As filed with the Securities and Exchange Commission on February 28, 1997
Registration No. 33-32620
Registration No. 811-5886
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 9
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 10
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THE SHEFFIELD FUNDS, INC.
(Exact name of Registrant as specified in Charter)
900 Circle 75 Parkway, Suite 750
Atlanta, Georgia 30339-3082
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (770)953-1597
-------------------------------
Roger A. Sheffield, C.F.A.
900 Circle 75 Parkway, Suite 750
Atlanta, Georgia 30339-3082
(Name and Address for Agent for Service)
------------------------------
With a copy to:
Reinaldo Pascual, Esq.
Kilpatrick Stockton LLP
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box)
__ immediately upon filing pursuant to paragraph (b)
X on March 1, 1997 pursuant to paragraph (b)
__ 60 days after filing pursuant to paragraph (a)(1)
__ on (date) pursuant to paragraph (a)(1)
__ 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 hereby registers an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940. The Registrant will file the Rule 24f-2 Notice for its
fiscal year ended October 31, 1996 on or about December 31, 1996.
THE SHEFFIELD FUNDS
Cross Reference Sheet between Registration Statement and
Form of Prospectus and Statement of Additional Information
Registration Statement Prospectus Heading
Item Number and Caption or Subheading
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Part A. INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page...................................... Cover Page
2. Synopsis........................................ Prospectus Summary
3. Condensed Financial Information................. Condensed Financial
Information
4. General Description of Registrant............... The Funds and Their
Investment Objective
and Policies
5. Management of the Fund.......................... Management and
Administration;
Miscellaneous
6. Capital Stock and other Securities.............. Capitalization
7. Purchase of Securities Being Offered............ How to Purchase Shares;
The Distributor; Plans
of Distribution
8. Redemption or Repurchase........................ Redemption of Shares
9. Legal Proceedings............................... Not Applicable
Part B. INFORMATION REQUIRED IN A STATEMENT OF Statement Heading
ADDITIONAL INFORMATION or Subheading
10. Cover Page...................................... Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. Prospectus - The Funds
and Their Investment
Objectives and Policies
13. Investment Objectives and Policies.............. Investment Objectives
and Policies;
Prospectus - The Funds
and Their Investment
Objectives and Policies
14. Management of the Registrant.................... Officers and Directors;
Prospectus - Management
Administration;
Prospectus - Officers
and Directors
15. Control Persons and Principal Holders of
Securities................................... Miscellaneous
16. Investment Advisory and Other Services.......... The Advisory Agreement;
The Administration
Agreement; Prospectus -
Management and
Administration
17. Brokerage Allocation............................ Brokerage and Portfolio
Transactions
18. Capital Stock and Other Securities.............. Prospectus -
Capitalization
19. Purchase, Redemption and Pricing of
Securities Being Offered..................... Prospectus - Plan of
Distribution;
Prospectus - How to
Purchase Shares;
Prospectus - Redemption
of Shares; Prospectus -
Valuation of Shares;
Distribution of Shares;
Distribution and Tax
Information; Net Asset
Value
20. Tax Status.................................... Distributions and Tax
Information
21. Underwriters.................................. The Distributor
22. Calculation of Performance Data............... Prospectus -
Miscellaneous
23. Financial Statements.......................... Financial Statements
PROSPECTUS MARCH 1, 1997
THE SHEFFIELD FUNDS, INC.
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The Sheffield Funds, Inc. ("Sheffield") is an open-end, diversified management
investment company presently consisting of two separate funds (the "Funds"),
each of which represents a separate portfolio of investments. The Funds
comprising Sheffield are the Sheffield Total Return Fund (the "Total Return
Fund") and the Sheffield Intermediate Term Bond Fund (the "Bond Fund").
The Total Return Fund seeks a combination of long-term capital appreciation and
current income, commonly referred to as total return, by investing in equity
securities of issuers who have, in the aggregate, the prospect for above average
growth of earnings and dividends. The Bond Fund's primary investment objective
is to seek current income by investing primarily in intermediate-term corporate
bonds and notes. The Bond Fund's secondary investment objective is capital
appreciation.
The Funds are not appropriate investment vehicles for investors who engage in
short-term trading and/or other speculative strategies and styles.
This Prospectus sets forth concise information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information about the Funds (dated March 1, 1997)
has been filed with the Securities and Exchange Commission ("SEC") and is
available without charge upon request to Alpha-Line Investments, Inc., 900
Circle 75 Parkway, Suite 750, Atlanta, Georgia 30339-3082. This Statement
(which is incorporated in its entirety by reference in this Prospectus)
contains more detailed information about the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Prospectus Summary..............................................2
The Funds' Expenses.............................................4
Condensed Financial Information.................................5
Benefits to Investors...........................................7
The Funds and Their Investment Objectives and Policies..........7
The Total Return Fund...................................7
The Bond Fund...........................................8
Other Policies Relevant to the Funds....................9
Management and Administration..................................11
The Investment Adviser.................................11
The Administrator......................................12
Officers and Directors.........................................13
The Distributor................................................14
Plans of Distribution..........................................14
Valuation of Shares............................................15
Distribution and Tax Information...............................15
Distributions..........................................15
Federal Taxes..........................................15
Distribution Reinvestment Plan.........................16
How to Purchase Shares.........................................16
Redemption of Shares...........................................19
Capitalization.................................................21
Stockholders' Reports..........................................22
Miscellaneous..................................................22
Legal Opinions.................................................23
SUMMARY
_______________________________________________________________________________
INVESTMENT OBJECTIVES
The Total Return Fund seeks a combination of long-term capital appreciation and
current income, commonly referred to as total return, by investing in equity
securities of issuers who have, in the aggregate, the prospect for above
average growth of earnings and dividends. The Fund may also invest up to 25%
of its assets in convertible securities (e.g., securities convertible into
equity securities including debt securities and preferred stock). Up to 10% of
the Total Return Fund's portfolio may be invested in convertible securities
rated BB by Standard & Poor's or Ba by Moody's. See "The Funds and Their
Investment Objectives and Policies."
The Bond Fund's primary investment objective is to seek current income by
investing primarily in intermediate-term corporate bonds and notes. The Bond
Fund's secondary investment objective is capital appreciation. During normal
market conditions, the Bond Fund will invest at least 65% of its assets in
bonds and notes. The average dollar weighted maturity of the Bond Fund's
portfolio will be in the three to seven-year range. The Bond Fund may also
invest up to 10% of its assets in shorter-term obligations. The Bond Fund will
invest in debt issues rated in Standard & Poor's or Moody's top four rating
categories for credit and safety purposes. The Bond Fund may also invest up to
25% of the Bond Fund's assets in equity securities and/or securities
convertible into equity securities. Up to 10% of the Bond Fund's portfolio may
be invested in convertible securities rated BB by Standard & Poor's or Ba by
Moody's. See "The Funds and Their Investment Objectives and Policies."
Risk Factors. The Funds may invest up to 10% of their assets in foreign
securities and American Depository Receipts of foreign companies. For certain
investment and risk considerations associated with these investments, see
"Other Policies Relevant to the Funds - The Funds' Investments in Foreign
Securities." The Funds may also engage in purchasing and selling (writing) put
options and covered call options on specific securities, purchasing and selling
put and call options on stock indexes and purchasing and selling financial
futures contracts. For certain investment considerations and risks associated
with these activities, see "Other Policies Relevant to the Funds - Options and
Financial Futures."
Since investment in securities involves potential gain or loss, there is no
assurance that the Funds will attain their stated investment objectives.
_______________________________________________________________________________
MANAGEMENT AND ADMINISTRATION
INVESTMENT ADVISER. Sheffield Investment Management, Inc. serves as investment
adviser to the Funds and is compensated for its services at an annual rate
equal to 1.00% of each Fund's average net assets up to $50 million; 0.75% of
each Fund's average net assets in excess of $50 million but not more than $100
million; and 0.60% of each Fund's average net assets in excess of $100 million.
Since April 1, 1993, the Adviser has been compensated at a rate of .75% of
average net assets for the Bond Fund, representing a voluntary waiver of
advisory fees of .25%. The Adviser and its predecessors have been continually
registered under the Investment Advisers Act of 1940 since 1975. In
addition to the Funds, the Adviser manages client funds on both a discretionary
and non-discretionary basis. See "Management and Administration."
ADMINISTRATOR. Sheffield Investment Management, Inc. also provides the Funds
with administration services which include determining and calculating each
Fund's net asset value; overseeing maintenance of books and records of each
Fund required by the Investment Company Act of 1940 and preparing financial
information for each Fund's semi-annual and annual reports to stockholders.
The Administration Agreement provides that, as compensation for its
administration services, Sheffield Investment Management, Inc. may receive from
each Fund a monthly fee at an annual rate of the greater of either (i) 0.15% of
each Fund's average net assets, or (ii) a fee based on its reasonable cost of
performing its services, provided, however, that such cost may not exceed
$48,000 per Fund. During the fiscal year ended October 31, 1996, the
Administrator waived administrative fees to the Bond Fund amounting to
approximately $23,000. See "Management and Administration."
______________________________________________________________________________
HOW TO PURCHASE SHARES
Alpha-Line Investments, Inc. serves as the principal underwriter and
distributor of shares of the Funds. Shares of the Funds may be purchased
from Alpha-Line at the next determined net asset value following receipt by
the Funds' transfer agent of a proper Account Application Form, and receipt by
the Funds' custodian of your investment. The minimum initial purchase for
either or both Funds must be equal to or greater than $100,000. The minimum
investment in either Fund is $5,000. You will be given credit toward the
minimum purchase requirement for amounts which you have invested in any of the
Funds. There are no charges on purchases of the Funds' shares. See "How to
Purchase Shares."
_______________________________________________________________________________
REDEMPTIONS AND EXCHANGES
You may withdraw any portion of the funds in your account by redeeming shares
at any time. You may only initiate a redemption request by notifying the
Funds' transfer agent in writing. The amount paid upon redemption will be
the net asset value per share next determined after the transfer agent has
received all required documents in good order. Payment will be made within
three business days thereafter. Stockholders of either Fund may also exchange
shares of their respective Fund for shares of the other Fund by complying with
the requirements for redemptions. There is no charge in connection with the
redemption or exchange of shares. See "Redemption of Shares."
______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
It is the Funds' intention to distribute to stockholders each Fund's net
investment income and net realized capital gain, if any. The Total Return Fund
will make annual distributions of its net investment income and its net
realized capital gain. The Bond Fund will make quarterly distributions of its
net investment income and an annual distribution of its net realized capital
gain. All distributions will be reinvested automatically in additional shares
(or fractions thereof) of each applicable Fund pursuant to such Fund's
Distribution Reinvestment Plan unless a stockholder has elected not to
participate in this plan or has elected to terminate his participation in the
plan and to receive his distributions in cash.
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THE FUNDS' EXPENSES
The following tables provide information concerning expenses for stockholder
transactions and annual operating expenses of the Funds. Expenses shown are
actual for the year ended October 31, 1996. The purpose of these tables is to
assist you in understanding the various costs and expenses that you would bear
directly or indirectly as an investor in the Funds. For a more detailed
description of such costs and expenses, see "Management and Administration,"
"Plans of Distribution," and "Miscellaneous."
Shareholder Transaction Expenses
Sales Load Imposed on Purchases....................None
Sales Load Imposed on Reinvested Dividends.........None
Redemption Fees....................................None
Exchange Fees......................................None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Total Return Intermediate Term
Fund Bond Fund
------------- -----------------
Investment Advisory Fees........... 1.00%* .75%*
12b-1 Fees......................... .02%** .11%**
Other Operating Expenses........... .42% 1.00%***
------ ------
Total Operating Expenses........... 1.44%**** 1.86%****
====== ======
____________________
* The Investment Advisory Agreement provides that investment advisory fees
on an annual basis are equal to 1.00% of the average net asset value of
net assets up to $50 million; 0.75% of the average net asset value of
net assets in excess of $50 million but not more than $100 million; and
0.60% of the average net asset value of net assets in excess of $100
million. Since April 1, 1993, the Adviser has been voluntarily waiving
.25% of its advisory fee to the Bond Fund.
** Each Fund has adopted a plan of distribution which provides that each
Fund may incur certain distribution and maintenance fees which may not
exceed a maximum amount equal to 0.0625% of the applicable Fund's
average daily net assets for a fiscal quarter (approximately .25%
annually).
*** During the fiscal year ended October 31, 1996, the Administrator waived
administrative fees to the Bond Fund amounting to approximately $23,000.
**** If the maximum 12b-1 expenses had been incurred during the period for
both Funds and the voluntary partial waiver of the Bond Fund's advisory
and administrative fees had not been in effect, total operating expenses
would have been 1.67%, and 2.62%, respectively.
The following example illustrates the expenses that you would incur on a $1,000
investment over various time periods, assuming an operating expense ratio of
1.44% for the Total Return Fund and 1.86% for the Bond Fund, a 5% annual rate of
return and redemption at the end of each period.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Return Fund $15 $46 $79 $172
Bond Fund $19 $58 $101 $218
THE 5% RATE OF RETURN IS HYPOTHETICAL, AND THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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CONDENSED FINANCIAL INFORMATION
The Funds' annual report to shareholders contains further information about
the performance of the Funds, and is separately available without charge. The
following financial highlights are part of the Funds' financial statements
which have been audited by Coopers & Lybrand L.L.P., the Funds' independent
accountants.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
<TABLE>
TOTAL RETURN FUND
Year ended October 31,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.86 $11.53 $12.71 $12.30 $11.82 $ 8.48 $10.00
------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .09 .11 .10 .12 .09 .09 .11
Net gains (losses) on securities
(both realized and unrealized) 2.67 1.68 (.38) 1.75 .47 3.37 (1.63)
----- ----- ----- ----- ---- ----- ------
Total from investment operations 2.76 1.79 (.28) 1.87 .56 3.46 (1.52)
----- ----- ----- ----- ---- ----- ------
Less Distributions:
Dividends (from net investment
income) (.11) (.12) (.11) (.12) (.08) (.12) ----
Distributions (from capital
gains) (.49) (.34) (.79) (1.34) ---- ---- ----
----- ----- ----- ----- ---- ---- ----
Total distributions (.60) (.46) (.90) (1.46) (.08) (.12) (----)
----- ----- ----- ----- ---- ---- ----
Net Asset Value, end of period $15.02 $12.86 $11.53 $12.71 $12.30 $11.82 $ 8.48
====== ====== ====== ====== ====== ====== ======
Total return 22.36% 16.33% -2.31% 16.59% 4.79% 41.26% -15.20%**
Ratios/supplemental data
Net assets, end of period (000's) $25,257 $21,565 $18,185 $27,504 $19,380 $16,232 $10,756
Ratio of expenses to
average net assets 1.44% 1.60% 1.50% 1.47% 1.66% 1.86% 1.28%**+
Ratio of net investment
income to average net assets .66% .90% .83% 1.00% .82% .90% 1.13%**
Portfolio turnover rate 57.17% 55.16% 51.25% 100.28% 119.87% 65.48% 61.26%
Average commission per share ++ $.076 (a) (a) (a) (a) (a) (a)
</TABLE>
* Results are for the seven-month period from April 2, 1990 (inception)
through October 31, 1990. Per share data has been adjusted retroactively
for the 10 for 1 stock split paid May 25, 1990.
** Not annualized.
+ Without the waiver of administration fees, the ratios of expenses to
average net assets for the Total Return Fund would have been 1.37% in 1990.
++ Computed by dividing total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
(a) Disclosure not applicable to prior periods.
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CONDENSED FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
<TABLE>
INTERMEDIATE TERM BOND FUND
Year ended October 31,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.59 $9.06 $10.14 $ 9.98 $ 9.81 $ 9.23 $10.00
------ ----- ------ ----- ------ ------ ------
Income from investment operations:
Net investment income .46 .53 .48 .52 .58 .59 .36
Net gains (losses) on securities
(both realized and unrealized) .24 .60 (.71) .32 .17 .70 (1.00)
------ ----- ----- ----- ------ ------ ------
Total from investment operations .70 1.13 (.23) .84 .75 1.29 (.64)
------ ----- ----- ----- ------ ------ ------
Less Distributions:
Dividends (from net investment
income) (.47) (.57) (.45) (.58) (.58) (.71) (.13)
Distributions (from capital gains) (.12) (.03) (.40) (.10) --- --- ---
----- ----- ----- ----- ---- ----- ------
Total distributions (.59) (.60) (.85) (.68) (.58) (.71) (.13)
----- ----- ----- ----- ---- ----- ------
Net Asset Value, end of period $9.70 $ 9.59 $ 9.06 $10.14 $ 9.98 $ 9.81 $ 9.23
===== ====== ====== ====== ====== ====== ======
Total return 7.64% 12.89% -2.42% 8.73% 7.78% 14.47% -6.43%**
Ratios/supplemental data
Net assets, end of period (000's) $6,860 $7,734 $9,284 $7,698 $11,973 $9,874 $8,337
Ratio of expenses to average
net assets 1.86%+ 1.78%+ 2.08%+ 2.04%+ 1.91% 2.30% 1.54%**+
Ratio of net investment income to
average net assets 4.87% 5.61% 5.01% 5.19% 5.87% 6.20% 3.66%**
Portfolio turnover rate 33.65% 34.99% 30.38% 21.70% 59.54% 48.57% 24.71%
Average commission per share ++ $.079 (a) (a) (a) (a) (a) (a)
</TABLE>
* Results are for the seven-month period from April 2, 1990 (inception)
through October 31, 1990. Per share data has been adjusted retroactively
for the 10 for 1 stock split paid May 25, 1990.
** Not annualized.
+ Without the waiver of advisory or administration fees, the ratios of
expenses to average net assets for the Intermediate Term Bond Fund would
have been 2.47%, 2.03%, 2.34%, 2.17%, and 1.67% for the years 1996, 1995,
1994, 1993, and 1990, respectively.
++ Computed by dividing total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
(a) Disclosure not applicable to prior periods.
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BENEFITS TO INVESTORS
The Funds offer several important benefits to investors:
* Professionally managed portfolios of securities, providing investment
diversification that is otherwise beyond the means of many individual
investors.
* A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
* Investment liquidity through convenient purchase and redemption procedures.
* Consolidated year-end tax information.
* Enhanced ability to engage in asset allocation activities quickly and
without transaction charges.
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THE FUNDS AND THEIR INVESTMENT OBJECTIVES AND POLICIES
The Sheffield Funds, Inc. ("Sheffield") is a diversified open-end, management
investment company consisting of two separate portfolios (the "Funds"), each of
which represents a separate portfolio of investments. The Funds presently
comprising Sheffield are the Sheffield Total Return Fund (the "Total Return
Fund") and the Sheffield Intermediate Term Bond Fund (the "Bond Fund").
Sheffield was organized on November 21, 1989 under the laws of the State of
Maryland.
An investment in the Funds cannot be considered a complete investment program.
Different investors may have different investment needs depending on their
financial resources and investment goals and objectives. The Funds are not
appropriate investment vehicles for investors who engage in short-term trading
and/or other speculative strategies and styles.
THE TOTAL RETURN FUND
The investment objective of the Total Return Fund is to achieve a combination
of long-term capital appreciation and current income, commonly referred to as
total return, by investing primarily in equity securities of issuers who have,
in the aggregate, the prospect for above average growth of earnings and
dividends. Above average growth refers to the actual or potential ability of
an issuer to increase its earnings and dividends at a rate greater than the
average growth rate of the broad market averages.
The equity securities in which the Total Return Fund may invest will generally
be publicly traded either on a national securities exchange, such as the New
York or American Stock Exchanges, or over-the-counter. The Fund has established
the following minimum investment standards which will generally apply with
respect to the issuers of the equity securities in which it may invest:
1. Must have at least one year of trading history.
2. Must have been profitable in at least one of the past three years.
3. Must have a minimum market capitalization of $100 million.
Typically, the equity securities chosen for the Total Return Fund will have a
record of paying an increasing stream of cash dividends over time. The Total
Return Fund may also invest in equity securities of issuers not having a record
of paying cash dividends if the Adviser believes that such securities have
unusually attractive long-term capital appreciation potential.
As a matter of fundamental investment philosophy, the Total Return Fund and the
Adviser believe that the Total Return Fund's total return objective (i.e.,
combining long-term capital appreciation and current income) will be maximized
by placing primary emphasis in equity securities. The Adviser believes that
equity securities have consistently provided long-term investors with higher
total returns, than, for example, corporate bonds and government securities.
However, the total return realized by the Total Return Fund over any
relatively short period of time (i.e., less than five years) may or may not
be as high as that of funds not placing primary emphasis on equity securities.
For example, funds having the ability to invest all or a large part of their
assets in fixed income securities or money market instruments during relatively
short periods may provide higher returns than funds placing primary emphasis on
equity securities during those periods.
In addition to equity securities, the Total Return Fund may invest up to 25% of
its assets in convertible securities and engage in other financial instruments
described under "Other Policies Relevant to the Funds."
THE BOND FUND
The Bond Fund's primary investment objective is to seek current income by
investing primarily in intermediate-term bonds and notes. The Bond Fund will
seek to achieve its current income investment objective by investing in a
variety of fixed income instruments including corporate bonds and notes, U.S.
Government securities, commercial paper, repurchase agreements and other short
- -term obligations and money market instruments. During normal market
conditions, the Bond Fund will invest at least 65% of its total assets in
bonds and notes. The Bond Fund may also invest up to 10% of its assets in
shorter-term obligations with maturities of one year or less.
The Bond Fund's secondary investment objective is capital appreciation. The
Fund will seek to achieve capital appreciation by investing up to 25% of the
Fund's assets in common stock and/or securities convertible into equity
securities.
The Fund will, except with respect to convertible securities, invest in debt
securities rated in Standard & Poor's or Moody's top four categories for credit
and safety purposes or non-rated issues if, in the opinion of the Adviser, such
issues are of a quality at least equal to a rating in the top four categories.
This will limit the Bond Fund's investment risk on its debt securities since it
may not invest in nonconvertible securities rated lower than BBB by Standard &
Poor's or Baa by Moody's at the time of the acquisition. Should the rating of
any debt issue decline after purchase below Standard & Poor's or Moody's top
four ratings, the Fund and the Adviser will reconsider the advisability of
continuing to hold such debt issue. Although generally considered "investment
grade" securities suitable for inclusion in virtually all fiduciary type
accounts, debt securities rated BBB by Standard & Poor's and Baa by Moody's
may have speculative characteristics. Under normal circumstances, debt
securities rated BBB and Baa are generally regarded as having adequate capacity
to pay interest and repay principal. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than debt securities in higher rated categories.
Investors should note that a rating is not a recommendation to purchase, sell
or hold a security. Although a credit rating evaluates the risk of default with
respect to the timely payment of principal or interest of a particular issue,
it does not evaluate its market risk due to interest rate movements. For
additional information about investment considerations associated with debt
securities and for a discussion of Standard & Poor's and Moody's ratings, see
the Statement of Additional Information "Investment Objectives and Policies--
Debt Securities" and Appendix A, respectively.
The average dollar weighted maturity of the Bond Fund's portfolio will be in
the three-to seven-year range. Investors should be aware that longer-term
bonds react with greater volatility to interest rate changes. Thus, while the
current yield on longer-term securities may be higher than the current yield
of intermediate-term issues at a given point in time, the volatility of the
principal value of the longer-term maturity issue over time may negate that
interest rate differential. The Adviser believes that with its intermediate-
term weighted average maturity structure, the Bond Fund will experience less
volatility than a portfolio having a longer average maturity.
In addition to debt securities, the Bond Fund may engage in other financial
instruments described under "Other Policies Relevant to The Funds."
OTHER POLICIES RELEVANT TO THE FUNDS
OPTIONS AND FINANCIAL FUTURES. The Funds may engage in options and financial
futures transactions. Each Fund's option activity (excluding writing covered
calls) will be limited such that the value of the securities underlying the
options will not exceed 15% of the Fund's total assets. The Funds will limit
their writing of covered calls to securities which do not constitute more than
25% of the Fund's total assets. The Funds may enter into financial futures
contracts (stock index futures in the Total Return Fund and futures on debt
instruments in the Bond Fund) provided that the aggregate margin requirement
does not exceed 5% of each Fund's total assets, and the aggregate value of the
futures contract does not exceed 25% of the respective Fund's total assets.
The Funds may purchase financial futures contracts and the Total Return Fund
may purchase call options on stock indexes to enable the Funds to maintain
their general philosophy of being fully invested during times in which the
Funds have excess cash or require liquidity to meet redemption requests.
Financial futures provide the additional advantage of minimum disruption to the
remaining portfolio to meet redemption requirements and may result in lower
trading costs. The Funds will not enter into purchases of options or futures
for the purpose of leveraging the portfolios.
As a means to reduce market risk during times when the Adviser believes the
markets to be experiencing increased volatility, the Funds may sell futures
contracts or purchase puts on market indexes or other appropriate financial
instruments. Since the Funds normally seek to be fully invested, this activity
would be infrequent. The Funds may, as a matter of course, enter into the sale
of a futures contract in order to close an outstanding long position in the
same contract.
The Funds may also engage in selling (writing) covered calls on a portion of
their portfolios for the purpose of earning additional return. If a Fund has
written a covered call option on a security, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing
an option of the same series as the option previously written.
There are several risks in connection with the use of options and financial
futures including: (1) an imperfect correlation between the change in the
market value of the Funds' portfolio securities and the prices of financial
futures contracts and options; (2) the lack of assurance that a liquid market
will exist and the resulting inability to close a futures or option position
when desired; and (3) the possibility that markets will not continue to become
more over-or undervalued after the Fund takes a position in options futures
contracts, and that the Funds may, therefore, incur losses.
For additional information regarding the Funds' investments in options and
financial futures, see Statement of Additional Information "Investment
Objectives and Policies--Options and Financial Futures."
POLICY AND RATIONALE OF THE FUNDS REGARDING CONVERTIBLE SECURITIES. Both Funds
are authorized to invest up to 25% of their respective net assets in
convertible securities.
The Funds may invest in a diversified portfolio of convertible securities of
United States companies that issue securities both in the United States and
abroad. These convertible securities may include convertible preferred stock,
convertible bonds, bonds with attached warrants, Eurodollar convertible
securities or other similar securities that may be converted into or exchanged
for a prescribed amount of common stock or other equity security of the same
or a different issuer within a particular period of time at a specified price
or formula.
Convertible securities are considered by the Adviser to be an attractive
investment vehicle for the Funds because they combine the benefits of (1)
higher current income than common stock generally provides, and (2) the
possibility of profiting from appreciation in the value of the underlying
equity security thereby increasing their total return over non-convertible
bonds.
Investors should be aware, however, that, as with all fixed income securities,
various market forces influence the market value of convertible securities,
including changes in the level of interest rates. As the level of interest
rates increases, the market value of convertible securities may decline and,
conversely, as interest rates decline, the market value of convertible
securities may increase. The unique investment characteristic of convertible
securities, generally the right to be exchanged for the issuer's common stock,
causes the market value of convertible securities to increase when the value
of the underlying common stock increases. Since securities prices fluctuate,
however, there can be no assurance that the market value of convertible
securities will increase. Convertible securities generally will not reflect
quite as great a degree of capital appreciation as their underlying stock.
When the underlying common stock is experiencing a decline, the value of
convertible securities tends to decline to a level approximating the yield-to-
maturity basis of straight non-convertible debt of similar quality, often
called "investment value." The bonds, however, may not experience the same
level of decline as the underlying common stock. Furthermore, as a result of
the conversion feature, the interest rate or dividend preference on
convertible securities is generally less than would be the case if the
securities were not convertible.
Both Funds may invest up to 10% of their assets in convertible debt securities
rated BB by Standard & Poor's or Ba by Moody's or non-rated issues if, in the
opinion of the Adviser, such securities are of a quality at least equal to a
rating of BB by Standard & Poor's or Ba by Moody's. Securities rated BB by
Standard & Poor's are considered, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms. Although debt securities rated BB by Standard &
Poor's will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions. Securities rated Ba by Moody's are also of poorer quality and may
be speculative investments; their ability to pay interest and principal cannot
be considered as well assured. With respect to investments in unrated
convertible debt securities, the Funds will be more reliant on the Adviser's
judgment and experience than would be the case if the Fund invested solely in
rated obligations.
Convertible securities may be subject to optional or mandatory call or
redemption provisions enabling the issuer to redeem or buy back the security
from a Fund for a variety of reasons depending on the terms of the particular
convertible security. To the extent a convertible security is called or
redeemed by the issuer, a Fund may be limited in its ability to realize
capital appreciation on that particular convertible security.
Convertible securities normally sell at a premium to their conversion value.
This premium may expand or contract depending upon either conditions unique to
the particular underlying common stock or movements in securities markets in
general.
For additional information regarding the Fund's investment in convertible
securities, see Statement of Additional Information "Investment Objectives and
Policies--Policy and Rationale of the Funds Regarding Convertible Securities."
THE FUNDS' INVESTMENTS IN FOREIGN SECURITIES. The Adviser may invest up to 10%
of the Total Return Fund's assets in dollar denominated foreign securities and
American Depository Receipts ("ADRs") of foreign companies. ADRs are
certificates representing ownership in foreign securities and are issued by a
bank which holds the underlying foreign securities in custody. Similarly, up
to 10% of the Bond Fund's assets may be invested in ADRs and dollar and/or
foreign denominated foreign securities provided they are rated A or better by
Standard & Poor's or Moody's at the time of acquisition. Should the ratings
of any foreign bond decline to a level below A, the Fund will endeavor to
dispose of that asset at the time it becomes aware of the downgrading.
Through investment in foreign securities, the Adviser attempts to take
advantage of differences between economic trends and the performance of
securities markets in various countries. The Adviser believes that it may be
possible to obtain appreciation from a portfolio consisting, in part, of
foreign investments and also achieve increased diversification. Increased
diversification may be gained by combining securities from various countries
that offer different investment opportunities and are affected by different
economic trends. The foreign securities purchased will be publicly traded
either on a national securities exchange or over-the-counter.
Investing in foreign securities involves the following risks not typically
associated with investing in U.S. securities: fluctuations in exchange rates
of foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought back to the
U.S.; lack of uniform accounting, auditing, and financial reporting standards;
lack of uniform settlement periods and trading practices; less liquidity and
frequently greater price volatility in foreign markets than in the United
States; possible expropriation or nationalization of assets; and possible
imposition of foreign taxes. Furthermore, the U.S. government has from time
to time in the past imposed restrictions, through taxation and otherwise, on
foreign investments by U.S. investors such as the Funds. See Statement of
Additional Information "Investment Objectives and Policies--Investment in
Foreign Securities."
PORTFOLIO TURNOVER. The Adviser does not intend to trade securities for short-
term profits. The Adviser believes that under normal market conditions
portfolio turnover should be less than 100% per year for the Total Return Fund
and less than 50% for the Bond Fund. "Portfolio turnover" results from a
change of the securities held by a Fund. A turnover rate of 100% would
indicate that all of the securities of the Fund were replaced within one year.
Portfolio turnover involves expense to the Fund in the form of brokerage
commissions and other transactions costs.
INVESTMENT RESTRICTIONS. In addition to the investment policies described in
this prospectus, the Funds' investment activities are subject to further
restrictions which are described in the Statement of Additional Information
under "Investment Objectives and Policies--Investment Restrictions."
GENERAL. The Funds should not be relied upon for short-term financial needs
nor are they meant to be vehicles for playing short-term fluctuations in the
interest rate cycle or short-term swings in the stock market. For temporary
defensive purposes, the Funds may invest in short-term debt instruments or
cash. The Total Return Fund will normally keep less than 2% of its assets
in short-term fixed income securities for general liquidity purposes. Both
Funds' net asset values will fluctuate based upon market conditions. (See
"Valuation of Shares.") The Funds cannot guarantee that they will meet
their investment objectives. For additional information regarding the
Funds' investment objectives see the Statement of Additional Information
under "Investment Objectives and Policies."
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MANAGEMENT AND ADMINISTRATION
THE INVESTMENT ADVISER
Pursuant to an Investment Advisory Agreement, Sheffield Investment Management,
Inc. (the "Adviser") manages the investment and reinvestment of each Fund's
assets and continuously reviews, supervises and administers each Fund's
investment program. The Adviser also determines, in its discretion, the
securities to be purchased or sold, subject to the ultimate supervision and
direction of Sheffield's Board of Directors. Pursuant to the Investment
Advisory Agreement, the Adviser will, at its own expense and at Sheffield's
request, provide the foregoing services and the office space, furnishings and
equipment, and the personnel as may be reasonably required in the judgment of
the Board of Directors to perform such services.
As compensation for its investment management services, the Adviser receives
from Sheffield an advisory fee which is computed daily and paid as of the last
day of each month on the basis of each Fund's daily net asset value, using for
each daily calculation the most recently determined net asset value of the
applicable Fund. On an annual basis the advisory fee as to each Fund is equal
to 1.00% of the average net asset value of net assets up to $50 million; 0.75%
of the average net asset value of net assets in excess of $50 million but not
more than $100 million; and 0.60% of the average net asset value of net assets
in excess of $100 million. Since April 1, 1993, the Adviser has been
compensated at a rate of .75% of average assets for the Bond Fund, representing
a voluntary waiver of advisory fees of .25% of average net assets. The portions
of the advisory fee which are equal to or higher than 0.75% of the average net
assets of each Fund are higher than those charged by investment advisers to
similar funds.
The Adviser has agreed that, if in any fiscal year the aggregate expenses of
any of the Funds (including investment management, administration, advisory and
distribution fees, but excluding interest, taxes, brokerage and, if permitted
by the relevant state securities commissions, extraordinary expenses) exceed
the expense limitation of any state having jurisdiction over any of the Funds,
it will reimburse such Fund for the excess expense to the extent required by
state law. An expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis. To the extent that any of the Funds are reimbursed
for excess expenses, such reimbursement will lower the Fund's overall expense
ratio. See Statement of Additional Information--"The Advisory Agreement."
The Adviser and its predecessors have been continually registered under the
Investment Advisers Act of 1940, as amended, since 1975. In addition to the
Funds, the Adviser manages client funds on both a discretionary and non-
discretionary basis. The Adviser also provides personal asset allocation
planning and other investment counseling services for individuals and
corporations for a separate fee. The Adviser's counseling services consist of
advising clients on how to diversify their portfolios in order to reduce
portfolio risk, take better advantage of opportunities in the investment
marketplace and satisfy their own unique investment goals and objectives.
Pursuant to the Investment Advisory Agreement, the Adviser has granted to
Sheffield the right to use the name "Sheffield" in its name. The Adviser has
reserved the right, however, upon 30-days' written notice, to terminate the
right to such use should the Adviser no longer serve as investment adviser to
the Funds or should the Advisory Agreement be terminated. Under those
circumstances, the Adviser has also reserved the right to grant the right to
use the name "Sheffield" to another investment company, business or other
enterprise.
The Adviser is controlled by Roger A. Sheffield, C.F.A., the President, and
Chairman of the Board of Directors of Sheffield and by Caroline L. Scott,
C.F.A., C.P.A., the Treasurer and Secretary of Sheffield. Mr. Sheffield and
Ms. Scott are primarily responsible for the day-to-day management of the Funds'
portfolio. For additional information regarding Mr. Sheffield and Ms. Scott,
see "Officers and Directors."
THE ADMINISTRATOR
Pursuant to an Administration Agreement, Sheffield Investment Management, Inc.,
the Funds' adviser (hereinafter sometimes also referred to as the
"Administrator", provides the following administration services: determining
and calculating each Fund's net asset value, as described herein (see
"Valuation of Shares"); overseeing maintenance of books and records of each
Fund required by the 1940 Act; overseeing the preparation of each Fund's
federal, state and local tax returns; preparing financial information for each
Fund's proxy statements and semi-annual and annual reports to stockholders;
preparing each Fund's periodic financial reports to the Securities and Exchange
Commission; and responding to stockholder inquiries relating to each Fund.
As compensation for its administrative services, the Administrator receives
from each Fund a monthly fee at an annual rate of the greater of either
(i) 0.15% of each Fund's average net assets, or (ii) a fee based on the
Administrator's reasonable cost of performing its services under the
Administration Agreement provided that such costs may not exceed $48,000
per Fund. During the fiscal year ended October 31, 1996, the Administrator
waived administrative fees to the Bond Fund amounting to approximately $23,000.
The Administrator shall not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the performance of its obligations
under the Administration Agreement except a loss resulting from willful
misfeasance, bad faith, or gross negligence on its part in the performance of,
or from reckless disregard by it of its duties under, such Agreement. The
Administrator will bear all expenses incurred in connection with its duties
under the Administration Agreement. The services of the Administrator to
Sheffield and each Fund are not deemed to be exclusive, and nothing in the
Administration Agreement prevents the Administrator, or any affiliate thereof,
from providing similar services to other investment companies and other clients
or from engaging in other activities.
The Administration Agreement may be terminated by either party at any time
without penalty, upon 60-days written notice.
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OFFICERS AND DIRECTORS
Listed below are the Directors and executive officers of Sheffield with their
principal occupations during the past five years. Each person whose name and
title is followed by an asterisk is an interested person of Sheffield within
the meaning of the Investment Company Act of 1940, as amended.
ROGER A. SHEFFIELD, C.F.A., CHAIRMAN OF THE BOARD AND PRESIDENT*
Mr. Sheffield, who is 50 years old, has been Chairman of the Board and
President of Sheffield since its inception. Mr. Sheffield is also a Principal
of the Adviser and serves as President of the Adviser and Alpha-Line
Investments, Inc., the Funds' Distributor, positions he has held since 1979 and
1986, respectively. Mr. Sheffield's address is 900 Circle 75 Parkway, Suite
750, Atlanta, Georgia 30339-3082.
VICTOR L. ANDREWS, DIRECTOR
Dr. Andrews, who is 66 years old, is Chairman of the CFO Roundtable of Georgia
State University, Atlanta, Georgia. He is Professor Emeritus of the College of
Business Administration and Chairman Emeritus of the Department of Finance at
Georgia State Univeristy. He is a former member of the faculties of the Harvard
Business School and the Sloan School of Management of MIT. Dr. Andrews is also
a director of the following investment companies: INVESCO Funds, INVESCO
Treasurer's Trust, and The Southeastern Thrift, Inc. and Bank Fund. He is a
principal in Andrews Financial Associates, Inc., a firm specializing in
financial consulting. Dr. Andrews is a member of the Advisory Board of Fund
Directions, a newsletter published for mutual fund directors and trustees.
Dr. Andrews' address is 4625 Jettridge Drive, N.W., Atlanta, Georgia 30327.
J. COLEMAN BUDD, DIRECTOR
Mr. Budd, who is 69 years old, is retired. From September, 1958 through
December, 1987, Mr. Budd was employed by The Robinson-Humphrey Company and,
upon his retirement, was Executive Vice President and a member of Robinson-
Humphrey's Executive Committee and Board of Directors. Mr. Budd has served in
various capacities with the Securities Industry Association, including governor
and member of the Association's Executive Committee. Mr. Budd has also served
as National Chairman of the National Association of Securities Dealers, Inc.'s
("NASD") Board of Governors and as Chairman and member of diverse NASD
committees. Mr. Budd has also served two terms as Governor of the Midwest
Stock Exchange and has been a member of, among others, the Advisory Committees
of both the New York and American Stock Exchanges. He is also on the Board of
Wesley Woods Foundations, Inc. Mr. Budd's address is 39 Habersham Park,
N.W., Atlanta, Georgia 30305.
JOHN B. ROFRANO, DIRECTOR
Mr. Rofrano, who is 53 years old, is Vice President and portfolio manager of
INVESCO Capital Management, Inc. He was a director of INVESCO Services, Inc.
from 1984 to 1994, and President of Variable Investors Series Trust from 1992
to 1994. Mr. Rofrano has previously served as President and director of EBI
Funds, Inc., EBI Series Trust, EBI Cash Management Fund, Inc., INVESCO
Institutional Series Trust and Dolphin Equity Fund. Mr. Rofrano's address is
1315 Peachtree Street, N.E., Suite 500, Atlanta, GA 30309.
CAROLINE L. SCOTT, C.F.A., C.P.A., SECRETARY AND TREASURER*
Ms. Scott, who is 38 years old, has been the Secretary and Treasurer of
Sheffield since February, 1991. Ms. Scott is a Principal of the Adviser and
also has been the Chief Financial Officer of the Adviser since August, 1990.
Previously, she was employed as a manager by Coopers & Lybrand, Certified
Public Accountants. Ms. Scott's address is 900 Circle 75 Parkway, Suite 750,
Atlanta, Georgia 30339-3082.
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THE DISTRIBUTOR
Alpha-Line Investments, Inc., the Distributor, a Georgia corporation, is the
principal underwriter of the Funds under an amended and restated Distribution
Agreement dated February 27, 1992 (the "Distribution Agreement"). All of the
Distributor's outstanding shares of voting stock are owned by Roger A.
Sheffield, C.F.A. The Distributor acts as agent upon the receipt of orders
from investors. The Distributor will be reimbursed by each Fund for the
expenses incurred by the Distributor in connection with the sale of each
Fund's shares in accordance with the Distribution Agreement and pursuant to
each Fund's Plan of Distribution promulgated under Rule 12b-1 of the 1940 Act,
each of which is described under "Plans of Distribution" herein and in the
Statement of Additional Information under "Distribution of Shares." The
Distributor's principal office is located at 900 Circle 75 Parkway, Suite
750, Atlanta, Georgia 30339-3082.
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PLANS OF DISTRIBUTION
Rule 12b-1 under the 1940 Act permits investment companies to use their assets
to bear expenses of distributing their shares if they comply with various
conditions. Pursuant to Rule 12b-1, each Fund has adopted a plan of
distribution which provides that each Fund may incur certain distribution and
maintenance fees which may not exceed a maximum amount equal to 0.0625% of the
applicable Fund's average daily net assets for a fiscal quarter. This is
approximately equivalent to a maximum annual amount equal to 0.25% of the
applicable Fund's average daily net assets.
Each Fund's plan of distribution provides that the applicable Fund may, subject
to the annual 0.25% limitation described above, pay the Distributor for any and
all expenses incurred by the Distributor in connection with the offer and sale
of shares of the Funds, including but not limited to (1) commissions not to
exceed 4% of the total price paid to either Fund as may be paid by the
Distributor to broker-dealers other than the Distributor for the sale of Fund
shares made by or through such other broker-dealers; (2) fees of up to 0.25%
per annum of the average net asset value of the shares sold by, or in respect
of services which are provided by the Distributor, broker-dealers or others
and which remain outstanding on the books of the applicable Fund for specified
periods for distribution, maintenance, service, support and/or other similar
service or services; (3) finders' or referral fees as may be paid by the
Distributor to persons referring new investors to the applicable Fund; (4)
costs and expenses incurred in connection with the preparation, printing and
distribution of each Fund's prospectuses, statements of additional information
and sales literature; and (5) expenses incurred in connection with the sale and
distribution of the applicable Fund's shares, including capital or other
expenses of equipment, rent, salaries and other overhead. In addition, each
plan provides that the applicable Fund may pay, subject to the annual 0.25%
limitation, such other distribution costs as the Directors may from time to
time specify.
Each Fund's plan of distribution provides also that the Adviser is authorized
to use its advisory fee revenue, past profits or other resources, without
limitation, to pay for any appropriate distribution-related activity reasonably
intended to result in the offer and sale of shares of each Fund. Each plan of
distribution provides that, should the use by the Adviser of its own
resources, without limitation, to pay for such distribution-related expenses
be deemed to be an indirect financing of distribution activity by any of the
Funds, such payments are specifically authorized.
For additional information concerning each Fund's plan of distribution, see
Statement of Additional Information under "Distribution of Shares."
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VALUATION OF SHARES
The net asset value per share of each Fund is determined on each day that the
New York Stock Exchange is open for trading as of 4:00 p.m. New York time.
The net asset value per share of each Fund is determined by dividing the total
value of the applicable Fund's investments and other assets less any
liabilities, by its number of outstanding shares.
Equity securities listed on a national securities exchange or quoted on the
NASDAQ National Market System are valued at the last sale price on the day the
valuation is made or, if no sale is reported, at the latest bid price.
Valuations of variable and fixed income securities are supplied by independent
pricing services approved by Sheffield's Board of Directors. Other assets
and securities for which no quotations are readily available are valued at
fair value as determined in good faith by or under the direction of
Sheffield's Board of Directors. Securities with maturities of sixty (60)
days or less are valued at amortized cost. See Statement of Additional
Information under "Net Asset Value."
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DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
It is the Funds' intention to distribute to stockholders each Fund's net
investment income and net realized capital gain, if any. The Total Return
Fund will make annual distributions of its net investment income and its net
realized capital gain. The Bond Fund will make quarterly distributions of its
net investment income and an annual distribution of its net realized capital
gain. All such distributions will be reinvested automatically in additional
shares (or fractions thereof) of each applicable Fund pursuant to such Fund's
Distribution Reinvestment Plan unless a stockholder has elected not to
participate in this plan or has elected to terminate his participation in the
plan and to receive his distributions in cash. (See "Distribution Reinvestment
Plan.")
FEDERAL TAXES
Each Fund intends to qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). If a Fund qualifies as a regulated investment
company, it will not be subject to federal income taxes to the extent that it
distributes its net investment income and net realized capital gain.
With respect to a stockholder that is exempt from federal income taxation under
Section 401(a) or 501(a) of the Code, the distributions made by a Fund will not
constitute unrelated business taxable income (i.e., taxable income derived by a
tax-exempt entity from any unrelated trade or business regularly carried on by
it) and thus will not be taxable. Under Section 512(b)(1) of the Code,
dividends are expressly excluded from unrelated taxable income. Consequently,
a tax-exempt stockholder will not incur any federal income tax liability as a
result of participation in a Fund.
With respect to a stockholder that is not exempt from federal income taxation,
all distributions from a Fund, whether received in cash or in additional shares
of a Fund, will be taxable and must be reported by the stockholder in its
federal income tax return. Information concerning the status of a Fund's
distribution for federal income tax purposes will be mailed to stockholders
annually. Such distributions may be subject to state and local taxes.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations presently in effect, and is qualified in
its entirety by reference thereto. The Code and these regulations are subject
to change by legislative or administrative action. For further discussion of
the tax consequences of becoming a stockholder in any of the Funds, see
Statement of Additional Information under "Tax Information."
DISTRIBUTION REINVESTMENT PLAN
For the convenience of the stockholders and to permit stockholders to increase
their stockholdings in the Funds in which they have invested, Sheffield
Investment Management, Inc., the Funds' Adviser (hereinafter sometimes also
referred to as the "Transfer Agent"), acting as the Funds' transfer agent
pursuant to a Transfer Agency Agreement dated February 6, 1990, is
automatically appointed by the investors to receive all dividends and capital
gains distributions of the respective Funds and on the payment date to reinvest
them in shares (or fractions thereof) of the Fund making such distribution at
the net asset value per share next determined.
Stockholders may, however, elect not to enter into or to terminate at any time
without penalty their participation in the Distribution Reinvestment Plan by
notifying the Transfer Agent, in writing, at the time of investment (for new
stockholders) or at least 15 business days prior to the proposed date for such
termination (for existing stockholders). Stockholders may rejoin the plan by
notifying the Transfer Agent, in writing, at any time.
The Transfer Agent will maintain each stockholder's Fund account and furnish
the stockholder with written information concerning all transactions in the
account, including information needed for tax records. All costs of the
Distribution Reinvestment Plan, including those of registration under
applicable securities laws, if any, will be borne by the applicable Fund.
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HOW TO PURCHASE SHARES
To open a new account, either by mail or by wire, simply complete and return
an Account Application Form. Please indicate the amount you wish to invest
and the name of the Fund desired. Your initial purchase for either or both
Funds must be equal to or greater than $100,000. The minimum investment in
either Fund is $5,000. You will be given credit toward the minimum purchase
requirement for amounts which you have invested in any of the Funds.
Sheffield reserves the right to reduce or to waive the minimum purchase
requirement in certain cases--such as investments involving entities which
are affiliated with one another or where additional investments are expected
to be made in amounts sufficient to meet the minimum requirement.
If you need assistance with the Account Application Form or have any questions
about the Funds please call (770) 953-1597. Sheffield reserves the right to
reject any subscription request for any reason in its sole discretion.
Additionally, the Funds may, under certain circumstances, allow an investor to
purchase shares of the Funds by exchanging securities owned for shares of the
applicable Fund. The Board of Directors of Sheffield reserves the right to
terminate this privilege at any time. See Statement of Additional Information
under "Purchase of Shares."
The Funds' shares are purchased at the next-determined net asset value
following receipt by the Transfer Agent of a proper Account Application Form,
and receipt by the Funds' custodian of your investment. Investors may also
arrange to acquire shares through broker-dealers other than the Distributor.
Such other broker-dealers have the responsibility of promptly transferring
the investor's Account Application Forms and investment to the Funds'
Transfer Agent and custodian, respectively, so that the investor's shares
are purchased at the next-determined net asset value after receipt of the
investor's investment by the broker-dealer. For more information concerning
how to purchase shares, see Statement of Additional Information under "Purchase
of Shares."
Subsequent investments may be made by mail or wire.
PURCHASING BY MAIL
NEW ACCOUNT. Please include the amount of your initial investment on the
Account Application Form, make your check payable to the appropriate Fund and
mail to the appropriate address below:
MAILING ADDRESS FOR THE
TOTAL RETURN FUND: COURIER ADDRESS:
Sheffield Total Return Fund United Missouri Bank, n.a.
c/o The Sheffield Funds, Inc. Attn: Lock Box
P.O. Box 412891 928 Grand Street, Title Building
Kansas City, Missouri 64141-2891 Kansas City, Missouri 64106
MAILING ADDRESS FOR THE INTERMEDIATE COURIER ADDRESS:
TERM BOND FUND:
Sheffield Intermediate Term Bond Fund United Missouri Bank, n.a.
c/o The Sheffield Funds, Inc. Attn: Lock Box
P.O. Box 412857 928 Grand Street
Kansas City, Missouri 64141-2857 Kansas City, Missouri 64106
SUBSEQUENT INVESTMENTS TO EXISTING ACCOUNTS. Subsequent investments should
include the Invest-By-Mail remittance form attached to your respective Fund's
confirmation statements. Please make your check payable to the appropriate
Fund, write your account number on your check, and using the return envelope
provided, mail to the respective address indicated above.
PURCHASING BY WIRE
Investors may purchase shares of the Funds by transmitting Federal funds by
bank wire to United Missouri Bank, n.a. (Please note that your bank may impose
a charge for providing wire transfer services.)
NEW ACCOUNT. Instructions for new accounts should specify the name of the
desired Fund and should include the name, address and IRS identification
number,if applicable, of each person in whose name the shares are to be
registered. Before transmitting funds by bank wire, investors should contact
Sheffield at (770) 953-1597 to obtain an account number.
Funds may be wired as follows:
WIRE INVESTMENTS FOR THE SHEFFIELD TOTAL RETURN FUND:
United Missouri Bank, n.a.
Kansas City, MO
ABA routing #1010-0069-5
Wire text: Credit to account 9870290154, Sheffield Total Return
Fund, FBO (Your account name and number),
ATTN: Securities Administration
WIRE INVESTMENTS FOR THE SHEFFIELD INTERMEDIATE TERM BOND FUND:
United Missouri Bank, n.a.
Kansas City, MO
ABA routing #1010-0069-5
Wire Text: Credit to account 9870290111, Sheffield Intermediate
Term Bond Fund, FBO (Your account name and number),
ATTN: Securities Administration
SUBSEQUENT INVESTMENTS TO EXISTING ACCOUNTS. After calling Sheffield, wire
purchases must be sent using the appropriate wire instructions above for your
respective Fund(s) (i.e., Sheffield Total Return Fund and/or Sheffield
Intermediate Term Bond Fund).
The required Account Application Form or Invest-By-Mail remittance form should
be forwarded to the Transfer Agent at 900 Circle 75 Parkway, Suite 750,
Atlanta, Georgia 30339-3082.
Federal funds transmitted by bank wire to United Missouri Bank, n.a., and
received prior to 4:00 p.m. (New York time) become available to the
appropriate Fund that day. Federal funds transmitted by bank wire and received
after 4:00 p.m. (New York time) will be available to and deemed received by
the appropriate Fund on the next business day. Sheffield is not responsible
for delays in the wiring system.
AUTOMATIC INVESTMENT PLAN
Stockholders wishing to invest fixed dollar amounts in a particular Fund every
month can make automatic purchases on the first business day of each month by
using the Funds' Automatic Investment Plan. The minimum purchase per
transaction is $1,000. To use this service, you must authorize the Transfer
Agent to transfer funds from your bank checking account to United Missouri
Bank, n.a. by selecting the Automatic Investment Plan option in the Account
Application Form and completing the Bank Authorization to Honor Pre-Authorized
Checks included in the Application. Automatic Investment Plan applications
may also be obtained by calling the Distributor at (770) 953-1597.
IRA INVESTMENT PROGRAM
In conjunction with United Missouri Bank's IRA program, investors may establish
a self directed IRA account with that bank. Under this program, the bank will
perform custodian and trustee services pursuant to the bank's own fee
structure. Individual investors can use the bank's IRA program to consolidate
all or any of their existing IRA accounts into one. Earnings on amounts held
in the IRA are not taxed until withdrawn. Contact Sheffield for complete IRA
information kits and enrollment forms.
EXCHANGE PRIVILEGE
Stockholders of either of the Funds may exchange shares of their respective
Fund for shares of the other Fund.
An exchange request must be given in writing to the Transfer Agent. Exchanges
are treated as redemptions and must comply with the requirements for a
redemption (See "Redemption of Shares"). If the exchange request is in "good
order," the exchange will be based on the respective net asset values of the
shares involved which is next determined after the request is received. The
exchange of shares of one of the Funds for shares of another Fund is treated
for federal income tax purposes as a sale of the shares given in exchange and
you may, therefore, realize a taxable gain or loss. This offer is limited to
states in which shares of the appropriate Fund may legally be offered.
Investors should consider the difference in the investment objectives and
portfolio compositions of the Funds.
The Funds' exchange privilege is not intended to afford stockholders a way to
speculate on short-term movements in the market. THE SHEFFIELD FUNDS ARE NOT
SUITABLE FOR THAT PURPOSE. In order to prevent excessive use of the exchange
privilege that may potentially disrupt the management of the Funds and increase
transaction costs, the Funds reserve the right, upon sixty (60)-days' written
notice to shareholders, to suspend, limit, modify or terminate the exchange
privilege or its use in any manner by any person or class.
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REDEMPTION OF SHARES
You may withdraw any portion of the funds in your account by redeeming shares
at any time. You may initiate a request by notifying the Transfer Agent in the
manner specified below. Your redemption proceeds are normally mailed within
three business days after the receipt of the request in Good Order (as defined
below).
REDEEMING BY MAIL
Requests should be mailed to Sheffield Investment Management, Inc., acting as
transfer agent (the "Transfer Agent"), at 900 Circle 75 Parkway, Suite 750,
Atlanta, Georgia 30339-3082.
The redemption price of shares will be the Fund's net asset value next
determined after the Transfer Agent has received all required documents in Good
Order. Good Order means that the request includes the following:
1. The account number and the particular Fund's name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Any required signature guarantees (if applicable).
5. Other supporting legal documents that might be required, in cases of
estates, corporations, trusts, and certain other accounts.
PERIODIC REDEMPTION
If you select the Sheffield Periodic Redemption option, money will be
automatically moved from your Fund account to your bank account on the first
business day of the month. (Please note that your bank may impose a charge for
providing this service.) You may elect the Sheffield Periodic Redemption option
on the Account Application Form or call the Transfer Agent for a Periodic
Redemption application.
IMPORTANT REDEMPTION INFORMATION
Shares purchased by check may not be redeemed until payment for the purchase is
collected, which may take up to fifteen days. Your money is invested during the
holding period.
Redemption requests received prior to 4:00 p.m. (New York time) will be
redeemed based upon the Fund's next determined net asset value (i.e., 4:00 p.m.
that day). Redemption requests received after 4:00 p.m. (New York time) will
be redeemed based upon the Fund's net asset value next determined (i.e., 4:00
p.m. the next business day). Redemption proceeds are normally sent within three
business days after receipt of the redemption request.
The Transfer Agent may require that the signature or signatures on any request
for redemption of shares of $5,000 or more be guaranteed by a member firm of
a domestic stock exchange or a U.S. commercial bank. In each case, the
signature or signatures must correspond to the name or names in which the
account is registered. The signature guarantee is to prevent fraud and is for
the protection of the investors as stockholders.
Under the 1940 Act, the date of payment for redeemed shares may be postponed,
or the Fund's obligation to redeem their shares may be suspended (1) for any
period during which trading on the New York Stock Exchange is restricted (as
determined by the SEC), (2) for any period during which an emergency exists
(as determined by the SEC) which makes it impracticable for the Funds to
dispose of its securities or to determine the value of a Fund's net assets, or
(3) for such periods as the SEC may, by order, permit for the protection of
stockholders.
All declared but unpaid dividends and capital gains distributions credited to
your account up to the date of redemption are paid by separate check after the
redemption date.
It is possible that in the future, conditions may exist which would, in the
opinion of the Directors, make it undesirable for a Fund to pay for redeemed
shares in cash. In such cases, the Directors may authorize payment to be made
in portfolio securities or other property of the applicable Fund. However,
each Fund is obligated under the 1940 Act to redeem for cash all shares
presented to such Fund for redemption by any one stockholder up to $250,000
(or 1% of the applicable Fund's net assets if that is less) in any 90-day
period. Securities delivered in payment of redemption are valued at the same
value assigned to them in computing the applicable Fund's net asset value
per share. Stockholders receiving such securities are likely to incur
brokerage costs on their subsequent sales of such securities.
Due to the relatively high cost of maintaining smaller accounts, each Fund
reserves the right to redeem shares in any account that is below $5,000. After
written notification by the applicable Fund, you would be allowed 30 days to
make an additional investment to bring your account balance up to at least
$10,000 before the account is liquidated. Proceeds would be promptly paid to
the stockholder.
EXCHANGING SHARES
You may exchange your shares of either Fund for those of the other Fund. See
"How to Purchase Fund Shares--Exchange Privilege."
Before you make an exchange, you should consider the following:
* Please read the current prospectus of the Funds. For a copy of the current
prospectus and for answers to any questions you may have, call (770)953-1597.
* An exchange is treated as a redemption and a purchase. Therefore, you could
realize a taxable gain or loss on the transaction.
* Recently purchased shares may not be exchanged until payment for the purchase
has been collected, which may take up to fifteen business days. Your money is
invested during the holding period.
* Exchanges are accepted only if the registrations of the two accounts are
identical.
* The redemption price of shares redeemed by exchange is the net asset value
next determined after Sheffield has received the exchange request in Good
Order.
* When opening a new account by exchange, you must meet the minimum investment
requirement of the new Fund.
Exchange requests must be in writing and should be mailed to the Transfer Agent
at 900 Circle 75 Parkway, Suite 750, Atlanta, Georgia, 30339-3082. Please be
sure to include on your exchange request the name and account number of your
current Fund, the name of the Fund you wish to exchange, and the signatures of
all registered account holders. Shares may not be exchanged by telephone.
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CAPITALIZATION
The authorized capital stock of Sheffield consists of 10,000,000 shares of
common stock, $.001 par value per share, classified as 5,000,000 shares of the
Total Return Fund and 5,000,000 shares of the Bond Fund. The Board of
Directors has the power to authorize and issue additional classes of stock,
without stockholder approval, by classifying or reclassifying unissued stock,
subject to the requirements of the 1940 Act. Shares of the Funds are
redeemable at net asset value per share. Each Fund's shares of common stock
are equal as to dividends and voting privileges and have no conversion,
preemptive or other subscription rights. In the event of liquidation,
each share of Common Stock is entitled to a pro rata portion of the particular
Fund's assets after payment of debts and expenses.
Stockholders are entitled to one vote per share and do not have cumulative
voting rights, and, as such, holders of 50% or more of the shares voting for
directors can elect all directors. Shares of the Funds shall not, unless
specifically requested in writing by a stockholder, be evidenced by a
certificate or certificates representing such shares.
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STOCKHOLDERS' REPORTS
The Funds will issue to each of their stockholders quarterly reports of
portfolio securities owned, net asset value per share and other performance
information.
The federal income tax status of stockholder distributions will be reported
to stockholders after October 31 of each year, which is currently the end of
Sheffield's fiscal year.
Stockholders having any questions concerning any of the Funds may call the
Distributor at (770) 953-1597.
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MISCELLANEOUS
As a Maryland corporation, Sheffield is not required to hold an annual
stockholders' meeting in any year in which the election of Directors is not
required to be acted upon under the 1940 Act. However, special meetings may
be called for purposes such as electing or removing directors, changing
fundamental policies or approving an advisory contract.
A director or officer of Sheffield shall not be liable to the Fund or its
stockholders for monetary damages as a director or officer, except to the
extent such exemption from liability or limitation thereof is not permitted by
statutory law (including the 1940 Act). Sheffield's Articles of Incorporation
and By-laws provide for the indemnification of officers and directors to the
fullest extent permitted by law. Reference should be made to the Articles of
Incorporation and By-laws on file with the Securities and Exchange Commission
for the full text of these provisions.
From time to time the Funds may provide their total return in advertisements,
sales literature or reports, and other communications to stockholders. These
total returns are calculated based on the applicable Fund's change in net
asset value per share between the beginning and end of the period shown and
assume reinvestment of the applicable Fund's dividend and capital gains
distributions during the period. (See Statement of Additional Information
under "Performance Information.") In reports to shareholders or advertising
materials, the Funds may compare their performance with unmanaged indices of
securities of the type in which the Funds invest, or with that of other mutual
funds, as listed in the rankings prepared by independent services that monitor
the performance of mutual funds. The Fund's securities and cash are held under
a Custodian Agreement by United Missouri Bank, n.a., the principal address of
which is 928 Grand, Kansas City, Missouri 64141-6226.
The Adviser may follow a policy of considering sales of shares of the Funds as
a factor in the selection of brokers to be used in portfolio transactions for
the Funds, subject to the requirement of best execution discussed in the
Statement of Additional Information under "Brokerage and Portfolio
Transactions."
Sheffield Investment Management, Inc., Sheffield's Adviser and Administrator,
is the transfer agent for each Fund's shares of common stock. The Transfer
Agent will maintain stockholders' accounts, and furnish stockholders with
written information concerning all transactions in the accounts, including
information needed for tax records. Each of the Funds has the right to
appoint a successor Transfer Agent. Sheffield Investment Management, Inc.
also serves as the Dividend Disbursement and Reinvestment Agent and Redemption
Agent of the Funds. For its services as Transfer Agent, Sheffield Investment
Management, Inc. will receive from each Fund a monthly fee at an annual rate
of the greater of $10,000 per Fund or $15.00 per stockholder account.
This Prospectus omits certain information contained in the registration
statement which Sheffield has filed with the Securities and Exchange Commission
under the Securities Act of 1933 and the Investment Company Act of 1940, and
reference is made to that registration statement and the exhibits thereto for
further information with respect to the Funds and the shares offered hereby.
Copies of such registration statement, including exhibits, may be obtained
from the Commission's principal office at Washington, D.C. upon payment of
the fee prescribed by the Commission.
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LEGAL OPINIONS
The legality of the securities offered by this Prospectus will be passed upon
for the Funds by Kilpatrick Stockton LLP. Kilpatrick Stockton LLP also
represents the Adviser, Administrator, Transfer Agent, and the Distributor and
will pass on legal matters for the Adviser and the Distributor in connection
with this offering.
===============================================================================
THE SHEFFIELD FUNDS, INC.
Total Return Fund
Intermediate Term Bond Fund
900 Circle 75 Parkway, Suite 750
Atlanta, Georgia 30339-3082
(770) 953-1597
The Sheffield Funds are two separate funds (the "Funds"), each of which
represents a separate portfolio of investments. Each of the Funds has
separate investment objectives and investment policies. The Funds are the
Sheffield Total Return Fund (the "Total Return Fund") and Sheffield
Intermediate Term Bond Fund (the "Bond Fund").
SHEFFIELD INVESTMENT MANAGEMENT, INC.
INVESTMENT ADVISER
ALPHA-LINE INVESTMENTS, INC.
DISTRIBUTOR
STATEMENT OF ADDITIONAL INFORMATION
This Statement is not a Prospectus but should be read in conjunction with the
Funds' current Prospectus (dated March 1, 1997). Please retain this Statement
for future reference. The Prospectus is available from Alpha-Line
Investments, Inc., 900 Circle 75 Parkway, Suite 750, Atlanta, Georgia 30339-
3082.
March 1, 1997
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TABLE OF CONTENTS
Investment Objectives and Policies............................1
Officers and Directors........................................6
The Advisory Agreement........................................6
The Administration Agreement..................................7
The Distributor...............................................7
Distribution of Shares........................................8
Purchase of Shares............................................9
Distributions and Tax Information.............................9
Brokerage and Portfolio Transactions.........................11
Net Asset Value..............................................11
Performance Information......................................12
Miscellaneous................................................14
Financial Statements.........................................17
Appendix....................................................A-1
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Funds and Their Investment Objectives and
Policies" in the Prospectus for discussion of the investment objectives and
policies of the Funds. In addition, set forth below is certain further
information relating to the Funds' investments in convertible securities, debt
securities, put and call options on Standard & Poor's Indexes, writing of
covered call options on securities, financial futures and investment in dollar
denominated and/or foreign denominated foreign securities.
POLICY AND RATIONALE OF THE FUNDS REGARDING CONVERTIBLE SECURITIES
Both Funds are authorized to invest up to 25% of their respective net
assets in convertible securities.
The Funds invest in a diversified portfolio of convertible securities of
United States companies that issue securities both in the United States and
abroad. These convertible securities may include convertible preferred stock,
convertible bonds, bonds with attached warrants, Eurodollar convertible
securities or other similar securities that may be converted into or exchanged
for a prescribed amount of common stock or other equity security of the same
or a different issuer within a particular period of time at a specified price
or formula.
Convertible securities are considered by the Adviser to be an attractive
investment vehicle for the Funds because they combine the benefits of (1)
higher current income than common stock generally provides, and (2) the
possibility of profiting from an appreciation in the value of the underlying
security thereby increasing their return over non-convertible bonds.
Convertible securities offer capital gain potential while, at the same
time, offering an added measure of downside protection not available from
either equity or debt securities alone when the value of the underlying common
stock declines or interest rates rise. The reason for this is that if the
value of the underlying common stock declines, the higher yield on the
convertible securities will become a more dominant factor in its value.
Furthermore, if interest rates rise, the value of the convertible security may
decline less than non-convertible issues of similar maturity and credit
quality if the price of the underlying common stock is moving up or is
otherwise close to the conversion price.
Investors should be aware, however, that, as with all income securities,
various market forces influence the market value of convertible securities,
including changes in the level of interest rates. As the level of interest
rates increases, the market value of convertible securities may decline and,
conversely, as interest rates decline, the market value of convertible
securities may increase. The unique investment characteristic of convertible
securities, generally the right to be exchanged for the issuer's common stock,
causes the market value of convertible securities to increase when the value
of the underlying common stock increases. Since securities prices fluctuate,
however, there can be no assurance that the market value of convertible
securities will increase. Convertible securities generally will not reflect
quite as great a degree of capital appreciation as their underlying common.
When the underlying common stock is experiencing a decline, the value of
convertible securities tends to decline to a level approximating the yield-to-
maturity basis of straight non-convertible debt of similar quality and may not
experience the same decline as the underlying common stock.
Both Funds may invest up to 10% of their assets in convertible debt
securities rated BB by Standard & Poor's or Ba by Moody's or non-rated issues
if, in the opinion of the Adviser, such securities are of quality at least
equal to a rating of BB by Standard & Poor's or Ba by Moody's. Securities
rated BB by Standard & Poor's are considered, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with their terms. Although debt securities rated BB
by Standard & Poor's will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Securities rated Ba by Moody's are also of
poorer quality and may be speculative investments; their ability to pay
interest and principal cannot be considered as well assured. With respect to
investments in unrated convertible debt securities, the Funds will be more
reliant on the Adviser's judgment and experience than would be the case if the
Fund invested solely in rated obligations.
Some convertible securities may be subject to optional or mandatory call
or redemption provisions enabling the issuer to buy back or redeem the
security from a Fund for a variety of reasons depending on the terms of the
particular convertible security. To the extent a convertible security is
called or redeemed by the issuer, a Fund may be limited in its ability to
realize capital appreciation on that particular convertible security.
Convertible securities rank senior to common stocks in a corporation's
structure but may be subordinate to an issuer's other debt obligations.
Securities are senior to common stock when they have preference on payment of
income and/or liquidation of assets. Because convertible securities are
senior in rank to common stock in a corporation's capital structure, they
generally entail less risk than the corporation's common stock, although the
extent to which such risk is reduced depends in large measure upon the degree
to which a particular convertible security sells above its value as a fixed
income security. Prices of convertible securities are likely to decline when
interest rates rise and increase when interest rates fall.
DEBT SECURITIES
The Bond Fund will, except as provided with respect to convertible
securities, invest in debt securities rated in Standard & Poor's and/or
Moody's top four categories for credit and safety purposes or non-rated issues
if, in the opinion of the Adviser, such issues are of a quality at least equal
to a rating in the top four categories. This will limit the Bond Fund's
investment risk on its non-convertible debt securities since it may not invest
in securities rated lower than BBB by Standard & Poor's or Baa by Moody's at
the time of the acquisition.
The Bond Fund's investments in debt securities will generally be subject
to both credit risk and market risk. Credit risk relates to the ability of
the issuer to meet interest or principal payments, or both, as they come due.
Market risks relate to the fact that market values of debt securities in which
the Bond Fund invests generally will be affected by changes in the level of
interest rates. An increase in interest rates will tend to reduce the market
values of straight debt securities whereas a decline in interest rates will
tend to increase their values. Both credit and market risks are increased by
investing in debt securities rated below the top three grades by Standard &
Poor's or Moody's as described above. Investors should be aware that an
economic downturn or an increase in interest rates could severely affect the
market for these debt securities and adversely affect the value of outstanding
debt securities and the ability of issuers to pay interest and repay
principal. Periods of economic uncertainty and changes may also result in
increased volatility of market prices and the Bond Fund's net asset value.
COMMERCIAL PAPER
The Funds may invest in commercial paper as a means to achieve their
current income objective. Commercial paper purchased by the Funds will have a
rating by Standard & Poor's of A-1 or A-2 at the time of purchase. See
Appendix A for discussions of these ratings.
OPTIONS AND FINANCIAL FUTURES
The Funds may engage in options and financial futures transactions.
Each Fund's option activity (excluding writing covered calls) will be limited
such that the value of the securities underlying the options will not exceed
15% of the Fund's total assets. The Funds will limit their writing of covered
calls to securities which do not constitute more than 25% of the Fund's total
assets. The Funds may enter into financial futures contracts (stock index
futures for the Total Return Fund and futures on debt instruments for the Bond
Fund) provided that the aggregate margin requirement does not exceed 5% of
each Fund's total assets, and the aggregate value of the futures contract does
not exceed 25% of the respective Fund's total assets.
The Funds may purchase financial futures contracts and the Total Return
Fund may purchase call options on stock indexes to enable the Funds to
maintain their general philosophy of being fully invested during times in
which the Funds have excess cash or require liquidity to meet redemption
requests. Financial futures provide the additional advantage of minimum
disruption to the remaining portfolio to meet redemption requirements and may
result in lower trading costs.
As a means to reduce market risk during times when the Adviser believes
the markets to be experiencing increased volatility, the Funds may sell
futures contracts or purchase puts on market indexes or other appropriate
financial instruments. Since the Funds normally seek to be fully invested,
this activity would be infrequent. The Funds may, as a matter of course,
enter into the sale of futures contract in order to close an outstanding long
position in the same contract.
A futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of a specific quantity of
a commodity (including interest-bearing securities or an index of securities).
In the case of a stock index future, the parties agree to take or make delivery
of cash equal to a specified dollar amount times the difference between the
stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made; generally contracts are closed out prior
to the expiration date of the contract. No price is paid upon entering into
futures contracts. Instead, the Fund would be required to deposit an amount
of cash or U.S. Treasury securities known as "initial margin." Subsequent
payments to and from the broker, called "variation margin," would be made on a
daily basis as the value of the futures position varies (a process known as
"marking to market"). The margin is in the nature of a performance bond or
good-faith deposit on a futures contract.
An option on a stock index gives the holder the right to receive an
amount of cash upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by
a specified dollar multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. Gain or loss to
the Funds on transactions in stock index options will depend on price
movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities.
The Funds may offset their positions in stock index options prior to
expiration by entering into a closing transaction on an exchange, or they may
let the option expire unexercised.
The value of a stock index option fluctuates with changes in the market
values of the stocks included in the indexes. A put option would give the
Funds, as the holders of the put, the right to sell the option at the option
exercise price at any time during the option period. Since the value of a put
increases as the index declines below a specified level, the decline in the
asset and value of the Funds would be offset in part by the increase in value
of the put options. Upon exercise of a stock index put, the Funds will
realize an amount based on the difference between the exercise price and the
closing price of the stock index.
The Funds may sell (i.e., write) covered listed options on securities in
an effort to achieve additional return. A covered call option on a security
is a contract that gives the holder of the option the right to buy from the
writer (seller) of the call option, in return for a premium paid, the security
underlying the option at a specified exercise price at any time during the
term of the option. The writer of the call option has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price during the option period. When a covered call option is
written by a Fund, the Fund will make arrangements with the custodian to
segregate the underlying securities until the option is either exercised or
the Fund effects a closing purchase transaction.
If a Fund has written a covered call option on a security, it may
terminate its obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the option
previously written. There can be no assurance that a closing purchase
transaction can be effected when a Fund so desires.
There are several risks in connection with the use of options and
financial futures including: (1) an imperfect correlation between the change
in the market value of the Funds' portfolio securities and the prices of
financial futures contracts and options; (2) the lack of assurance that a
liquid market will exist and the resulting inability to close a futures or
option position when desired; and (3) the possibility that markets will not
continue to become more over-or undervalued after the Fund takes a position in
futures contracts, and that the Funds may, therefore, incur losses on options
and financial futures transactions.
Related to writing covered call options, a Fund gives up some control
over when it may sell the underlying securities, and must be prepared to
deliver the underlying securities against payment of the call option's
exercise price at any time during the life of the option. A Fund also retains
the full risk of a decline in the price of the underlying security held to
cover the call option for as long as its obligation as a seller (i.e., writer)
continues, except to the extent that the effect of such a decline may be
offset in part by the premium received.
INVESTMENTS IN FOREIGN SECURITIES
The Adviser may invest up to 10% of the Total Return Fund's assets in
dollar denominated foreign securities and American Depository Receipts
("ADRs") of foreign companies. Similarly, up to 10% of the Bond Fund's
assets may be invested in ADRs and dollar and/or foreign denominated foreign
securities provided they are rated A or better by Standard & Poor's or Moody's
at the time of acquisition. By doing so, the Adviser attempts to take
advantage of differences between economic trends and the performance of
securities markets in various countries. The Adviser believes that it may be
possible to obtain significant appreciation from a portfolio consisting, in
part, of foreign investments and also achieve increased diversification.
Increased diversification is gained by combining securities from various
countries that offer different investment opportunities and are affected by
different economic trends.
Generally, investments in securities of foreign companies involve
greater risks than are present in domestic investments. Canadian securities
are not considered by the Adviser to have as high a degree of risk as other
nations' securities because Canadian and U.S. companies are generally subject
to similar auditing and accounting procedures and similar governmental
supervision and regulation. Also, Canadian securities are normally more
liquid than other non-U.S. securities. Compared to U.S. and Canadian
companies, there is generally less publicly available information about
foreign companies and there may be less governmental regulation and
supervision of foreign stock exchanges, brokers and listed companies.
In addition, investing in foreign securities also involves the following
risks not typically associated with investing in U.S. securities: fluctuations
in exchange rates of foreign currencies; possible imposition of exchange
control regulation or currency restrictions that would prevent cash from being
brought back to the U.S.; lack of uniform accounting, auditing, and financial
reporting standards; lack of uniform settlement periods and trading practices;
less liquidity and frequently greater price volatility in foreign markets than
in the U.S.; possible expropriation or nationalization of assets; and possible
imposition of foreign taxes. Furthermore, the U.S. government has from time
to time in the past imposed restrictions, through taxation and otherwise, on
foreign investments by U.S. investors such as the Funds.
To the extent portfolio securities are denominated in foreign
currencies, the value of the assets of the Funds as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations. Although the Funds value
their assets daily in terms of U.S. dollars, they do not intend to convert
their holdings of foreign securities into U.S. dollars on a daily basis.
INVESTMENTS IN SMALL COMPANIES
The Funds will generally invest in companies having a minimum capitalization
of $100 million. Generally, companies having a capitalization of less than
$500 million are considered to have additional risks associated with small
companies. Certain of such companies may have limited product lines, markets
on financial resources, or they may be dependent upon a limited management
group. Also, the securities of smaller companies may be more volatile than
the securities of larger more established companies.
INVESTMENT RESTRICTIONS
The Board of Directors of Sheffield has adopted the following investment
restrictions, all of which are fundamental policies and may not be changed as
to any Fund without the approval of the holders of a majority of such Fund's
outstanding voting securities (which means, as to each Fund, the vote of the
lesser of (i) 67% or more of the voting securities present at a meeting, if
the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the outstanding voting
securities).
If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values of portfolio securities or amount
of total assets will not be considered a violation of any of the following
restrictions.
The Funds may not:
(1) Borrow money except for temporary or emergency purposes, and then only
in an amount not in excess of 5% of a Fund's net assets.
(2) Issue senior securities, except that the Funds may borrow money as
provided in restriction (1).
(3) As to 75% of their total assets, purchase securities of any one issuer,
other than those issued or guaranteed by the United States government,
its agencies or instrumentalities, if immediately after such purchase
more than 5% of the Fund's total assets would be invested in securities
of such issuer or the Fund would own 10% or more of the outstanding
voting securities of such issuer.
(4) Invest more than 25% of a Fund's assets in any one industry; however, an
exception to this policy will apply with respect to securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
(5) Invest more than 10% of a Fund's net assets in securities for which
there are legal or contractual restrictions on resale, securities which
are not readily marketable, securities of foreign issuers which are not
listed on a recognized domestic or foreign securities exchange, or other
illiquid securities. In determining securities subject to this 10%
restriction, the Funds will include repurchase agreements maturing in
more than seven days.
(6) Act as an underwriter of securities of other issuers, except to the
extent that they may be deemed to act as underwriters in certain cases
when disposing of portfolio securities.
(7) Purchase or sell real estate or interests in real estate, including real
estate limited partnerships. The Funds may invest in securities secured
by real estate or interests therein or issued by companies, including
real estate investment trusts, which invest in real estate or interests
therein.
(8) Make loans of portfolio securities to other persons, provided that a
Fund may purchase debt obligations consistent with its investment
objectives and policies.
Additional investment restrictions adopted by the Directors of the Funds which
may be changed by the Directors at their discretion provide that the Funds may
not:
(9) Make short sales of securities.
(10) Invest more than 5% of the value of their total assets in marketable
warrants to purchase common stock valued at the lower of cost or market.
Included within that amount, but not to exceed 2% of the value of each
Fund's asset, may be warrants which are not listed on the New York or
American Stock Exchanges. Warrants acquired by a Fund as part of a unit
or attached to securities may be deemed to be without value.
(11) Purchase or sell interests in oil, gas, or other mineral leases or
exploration or development programs. A Fund, however, may purchase or
sell securities of entities which invest in such programs.
(12) Engage in arbitrage transactions.
OFFICERS AND DIRECTORS
For a list of Sheffield's directors and executive officers, together
with their principal occupations during the past five years, see "Officers and
Directors" in the Prospectus.
Sheffield intends to pay each of its directors, except Mr. Sheffield,
an annual fee of $1200, plus $250 per Fund for each quarterly Board meeting
attended. Sheffield will reimburse all directors for their out-of-pocket
expenses incurred in connection with Board meetings. The officers of
Sheffield receive no compensation directly from Sheffield for performing the
duties of their offices.
The Board of Directors has adopted a mandatory retirement policy for
directors who have attained seventy-two (72) years of age. The mandatory
retirement age for each director is the last day of the calendar quarter in
which the director turns seventy-two (72).
THE ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, Sheffield Investment
Management, Inc. (the "Adviser") manages the investment and reinvestment of
each Fund's assets and continuously reviews, supervises and administers each
Fund's investment program. The Adviser also determines, in its discretion,
the securities to be purchased or sold, subject to the ultimate supervision
and direction of Sheffield's Board of Directors. Pursuant to the Investment
Advisory Agreement, the Adviser will, at its own expense and at Sheffield's
request, provide the foregoing services and the office space, furnishings and
equipment, and the personnel as may be reasonably required in the judgment of
the Board of Directors to perform such services.
As compensation for its investment management services, the Adviser
receives from Sheffield an advisory fee which will be computed daily and paid
as of the last day of each month on the basis of each Fund's daily net asset
value, using for each daily calculation the most recently determined net asset
value of the applicable Fund. On an annual basis the advisory fee is equal to
1.00% of the average net asset value of net assets up to $50 million; 0.75% of
the average net asset value of net assets in excess of $50 million but not
more than $100 million; and 0.60% of the average net asset value of net assets
in excess of $100 million. The portions of the advisory fee which are equal
to or higher than 0.75% of the average net assets of each Fund are higher than
those generally charged by investment advisers to similar funds. During the
years ended October 31, 1996, 1995, and 1994, investment advisory fees paid by
the Total Return Fund to the Adviser amounted to $237,139, $184,252, and
$228,768, respectively. During the years ended October 31, 1996, 1995, and
1994, investment advisory fees paid by the Bond Fund were $47,150, $74,553,
and $58,691, respectively. Advisory fees paid by the Bond Fund were net of a
voluntary waiver by the Adviser of fees equal to .25% of average annual net
assets beginning April 1, 1993. This fee waiver amounted to approximately
$16,000, $25,000, and $20,000 in fiscal 1996, 1995 and 1994, respectively.
The Adviser has agreed that, if in any fiscal year the aggregate
expenses of any of the Funds (including investment management, advisory and
distribution fees, but excluding interest, taxes, brokerage and, if permitted
by the relevant state securities commissions, extraordinary expenses) exceed
the expense limitation of any state having jurisdiction over any of the Funds,
it will reimburse such Fund for the excess expense to the extent required by
state law. An expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis. To the extent that any of the Funds are
reimbursed for excess expenses, such reimbursement will lower the Fund's
overall expense ratio. The most restrictive annual expense limitation that
may apply to any Fund presently requires reduction of fees and reimbursement
of expenses in any year that such expenses exceed 2.5% of such Fund's first
$30 million of average net assets, 2% of the next $70 million of average net
assets and 1.5% of the remaining average net assets, although Sheffield may
seek waivers from those expense limitations from time to time.
The Adviser and its predecessors have been continually registered under
the Investment Advisers Act of 1940 since 1975. In addition to the Funds, the
Adviser manages client funds on both a discretionary and non-discretionary
basis.
The Adviser provides personal asset allocation planning and other
investment counseling services for individuals and corporations for a separate
fee. The Adviser's asset allocation services consist of advising clients on
how to diversify their portfolios in order to limit market risk while at the
same time satisfying their own unique investment goals and objectives. In
connection with the purchase of shares of the Funds, the Adviser may be
contracted to advise investors on how best to allocate their assets between
the two Funds given the investor's particular needs, goals and objectives.
The Adviser has provided these services to individual clients since 1979. The
Adviser charges a separate fee for individualized counseling services
performing any or all of the foregoing services.
The Adviser is controlled by Roger A. Sheffield, C.F.A., the President
and Chairman of the Board of Sheffield and Caroline L. Scott, C.F.A., C.P.A.,
the Treasurer and Secretary of Sheffield.
The Investment Advisory Agreement must be approved annually by vote of a
majority of the directors who are not parties to the Investment Advisory
Agreement or "interested persons" of any such party, cast in person at a
meeting called for that purpose. The Investment Advisory Agreement may be
terminated by either party at any time, without penalty, upon 60 day's written
notice and will automatically terminate in the event of its assignment.
Termination will not affect the right of the Adviser to receive payments of
any unpaid compensation earned prior to termination. The Adviser shall not be
liable for any error of judgment or for any loss suffered by the Funds in
connection with the performance of its obligations under the Investment
Advisory Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of, or from reckless
disregard by it of its obligations and duties under, the Investment Advisory
Agreement, or a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services.
The services of the Adviser to the Funds are not deemed to be exclusive,
and nothing in the Investment Advisory Agreement prevents the Adviser, or any
affiliate thereof, from providing similar services to other investment
companies and other clients (whether or not their investment objective and
policies are similar to those of the Funds) or from engaging in other
activities.
THE ADMINISTRATION AGREEMENT
Pursuant to the Administration Agreement described in the Prospectus
under "Management and Administration" the Adviser provides a variety of
administrative services required by the Funds. For its services, the Adviser
receives a fee for each Fund at the annual rate of the greater of .15% of each
Fund's average daily assets or the actual cost to the Adviser to provide such
services up to $48,000 per fund. During the years ended October 31, 1996,
1995, and 1994, the Total Return Fund paid $48,000 per year in administrative
fees. During the years ended October 31, 1996, 1995, and 1994, administrative
fees paid by the Bond Fund were $25,000, $48,000, and $48,000, respectively.
During the fiscal year ended October 31, 1996, the Administrator waived
administrative fees to the Bond Fund amounting to approximately $23,000.
THE DISTRIBUTOR
Alpha-Line Investments, Inc., the Distributor, a Georgia corporation, is
the principal underwriter of the Funds under an amended and restated
Distribution Agreement dated February 27, 1992 (the "Distribution
Agreement"). All of the Distributor's outstanding shares of voting stock are
owned by Roger A. Sheffield, C.F.A. The Distributor acts as agent upon the
receipt of orders from investors. The Distributor will be reimbursed by each
Fund for the expenses incurred by the Distributor in connection with the sale
of the Funds' shares in accordance with that Fund's Distribution Agreement and
pursuant to that Fund's Plan of Distribution promulgated under Rule 12b-1 of
the Investment Company Act of 1940, as amended (the "1940 Act"), each
of which is described under "Distribution of Shares" herein and in the
Prospectus under "Plans of Distribution." The Distributor's principal office
is located at 900 Circle 75 Parkway, Suite 750, Atlanta, Georgia 30339-3082.
DISTRIBUTION OF SHARES
Rule 12b-1 under the 1940 Act permits each of the Funds to use its
assets to bear expenses of distributing its shares if it complies with various
conditions, including adoption of a plan of distribution containing certain
provisions set forth in the rule. The plans described below were approved by
the Directors of Sheffield, including a majority of the Directors who are not
"interested persons" of the Funds as defined in the 1940 Act ("Independent
Directors") and the Directors who have no direct or indirect financial
interest in the plans or any agreement related thereto (the "Rule 12b-1
Directors"), who currently are the same persons as the Independent Directors.
The Directors have determined that, in their judgment, there is a reasonable
likelihood that the plans will benefit each Fund and its shareholders by,
among other things, giving the Funds the ability to provide broker-dealers and
others with an incentive to sell additional shares of the Funds, thereby
making collective investment economically feasible and productive. In their
quarterly review of the plans, the Directors will consider their continued
appropriateness and the level of compensation provided in the respective
plans.
Each plan provides that the applicable Fund may pay certain distribution
costs and maintenance fees, which payments may not exceed a maximum amount
equal to 0.0625% of the applicable Fund's average daily net assets for a
fiscal quarter. This is approximately equivalent to a maximum annual amount
equal to 0.25% of the applicable Fund's average daily net assets.
Each Fund's plan of distribution provides that the applicable Fund may,
subject to the annual 0.25% limitation described above, pay the Distributor
monthly for any and all expenses incurred by the Distributor in connection
with the sale of shares of the Funds, including but not limited to
(1) commissions not to exceed 4% of the total price paid to either Fund as may
be paid by the Distributor to broker-dealers other than the Distributor for
the sale of Fund shares made by or through such other broker-dealers; (2) fees
of up to 0.25% per annum of the average net asset value of the shares sold by,
or in respect of services which are provided by the distributor,
broker-dealers or others and which remain outstanding on the books of such
Fund for specified periods for distribution, maintenance, service, support
and/or other similar service or services; (3) such finders' or referral fees
as may be paid by the Distributor to persons referring new investors to the
applicable Fund; (4) for the costs and expenses incurred in connection with
the preparation, printing and distribution of the Funds' prospectus, statement
of additional information and sales literature; and (5) expenses incurred in
connection with the sale and distribution of the Funds' shares, including
capital or other expenses of equipment, rent, salaries and other overhead. In
addition, the plans provide that the Funds may pay, subject to the annual
0.25% limitation, such other distribution costs as the Directors may from time
to time specify. During the year ended October 31, 1996, distribution costs
of $6,745 related to overhead items were reimbursed by each Fund.
Each Fund's plan of distribution provides also that the Adviser is
authorized to use its advisory fee revenue, past profits or other resources,
without limitation, to pay for any appropriate distribution-related activity
reasonably intended to result in the offer and sale of shares of each Fund.
Each Plan provides that, should the use by the Adviser of its own resources,
without limitation, to pay for such distribution-related expenses be deemed to
be an indirect financing of distribution activity by the Funds, such payments
are specifically authorized.
No commission will be paid under the plans with respect to shares
acquired under the Funds' Automatic Dividend Reinvestment Plan. Amounts
payable under a plan will be accounted for as expenses of the applicable
Fund.
Each plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or by vote of a majority of the outstanding voting
securities of the applicable Fund. Any change in a plan that would materially
increase the distribution expenses of a Fund requires stockholder approval;
otherwise, a plan may be amended by majority of the Directors, including the
Rule 12b-1 Directors.
For so long as a plan is in effect, Sheffield will be required to commit
the selection and nomination of candidates for Independent Directors to the
discretion of the Rule 12b-1 Directors.
The total amounts paid by each Fund under the foregoing arrangements for
any year may not exceed the maximum plan limit specified above, and the
amounts and purposes of expenditures under each plan must be reported to the
Rule 12b-1 Directors quarterly. The Rule 12b-1 Directors may require or
approve changes in the implementation or operation of the plans and may also
require that expenditures be kept within limits lower than the maximum amount
permitted by the applicable plans as stated above.
It is expected that each plan's limit on quarterly expenditures (i.e.,
0.0625% of average daily net assets) will be reached from time to time. To
the extent that this occurs, the Funds will not be able to pay the Distributor
on a current basis all of the commissions, finders' or referral fees and
maintenance fees payable to the Distributor from the sale of the Funds'
shares. In such event the Distributor intends, although it is not obligated
to do so, to continue to offer shares of the Funds and to continue to pay
others reallowances and maintenance fees. Should this occur, the Distributor
intends to seek payment from each respective Fund of the applicable unpaid
expenses, without any interest thereon, at such times as the particular plan's
annual expenditures limit has not otherwise been reached. If the Funds' plans
of distribution are terminated, however, the Funds will not be liable for any
unpaid expenses.
PURCHASE OF SHARES
Reference is made to "How to Purchase Shares" in the Prospectus for more
information concerning how to purchase shares.
PURCHASE BY EXCHANGE OF SECURITIES
The Board of Directors of Sheffield has determined that it is in the
best interest of a Fund to offer its shares, in lieu of cash payment, for
securities approved by the Adviser to be purchased by such Fund. This will
enable an investor to purchase shares of the Funds by exchanging securities
owned by the investor for shares of the applicable Fund. The Directors
believe that such a transaction can benefit a Fund by allowing it to acquire
securities for its portfolio without paying brokerage commissions. For the
same reason, the transaction may also be beneficial to investors. Equity
securities will be exchanged for shares of the Total Return Fund and debt
securities will be exchanged for shares of the Bond Fund. Cash and
convertible securities may be contributed to either Fund in accordance with
the wishes of the investor and the consent of the Adviser. The exchange of
securities in an investor's portfolio for shares of any of the Funds is
treated for federal income tax purposes as a sale of such securities and the
investor may, therefore, realize a taxable gain or loss.
The Funds shall not enter into such transactions, however, unless the
securities to be exchanged for Fund shares are securities whose values are
readily ascertainable and are readily marketable, comply with the investment
policies of the applicable Fund, are of the type and quality which would
normally be purchased for such Fund's portfolio, are securities which the Fund
would otherwise purchase, and are acquired for investment and not for
immediate resale. The value of each Fund's shares used to purchase portfolio
securities as stated herein will be determined at such time as the applicable
Fund next determines its net asset value after receipt of the securities.
Such securities will be valued in accordance with the same procedure used in
valuing a Fund's portfolio securities. (See "Valuation Shares.") If you wish
to acquire a Fund's shares in exchange for securities you should contact
Sheffield at the address or telephone number shown on the cover page of this
Prospectus. The Board of Directors of Sheffield reserves the right to
terminate this privilege at any time.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
It is the Funds' intention to distribute to shareholders each Fund's net
investment income and net realized capital gain, if any. The Total Return
Fund will make annual distributions of its net investment income and net
realized capital gains. The Bond Fund will make quarterly distributions of
its net investment income on a calendar quarter basis and an annual
distribution of its net realized capital gains. All such distributions will
be reinvested automatically in additional shares (or fractions thereof) of
each applicable Fund pursuant to such Fund's Distribution Reinvestment Plan
unless a shareholder has elected not to participate in this plan or has
elected to terminate his participation in the plan and to receive his
distributions in cash. (See "Distribution Reinvestment Plan.")
FEDERAL TAXES
Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If a Fund qualifies as a
regulated investment company, it will not be subject to federal income taxes
to the extent that it distributes annually its net investment income and net
realized capital gain.
With respect to a stockholder that is exempt from federal income
taxation under Section 401(a) or 501(a) of the Code, the distributions made by
a Fund will not constitute unrelated taxable business income (i.e., taxable
income derived by a tax-exempt entity from an unrelated trade or business
regularly carried on by it) and thus will not be taxable. Under
Section 512(b)(1) of the Code, dividends are expressly excluded from unrelated
business taxable income. Consequently, a tax-exempt shareholder will not
incur any federal income tax liability as a result of its participation in a
Fund.
With respect to a shareholder that is not exempt from federal income
taxation, all distributions, whether received in cash or additional shares of
a Fund, will be taxable and must be reported by the shareholder on its federal
income tax return. Each Fund's distributions of its net investment income and
net short-term capital gain will constitute dividends taxable as ordinary
income. Each Fund's distribution of its long-term capital gain will be
taxable as long-term capital gain regardless of the length of time the Fund's
shares have been held by the shareholder. Such distributions will not qualify
for the dividends received deduction.
Upon redemption of Fund shares held by a non-tax exempt investor, such
investor, generally, will realize a capital gain or loss equal to the
difference between redemption price received by the investor and the adjusted
basis of the shares redeemed. Such capital gain or loss, generally, will
constitute a short-term capital gain or loss if the redeemed Fund shares were
held for twelve months or less, and long-term capital gain or loss if the
redeemed Fund shares were held for more than twelve months. If, however, Fund
shares were redeemed within six months of their purchase by an investor, and
if a capital gain dividend was paid with respect to such Fund's shares while
they were held by the investor, then any loss realized by the investor will be
treated as long-term capital loss to the extent of the capital gain dividend.
Section 4982 of the Code provides for a non-deductible 4% excise tax on
the excess, if any, of the "required distribution" for the calendar year over
the "distributed amount" for such calendar year. The "required distribution"
is an amount equal to at least 98% of the Fund's ordinary income for the
calendar year and at least 98% of the excess of its capital gains over capital
losses ("capital gain net income") realized during the one-year period ending
October 31 of such year plus any ordinary income or capital gain net income
undistributed from the prior year. For purposes of the required distribution,
capital gain net income may be reduced by the Fund's net ordinary loss for the
calendar year. Each Fund intends to avoid the imposition of this 4% excise
tax, but no assurances can be given that this will be done every year.
Information concerning the status of a Fund's distributions for federal
income tax purposes will be mailed to shareholders annually. Such
distributions may also be subject to state and local taxes.
The foregoing is a general and abbreviated summary of applicable
provisions of the Code and Treasury Regulations presently in effect, and is
qualified in its entirety by reference thereto. The Code and these
regulations are subject to change by legislative or administrative action.
DISTRIBUTION REINVESTMENT PLAN
For the convenience of the stockholders and to increase their
shareholdings in the Funds in which they have invested, each Fund maintains an
Automatic Distribution Reinvestment Plan. For a discussion of this plan, see
"Automatic Distribution Reinvestment Plan" in the Prospectus.
BROKERAGE AND PORTFOLIO TRANSACTIONS
The Adviser arranges the placement of orders and the execution of
portfolio transactions for the Funds. In selecting brokers to be used in
portfolio transactions, the Adviser gives consideration to the broker's
ability to provide the best execution of the transaction at prices most
favorable to the Funds. When such a transaction involves listed securities,
the Adviser considers the advisability of effecting the transaction with a
broker which is not a member of the securities exchange on which the security
to be purchased is listed (i.e., a third market transaction) or effecting the
transaction in the institutional or fourth market. In over-the-counter market
transactions, the Adviser normally will attempt to deal with a primary market
maker or trade electronically in an effort to reduce or eliminate the bid/ask
spread. However, in situations where, in the Adviser's judgment, execution
through some other broker is likely to result in a saving or other advantage
to a Fund, such broker will be used.
In addition to consideration of best execution at prices most favorable
to the Funds, the Adviser may, in the allocation of such investment
transaction business, consider the general research and investment information
and other services provided by the brokers, although it has adopted no formula
for such allocation. These research and investment information services make
available to the Adviser for its analysis and consideration the views and
information of individuals and research staffs of many securities firms.
These services may be useful to the Adviser in connection with advisory
clients other than the Funds and not all such services may be used by the
Adviser in connection with the Funds. Although such information may be a
useful supplement to the Adviser's own investment information in rendering
services to the Funds, the value of such research and services is not expected
to reduce materially the expenses of the Adviser in the performance of its
services under the Advisory Agreement and will not reduce the advisory fee
payable to the Adviser by the Funds.
The Adviser may follow a policy of considering sales of shares of the
Funds as a factor in the selection of broker to execute portfolio
transactions, subject to the requirements of best execution discussed above.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of a Fund as well as other customers, the Adviser,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be so sold or purchased in order to obtain best execution and
lower brokerage commissions. In this event, allocation of the shares so
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to all such customers, including the
Funds. In some cases, the aggregation of securities to be sold or purchased
could have a detrimental effect on the price of the security insofar as a Fund
is concerned. However, in other cases, the ability of a Fund to participate
in volume transactions could be beneficial to the Fund.
During the years ended October 31, 1996, 1995, and 1994, the Funds paid
approximately $61,000, $57,000, and $89,000, respectively, of commissions to
various brokers. The decline in brokerage commissions paid in 1996 and 1995
relative to the year 1994 is attributable to a reduction in trading activity
in the Funds' equity portion of their portfolios.
NET ASSET VALUE
The net asset value per share of the Funds will not be calculated on
days that the New York Stock Exchange is closed. These days include New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each Fund's net asset value is calculated in the following manner:
EQUITY SECURITIES. Equity securities listed or traded on a national
securities exchange or quoted on the NASDAQ National Market System are valued
at the last sales price on the day of valuation or, if no sale is reported, at
the latest bid price.
INCOME SECURITIES. Valuations of a Fund's fixed and variable income
securities are supplied by independent pricing services used by the Fund's
Administrator, and which have been approved by the Board of Directors of
Sheffield. Valuations are based upon a consideration of yields or prices of
obligations of comparable quality, coupon, maturity and type, indications as
to value from recognized dealers, and general market conditions. The pricing
service may use electronic data processing techniques and/or a computerized
matrix system to determine valuations. Securities for which market quotations
are readily available are valued based upon those quotations. Short-term
obligations with maturities of sixty days or less are valued at amortized
cost, which approximates market. The procedures used by the pricing services
are reviewed by the officers of the Funds and the Adviser under the general
supervision of the Directors of Sheffield. The Directors may deviate from the
valuation provided by the pricing service whenever, in their judgment, such
valuation is not indicative of the fair value of the obligation. In such
instances such obligations will be valued at fair value as determined in good
faith by or under the direction of the Directors.
OTHER SECURITIES. Other securities and assets of a Fund, including
restricted securities, will be valued at fair value as determined in good
faith by or under the direction of the Directors.
After each Fund's portfolio securities are valued as described above,
cash receivables and other assets of a Fund are added and liabilities of a
Fund deducted. Each Fund's net asset value per share is determined by
dividing the value of the net assets of the Fund (i.e., assets less
liabilities) by the total number of shares of the Fund outstanding. Expenses
and fees of each Fund, including the fees of the Adviser, are accrued daily
and taken into account for the purpose of determining net asset value.
PERFORMANCE INFORMATION
As stated in the Prospectus, from time to time the Funds may provide
their total return in advertisements, sales literature or reports, and other
communications to stockholders. These total returns are calculated based on
the applicable Fund's change in net asset value per share between the
beginning and end of the period shown and assumed reinvestment of the
applicable Funds dividend and capital gains distributions during the period.
Total return figures are computed according to a formula prescribed by
the Securities and Exchange Commission. The formula can be expressed as
follows:
P(1+T)n = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical
$1,000 payment made at the beginning of the
1, 5, or 10 years (or other) periods at the
end of the 1, 5, or 10 (or other) periods
(or fractional portion thereof);
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period. A Fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the Fund.
The following table provides the actual annual rates of return for each
of the Funds for the fiscal year ended October 31, 1996, the five year period
ended October 31, 1996, and the period from inception (April 2, 1990) through
October 31, 1996. These rates are net of all expenses and assume reinvestment
of dividends on the reinvestment date during each period.
Total Return Bond
Fund Fund
____________ ______
For the year ended October 31, 1996 22.36% 7.64%
For the five-year period ended
October 31, 1996 11.18% 6.80%
For the period from inception (April 2, 1990)
through October 31, 1996 (6.583 years) 11.40% 6.23%
Based on the average annual rates of return listed above, a shareholder
could have expected the following values (assuming either redemption or no
redemption) on a $1,000 investment at the end of each time period.
Total Return Bond
Fund Fund
____________ ______
For the year ended October 31, 1996 $1,224 $1,076
For the five-year period ended
October 31, 1996 $1,699 $1,389
For the period from inception (April 2, 1990)
through October 31, 1996 (6.583 years) $2,035 $1,489
The redeemable values shown above are computed by multiplying
hypothetical investments of $1,000 on the first day of the measurement period
by a number equal to: (1 plus the annual rate of return) to the power of the
number of years (or fraction thereof) included in the period.
From time to time the Funds may also advertise their "yield." Yield
figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of a Fund refers to the income generated by
an investment in the Fund over a thirty-day (or one-month) period (which
period will be stated in the advertisement.) The yield for any 30-day (or
one-month period is computed by dividing the net investment income per share
earned during such period by the maximum public offering price per share on
the last day of the period, and then annualizing such 30-day (or one-month)
yield in accordance with a formula prescribed by the Securities and Exchange
Commission. The Funds may also advertise in items of sales literature an
"actual distribution rate" which is computed in the same manner as yield
except that actual income dividends declared per share during the period in
question is substituted for net investment income per share. The Funds'
yields will only be advertised when accompanied by the Funds' total return.
The formula prescribed by the Securities and Exchange Commission for
calculation yield is as follows:
6
YIELD = 2[(a-b + 1) - 1]
---
cd
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 were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased at a discount or premium, the formula
generally calls for amortization of the discount or premium; the amortization
schedule will be adjusted monthly to reflect changes in the market values of
the debt obligations.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the
future. In addition, because performance will fluctuate, it may not provide a
basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield for a state period of time.
MISCELLANEOUS
PRINCIPAL STOCKHOLDERS
As of January 31, 1997, the following individuals or entities were known
by the Total Return Fund to be record and beneficial owners of five percent or
more of the outstanding stock of the Total Return Fund:
Name and Address of Number of Percent of
Beneficial Owner Shares Class
________________________________ _________ _________
Dr. and Mrs. Kerry Schwartz and
Affiliated Persons<F1>
113 East Webster Avenue
Winter Park, Florida 32789-3224 155,131 9.16%
Dr. and Mrs. Kirk D. Cianciolo
13201 Walsingham
Largo, Florida 34644 111,556 6.59%
Dr. Clyde R. Balch and
Affiliated Persons<F2>
645 Galleon Drive
Naples, Florida 33940 110,370 6.52%
Mr. and Mrs. David D. Dieterich
and Children
10063 Oaks Lane
Seminole, Florida 34642-2006 85,318 5.04%
[FN]
<F1> Includes 17,269 shares of the Florida Heart Group, P.A. Money Purchase
Plan for which Kerry Schwartz serves as trustee.
<F2> Includes 105,026 shares of Clyde R. Balch, M.D., P.A., Pension Plan for
which Clyde R. Balch serves as trustee.
As of January 31, 1997, the following individuals or entities were known
by the Bond Fund to be record and beneficial owners of five percent or more of
the outstanding stock of the Bond Fund:
Name and Address of Number of Percent of
Beneficial Owner Shares Class
- ------------------------------- ---------- ----------
Clyde R. Balch, M.D., P.A.,
Pension Plan
201 Eighth Street South
Naples, Florida 33940-6141 66,911 9.84%
John R. Ibach, Jr., M.D., P.A.,
Profit Sharing Plan
836 Prudential Drive
Jacksonville, FL 32207 49,737 7.31%
Dr. and Mrs. Kerry Schwartz
and Affiliated Persons<F3>
113 East Webster Avenue
Winter Park, Florida 32789-3224 47,596 7.00%
[FN]
<F3> Includes 14,833 shares of the Florida Heart Group, P.A., Money Purchase
Pension Plan for which Kerry Schwartz serves as trustee.
As of January 31, 1997, the President of Sheffield, the Treasurer, the
Sheffield Investment Management Profit Sharing Plan and related family members
owned as a group approximately 1.15% and .81%, respectively, of the
outstanding shares of the Total Return and Bond Funds.
THE CUSTODIAN
United Missouri Bank, n.a. is the custodian of the portfolio securities
and cash of the Funds and maintains certain records on behalf of the Funds.
Subject to the prior approval of the Board of Directors, the custodian may use
the services of subcustodians as to one or more of the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 1155 Peachtree Street, 1100 Campanile
Building, Atlanta, Georgia 30309, serve as the independent accountants for
each of the Funds. The financial highlights of The Sheffield Funds, Inc. for
the year ended October 31, 1996, included in this Statement of Additional
Information have been incorporated herein in reliance on the report of Coopers
& Lybrand L.L.P. independent accountants, given on the authority of that firm
as experts in accounting and auditing.
SHEFFIELD TOTAL RETURN FUND
Portfolio of Investments
October 31, 1996
- ----------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.6%) PAR VALUE
- ----------------------------------------------------------------------
United Missouri Bank Money Market
(cost - $663,163) $663,163 $663,163
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
COMMON STOCKS (100.0%) SHARES
- ----------------------------------------------------------------------
AEROSPACE - 1.1%
Boeing Co. 2,800 267,050
-------
AUTO/TRUCK PARTS - 2.3%
Genuine Parts Co. 5,300 231,875
TRW, Inc 3,900 352,950
-------
584,825
-------
BANKING - 5.4%
BankAmerica Corp. 2,000 183,000
First Tennessee National Corp. 8,400 305,550
First Union Corp. 4,100 298,275
NationsBank Corp. 3,140 295,945
Summit Bancorp 6,900 282,038
-------
1,364,808
---------
BEVERAGES - 3.5%
ALCOHOLIC - 1.4%
Anheuser Busch Cos., Inc. 9,400 361,900
-------
SOFT DRINK - 2.1%
Coca-Cola Co. 5,600 282,800
Pepsico, Inc. 8,000 237,000
-------
519,800
-------
BUILDING MATERIALS/CONSTRUCTION - .7%
Masco Corporation 6,000 188,250
-------
CHEMICALS - 6.3%
BASIC - 3.7%
DuPont E.I. De Nemours & Co. 2,700 250,425
Monsanto Co. 10,000 396,250
Sherwin-Williams Co. 5,500 275,687
-------
922,362
-------
SPECIALTY - 2.6%
Avery Dennison Corp. 7,600 500,650
Engelhard Corp. 9,000 164,250
-------
664,900
-------
COMMERICAL SERVICES - .7%
Olsten Corp. 9,000 180,000
-------
COMPUTER HARDWARE - 2.4%
Cisco Systems, Inc.* 3,100 191,812
Hewlett Packard Co. 5,100 225,038
SCI Systems, Inc.* 4,000 199,000
-------
615,850
-------
- -----------------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- -----------------------------------------------------------------------
COMPUTER SOFTWARE - 3.6%
Computer Associates International Inc. 2,000 $118,250
Electronic Data Systems Corp. 4,000 181,000
Microsoft Corp.* 3,100 425,475
Parametric Technology Corp.* 3,570 174,484
-------
899,209
-------
COSMETICS - .7%
Avon Products, Inc. 4,000 217,000
-------
DIVERSIFIED - 5.7%
Allied Signal, Inc. 4,400 288,200
Johnson Controls Industries, Inc. 3,500 255,500
Morton International, Inc. 6,200 244,125
PPG Industries, Inc. 6,900 393,300
Raytheon Co. 5,000 246,250
-------
1,427,375
---------
ELECTRICAL EQUIPMENT - 2.3%
Honeywell, Inc. 5,100 316,838
Baldor Electric Co. 12,700 255,588
572,426
ELECTRONICS - 7.5%
Avnet, Inc. 10,000 503,750
Diebold, Inc. 7,950 457,125
Eastman Kodak Co.+ 4,500 358,312
Eaton Corp. 2,700 161,325
Motorola, Inc. 3,865 177,790
Rockwell International Corp. 4,100 225,500
-------
1,883,802
---------
ELECTRONICS - SEMICONDUCTOR - 2.7%
Applied Materials, Inc.* 6,130 162,062
Intel Corp. 3,450 379,069
Linear Technology Corp. 4,375 146,562
-------
687,693
-------
ENTERTAINMENT/LEISURE - .8%
Harley Davidson, Inc. 4,300 194,038
-------
FOOD PRODUCTS - 4.8%
Conagra, Inc. 4,000 199,500
Dole Food Co., Inc. 4,500 175,500
Hershey Foods Corp.+ 9,600 464,400
Philip Morris Cos. 4,000 369,500
-------
1,208,900
---------
HOTEL/MOTEL - .8%
La Quinta Inns, Inc. 10,300 206,000
-------
HOUSEHOLD/OFFICE FURNISHINGS - .7%
Herman Miller, Inc. 4,200 181,125
-------
- -----------------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- -----------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 2.6%
Colgate Palmolive Co. 3,700 $ 340,862
Procter & Gamble Co. 3,300 326,700
-------
667,562
-------
INSURANCE - 3.9%
Allstate Corp. 5,898 330,288
Beneficial Corp. 5,000 292,500
Reliastar Financial Corp. 6,600 349,800
-------
972,588
-------
MANUFACTURING - 2.7%
Donaldson Co., Inc. 8,500 248,625
Dover Corp. 5,000 256,875
Illinois Tool Works Inc. 2,500 175,625
-------
681,125
-------
MEDICAL - PHARMACEUTICAL - 6.3%
Abbott Laboratories 5,000 253,750
Medtronic Inc. 4,000 257,500
Merck & Co. 4,000 295,500
Pfizer, Inc. 6,400 529,600
Schering Plough Corp. 4,000 256,000
-------
1,592,350
---------
OFFICE EQUIPMENT - 2.2%
Pitney Bowes, Inc. 4,700 262,612
Xerox Corp. 6,300 292,163
-------
554,775
-------
OIL & GAS - 6.8%
Amoco Corp. 2,750 208,312
Exxon Corp. 3,000 265,875
Global Marine, Inc.* 19,000 349,125
Mobil Corp. 2,390 279,032
Smith International Inc.* 4,600 174,800
Tidewater, Inc. 5,800 253,750
Tosco Corp. 3,500 196,438
-------
1,727,332
---------
PUBLISHING - .8%
John H. Harland Co. 6,600 205,425
-------
REAL ESTATE - 1.0%
Washington Real Estate Investment Trust 15,250 242,092
-------
RESTAURANTS - 1.6%
Outback Steakhouse, Inc. * 7,100 164,631
Wendys Int'l, Inc. 11,600 239,250
-------
403,881
-------
- ------------------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- ------------------------------------------------------------------------
RETAIL - 5.5%
DEPARTMENT STORES - 2.1%
Dollar General Corp. 9,625 $ 269,500
Sears Roebuck & Co. 5,500 266,062
-------
535,562
-------
DRUG - .8%
Revco Drugs, Inc.* 6,830 205,754
-------
GROCERY - .9%
Albertsons, Inc. 6,500 223,438
-------
SPECIALTY - 1.7%
General Nutrition Cos., Inc.* 13,000 237,250
Zale Corp.* 9,000 174,375
-------
411,625
-------
SAVINGS AND LOANS - 1.0%
John Hancock Bank & Thrift Opportunity Fund 9,600 259,200
-------
TELEPHONE - 5.6%
Alltel Corp. 11,200 341,600
Ameritech Corp. 6,300 344,925
Cincinnati Bell, Inc. 7,000 345,625
Lucent Technologies, Inc. 1,912 90,342
Newbridge Networks Corp.* 6,000 190,500
Nynex Corp. 2,200 97,900
-------
1,410,892
---------
TRANSPORTATION - 3.4%
Canadian Pacific Ltd. 10,500 265,125
Conrail, Inc. 2,900 276,587
Illinois Central Corp. Ser-A 9,450 305,944
-------
847,656
-------
UTILITIES - 4.6%
ELECTRIC & GAS - 2.2%
Baltimore Gas & Electric Co. 11,200 305,200
TNP Enterprises, Inc. 10,000 258,750
-------
563,950
-------
NATURAL GAS - 2.4%
Panenergy Corp. 8,200 315,700
Williams Co., Inc. 5,500 287,375
-------
603,075
-------
- ------------------------------------------------------------------------
Total Common Stocks
(cost - $18,757,603) $25,255,595
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (102.6%)
(cost - $19,420,766) $25,918,758
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
WRITTEN CALL OPTIONS OUTSTANDING
(-.1%) SHARES VALUE
- ------------------------------------------------------------------------
Eastman Kodak Co Call Jan/80 1,000 ($3,375)
Hershey Foods Corp. Call Nov/42.50 3,000 (16,500)
-------
(19,875)
-------
- ------------------------------------------------------------------------
Total Short Options
(Premiums received - $11,920) ($19,875)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES (-2.5%) ($641,512)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS (100%) $25,257,371
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $15.02
=====
- ------------------------------------------------------------------------
* Non-income producing.
+ Portion of the security is segragated as collateral for call options
written. Aggregate value of segregated securities - $22,475
SHEFFIELD INTERMEDIATE TERM BOND FUND
Portfolio of Investments
October 31, 1996
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (.3%) PAR VALUE
- ------------------------------------------------------------------------
UMB Bank Money Market
(cost - $21,207) $21,207 $21,207
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
COMMON STOCKS (11.6%) SHARES
- ------------------------------------------------------------------------
BANKING - 1.1%
JP Morgan & Co. 900 77,738
------
CHEMICALS - 3.5%
Arco Chemical Co. 1,400 66,850
DuPont (E.I.) Denemours & Co. 965 89,504
Minnesota Mining & Mfg. Co. 1,055 80,575
------
236,929
-------
ELECTRICAL EQUIPMENT - 1.3%
General Electric Co. 940 90,945
------
FOOD PRODUCTS - 1.1%
Philip Morris Cos. 825 76,209
------
OIL & GAS - 3.7%
Chevron Corp. 1,165 76,599
Exxon Corp. 845 74,888
Texaco, Inc. 980 99,592
------
251,079
-------
TELEPHONE - .9%
Southern New England Telecommunication Corp. 1,710 63,698
------
- ------------------------------------------------------------------------
Total Common Stocks
(cost - $595,937) $796,598
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (85.1%) PAR VALUE
- ------------------------------------------------------------------------
AEROSPACE - 1.5%
Lockheed Martin Corp. 7.250% Guaranteed
Notes 5/15/06 $100,000 102,220
-------
BANKING - 10.2%
Banc One Corp. 7.25% Sub. Notes 8/1/02 250,000 257,570
Bankamerica Corp 9.2% Sub. Notes 5/15/03 200,000 225,822
Bankers Trust NY Corp. 9.0% Deb. 8/1/01 200,000 218,798
-------
702,190
-------
COMMERICAL SERVICES - 3.0%
Hertz Corp. 7.0% Sr. Notes 4/15/01 200,000 203,758
-------
COMPUTER SYSTEMS - 1.4%
International Business Machines Corp.
6.375% Notes 6/15/00 100,000 100,240
-------
- ------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - CONTINUED PAR VALUE
- ------------------------------------------------------------------------
CONTAINERS - 3.7%
Crown Cork and Seal Co. 6.750%
Notes 4/15/03 $250,000 $251,795
-------
DIVERSIFIED - 1.7%
Allied Signal Inc. 9.875% Deb. 6/1/02 100,000 115,353
-------
ELECTRICAL EQUIPMENT - 4.1%
Eastman Kodak Co. 9.375% Deb. 3/15/03 100,000 114,564
Westinghouse Electric Corp. 8.875%
Deb. 6/1/01 160,000 168,013
-------
282,577
-------
ELECTRONICS - SEMICONDUCTOR - 1.5%
Applied Material 8.00% Sr. Notes 9/1/04 100,000 106,330
-------
FINANCIAL SERVICES - 2.9%
Bear Stearns Co. 6.7% Sr. Notes 8/1/03 200,000 197,888
-------
HEALTHCARE - 3.8%
Rhone-Poulenc 7.75% Notes 1/15/02 250,000 261,208
-------
HOUSEHOLD PRODUCTS - 4.7%
Black & Decker 6.625% Notes 11/15/00 320,000 321,187
-------
INSURANCE - 3.3%
Progressive Corp. 10.0% Deb. 12/15/00 200,000 225,026
-------
OFFICE EQUIPMENT - 4.0%
Xerox Credit Corp. 9.75% Deb. 3/15/00 250,000 275,445
-------
OTHER - .5%
Swedish Export Credit 9.875% Deb.
3/15/38 30,000 32,446
------
PERSONAL & BUSINESS CREDIT - 15.5%
Associate Corp. of N. America 6.375%
Sr. Notes 10/15/02 250,000 247,213
Ford Capital BV 9.375% Deb. 5/15/01 200,000 221,492
General Motors Acceptance Corp. 8.4%
Notes 10/15/99 200,000 211,160
Household Financial Corp. 6.7% Notes
6/15/02 180,000 180,662
Transamerica Financial Corp. 7.5% Sr.
Notes 3/15/04 200,000 207,384
-------
1,067,911
---------
RETAIL - 10.7%
DEPARTMENT STORES - 5.2%
K-Mart Inc. 9.8% Med. Term Notes
6/15/98 250,000 247,500
Wal-Mart Stores 9.1% Notes 7/15/00 100,000 109,144
-------
356,644
-------
- ------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - CONTINUED PAR VALUE
- ------------------------------------------------------------------------
RETAIL - CONT.
SPECIALTY - 5.5%
Fruit of the Loom Inc. 7.875% Sr.
Notes 10/15/99 $210,000 $216,802
Limited Inc. 8.875% Notes 8/15/99 150,000 157,992
-------
374,794
-------
SAVINGS & LOANS - 2.4%
H.F. Ahmanson & Co. 9.875% Sub.
Notes 11/15/99 150,000 164,247
-------
UTILITIES - ELECTRIC & GAS - 7.4%
Baltimore Gas & Electric Co. 6.5%
1st Ref. Mortgage Bonds 2/15/03 140,000 139,385
Commonwealth Edison Co. Mortgage
9.375% Bonds 2/15/00 250,000 269,945
Public Service Oklahoma 7.25% 1st
Mortgage Bonds 1/1/99 100,000 100,441
-------
509,771
-------
UTILITIES - NATURAL GAS - 2.8
Williams Corp. 6.25% Deb. 2/1/06 200,000 189,578
-------
- ------------------------------------------------------------------------
Total Bonds and Notes
(cost - $5,672,124) $5,840,608
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
CONVERTIBLE BONDS - 1.5%
EMC Corp. 4.25% Conv. Sub. Note 1/1/01 75,000 100,125
-------
- ------------------------------------------------------------------------
Total Convertible Bonds
(cost - $75,462 ) $100,125
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (98.5%)
(cost - $6,364,730) $6,758,538
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES (1.5%) $101,450
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS (100%) $6,859,988
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.70
====
- ------------------------------------------------------------------------
See accompanying notes to the financial statements.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITES
OCTOBER 31, 1996
- ------------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------------- -----------------
ASSETS:
Investments at value (cost of
$19,420,766 and $6,364,730,
respectively) $25,918,758 $6,758,538
Receivables:
Interest 457 119,668
Dividends 22,270 ---
Portfolio securities sold 397,532 ---
Prepaid insurance 4,092 954
-------- -------
Total assets 26,343,109 6,879,160
---------- ---------
LIABILITIES:
Investment securities purchased 979,746 ---
Oustanding call options written 19,875 ---
Redemptions payable 50,300 4,100
Accrued expenses 35,817 15,072
-------- ------
Total liabilities 1,085,738 19,172
--------- ------
NET ASSETS CONSISTING OF:
Undistributed net investment income 90,031 27,797
Accumulated net realized gain 1,393,921 246,509
Unrealized appreciation on
investments 6,490,037 393,808
Paid-in capital applicable to
1,681,086 and 707,244 shares
outstanding, respectively, of
$.001 par value capital stock;
5,000,000 shares authorized in
each fund 17,283,382 6,191,874
---------- ---------
Net Assets $25,257,371 $6,859,988
---------- ---------
NET ASSET VALUE PER SHARE $15.02 $9.70
===== ====
See accompanying notes to financial statements.
- -----------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
- -----------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------------- -----------------
INVESTMENT INCOME:
Interest $ 13,725 $ 396,996
Dividends 485,888 27,356
------- ------
Total income 499,613 424,352
------- -------
EXPENSES:
Investment advisory fee 237,139 63,032
Investment advisory fee waived --- (15,882)
Administration fee 48,000 48,000
Administrative fee waived --- (23,000)
Transfer agency fee 10,000 10,000
12b-1 expenses 6,745 6,745
Custodian fees 12,016 5,035
Registration and filing fees 2,208 2,208
Professional fees 8,328 8,328
Directors fees 4,950 4,800
Printing and postage 3,962 3,974
Insurance expense 7,831 3,069
Other 1,439 807
------- ------
Total expenses 342,618 117,116
------- -------
Net investment income 156,995 307,236
------- -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments 1,446,749 244,750
Net realized gain (loss) on futures (52,828) 1,759
Change in unrealized appreciation
(depreciation) on investments 3,183,317 (55,492)
--------- -------
Net gain on investments 4,577,238 191,017
--------- -------
Net increase in net assets from
operations $4,734,233 $498,253
========= =======
- -----------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
- -----------------------------------------------------------------------
Sheffield Total
Return Fund
Year ended Year ended
10/31/96 10/31/95
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 156,995 $ 166,160
Net realized gain on investments 1,446,749 829,162
Net realized loss on futures (52,828) ---
Change in unrealized appreciation
on investments 3,183,317 1,681,089
--------- ---------
Increase in net assets from
operations 4,734,233 2,676,411
--------- ---------
Dividends to shareholders from:
Net investment income (184,571) (178,351)
Realized gains (829,079) (507,787)
-------- --------
Total distributions to shareholders (1,013,650) (686,138)
---------- --------
Capital transactions:
Proceeds from shares issued
through exchange 1,148,180 2,992,306
Proceeds from reinvestment of
dividends 1,013,650 686,138
Proceeds from other shares sold 826,934 618,904
Cost of shares reacquired
through exchange (589,520) (1,199,058)
Cost of other shares reacquired (2,427,588) (1,708,560)
---------- ----------
Increase (decrease) in net assets
from capital share transactions (28,344) 1,389,730
------- ---------
TOTAL INCREASE 3,692,239 3,380,003
--------- ---------
NET ASSETS:
Beginning of period 21,565,132 18,185,129
---------- ----------
End of period $25,257,371 $21,565,132
=========== ===========
Capital transactions in number of shares:
Shares issued through exchange 87,222 235,685
Shares issued in connection with
reinvestment of dividends 79,878 64,791
Other shares sold 57,467 53,872
Shares reacquired through exchange (42,231) (108,650)
Other shares reacquired (177,948) (145,823)
-------- --------
Net increase in shares outstanding 4,388 99,875
===== ======
See accompanying notes to financial statements.
- ------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
- ------------------------------------------------------------------------
Sheffield Intermediate
Term Bond Fund
Year ended Year ended
10/31/96 10/31/95
---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $307,236 $557,197
Net realized gain on investments 244,750 85,780
Net realized gain on futures 1,759 ---
Change in unrealized appreciation
on investments (55,492) 641,710
------- -------
Increase in net assets from operations 498,253 1,284,687
------- ---------
Dividends to shareholders from:
Net investment income (308,895) (574,726)
Realized gains (85,839) (32,510)
-------- --------
Total distributions to shareholders (394,734) (607,236)
-------- --------
Capital transactions:
Proceeds from shares issued
through exchange 589,520 1,199,058
Proceeds from reinvestment of
dividends 394,734 607,236
Proceeds from other shares sold 921,628 687,049
Cost of shares reacquired through
exchange (1,148,180) (2,992,306)
Cost of other shares reacquired (1,735,152) (1,728,501)
---------- ----------
Decrease in net assets from capital
share transactions (977,450) (2,227,464)
-------- ----------
TOTAL DECREASE (873,931) (1,550,013)
-------- ----------
NET ASSETS:
Beginning of period 7,733,919 9,283,932
--------- ---------
End of period $6,859,988 $7,733,919
========= =========
Capital transactions in number of shares:
Shares issued through exchange 62,061 133,877
Shares issued in connection with
reinvestment of dividends 41,663 65,650
Other shares sold 96,899 75,598
Shares reacquired through exchange (119,339) (309,849)
Other shares reacquired (180,660) (183,156)
-------- --------
Net decrease in shares outstanding (99,376) (217,880)
======= ========
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD TOTAL RETURN FUND
---------------------------
Year ended October 31,
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.86 $11.53 $12.71 $12.30 $11.82
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .09 .11 .10 .12 .09
Net gains (losses) on securities
(both realized and unrealized) 2.67 1.68 (.38) 1.75 .47
---- ---- ---- ---- ---
Total from investment operations 2.76 1.79 (.28) 1.87 .56
---- ---- ---- ---- ---
Less Distributions:
Dividends (from net investment
income) (.11) (.12) (.11) (.12) (.08)
Distributions (from realized gains) (.49) (.34) (.79) (1.34) ----
---- ---- ---- ----- ----
Total distributions (.60) (.46) (.90) (1.46) (.08)
---- ---- ---- ----- ----
Net Asset Value, end of period $15.02 $12.86 $11.53 $12.71 $12.30
===== ===== ===== ===== =====
Total return 22.36% 16.33% -2.31% 16.59% 4.79%
Ratios/supplemental data:
Net assets, end of period (000's) $25,257 $21,565 $18,185 $27,504 $19,380
Ratio of expenses to average
net assets 1.44% 1.60% 1.50% 1.47% 1.66%
Ratio of net investment income
to average net assets .66% .90% .83% 1.00% .82%
Portfolio turnover rate 57.17% 55.16% 51.25% 100.28% 119.87%
Average commission per share+ $ .076 (a) (a) (a) (a)
</TABLE>
See accompanying notes to financial statements.
+ 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
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD INTERMEDIATE TERM BOND FUND
---------------------------
Year ended October 31,
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.59 $9.06 $10.14 $9.98 $9.81
---- ---- ----- ---- ----
Income from investment operations:
Net investment income .46 .53 .48 .52 .58
Net gains (losses) on securities
(both realized and unrealized) .24 .60 (.71) .32 .17
---- ---- ----- ---- ----
Total from investment operations .70 1.13 (.23) .84 .75
---- ---- ----- ---- ----
Less Distributions:
Dividends (from net investment
income) (.47) (.57) (.45) (.58) (.58)
Distributions (from realized gains) (.12) (.03) (.40) (.10) ---
---- ---- ----- ---- ----
Total distributions (.59) (.60) (.85) (.68) (.58)
---- ---- ----- ---- ----
Net Asset Value, end of period $9.70 $9.59 $9.06 $10.14 $9.98
==== ==== ==== ===== ====
Total return 7.64% 12.89% -2.42% 8.73% 7.78%
Ratios/supplemental data:
Net assets, end of period (000's) $6,860 $7,734 $9,284 $7,698 $11,973
Ratio of expenses to average
net assets 1.86%+ 1.78%+ 2.08%+ 2.04%+ 1.91%
Ratio of net investment income
to average net assets 4.87% 5.61% 5.01% 5.19% 5.87%
Portfolio turnover rate 33.65% 34.99% 30.38% 21.70% 59.54%
Average commission per share++ $ .079 (a) (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 2.47%, 2.03%, 2.34%, and 2.17% for the years 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 Fund is 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 Fund
dependent on the daily fluctuations in the value of the unrealized gains
and losses on the futures contracts. If the Fund enters into a closing
transaction, the Fund 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 Fund 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, 1996, there were
no unsettled futures contracts.
D. OPTION WRITING - When the Company writes an option, an amount equal to the
premium received by the Company 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 Company 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 Company has
realized a gain or loss. If a put option is exercised, the premium reduces
the cost basis of the securities purchased by the Company. The Company as
writer of an option bears 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, 1996, the aggregate cost of securities for federal income
tax and financial reporting purposes for the Total Return Fund was
$19,420,766 and net unrealized appreciation aggregated $6,497,992 of which
$6,719,258 related to appreciated securities and $221,266 related to
depreciated securities. Net depreciation on call options outstanding
amounted to $7,955. The aggregate tax cost of securities for the Bond Fund
was $6,364,730 and net unrealized appreciation aggregated $393,808, of
which $435,370 related to appreciated securities and $41,562 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 one-year period ended October 31, 1996, amounted to approximately $15,882.
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 one-year period ended
October 31, 1996, SIMI waived administrative fees to the Bond Fund amounting
to approximately $23,000.
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, and service cost 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 one-year period ended October 31,
1996, 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
$ 13,431,564 $ 13,752,393 $ 2,631,693 $3,690,960
The Total Return Fund had transactions in call options as follows:
Number of
Contracts Premiums
Options outstanding at October 31, 1995 0 $ 0
Options written 174 30,006
Options bought back (94) (13,073)
Options purchased (30) (19,217)
Options sold 30 19,217
Options assigned (40) (5,013)
--- -------
Options outstanding at October 31, 1996 40 $ 11,920
=== ========
NOTE 4. RELATED PARTY STOCKHOLDERS. At October 31, 1996, the Sheffield
Investment Management, Inc. Profit Sharing Plan owned 5,224 shares of the Bond
Fund and 14,841 shares of the Total Return Fund. The President of SIMI and
related family members owned 2,515 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, 1996, 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, 1996, 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, 1996, 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 19, 1996
APPENDIX A
Ratings of Corporate Debt Obligations
The characteristics of debt obligations rated by Moody's are generally as
follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
The characteristics of debt obligations rated by Standard & Poor's are
generally as follows:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal
and interest.
AA - Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB - Debt rated BB is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree of
speculation among obligations rated lower than BBB. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
A bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
Ratings of Commercial Paper
The Funds' purchases of commercial paper are limited to those instruments
rated A-1 or A-2 by Standard & Poor's.
Commercial paper rated A-1 or A-2 by Standard & Poor's has the following
characteristics: liquidity ratios are adequate to meet cash requirements; the
issuer's long-term debt is rated "A" or better; the issuer has access to at
least two additional channels of borrowing; and basic earnings and cash flow
have an up and down trend with allowances made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a
strong position within the industry. Relative strength or weakness of the
above factors determines whether an insurer's commercial paper is rated A-1 or
A-2, with the relative degree of safety of commercial paper rated A-2 not
being as high as for commercial paper rated A-1.
A commercial paper rating is not a recommendation to purchase, sell or
hold a particular instrument, inasmuch as it does not comment as to market
price or suitability for a particular investor.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Sheffield Total Return Fund and
Sheffield Intermediate Term Bond Fund
of The Sheffield Funds, Inc.:
Statement of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
(B) EXHIBITS:
1. (a) Articles of Incorporation (1)
(b) Articles Supplementary to Registrant's Articles
of Incorporation (3)
2. Bylaws of Registrant (1)
3. None
4. Form of Specimen Stock Certificate issued by Registrant
(1)
5. Investment Advisory Agreement between Registrant
and Sheffield Investment Management, Inc., dated
February 6, 1990. (2)
6. Amended and Restated Distribution Agreement between
Registrant and Alpha-Line Investments, Inc., dated
February 27, 1992. (4)
7. None
8. Custodian Agreement between Registrant and United
Missouri Bank, n.a., dated January 18, 1990. (2)
9. (a) Administration Agreement between Registrant and
Sheffield Investment Management, Inc., dated
February 6, 1990. (2)
(b) Transfer Agency Agreement between Registrant and
Sheffield Investment Management, Inc. dated
February 6, 1990. (2)
10. Opinion as to legality of the shares. (2)
11. Consent of Independent Accountants
12. None
13. Agreements concerning initial capital of Registrant.(2)
14. None
15. (a) Rule 12b-1 Plan of Distribution of the Sheffield
Total Return Fund of Registrant, as amended (5)
(b) Rule 12b-1 Plan of Distribution of the Sheffield
Intermediate Term Bond Fund of Registrant, as
amended (5)
(c) (Form of) Rule 12b-1 Dealer Agreement (1)
(d) (Form of) Rule 12b-1 Finder's Fee Agreement (1)
(e) (Form of) Rule 12b-1 Finder's Fee Agreement II (3)
(f) (Form of) Investor Servicing Agreement (4)
16. Schedule for computation of performance quotation. (4)
17. Financial Data Schedule pursuant to the requirements of
Rule 483 under the Securities Act of 1933
18. None
19. Power of attorney appointing Roger A. Sheffield, C.F.A.
(1)(2)(3)(6)
______________________________
(1) Previously filed on December 18, 1989 in the initial filing of the
Registrant's Form N-1A Registration Statement.
(2) Previously filed on February 14, 1990 in Pre-Effective Amendment
No. 1 to Registrant's Form N-1A Registration Statement.
(3) Previously filed on September 28, 1990 in Post-Effective Amendment
No. 1 to Registrant's Form N-1A Registration Statement.
(4) Previously filed on February 27, 1992 in Post-Effective Amendment
No. 4 to Registrant's Form N-1A Registration Statement.
(5) Previously filed on December 31, 1992 in Post-Effective Amendment
No. 5 to Registrant's Form N-1A Registration Statement.
(6) Previously filed on March 1, 1994 in Post-Effectve Amendment No. 5
to Registrant's Form N-1A Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant's investment adviser is Sheffield Investment Management,
Inc., a Georgia corporation controlled by Roger A. Sheffield, C.F.A, and
Caroline L. Scott, C.F.A., C.P.A. Alpha-Line Investments, Inc., a Georgia
corporation, the Registrant's distributor and principal underwriter, is owned
and controlled by Mr. Sheffield.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of January 31, 1997, the number of record holders of each class of
securities of the Funds of Sheffield were as follows:
NUMBER OF
NAME OF FUND TITLE OF CLASS RECORD HOLDERS
- ------------------ --------------- --------------
Total Return Fund Common Stock 142
Bond Fund Common Stock 77
ITEM 27. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of Registrant's Charter filed as Exhibit 1, Article VII of
Registrant's By-Laws filed as Exhibit 2, and the Distribution Agreement filed
as Exhibit 6 provide for indemnification.
The Registrant's Articles of Incorporation (Article VI) provide that
Sheffield shall indemnify (a) its directors to the fullest extent permitted by
law now or hereafter in force, including the advance of expenses under the
procedures provided by such laws; (b) its officers to the same extent it shall
indemnify its directors; and (c) its officers who are not directors to such
further extent as shall be authorized by the Board of Directors and be
consistent with law, provided, however, that such indemnification shall not be
construed to protect any director or officer against any liability to which
such director or officer 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.
The Registrant's By-laws (Article VII, Section 1) provide that
Sheffield shall indemnify any director and/or officer who was or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of Sheffield, or is
or was serving at the request of Sheffield as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the maximum extent permitted by law.
With respect to indemnification of officers and directors, Section
2-418 of the Maryland General Corporation Law provides that a corporation may
indemnify any director who is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of Sheffield) by
reason of service in that capacity, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
and expenses actually and reasonably incurred by him in connection with such
action, suit or proceeding unless (1) it is established that the act or
omission of the director was material to the matter giving rise to the
proceeding, and (a) was committed in bad faith or (b) was the result of active
and deliberate dishonesty; or (2) the director actually received an improper
personal benefit of money, property, or services; or (3) in the case of any
criminal action or proceeding, had reasonable cause to believe that the act or
omission was unlawful. A court of appropriate jurisdiction may, however,
except in proceedings by or in the right of Sheffield or in which liability
has been adjudged by reason of the person receiving an improper personal
benefit, order such indemnification as the court shall deem proper if it
determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director has met the requisite standards of conduct. Under Section 2-418,
Sheffield may also indemnify officers, employees and agents of Sheffield who
are not Directors to the same extent that it shall indemnify directors and
officers, and to such further extent, consistent with law, as may be provided
by general or specific action of the Board of Directors or contract. Pursuant
to Section 2-418 of the Maryland General Corporation law, the termination of
any proceeding by judgment, order or settlement does not create a presumption
that the person did not meet the requisite standard of conduct required by
Section 2-418. The termination of any proceeding by conviction, or a plea of
nolo contendere or its equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the person did not meet the
requisite standard of conduct.
Reference is also made to Section 11 of the Distribution Agreement
filed as Exhibit 6 to this Registration Statement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None
ITEM 29. PRINCIPAL UNDERWRITERS
Roger A. Sheffield, C.F.A., the Chairman of the Board and President of
the Registrant is the President and sole stockholder of Alpha-Line
Investments, Inc., Registrant's principal Underwriter and Distributor. Alpha-
Line Investments, Inc. does not currently serve as principal underwriter or
distributor for any other investment company.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Registrant maintains the records required to be maintained by it under
Rules 31a-1(a), 31a-1(b) and 31a-2(a) under the 1940 Act at its principal
executive offices at 900 Circle 75 Parkway, Suite 750, Atlanta,
Georgia 30339. The physical possession of the Funds' securities may be
maintained pursuant to Rule 31a-3 at the offices of Registrant's Custodian,
United Missouri Bank, n.a., at 928 Grand, Kansas City, Missouri 64141.
ITEM 31. MANAGEMENT SERVICES
None
ITEM 32. UNDERTAKINGS
Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 may be permitted to trustees, directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 27 of Part III of this Registration Statement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred) is paid by a trustee, director, officer or
controlling person of the Registrant and their successful defense of any
action, suit or proceeding is asserted by such trustee, director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the full
adjudication of such issue.
The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
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(b) under the Securities Act of 1933 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta in the State of
Georgia on the 28th day of February, 1997.
THE SHEFFIELD FUNDS, INC.
By: /s/ Roger A. Sheffield
---------------------------
Roger A. Sheffield, C.F.A.,
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
/s/ Roger A. Sheffield February 28, 1997
- --------------------------
Roger A. Sheffield, C.F.A.
President (Principal Executive Officer),
Chairman of the Board
/s/ Caroline L. Scott February 28, 1997
- ----------------------------
Caroline L. Scott, C.F.A., C.P.A.
Treasurer (Principal Financial and
Accounting Officer)
Victor L. Andrews*
- ------------------------------
Victor L. Andrews
Director
J. Coleman Budd*
- ------------------------------
J. Coleman Budd
Director
John B. Rofrano*
- -------------------------------
John B. Rofrano
Director
*By : /s/ Roger A. Sheffield February 28, 1997
---------------------------
Roger A. Sheffield, C.F.A.
Attorney-in-Fact
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</TABLE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Sheffield Funds, Inc.
We consent to the inclusion in the Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A under the Securities Act of
1933 (File No. 33-32620) of The Sheffield Funds, Inc. of our report
dated December 19, 1996, on our audit of the financial statements and
selected per share data and ratios of the funds, which report is
included in the Annual Report to Shareholders for the year ended October
31, 1996 which is included in the Registration Statement. We also
consent to the reference of our Firm under the caption "Independent
Accountants".
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 28, 1997
