PROSPECTUS March 1, 1999
THE SHEFFIELD FUNDS, INC.
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An open-end diversified investment company offering two mutual funds
SHEFFIELD TOTAL RETURN FUND
SHEFFIELD INTERMEDIATE TERM
BOND FUND
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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
What are the Funds' Goals?............................................... 2
What are the Funds' Principal Investment Strategies?..................... 2
What are the Primary Risks of Investing in the Funds?.................... 3
How Have the Funds Performed Over Time?.................................. 4
What Expenses do Shareholders in the Funds Pay?.......................... 5
Condensed Financial Information.......................................... 6
Benefits to Investors.................................................... 8
Additional Information about the Funds' Investment Objectives
and Policies........................................................... 8
The Total Return Fund............................................ 8
The Bond Fund.................................................... 9
Additional Risks of Investing in the Funds....................... 9
Other Policies Relevant to the Funds............................ 10
Management and Administration........................................... 11
Valuation of Shares..................................................... 12
How to Purchase Shares.................................................. 12
Redemption of Shares.................................................... 13
Additional Information about Purchases, Sales and Exchanges............. 14
Distribution and Tax Information........................................ 14
Plans of Distribution................................................... 15
Stockholders' Reports................................................... 15
How do Year 2000 Issues Affect the Funds?............................... 15
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WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT OBJECTIVES?
The Sheffield Funds, Inc. ("Sheffield") is a family of mutual funds that
includes the Sheffield Total Return Fund (the "Total Return Fund") and the
Sheffield Intermediate Term Bond Fund (the "Bond Fund").
Total Return Fund
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The primary investment objective of the Total Return Fund is to provide
investors with long-term capital appreciation. A secondary investment
objective of the Fund is to receive dividend income from the securities in
the portfolio. The combination of capital appreciation and dividend income are
the two components of the total return for stocks.
Intermediate Term Bond Fund
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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.
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What is capital appreciation and how is it created?
The increase in the value of a security over time is known as its capital
appreciation. Two major factors contribute to whether a security appreciates
(increases in value) or depreciates (decreases in value) over a period of
time. These factors include a company's present and perceived future
profitability and the price the market is willing to pay today for present
and future earnings.
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WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
Total Return Fund
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To meet its primary investment objective, the Total Return Fund invests
primarily in the domestic common stocks of mid-cap and large-cap companies
that the Adviser believes to have above-average growth potential. Mid-cap
and large-cap stocks generally provide a high level of liquidity that the
Adviser desires to execute trades quickly and with minimal market impact.
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What do the terms "mid-cap" and "large-cap" mean?
The capitalization ("cap") of a company refers to the value of its outstanding
securities. To calculate the capitalization of a company with publicly traded
stock, multiply its number of shares outstanding times the current market
price of those shares. The largest capitalization stocks have market values
over $250 billion. The smallest publicly traded stocks may have market
capitalization of less than $50 million. The Fund defines a mid-cap stock as
one having a market capitalization of at least $1 billion and a large-cap
stock as having a market capitalization of at least $5 billion.
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The Fund diversifies its holdings by investing in approximately 75-100 stocks
that represent most of the major economic sectors. The Fund uses a
computerized screening process for stock selection. Important selection
factors include:
* earnings growth which the Adviser believes has been or will be
greater than that of the overall stock market.
* current market values which the Adviser believes do not presently
recognize the company's future earnings growth potential.
The Fund then subjects the list of companies generated by this approach
to further analysis to determine which securities may be added to the
portfolio. This additional analysis typically includes consideration of
factors such as recent changes in key management personnel, corporate
restructurings and other corporate announcements, trends in sales growth,
profit margins, P/E to growth ratios, new product development and insider
transactions. Certain technical factors are also reviewed including, but not
limited to, money flow, relative price performance, and measures of relative
strength.
To meet its secondary investment objective, the Fund may also invest up to
25% of its assets in convertible securities such as convertible bonds and
convertible preferred stock. Convertible securities offer yields that are
generally higher than the yields of most common stocks. At the same time,
these securities have the potential to generate capital gain if the company's
underlying common stock increases in price.
The Fund purchases convertible securities where the Adviser believes the
underlying common shares offer future growth potential that will cause the
convertible security to increase in value prior to its maturity. Criteria
used to evalute convertible bonds include the bonds' credit rating, call
features and current conversion premium.
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What is a convertible bond?
The vast majority of corporate bonds offer a promise to pay a fixed amount of
money (the par value) at maturity together with periodic payments of interest.
Some corporate bonds, however, offer investors an opportunity to participate
in the appreciation potential of the company's common stock by allowing their
bonds to be converted into common stock at a predetermined price per share
during a specified period of time. If the price of the common stock rises
above this predetermined price within the specified time frame, the
convertible bond will increase in value as the stock price continues to rise.
This may result in a higher total return than that offered by a non-
convertible bond. Because of the possibility of a higher return, the
convertible bond generally offers a lower coupon rate of interest at the
time of its issuance than a corporate bond without the convertibility feature.
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Intermediate Term Bond Fund
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To meet its primary investment objective, the Intermediate Term Bond Fund
invests primarily in investment-grade intermediate term corporate bonds with
average maturities of three to seven years. The Fund may also invest in bonds
issued by the federal government and federal agencies. To meet its secondary
investment objective, the Fund may invest up to 25% of its assets in
convertible bonds when the manager believes such bonds offer a risk/reward
trade-off that conforms to the Fund's moderate risk-taking philosophy.
Convertible bonds offer the potential for capital appreciation to offset the
impact of inflation. Finally, the Fund may invest a portion of its assets,
generally between 10-15%, in common stocks which pay a relatively high
dividend compared to the overall stock market.
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What is an investment-grade bond?
The financial quality of a company issuing bonds and the investor protections
structured into a bond by the issuer determine that bond's investment rating.
Various companies analyze and rate the investment quality of bonds, with
Moody's and Standard & Poor's being two of the best known. These organizations
rate bonds from "AAA" (highest credit rating) to "D" (companies in
bankruptcy). Investment-grade bonds are rated BBB or above, and are considered
to be of sufficient safety for inclusion in accounts where preservation of
principal is a key factor.
What is an intermediate-term bond?
All bonds may be categorized according to the period of time they will remain
outstanding from their date of issuance. Generally, bonds fall into one of
three time categories: short-term, intermediate-term, and long-term. Short-
term bonds (which may also be called notes) generally mature within three
years from their date of issuance. Intermediate-term bonds would usually
mature from three to ten years from their date of issuance. Many issuers
choose to call these instruments "notes" as well. Finally, long-term bonds
typically will have a term of at least ten years from their date of issuance.
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WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
As with all mutual funds, your investment in the Sheffield Funds runs the
risk of losing money due to changing market conditions, interest rates,
investor perceptions, and a host of other economic and political risk factors.
In addition, risks unique to a particular sector of the economy or to a
particular company may cause the Funds to underperform the overall stock or
bond markets.
The principal risks of investing in the Total Return Fund are:
* Interest rate risk - Increases in interest rates typically lower the
present value of a company's future earnings stream. Since the market price
of a stock changes continuously based upon investors' collective perceptions
of future earnings, stock prices will generally decline when investors
anticipate or experience rising interest rates.
* Market risk - In a declining stock market the shares of all companies may
decline, regardless of any one particular company's own unique prospects.
This is often referred to as "market risk."
* Economic risks - A particular set of circumstances may affect the volatility
of one or more sectors of the economy. If, for example, consumers decided
to spend less and save more due to a rising unemployment rate, industries
such as retailing and leisure activities would experience a significant
decline in revenues and profit.
The principal risks associated with an investment in the Intermediate Term
Bond Fund are:
* Interest rate risk - Bond prices rise when interest rates fall and decline
when interest rates rise. Changes in interest rates typically have a greater
impact on the price of long term bonds than on short term bonds.
Furthermore, lower coupon bonds are generally more volatile than higher
coupon bonds of the same approximate maturity.
* Credit risk - This is the risk that an issuer will be unable to make
interest payments when due on a particular bond, or will be unable to repay
the principal upon maturity of the bond. As an issuer's ability to make
these payments is called into question, the price of the issuer's bonds will
experience significant declines, and liquidity for the security may cease
to exist. Credit risk can be observed by the credit ratings assigned to
bond issues by companies such as Standard and Poor's and Moody's.
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HOW HAVE THE FUNDS PERFORMED OVER TIME?
The bar chart and tables below provide an indication of the risks of investing
in the Funds by showing changes in the Funds' performance for each full
calendar year since their inception and by showing how the Funds' average
annual returns for 1 year, 5 years and since inception compare to those of a
broad-based securities market index. How the Funds have performed in the past
is not necessarily an indication of how the Funds will perform in the future.
Sheffield Total Return Fund
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Year-by-year total return as
of 12/31 each year
1991 39.56%
1992 2.30%
1993 12.06%
1994 -6.97%
1995 25.46%
1996 24.90%
1997 26.91%
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Best Quarter Q1 91 15.98%
Worst Quarter Q1 94 -6.48%
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As of 9/30/98, the Total Return Fund's year-to-date return
was -8.77%.
Average annual total return as of 12/31/97
Life of Fund
1 year 5 years (since 4/2/90)
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Total Return Fund 26.91% 15.70% 13.99%
S&P 500* 33.36% 20.28% 17.68%
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* The S&P 500 is the Standard & Poor's Composite Index of 500 stocks, a
widely recognized, unmanaged index of common stock prices.
Sheffield Intermediate Term Bond Fund
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Year-by-year total return as of 12/31
each year
1991 14.85%
1992 4.91%
1993 8.52%
1994 -3.56%
1995 16.10%
1996 6.84%
1997 9.07%
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Best Quarter Q1 91 5.89%
Worst Quarter Q1 94 -2.07 %
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As of 9/30/98, the Bond Fund's year-to-date return
was 4.29%.
Average annual total return as of 12/31/97
Life of Fund
1 year 5 years (since 4/2/90)
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Bond Fund 9.07% 7.20% 6.63%
Lehman Corp Inter.
Bond Index ** 8.38% 7.72% 9.17%
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** The Lehman Brothers Intermediate Corporate Bond Index is a broad measure of
the performance of intermediate (one to ten year) corporate fixed-rate debt
issues.
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WHAT EXPENSES DO SHAREHOLDERS PAY?
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Funds. The Funds do not charge any shareholder
transaction fees. Expenses shown are for the fiscal year ended October 31,
1998. For a more detailed description of such costs and expenses, see
"Management and Administration" and "Plans of Distribution."
Shareholder Transaction Expenses
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Sales Loads/Redemption Fees None
Annual Fund Operating Expenses
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(as a percentage of average net assets)
Total Return Intermediate Term
Fund Bond Fund
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Investment Advisory Fees................. 1.00%(1) 1.00%(1),(2)
Distribution (12b-1) Fees................ .03%(3) .09%(3)
Other Operating Expenses................. .42% 1.07%(4)
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Total Operating Expenses................. 1.45%(5) 2.16%(5)
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(1) 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.
(2) Since April 1, 1993, the Adviser has been voluntarily waiving .25% of its
advisory fee to the Bond Fund. Actual advisory fees incurred by the Bond
Fund were equal to .75% of average net asset value.
(3) 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).
(4) During the fiscal year ended October 31, 1998, the Administrator waived
administrative fees to the Bond Fund amounting to approximately $25,000.
Other Operating Expenses net of the waived administrative fees
were .75%.
(5) If the maximum 12b-1 expenses had been incurred during the period for
both Funds, total operating expenses would have been 1.67%, and 2.32%,
respectively. Actual expenses for the Intermediate Term Bond Fund for
the fiscal year ended October 31, 1998, net of all waivers, were 1.59%.
Example
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This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in either of the Funds for the time periods indicated
and then redeem all of your shares at the end of those periods. The example
also assumes your investment has a 5% return each year and that the Funds'
operating expenses remain the same. Although your actual expenses may be
higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
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Total Return Fund $148 $459 $792 $1,735
Bond Fund* $219 $676 $1,159 $2,493
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* Using the actual expenses, net of all waivers, the costs of investing
in the Bond Fund for one, three, five and ten years would have been $162,
$502, $866, and $1,889, respectively.
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CONDENSED FINANCIAL INFORMATION
The Financial Highlights tables describe each Fund's financial performance
for the past 5 years. The total returns in the tables indicate how much you
would have earned (or lost) on an investment in the Funds during the period
(assuming reinvestment of all dividends and distributions). The Financial
Highlights tables have been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants, whose report, along with the Funds' financial
statements, are included in the Funds' annual report, which is available upon
request.
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%
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</TABLE>
See accompanying notes to financial statements.
<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%
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* 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.
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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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ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENT
OBJECTIVES AND POLICIES
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.
INVESTMENT OBJECTIVES AND POLICIES
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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 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 and fixed income 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 Bond Fund may not invest in nonconvertible securities rated lower than
BBB by Standard & Poor's or Baa by Moody's at the time of acquisition. The
Fund's portfolio may also include securities that were investment grade when
acquired but were subsequently down-graded and/or non-rated.
Bonds are selected for the Bond Fund utilizing a variety of criteria. First,
the Fund seeks to ladder its maturities so that the portfolio contains bonds
with maturities more or less evenly spread over the Fund's maturity range.
The Fund also diversifies its holdings across all economic sectors as a risk-
reducing strategy. Finally, the Adviser searches for temporarily out-of-favor
bonds whose yield spread to comparable-maturity treasury securities presents
attractive buying opportunities. 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."
Additional Risks of Investing in the Funds
In addition to the primary risks of investing in the Funds as discussed in
"What are the Primary Risks of Investing in the Funds," the following are
additional risks of investing in the Funds:
* Liquidity risk - Liquidity risk is the risk that there will not be
sufficient trading volume in a security to facilitate easy selling of that
security by the Fund. During periods of stock market decline, investors
may show greater allegiance to, and have more confidence in, larger cap
companies compared to smaller cap. During such unsettled times, investors
avoid the greater illiquidity of small-cap stocks relative to large-cap
companies, thereby increasing the volatility of the former.
* Business risk - From time to time, a particular set of circumstances may
affect a particular industry or certain companies within the industry,
while having little or no impact on other industries or other companies
within the industry. For instance, some technology industry companies
rely heavily on one type of technology. When this technology becomes
outdated, too expensive, or is not favored in the market, companies that
rely on the technology may rapidly become unprofitable. However,
companies outside of the industry or those within the industry who do not
rely on the same technology may not be affected at all.
* Political risk - Regulation or deregulation of particular industries can
have a material impact on the value of companies within the affected
industry. For example, during the past two years, the electric and gas
utility sectors of the economy have been moving towards deregulation and
open price competition. In this new environment, some companies will make
a successful transition into, and prosper under deregulation, and other
companies will mismanage the process and do poorly.
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.
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."
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. Both Funds are authorized to invest
up to 25% of their respective net assets in convertible securities.
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.
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.
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. Both Funds ordinarily invest a small amount of their assets in short-
term fixed income securities to meet their general liquidity needs. However,
for temporary defensive purposes, the Funds may significantly increase their
investments in cash, cash equivalents or short-term fixed-income instruments.
Such investments may prevent the Funds from meeting their investment
objectives. For additional information regarding the Funds' investment
objectives and policies and defensive strategies, see the Statement of
Additional Information under "Investment Objectives and Policies."
- ----------------------------------------------------------------------------
MANAGEMENT AND ADMINISTRATION
Sheffield Investment Management, Inc., 900 Circle 75 Parkway, Suite 750,
Atlanta, Georgia 30339-3082, is the investment manager (the "Adviser") for
the Funds. The Adviser is an investment counseling firm that has been
managing investment portfolios for trusts, endowments, retirement plans and
individuals since 1979. It has been the Adviser to the Funds since their
inception in 1990.
Roger A. Sheffield, C.F.A., and Caroline L. Scott, C.F.A., C.P.A., are
primarily responsible for management of the Funds' portfolios. Mr. Sheffield
has been Chairman of the Board and President of Sheffield since its inception
in 1990. He has been a principal and president of the Adviser since 1979, and
president of Alpha-Line Investments, Inc., the Funds' distributor, since 1986.
Ms. Scott has served as secretary and treasurer of Sheffield since February
1991. She is also a principal of the Adviser, and has been the Chief
Financial Officer of the Adviser since August 1990. Before joining the
Adviser, she was a manager at Coopers & Lybrand, L.L.P., Certified Public
Accountants.
The Funds pay the Adviser the following fees for managing the Funds:
Assets Fee (% avg. net assets)
-------------------------- -----------------------
First $50 million 1.00%
$50 million - $100 million .75%
Over $100 million .60%
For the year ended October 31, 1998, the Total Return Fund paid the Adviser
an aggregate fee of 1.00% of average net assets for managing the Fund. For
the same period, the Bond Fund paid the Adviser an aggregate fee of .75% of
average net assets for managing the Fund, including a voluntary waiver of
.25% of the Adviser's fee by the Adviser.
Additional Services of the Adviser. In addition to advisory services, the
Adviser also provides administrative services to the Funds which include,
among other things, calculating net asset value, maintaining books and
records, preparing tax returns, preparing financial information and reports
for shareholders and the Securities and Exchange Commission, and responding
to shareholder inquiries. For the year ended October 31, 1998, the Total
Return Fund paid the Adviser an aggregate fee of $48,000 for its
administrative services. For the same period, the Bond Fund paid the Adviser
an aggregate fee of $23,000, including a voluntary waiver of $25,000 of the
Adviser's administrative services fee by the Adviser.
The Adviser also serves as the Funds' transfer agent. For the year ended
October 31, 1998, each Fund paid the Adviser an aggregate fee of $10,000 for
its transfer agency services.
- ----------------------------------------------------------------------------
VALUATION OF SHARES
The Funds' share prices are determined based upon the net asset value. The
Funds calculate net asset value at approximately 4:00 p.m., New York time,
each day that the New York Stock Exchange is open for trading. 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."
- ----------------------------------------------------------------------------
HOW TO PURCHASE SHARES
You may open an account by mail or by wire by completing and returning an
Account Application Form together with your initial investment. Your initial
purchase for either or both Funds combined must be equal to or greater than
$100,000. The minimum investment in either Fund is $5,000.
If you need assistance with your Account Application Form or have any
questions about the Funds, please call Sheffield at (770) 953-1597.
We will price your order based on the net asset value of the Fund next
determined after we receive your completed Account Application Form and
investment.
Purchasing By Mail
- ------------------
New Account. Please complete an Account Application Form, make your check
payable to the appropriate Fund and mail your application and check to the
appropriate address below:
- ----------------------------------------------------------------------------
Mailing Address for the Total Return Mailing Address for the Intermediate
Fund: Term Bond Fund:
Sheffield Total Return Fund Sheffield Intermediate Term Bond Fund
c/o The Sheffield Funds, Inc. c/o The Sheffield Funds, Inc.
P.O. Box 412891 P.O. Box 412857
Kansas City, Missouri 64141-2891 Kansas City, Missouri 64141-2857
- -----------------------------------------------------------------------------
Subsequent Investments to Existing Accounts. Please include the Invest-By-Mail
remittance form attached to your confirmation statements for the appropriate
Fund. Make your check payable to the appropriate Fund, write your account
number on your check, and mail your investment to the appropriate Fund.
Purchasing By Wire
- ------------------
Investors may purchase shares of the Funds by transmitting Federal funds by
bank wire to UMB 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, you should contact
Sheffield at (770) 953-1597 to obtain an account number.
Funds may be wired as follows:
- ----------------------------------------------------------------------------
Wire Investments for Sheffield Total Wire Investments for Sheffield
Return Fund: Intermediate Term Bond Fund:
UMB Bank, n.a. UMB Bank, n.a.
Kansas City, MO Kansas City, MO
ABA routing #1010-0069-5 ABA routing #1010-0069-5
Wire Text:Credit to account 9870290154 Wire Text:Credit to account 9870290111
Sheffield Total Return Fund Sheffield Intermediate Term Bond Fund
FBO (Your account name and number) FBO (Your account name and number),
ATTN: Securities Administration ATTN: Securities Administration
- -----------------------------------------------------------------------------
Subsequent Investments to Existing Accounts. Please call Sheffield at
(770)953-1597 before you wire additional investments. After calling
Sheffield, you may wire funds to the appropriate Fund(s) (i.e., Sheffield
Total Return Fund and/or Sheffield Intermediate Term Bond Fund).
IRA Investment Program
- ----------------------
In conjunction with UMB 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. Contact Sheffield for
complete IRA information kits and enrollment forms.
Exchange Privilege
- ------------------
You may exchange shares of one Fund for shares of the other Fund. Your
request must be given in writing to the Funds' Transfer Agent at 900 Circle
75 Parkway, Suite 750, Atlanta, Georgia 30339-3082. The Funds treat
exchanges as redemptions so they must comply with the requirements for a
redemption (See "Redemption of Shares" below). If the exchange request is
complete, 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.
- -----------------------------------------------------------------------------
REDEMPTION OF SHARES
You may sell shares at any time by notifying the Funds' Transfer Agent in
writing. Your shares will be sold at the Fund's next determined net asset
value after the Transfer Agent receives your request. Your request must
provide the following information:
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.
The Transfer Agent may require that the signature or signatures on any
request for redemption of shares of $5,000 or more be signature guaranteed.
Signature guarantees help prevent fraud for your protection. You may obtain a
signature guarantee from most banks or securities dealers.
- -----------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT PURCHASES, SALES AND EXCHANGES
Due to the high costs of maintaining small accounts, either Fund may ask that
you increase your Fund balance if your account falls below $5,000. If the
account remains under $5,000 after 30 days, the Fund may close your account
and send you the proceeds.
You may invest in the Funds through a broker-dealer other than the Funds'
distributor, rather than investing directly. These broker-dealers may charge
you additional or different fees for purchasing or redeeming shares than
those described here. Ask your broker-dealer about his or her fees before
investing.
Each Fund reserves the right to:
* refuse to accept any request to purchase shares of the Fund for any reason;
* reduce or waive minimum purchase requirements in certain cases (for example,
such reductions or waivers may be granted to investments by affiliated
entities or when Sheffield anticipates additional investments by the new
investor to meet the minimums in the near future);
* refuse any redemption or exchange request involving recently purchased
shares until the check for the recently purchased shares has cleared;
* change or discontinue its exchange privileges, or temporarily suspend these
privileges during unusual market conditions;
* delay mailing redemption proceeds for up to seven days (most redemption
proceeds are mailed within three days after receipt of a request); or
* process any redemption request that exceeds $250,000 or 1% of the Fund's
assets (whichever is less) by paying the redemption proceeds in portfolio
securities rather than cash (typically referred to as "redemption in kind").
- -----------------------------------------------------------------------------
DISTRIBUTIONS AND TAX INFORMATION
Distributions
- -----------------------
The Total Return Fund distributes its net investment income and its net
realized capital gain to its shareholders annually. The Bond Fund distributes
its net investment income quarterly and distributes its net realized capital
gain annually. Unless you instruct the Fund otherwise, your distributions
will be reinvested automatically in additional shares (or fractions thereof)
of the applicable Fund. (See "Distributions and Tax Information" in the
Statement of Additional Information.)
Federal Taxes
- -------------
Distributions to shareholders are taxable to most investors (unless your
investment is an IRA or other tax advantaged account). The tax status of any
distribution is the same regardless of how long you have been in the fund and
whether you reinvest your distributions or receive them in cash.
Distributions that are derived from net long-term capital gains generally
will be taxed as long-term capital gains. The rate of tax will generally
depend on how long the Fund held the securities on which it realized the
gains. All other distributions, including short-term capital gains, will
generally be taxed as ordinary income. The Total Return Fund anticipates that
it will generally distribute higher amounts of capital gains than investment
income. The Bond Fund generally anticipates that it will distribute higher
amounts of investment income than capital gains.
An exchange of one Fund's shares for the other Fund will be treated as a sale
of the Fund's shares and any gain on the transaction may be subject to
federal income tax. Because everyone's tax situation is unique, be sure to
consult your tax adviser about federal, state and local tax consequences.
- -----------------------------------------------------------------------------
PLAN OF DISTRIBUTION
Each Fund has adopted a Rule 12b-1 Plan that permits the Funds to pay fees
for distribution of Fund shares and for some services provided to
shareholders out of the Funds' assets. Because these fees are paid out of the
Funds' assets, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
- -----------------------------------------------------------------------------
STOCKHOLDERS' REPORTS
The Funds will issue to each of their stockholders semi-annual and annual
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
Fund's Distributor, Alpha Line Investments, Inc. at (770) 953-1597.
- -----------------------------------------------------------------------------
HOW DO YEAR 2000 ISSUES AFFECT THE FUNDS?
The business of the Funds' Adviser and the Funds' other service providers
(collectively, the "Service Providers") is largely dependent upon the smooth
functioning of their respective computer systems. The failure of any of the
Service Providers' computer systems, or computer systems upon which those
systems rely, to recognize, calculate or accurately process information
having dates on or after January 1, 2000, may negatively impact the Funds'
handling of securities investments, trades, pricing, liquidity or account
services.
The Adviser is taking steps that will ensure that its computer systems, and
computer systems upon which those systems rely, operate properly with respect
to information with dates on or before January 1, 2000. The Adviser is also
seeking satisfactory assurances that comparable steps are being taken by the
Funds' other Service Providers to ensure that their computer systems are
ready for the Year 2000. Although there can be no assurance 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 considered critical
for the Funds will process information with dates on or before January 1,
2000 properly in a timely manner. The costs associated with becoming Year
2000 compliant will be borne by the Adviser and other Service Providers;
the Funds do not expect to directly bear expenses associated with Year 2000
compliance.
In addition to the potential impact of the Year 2000 on Fund administration
and advisory services, securities in which the Funds invest may be
detrimentally affected by computer failures throughout the financial
services industry beginning on or before January 1, 2000. Such failures,
together with similar corporate and government data processing errors, may
negatively impact the value of the Funds'portfolios and the Funds' securities.
===================================
THE SHEFFIELD FUNDS, INC.
900 Circle 75 Parkway, Suite 750
Atlanta, Georgia 30339-3082
(770) 953-1597
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during the last fiscal
year.
Also, a Statement of Additional Information about the Funds has been filed
with the Securities and Exchange Commission. This Statement (which is
incorporated in its entirety by reference in this Prospectus) contains more
detailed information about the Funds.
These reports are available without charge upon request to Alpha-Line
Investments, Inc., 900 Circle 75 Parkway, Suite 750, Atlanta, Georgia 30339-
3082. Alpha-Line Investments may be reached at (770)953-1597.
You can also obtain copies of these reports by visiting the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. (1-800-SEC-
0330) or by sending your request and a duplicating fee to the Public
Reference Room Section of the Commission, Washington, DC 20549-6009.
Reports and other information about the Funds can also be viewed online on
the Commission's Internet site at http://www.sec.gov.
Investment Company Act File # 811-5886
===========================================================================
THE SHEFFIELD FUNDS, INC.
An open-end diversified investment company
offering two mutual funds
SHEFFIELD TOTAL RETURN FUND
SHEFFIELD INTERMEDIATE TERM
BOND FUND
PROSPECTUS
______________________________________
Investment Adviser
Fund Administrator
Shareholder Servicing Agent
- -------------------------------
Sheffield Investment Management, Inc.
900 Circle 75 Parkway
Suite 750
Atlanta, Georgia 30339-3082
(770) 953-1597
- -----------------------------------------------------------------------------
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 is a family of two mutual 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 of Additional Information (the "Statement") is not a
Prospectus but should be read in conjunction with the Funds' current
Prospectus (dated March 1, 1999). The Funds' current prospectus is
incorporated in its entirety by reference into this Statement. A copy of the
Funds' current Prospectus is enclosed, but you may also obtain a copy of the
Prospectus from Alpha-Line Investments, Inc., 900 Circle 75 Parkway, Suite
750, Atlanta, Georgia 30339-3082. Please retain this Statement for future
reference.
March 1, 1999
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
Investment Objectives and Policies...................................... 1
Management of the Funds................................................. 8
Principal Holders of Securities........................................ 10
The Advisory Agreement................................................. 11
The Administration Agreement........................................... 13
The Distributor........................................................ 14
Distribution of Shares................................................. 15
The Transfer Agent..................................................... 17
Brokerage and Portfolio Transactions................................... 18
Capitalization......................................................... 19
Purchase of Shares..................................................... 20
Redemption of Shares................................................... 22
Net Asset Value........................................................ 23
Distributions and Tax Information...................................... 24
Performance Information................................................ 26
Miscellaneous.......................................................... 28
Financial Statements................................................... 29
Appendix.............................................................. A-1
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.
Reference is made to "What are the Funds' Principal Investment
Strategies?," "Whate are the Primary Risks of Investing in the Funds?" and
"The Funds and Their Investment Objectives and Policies" in the Prospectus
for discussion of the investment objectives, policies, strategies and risks
of the Funds. In addition, set forth below is a discussion of the types of
investment the Funds may make in taking temporary defensive position,
information regarding the Funds' portfolio turnover, and 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 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 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 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.
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 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.
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 stocks, 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.
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.
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. 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. 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. 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.
If a Fund has written a covered 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.
The Funds may invest in commodities. To date, the only commodities in
which the Funds have invested are financial futures contracts as discussed
above.
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. 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.
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.
MANAGEMENT OF THE FUNDS
The Board of Directors is responsible for the overall management of the
Funds, including general supervision and review of its investment activities.
The Board also approves the Funds' agreements with its primary service
providers (e.g., the Adviser, the Distributor, the Custodian and the Transfer
Agent), and appoints the Funds' officers, who administer the Funds' daily
operations. Below is a list of Sheffield's directors and executive officers,
together 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 52 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 68 years old, has served as Chairman of the CFO Roundtable
of Georgia State University, Atlanta, Georgia since 1992. He has been
Professor Emeritus of the College of Business Administration and Chairman
Emeritus of the Department of Finance at Georgia State University since 1994.
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, and INVESCO Treasurer's Trust.
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 34 Seawatch Drive, Savannah, Georgia 31411-2600.
J. Coleman Budd, Director
- --------------------------
Mr. Budd, who is 71 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 55 years old, has been Vice President and portfolio
manager of INVESCO Capital Management, Inc since 1994. 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 c/o INVESCO, 1360 Peachtree Street, Atlanta,
Georgia, 30309.
Caroline L. Scott, C.F.A., C.P.A., Secretary and Treasurer*
- -----------------------------------------------------------
Ms. Scott, who is 40 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 L.L.P.,
Certified Public Accountants. Ms. Scott's address is 900 Circle 75 Parkway,
Suite 750, Atlanta, Georgia 30339-3082.
For the fiscal year ended October 31, 1998 and 1997, the each Fund paid
aggregate Directors' fees and expenses of $4,800 and $4,800, respectively.
Directors who are not affiliated with the Adviser receive an annual fee of
$1,200 (paid for equally by each Fund) and $250 per Fund for each quarterly
meeting attended, plus reimbursement of out of pocket expenses. During the
1998 fiscal year, each non-affiliated director of the Funds received $3,200 in
fees (paid equally by each Fund), plus reimbursement of expenses. The
directors do not receive any other compensation, and 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).
PRINCIPAL HOLDERS OF SECURITIES
Principal Stockholders
- ----------------------
As of October 31, 1998, 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
113 East Webster Avenue
Winter Park, Florida 32789-3224 121,765 7.89%
Mrs. Laureen B. Cianciolo
13201 Walsingham
Largo, Florida 34644 100,083 6.49%
John R. Ibach, M.D., P.A. Profit
Sharing Plan and Trust
836 Prudential Drive #1503
Jacksonville, FL 32207 82,102 5.32%
Mr. and Mrs. David D. Dieterich and
children
10063 Oaks Lane
Seminole, FL 34662-2006 78,395 5.08%
As of October 31, 1998, 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
- ---------------------------------- --------- ----------
Dr. and Mrs. Kerry Schwartz
113 East Webster Avenue
Winter Park, Florida 32789-3224 55,482 6.80%
Clyde R. Balch, M.D., P.A.,
Pension Plan
201 Eighth Street South
Naples, Florida 33940-6141 49,892 6.12%
Mr. and Mrs. Richard G. Onkey
8723 LaPalma Lane
Naples, FL 34108 47,969 5.88%
Management Ownership
- --------------------
As of October 31, 1998, the President of Sheffield, the Treasurer, the
Sheffield Investment Management Profit Sharing Plan and related family members
owned as a group approximately 1.24% and .57%, respectively, of the
outstanding shares of the Total Return and Bond Funds.
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.
The advisory fees paid by the Funds for the last three years were as
follows:
Fiscal Year ended October 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Total Return Fund $281,552 $281,798 $237,139
Bond Fund $58,384* $55,621* $47,510*
* 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 $19,500, $18,500,
and $16,000 in fiscal 1998, 1997 and 1996, respectively.
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.
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. 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.
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 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
The Adviser (hereinafter sometimes also referred to as the
"Administrator") also provides to the Funds 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 inquires 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) .15% of each Fund's average
daily 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 years ended October 31,
1998, 1997, and 1996, the Total Return Fund paid $48,000 per year in
administrative fees. During the years ended October 31, 1998, 1997, and 1996,
administrative fees paid by the Bond Fund were $23,000, $23,000, and $25,000,
respectively. During the fiscal year ended October 31, 1998, the Administrator
waived administrative fees to the Bond Fund amounting to approximately
$25,000.
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.
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"). The Distributor is an affiliated person of the Adviser and the
Funds because 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.
Under the Distribution Agreement, the Distributor continuously offers
shares of the Funds.
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, 1998, distribution costs
of $7,109 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.
The Funds allocate expenses for all of their joint distribution
activities equally. The Funds do not participate in joint distribution
activities with any other funds.
TRANSFER AGENT
The Funds' Adviser also serves as the Transfer Agent for the Funds
pursuant to a Transfer Agency Agreement dated February 6, 1990. In its
function as Transfer Agent, the Adviser processes new accounts, purchases,
redemptions, and transfers, directs the disbursement of dividends and issues
certificates. For its services as Transfer Agent, the Adviser receives from
each Fund a monthly fee at an annual rate of the greater of $10,000 per Fund
or $15.00 per stockholder account. For the year ended October 31, 1998, each
Fund received $10,000.
BROKERAGE AND PORTFOLIO TRANSACTIONS
The Adviser arranges the placement of orders and the execution of
portfolio transactions for the Funds. The Adviser may pay a broker a higher
brokerage commission than another broker might have charged for the same
transaction in recognition of the value of (a) the brokerage or (b) research
services provided by the broker.
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. 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. The Adviser may use the services of a particular broker
more frequently if that broker is providing particularly useful, unique, or
specialized research. 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 research which the Adviser receives from brokers can be divided
into two broad categories. The first encompasses research originated by
brokerage firm analysts to determine attractive purchase opportunities or
otherwise present updated information about companies which the analysts
monitor on a continuing basis. The second category consists of analytical
research tools, typically computer-based, which the Adviser uses to develop
its own investment screens and to create customized analyses of publically-
traded securities. Those research tools may be created by companies not
engaged in offering brokerage services. In such situations, the cost of the
research services is paid by a brokerage firm with whom the Adviser engages
in securities trading activities.
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, 1998, 1997, and 1996, the Funds paid
approximately $54,500, $58,000, and $61,000, respectively, of commissions to
various brokers.
CAPITALIZATION
The authorized capital stock of the Sheffield Funds 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.
PURCHASE OF SHARES
Reference is made to "How to Purchase Shares" in the Prospectus for more
information concerning how to purchase shares. Investors may 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.
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.
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. 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. 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.
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.
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.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the prospectus for more
information concerning how to redeem shares. 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.
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.
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, Martin Luther King, Jr. 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.
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. Such distributions will not qualify for the dividends received
deduction.
Distributions made from the Fund's net realized long-term capital gains
are taxable to shareholders as long-term capital gains regardless of the
length of time the shareholder has owned Fund shares. The rate of tax will
generally depend on how long the Fund held the securities on which it realized
the gains. All other distributions, including short-term capital gains,
generally will be taxed as ordinary income.
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 permit stockholders to
increase their stockholdings in the Funds in which they have invested, all
dividends and capital gains distributions of the respective Funds are
automatically reinvested on the payment date 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.
PERFORMANCE INFORMATION
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, 1998, the five year period
ended October 31, 1998, and the period from inception (April 2, 1990) through
October 31, 1998. 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, 1998 3.50% 5.63%
For the five-year period ended October 31, 1998 13.48% 6.42%
For the period from inception (April 2, 1990)
through October 31, 1998 (8.583 years) 12.53% 6.47%
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, 1998 $1,035 $1,056
For the five-year period ended October 31, 1998 $1,882 $1,365
For the period from inception (April 2, 1990)
through October 31, 1998 (8.583 years) $2,754 $1,713
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:
YIELD = 2[(a-b + 1)6 - 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
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 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."
The Custodian
- -------------
The Funds have entered into a Custodian Agreement with UMB Bank, n.a.,
the principal address of whcih is 928 Grand Avenue, Kansas City, Missouri
64141-6226. As custodian, UMB Bank, n.a. holds the Funds' securities and cash
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
- -----------------------
PricewaterhouseCoopers LLP, 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, 1998, included in this Statement of Additional
Information have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP independent accountants, given on the authority
of that firm as experts in accounting and auditing.
Sheffield Total Return Fund
Portfolio of Investments
October 31, 1998
- -------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.5%) PAR VALUE
- -------------------------------------------------------------------
UMB Bank Money Market
(cost - $136,319) $136,319 $136,319
--------
- -------------------------------------------------------------------
COMMON STOCKS (92.2%) SHARES
- -------------------------------------------------------------------
AEROSPACE - 0.1%
Precision Castparts Corp. 570 $25,080
-------
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
-------
- --------------------------------------------------------------
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
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.
