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THE SHEPHERD STREET EQUITY FUND(TM)
Semi-Annual Report
March 31, 2000
Investment Adviser:
Salem Investment Counselors, Inc.
480 Shepherd Street
Winston-Salem, North Carolina 27103
Shareholder Services:
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
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
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Dear Shareholder:
I am very pleased to present you with this semi-annual report on your mutual
fund. Over the past six months, the Shepherd Street Equity Fund returned an
investment gain of 17.48%, and for the eighteen months the Fund has been in
operation, it has achieved an investment return of 50.85%. We are particularly
pleased with the Fund's performance since we have not invested in the highly
speculative "dot.com" stocks that were the rage over the past year.
Nevertheless, good, solid technology and telecommunications companies were
our best performing sectors. As stock investors and not stock traders, we buy
companies that we believe have the potential to perform for the long term,
avoiding the risk and extended valuations that often come with buying today's
momentum stock. While the investing world has become fixated on growth versus
value stocks, we continue to believe that a proper balance of both categories,
including mid and large capitalization stocks is the best formula for
long-term success in today's investment environment.
Looking forward, we consider the fund to be well-positioned in quality
technology, telecommunications, financial and other sectors of the market
with the proper balance of growth and value to weather these extremely
volatile market conditions.
We appreciate your investment in the Shepherd Street Equity Fund and pledge our
continued diligence to make the most of your investment.
Sincerely yours,
/S/ David B. Rea,
David B. Rea, CFA
President, Shepherd Street Equity Fund
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
THE SHEPHERD STREET EQUITY FUND
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SCHEDULE OF INVESTMENTS
March 31, 2000 (Unaudited)
Shares Value
---------- ----------
COMMON STOCK -- 96.02%
Broadcasting -- 6.45%
3,525 MediaOne Group, Inc.* $ 285,525
7,100 Tribune Co. 259,594
------------
545,119
------------
Chemicals -- 2.90%
7,200 Great Lakes Chemical Corp. 244,800
------------
Commercial Services -- 2.65%
19,950 Servicemaster Co. 224,437
------------
Computer Hardware -- 7.32%
2,250 EMC Corp.* 281,250
2,550 Hewlett-Packard Co. 338,034
------------
619,284
------------
Computer Services & Software -- 6.71%
2,600 Cisco Systems, Inc.* 201,013
3,450 Microsoft Corp.* 366,562
------------
567,575
------------
Diversified Conglomerates -- 2.33%
2,225 Minnesota Mining & Manufacturing Co. 197,052
------------
Electronics Equipment -- 14.89%
1,500 Cree Research, Inc.* 169,312
3,300 Intel Corp. 435,394
2,254 Koninklijke Philips Electronics - ADR 386,138
2,000 RF Micro Devices, Inc.* 268,750
------------
1,259,594
------------
Finance -- 10.97%
6,000 Capital One Financial Corp. 287,625
6,000 CCB Financial Corp. 265,500
13,500 Cenit Bancorp, Inc. 137,531
4,000 Citigroup, Inc. 237,250
------------
927,906
------------
Food & Beverage -- 6.45%
8,675 Pepsico, Inc. 299,830
6,875 SYSCO Corp. 245,352
------------
545,182
------------
Insurance -- 4.27%
17,800 Triad Guaranty, Inc.* 361,562
------------
Materials and Processing -- 3.37%
6,000 Martin Marietta Materials, Inc. 285,000
------------
Medical Products -- 9.29%
5,600 Cardinal Health, Inc. 256,900
5,250 Guidant Corp. 308,766
3,550 Merck & Co. 220,544
------------
786,210
------------
Producer Durables -- 3.47%
29,000 Clayton Homes, Inc. 293,625
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Telecommunications -- 14.95%
6,000 A T& T Corp. - Liberty Media Group* 355,500
6,000 CommScope, Inc.* 273,750
6,200 MCI Worldcom, Inc. * 280,938
1,050 Nokia Corp. ADR 228,112
2,000 Sprint Corp. 126,000
------------
1,264,300
------------
Total Common Stock (Cost $6,876,092) 8,121,646
------------
MISCELLANEOUS ASSETS -- 3.05%
Evergreen Money Market Trust Institutional
Shares (Cost $258,072) 258,072
------------
Total Investments (Cost $7,134,164) -- 99.07% $ 8,379,718
Other Assets in Excess of Liabilities -- 0.93% 78,945
------------
NET ASSETS -- 100.00% $ 8,458,663
============
* Non-income producing investment.
ADR -- American Depository Receipt
See notes to financial statements.
THE SHEPHERD STREET EQUITY FUND
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STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (Unaudited)
ASSETS:
Investments, at market (identified cost $7,134,164) (note 1) $ 8,379,718
Receivables:
Dividends and interest 6,333
Fund shares sold 108,939
------------
Total assets 8,494,990
------------
LIABILITIES:
Payables:
Fund shares redeemed 28,000
Due to Advisor 6,606
Accrued distribution fees 1,721
------------
Total liabilities 36,327
------------
NET ASSETS $ 8,458,663
============
NET ASSETS CONSIST OF:
Common stock (Unlimited shares of $.0001 par value authorized,
570,315 shares outstanding) (note 2) $ 57
Additional capital paid-in 7,176,624
Net investment loss (10,866)
Accumulated realized gain on investments 47,294
Net unrealized gain on investments 1,245,554
------------
Net Assets, for 570,315 shares outstanding $ 8,458,663
============
Net Asset Value, offering and redemption price per share $ 14.83
============
See notes to financial statements.
THE SHEPHERD STREET EQUITY FUND
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STATEMENT OF OPERATIONS
For the Period Ended March 31, 2000 (Unaudited)
INVESTMENT INCOME:
Interest $ 5,821
Dividends 27,254
------------
Total investment income 33,075
------------
EXPENSES:
Investment advisory fees (note 4) 14,061
Distribution fees (note 4) 8,788
Service fees (note 4) 21,092
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Total expenses 43,941
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Net investment loss (10,866)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 47,294
Net change in unrealized appreciation on investments 1,098,766
------------
1,146,060
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,135,194
============
See notes to financial statements.
<TABLE>
<CAPTION>
THE SHEPHERD STREET EQUITY FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For the Period For the Period
Ended Ended
March 31, 2000 September 30,
(Unaudited) 1999*
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $ (10,866) $ 3,156
Net realized gain on investments 47,294 131,866
Net change in unrealized appreciation on investments 1,098,766 146,788
-------------- --------------
Net increase in net assets resulting from operations 1,135,194 281,810
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,156) --
Net realized gain on investments (131,866) --
-------------- --------------
Total Distributions (135,022) --
-------------- --------------
Increase in net assets from Fund share transactions (note 2) 1,751,237 5,325,444
-------------- --------------
Increase in net assets 2,751,409 5,607,254
NET ASSETS:
Beginning of period 5,707,254 100,000
-------------- --------------
End of period** $ 8,458,663 $ 5,707,254
============== ==============
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
** Including undistributed net investment income of $(10,866) and $3,156, respectively.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE SHEPHERD STREET EQUITY FUND
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FINANCIAL HIGHLIGHTS
Per Share Data (For a Share Outstanding Throughout Each Period)
For the Period For the Period
Ended Ended
March 31, 2000 September 30,
(Unaudited) 1999*
-------------- --------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.84 $ 10.00
-------- --------
Investment Operations:
Net investment income (loss) (0.01) 0.01
Net realized and unrealized gain on investments 2.25 2.83
-------- --------
Total from investment operations 2.24 2.84
-------- --------
Distributions:
From net investment income (0.01) --
From net realized gains (0.24) --
-------- --------
Total distributions (0.25) --
-------- --------
Net Asset Value, End of Period $ 14.83 $ 12.84
======== ========
Total Return 17.48% 28.40%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $ 8,459 $ 5,707
Ratio of expenses to average net assets 1.25%(1) 1.25%(1)
Ratio of net investment income to average net assets (.31)%(1) 0.10%(1)
Portfolio turnover rate 44.40% 28.10%
(1) Annualized
* The Shepherd Street Equity Fund commenced operations on October 2, 1998.
See notes to financial statements.
</TABLE>
THE SHEPHERD STREET EQUITY FUND
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NOTES TO THE FINANCIAL STATEMENTS
March 31, 2000 (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 advisor 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 value.
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 realized 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.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended March 31, 2000 were
as follows:
Shares Amount
-------- ----------
Sold 154,227 $2,162,795
Reinvestments 9,454 135,002
Redeemed (37,831) (546,560)
-------- ----------
Net Increase 125,850 $1,751,237
======== ==========
Transactions in shares of the Fund for the period ended September 30, 1999 were
as follows:
Shares Amount
-------- ----------
Sold 443,757 $5,446,989
Redeemed (9,292) (121,545)
-------- ----------
Net Increase 434,465 $5,325,444
======== ==========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the period ended March 31, 2000, were as follows:
Purchases 4,460,891
Sales 3,045,821
At March 31, 2000, unrealized appreciation of investments for tax purposes was
as follows:
Appreciation $ 1,623,129
Depreciation (377,575)
------------
Net appreciation on investments $ 1,245,554
============
At March 31, 2000, the cost of investments for federal income tax purposes was
$7,134,164.
4. ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
The Fund has entered into an Advisory 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. For the period ended
March 31, 2000, the advisor received fees of $14,061.
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. For the
period ended March 31, 2000 the advisor received fees of $21,092.
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 effect of the Advisory Agreement and the Servicing Agreement is to place
a "cap" on the Funds' normal operating expenses at 1.00%. The only other
expenses incurred by the Fund are distribution fees, brokerage fees, taxes,
if any, legal fees relating to Fund litigation, and other extraordinary
expenses.
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. serves as underwriter/distributor of the Fund.
The Fund has adopted a Plan of Distribution under which it may finance
activities primarily intended to sell shares. Under the Plan, the Advisor,
Salem Investment Counselors, Inc. is paid a distribution fee at an annual
rate of 0.25% of average daily net assets of the Fund for distributing shares
of the Fund and for providing certain shareholder services. For the period
ended March 31, 2000, the Advisor received fees of $8,788.
Certain directors and officers of the Fund are directors and officers of the
Advisor.
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