THE SHEFFIELD FUNDS, INC.
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October 31, 1998
Dear Shareholder:
The Sheffield Funds have just completed one of their most challenging years
since inception in 1990. As our fiscal year was reaching an end, the turmoil
in global financial markets, particularly after the collapse of the Russian
ruble, had recently climaxed in a "flight to quality" from which very few
markets escaped undamaged. In a situation like that, equity and fixed income
markets around the world simultaneously experience indiscriminate selling
pressure and significant price declines. Few areas in the financial world
escaped these major declines, although U.S. government securities and
municipal bonds were two notable exceptions. In our domestic stock markets,
earnings estimates and consumer confidence declined as fear of growing
repercussions from the Asian (and other developing nations') financial crises
began to impact corporate profitability. When domestic stock markets are at
levels as high as they were before this recent market correction, investors
are not very forgiving of anticipated earnings slowdowns. However, the very
act of "slaughtering" a stock that offers the prospect of declining revenues
for a few quarters plants the seeds of future out-performance when this
picture begins to improve. What is called for is patience.
Our fiscal year ended with signs of restored investor confidence in light of
the continued strength in most areas of the economy. The major exceptions to
the overall trend were commodities-based businesses and industries that
derive significant income from product and service sales to Asia and other
developing markets.
TOTAL RETURN FUND
Philosophy
The Total Return Fund is a broadly diversified portfolio invested primarily in
common stocks found within all economic sectors as illustrated in the chart on
the right. Within each sector we select companies which are anticipated to
experience increasing cash flow returns on their invested capital.
Furthermore, we seek out those companies experiencing faster earnings growth
rates and faster dividend growth rates than the overall stock market. Growth
rates alone, however, do not make for a superior investment opportunity, as
one may frequently overpay for expected future growth. Our stock pricing
model, therefore, aides us in determining whether the current price of a stock
is reasonable relative to the company's expected future growth rates of cash
flow and assets.
Industry Sector Analysis
Basic Materials 4%
Energy 10%
Industrial 12%
Conglomerates 4%
Consumer Cyclical 7%
Consumer Non-Cyclical 19%
Technology 19%
Financial 16%
Utility 9%
Analysis
The Fund generated a total return of 3.5% for the fiscal year, well below the
return of 22.0% generated by the S&P 500 Index. The table on the following
page illustrates the Fund's cumulative annual results for the year.
Cumulative Annual Results
1st Quarter 2.4%
1st Half 15.4%
3 Quarters 6.8%
Full Year 3.5%
A variety of factors contributed to our performance disparity vis a vis the
index, the more significant of which are described below:
1. NARROWNESS OF MARKET
Many of the largest companies in the index have, for quite some time, sold at
relatively high prices. The "value" approach to investing which we employ
has, however, precluded our purchase of many of these stocks in spite of the
fact that they have continued to be some of the market's top performers.
According to our analysis, stock prices for many of these larger companies
incorporate unreasonable assumptions for continued rapid earnings and asset
growth. At times like this, money managers may tend to change their
investment philosophy to accommodate holdings that appear to be where the
"action" currently is. We believe that periodically changing one's investment
philosophy to accommodate current market trends illustrates the lack of any
philosophy whatsoever, akin to simply drifting with the changing tides.
Many articles during the course of the year have described the unusual
narrowness of the market for winning stocks this past fiscal year. Our
analysis of the S&P index on a size vs. performance basis reveals the
following total return for the 12 months ending October 31, 1998:
Largest market cap companies (top 5%) 48.8%
Average mid-cap stock 0.4%
Average small-cap stock -11.0%
In the large cap area, if a manager didn't own many of the largest 25
companies, underperformance relative to the S&P was all but guaranteed. The
index return, calculated on the basis of all stocks being equally weighted,
was 9.3%.
Top 15 Stock Holdings % of Fund
Ameritech Corp. 2.60%
Wal-Mart Stores, Inc. 2.56%
BankAmerica Corp. 2.32%
Reliastar Financial Corp. 2.22%
Xerox Corp. 2.22%
Bell Atlantic Corp. 2.19%
Abbott Laboratories 1.98%
Cisco Systems, Inc. 1.89%
Williams Cos., Inc. 1.89%
Schering-Plough Corp. 1.83%
First Union Corp. 1.82%
Honeywell, Inc. 1.80%
Procter & Gamble Co. 1.79%
Microsoft Corp. 1.76%
Merck & Co., Inc. 1.73%
TOTAL 30.60%
2. UNDERPERFORMING SECTORS
A second significant contributor to the Fund's underperforming the index was
its ownership of stocks in the energy sector. The Fund has held
disproportionately large positions (relative to the S&P 500 Index) in the
energy sector throughout the year. It was our belief that the companies we
owned would fare well in spite of the decline in oil prices that began in
November 1997. We never envisioned, however, that the price of oil would drop
from $20 a barrel at that time to $14.60 as of October 31, 1998 (prices have
continued to decline subsequent to this date). The companies whose shares we
held in the oil services areas are primarily involved in servicing existing
oil and gas fields as well as providing technological services to lower the
cost of finding and producing new reserves. It was our opinion that sales and
earnings growth rates for these companies would hold up reasonably well in
spite of the downward trend in the price of oil. The magnitude of the oil
price decline and its persistence have, however, dramatically reduced the
market value of all stocks in this sector. Contrarian investors with long-
term investment horizons stand to reap major gains in these stocks when energy
prices eventually turn around from today's levels.
The Total Return Fund's investments in industrial-related manufacturers have
also been a major drag on performance this past year. While the Fund has
owned shares in a diverse group of manufacturers serving many different
industries, the Asian economic situation has been a significant source of
declining earnings growth for many of these companies. For example, exports
of agricultural products to Asian nations are down significantly this year,
lowering the profits of domestic farmers, which in turn has reduced the sales
rate for many farm machinery manufacturers.
Economic Analysis
On a per share basis, the Fund earned $0.28 from the receipt of interest and
dividends during the past twelve months. These earnings were reduced by the
Fund's operating expenses, which totaled $0.27 per share. The balance of
$0.01 per share is described as the Fund's net investment income. Net
investment income has continued to decline from past years as increases in the
stock market have caused dividend yields to fall. Furthermore, during the
past few years, many companies have increased purchases of their shares in the
open market in lieu of larger dividend increases as a way to increase
shareholder value. The Fund had also taken positions in a number of non-
dividend paying stocks this past year, although such positions are generally
kept at a minimum.
The Fund distributed $2.10 in capital gains in fiscal 1998 from its prior
year's activities. This reduction in asset value was partially offset by
realized and unrealized portfolio gains for the year totaling $0.57 per share.
The net effect of these activities on the net asset value (NAV) per share was
to reduce the NAV by $1.52, while generating a 3.5% total return. The chart
to the right compares the Fund's performance to that of the S&P 500 Index and
the Consumer's Price Index (CPI).
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
TOTAL RETURN FUND, S&P 500 INDEX, AND CPI *
Average Annual Total Return
1 Year 5 Years From Inception
3.50% 13.48% 12.53%
Sheffield Total
Year Return Fund S&P 500 CPI
---- ----------- ------- ---
5/90 $10,000 $10,000 $10,000
10/90 $8,824 $9,362 $10,357
10/91 $12,465 $12,498 $10,659
10/92 $13,062 $13,744 $11,001
10/93 $15,229 $15,805 $11,303
10/94 $14,877 $16,415 $11,598
10/95 $17,306 $20,755 $11,917
10/96 $21,174 $25,757 $12,290
10/97 $27,694 $34,027 $12,546
10/98 $28,663 $41,150 $12,701
* Past performance is not predictive of future performance.
INTERMEDIATE TERM BOND FUND
Philosophy
Our investment goals for this Fund are twofold. First, we seek to manage a
portfolio of investment quality, intermediate-term corporate bonds utilizing a
laddered maturity approach. Intermediate-term bonds have demonstrated a
history of generating higher total returns with lower volatility over long
periods of time than have long-term bonds. Our Fund seeks to participate in
this investment phenomenon. A laddered maturity approach implies that bonds
will be owned that mature in each year of the prescribed range of years.
Second, we seek a modest degree of capital appreciation by investing a small
portion of our assets in two other types of investments. The first type is
convertible securities including convertible bonds and convertible preferred
stocks. Second, we invest a modest portion of the Bond Fund's assets in
higher-yielding common stocks. With these types of investments, the Fund
anticipates that it will achieve a degree of capital appreciation sufficient
to offset the impact of inflation.
Out of the broad universe of fixed- and variable-rate instruments traded in
the marketplace, our Fund focuses primarily on investment-quality corporate
bonds which typically mature in from one-to-ten years. We can, and do, buy
bonds with maturity dates exceeding ten years as long as the average maturity
of our entire bond portfolio does not exceed seven years. By concentrating on
intermediate-term bonds rather than longer-term bonds, our Fund's current
yield is never as high as it could be, but we avoid the greater volatility
experienced by longer-term bonds when interest rates fluctuate. Our stock
holdings are acquired for the purpose of obtaining long-term capital gains
coupled with high dividend yields relative to the yield of the overall stock
market. Our philosophy anticipates that the capital appreciation we seek from
our stock and convertible security holdings will help to offset not only the
operating expenses incurred by the Fund but also the impact of inflation over
a three-to-five year period of time.
Performance
During the past twelve months, interest rates on U.S. Government and high
quality municipal securities declined by approximately 1% along the entire
yield curve, providing attractive returns to their holders. The picture was
somewhat more complicated for investors in corporate debt securities. The
flight to quality mentioned at the beginning of this report had a major impact
on the prices of corporate bonds this past year. All corporate bonds offer
higher current yields than do Treasuries of comparable maturity dates, due to
the potential for default on the part of the corporate issuer. Investors are
compensated for this default risk by receipt of a yield or risk premium over
the yield of Treasury securities. The higher the default risk potential, the
greater the premium the marketplace demands over the Treasury bond yield.
When markets panicked during August and September, corporate risk premiums
jumped dramatically, with the greatest increase in yield coming from lower
quality bonds. It was not uncommon during the height of that brief panic to
see portions of the corporate bond market shut down due to lack of buyers. In
some cases, declining bond prices actually failed to draw buyers at any price.
This panic in the corporate bond market has been cited in the press as one of
the reasons the Federal Reserve lowered the discount rate a second time in
October.
Rating Mix
AAA 3%
AA 14%
A 55%
BBB 22%
BB 6%
To summarize, interest rates have declined, which benefited bondholders, but
risk premiums widened, which either reduced or eliminated the benefits of the
decline in rates. The lower the quality of the bonds, or the greater their
illiquidity in the marketplace, the more the yield spread widened. As a
result, lower quality bonds experienced losses for the year and the highest
quality corporate bonds realized gains, but not equal to the gains of
Treasuries.
The Sheffield Bond Fund was affected to a minor extent by widening risk
premiums but the impact was not significant due to the overall high quality of
the bond portfolio. Thus the two conflicting currents of the past year -
lower interest rates and higher risk premiums - came together to cause the
Fund to modestly underperform its bond market proxy.
CONVERTIBLE SECURITIES
The Fund's holdings of convertible bonds underperformed the bond index during
the past twelve months as the stocks which represent their underlying shares
performed poorly during this time frame. Convertible bonds tend to be more
volatile than other corporate bonds and their credit quality tends to be lower
than that of other bonds we purchase. The performance of these convertible
bonds reduced the total return of the Bond Fund by approximately 1%.
The equities owned in the Fund generated a total return of approximately 9.8%
- - which benefited the overall performance of the entire Fund.
Economic Analysis
On a per share basis, the Fund earned $0.59 from the receipt of interest and
dividends during the past twelve months. These earnings were reduced by the
Fund's operating expenses, which totaled $0.15 per share. The balance of
$0.44 per share is described as the Fund's net investment income.
The Fund distributed $0.21 in capital gains in fiscal 1998 from its prior
year's activities. This reduction in asset value was partially offset by
realized and unrealized portfolio gains for the year totaling $0.10 per share.
The net effect of these activities on the net asset value (NAV) per share was
to reduce the NAV by $0.10, while creating a total return of 5.63%. The chart
to the right compares the Fund's performance to that of the Lehman Brothers
Corporate Intermediate Term Bond Index and the Consumer's Price Index (CPI).
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
INTERMEDIATE TERM BOND FUND, LEHMAN BROTHERS CORPORATE
INTERMEDIATE TERM BOND INDEX, AND CPI *
Average Annual Total Return
1 Year 5 Years From Inception
5.63% 6.42% 6.47%
Lehman Brothers
Sheffield Corporate
Intermediate Intermediate
Year Term Bond Fund Term Bond Index CPI
---- ----------- --------------- ---
5/90 $10,000 $10,000 $10,000
10/90 $9,986 $10,522 $10,357
10/91 $11,431 $12,189 $10,659
10/92 $12,320 $13,489 $11,001
10/93 $13,396 $15,204 $11,303
10/94 $13,071 $14,780 $11,598
10/95 $14,756 $17,082 $11,917
10/96 $15,883 $18,160 $12,290
10/97 $17,308 $19,626 $12,546
10/98 $18,282 $21,211 $12,701
* Past performance is not predictive of future performance.
YEAR 2000 ISSUES
The "Year 2000" issue is a result of using a two-digit date format rather than
a four-digit format. The two-digit format could cause computer failures as
the systems recognize a date using "00" as the year 1900 rather than the year
2000. The failure to recognize the year 2000 could have an adverse effect on
the Funds.
The Funds have no computer systems of their own and, therefore, rely upon
the computer systems of the Funds' Adviser and other service providers
(software vendors, custodian, etc.). The Adviser is taking steps to insure
that its computer systems will properly process and calculate year 2000 date-
related information. The Adviser is also seeking assurances that similar
steps are being taken by the Funds' other service providers. Although there
can be no assurances that these steps will be sufficient to ensure that the
Funds avoid adverse impacts from the year 2000, the Adviser believes that its
computer systems that are critical to the Funds will process information with
dates on or after January 1, 2000 properly in a timely manner.
Very truly yours,
Roger A. Sheffield, CFA
President
Caroline L. Scott, CFA
Treasurer
Sheffield Total Return Fund
Portfolio of Investments
October 31, 1998
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SHORT-TERM INVESTMENTS (0.5%) PAR VALUE
- -------------------------------------------------------------------
UMB Bank Money Market
(cost - $136,319) $136,319 $136,319
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- -------------------------------------------------------------------
COMMON STOCKS (92.2%) SHARES
- -------------------------------------------------------------------
AEROSPACE - 0.1%
Precision Castparts Corp. 570 $25,080
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AUTO/TRUCK PARTS - 1.2%
Borg-Warner Automotive, Inc. 1,000 46,875
Magna International, Inc. - Class A 4,300 266,869
-------
313,744
-------
BANKING - 5.5%
BankAmerica Corp. 10,546 606,395
Citigroup, Inc. 1,375 64,625
First Union Corp. 8,200 475,600
MBNA Corp. 13,000 296,563
-------
1,443,183
---------
BEVERAGES - SOFT DRINK - 1.4%
Coca-Cola Co. 5,280 356,730
-------
BUILDING MATERIALS/CONSTRUCTION - 3.0%
Masco Corp. 12,760 359,672
PPG Industries, Inc. 7,600 435,100
-------
794,772
-------
CHEMICALS - 3.6%
BASIC - 1.3%
DuPont (E.I.) De Nemours & Co. 6,000 346,500
-------
SPECIALTY - 2.3%
Avery Dennison Corp. 7,540 312,439
Ecolab, Inc. 9,790 292,476
-------
604,915
-------
COMPUTER HARDWARE - 3.3%
Cisco Systems, Inc.* 7,845 494,235
SCI Systems, Inc.* 9,000 355,500
-------
849,735
-------
COMPUTER SOFTWARE - 3.2%
Computer Associates International, Inc. 2,110 83,081
Microsoft Corp.* 4,350 460,556
Unisys Corp.* 11,330 301,661
-------
845,298
-------
DIVERSIFIED - 3.8%
AlliedSignal, Inc. 8,800 342,650
Service Corp. International 7,140 254,362
Textron, Inc. 5,200 386,750
-------
983,762
-------
- --------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.0%
Baldor Electric Co. 15,000 $315,000
Honeywell, Inc. 5,900 471,262
-------
786,262
-------
ELECTRONICS - 1.3%
Harris Corp. 9,700 340,106
-------
ELECTRONICS - SEMICONDUCTOR - 3.2%
Applied Materials, Inc.* 7,000 242,812
Intel Corp. 3,340 297,886
Linear Technology Corp. 5,100 304,088
-------
844,786
-------
ENTERTAINMENT/LEISURE - 1.0%
Mattel, Inc. 7,200 259,200
-------
FINANCIAL - MISC. - 3.8%
Franklin Resources, Inc. 11,100 419,719
Household International, Inc. 6,900 252,281
MGIC Investment Corp. 8,000 312,000
-------
984,000
-------
FOOD PROCESSING - 2.8%
Hershey Foods Corp. 4,710 319,397
Philip Morris Cos., Inc. 8,000 409,000
-------
728,397
-------
HOUSEHOLD/OFFICE FURNISHINGS - 1.4%
Leggett & Platt, Inc. 16,000 374,000
-------
HOUSEHOLD PRODUCTS - 4.3%
Colgate-Palmolive Co. 3,960 349,965
Newell Co. 7,000 308,875
Procter & Gamble Co. 5,275 467,827
-------
1,126,667
---------
INSURANCE - 5.1%
Allstate Corp. 10,000 430,625
Reliastar Financial Corp. 13,240 580,078
SunAmerica, Inc. 4,530 319,365
-------
1,330,068
---------
MANUFACTURING - 4.3%
Donaldson Co., Inc. 12,000 218,250
Dover Corp. 10,000 317,500
Illinois Tool Works, Inc. 6,030 386,674
Manitowoc Co., Inc. 5,210 182,350
Parker Hannifin Corp. 860 30,745
---------
1,135,519
---------
- --------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- --------------------------------------------------------------
MEDICAL - PHARMACEUTICAL - 6.7%
Abbott Laboratories 11,000 $517,000
Johnson & Johnson 3,700 301,550
Merck & Co., Inc. 3,350 452,459
Schering-Plough Corp. 4,650 478,369
---------
1,749,378
---------
MEDICAL PRODUCTS - 0.5%
Medtronic, Inc. 2,160 140,400
-------
OFFICE EQUIPMENT - 4.5%
Diebold, Inc. 7,345 229,531
Pitney Bowes, Inc. 6,600 363,413
Xerox Corp. 5,940 579,521
--------
1,172,465
---------
OIL & GAS - 4.0%
Exxon Corp. 5,650 404,681
Mobil Corp. 4,510 341,351
Tosco Corp. 10,500 294,656
---------
1,040,688
---------
OILFIELD EQUIPMENT/SERVICES - 2.0%
Global Marine, Inc.* 16,000 198,000
National-Oilwell, Inc.* 18,000 285,750
Schlumberger Ltd. 500 26,250
-------
510,000
-------
OTHER - 2.0%
S&P 500 Depository Receipt 4,800 528,000
-------
RETAIL - DEPARTMENT STORES - 2.6%
Wal-Mart Stores, Inc. 9,680 668,525
-------
RETAIL - FOOD - 2.2%
Albertson's, Inc. 6,000 334,500
Food Lion, Inc. - Class B 24,200 248,050
-------
582,550
-------
SAVINGS AND LOANS - 0.7%
John Hancock Bank & Thrift
Opportunity Fund 16,260 190,039
-------
UTILITIES - 11.7%
ELECTRIC - 1.4%
Duke Energy Corp. 2,900 187,594
Texas Utilities Co. 3,800 166,250
-------
353,844
-------
NATURAL GAS - 3.4%
Columbia Energy Group 6,750 390,656
Williams Cos., Inc. 18,024 493,407
-------
884,063
-------
- --------------------------------------------------------------
COMMON STOCKS - CONTINUED SHARES VALUE
- --------------------------------------------------------------
UTILITIES (CONT.)
TELEPHONE - 6.9%
Ameritech Corp. 12,600 $679,613
Bell Atlantic Corp. 10,760 572,298
Cincinnati Bell, Inc. 11,870 307,878
MCI Worldcom, Inc.* 4,500 248,625
---------
1,808,414
---------
- --------------------------------------------------------------
TOTAL COMMON STOCKS
(cost - $14,712,484) $24,101,090
- --------------------------------------------------------------
- --------------------------------------------------------------
CONVERTIBLE BONDS (4.8%) PAR VALUE
- --------------------------------------------------------------
Adaptec, Inc. 4.75% Conv. Sub.
Notes 2/1/04 $300,000 $230,625
CUC International, Inc. 3.0%
Conv. Sub. Notes 2/15/02 150,000 122,438
Dura Pharmaceuticals, Inc. 3.5%
Conv. Sub. Notes 7/15/02 475,000 334,875
National Data Corp. 5.0% Conv.
Sub. Notes 11/1/03 300,000 279,000
Thermo Instrument Systems 4.5%
Conv. Deb. 10/15/03 325,000 280,719
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- --------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(cost - $1,501,841) $1,247,657
- --------------------------------------------------------------
- --------------------------------------------------------------
TOTAL INVESTMENTS (97.5%)
(cost - $16,350,644) $25,485,066
- --------------------------------------------------------------
- --------------------------------------------------------------
OPTIONS OUTSTANDING (0.2%) SHARES VALUE
- --------------------------------------------------------------
OPTIONS PURCHASED
PeopleSoft, Inc. Call Apr/25 5,000 $16,250
Seagate Technology, Inc. Call Jan/25 9,000 31,500
-------
- --------------------------------------------------------------
TOTAL OPTIONS OUTSTANDING
(Premiums paid - $74,050) $47,750
- --------------------------------------------------------------
- --------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES (2.3%) $608,137
- --------------------------------------------------------------
- --------------------------------------------------------------
NET ASSETS (100%) $26,140,953
- --------------------------------------------------------------
- --------------------------------------------------------------
NET ASSET VALUE PER SHARE $16.95
=======
- --------------------------------------------------------------
* Non-income producing.
SHEFFIELD INTERMEDIATE TERM BOND FUND
Portfolio of Investments
October 31, 1998
- --------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.9%) PAR VALUE
- --------------------------------------------------------------
UMB Bank Money Market
(cost - $73,772) $73,772 $73,772
-------
- --------------------------------------------------------------
COMMON STOCKS (11.1%) SHARES
- --------------------------------------------------------------
AUTO - 1.2%
General Motors Corp. 1,450 $91,622
-------
BANKING - 1.1%
JP Morgan & Co. 900 84,825
------
CHEMICALS - 1.8%
DuPont (E.I.) De Nemours & Co. 1,330 76,808
Minnesota Mining & Mfg. Co. 855 68,079
-------
144,887
-------
ELECTRICAL EQUIPMENT - 1.1%
Eastman Kodak Co. 1,100 85,250
------
FOOD PROCESSING - 1.6%
Philip Morris Cos., Inc. 2,475 126,534
-------
OIL & GAS - 2.0%
Chevron Corp. 905 73,758
Exxon Corp. 1,162 83,228
-------
156,986
-------
PAPER & FOREST PRODUCTS - 1.0%
International Paper Co. 1,700 78,944
-------
UTILITIES - TELEPHONE - 1.3%
AT&T Corp. 1,600 100,000
-------
- --------------------------------------------------------------
TOTAL COMMON STOCKS
(cost - $553,158) $869,048
- --------------------------------------------------------------
- --------------------------------------------------------------
CORPORATE BONDS AND NOTES (81.2%) PAR VALUE
- --------------------------------------------------------------
AEROSPACE - 5.4%
Lockheed Martin Corp. 7.25%
Guaranteed Notes 5/15/06 $100,000 $108,666
Raytheon Co. 6.5% Notes 7/15/05 300,000 314,205
-------
422,871
-------
BANKING - 13.5%
Banc One Corp. 7.25% Sub. Notes
8/1/02 250,000 264,633
BankBoston NA 7.0% Sub. Notes
9/15/07 170,000 176,485
Bankers Trust Corp. 7.375% Sub.
Notes 5/1/08 45,000 44,157
Chase Manhattan Corp. 7.125% Sub.
Notes 2/1/07 115,000 122,395
First Union National Bank 7.125%
Sub. Notes 10/15/06 100,000 108,065
- --------------------------------------------------------------
CORPORATE BONDS AND NOTES - CONTINUED PAR VALUE
- --------------------------------------------------------------
BANKING (CONT.)
MBNA Corp. 6.875% Sr. Notes
6/1/05 $250,000 $264,987
Wells Fargo & Co. 7.125% Sub.
Notes 8/15/06 70,000 75,658
---------
1,056,380
---------
COMMERCIAL SERVICES - 1.9%
Browning-Ferris Industries, Inc.
6.375% Sr. Notes 1/15/08 150,000 150,136
-------
COMPUTER SYSTEMS - 1.3%
International Business Machines
Corp. 6.375% Notes 6/15/00 100,000 102,566
-------
CONTAINERS - 3.2%
Crown Cork & Seal Co. 6.75%
Notes 4/15/03 250,000 252,325
-------
DIVERSIFIED - 2.0%
Service Corp. International 6.875%
Notes 10/1/07 150,000 156,014
-------
ELECTRICAL EQUIPMENT - 2.0%
Rockwell International Corp. 6.15%
Notes 1/15/08 150,000 155,607
-------
FINANCIAL SERVICES - 8.1%
Bear Stearns Co., Inc. 6.7% Sr.
Notes 8/1/03 200,000 203,848
Countrywide Funding Corp. 6.875%
Med. Term Notes 9/15/05 200,000 205,898
Dean Witter Discover & Co. 6.3%
Notes 1/15/06 220,000 224,226
-------
633,972
-------
FOOD PROCESSING - 8.3%
Nabisco, Inc. 7.05% Notes 7/15/07 150,000 150,825
Philip Morris Cos., Inc. 6.375%
Notes 2/1/06 250,000 256,888
Tyson Foods, Inc. 6.08% Bonds
2/1/00 235,000 237,432
-------
645,145
-------
OIL & GAS - 3.2%
KN Energy, Inc. 6.8% Sr. Notes
3/1/08 250,000 250,953
-------
PERSONAL & BUSINESS CREDIT - 13.9%
Associate Corp. NA 6.375%
Sr. Notes 10/15/02 250,000 256,035
Ford Motor Credit Co. 6.125%
Notes 1/9/06 50,000 51,135
General Electric Capital Corp.
6.5% Notes 11/1/06 170,000 181,140
Household Finance Corp. 6.7%
Notes 6/15/02 180,000 185,690
- --------------------------------------------------------------
CORPORATE BONDS AND NOTES - CONTINUED PAR VALUE
- --------------------------------------------------------------
PERSONAL & BUSINESS CREDIT (CONT.)
Sears Roebuck Acceptance Corp.
6.75% Notes 9/15/05 $150,000 $158,831
Sears Roebuck Acceptance Corp.
6.7% Notes 9/18/07 240,000 252,751
---------
1,085,582
---------
RECREATION - 1.8%
ITT Corp. 6.75% Notes 11/15/05 150,000 136,423
-------
RETAIL - SPECIALTY - 0.7%
Fruit of the Loom, Inc. 7.875%
Sr. Notes 10/15/99 50,000 50,558
------
UTILITIES - 15.9%
ELECTRIC & GAS - 1.9%
Baltimore Gas & Electric Co. 6.5%
1st Ref. Mortgage Bonds 2/15/03 140,000 146,180
-------
NATURAL GAS - 2.6%
Williams Corp. 6.25% Deb. 2/1/06 200,000 205,472
-------
TELEPHONE - 11.4%
Airtouch Communication, Inc. 7.0%
Notes 10/1/03 150,000 158,739
GTE Hawaiian Telephone 6.75%
1st Mortgage 2/15/05 300,000 316,779
GTE North, Inc. 6.375% Deb. 2/15/10 250,000 261,742
Pacific Bell 5.875% Deb. 2/15/06 154,000 157,256
-------
894,516
-------
- --------------------------------------------------------------
TOTAL BONDS AND NOTES
(cost - $6,116,338) $6,344,700
- --------------------------------------------------------------
- --------------------------------------------------------------
CONVERTIBLE BONDS (5.7%) PAR VALUE
- --------------------------------------------------------------
Adaptec, Inc. 4.75% Conv. Sub.
Notes 2/1/04 $165,000 $126,844
Dura Pharmaceuticals, Inc. 3.5%
Conv. Sub. Notes 7/15/02 75,000 52,875
National Data Corp. 5.0% Conv.
Sub. Notes 11/1/03 100,000 93,000
Thermo Instrument Systems 4.5%
Conv. Deb. 10/15/03 200,000 172,750
-------
- --------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(cost - $516,091) $445,469
- --------------------------------------------------------------
- --------------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(cost - $7,259,359) $7,732,989
- --------------------------------------------------------------
- --------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES (1.1%) $83,851
- --------------------------------------------------------------
- --------------------------------------------------------------
NET ASSETS (100%) $7,816,840
- --------------------------------------------------------------
- --------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.58
=====
- --------------------------------------------------------------
Financial Statements
- -------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- -------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------- ----------
ASSETS:
Investments at value (cost of
$16,424,694 and $7,259,359,
respectively) $25,532,816 $7,732,989
Receivables:
Interest 17,542 98,574
Dividends 19,762 528
Portfolio securities sold 1,129,913 ---
Prepaid insurance 3,864 856
---------- ---------
Total assets 26,703,897 7,832,947
---------- ---------
LIABILITIES:
Investment securities purchased 518,040 ---
Accrued expenses 44,904 16,107
------- ------
Total liabilities 562,944 16,107
------- ------
NET ASSETS CONSISTING OF:
Undistributed net investment income 20,075 38,444
Accumulated net realized gain 2,991,208 149,573
Unrealized appreciation on
investments 9,108,122 473,630
Paid-in capital applicable to
1,542,627 and 815,744 shares
outstanding, respectively, of
$.001 par value capital stock;
5,000,000 shares authorized in
each fund 14,021,548 7,155,193
----------- ----------
Net Assets $26,140,953 $7,816,840
----------- ----------
NET ASSET VALUE PER SHARE $16.95 $9.58
====== =====
See accompanying notes to financial statements.
- -------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
- -------------------------------------------------------------------
Sheffield Sheffield
Total Intermediate
Return Term Bond
Fund Fund
--------- ----------
INVESTMENT INCOME:
Interest $54,472 $456,332
Dividends 373,699 25,200
------- ------
Total income 428,171 481,532
------- -------
EXPENSES:
Investment advisory fee 281,552 77,897
Investment advisory fee waived --- (19,513)
Administration fee 48,000 48,000
Administrative fee waived --- (25,000)
Transfer agency fee 10,000 10,000
Distribution expenses 7,109 7,109
Custodian fees 15,027 5,010
Registration and filing fees 2,212 1,913
Professional fees 25,154 8,109
Directors fees 4,800 4,800
Printing and postage 2,424 2,460
Insurance expense 9,828 2,293
Other 1,990 907
------ -----
Total expenses 408,096 123,985
------- -------
Net investment income 20,075 357,547
--------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on
investments 3,134,872 149,564
Net loss on options (106,006) ---
Net realized loss on futures (3,930) ---
Change in unrealized appreciation
on investments (1,520,702) (65,990)
----------- --------
Net gain on investments 1,504,234 83,574
--------- --------
Net increase in net assets
from operations $1,524,309 $441,121
========== ========
- -------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
- -------------------------------------------------------------------
Sheffield Total
Return Fund
Year ended Year ended
10/31/98 10/31/97
--------- ---------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $20,075 $50,449
Net realized gain on
investments 3,134,872 3,217,997
Net loss on options (106 006) ---
Net realized loss on futures (3,930) (29,618)
Change in unrealized
appreciation on investments (1,520,702) 4,138,787
----------- ---------
Increase in net assets from
operations 1,524,309 7,377,615
---------- ---------
Dividends to shareholders from:
Net investment income --- (140,480)
Realized gains (3,222,107) (1,393,921)
----------- -----------
Total distributions to
shareholders (3,222,107) (1,534,401)
----------- -----------
Capital transactions:
Proceeds from shares issued
through exchange 1,106,283 607,700
Proceeds from reinvestment
of dividends 2,748,803 1,534,401
Proceeds from other shares
sold 3,012,819 3,921,020
Cost of shares reacquired
through exchange (1,320,702) (1,428,074)
Cost of other shares reacquired (6,334,528) (7,109,556)
----------- -----------
Decrease in net assets from
capital share transactions (787,325) (2,474,509)
--------- -----------
TOTAL INCREASE (DECREASE) (2,485,123) 3,368,705
----------- ---------
NET ASSETS:
Beginning of period 28,626,076 25,257,371
----------- -----------
End of period $26,140,953 $28,626,076
=========== ===========
Capital transactions in number
of shares:
Shares issued through exchange 65,332 35,258
Shares issued in connection
with reinvestment of
dividends 167,202 101,281
Other shares sold 176,521 225,193
Shares reacquired through
exchange (70,956) (85,920)
Other shares reacquired (344,960) (407,410)
--------- ---------
Net decrease in shares
outstanding (6,861) (131,598)
======= =========
See accompanying notes to financial statements.
- -------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
- -------------------------------------------------------------------
Sheffield Intermediate
Term Bond Fund
Year ended Year ended
10/31/98 10/31/97
---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $357,547 $361,056
Net realized gain on investments 149,564 175,789
Net realized loss on futures --- (4,672)
Change in unrealized appreciation
on investments (65,990) 145,812
-------- -------
Increase in net assets from
operations 441,121 677,985
------- -------
Dividends to shareholders from:
Net investment income (346,210) (361,746)
Realized gains (171,108) (246,509)
--------- ---------
Total distributions to shareholders (517,318) (608,255)
--------- ---------
Capital transactions:
Proceeds from shares issued
through exchange 1,320,702 1,428,074
Proceeds from reinvestment
of dividends 517,318 608,255
Proceeds from other shares sold 2,186,219 2,349,300
Cost of shares reacquired
through exchange (1,106,283) (607,700)
Cost of other shares reacquired (2,801,254) (2,931,312)
----------- -----------
Increase in net assets from
capital share transactions 116,702 846,617
------- -------
TOTAL INCREASE 40,505 916,347
------ -------
NET ASSETS:
Beginning of period 7,776,335 6,859,988
---------- ----------
End of period $7,816,840 $7,776,335
========== ==========
Capital transactions in number of shares:
Shares issued through exchange 137,075 152,250
Shares issued in connection
with reinvestment of dividends 54,282 64,672
Other shares sold 227,176 247,558
Shares reacquired through
exchange (115,101) (63,344)
Other shares reacquired (291,246) (304,822)
--------- ---------
Net increase in shares
outstanding 12,186 96,314
====== ======
- -----------------------------------------------------------------------------
Financial Highlights
- -----------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD TOTAL RETURN FUND
---------------------------
Year ended October 31,
<CAPTION>
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $18.47 $15.02 $12.86 $11.53 $12.71
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .01 .03 .09 .11 .10
Net gains (losses) on
securities (both
realized and unrealized) .57 4.38 2.67 1.68 (.38)
--- ---- ---- ---- -----
Total from investment
operations .58 4.41 2.76 1.79 (.28)
--- ---- ---- ---- -----
Less Distributions:
Dividends (from net
investment income) ---- (.09) (.11) (.12) (.11)
Distributions (from
realized gains) (2.10) (.87) (.49) (.34) (.79)
------ ----- ----- ----- -----
Total distributions (2.10) (.96) (.60) (.46) (.90)
------ ----- ----- ----- -----
Net Asset Value, end of
period $16.95 $18.47 $15.02 $12.86 $11.53
====== ====== ====== ====== ======
Total return 3.50% 30.79% 22.36% 16.33% -2.31%
Ratios/supplemental data:
Net assets, end of period
(000's) $26,141 $28,626 $25,257 $21,565 $18,185
Ratio of expenses to average
net assets 1.45% 1.39% 1.44% 1.60% 1.50%
Ratio of net investment
income to average net
assets .07% .18% .66% .90% .83%
Portfolio turnover rate 49.62% 42.09% 57.17% 55.16% 51.25%
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share outstanding throughout the period.
<TABLE>
SHEFFIELD INTERMEDIATE TERM BOND FUND
--------------------------------------
Year ended October 31,
<CAPTION>
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $9.68 $9.70 $9.59 $9.06 $10.14
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .44 .45 .46 .53 .48
Net gains (losses) on
securities (both
realized and unrealized) .10 .37 .24 .60 (.71)
--- --- --- --- -----
Total from investment
operations .54 .82 .70 1.13 (.23)
--- --- --- ---- -----
Less Distributions:
Dividends (from net
investment income) (.43) (.47) (.47) (.57) (.45)
Distributions (from
realized gains) (.21) (.37) (.12) (.03) (.40)
----- ----- ----- ----- -----
Total distributions (.64) (.84) (.59) (.60) (.85)
----- ----- ----- ----- -----
Net Asset Value, end of
period $9.58 $9.68 $9.70 $9.59 $9.06
===== ===== ===== ====== ======
Total return 5.63% 8.97% 7.64% 12.89% -2.42%
Ratios/supplemental data:
Net assets, end of period
(000's) $7,817 $7,776 $6,860 $7,734 $9,284
Ratio of expenses to
average net assets 1.59%* 1.69%* 1.86%* 1.78%* 2.08%*
Ratio of net investment
income to average net
assets 4.59% 4.87% 4.87% 5.61% 5.01%
Portfolio turnover rate 35.31% 46.54% 33.65% 34.99% 30.38%
- ------------------------------------------------------------------------------------------
* 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 2.16%, 2.28%, 2.47%, 2.03%, and 2.34% for the years ending
1998, 1997, 1996, 1995, and 1994, respectively.
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
- -----------------------------
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. The Sheffield
Funds, Inc. (SFI) is registered under the Investment Company Act of 1940 as an
open-end diversified management investment company. SFI consists of two
separate funds, the Sheffield Total Return Fund (the "Total Return Fund") and
the Sheffield Intermediate Term Bond Fund (the "Bond Fund"), each of which
represents a separate portfolio of investments (collectively, "the Funds").
SFI commenced operations on April 2, 1990. The following is a summary of
significant accounting policies followed by SFI:
A. SECURITY VALUATION - Equity securities listed or traded on a national
securities exchange are valued at the last sale price on the day of
valuation or, if no sale is reported, at the latest bid price. Bonds and
other fixed income securities are valued on the basis of prices furnished
by an independent pricing service. Convertible bonds are valued at the
mean of bid and asked prices if available, or if not available, on the
basis of prices furnished by an independent pricing service. Short-term
obligations with maturities of sixty days or less are valued at amortized
cost, which approximates market.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis and includes
the amortization of discounts and premiums on the purchase of debt securities.
Realized gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are reported on an identified
cost basis.
C. FUTURES CONTRACTS - The Funds may purchase financial futures contracts in
order to invest excess cash or to provide liquidity for redemption requests.
The Funds may sell financial futures as a means to reduce market risk. Upon
entering into a futures contract, the Funds are required to deposit with a
broker an amount ("initial margin") equal to a certain percentage of the
purchase price indicated in the futures contract. Subsequent payments
("variation margin") are made or received by the Funds dependent on the daily
fluctuations in the value of the unrealized gains and losses on the futures
contracts. If the Funds enter into a closing transaction, the Funds will
realize, for book purposes, a gain or loss equal to the difference between the
value of the futures contract to sell and the futures contract to buy. The
Funds may be subject to risk upon entering into futures contracts resulting
from the imperfect correlation of prices between the futures and securities
markets. At October 31, 1998, there were no open futures contracts.
D. OPTIONS WRITTEN & PURCHASED - When the Funds write an option, an amount
equal to the premium received by the Funds is recorded as a liability and is
subsequently adjusted to the current market value of the option written. A
covered call option entitles the holder to the right to buy the underlying
security which the Funds own at any time during the option period at the
stated exercise price. A put option entitles the holder to the right to sell
the underlying security to the Funds at any time during the option period at
the stated exercise price. Premiums received from writing options which expire
unexercised are treated by the Funds on the expiration date as realized gains
from investments. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount
paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security or currency in determining whether the Funds have realized
a gain or loss. If a put option is exercised, the premium reduces the cost
basis of the securities purchased by the Funds. The Funds as writer of an
option bear the market risk of an unfavorable change in the price of the
security underlying the written option.
The Funds may purchase put options on securities in order to protect the
securities against a decline in market value. A purchased put option entitles
the Funds to sell the underlying security at the option exercise price at any
time during the option period. By purchasing a put option, the Funds are able
to protect the unrealized gain in the appreciated underlying security without
actually selling the security. Any losses realized by the Fund upon expiration
of the put options are limited to the premiums paid for the purchase of such
options plus any transaction costs.
The Funds may also buy call options on securities which they intend to
purchase in order to limit the risk of a substantial increase in the market
price of such securities. A call option entitles the Funds to the right to buy
the underlying securities from the option writer at a stated exercise price.
Any losses realized by the Funds upon expiration of the call options are
limited to the premiums paid for the purchase of such options, plus any
transaction costs.
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, 1998, the aggregate cost of securities for federal income tax
purposes for the Total Return Fund was $16,583,617 and net unrealized
appreciation aggregated $9,108,122 of which $9,658,369 related to appreciated
securities and $548,247 related to depreciated securities. The aggregate tax
cost of securities for the Bond Fund was $7,259,359 and net unrealized
appreciation aggregated $473,630, of which $567,089 related to appreciated
securities and $93,459 related to depreciated securities.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
are recorded by the Funds on the ex-dividend date. The primary reason for the
difference between net investment income and realized gains and the related
distributions relates to the regulatory timing and calculation of
distribution.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2. INVESTMENT ADVISORY AND OTHER AGREEMENTS. Sheffield Investment
Management, Inc. (SIMI) serves as the investment adviser, transfer agent and
administrator for SFI. Pursuant to the terms of the Investment Advisory
Agreement between SIMI and SFI, SIMI receives an investment advisory fee from
each fund. This fee is accrued daily and paid monthly.
The fee is based on an annual rate of 1% of the first $50 million of each
fund's net assets; .75% of the next $50 million of net assets and .6% of net
assets in excess of $100 million. Beginning April 1, 1993, SIMI has been
waiving advisory fees for the Bond Fund to a level of .75% of net assets.
Total advisory fees waived during the year ended October 31, 1998, amounted to
approximately $19,500.
SFI has entered into an Administrative Agreement with SIMI pursuant to which
SIMI provides various administrative services required by the Funds. For its
services, SIMI receives a fee from each fund at the annual rate of the greater
of .15% of each fund's average daily net assets or the actual cost to SIMI to
provide such services up to $48,000 per fund. During the year ended October
31, 1998, SIMI waived administrative fees to the Bond Fund amounting to
$25,000.
In accordance with a Transfer Agency Agreement with SFI and SIMI, various
services are provided to the stockholders of the Funds. These services
include, in part, the processing of purchase and redemption requests, transfer
and exchange requests, distributions and general stockholder inquiries. For
its services SIMI receives from each fund a monthly fee at an annual rate of
the greater of $10,000 per fund or $15 per stockholder account.
Alpha-Line Investments, Inc. (the Underwriter), an affiliate of SIMI, is the
principal and underwriter for SFI pursuant to a Distribution Agreement. Each
fund has agreed to pay the Underwriter, pursuant to a Rule 12b-1 Plan of
Distribution, such amounts as necessary in order to reimburse distribution,
maintenance, service cost, and overhead with respect to marketing the shares
of each fund. The total allowable amount of fund reimbursement to
the Underwriter is limited to .0625% per quarter of each fund's net asset
value.
NOTE 3. SECURITIES TRANSACTIONS. For the year ended October 31, 1998,
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
--------- ----- --------- -----
$14,202,237 $16,174,118 $2,725,976 $2,686,766
For the year ended October 31, 1998, the Total Return Fund had the following
transactions in written call options:
Number of
Contracts Costs
--------- -----
Options outstanding
at October 31, 1997 12 $4,464
Options written 460 147,143
Options closed (300) (84,969)
Options expired (127) (41,930)
Options exercised (45) (24,738)
---- -------
Options outstanding
at October 31, 1998 0 $0
= ==
For the year ended October 31, 1998, the Total Return Fund had the following
transactions in written put options:
Number of
Contracts Costs
--------- -----
Options outstanding
at October 31, 1997 0 $0
Options written 90 24,104
Options closed (90) (24,104)
Options outstanding
at October 31, 1998 0 $0
= ==
NOTE 4. RELATED PARTY STOCKHOLDERS. At October 31, 1998, the Sheffield
Investment Management, Inc. Profit Sharing Plan owned 4,684 shares of the Bond
Fund and 15,667 shares of the Total Return Fund. The President of SIMI and
related family members owned 2,735 shares of the Total Return Fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of The Sheffield Funds, Inc:
- ----------------------------------------------------------------------
In our opinion, the accompanying statements of assets and liabilities,
including the portfolio of investments, of the Sheffield Total Return Fund
and the Sheffield Intermediate Term Bond Fund of The Sheffield Funds, Inc.
(the "Fund"), and the related statements of operations and changes in net
assets, and the financial highlights present fairly, in all material respects,
the financial position of the Fund at October 31, 1998, the results of their
operations for the year then ended, changes in their 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, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities owned at October 31,
1988 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, GA
December 7, 1998
The Sheffield Funds, Inc.
900 Circle 75 Parkway
Suite 750
Atlanta, Georgia 30339-3082
(770) 953-1597
LEGAL COUNSEL
Kilpatrick Stockton
Atlanta, Georgia 30309
CUSTODIAN
UMB Bank, n.a.
Kansas City, Missouri 64141
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP
Atlanta, Georgia 30309
This report is authorized for distribution only to shareholders and to
others who have received a copy of the prospectus of The Sheffield Funds,
Inc.
THE SHEFFIELD FUNDS, INC.
==============================================================================
ANNUAL REPORT
- -------------
October 31, 1998
SHEFFIELD TOTAL RETURN FUND
SHEFFIELD INTERMEDIATE TERM BOND FUND
INVESTMENT ADVISOR
FUND ADMINISTRATOR
SHAREHOLDER SERVICING AGENT
- ---------------------------
Sheffield Investment Management, Inc.
900 Circle 75 Parkway, Suite 750
Atlanta, Georgia 30339-3082
(770) 953-1597
