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:

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 L.L.P., the Funds' independent accountants, whose report, along with the Funds' financial statements, are included in the Funds' annual report, which is available upon request.

For a share outstanding throughout the period.

For a share outstanding throughout the period.

The Funds offer several important benefits to investors:

An investment in the Funds cannot be considered a complete investment program. Different investors may have different investment needs depending on their financial resources and investment goals and objectives. The Funds are not appropriate investment vehicles for investors who engage in short-term trading and/or other speculative strategies and styles.

The 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'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 generally seeks 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."

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:

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 Fund's 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 Fund 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."

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:

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 1999, 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 1999, each Fund paid the Adviser an aggregate fee of $10,000 for its transfer agency services.

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."

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.

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:

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:

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.

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 q guaranteed. Signature guarantees help prevent fraud for your protection. You may obtain a signature guarantee from most banks or securities dealers.

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  in addition to those described here in this Prospectus. Ask your broker-dealer about his or her fees before investing.

Each Fund reserves the right to:

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.)

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 generlly 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 ordinary 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.

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.

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 Funds' Distributor, Alpha Line Investments, Inc. at (770) 953-1597.

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.

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 Funds did not experience any material disruptions in operations or activities as a result of the "Y2K Problem," and did not incur material expenses in correcting perceived or suspected Y2K problems. The Funds are not aware that any of their service providers have experienced any material disruptions in their operations or activities. However, the Funds and their service providers depend on their computer systems to conduct their businesses, and although the Funds do not expect to encounter any such problems in the foreseeable future, the Funds continue to monitor their computer operations for signs or indications of such a problem.

Of course, the Funds cannot completely insulate themselves from Y2K-related problems. It is possible that if latent "Year 2000" problems are incurred by the Funds, the Funds' portfolio companies, or any of the Funds' financial service providers, such problems could have a negative impact on the Funds' future operations and financial performance, and could prevent the Funds from properly handling securities investments, trades, pricing, or the processing of purchases and sales of Fund shares. Furthermore, the Year 2000 problem may impact other entities with which the Funds transact business and the Funds cannot predict the effect of the Year 2000 problem on such entities or the resulting effect on the Funds.

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

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").

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 2000).  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 2000

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 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?'" "What 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.

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.

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.

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.

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.

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.

The market prices of securities of companies that are growing very quickly and/or the securities of companies that investors believe are addressing large potential markets (such as Internet-related businesses) that may not yet have been realized may reflect unreasonable valuations by traditional valuation techniques. Many of these types of companies have a low level of revenues relative to their market capitalization, and many are not yet profitable.

Since the prices of the securities of these companies do not reflect the usual relationships between price and corporate revenues, income or profits, investments in their securities are accompanied by a substantial risk of loss because of their volatility and speculative nature. Numerous factors may cause the prices of these securities to fall precipitously, which may cause each Fund to sustain substantial losses on any investments in such companies. These factors include, but are not limited to, market participants evaluating these securities using more traditional valuation techniques, investors taking less interest in these securities, a general downturn in the market for these securities, or adverse changes in market participants' expectations regarding the potential markets, revenues, income or profitability for these types of 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.

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.

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 Fund's 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.

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.

Dr. Andrews, who is 68 69 years old, has served as Chairman of the CFO Roundtable of Georgia State University, Atlanta, Georgia since 1992. He has been is Professor Emeritus 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 and litigation support. Dr. Andrews is a member of the Advisory Board of Fund Directions, a newsletter published for mutual fund directors and trustees. Aside from many others, Dr. Andrews serves from time to time as an expert witness for the Securities and Exchange Commission. Dr. Andrews' address is 34 Seawatch Drive, Savannah, Georgia 31411-2600.

Mr. Budd, who is 71 72 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 Chairman of on the Board of Wesley Woods Foundations, Inc. Mr. Budd's address is 39 Habersham Park, N.W., Atlanta, Georgia 30305.

Mr. Rofrano, who is 55 56 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.

Ms. Scott, who is 40 41 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 years ended October 31, 1998 1999 and 1997 1998, 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 1999 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). The mandatory retirement age can be extended if approved by the Board of Directors.

The Funds, the Funds' adviser, and the Funds' principal underwriter have adopted a code of ethics that applies to their respective officers, directors and employees. Although personnel subject to the code of ethics may invest in securities, the code of ethics prohibits insider trading and imposes restrictions and internal reporting requirements on personal securities transactions. With respect to securities that may be purchased or held by the Funds, the code generally prohibits purchases or sales of securities seven (7) days before and after either Fund (or any other adviser client account) purchases or sells a security, or considers doing so (the "black-out period"). Exceptions to the black-out period include certain transactions considered de minimus under the code, and trading in certain types of securities (e.g., U.S. government securities).

As of December 31, 1998 1999, 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: