by the Company's Board of Directors out of
funds legally available; and (iii) upon liquidation, to participate ratably in
the assets available for distribution. There are no conversion or sinking fund
provisions applicable to the shares, and the holders have no preemptive rights
and may not cumulate their votes in the election of directors. The shares are
redeemable and are fully transferable. All shares issued and sold by the Fund
will be fully paid and nonassessable.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objectives and the manner in which the Fund pursues its
investment objectives are generally discussed in the prospectus. This Section
provides additional information concerning the Fund's investments and its
investment restrictions.
The Fund is a diversified Fund, meaning that as to 75% of the Fund's assets
(valued at the time of investment), the Fund will not invest more than 5% of its
assets in securities of any one issuer, except in obligations of the United
States Government and its agencies and instrumentalities, thereby reducing the
risk of loss. The Fund normally will invest at least 65% of total assets in
common stock and securities convertible into common stock. The Fund may also
invest in a variety of other securities. The complete list of securities in
which the Fund may ordinarily invest is listed in the Prospectus, along with any
restrictions on such investments, and, where necessary, a brief discussion of
any risks unique to the particular security.
COMMON STOCKS. The Fund will ordinarily invest at least 65% of its total assets
in common stock or securities convertible into common stock. The market value of
common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perceptions and general economic or financial
market movements. Smaller companies are especially sensitive to these factors.
Despite the risk of price volatility, however, common stocks historically have
offered the greatest potential for gain on investment, compared to other classes
of financial assets.
<PAGE>
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in common stock
of foreign issuers which are publicly traded on U.S. exchanges, either directly
or in the form of American Depository Receipts (ADRs). The Fund will only invest
in ADRs that are issuer sponsored. Sponsored ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation.
PREFERRED STOCK. The Fund may invest, without limitation, in preferred stock.
Preferred stock generally pays dividends at a specified rate and generally has
preference over common stock in the payments of dividends and the liquidation of
the issuer's assets. Dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Accordingly, Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are also sensitive to changes in interest rates and in the issuer's
creditworthiness. Accordingly, shareholders may experience a loss of value due
to adverse interest rate movements or a decline in the issuer's credit rating.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate investment
trusts (REITs). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed the REITs taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from such REITs in
its distribution to its shareholders and, accordingly, a portion of the Fund's
distributions may also be designated as a return of capital. The Fund will not
invest more than 10% of its assets in REITS.
OPTIONS ON EQUITIES. Although the Fund will not normally do so, the Fund may
occasionally invest in options contracts to decrease its exposure to the effects
of changes in security prices, to hedge securities held, to maintain cash
reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, or to seek higher investment returns when an options contract
is priced more attractively than the underlying security or index.
The Fund may write (i.e. sell) covered call options, and may purchase put and
call options, on equity securities traded on a United States exchange or
properly regulated over-the-counter market. The Fund may also enter into such
transactions on Indexes. Options contracts can include long-term options with
durations of up to three years.
The Fund may enter into these transactions so long as the value of the
underlying securities on which options contracts may be written at any one time
does not exceed 100% of the net assets of the Fund, and so long as the initial
margin required to enter into such contracts does not exceed five percent (5%)
of the Fund's total net assets. When writing covered call options, to minimize
the risks of entering into these transactions, the Fund will maintain a
segregated account with its Custodian consisting of the underlying securities
upon which the option was written, cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars or non-U.S. currencies, in an amount equal to the aggregate fair market
value of its commitments to such transactions.
<PAGE>
RISK FACTORS. The primary risks associated with the use of options are; (1)
imperfect correlation between a change in the value of the underlying security
or index and a change in the price of the option or futures contract, and (2)
the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. Investing only in those contracts whose price fluctuations
are expected to resemble those of the Fund's underlying securities will minimize
the risk of imperfect correlation. Entering into such transactions only on
national exchanges and over-the-counter markets with an active and liquid
secondary market will minimize the risk that the Fund will be unable to close
out a position.
DEBT SECURITIES. The Fund may invest in corporate or U.S. Government debt
securities including zero coupon bonds. Corporate debt securities may be
convertible into preferred or common stock. In selecting corporate debt
securities for the Fund, the Adviser reviews and monitors the creditworthiness
of each issuer and issue. U.S. Government securities include direct obligations
of the U.S. Government and obligations issued by U.S. Government agencies and
instrumentalities. The market value of such securities fluctuates in response to
interest rates and the creditworthiness of the issuer. In the case of securities
backed by the full faith and credit of the United States Government,
shareholders are only exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
MONEY MARKET FUNDS. The Fund may invest in securities issued by other registered
investment companies that invest in short-term debt securities (i.e., money
market fund). As a shareholder of another registered investment company, the
Fund would bear its pro rata portion of that company's advisory fees and other
expenses. Such fees and expenses will be borne indirectly by the Fund's
shareholders. The Fund may invest in such instruments to the extent that such
investments do not exceed 10% of the Fund's net assets and/or 3% of any
investment company's outstanding securities.
REPURCHASE AGREEMENTS. The Fund may invest a portion of its assets in repurchase
agreements ("Repos") with broker-dealers, banks and other financial
institutions, provided that the Fund's custodian always has possession of the
securities serving as collateral for the Repos or has proper evidence of book
entry receipt of said securities. In a Repo, the Fund purchases securities
subject to the seller's simultaneous agreement to repurchase those securities
from the Fund at a specified time (usually one day) and price. The repurchase
price reflects an agreed-upon interest rate during the time of investment. All
Repos entered into by the Fund must be collateralized by U.S. Government
Securities, the market values of which equal or exceed 102% of the principal
amount of the money invested by the Fund. If an institution with whom the Fund
has entered into a Repo enters insolvency proceedings, the resulting delay, if
any, in the Fund's ability to liquidate the securities serving as collateral
could cause the Fund some loss if the securities declined in value prior to
liquidation. To minimize the risk of such loss, the Fund will enter into Repos
only with institutions and dealers considered creditworthy.
<PAGE>
CASH RESERVES. The Fund may hold up to 100% of its net assets in cash to
maintain liquidity and for temporary defensive purposes.
The Fund may take a temporary defensive position when, in the Adviser's opinion,
market conditions are such that investing according to the Fund's normal
investment objectives would place the Fund in imminent risk of loss. In such an
event, the Adviser could temporarily convert some or all of the Fund's
investments to cash. Such actions are subject to the supervision of the Board of
Directors. You should be aware that any time the Fund is assuming a temporary
defensive position, the Fund will not be invested according to its investment
objectives, and its performance will vary, perhaps significantly, from its norm.
Restricted and Illiquid Securities.
- ----------------------------------
The Fund will not invest more than 15% of its net assets in securities that the
Adviser determines, under the supervision of the Board of Directors, to be
illiquid and/or restricted. Illiquid securities are securities that may be
difficult to sell promptly at an acceptable price because of lack of available
market and other factors. The sale of some illiquid and other types of
securities may be subject to legal restrictions. Because illiquid and restricted
securities may present a greater risk of loss than other types of securities,
the Fund will not invest in such securities in excess of the limits set forth
above.
When-Issued Securities and Delayed-Delivery Transactions.
- ---------------------------------------------------------
The Fund may purchase securities on a when-issued basis, and it may purchase or
sell securities for delayed-delivery. These transactions occur when securities
are purchased or sold by the Fund with payment and delivery taking place at some
future date. The Fund may enter into such transactions when, in the Adviser's
opinion, doing so may secure an advantageous yield and/or price to the Fund that
might otherwise be unavailable. The Fund has not established any limit on the
percentage of assets it may commit to such transactions, but to minimize the
risks of entering into these transactions, the Fund will maintain a segregated
account with its Custodian consisting of cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars or non-U.S. currencies, in an amount equal to the aggregate fair market
value of its commitments to such transactions.
Portfolio Turnover.
- ------------------
The Fund's portfolio turnover for its first fiscal year ending on September 30,
1999 was 28.10%. Higher portfolio turnover rates may result in higher rates of
net realized capital gains to the Fund, thus the portion of the Fund's
distributions constituting taxable gains may increase. In addition, higher
portfolio turnover activity can result in higher brokerage costs to the Fund.
The Fund anticipates that its annual portfolio turnover will be not greater than
50%.
The complete list of the Fund's investment restrictions is as follows:
The Fund will not:
<PAGE>
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except in
obligations of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Borrow money, except from banks for temporary or emergency purposes in
amounts not exceeding 5% of the value of the Fund's assets at the time of
borrowing;
5. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required
to be registered under the Securities Act of 1933;
6. Make margin purchases or short sales of securities;
7. Invest in companies for the purpose of management or the exercise of
control;
8. Lend money (but this restriction shall not prevent the Fund from investing
in debt securities or repurchase agreements, or lend its portfolio
securities);
9. Acquire or retain any security issued by a company, an officer or director
of which is an officer or director of the Company or an officer, director
or other affiliated person of the Adviser;
10. Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in
oil, gas or mineral exploration;
11. Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies
that invest in real estate or interests in real estate;
12. Purchase warrants on securities;
13. Issue senior securities;or
14. Invest in commodities, or invest in futures or options on commodities.
Restrictions 1 through 14 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
<PAGE>
The Fund may not:
a. Invest more than 25% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
b. Invest more than 15% of its net assets in securities that are not readily
marketable;
c. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission and
(b) where acquisition results from a dividend or merger, consolidation or
other reorganization.
d. purchase more than 3% of the voting securities of any one investment
company nor invest more than 10% of the Funds assets (valued at time of
investment) in all investment company securities purchased by the Fund;
e. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 5% of its total
assets at cost; or
f. Invest more than 10% of the Fund's assets (valued at time of investment) in
initial margin deposits of options or futures contracts.
INVESTMENT ADVISER
Information on the Fund's Investment Adviser, Salem Investment Counselors, Inc.,
is set forth in the prospectus. This Section contains additional information
concerning the Adviser.
Salem Investment Counselors, Inc. (the "Adviser") was organized under the laws
of the State of North Carolina as an investment advisory corporation in 1979.
The Adviser registered as an Investment Adviser with the Securities and Exchange
Commission in April 1979. The Adviser is one of the largest private financial
counseling firms in North Carolina, providing financial management services to
individuals, corporations, and professional organizations in North Carolina and
throughout the United States. The Adviser manages the investment portfolio and
the general business affairs of the Fund pursuant to an investment services
agreement with the Fund dated September 30, 1998 (the "Agreement"). Messrs.
David B. Rea, Robert T. Beach, and William R. Watson are officers of the Adviser
and Directors of the Company. Accordingly, each of those persons is considered
an "affiliated person", as that term is defined in the Investment Company Act of
1940, as amended (the 1940 Act). Mr. David B. Rea is portfolio manager for the
Fund.
Investment Advisory Agreement.
- -----------------------------
The Company has entered into an Investment Advisory Agreement with the Adviser.
Under the terms of the Advisory Agreement, the Adviser, manages the investment
operations of the Fund in accordance with the Fund's investment policies and
restrictions. The Adviser furnishes an investment program for the Fund,
determines what investments should be purchased, sold and held, and makes
changes on behalf of the Company in the investments of the Fund. At all times
the Adviser's actions on behalf of the Fund are subject to the overall
supervision and review of the Board of Directors of the Company.
The Agreement provides that the Adviser shall not be liable for any loss
suffered by the Fund or its shareholders as a consequence of any act or omission
in connection with services under the Agreement, except by reason of the
Adviser's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
<PAGE>
The Agreement has a term of two years, but may be continued from year to year so
long as its continuance is approved at least annually:
(a) by the vote of a majority of the Directors of the Fund who are not
"interested persons" of the Fund or the adviser cast in person at a meeting
called for the purpose of voting on such approval, and
(b) by the Board of Directors as a whole or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Operating Services Agreement.
- -----------------------------
The Company has also entered into an Operating Services Agreement with the
Adviser ("Services Agreement"). Under the terms of the Services Agreement, the
Adviser provides, OR ARRANGES TO PROVIDE, day-to-day operational services to the
Fund including, but not limited to;
1. accounting 6. custodial
2. administrative 7. fund share distribution
3. legal (except litigation) 8. shareholder reporting
4. dividend disbursing and transfer agent 9. sub-accounting, and
5. registrar 10. record keeping services
For its services to the Fund under this Agreement, the Fund pays to the Adviser
on the last day of each month, a fee equal to 0.60% of average net asset value
of the Fund, such fee to be computed daily based upon the net asset value of the
Fund.
Under the Services Agreement, the Adviser may, with the Company's permission,
employ third parties to assist it in performing the various services required of
the Fund. The Adviser is responsible for compensating such parties.
The Adviser has entered into an Investment Company Services Agreement with
Declaration Service Company ("DSC") to provide Transfer Agent and essentially
all administrative services for the Fund. The Adviser has also entered into a
Distribution Agreement with the Fund and Declaration Distributors, Inc. ("DDI")
wherein DDI will act as principal underwriter for the Fund's shares.
The effect of the Investment Advisory Agreement and the Operating Services
Agreement is to place a "cap" on the Fund's normal operating expenses at 1.00%.
The only other expenses incurred by the Fund are distribution (12b-1)fees,
brokerage fees, taxes, if any, legal fees relating to Fund litigation, and other
extraordinary expenses.
<PAGE>
DIRECTORS AND OFFICERS
The Board Of Directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Adviser,
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below. The business address of each director is:
480 Shepherd Street
Winston-Salem, North Carolina 27103
<TABLE>
<CAPTION>
Position Principal Occupation for
Name, Age with Fund The Last Five Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
David B. Rea*; President Officer of Salem Investment Counselors
(Age 43) Director Inc. since 1984. President since 1994.
Registered Investment Adviser, Chartered
Financial Analyst (1987). MBA degree, Indiana
University (1981). Juris Doctorate degree, Wake
Forest University School of Law, (1979),
Certified Public Accountant (1982).
Robert T. Beach* Director Investment Counselor with Salem
(Age 52) Investment Counselors since 1985.
Undergraduate degree, Dartmouth College. MBA
degree, Stanford Graduate School of Business.
Juris Doctorate degree, Stanford Law School.
Chartered Financial Analyst (1988)
William R. Watson*, Director Investment Counselor with Salem
(Age 58) Investment Counselors since 1982.
Undergraduate degree, North Carolina State
University, 1963. MBA Degree, University of
North Carolina, 1976. Chartered Financial
Analyst (1975)
James T. Broyhill, Director Retired. Former Secretary of North
(Age 71) Carolina Dept. of Economic & Community
Development, 1989-91. United States Senator,
July 1996-November 1996. Member of The United
States House of Representatives, 1963-1986.
Ralph M. Stockton, Jr. Director Attorney, partner in firm of Kilpatrick
(Age 72) Stockton since 1952.Undergraduate degree,
University of North Carolina, 1948,
Juris Doctorate degree, with Honors,
University of North Carolina School of
Law, Member, American Bar Association,
U.S. Supreme Court Historical Society,
North Carolina Bar Association. Inducted
into North Carolina Bar Association
General Practice Hall of Fame, 1993.
<PAGE>
Helen C. Hanes Director Private Investor. Undergraduate degrees
(Age 81) from Marion College and Wittenberg
University. Doctorate of Humane Letters
from Roanoke College.
</TABLE>
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The table below sets forth the compensation anticipated to be paid by the
Corporation to each of the directors of the Corporation during the fiscal year
ending September 30, 1999.
Name of Director Compensation Pension Annual Total Compensation
from Corp Benefits Benefits Paid to Director
- --------------------------------------------------------------------------------
David B. Rea $0.00 $0.00 $0.00 $0.00
William R. Watson $0.00 $0.00 $0.00 $0.00
Robert T. Beach $0.00 $0.00 $0.00 $0.00
James T. Broyhill $2,2500.00 $0.00 $0.00 $2,2500.00
Ralph M. Stockton, Jr. $2,2500.00 $0.00 $0.00 $2,2500.00
Helen C. Hanes $2,2500.00 $0.00 $0.00 $2,2500.00
As of September 30, 1999, the following persons owned more than 5% of the Fund's
outstanding shares.
Name & Address Number of Fund Shares Percentage of Fund
Of Shareholder Owned Total Net Assets
- --------------------------------------------------------------------------------
Wachovia Securities, Inc. 119,279 26.84%
FBO Client Accounts
301 North Main Street, MC 32002
Winston-Salem, NC 27150
<PAGE>
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
[n]
Average Annual Total Return is computed as follows: P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000]
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
<PAGE>
PURCHASING AND REDEEMING SHARES
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading. For
purposes of computing the net asset value of a share of the Fund, securities
traded on security exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales price at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Adviser, subject to the review and supervision of the board of directors. The
price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order.
The Fund is open for business on each day that the New York Stock Exchange
("NYSE") is open. The Fund's share price or net asset value per share ("NAV") is
normally determined as of 4:00 p.m., New York time. The Fund's share price is
calculated by subtracting its liabilities from the closing fair market value of
its total assets and dividing the result by the total number of shares
outstanding on that day. Fund liabilities include accrued expenses and dividends
payable, and its total assets include the market value of the portfolio
securities as well as income accrued but not yet received. Since the Fund
generally does not charge sales or redemption fees, the NAV is the offering
price for shares of the Fund. For shares redeemed prior to being held for at
least six months, the redemption value is the NAV less a service fee equal to
0.50% of the NAV.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under SubChapter M
of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities.
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
The Fund intends to distribute to shareholders, at least annually, substantially
all net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. Dividends from net investment income and
distributions from any net realized capital gains are reinvested in additional
shares of the Fund unless the shareholder has requested in writing to have them
paid by check.
<PAGE>
Dividends from investment income and net short-term capital gains are generally
taxable to the shareholder as ordinary income. Distributions of long-term
capital gains are taxable as long-term capital gains regardless of the length of
time shares in the Fund have been held. Distributions are taxable, whether
received in cash or reinvested in shares of the Fund.
Each shareholder is advised annually of the source of distributions for federal
income tax purposes. A shareholder who is not subject to federal income tax will
not be required to pay tax on distributions received.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Fund may be
required to withhold federal income tax at the rate of 31% (backup withholding)
from dividend, capital gain and redemption payments to him. Dividend and capital
gain payments may also be subject to backup withholding if the shareholder fails
to certify properly that he is not subject to backup withholding due to the
under-reporting of certain income.
Taxation of the Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax Adviser regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
<PAGE>
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. The Fund expects that its
annual portfolio turnover rate will not exceed 50% under normal conditions.
However, there can be no assurance that the Fund will not exceed this rate, and
the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly.
CUSTODIAN
First Union National Bank, 1345 Chestnut Street, Philadelphia PA 19101, acts as
custodian for the Fund. As such, First Union holds all securities and cash of
the Fund, delivers and receives payment for securities sold, receives and pays
for securities purchased, collects income from investments and performs other
duties, all as directed by officers of the Company. First Union does not
exercise any supervisory function over management of the Fund, the purchase and
sale of securities or the payment of distributions to shareholders.
<PAGE>
TRANSFER AGENT
Declaration Services Company ("DSC"), 555 North Lane, Suite 6160, Conshohocken,
PA 19428 acts as transfer, dividend disbursing, and shareholder servicing agent
for the Fund pursuant to a written agreement with the Company and the Adviser.
Under the agreement, DSC is responsible for administering and performing
transfer agent functions, dividend distribution, shareholder administration, and
maintaining necessary records in accordance with applicable rules and
regulations.
For the services to be rendered as transfer agent, The Adviser shall pay
Declaration Service Company an annual fee, paid monthly, based on the average
net assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
ADMINISTRATION
DSC also acts as Administrator to the Fund pursuant to a written agreement with
the Company and Adviser. The Administrator supervises all aspects of the
operations of the Fund except those performed by the Fund's investment Adviser
under the Fund's investment advisory agreement. The Administrator is responsible
for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Adviser shall pay DSC an
annual fee, paid monthly, based on the average net assets of the Fund, as
determined by valuations made as of the close of each business day of the month.
PRINCIPAL UNDERWRITER
Declaration Distributors, Inc. ("DDI") acts as principal underwriter for the
Company. The purpose of acting as an underwriter is to facilitate the
registration of the Funds' shares under state securities laws and to assist in
the sale of shares. DDI is an affiliated company of the Fund's Transfer Agent,
Declaration Service Company. DDI is compensated by the Adviser for its services
to the Company under a written agreement for such services.
<PAGE>
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, Inc., 8 Penn Center, Suite 800, Philadelphia, PA
19103-2108 will serve as the Company's independent auditors for its first fiscal
year.
LEGAL COUNSEL
David Jones & Assoc., P.C., 4747 Research Forest Drive, Suite 180, # 303, The
Woodlands, TX 77381, has passed on certain matters relating to this Registration
Statement and acts as counsel to the Company.
DISTRIBUTION PLAN
As noted in the Fund's Prospectus, the Fund has adopted a plan pursuant to Rule
12b-1 under the 1940 Act (collectively, the "Plan") whereby the Fund may pay up
to a maximum of 0.25% per annum of the Fund's average daily net assets to the
Adviser, Distributor, dealers and others, for providing personal service and/or
maintaining shareholder accounts relating to the distribution of the Fund's
shares. The fees are paid on a monthly basis, based on the Fund's average daily
net assets attributable to each class of shares.
Pursuant to the Plans, the Adviser is entitled to a fee each month (up to the
maximum of 0.25% per annum of average net assets of each share class) for
expenses incurred in the distribution and promotion of the Fund's shares,
including but not limited to, printing of prospectuses and reports used for
sales purposes, preparation and printing of sales literature and related
expenses, advertisements, and other distribution-related expenses as well as any
distribution or service fees paid to securities dealers or others who have
executed a dealer agreement with the underwriter. Any expense of distribution in
excess of 0.25% per annum will be borne by the Adviser without any additional
payments by the Fund. You should be aware that it is possible that Plan accruals
will exceed the actual expenditures by the Adviser for eligible services.
Accordingly, such fees are not strictly tied to the provision of such services.
The Plans also provide that to the extent that the Fund, the Adviser, or other
parties on behalf of the Fund, or the Adviser make payments that are deemed to
be payments for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1, such
payments shall be deemed to be made pursuant to the Plans. In no event shall the
payments made under the Plans, plus any other payments deemed to be made
pursuant to the Plans, exceed the amount permitted to be paid pursuant to the
Conduct Rules of the National Association of Securities Dealers, Inc., Article
III, Section 26(d)(4).
The Board of Directors has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. The Board therefore believes that it will
likely benefit the Fund to have monies available for the direct distribution
activities of the Adviser in promoting the sale of the Fund's shares, and to
avoid any uncertainties as to whether other payments constitute distribution
expenses on behalf of the Fund. The Board of Directors, including the non-
interested Directors, has concluded that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Fund and its shareholders.
<PAGE>
The Plans have been approved by the Funds' Board of Directors, including all of
the Directors who are non-interested persons as defined in the 1940 Act. The
Plans must be renewed annually by the Board of Directors, including a majority
of the Directors who are non-interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans. The votes
must be cast in person at a meeting called for that purpose. It is also required
that the selection and nomination of such Directors be done by the
non-interested Directors. The Plans and any related agreements may be terminated
at any time, without any penalty: 1) by vote of a majority of the non-interested
Directors on not more than 60 days' written notice, 2) by the Adviser on not
more than 60 days' written notice, 3) by vote of a majority of the Fund's
outstanding shares, on 60 days' written notice, and 4) automatically by any act
that terminates the Advisory Agreement with the Adviser. The Adviser or any
dealer or other firm may also terminate their respective agreements at any time
upon written notice.
The Plans and any related agreement may not be amended to increase materially
the amounts to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-interested
Directors, cast in person at a meeting called for the purpose of voting on any
such amendment.
The Adviser is required to report in writing to the Board of Directors of the
Fund, at least quarterly, on the amounts and purpose of any payment made under
the Plans, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plans should be continued.
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Fund are incorporated herein by reference to the
annual report of the Fund, dated September 30, 1999.
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits
- ------- --------
(a) Articles of Incorporation -- Incorporated by reference from pre-effective
amendment # 1, filed on August 26, 1998
(b) Bylaws of Registrant -- Incorporated by reference from pre-effective
amendment # 1, filed on August 26, 1998
(c) Instruments Defining Rights of Shareholders -- [Not Applicable]
(d) Investment Advisory Agreement-Incorporated by reference from pre-effective
amendment # 1, filed on August 26, 1998
(e) Underwriting Contracts -- Incorporated by reference from pre-effective
amendment # 1, filed on August 26, 1998
(f) Bonus or Profit-Sharing -- Contracts None [Not Applicable]
(g) Custodian Agreement -- Incorporated by reference from pre-effective
amendment # 3, filed on September 30, 1998
(h) Other Material Contracts
(1) Operating Services Agreement -- Incorporated by reference from
pre-effective amendment # 1, filed on August 26, 1998
(2) Investment Services Agreement -- Incorporated by reference from
pre-effective amendment # 1, filed on August 26, 1998
(i) Opinion of Counsel -- Incorporated by reference from pre-effective
amendment # 1, filed on August 26, 1998
(j) Other Opinions -- Incorporated by reference from pre-effective amendment #
3, filed on September 30, 1998
(k) Omitted Financial Statements Incorporated by reference from the Fund's
Semi-annual report, dated March 31, 1999.
(l) Initial Capital Agreements -- Incorporated by reference from pre-effective
amendment # 3, filed on September 30, 1998
(m) Rule 12b-1 Plan -- Incorporated by reference from pre-effective amendment #
1, filed on August 26, 1998
(n) Financial Data Schedule -- None [Not Applicable]
(o) Rule 18f-3 Plan -- None [Not Applicable]
Item 24 Persons Controlled by or under Common Control with Registrant.
- ------- --------------------------------------------------------------
No person is directly or indirectly controlled by, or under common control with
the Registrant.
<PAGE>
Item 25 Indemnification.
- ------- ----------------
Section 2-418 of the General Corporation Law of Maryland authorizes the
registrant to indemnify its directors and officers under specified
circumstances. Section 7 of Article VII of the bylaws of the registrant (exhibit
2 to the registration statement, which is incorporated herein by reference)
provides in effect that the registrant shall provide certain indemnification to
its directors and officers. In accordance with section 17(h) of the Investment
Company Act, this provision of the bylaws shall not protect any person against
any liability to the registrant or its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Item 26 Business and Other Connections of Investment Adviser.
- ------- -----------------------------------------------------
The Adviser has no other business or other connections.
Item 27 Principal Underwriters.
- ------- -----------------------
Declaration Services Company.
555 North Lane, Suite 6160
Conshohocken, PA 19428
Item 28 Location of Accounts and Records.
- ------- ---------------------------------
Declaration Services Company.
555 North Lane, Suite 6160
Conshohocken, PA 19428
Salem Investment Counselors, Inc.
480 Shepherd Street
Winston-Salem, NC 27103
Item 29 Management Services.
Declaration Services Company.
555 North Lane, Suite 6160
Conshohocken, PA
Item 30 Undertakings.
- ------- -------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this Registration to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Charlotte and State of North Carolina on the 1st day of February, 2000.
The Shepherd Street Funds, Inc.
(Registrant)
By: /s/ David B. Rea, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Name Title Date
/s/ David B. Rea President, Director February 1, 2000
/s/ William R. Watson Director February 1, 2000
/s/ Robert T. Beach Director February 1, 2000
/s/ James T. Broyhill Director February 1, 2000
/s/ Ralph M. Stockton, Jr. Director February 1, 2000
/s/ Helen C. Hanes Director February 1, 2000