THE SHEFFIELD FUNDS, INC.
===============================================================================
October 31, 1997
Dear Shareholder:
The Sheffield Funds completed its eighth fiscal year with strong performance
results in both its stock and bond components. The economic environment during
the past twelve months continued to present a set of conditions which, in the
aggregate, remained extremely favorable for continued subdued rates of
inflation coupled with strong economic growth.
It was with the arrival of October that gathering storm clouds on the Asian
horizon were noticed. Financial woes in that part of the world resulted in a
modest stock-market sell off here and abroad. As our fiscal year ended, it was
safe to say that our domestic stock markets were experiencing a high level of
anxiety exemplified by very large price swings. As we move into 1998, we are
entering a "stock-picker's" market where the substantial portfolio
appreciation of the past few years will, in our opinion, be very difficult to
duplicate. All the easy money has been made for the time being. With each new
revelation of increasing Asian financial instability, our markets respond with
increasing volatility.
TOTAL RETURN FUND
Philosophy
The Total Return Fund is a broadly diversified portfolio invested in
securities across all economic sectors as illustrated in the chart on the
right. Within each sector we attempt to select companies which are
experiencing increasing cash flow returns on their invested capital.
INDUSTRY SECTOR ANALYSIS
10/31/96 10/31/97
Basic Materials 7.3% 5.6%
Energy 9.2% 11.6%
Industrial 12.3% 16.6%
Conglomerates 2.5% 2.8%
Consumer Cyclical 10.8% 7.3%
Consumer Non Cyclical 19.0% 15.8%
Technology 19.8% 19.3%
Financial 11.2% 17.3%
Utilities 7.8% 3.8%
Furthermore, we seek out those companies experiencing faster earnings growth
rates and faster dividend growth rates than the overall stock market. Growth
rates alone, however, do not make for a superior investment opportunity, as
it is easy to overpay for expected future growth. Our stock pricing model,
therefore, aides us in determining whether the current price of a stock is
reasonable relative to its expected future growth rate.
Performance
We held a steady course throughout the year in terms of the portfolio's asset
mix. The broad technology sector has long been overweighted in the portfolio
relative to its weighting in the S&P 500 Index and remained so throughout the
current fiscal year. Early in the year, we began increasing the
percentage of the portfolio's assets in the energy, industrial goods and
services, and financial areas. All three of these areas initially offered many
choice investment opportunities and then became more fully valued as the year
progressed. By October, oil-service stocks and many financially-oriented
companies had risen in price to a level where little upside potential for the
foreseeable future remained. According to our valuation tools, low upside
potential was coupled with increasing downside risk. The Fund took profits in
many stocks during the latter part of the year when it was believed that
better opportunities could be found elsewhere. The gains taken this past
fiscal year are the largest of the Fund's existence.
As has been our practice in the past, the report now describes the past year's
activity within the Fund on a per share basis. During its 1997 fiscal year,
the Fund earned $.28 per share from its receipt of interest and dividends.
These earnings were reduced by the Fund's operating expenses which totaled
$.25 per share. The balance of $.03 is described as the Fund's net investment
income. This net investment income figure is lower than those of past years
primarily because a greater number of stocks paying lower levels of dividends
were acquired relative to the dividend levels of stocks sold.
The Fund distributed $.09 of net investment income and $.87 of capital gains
in fiscal 1997. These reductions to net asset value were offset by significant
portfolio gains, both realized and unrealized, totaling $4.38 per share. This
past year's per share gains were the largest in the history of the Total
Return Fund. The net effect of these activities on the asset value per share
was to increase the NAV by $3.45, equal to a 30.8% total return. By comparison,
the S&P 500 Index increased 32.1% during the same period of time. The chart to
the right compares the Fund's performance to that of the S&P 500 Index.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE TOTAL RETURN FUND AND S&P 500 INDEX
Sheffield Total S&P 500
Return Fund Index
5/90 $10,000 $10,000
10/90 8,824 9,362
10/91 12,465 12,498
10/92 13,062 13,744
10/93 15,229 15,805
10/94 14,877 16,415
10/95 17,306 20,755
10/96 21,174 25,757
10/97 27,694 34,027
INTERMEDIATE TERM BOND FUND
Philosophy
Our investment goals for this Fund are twofold. First, we seek to manage a
portfolio of investment quality, intermediate-term corporate bonds.
Intermediate-term bonds have demonstrated a history of generating higher total
returns with lower volatility over long periods of time than have long-term
bonds. Our Fund seeks to participate in this investment phenomena. Second, we
seek a modest degree of capital appreciation by investing a small portion of
our assets in two other types of investments. The first type is convertible
securities including convertible bonds and convertible preferred stocks.
Second, we invest a modest portion of the Bond Fund's assets in high-yielding
common stocks.
Out of the broad universe of fixed- and variable-rate instruments traded in
the marketplace, our Fund focuses primarily on investment-quality corporate
bonds which typically mature in one-to-ten years. We can, and do, buy bonds
with maturity dates exceeding ten years as long as the average maturity of our
entire bond portfolio does not exceed seven years. By concentrating on
intermediate-term bonds rather than longer-term bonds, our Fund's current
yield is never as high as it could be, but we avoid the extreme volatility
experienced by longer-term bonds when interest rates fluctuate. Our stock
holdings are acquired for the purpose of obtaining long-term capital gains
coupled with high dividend yields relative to the yield of the overall stock
market. Our philosophy anticipates that the capital appreciation we seek from
our stock and convertible security holdings will help to offset the operating
expenses incurred by the Fund over a three-to-five year period of time.
Finally, we can acquire adjustable rate securities. Typically, the income paid
on these securities will change as the general level of interest rates change.
Adjustable rate securities are attractive during periods of rising interest
rates as these securities are more likely to hold their value vis a vis fixed-
rate bonds. On the contrary, when interest rates decline, fixed-rate bonds
will generally realize more significant price appreciation than will
adjustable rate securities. The Bond Fund owned no variable-rate securities
during its recently completed fiscal year.
Performance
Interest rates gradually increased during the first half of our fiscal year
and then began a persistent decline beginning in May 1997. By October 31,
interest rates had fallen to their lowest levels for the entire fiscal year.
The Bond Fund outperformed its bond proxy during this twelve-month period for
two primary reasons. First, the Fund maintained a relatively short five-year
average maturity during the period when rates were rising. Then, in July, the
average maturity of the portfolio was extended to seven years (the longest
allowable by our prospectus) as rates began to decline.Thus, we were able to
capture some of the benefit of the rate decline, while escaping most of the
negative returns incurred when interest rates rose during the first six months.
The second factor which impacted positively on the Fund were the gains made by
the small group of high-dividend paying stocks held in the account. For the
fiscal year, the Bond Fund generated a total return of 9.0% which compares
favorably to the 8.1% total return of the Lehman Corporate Intermediate Bond
Index (see chart on right). On a per-share basis, the Fund earned $.61 from
its receipt of interest and dividends. Those earnings were reduced by the
Fund's operating expenses which totaled $.16 per share. The remaining balance
of $.45 represents the Fund's net operating income for the fiscal year.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE INTERMEDIATE TERM BOND FUND AND THE
LEHMAN BROTHERS CORPORATE INTERMEDIATE TERM BOND INDEX
Sheffield Intermediate Lehman Brothers Corp.
Term Bond Fund Intermediate Term Bond Index
5/90 $10,000 $10,000
10/90 9,986 10,522
10/91 11,431 12,189
10/92 12,320 13,489
10/93 13,396 15,204
10/94 13,071 14,780
10/95 14,756 17,082
10/96 15,883 18,160
10/97 17,308 19,626
During its fiscal year ended October 31, the Fund distributed $.47 of net
investment income and $.37 of capital gains. These distributions slightly
exceeded the Fund's investment gains for the same period, resulting in $.02
reduction of the NAV as of October 31, 1997.
Other Characteristics
The Bond Fund continues to concentrate on acquiring corporate bonds rated BBB
or better by the rating agencies (see chart on right). By focusing on
"investment-quality" bonds rated BBB or better, the Fund gives up some
incremental yield that lower-quality bonds offer, but it avoids the additional
business risk associated with lower-quality corporate paper.
RATING MIX
AA 54%
A 5%
BBB 41%
As the year draws to a close, a growing concern among economists is that the
Asian crisis will impact domestic corporate earnings growth rates to some
degree. Slower earnings growth rates translate into lower stock prices for
companies in affected industries. Mitigating this concern is the favorable
economic climate featuring inflation which remains under control, interest
rates in a pattern of decline, and high levels of employment and consumer
confidence, to name a few. We continue to monitor unfolding economic events
and their impact on the portfolio on an ongoing basis.
Very truly yours,
Roger A. Sheffield, CFA
President
Caroline L. Scott, CFA
Treasurer
SHEFFIELD TOTAL RETURN FUND
Portfolio of Investments
October 31, 1997
- -----------------------------------------------------------------------------
Short-term Investments (1.0%) Par Value
UMB Bank Money Market
(cost - $272,465) $272,465 $272,465
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Common Stocks (100.1%) Shares
- -----------------------------------------------------------------------------
Aerospace - 1.8%
Boeing Co. 5,944 $285,312
Precision Castparts 3,700 217,606
-------
502,918
-------
Auto/Truck Parts - 2.7%
Eaton Corp. 2,700 260,887
Borg-Warner Automotive, Inc. 4,000 218,000
Magna International, Inc. Class A 4,300 283,263
-------
762,150
-------
Banking - 5.2%
BankAmerica Corp. 4,000 287,500
Citicorp 1,650 206,353
First Union Corp. 8,200 402,313
NationsBank Corp. 6,280 375,622
Summit Bancorp 4,800 204,900
---------
1,476,688
---------
Beverages - Soft Drink - 2.3%
Coca-Cola Co. 5,600 317,100
Pepsico, Inc. 9,000 331,875
-------
648,975
-------
Building Materials/Construction - 2.4%
Masco Corp. 6,770 297,034
PPG Industries, Inc. 6,900 390,712
-------
687,746
-------
Chemicals - 5.6%
Basic - 3.5%
DuPont E.I. De Nemours & Co. 5,220 296,887
Monsanto Co. 9,700 414,675
Sherwin-Williams Co. 10,650 295,538
---------
1,007,100
---------
Specialty - 2.1%
Avery Dennison Corp. 9,870 392,949
Ecolab, Inc. 4,600 218,788
-------
611,737
-------
Commercial Services - 1.2%
Accustaff, Inc.* 12,230 349,319
-------
- -----------------------------------------------------------------------------
Common Stocks - continued Shares Value
- -----------------------------------------------------------------------------
Computer Hardware - 4.4%
Cisco Systems Inc.* 4,400 $360,938
Compaq Computer Corp. 2,970 190,080
Hewlett Packard Co. 6,115 376,836
SCI Systems, Inc.* 8,000 352,000
---------
1,279,854
---------
Computer Software - 3.2%
McAfee Associates, Inc.* 3,900 194,025
Microsoft Corp.* 2,300 299,000
Parametric Technology Corp.* 6,600 291,225
Unisys Corp. 9,000 119,813
-------
904,063
-------
Diversified - 2.1%
AlliedSignal, Inc. 8,800 316,800
Textron Inc. 4,800 277,500
-------
594,300
-------
Electrical Equipment - 2.3%
Baldor Electric Co. 10,740 314,145
Honeywell Inc. 4,900 333,506
-------
647,651
-------
Electronics - 2.0%
Harris Corp. 7,000 305,375
Motorola Inc. 4,300 266,600
-------
571,975
-------
Electronics - Semiconductor - 3.8%
Applied Materials, Inc.* 6,420 214,268
Intel Corp. 7,040 542,080
Linear Technology Corp. 5,100 320,662
---------
1,077,010
---------
Financial - Misc - 5.9%
Beneficial Corp. 5,200 398,775
Franklin Resources, Inc. 5,550 498,806
Greentree Financial Corp. 9,000 380,250
MGIC Investment Corp. 6,800 410,125
---------
1,687,956
---------
Entertainment/Leisure - 1.1%
Brunswick Corp. 9,100 307,125
-------
Food Products - 4.4%
Conagra Inc. 7,740 238,973
Hershey Foods Corp. 6,000 331,500
Richfood Holdings Inc. 9,000 217,125
Philip Morris Cos., Inc. 12,000 475,500
---------
1,263,098
---------
- -----------------------------------------------------------------------------
Common Stocks - continued Shares Value
- -----------------------------------------------------------------------------
Household Products - 2.5%
Colgate Palmolive Co. 4,200 $271,950
Procter & Gamble Co. 6,600 448,800
-------
720,750
-------
Homebuilding - 0.9%
Oakwood Homes Corp. 10,000 263,125
-------
Household/Office Furnishings - 1.0%
Leggett & Platt, Inc. 7,050 294,338
-------
Insurance - 4.9%
Reliastar Financial Corp. 13,240 494,845
SunAmerica, Inc. 4,800 172,500
Allstate Corp. 5,898 489,165
Cigna Corp. 1,700 263,925
---------
1,420,435
---------
Manufacturing - 7.5%
Deere & Co. 5,400 285,188
Donaldson Co., Inc. 7,500 379,688
Dover Corp. 5,000 337,500
Illinois Tool Works, Inc. 6,400 314,800
Manitowoc, Inc. 7,650 231,890
Parker Hannifin Corp. 5,000 210,625
Stanley Works 9,000 380,250
---------
2,139,941
---------
Medical - Pharmaceutical - 6.7%
ICN Pharmaceuticals, Inc. 5,300 255,063
Merck & Co. 3,350 298,988
Pfizer, Inc. 4,900 347,900
Schering-Plough Corp. 6,700 375,618
Abbott Laboratories 5,000 306,563
Medtronic, Inc. 7,740 336,690
---------
1,920,822
---------
Office Equipment - 4.3%
Diebold, Inc. 8,345 367,702
Pitney Bowes, Inc. 4,700 372,769
Xerox Corp. 6,300 499,668
---------
1,240,139
---------
Oil & Gas - 5.0%
Mobil Corp. 4,780 348,043
Tosco Corp. 10,500 343,875
Amoco Corp. 3,900 360,263
Exxon Corp. 6,000 368,625
---------
1,420,806
---------
- -----------------------------------------------------------------------------
Common Stocks - continued Shares Value
- -----------------------------------------------------------------------------
Oil Well Equipment/Services - 5.2%
Global Marine, Inc. 16,000 $498,000
Helmerich & Payne, Inc. 4,700 379,231
Smith International, Inc.+ 3,100 236,375
Tidewater, Inc. 5,920 388,870
---------
1,502,476
---------
Retail - Department Stores - 2.6%
Dollar General Corp. 12,038 398,006
Wal-Mart Stores, Inc 9,680 338,800
-------
736,806
-------
Savings and Loans - 1.4%
John Hancock Bank & Thrift Opportunity Fund 9,365 398,598
-------
Telephone - 3.8%
Ameritech Corp. 6,300 409,500
Cincinnati Bell, Inc. 12,600 340,200
Qualcom, Inc.* 4,000 225,500
Worldcom, Inc.* 3,500 117,688
---------
1,092,888
---------
Transportation - 2.4%
Canadian Pacific, Ltd. 12,000 357,750
Illinois Central Corp. Series A 9,450 336,656
-------
694,406
-------
Utilities - Natural Gas - 1.5%
Williams Co. Inc. 8,512 433,580
-------
- -----------------------------------------------------------------------------
Total Common Stocks
(cost - $18,037,712) $28,658,775
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Corporate Bonds and Notes - 0.7% Par Value
- -----------------------------------------------------------------------------
Thermo Instrument Systems 4.50%
Conv. Deb. 10/15/03 $200,000 $213,000
--------
- -----------------------------------------------------------------------------
Total Bonds and Notes
(cost $207,978) $213,000
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total Investments (101.8%)
(cost - $18,518,155) $29,144,240
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Written Call Options Outstanding - (0.0%) Shares Value
- -----------------------------------------------------------------------------
Smith International, Inc. Call Jan/90 1,200 ($1,725)
- -----------------------------------------------------------------------------
Total Short Options
(Premiums received - $4,464) ($1,725)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities (-1.8%) ($516,439)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net Assets (100%) $28,626,076
- -----------------------------------------------------------------------------
* Non-income producing
+ Portion of the security is segregated as collateral for call options written.
Aggregate value of segregated securities - $91,500
SHEFFIELD INTERMEDIATE TERM BOND FUND
Portfolio of Investments
October 31, 1997
- -----------------------------------------------------------------------------
Short-term Investments (-0.1%) Par Value
- -----------------------------------------------------------------------------
UMB Bank Money Market
[cost - ($7,794)] ($7,794)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Common Stocks (11.1%) Shares
- -----------------------------------------------------------------------------
Auto - 1.2%
General Motors Corp. 1,450 $93,072
-------
Banking - 1.3%
JP Morgan & Co 900 99,338
------
Chemicals - 2.0%
DuPont (E.I.) De Nemours & Co. 1,330 75,644
Minnesota Mining & Mfg. Co. 855 78,232
-------
153,876
-------
Food-Tobacco - 1.3%
Philip Morris Cos., Inc. 2,475 98,072
------
Oil & Gas - 3.3%
Chevron Corp. 905 75,059
Exxon Corp. 1,690 103,829
Texaco, Inc. 1,300 74,181
-------
253,069
-------
Telephone - 1.0%
AT&T Corp. 1,600 78,200
------
Paper & Forest Products - 1.0%
International Paper Co. 1,700 76,500
------
- -----------------------------------------------------------------------------
Total Common Stocks
(cost - $543,030) $852,127
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Corporate Bonds and Notes (87.6%) Par Value
- -----------------------------------------------------------------------------
Aerospace - 5.2%
Lockheed Martin Corp. 7.25%
Guaranteed Notes 5/15/06 $100,000 $104,548
Raytheon Co 6.5% Notes 7/15/05 300,000 298,758
-------
403,306
-------
Banking - 10.6%
Banc One Corp. 7.25% Sub. Notes 8/1/02 250,000 260,140
Bankamerica Corp. 9.2% Sub. Notes
5/15/03 200,000 226,124
Bankers Trust New York Corp. 7.375%
Sub Notes 5/01/08 45,000 47,411
Chase Manhattan Corp. 7.125% Sub.
Notes 2/01/07 115,000 118,565
- -----------------------------------------------------------------------------
Corporate Bonds and Notes (continued) Par Value
- -----------------------------------------------------------------------------
Banking (cont.)
First Union National Bank Newark 7.125%
Med. Term Note 10/15/06 $100,000 $104,609
Wells Fargo & Co 7.125% Sub. Deb.
8/15/06 70,000 72,445
-------
829,294
-------
Commercial Services - 4.5%
Browning-Ferris Industries, Inc. 6.375%
Notes 1/15/08 150,000 148,413
Hertz Corp. 7.0% Sr Notes 4/15/01 200,000 204,492
-------
352,905
-------
Computer Systems - 1.3%
International Business Machines Corp.
6.375% Notes 6/15/00 100,000 100,778
-------
Food - Tobacco - 3.1%
Philip Morris Cos., Inc. 6.375%
Notes 2/1/06 250,000 243,160
-------
Containers - 3.3%
Crown Cork and Seal Co. 6.75% Notes
4/15/03 250,000 253,682
-------
Electrical Equipment - 4.1%
Eastman Kodak Co. 9.375% Deb. 3/15/03 100,000 114,368
Honeywell, Inc. 7.0% Notes 3/15/07 200,000 207,794
-------
322,162
-------
Electronics - 1.4%
Thermo Instrument 4.5% Conv. Deb. 10/15/03 100,000 106,500
-------
Electronics - Semiconductor - 2.6%
Applied Material 8.0% Sr. Notes 9/1/04 190,000 204,461
-------
Financial Services - 10.6%
MBNA Corp 6.875% Sr. Notes 6/1/05 250,000 253,143
Bear Stearns Co. 6.7% Sr. Notes 8/1/03 200,000 201,398
Countrywide Fund 6.87% Med. Term Notes
9/15/05 200,000 202,826
CUC International, Inc. 3.0% Conv.
Subnotes 2/15/02 150,000 169,312
-------
826,679
-------
Healthcare - 3.4%
Rhone-Poulenc 7.75% Notes 1/15/02 250,000 261,743
-------
Household Products - 4.2%
Black & Decker 6.625% Notes 11/15/00 320,000 323,331
-------
Personal & Business Credit - 12.0%
Associate Corp. of No. Amercia 6.375%
Sr. Notes 10/15/02 250,000 250,840
- -----------------------------------------------------------------------------
Corporate Bonds and Notes (continued) Par Value
- -----------------------------------------------------------------------------
Personal & Business Credit (cont.)
Household Financial Corp. 6.7% Notes
6/15/02 $180,000 $182,808
Transamerica Financial Corp. 7.5%
Sr. Notes 3/15/04 200,000 210,758
Ford Motor Credit 6.125% Notes 1/09/06 300,000 291,468
-------
935,874
-------
Other - 3.1%
Swedish Export Credit 9.875% Deb. 3/15/38 30,000 31,806
Service Corp. International 7.375%
Notes 4/15/04 200,000 209,314
-------
241,120
-------
Retail - 2.7%
Department Stores - 2.0%
Sears Roebuck Acceptance 6.75% Notes
9/15/05 150,000 151,952
-------
Specialty - 0.7%
Fruit of the Loom, Inc. 7.875% Sr.
Notes 10/15/99 50,000 51,334
------
Utilities - Electric & Gas - 5.2%
Baltimore Gas & Electric Co. 6.5% 1st
Ref. Mortgage Bonds 2/15/03 140,000 141,459
Commonwealth Edison Co. Mortgage
9.375% Bonds 2/15/00 250,000 266,285
-------
407,744
-------
Utilities - Natural Gas - 2.5%
Williams Corp. 6.25% Deb. 2/1/06 200,000 195,254
-------
Utilities - Telephone - 7.8%
Airtouch Communication, Inc. 7.0% Note
10/1/03 150,000 153,703
GTE Hawaiian Telephone 6.75% 1st
Mortgage 2/15/05 300,000 304,245
Pacific Bell 5.875% Debentures 2/15/06 154,000 149,397
-------
607,345
-------
- -----------------------------------------------------------------------------
Total Bonds and Notes
(cost $6,588,101) $6,818,624
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total Investments (98.5%)
(cost $7,123,337) $7,662,957
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities (1.4%) $113,378
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net Assets (100%) $7,776,335
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net Asset Value Per Share $9.68
- -----------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- -----------------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------------- ---------------------
Assets:
Investments at value (cost of
$18,518,155 and $7,123,337,
respectively) $29,144,240 $7,662,957
Receivables:
Interest --- 102,469
Dividends 24,493 746
Portfolio securities sold 1,448,426 144,926
Prepaid insurance 3,916 961
---------- ---------
Total assets 30,621,075 7,912,059
---------- ---------
Liabilities:
Investment securities purchased 1,644,393 104,225
Redemptions payable 280,079 8,607
Outstanding call options written 1,725 ---
Variation Margin -Due to broker 25,575 ---
Accrued expenses 43,227 22,892
--------- -------
Total liabilities 1,994,999 135,724
--------- -------
Net Assets Consisting of:
Undistributed net investment income ---- 27,107
Accumulated net realized gain 3,188,379 171,117
Unrealized appreciation on investments 10,628,824 539,620
Paid-in capital applicable to 1,549,488
and 803,558 shares outstanding,
respectively, of $.001 par value capital
stock; 5,000,000 shares authorized in
each fund 14,808,873 7,038,491
---------- ---------
Net Assets $28,626,076 $7,776,335
----------- ----------
Net Asset Value Per Share $18.47 $9.68
====== =====
See accompanying notes to financial statements.
- -----------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
- -----------------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------------- ------------------
Investment Income:
Interest $ 2,323 $ 458,970
Dividends 438,773 27,791
------- -------
Total income 441,096 486,761
------- -------
Expenses:
Investment advisory fee 281,798 74,189
Investment advisory fee waived --- (18,568)
Administration fee 48,000 48,000
Administrative fee waived --- (25,000)
Transfer agency fee 10,000 10,000
Distribution expenses 6,372 6,372
Custodian fees 13,858 4,370
Registration and filing fees 2,070 2,070
Professional fees 9,555 14,162
Directors fees 4,800 4,800
Printing and postage 2,138 2,116
Insurance expense 10,238 2,456
Other 1,818 738
------- -------
Total expenses 390,647 125,705
------- -------
Net investment income 50,449 361,056
------- -------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 3,217,997 175,789
Net realized loss on futures (29,618) (4,672)
Change in unrealized appreciation
on investments 4,138,787 145,812
--------- -------
Net gain on investments 7,327,166 316,929
--------- -------
Net increase in net assets from
operations $7,377,615 $677,985
========== ========
- -----------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
Sheffield Total
Return Fund
--------------------------------
Year ended Year ended
10/31/97 10/31/96
----------- ----------
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 50,449 $ 156,995
Net realized gain on investments 3,217,997 1,446,749
Net realized loss on futures (29,618) (52,828)
Change in unrealized appreciation
on investments 4,138,787 3,183,317
--------- ---------
Increase in net assets from
operations 7,377,615 4,734,233
--------- ---------
Dividends to shareholders from:
Net investment income (140,480) (184,571)
Realized gains (1,393,921) (829,079)
---------- --------
Total distributions to shareholders (1,534,401) (1,013,650)
---------- ----------
Capital transactions:
Proceeds from shares issued
through exchange 607,700 1,148,180
Proceeds from reinvestment of
dividends 1,534,401 1,013,650
Proceeds from other shares sold 3,921,020 826,934
Cost of shares reacquired through
exchange (1,428,074) (589,520)
Cost of other shares reacquired (7,109,556) (2,427,588)
---------- ----------
Decrease in net assets from capital
share transactions (2,474,509) (28,344)
---------- -------
Total increase 3,368,705 3,692,239
--------- ---------
Net Assets:
Beginning of period 25,257,371 21,565,132
----------- -----------
End of period $28,626,076 $25,257,371
=========== ===========
Capital transactions in number of shares:
Shares issued through exchange 35,258 87,222
Shares issued in connection with
reinvestment of dividends 101,281 79,878
Other shares sold 225,193 57,467
Shares reacquired through
exchange (85,920) (42,231)
Other shares reacquired (407,410) (177,948)
-------- --------
Net increase (decrease) in shares
outstanding (131,598) 4,388
======== =====
See accompanying notes to financial statements.
- -----------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
Sheffield Intermediate
Term Bond Fund
------------------------------
Year ended Year ended
10/31/97 10/31/96
---------- ----------
Increase (Decrease) in Net Assets:
Operations:
Net investment income $361,056 $307,236
Net realized gain on investments 175,789 244,750
Net realized gain (loss) on futures (4,672) 1,759
Change in unrealized appreciation
on investments 145,812 (55,492)
------- -------
Increase in net assets from
operations 677,985 498,253
------- -------
Dividends to shareholders from:
Net investment income (361,746) (308,895)
Realized gains (246,509) (85,839)
-------- --------
Total distributions to shareholders (608,255) (394,734)
-------- --------
Capital transactions:
Proceeds from shares issued through
exchange 1,428,074 589,520
Proceeds from reinvestment of
dividends 608,255 394,734
Proceeds from other shares sold 2,349,300 921,628
Cost of shares reacquired through
exchange (607,700) (1,148,180)
Cost of other shares reacquired (2,931,312) (1,735,152)
---------- ----------
Increase (decrease) in net assets
from capital share transactions 846,617 (977,450)
------- --------
Total increase (decrease) 916,347 (873,931)
------- --------
Net Assets:
Beginning of period 6,859,988 7,733,919
--------- ---------
End of period $7,776,335 $6,859,988
========== ==========
Capital transactions in number of shares:
Shares issued through exchange 152,250 62,061
Shares issued in connection with
reinvestment of dividends 64,672 41,663
Other shares sold 247,558 96,899
Shares reacquired through exchange (63,344) (119,339)
Other shares reacquired (304,822) (180,660)
-------- --------
Net increase (decrease) in shares
outstanding 96,314 (99,376)
====== =======
- -----------------------------------------------------------------------------
Financial Highlights
- -----------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD TOTAL RETURN FUND
---------------------------
Year ended October 31,
<CAPTION>
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.02 $12.86 $11.53 $12.71 $12.30
------ ------ ------ ------ ------
Income from investment operations:
Net investment income .03 .09 .11 .10 .12
Net gains (losses) on securities (both realized
and unrealized) 4.38 2.67 1.68 (.38) 1.75
---- ---- ---- ---- ----
Total from investment operations 4.41 2.76 1.79 (.28) 1.87
---- ---- ---- ---- ----
Less Distributions:
Dividends (from net investment income) (.09) (.11) (.12) (.11) (.12)
Distributions (from realized gains) (.87) (.49) (.34) (.79) (1.34)
---- ---- ---- ---- -----
Total distributions (.96) (.60) (.46) (.90) (1.46)
---- ---- ---- ---- -----
Net Asset Value, end of period $18.47 $15.02 $12.86 $11.53 $12.71
====== ====== ====== ====== ======
Total return 30.79% 22.36% 16.33% -2.31% 16.59%
Ratios/supplemental data:
Net assets, end of period (000's) $28,626 $25,257 $21,565 $18,185 $27,504
Ratio of expenses to average net assets 1.39% 1.44% 1.60% 1.50% 1.47%
Ratio of net investment income to average
net assets .18% .66% .90% .83% 1.00%
Portfolio turnover rate 42.09% 57.17% 55.16% 51.25% 100.28%
Average commission per share+ $.0769 $.0755 (a) (a) (a)
</TABLE>
- ----------------------------------------------------------------------------
+ Computed by dividing total amount of commission paid by total number of
shares purchased and sold during the period for which there was a
commission charged.
(a) Disclosure not applicable to prior periods.
See accompanying notes to financial statements.
- -----------------------------------------------------------------------------
Financial Highlights
- -----------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD INTERMEDIATE TERM BOND FUND
-------------------------------------
Year ended October 31,
<CAPTION>
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.70 $9.59 $9.06 $10.14 $9.98
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .45 .46 .53 .48 .52
Net gains (losses) on securities (both realized and
unrealized) .37 .24 .60 (.71) .32
----- ----- ----- ----- -----
Total from investment operations .82 .70 1.13 (.23) .84
----- ----- ----- ----- -----
Less Distributions:
Dividends (from net investment income) (.47) (.47) (.57) (.45) (.58)
Distributions (from realized gains) (.37) (.12) (.03) (.40) (.10)
----- ----- ----- ----- -----
Total distributions (.84) (.59) (.60) (.85) (.68)
----- ----- ----- ----- -----
Net Asset Value, end of period $9.68 $9.70 $9.59 $9.06 $10.14
===== ===== ===== ===== ======
Total return 8.97% 7.64% 12.89% -2.42% 8.73%
Ratios/supplemental data:
Net assets, end of period (000's) $7,776 $6,860 $7,734 $9,284 $7,698
Ratio of expenses to average net assets 1.69%+ 1.86%+ 1.78%+ 2.08%+ 2.04%+
Ratio of net investment income to average
net assets 4.87% 4.87% 5.61% 5.01% 5.19%
Portfolio turnover rate 46.54% 33.65% 34.99% 30.38% 21.70%
Average commission per share++ $ .0800 $ .0791 (a) (a) (a)
</TABLE>
- ----------------------------------------------------------------------------
+ Without the waiver of advisory and administration fees, the ratios of
expenses to average net assets for the Intermediate Term Bond Fund would
have been 2.28%, 2.47%, 2.03%, 2.34%, and 2.17% for the years ending 1997,
1996, 1995, 1994, and 1993, respectively.
++ Computed by dividing total amount of commission paid by total number
of shares purchased and sold during the period for which there was a
commission charged.
(a) Disclosure not applicable to prior periods.
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. The Sheffield
Funds, Inc. (SFI) is registered under the Investment Company Act of 1940 as
an open-end diversified management investment company. SFI consists of two
separate funds, the Sheffield Total Return Fund (the "Total Return Fund")
and the Sheffield Intermediate Term Bond Fund (the "Bond Fund"), each of
which represents a separate portfolio of investments (collectively, "the
Funds"). SFI commenced operations on April 2, 1990. The following is a
summary of significant accounting policies followed by SFI:
A. SECURITY VALUATION - Equity securities listed or traded on a national
securities exchange are valued at the last sale price on the day of
valuation or, if no sale is reported, at the latest bid price. Bonds and
other fixed income securities are valued on the basis of prices furnished
by an independent pricing service. Convertible bonds are valued at the
mean of bid and asked prices if available, or if not available, on the
basis of prices furnished by an independent pricing service. Short-term
obligations with maturities of sixty days or less are valued at amortized
cost, which approximates market.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and
includes the amortization of discounts and premiums on the purchase of debt
securities. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are reported on an
identified cost basis.
C. FUTURES CONTRACTS - The Funds may purchase financial futures contracts in
order to invest excess cash or to provide liquidity for redemption
requests. The Funds may sell financial futures as a means to reduce market
risk. Upon entering into a futures contract, the Funds are required to
deposit with a broker an amount ("initial margin") equal to a certain
percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the
Funds dependent on the daily fluctuations in the value of the unrealized
gains and losses on the futures contracts. If the Funds enter into a
closing transaction, the Funds will realize, for book purposes, a gain or
loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. The Funds may be subject to risk
upon entering into futures contracts resulting from the imperfect
correlation of prices between the futures and securities markets. At
October 31, 1997, there were no open futures contracts.
D. OPTION WRITING - When the Funds write an option, an amount equal to the
premium received by the Funds is recorded as a liability and is
subsequently adjusted to the current market value of the option written.
Premiums received from writing options which expire unexercised are
treated by the Funds on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions,
is also treated as a realized gain, or if the premium is less than the
amount paid for the closing purchase transaction, as a realized loss. If
a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security or currency in determining whether the
Funds have realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the securities purchased by the Funds.
The Funds as writer of an option bear the market risk of an unfavorable
change in the price of the security underlying the written option.
E. FEDERAL INCOME TAXES - No provision for federal income taxes is required
since each fund intends to continue to qualify as a regulated investment
company and make distributions of investment income and net realized
capital gain, if any, to relieve it from all federal income taxes.
At October 31, 1997, the aggregate cost of securities for federal income
tax purposes for the Total Return Fund was $18,551,906 and net unrealized
appreciation aggregated $10,626,085 of which $10,742,658 related to
appreciated securities and $116,573 related to depreciated securities.
Net appreciation on call options outstanding amounted to $2,739. The
aggregate tax cost of securities for the Bond Fund was $7,123,337 and net
unrealized appreciation aggregated $539,620, of which $542,578 related to
appreciated securities and $2,958 related to depreciated securities.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
are recorded by the Funds on the ex-dividend date. The primary reason
for the difference between net investment income and realized gains and
the related distributions relates to the regulatory timing and
calculation of distribution.
G. 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.
NOTE 2. INVESTMENT ADVISORY AND OTHER AGREEMENTS. Sheffield Investment
Management, Inc. (SIMI) serves as the investment adviser, transfer agent and
administrator for SFI. Pursuant to the terms of the Investment Advisory
Agreement between SIMI and SFI, SIMI receives an investment advisory fee from
each fund. This fee is accrued daily and paid monthly.
The fee is based on an annual rate of 1% of the first $50 million of each
fund's net assets; .75% of the next $50 million of net assets and .6% of net
assets in excess of $100 million. Beginning April 1, 1993, SIMI has been
waiving advisory fees for the Bond Fund to a level of .75% of net assets.
Total advisory fees waived during the year ended October 31, 1997, amounted
to approximately $18,500.
SFI has entered into an Administrative Agreement with SIMI pursuant to which
SIMI provides various administrative services required by the Funds. For
its services, SIMI receives a fee from each fund at the annual rate of the
greater of .15% of each fund's average daily net assets or the actual cost to
SIMI to provide such services up to $48,000 per fund. During the year ended
October 31, 1997, SIMI waived administrative fees to the Bond Fund amounting
to approximately $25,000.
In accordance with a Transfer Agency Agreement with SFI and SIMI, various
services are provided to the stockholders of the Funds. These services
include, in part, the processing of purchase and redemption requests,
transfer and exchange requests, distributions and general stockholder
inquiries. For its services SIMI receives from each fund a monthly fee at
an annual rate of the greater of $10,000 per fund or $15 per stockholder
account.
Alpha-Line Investments, Inc. (the Underwriter), an affiliate of SIMI, is the
principal and underwriter for SFI pursuant to a Distribution Agreement. Each
fund has agreed to pay the Underwriter, pursuant to a Rule 12b-1 Plan of
Distribution, such amounts as necessary in order to reimburse distribution,
maintenance, service cost, and overhead with respect to marketing the shares
of each fund. The total allowable amount of fund reimbursement to the
Underwriter is limited to .0625% per quarter of each fund's net asset value.
NOTE 3. SECURITIES TRANSACTIONS. For the year ended October 31, 1997,
purchases and sales proceeds of securities, other than short-term and U.S.
Government Securities, for each of the Funds were as follows:
Total Return Intermediate Term
Fund Bond Fund
--------------------------- -------------------------
Purchases Sales Purchases Sales
------------ ------------ ----------- -----------
$ 11,768,044 $ 12,279,935 $ 3,985,914 $ 3,184,514
The Total Return Fund had transactions in call options as follows:
Number of
Contracts Premiums
--------- --------
Options outstanding at
October 31, 1996 40 $11,920
Options written 362 78,375
Options bought back (290) (54,356)
Options written - expired (73) (25,059)
Options purchased (140) (9,927)
Options sold 130 8,397
Options purchased - expired 10 1,530
Options assigned (27) (6,416)
----- -------
Options outstanding at
October 31, 1997 12 $4,464
== ======
NOTE 4. RELATED PARTY STOCKHOLDERS. At October 31, 1997, the Sheffield
Investment Management, Inc. Profit Sharing Plan owned 4,655 shares of the
Bond Fund and 14,685 shares of the Total Return Fund. The President of SIMI
and related family members owned 3,192 shares of the Total Return Fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Sheffield Funds, Inc.
- ----------------------------------------------------------------------------
We have audited the accompanying statements of assets and liabilities of The
Sheffield Funds, Inc. (consisting of the Sheffield Total Return Fund and the
Sheffield Intermediate Term Bond Fund), including the portfolios of
investments, as of October 31, 1997, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended and the financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting The Sheffield Funds, Inc. as
of October 31, 1997, the results of their operations, the changes in their
net assets and their financial highlights for each of the respective periods
stated in the first paragraph, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
December 9, 1997
