<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1996
1933 ACT FILE NO. 33-11755
1940 ACT FILE NO. 811-5022
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
---------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 21 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 23 /X/
--------------------------
SKYLINE FUND-REGISTERED TRADEMARK-
(Registrant)
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
Telephone Number: 312/913-0900
William M. Dutton Janet D. Olsen
Skyline Fund Bell, Boyd & Lloyd
311 South Wacker Drive, Suite 4500 Three First National Plaza, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
--------------------------
AMENDING PARTS A, B, AND C AND FILING EXHIBITS
It is proposed that this filing will become effective:
immediately upon filing pursuant to
paragraph (b)
X on May 1, 1996 pursuant to paragraph (b)
60 days after filing pursuant to
paragraph (a)(1)
on pursuant to paragraph
(a)(1)
75 days after filing pursuant to
paragraph (a)(2)
on pursuant to paragraph
(a)(2) of rule 485.
Registrant has previously elected to register pursuant to rule 24f-2 an
indefinite number of shares of beneficial interest of the following series:
Skyline Special Equities Portfolio and Skyline Special Equities II. Registrant
filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995 on
February 23, 1996.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED PER UNIT OFFERING PRICE FEE(1)
<S> <C> <C> <C> <C>
Shares of Beneficial Interest, No Net Asset Value
Par Value(2)..................... 2,337,925(3) at Time of Sale $42,480,097(4) $50
Shares of Beneficial Interest, No Net Asset Value
Par Value(5)..................... 1,687,169(6) at Time of Sale $21,106,484(7) $50
</TABLE>
(1) The $100 minimum filing fee has been divided between Skyline Fund's two
series.
(2) Represents shares of Skyline Special Equities Portfolio.
(3) Based upon a net asset value of $18.17 on April 23, 1996.
(4) This calculation is made pursuant to Rule 24e-2 under the Investment Company
Act of 1940. The actual aggregate redemption price of shares of Skyline
Special Equities Portfolio redeemed during the Registrant's fiscal year
ended December 31, 1995 was $63,542,803 (2,543,380 shares), of which
$21,207,696 was used for reductions pursuant to paragraph (c) of Rule 24f-2
in Registrant's Rule 24f-2 Notice for such period. The aggregate redemption
price of redeemed shares used for reductions in this amendment pursuant to
Rule 24e-2(a) is $42,335,107.
(5) Represents shares of Skyline Special Equities II.
(6) Based upon a net asset value of $12.51 on April 23, 1996.
(7) This calculation is made pursuant to Rule 24e-2. The actual aggregate
redemption price of shares of Skyline Special Equities II redeemed during
the Registrant's fiscal year ended December 31, 1995 was $43,600,025
(1,923,266 shares), of which $22,638,538 was used for reductions pursuant to
paragraph (c) of Rule 24f-2 in Registrant's Rule 24f-2 Notice for such
period. The aggregate redemption price of redeemed shares used for
reductions in this amendment pursuant to Rule 24e-2(a) is $20,961,487.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION*
- ---------- ------------------------------------------------------------------------------------------
<C> <C> <C>
PART A (PROSPECTUS)
1 (a)-(b) Front cover
2 (a) Expense Information
(b)-(c) Highlights
3 (a) Financial Highlights
(b) Not applicable
(c)-(d) Management of the Fund - Performance
4 (a) (i) The Fund and its Shares
(ii) Investment Objective and Policies; Investment Restrictions
(b) Investment Objective and Policies; Investment Restrictions
(c) Risks
5 (a) Management of the Fund
(b) Management of the Fund; Back cover; Expense Information
(c) Management of the Fund
(d) Not applicable
(e) Back cover
(f) Management of the Fund; Expense Information
(g) Management of the Fund
5 A The information called for is contained in the annual reports of Special Equities
Portfolio and Special Equities II
6 (a) The Fund and its Shares
(b)-(d) Not applicable
(e) The Fund and its Shares
(f) Dividends and Distributions
(g) Taxes
(h) Not applicable
7 Purchasing Shares
(a) Back cover
(b) Purchasing Shares; Net Asset Value
(c) Not applicable
(d) Purchasing Shares
(e)-(f) Not applicable
8 (a)-(d) Redeeming Shares
9 Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION*
- ---------- ------------------------------------------------------------------------------------------
<C> <C> <C>
PART B (STATEMENT OF ADDITIONAL INFORMATION)
10 (a)&(b) Front cover
11 Table of contents
12 Not applicable
13 (a)-(c) Investment Objective and Policies; Investment Restrictions
(d) Not Applicable
14 (a)-(c) Management of the Fund
15 (a) Not applicable
(b) Principal Shareholders
(c) Management of the Fund
16 (a) (i) Investment Advisory Services
(ii) Management of the Fund
(iii) Investment Advisory Services
(b)&(c) Investment Advisory Services
(d)-(g) Not applicable
(h) General Information
(i) Not applicable
17 (a)-(d) Portfolio Transactions and Brokerage
(e) Not applicable
18 (a)&(b) Not applicable
19 (a)-(c) Purchase and Redemption of Shares
20 Taxes
21 (a)&(b) General Information -- Distributor
(c) Not applicable
22 (a) Not applicable
(b) Performance Information
23 Financial Statements
PART C - OTHER INFORMATION
24 Financial Statements and Exhibits
25 Persons Controlled by or Under Common Control With Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
</TABLE>
- ------------------------
* References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE>
SKYLINE FUND-REGISTERED TRADEMARK-
311 SOUTH WACKER DRIVE, SUITE 4500
CHICAGO, ILLINOIS 60606
IN ILLINOIS -- (312) 913-0900 COLLECT
OUTSIDE ILLINOIS -- (800) 458-5222 TOLL FREE
May 1, 1996
SKYLINE SPECIAL EQUITIES PORTFOLIO-REGISTERED TRADEMARK- and SKYLINE SPECIAL
EQUITIES II-REGISTERED TRADEMARK- seek maximum capital appreciation primarily
through investment in common stocks that the Adviser considers undervalued
relative to earnings, book value, or potential earnings growth.
SKYLINE SPECIAL EQUITIES PORTFOLIO emphasizes investments in small companies
whose outstanding shares have an aggregate market value of less than $700
million.
SKYLINE SPECIAL EQUITIES II emphasizes investments in small- and medium-sized
companies whose outstanding shares have an aggregate market value of $400
million to $2 billion.
Skyline Special Equities Portfolio and Skyline Special Equities II are
"no-load" funds. There are no sales or redemption charges, and there are no
"12b-1" plans. Skyline Special Equities Portfolio and Skyline Special Equities
II are series of Skyline Fund.
This Prospectus is a concise statement of information you should know before
investing. Please retain it for future reference.
A Statement of Additional Information regarding Skyline Special Equities
Portfolio and Skyline Special Equities II dated the date of this Prospectus has
been filed with the Securities and Exchange Commission and (together with any
supplement to it) is incorporated in this Prospectus by reference. The Statement
of Additional Information may be obtained without charge by calling or writing
the Fund at the telephone numbers or address shown above.
------------------------
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HIGHLIGHTS................................................................... 1
EXPENSE INFORMATION.......................................................... 3
FINANCIAL HIGHLIGHTS......................................................... 4
INVESTMENT OBJECTIVE AND POLICIES............................................ 7
RISKS........................................................................ 7
INVESTMENT RESTRICTIONS...................................................... 8
PURCHASING SHARES............................................................ 8
REDEEMING SHARES............................................................. 10
NET ASSET VALUE.............................................................. 12
SHAREHOLDER SERVICES......................................................... 13
SHAREHOLDER ACCOUNTS..................................................... 13
RETIREMENT PLANS......................................................... 13
EXCHANGE PRIVILEGE....................................................... 13
AUTOMATIC INVESTMENT PLAN................................................ 14
SYSTEMATIC WITHDRAWAL PLAN............................................... 14
DIVIDEND PURCHASE PLAN................................................... 15
DIVIDENDS AND DISTRIBUTIONS.................................................. 15
TAXES........................................................................ 15
MANAGEMENT OF THE FUND....................................................... 17
THE TRUSTEES............................................................. 17
THE ADVISER.............................................................. 17
PORTFOLIO TRANSACTIONS................................................... 18
PERFORMANCE.............................................................. 19
THE FUND AND ITS SHARES...................................................... 20
SHARES................................................................... 20
VOTING RIGHTS............................................................ 20
SHAREHOLDER INQUIRIES.................................................... 20
</TABLE>
<PAGE>
HIGHLIGHTS
SKYLINE SPECIAL EQUITIES PORTFOLIO and SKYLINE SPECIAL EQUITIES II are series
(each, a "Portfolio" and collectively, the "Portfolios") of Skyline Fund (the
"Fund"). Each Portfolio is a "no-load" fund. There are no sales or redemption
charges.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE SKYLINE SPECIAL EQUITIES PORTFOLIO and
AND POLICIES SKYLINE SPECIAL EQUITIES II seek maximum
capital appreciation primarily through
investment in common stocks that the Adviser
considers undervalued relative to earnings,
book value, or potential earnings growth.
SKYLINE SPECIAL EQUITIES PORTFOLIO
emphasizes investments in small companies
whose outstanding shares have an aggregate
market value of less than $700 million.
SKYLINE SPECIAL EQUITIES II emphasizes
investments in small and medium-sized
companies whose outstanding shares have an
aggregate market value of $400 million to $2
billion. (See "Investment Objective and
Policies.")
INVESTMENT RISKS Each Portfolio is designed for long-term
investors willing to accept more investment
risk and volatility than the stock market in
general.
MINIMUM PURCHASE $1,000 for initial investments and $100 for
subsequent investments. (See "Purchasing
Shares.")
DIVIDENDS AND CAPITAL Income dividends and capital gains, if any,
GAINS are distributed at least annually.
Distributions automatically are reinvested
in additional shares at net asset value
unless payment in cash is requested. (See
"Dividends and Distributions.")
REDEMPTION PRICE Current net asset value, without charge.
(See "Redeeming Shares.")
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
INVESTMENT ADVISER Skyline Asset Management, L.P. (the
"Adviser") is investment adviser to the
Fund. The Adviser managed more than $430
million in assets as of March 31, 1996.
William M. Dutton and Kenneth S. Kailin are
the portfolio managers of Skyline Special
Equities Portfolio and Skyline Special
Equities II, respectively. Each of them
leads a team which is responsible for the
day-to-day management of their respective
portfolios. (See "Management of the Fund-The
Adviser.")
EXPENSES Each Portfolio pays the Adviser a
comprehensive fee at an annual rate
declining from 1.50% of its average daily
net asset value. The Adviser pays out of its
fee the ordinary costs and expenses of the
Portfolio. (See "Management of the Fund
--The Adviser.")
DISTRIBUTOR Funds Distributor, Inc.
</TABLE>
2
<PAGE>
EXPENSE INFORMATION
The following table shows all fees paid by shareholders or assessed against
assets of the Portfolios:
<TABLE>
<CAPTION>
SKYLINE
SPECIAL SKYLINE
EQUITIES SPECIAL
PORTFOLIO EQUITIES II
----------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................ none none
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).............................. none none
Deferred Sales Load......................................... none none
Redemption Fees (1)......................................... none none
Exchange Fees............................................... none none
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (including operating expenses)(2)........... 1.50% 1.50%
12b-1 Fees.................................................. none none
Other Expenses.............................................. .01% .02%
----------- -----------
Total Operating Expenses.................................... 1.51% 1.52%
</TABLE>
- ------------------------
(1) A shareholder requesting payment of redemption proceeds by wire must pay the
cost of the wire transfer (currently $10). See "Redeeming Shares."
(2) Under the advisory agreements, the Adviser pays all of the ordinary
operating expenses of each Portfolio, except the fees and expenses of the
Fund's non-interested trustees and the reimbursement of organization costs.
See "Management of the Fund -- The Adviser" in this Prospectus for more
information. Skyline Asset Management, L.P. has served as the adviser to the
Portfolios since September 1, 1995. During the fiscal year ended December
31, 1995, the expenses paid to other service providers by the Portfolios'
investment advisers from their management fees to Skyline Special Equities
Portfolio and Skyline Special Equities II amounted to .12% and .20% of
average net assets respectively.
The purpose of the table is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolios will bear,
directly or indirectly.
3
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period for each of the
Portfolios:
<TABLE>
<CAPTION>
SKYLINE
SPECIAL SKYLINE
EQUITIES SPECIAL
PORTFOLIO EQUITIES II
----------- -----------
<S> <C> <C>
1 year.............................................. $ 15 $ 15
3 years............................................. 48 48
5 years............................................. 82 83
10 years............................................ 180 183
</TABLE>
The Example should not be considered a representation of past or future
expenses; the actual expenses of the Portfolios and the annual rates of return
may be greater or less than those shown. Although information such as that shown
in the Example is useful in reviewing the expenses of the Portfolios and in
providing a basis for comparison of these expenses with the expenses of other
mutual funds, it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of the operations of each Portfolio on a
per-share basis for the periods indicated. The information presented has been
audited and reported on by the independent auditors of the Fund. The tables
should be read in conjunction with the financial statements of Skyline Special
Equities Portfolio and Skyline Special Equities II, which may be obtained
without charge from the Fund upon request. The auditors' report and further
information about the performance of the Portfolios is contained in the
Portfolios' Annual Reports and the Statement of Additional Information, which
may be obtained from the Fund free of charge.
4
<PAGE>
SKYLINE SPECIAL EQUITIES PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995(a) 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 15.64 $ 17.83 $ 17.12 $ 12.67 $ 10.32 $ 11.49 $ 10.32
--------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment (loss) income...................... (0.06) (0.08) (0.09) (0.01) 0.01 0.10 0.13
Net realized and unrealized gains (losses) on
investments...................................... 2.21 (0.18) 3.94 5.37 4.74 (1.17) 2.33
--------- --------- --------- --------- --------- --------- ---------
Total from Investment Operations.................. 2.15 (0.26) 3.85 5.36 4.75 (1.07) 2.46
--------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income.............. -- -- -- -- (0.01) (0.10) (0.13)
Dividends from net realized gains on
investments...................................... (1.00) (1.93) (3.14) (0.91) (2.39) -- (1.16)
--------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............................. (1.00) (1.93) (3.14) (0.91) (2.40) (0.10) (1.29)
--------- --------- --------- --------- --------- --------- ---------
Net asset value at end of period.................... $ 16.79 $ 15.64 $ 17.83 $ 17.12 $ 12.67 $ 10.32 $ 11.49
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (d).................................... 13.83% (1.15%) 22.85% 42.45% 47.28% (9.28%) 23.98%
Ratios/Supplemental Data
Ratio of expenses to average net assets............. 1.51% 1.49% 1.48% 1.51% 1.55% 1.59% 1.60%
Ratio of net investment (loss) income to average net
assets............................................. (0.35%) (0.49%) (0.54%) (0.19%) 0.09% 0.95% 1.30%
Portfolio turnover rate............................. 71% 82% 104% 87% 104% 98% 90%
Net assets, end of period (in thousands)............ $ 174,899 $ 202,771 $ 228,011 $ 172,385 $ 37,495 $ 22,154 $ 21,056
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
APRIL 23,
1987(b) TO
DECEMBER 31,
1988 1987
--------- ------------
<S> <C> <C>
Net asset value at beginning of period.............. $ 7.99 $ 9.61
--------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment (loss) income...................... 0.05 0.01
Net realized and unrealized gains (losses) on
investments...................................... 2.33 (1.63)
--------- ------------
Total from Investment Operations.................. 2.38 (1.62)
--------- ------------
LESS DISTRIBUTIONS
Dividends from net investment income.............. (0.05) --
Dividends from net realized gains on
investments...................................... -- --
--------- ------------
TOTAL DISTRIBUTIONS............................. (0.05) --
--------- ------------
Net asset value at end of period.................... $ 10.32 $ 7.99
--------- ------------
--------- ------------
TOTAL RETURN (d).................................... 29.79% (16.86%)(c)
Ratios/Supplemental Data
Ratio of expenses to average net assets............. 1.70% 1.60%(e)(f)
Ratio of net investment (loss) income to average net
assets............................................. 0.61% 0.20%(e)(f)
Portfolio turnover rate............................. 68% 173%(e)
Net assets, end of period (in thousands)............ $ 11,498 $ 6,605
--------- ------------
--------- ------------
</TABLE>
5
<PAGE>
SKYLINE SPECIAL EQUITIES II
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER FEBRUARY 9,
31, 1993(b) TO
---------------------- DECEMBER 31,
1995(a) 1994 1993
----------- --------- -------------
<S> <C> <C> <C>
Net asset value at beginning of period........ $ 10.14 $ 10.79 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income....................... 0.06 0.02 0.01
Net realized and unrealized gains (losses)
on investments............................. 2.06 (0.19) 1.00
----------- --------- -------------
Total from Investment Operations............ 2.12 (0.17) 1.01
----------- --------- -------------
LESS DISTRIBUTIONS
Dividends from net investment income........ (0.06) (0.02) --
Dividends from net realized gains on
investments................................ (0.91) (0.46) (0.22)
Return of capital distribution.............. -- --(g) --
----------- --------- -------------
TOTAL DISTRIBUTIONS........................... (0.97) (0.48) (0.22)
----------- --------- -------------
Net asset value at end of period.............. $ 11.29 $ 10.14 $ 10.79
----------- --------- -------------
----------- --------- -------------
TOTAL RETURN.................................. 20.95% (1.52%) 10.08%(h)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets....... 1.52% 1.51% 1.51%(e)
Ratio of net investment income (loss) to
average net assets........................... 0.50% 0.22% (0.10)%(e)
Portfolio turnover rate....................... 102% 82% 111%(e)
Net assets, end of period (in thousands)...... $ 89,203 $ 99,638 $ 58,608
----------- --------- -------------
----------- --------- -------------
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
(a) Effective September 1, 1995, Skyline Asset Management, L.P. became the
investment adviser to each of the Portfolios.
(b) Commencement of operations.
(c) For the period April 23, 1987 to December 31, 1987.
(d) Total return for Skyline Special Equities Portfolio does not reflect the
effect of any sales charges which may have been previously charged.
(e) Ratios have been determined on an annualized basis.
(f) During the period from April 23, 1987 through December 31, 1987, fees
totaling $10,159 were reimbursed to the Skyline Special Equities Portfolio
or waived by the Portfolio's previous investment adviser. Absent the
foregoing, the ratio of expenses to average net assets would have been
1.88%, and the ratio of net investment loss to average net assets would have
been (.08%).
(g) Distributions were less than $.01 per share.
(h) For the period February 9, 1993 to December 31, 1993.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
SKYLINE SPECIAL EQUITIES PORTFOLIO and SKYLINE SPECIAL EQUITIES II (together,
the "Portfolios") have the same general investment objective and follow the same
investment strategy. The Portfolios differ in the size of the companies in which
they invest. Each Portfolio seeks maximum capital appreciation primarily through
investment in common stocks that the Adviser considers undervalued relative to
earnings, book value, or potential earnings growth. Companies in which the
Portfolios invest generally fall into one of the following three categories:
1. A company that the Adviser believes will achieve above-average growth in
earnings, but that is selling at a price/earnings ratio below the
average for the overall stock market.
2. A company that has experienced problems leading to a depressed stock
price where the Adviser believes that there is a reasonable likelihood
that the company's operations will improve.
3. A company that does not fall into the above categories, but because of
special circumstances appears undervalued and, consequently, offers
potential for appreciation.
SKYLINE SPECIAL EQUITIES PORTFOLIO emphasizes investments in small companies
whose outstanding shares have an aggregate market value of less than $700
million; SKYLINE SPECIAL EQUITIES II emphasizes investments in small- and
medium-sized companies whose outstanding shares have an aggregate market value
of $400 million to $2 billion.
Each Portfolio is ordinarily substantially fully invested, and under normal
market conditions, at least 65% of the assets of each Portfolio will be invested
in common stocks. In management of cash receipts or liquidity for anticipated
redemptions, each Portfolio may invest without limitation in high-quality
fixed-income securities or hold assets in cash or cash equivalents.
RISKS
Because of the concentration of the Portfolios in stocks of small and
medium-sized companies, which tend to be more volatile and less liquid than
stocks of larger companies, the Portfolios may involve an above-average degree
of risk. Small and medium-sized companies, as compared to larger companies, may
have a shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public market for their
securities. However, an attempt is made to
7
<PAGE>
minimize the risk through portfolio diversification and the use of a stock
selection strategy that emphasizes undervalued common stocks, many of which
already reflect a lower price.
There can be no assurance that a Portfolio's investment objective will be
achieved. Each Portfolio's investment objective and policies may be changed by
the Fund's board of trustees without shareholder approval. However, shareholder
approval is required for changes in a Portfolio's fundamental investment
restrictions. Any change in the investment objective of a Portfolio might result
in that Portfolio having an investment objective that differs from the
investment objective a shareholder considered appropriate when investing.
INVESTMENT RESTRICTIONS
The Fund has adopted for each Portfolio the following investment restrictions,
among others, that may be changed only with the approval of a majority of the
outstanding shares of the Portfolio as defined in the Investment Company Act of
1940. A Portfolio may not: (1) invest more than 5% of its assets (valued at the
time of investment) in the securities of any single issuer, excluding government
obligations; (2) invest in a security if, as a result of such investment, the
Portfolio would hold more than 10% (measured at the time of investment) of the
outstanding voting securities of the issuer of such security; or (3) invest more
than 5% of its assets (measured at the time of investment) in the securities of
an issuer with less than three years operating history (including predecessors).
All of the investment restrictions for each Portfolio are stated in the
Statement of Additional Information.
PURCHASING SHARES
Shares of the Portfolios may be purchased by completing a share purchase
application and forwarding it, together with a check for the investment,
directly to the Fund c/o Firstar Trust Company, P.O. Box 701, Milwaukee, WI
53201 or to the Distributor or an authorized broker-dealer who is responsible
for promptly delivering the application and initial investment to the Fund. The
transfer agent is unable to accept third party checks both on initial and
subsequent share purchases.
The Fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposit in the mail or with such
services, or receipt at Firstar Trust Company's Post Office Box of purchase
applications does not constitute receipt by Firstar Trust Company or the Fund.
DO NOT mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to Firstar Trust
Company, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
8
<PAGE>
Skyline Special Equities Portfolio is now open to investment by new investors.
Skyline Fund reserves the right to close Skyline Special Equities Portfolio to
new investors again if additional cash flow is deemed detrimental to management
of Skyline Special Equities Portfolio. However, if Skyline Special Equities
Portfolio again closes to new investors, the board intends to allow all persons
owning shares of Skyline Special Equities Portfolio as of the date on which it
stops accepting new investments (the "Closing Date") to continue to add to their
accounts. In addition, the board currently expects that it would permit the
following persons to continue to open new accounts after the Closing Date: (i)
persons owning shares of Skyline Special Equities Portfolio as of the Closing
Date; (ii) clients of any financial advisor or planner who has $250,000 or more
of client assets invested in Skyline Special Equities Portfolio as of the
Closing Date; (iii) clients of Mesirow Asset Management, Inc., Skyline Fund's
former investment adviser, and Mesirow Financial, Inc., Skyline Fund's former
distributor; (iv) the Fund's trustees and their immediate families; (v) the
Adviser's employees and their immediate families; (vi) retirement plan accounts
(including ERISA accounts and IRAs) for the Adviser's employees and the Fund's
trustees and their immediate families; (vii) retirement plans sponsored by the
Adviser or Affiliated Managers Group, Inc., the general partner of the Adviser,
in which the Adviser's employees are eligible to participate; and (viii) members
of Skyline Growth Fund, L.L.C., a private investment company managed by Skyline
Asset Management, L.P.
The purchase price of shares in each Portfolio is the net asset value per
share next computed after receipt by the Fund (from the Distributor, an
authorized broker-dealer or directly from a shareholder) of an order completed
in accordance with the instructions on the account application. Your order must
be received by the Fund before the close of regular session trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., Chicago time) to receive the
net asset value calculated on that day. (See "Net Asset Value.") All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. Unless a
shareholder elects to participate in one of the shareholder plans requiring
written instructions to the Fund described under the caption "Shareholder
Services," a shareholder may also purchase shares by giving telephonic
instructions to purchase shares (including the shareholder's name and amount to
be invested) to an authorized broker-dealer and instructing the dealer to wire
transfer the funds for the shareholder's account. Funds transferred by wire in
this manner will be considered to be invested upon receipt of the order by the
Fund. Funds may be invested in this manner only through an authorized
broker-dealer. Any questions regarding this method of investment may be answered
by calling (312) 913-0900 or (800) 458-5222. The minimum initial investment
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<PAGE>
to open an account is $1,000, and subsequent investments must be at least $100.
The minimum initial investment to open an account for a spousal IRA (established
for a nonworking spouse) is $250.
You may also purchase (or redeem) shares through investment dealers, banks, or
other institutions. However, these institutions may charge for their services or
place limitations on the extent to which you may use the services offered by the
Fund. There are no charges or limitations imposed by the Fund (other than
nominal charges for wire transfers, returned checks, and similar items, as
described in this Prospectus) if shares are purchased (or redeemed) directly
from the Distributor.
Some financial institutions that maintain nominee accounts with the Fund for
their clients for whom they hold shares of a Portfolio charge an annual fee of
up to .35% of the average net assets held in such accounts for accounting,
servicing, and distribution services they provide with respect to the underlying
shares of a Portfolio. Such fees are paid by the Adviser.
The Fund reserves the right to reject purchase orders under circumstances or
in amounts considered disadvantageous to existing shareholders. The Fund
believes that frequent purchases and redemptions of Fund shares by investors
utilizing market-timing strategies adversely affect the Portfolios. The Fund
therefore intends to reject purchase orders from investors identified by the
Fund as market-timers. Should an order to purchase shares of a Portfolio be
canceled because a shareholder's check does not clear, the shareholder will be
responsible for any resulting loss incurred by that Portfolio. A charge
(currently $20) will be assessed for any returned check.
Generally, the Fund does not issue share certificates representing shares,
although share certificates in full share amounts will be furnished upon a
shareholder's written request. Fractional shares, if any, will be carried on the
books of the Fund without issuance of certificates.
REDEEMING SHARES
Shareholders of each Portfolio may redeem their shares at the net asset value
next determined after the request is received by the Fund. Your redemption
request in proper form must be received by the Fund before the close of regular
session trading on the New York Stock Exchange ("NYSE") (currently 3:00 p.m.,
Chicago time) to receive the net asset value calculated on that day. (See "Net
Asset Value.") To redeem shares, a written request must be received by the Fund
or telephone authorization in proper form must be received by the Fund or be on
file with the Fund. A written request for redemption must be signed by all
persons in whose names the shares
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<PAGE>
are registered. Redemption requests received by facsimile transmission or other
electronic means will not be accepted. Signatures must conform exactly to the
account registration.
The Fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposit in the mail or with such
services, or receipt at Firstar Trust Company's Post Office Box of redemption
requests does not constitute receipt by Firstar Trust Company or the Fund. DO
NOT mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to Firstar Trust
Company, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
A signature guarantee is required on the written redemption request if (i) the
redemption proceeds are to be sent to a bank or brokerage account not previously
authorized by the shareholder in accordance with the instructions on the account
application, (ii) the proceeds of the requested redemption would be more than
$10,000, or (iii) THE ADDRESS OF RECORD HAS CHANGED WITHIN THE LAST 60 DAYS. The
guarantor must be a bank, member firm of a national securities exchange, savings
and loan association, credit union or other entity authorized by state law to
guarantee signatures. A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTOR. Additional
documentary evidence of authority is required in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. CHECKS TO THIRD PARTIES OTHER THAN A BANK OR BROKERAGE ACCOUNT AS
AUTHORIZED ABOVE ARE NOT PERMITTED. Redemption checks will not be forwarded if
the redeeming shareholder moves. The redemption request should also indicate the
change of address and include a signature guarantee.
Telephone redemptions can be authorized on the account application. If
telephone redemptions are so authorized, the Fund will honor requests by
telephone at (312) 913-0900 or (800) 458-5222. Reasonable procedures are used to
confirm that instructions received by telephone are genuine, such as requesting
personal identification information that appears on the purchase application and
recording the conversation. The shareholder bears the risk of any loss that
might result from a fraudulent instruction, although the Fund may bear such risk
if reasonable procedures were not used. To reduce the risk of a fraudulent
instruction, proceeds of telephone redemptions may be sent only to the
shareholder's address of record or to a bank or brokerage account designated by
the shareholder, in writing, on the purchase application or in a letter with the
signature(s) guaranteed. The Fund reserves the right to record all telephone
redemption requests.
The redemption price per share is the net asset value next determined after
receipt of the redemption request, which may be more or less than the
shareholder's cost depending upon the value of the Portfolio's investment
securities at the time of redemption (See "Net Asset Value.") There is no
11
<PAGE>
charge for a redemption, but an authorized dealer may charge a fee for this
service. A redemption order received from a dealer must be at least $250 unless
the entire account is being redeemed.
Payment for shares redeemed is made by check or wire. Payment by check
normally is mailed within seven days after receipt of the redemption request in
proper form. If specified in the account application, the check will be payable
and sent to a designated financial institution. A wire will be sent only to the
shareholder's bank or brokerage account as shown on the account application.
Wire requests generally are paid the next business day, after deduction of the
cost of the wire transfer (currently $10). That charge and any similar service
fee may be changed without prior notice to shareholders. Wires to third parties
are not permitted.
The Fund may suspend or postpone the right of redemption at times when trading
on the New York Stock Exchange is restricted or as otherwise permitted by the
Securities and Exchange Commission. If a shareholder attempts to redeem shares
within 15 days after they have been purchased by check, the Fund may delay
payment of the redemption proceeds until it can verify that payment for the
purchase of the shares has been (or will be) received.
The Fund reserves the right to redeem shares in any account with a balance of
less than $750 in share value in any Portfolio. Prior to any such redemption,
the Fund will give the shareholder 30 days' written notice during which time the
shareholder may increase his investment to avoid having his shares redeemed. The
$750 minimum balance will be waived if the account balance drops below $750 due
to market activity.
NET ASSET VALUE
The price per share for a purchase order or redemption request is the net
asset value next determined after receipt of the order.
The net asset value of a share of each Portfolio is determined as of the close
of regular session trading on the NYSE (currently 3:00 p.m., Chicago time) each
day the NYSE is open for trading. The net asset value per share of each
Portfolio is determined by dividing the difference between the values of the
Portfolio's assets and liabilities by the number of shares outstanding. Each
security traded on a national stock exchange or on the Nasdaq National Market is
valued at the last sale price or, if there have been no sales on the valuation
day, at the most recent bid price. Other securities traded over the counter are
valued at the last reported bid price. Other assets and securities are valued by
methods the Fund's board of trustees believes will determine a fair value.
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<PAGE>
SHAREHOLDER SERVICES
SHAREHOLDER ACCOUNTS. Each shareholder receives an annual account statement
showing transactions in Portfolio shares with a balance denominated in Portfolio
shares. In addition, confirmations are sent to shareholders upon purchase,
redemption, dividend reinvestment, and change of shareholder address. For a fee,
a shareholder may obtain a historical transcript of his account by requesting
one in writing from Firstar Trust Company.
RETIREMET PLANS. Investors may use the Fund as an investment for their
Individual Retirement Accounts ("IRAs"), profit sharing or pension plans,
Section 401(k) plans, Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations, and certain other qualified
plans. A master IRA plan, information regarding plan administration, fees, and
other details are available from the Distributor and authorized broker-dealers.
EXCHANGE PRIVILEGE. The Fund offers an exchange privilege among Skyline
Special Equities Portfolio, Skyline Special Equities II and two portfolio series
of Portico Funds, Inc. -- Money Market Fund and U.S. Government Money Market
Fund (the "Portico Money Market Funds"). All exchanges are based on the
respective net asset value per share next calculated after the receipt of an
exchange request. Shares of either Portico Money Market Fund or either Portfolio
to be acquired must have been registered for sale in the investor's state. To be
effective on that date, a request to exchange into or out of a Portico Money
Market Fund must be received by the purchase or redemption cutoff time described
from time to time in the Portico Money Market Funds prospectus, a copy of which
can be obtained from the Distributor at (312) 913-0900 or (800) 458-5222.
The exchange privilege is not available for shares for which certificates have
been issued or which have been held for fewer than 15 days. Exchanges by
telephone are an automatic privilege unless the shareholder notifies the Fund on
the account application that his authorization has been withheld. Unless
authorization is withheld, the Fund will honor exchange requests by telephone at
(312) 913-0900 or (800) 458-5222. The Fund reserves the right to record all
telephone exchange requests. Reasonable procedures are used to confirm that
instructions received by telephone are genuine, such as requesting personal
identification information that appears on your application and recording the
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may bear such risk if
reasonable procedures were not used. To reduce the risk of any fraudulent
instruction, the registration of the account into which shares are to be
exchanged must be identical to the registration of the originating account.
During periods of
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<PAGE>
volatile economic and market conditions, a shareholder may have difficulty
making a redemption request by telephone, in which case an exchange request
would have to be made in writing.
The Fund reserves the right at any time without prior notice to suspend or
terminate the use of the exchange privilege by any person or class of persons.
The Fund believes that use of the exchange privilege by investors utilizing
market-timing strategies adversely affects the Portfolios. THEREFORE, THE FUND
GENERALLY WILL NOT HONOR REQUESTS FOR EXCHANGES BY SHAREHOLDERS IDENTIFIED BY
THE FUND AS "MARKET-TIMERS." Moreover, the Fund reserves the right at any time
without prior notice to suspend, limit, modify, or terminate the exchange
privilege in its entirety. Because such a step would be taken only if the Fund's
board of trustees believes it would be in the best interests of the Portfolios,
the Fund expects that it would provide shareholders with prior written notice of
any such action unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the exchange privilege would
adversely affect the Portfolios. IF THE FUND WERE TO SUSPEND, LIMIT, MODIFY, OR
TERMINATE THE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE AN EXCHANGE
MIGHT FIND THAT AN EXCHANGE COULD NOT BE PROCESSED OR THAT THERE MIGHT BE A
DELAY IN THE IMPLEMENTATION OF THE EXCHANGE.
EXCHANGES OF SHARES ARE TAXABLE EVENTS AND MAY RESULT IN A GAIN OR LOSS FOR
FEDERAL INCOME TAX PURPOSES. A prospectus for the Portico Money Market Funds may
be obtained from the Distributor or any authorized broker-dealer. An investor
considering an exchange should refer to the relevant prospectus for additional
information.
AUTOMATIC INVESTMENT PLAN. The Fund has a pre-authorized check plan for
shareholders who wish to make automatic periodic investments in shares of a
Portfolio. A shareholder may establish an automatic investment plan for a
Portfolio by opening an account with $1,000 or more and delivering to the Fund
an automatic investment plan application along with a voided check. The plan
enables Firstar Trust Company, the Fund's transfer agent, to withdraw funds from
a shareholder's bank account or NOW account on a predetermined basis for
investment in shares of a Portfolio. A shareholder may terminate his
participation in the plan at any time without penalty by written notice to
Firstar Trust Company at least 15 days prior to the next investment date. The
Fund may modify or terminate the plan at any time, or from time to time, without
notice to shareholders.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder may request that the Fund
periodically redeem shares of a Portfolio having a specified redemption value.
Payment is sent by check to the record holder(s) of the account. In order to
initiate the Systematic Withdrawal Plan, the account must have a share balance
of $5,000 or more and the periodic withdrawal must be in an
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<PAGE>
amount of not less than $100. The Fund may modify or terminate the Systematic
Withdrawal Plan at any time, or from time to time, without notice to
shareholders.
DIVIDEND PURCHASE PLAN. A shareholder may have dividends and distributions
paid by a Portfolio automatically invested in shares of one of the Portico Money
Market Funds in which an account has been opened through the Fund's exchange
privilege. Similarly, dividends paid on shares in a Portico Money Market Fund
account opened through the exchange privilege may be automatically invested in
shares of either Portfolio. The account into which the dividends are to be
invested must meet any applicable minimum balance requirement, and the account
registration must be identical to the registration of the account from which the
dividends or distributions are paid. The minimum subsequent investment amount
will be waived. Before establishing this plan to make investments in the Portico
Money Market Funds, a shareholder should obtain and read carefully the Portico
Money Market Funds prospectus, a copy of which may be obtained by calling the
Distributor at (312) 913-0900 or (800) 458-5222.
DIVIDENDS AND DISTRIBUTIONS
Shareholders may receive two kinds of distributions from the Fund: dividends
and capital gains distributions. All dividends and capital gains distributions
are paid in the form of additional shares credited to an investor's account at
net asset value per share (without a sales charge) unless the shareholder has
requested on the account application or in writing that distributions be made in
cash. The Portfolios expect to declare and pay net investment income dividends
and distributions of net realized short- and long-term capital gains, if any, at
least annually.
TAXES
Each Portfolio is a separate entity for federal income tax purposes. The Fund
intends for each Portfolio to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. To qualify, each Portfolio must meet
certain income, distribution and diversification requirements. In any year in
which a Portfolio so qualifies it generally will not be subject to federal
income or excise tax to the extent that its taxable income is distributed to
shareholders.
Dividends paid by the Portfolios from net investment income together with
distributions of net short-term capital gains generally will be taxable as
ordinary income, generally in the year received. Distributions declared in
October through December, to shareholders of record before January 1, and paid
during January of the following year, will be considered paid on December 31 in
the calendar year declared. A portion of any dividend paid by each Portfolio
from its net investment income generally will be eligible
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<PAGE>
for the dividends-received deduction for corporations, depending upon the
percentage of the distributing Portfolio's net income derived from qualifying
dividends. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term losses) which are designated as capital gain
distributions are taxable to shareholders as long-term capital gains, regardless
of how long a shareholder has held shares in the Fund. To the extent a Portfolio
makes a distribution in excess of its current and accumulated earnings and
profits, the distribution will be treated first as a tax-free return of capital,
reducing the tax basis in a shareholder's shares, and then, to the extent the
distribution exceeds such basis, as a taxable gain on the sale of such shares.
Shareholders will be informed annually of the amount and nature of the Fund's
income and distributions. However, shareholders who are not subject to income
taxation will not be required to pay tax on amounts distributed to them.
Under federal law, exchanges and redemptions of shares, including exchanges of
shares in one Portfolio for shares in another Portfolio or another fund with
which the Fund has exchange privileges, are taxable events and, accordingly, may
result in capital gain or loss for shareholders participating in such
transactions. Shareholders electing to reinvest dividends or redemption proceeds
in new shares will nevertheless be treated as having received such distributions
for tax purposes.
Any dividends or distributions have the effect of reducing the per share net
asset value of the shares by the amount of the dividends or distributions.
Although a dividend or distribution paid shortly after shares are purchased is
in effect a return of capital, these distributions are subject to taxes, even if
their effect is to reduce the per share net asset value below a shareholder's
cost. The Fund will notify you annually as to the tax status of dividend and
capital gains distributions paid by the Fund.
Dividend distributions, capital gains distributions and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, which is
derived from such obligations.
The Fund is required by federal law to withhold, currently at the rate of 31%,
from reportable payments (which may include dividends, capital gain
distributions, and proceeds from redemptions) paid to shareholders who have not
provided a social security or taxpayer identification number, have not
represented that they either are not currently subject to backup withholding or
are exempt from backup withholding, and have not certified that such information
is correct. Any amounts withheld will be credited against a shareholder's normal
federal income tax liability.
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<PAGE>
The tax treatment of non-resident alien individuals, foreign corporations and
other non-U.S. shareholders may differ from that described above. All
shareholders should consult their own advisors concerning federal, state, and
local tax consequences of an investment in the Portfolios. This discussion is
included for general information only.
MANAGEMENT OF THE FUND
THE TRUSTEES. The board of trustees has overall responsibility for the
conduct of the Fund's affairs. The trustees serve indefinite terms of unlimited
duration provided that a majority of trustees always has been elected by the
shareholders. The trustees appoint their own successors, provided that at least
two-thirds of the trustees, after such appointment, have been elected by the
shareholders. Shareholders may remove a trustee, with or without cause, upon the
declaration in writing or vote of two-thirds of the Fund's outstanding shares. A
trustee may be removed with or without cause upon the written declaration of a
majority of the trustees.
THE ADVISER. The Fund's investment adviser is Skyline Asset Management, L.P.
The Adviser is a Delaware limited partnership formed in 1995. The general
partner of the Adviser is Affiliated Managers Group, Inc. ("AMG"), a
Boston-based private holding company that makes equity investments in investment
management firms in which management personnel retain a significant interest in
the future of the business. Limited partnership interests in the Adviser are
held by corporations wholly owned by certain management personnel of the
Adviser, including the portfolio managers of each Portfolio. More than fifty
percent of the stock of AMG is controlled by TA Associates, Inc., a Delaware
corporation founded in 1968 which directly or indirectly has invested in more
than 200 enterprises prior to its investment in AMG.
The Adviser manages the investment and reinvestment of the assets of each
Portfolio. In addition the Adviser provides office space, facilities, equipment,
and personnel for managing the assets and administering the Fund's day-to-day
operations, and provides shareholder and investor services.
In return for the comprehensive fee described below, the Adviser bears all
ordinary costs and expenses attendant to operating the Portfolios except fees
paid to non-interested trustees, organization and initial offering expenses,
taxes, interest expense, portfolio transaction costs, and any extraordinary
costs or expenses not incurred in the course of the Fund's ongoing operation.
The overall expense ratio of each Portfolio is shown in the "Expense
Information" table in this Prospectus.
For its advisory, management, and administrative services, and for the
assumption of the Fund's ordinary operating expenses, each Portfolio pays
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<PAGE>
the Adviser a monthly comprehensive fee based on its average daily net asset
value at the annual rate of 1.50% of the first $200 million, 1.45% of the next
$200 million, 1.40% of the next $200 million and 1.35% of average daily net
assets in excess of $600 million. Although the Adviser believes the fees paid to
the Adviser are comparable to those paid by other small- and mid-cap equity
funds, the fees are higher than the average fee paid by all mutual funds
(including money market funds). Unlike most mutual funds, the Adviser rather
than the Fund pays out of its fee the Fund's ordinary operating expenses. In
addition, the Adviser has agreed to limit each Portfolio's expenses (including
the Adviser's fee but excluding extraordinary costs or expenses not incurred in
the ordinary course of the Fund's operation) to 1.75% of the average daily net
assets of Skyline Special Equities Portfolio and 2.00% of the average daily net
assets of Skyline Special Equities II. Expenses incurred in excess of these
limits, if any, will be reimbursed to the Portfolio by the Adviser.
Each Portfolio has a portfolio manager who works with a team of the Adviser's
investment professionals and analysts. William M. Dutton, portfolio manager for
Skyline Special Equities Portfolio, and Kenneth S. Kailin, portfolio manager for
Skyline Special Equities II, are responsible for the day-to-day management of
their respective Portfolios. Mr. Dutton has been portfolio manager of Skyline
Special Equities Portfolio since it began operations in 1987, and is President
and Chief Executive Officer of the Adviser and President of the Fund. In
addition, Mr. Dutton manages separately managed accounts. Before August 31,
1995, Mr. Dutton was an Executive Vice President of the Fund's former investment
adviser. Mr. Kailin has been the portfolio manager of Skyline Special Equities
II since it began operations in 1993, and is Principal-Portfolio Manager of the
Adviser and an Executive Vice President of the Fund. In addition, Mr. Kailin
manages separately managed accounts. Mr. Kailin was a Senior Vice President of
the Fund's former investment adviser from 1994 to August 31, 1995, Vice
President from 1992 to 1994, and an analyst prior thereto.
PORTFOLIO TRANSACTIONS. Decisions as to the purchase and sale of securities
for a Portfolio and the execution of these transactions, including the
negotiation of brokerage commissions on such transactions, are the
responsibility of the Adviser. In general, the Adviser seeks to obtain prompt
and reliable execution of purchase and sale orders at the most favorable net
prices or yields. In determining the best net price and execution, the Adviser
may take into account a broker's or dealer's operational and financial
capabilities and the type of transaction involved.
The Adviser may consider research services provided by the broker or dealer,
some of which may be useful to the Adviser in its other business functions. To
the extent such research services are taken into account, the execution price
paid may be higher, but only in reasonable relation to the
18
<PAGE>
benefit of such research services as determined in good faith by the Adviser.
The Adviser is authorized to place portfolio transactions with brokers or
dealers participating in the distribution of shares of the Portfolios, but only
if the Adviser reasonably believes that the execution and commission are
comparable to those available from other qualified firms.
The historical portfolio turnover rates of Skyline Special Equities Portfolio
and Skyline Special Equities II are included in the Financial Highlights.
PERFORMANCE. From time to time, in advertisements and sales literature, the
Fund may present information regarding the total return on a hypothetical
investment in a Portfolio for various periods of performance and may make
comparisons of such total return to various stock indexes (groups of unmanaged
common stocks), to the Consumer Price Index, or to groups of comparable mutual
funds.
Total return for a period is the percentage change in value during the period
of an investment in a Portfolio's shares, including the value of shares acquired
through reinvestment of all dividends and capital gains distributions. The
average annual total return for a given period may be calculated by finding the
average annual compounded rate of return that would equate a hypothetical $1,000
investment to the value of that investment that could be redeemed at the end of
the period, assuming reinvestment of all distributions. All of the calculations
described above will assume the reinvestment of dividends and distributions in
additional shares of the Portfolio. Income taxes will not be taken into account.
In addition to the figures described above, the Fund might use rankings or
ratings determined by Lipper Analytical Services, Inc., an independent service
that monitors the performance of over 1,000 mutual funds, Morningstar, Inc., or
another service to compare the performance of a Portfolio with the performance
of (i) other funds of similar size and investment objective or (ii) broader
groups of funds. The Fund may also provide information about, or compare
performance of a Portfolio to, the historical returns on various types of
financial assets.
Performance of a Portfolio will vary from time to time, and past results are
not indicative of likely future performance. Performance information supplied by
the Fund may not provide a basis of comparison with other investments using
different reinvestment assumptions or time periods.
Further information about the Portfolios' performance is contained in the
Annual Reports of Skyline Special Equities Portfolio and Skyline Special
Equities II, copies of which may be obtained without charge by calling the Fund
at 1-800-458-5222.
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THE FUND AND ITS SHARES
The Fund was organized as a Massachusetts business trust on February 4, 1987
and is an open-end, diversified management investment company. Skyline Special
Equities Portfolio began operations April 23, 1987, and Skyline Special Equities
II began operations on February 9, 1993. In approving the use of a combined
Prospectus, the board of trustees considered the possibility that one Portfolio
might be liable for misstatements in the Prospectus regarding information about
the other Portfolio.
SHARES. Under the terms of the Agreement and Declaration of Trust, the Fund
may issue an unlimited number of shares of beneficial interest without par value
for each series of shares authorized by the trustees. There are currently two
series authorized and outstanding. All shares issued will be fully paid and
non-assessable and will have no preemptive or conversion rights. Each share of a
series is entitled to participate pro rata in any dividends and other
distributions declared by the Fund's board of trustees on shares of that series.
All shares of a series have equal rights in the event of liquidation of that
series.
Under Massachusetts law, the shareholders of the Fund may, under certain
circumstances, be held personally liable for the Fund's obligations. However,
the Fund's Agreement and Declaration of Trust disclaims liability of
shareholders, the Fund's trustees, or the Fund's officers for acts or
obligations of the Fund or a Portfolio and requires that notice of such
disclaimer be given in each agreement, obligation, or contract entered into or
executed by the Fund or the board of trustees. The Fund's Agreement and
Declaration of Trust provides for indemnification out of the assets of a
Portfolio of all losses and expenses of any shareholder held personally liable
for the obligations of that Portfolio. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is remote, since it is
limited to circumstances in which the disclaimer is inoperative and the Fund
itself is unable to meet its obligations.
VOTING RIGHTS. Each share has one vote and fractional shares have fractional
votes. A separate vote of the shareholders of each Portfolio is required for
approval of the Fund's investment advisory agreement, any change in a
Portfolio's fundamental investment policies and restrictions, and any matters
which affect an individual Portfolio. Shareholders of a Portfolio are not
entitled to vote on any matter not affecting that Portfolio. All shareholders of
the Fund vote together in the election of trustees.
SHAREHOLDER INQUIRIES. Inquiries should be addressed to Skyline Fund, c/o
Skyline Asset Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago,
Illinois 60606. Telephone inquiries may be made at (800) 458-5222 or at (312)
913-0900.
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- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
SHAREHOLDER SERVICES:
Skyline Fund
311 South Wacker Drive, Suite 4500
Chicago, IL 60606
(800) 458-5222
(312) 913-0900
INVESTMENT ADVISER:
SKYLINE ASSET MANAGEMENT, L.P.
311 SOUTH WACKER DRIVE, SUITE 4500
CHICAGO, IL 60606
DISTRIBUTOR:
FUNDS DISTRIBUTOR, INC.
ONE EXCHANGE PLACE, 10TH FLOOR
BOSTON, MA 02109
CUSTODIAN AND TRANSFER AGENT:
FIRSTAR TRUST COMPANY
P.O. BOX 701
MILWAUKEE, WI 53201
INDEPENDENT AUDITORS:
ERNST & YOUNG LLP
233 SOUTH WACKER DRIVE
CHICAGO, IL 60606
LEGAL COUNSEL:
BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA, #3300
CHICAGO, ILLINOIS 60602
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, TO ACT AS AGENT FOR SKYLINE FUND, NOR IS ANY
PERSON AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS OR IN SUPPLEMENTARY INFORMATION OR IN SUPPLEMENTAL
SALES MATERIAL AUTHORIZED BY SKYLINE FUND, AND NO PERSON IS ENTITLED TO RELY
UPON ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
SKYLINE FUND, THE SKYLINE LOGO, SKYLINE SPECIAL EQUITIES PORTFOLIO AND SKYLINE
SPECIAL EQUITIES II ARE REGISTERED SERVICE MARKS OF AFFILIATED MANAGERS GROUP,
INC.
- -------------------------------------
S K Y L I N E F U N D-REGISTERED TRADEMARK-
SKYLINE SPECIAL
EQUITIES PORTFOLIO-REGISTERED TRADEMARK-
SKYLINE SPECIAL
EQUITIES II-REGISTERED TRADEMARK-
- ----------------------------
PROSPECTUS
- ---------------------------------
MAY 1, 1996
- ------------------------------------- -------------------------------------
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SKYLINE FUND-REGISTERED TRADEMARK-
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
(312) 913-0900
(800) 458-5222
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
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Skyline Special Equities Portfolio and Skyline Special Equities II are
series of Skyline Fund (the "Fund"). Each series of the Fund represents shares
of beneficial interest in a separate portfolio of securities and other assets,
with its own investment objective and policies. This Statement of Additional
Information is not a prospectus. It should be read in conjunction with the
Skyline Fund Prospectus for Skyline Special Equities Portfolio and Skyline
Special Equities II dated May 1, 1996, and any supplement to that Prospectus.
That Prospectus can be obtained without charge by calling or writing to the
Fund.
TABLE OF CONTENTS
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PAGE
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THE FUND AND THE PORTFOLIOS................................................................................ 2
INVESTMENT OBJECTIVE AND POLICIES.......................................................................... 2
INVESTMENT RESTRICTIONS.................................................................................... 3
PERFORMANCE INFORMATION.................................................................................... 5
PRINCIPAL SHAREHOLDERS..................................................................................... 7
MANAGEMENT OF THE FUND..................................................................................... 8
INVESTMENT ADVISORY SERVICES............................................................................... 9
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................................... 11
PURCHASE AND REDEMPTION OF SHARES.......................................................................... 12
TAXES...................................................................................................... 13
GENERAL INFORMATION........................................................................................ 13
FINANCIAL STATEMENTS....................................................................................... 14
</TABLE>
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THE FUND AND THE PORTFOLIOS
As used in this Statement of Additional Information, "Special Equities
Portfolio" means Skyline Special Equities Portfolio, and "Special Equities II"
means Skyline Special Equities II. Special Equities Portfolio and Special
Equities II are sometimes referred to together as the "Portfolios." Skyline
Asset Management, L.P. (the "Adviser") provides investment advisory and
administrative services to each of the Portfolios.
INVESTMENT OBJECTIVE AND POLICIES
SPECIAL EQUITIES PORTFOLIO seeks maximum capital appreciation primarily
through investment in common stocks that the Adviser considers undervalued
relative to earnings, book value, or potential earnings growth. Special Equities
Portfolio emphasizes investments in small companies whose outstanding shares
have an aggregate market value of less than $700 million. The Adviser attempts
to identify companies that it believes are neglected by the investment
community.
SPECIAL EQUITIES II seeks maximum capital appreciation primarily through
investment in common stocks that the Adviser considers undervalued relative to
earnings, book value, or potential earnings growth. Special Equities II
emphasizes investments in small- and medium-sized companies whose outstanding
shares have an aggregate market value of $400 million to $2 billion. The Adviser
attempts to identify companies that it believes are neglected by the investment
community.
Small and medium capitalization stocks (for this purpose, under $2 billion
in market value) as a group may outperform or underperform larger capitalization
stocks as a group over various periods. According to various studies of stock
market performance commencing in the 1920s or 1930s, stocks of
small-capitalization and mid-capitalization companies have provided a greater
total return to investors than have stocks of companies with larger market
capitalizations.(1)
The performance cycle of medium capitalization stocks tends to mirror that
of small capitalization stocks, but with less pronounced peaks and troughs
(meaning somewhat lower gains, but also reduced volatility). Historically, the
peaks, or periods of economic growth and expansion, have lasted much longer than
the periods of slow or no growth.(2)
There can be no assurance that a Portfolio's investment objective will be
achieved. Each Portfolio's investment objective and policies may be changed by
Skyline Fund's board of trustees without shareholder approval. However,
shareholder approval is required for changes in a Portfolio's fundamental
investment restrictions, and no change in a Portfolio's investment objective
will be implemented without at least 30 days' prior notice to shareholders.
TEMPORARY INVESTMENTS. To manage cash inflows or in anticipation of
redemptions, each Portfolio may invest, without limitation, in high-quality
fixed-income securities and may hold assets in cash or cash equivalents.
REPURCHASE AGREEMENTS. Each Portfolio may invest up to 5% of its assets in
repurchase agreements. Repurchase agreements involve the acquisition by a
Portfolio of an underlying debt instrument, subject to an obligation of the
seller to repurchase and the Portfolio to resell the instrument, at a fixed
price, including yield, within a specified term. A Portfolio could suffer a loss
and increased expense in connection with the sale of the securities if the
seller does not repurchase them in accordance with the terms of the repurchase
agreement. The Portfolios did not invest in repurchase agreements in the most
recent fiscal year and have no present intention of doing so.
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(1) E.g., Roger G. Ibbotson and Rex A. Sinquefield, STOCKS, BONDS, BILLS AND
INFLATION, 1989, updated in STOCKS, BONDS, BILLS AND INFLATION 1993 YEARBOOK;
Prudential Securities, Strategy Weekly, March 17, 1993.
(2) Economic Report of the President, February 1994.
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FOREIGN SECURITIES. The Portfolios may invest in securities of foreign
issuers that are not publicly traded in the United States ("foreign
securities"). Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax provisions,
exchange and currency controls, and expropriation of assets) than investment in
securities of domestic issuers. For this purpose, foreign securities do not
include securities represented by American Depository Receipts (ADRs),
securities of Canadian issuers, and securities guaranteed by a United States
person. Neither Portfolio expects to invest as much as 5% of its assets in
foreign securities.
INVESTMENT RESTRICTIONS
For each Portfolio, Skyline Fund has adopted the following investment
restrictions (which may not be changed without the approval of a majority of a
Portfolio's outstanding shares), under which a Portfolio may not:
1. Issue senior securities or borrow money except (i) from banks for
temporary or emergency purposes in amounts not exceeding 10% of the value of
the Portfolio's assets at the time of borrowing (including the amount
borrowed) (a Portfolio will not purchase securities when its borrowings
exceed 5% of the value of its assets), and (ii) in connection with
transactions in options, futures, or futures options.
2. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein, except that it
may not invest over 10% of the value of its assets in real estate investment
trusts).
3. Invest more than 5% of its assets (valued at the time of investment)
in securities of any one issuer, except government obligations or bank
certificates of deposit and bankers' acceptances.
4. Acquire securities of any one issuer which at the time of investment
(i) represent more than 10% of the outstanding voting securities of the
issuer or (ii) have a value greater than 10% of the value of the outstanding
voting securities of any one issuer.
5. Invest more than 5% of its assets (measured at the time of
investment) in securities of an issuer with less than three years operating
history (including predecessors).
6. Sell securities short or purchase securities on margin (but each
Portfolio may obtain such short-term credits as may be necessary for the
clearance of transactions and may make margin payments in connection with
transactions in options, futures, and options on futures).
7. Invest more than 25% of its assets (valued at the time of
investment) in the securities of companies in any one single industry,
except government obligations.
8. Make loans to other persons except that it reserves freedom of
action, consistent with its other investment policies and restrictions, to
purchase bonds or other debt obligations of types commonly offered publicly
or privately and purchased by financial institutions, even though the
purchase of such debt obligations may be deemed to be making loans.
9. Underwrite any issue of securities, except as it may be deemed to be
an underwriter under the Securities Act of 1933 in connection with the sale
of securities in accordance with its investment objective, policies, and
limitations.
Skyline Fund has also adopted the following additional restrictions and
policies with respect to each Portfolio (which may be changed by the board of
trustees without shareholder approval). Under these additional policies and
restrictions, a Portfolio may not:
A. Invest in companies for the purpose of exercising control or
management.
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B. Acquire securities of other investment companies except (i) by
purchase in the open market, where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission and (ii) where the acquisition results from a dividend, or a
merger, consolidation or other reorganization. In addition to this
restriction, the 1940 Act provides that the Portfolio may neither purchase
more than 3% of the voting securities of any one investment company nor
invest more than 10% of the Portfolio's assets (valued at the time of
investment) in all investment company securities purchased by the Portfolio.
C. Invest in securities of other open-end investment companies.
D. Mortgage, hypothecate, or in any manner transfer as security for
indebtedness, any securities owned or held by it, except that this
restriction does not apply to borrowings permitted above.
E. Purchase or retain securities of any issuer if an aggregate of 5% of
the securities of such issuer are owned by those officers, directors, or
trustees of Skyline Fund or of its Adviser who each own beneficially more
than 1/2 of 1% of its securities.
F. Invest more than 5% of its assets (valued at the time of investment)
in restricted securities or securities which are not readily marketable,
including (i) securities subject to legal or contractual restrictions on
resale, (ii) fixed time deposits or certificates of deposit subject to
withdrawal penalties, other than overnight deposits, or (iii) repurchase
agreements which expire in excess of seven days.
G. Invest over 5% of its assets in repurchase agreements or warrants.
H. Invest in oil, gas, or other mineral exploration or development
programs, except it may invest in marketable securities of enterprises
engaged in oil, gas, or mineral exploration.
I. Invest less than 65% of its total assets in common stocks.
J. Invest in financial futures, options, or options on financial
futures.
In addition to the investment restrictions listed above, as long as shares
of a Portfolio are qualified for sale in Texas, that Portfolio will not (i)
purchase or sell limited partnership interests in real property, (ii) invest in
oil, gas or mineral leases, or (iii) invest more than 2% of its net assets in
warrants (valued at the lower of cost or market) not listed on either the New
York or American Stock Exchange, or on the Nasdaq National Market, provided that
warrants acquired in units or attached to securities shall be deemed to be
without value for purposes of this restriction.
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PERFORMANCE INFORMATION
From time to time Skyline Fund may quote total return performance data for
its Portfolios. Total return for a period is the percentage change in value
during the period of an investment in a Portfolio's shares including the value
of shares acquired through reinvestment of all dividends and capital gains
distributions. An average annual total return for a given period may be computed
by finding the average annual compounded rate that would equate a hypothetical
initial amount invested of $1,000 to the value of that investment that could be
redeemed at the end of the period, assuming reinvestment of all distributions.
Average annual total return is computed as follows:
ERV = P(l+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the period, at the end of the period (or
fractional portion thereof)
For example, total return and average annual total return at December 31,
1995 of an investment of $1,000 in Special Equities Portfolio and Special
Equities II were:
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AVERAGE ANNUAL
TOTAL TOTAL
RETURN (%) RETURN (%)
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SPECIAL EQUITIES PORTFOLIO
1 Year................................................................... 13.83 13.83
5 Years.................................................................. 190.12 23.74
Life of Portfolio........................................................ 252.06 15.58
(April 23, 1987)
SPECIAL EQUITIES II
1 Year................................................................... 20.95 20.95
Life of Portfolio........................................................ 31.12 9.82
(February 9, 1993)
</TABLE>
Total return and average annual total return figures assume reinvestment of
all dividends and distributions. Income taxes are not taken into account. Total
return and average annual total return figures for Special Equities Portfolio do
not take into account the effect of the sales charge that applied to sales of
that Portfolio's shares before August 13, 1992. If such charges were taken into
account, Special Equities Portfolio's total return and average annual total
return figures over five years and the life of the Portfolio would be lower. The
figures are not a guarantee of future results. The performance of a Portfolio is
a result of conditions in the securities markets, portfolio management, and
operating expenses. Although total return information is useful in reviewing a
Portfolio's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of a Portfolio may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts, limited
liability investment companies or partnerships managed or advised by Skyline
Asset Management, L.P., and other competing investment products available from
or through other financial institutions. The composition of these indexes,
averages or accounts differs from that of the Portfolios. The comparison of a
Portfolio to an alternative investment should consider differences in features
and expected performance.
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All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which Skyline Fund generally believes
to be accurate. A Portfolio may also note (or provide reprints of articles or
charts containing) its mention (including performance or other comparative
rankings) in newspapers, magazines, or other media from time to time. Newspapers
and magazines which might mention Skyline Fund and its Portfolios include, but
are not limited to, the following:
Business Week Money
Changing Times The Mutual Fund Letter
Chicago Mutual Fund Values (Morningstar)
Chicago Tribune Newsweek
Chicago Sun-Times The New York Times
Crain's Chicago Business Pensions and Investments
Consumer Reports Personal Investor
Consumer Digest Smart Money
Financial World Stanger Reports
FA Advisor Time
Forbes USA Today
Fortune U.S. News and World Report
Institutional Investor The Wall Street Journal
Investor's Daily Worth
Los Angeles Times
When a newspaper, magazine, or other publication mentions Skyline Fund or a
Portfolio, such mention may include: (i) listings of some or all of a
Portfolio's holdings; (ii) descriptions of characteristics of some or all of the
securities held by a Portfolio, including price-earnings ratios, earnings,
growth rates and other statistical information, and comparisons of that
information to similar statistics for the securities comprising any of the
indexes or averages listed below; and (iii) descriptions of the economic and
market outlook, generally and for a Portfolio, in the view of Skyline Fund, a
portfolio manager or the Adviser.
Each Portfolio may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of the Portfolios may be compared to stock market indexes or
averages, including the following:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Russell 1000 Index American Stock Exchange Composite Index
Russell 2000 Small Stock Index NASDAQ Composite
Russell 2500 Index NASDAQ Industrials
Russell 3000 Index (These indexes generally reflect the
Russell Mid-Cap Stock Index performance of stocks traded in the
Standard & Poor's 500 Stock Index indicated markets.)
Standard & Poor's 400 Industrials
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire 4000
(These indexes are widely recognized
indicators of general U.S. stock
market results.)
The Portfolios' performance may also be compared to mutual fund industry
indexes or averages, including the following: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth
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Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity
Funds Average; Lipper Equity Funds Average; Lipper Mid-Cap Average; Lipper Small
Company Growth Fund Index; Morningstar Growth Average; Morningstar Aggressive
Growth Average; Morningstar U.S. Diversified Average; Morningstar Equity Fund
Average; Morningstar Hybrid Fund Average; Morningstar All Equity Funds Average;
and Morningstar General Equity Average; Morningstar MidCap/Value Average.
Lipper Small Company Growth Fund Index reflects the net asset value weighted
total return of the largest thirty growth funds as calculated, and published by
Lipper Analytical Services, Inc. ("Lipper"), an independent service that
monitors the performance of more than 1,000 funds.
The Lipper and Morningstar averages are unweighted averages of total return
performance of mutual funds as classified, calculated, and published by Lipper
and by Morningstar, Inc. ("Morningstar"), respectively. The Portfolios may also
use comparative performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent service. Should Lipper or
another service reclassify a Portfolio to a different category or develop (and
place a Portfolio into) a new category, that Portfolio may compare its
performance or ranking against other funds in the newly assigned category, as
published by the service. Moreover, each Portfolio may compare its performance
or ranking against all funds tracked by Lipper or another independent service,
and may cite its rating, recognition or other mention by Morningstar or any
other entity. Morningstar's rating system is based on risk-adjusted total return
performance and is expressed in a star-rating format. The risk-adjusted number
is computed by subtracting a Portfolio's risk score (which is a function of the
Portfolio's monthly returns less the 3-month Treasury bill return) from the
Portfolio's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Portfolios may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds and U.S. Treasury bills. Similarly,
the Portfolios may use Ibbotson's historical data regarding the Consumer Price
Index. The Portfolios may also use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by Skyline Fund to be
accurate, illustrating the past performance of small-capitalization stocks,
large-capitalization stocks, common stocks, equity securities, growth stocks
(small-capitalization, large-capitalization, or both) and value stocks
(small-capitalization, large-capitalization, or both).
PRINCIPAL SHAREHOLDERS
The only persons known by Skyline Fund to own of record or "beneficially"
(within the meaning of that term as defined in rule 13d-3 under the Securities
Exchange Act of 1934) 5% or more of the outstanding shares of any Portfolio as
of March 31, 1996 were First Restatement of the Mesirow Financial Corporation
Savings Plan/Mesirow Financial Corporation Savings Trust, as record owner for
various beneficial owners, which held 6.6% of the shares of Special Equities
Portfolio, and Charles Schwab & Co., Inc., as record owner for various
beneficial owners, which held 26.8% of the shares of Special Equities II. The
address of Mesirow Financial Corporation Savings Plan/Mesirow Financial
Corporation Savings Trust is 350 North Clark Street, Chicago, Illinois 60610.
The address of Charles Schwab & Co., Inc., is 101 Montgomery Street, San
Francisco, California 94104.
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MANAGEMENT OF THE FUND
Trustees and officers of Skyline Fund, and their principal business
occupations during at least the last five years, are shown below.
WILLIAM M. DUTTON, 42, PRESIDENT AND TRUSTEE. President and Chief Executive
Officer, Skyline Asset Management, L.P. and registered representative, Funds
Distributor, Inc. Previously, Executive Vice President and Portfolio Manager
(Special Equities Portfolio), Mesirow Asset Management, Inc.
WILLIAM L. ACHENBACH, 53, TRUSTEE. President, W.L. Achenbach & Associates,
Inc., a financial counseling firm. Previously, Executive Vice President,
Brownson, Rehmus & Foxworth, Inc., a financial counseling firm.
PAUL J. FINNEGAN, 43, TRUSTEE. Vice President, Madison Dearborn Partners,
Inc., a venture capital firm. Previously, Vice President, First Chicago Venture
Capital, a venture capital firm.
STEPHEN F. KENDALL, 41, TRUSTEE. Regional Vice President, Metro Region,
Nabisco Biscuit Company.
DAVID A. MARTIN, 44, TRUSTEE. Attorney and Principal, Righeimer, Martin &
Cinquino, P.C.
KENNETH S. KAILIN, 38, EXECUTIVE VICE PRESIDENT. Principal-Portfolio
Manager, Skyline Asset Management, L.P. Previously, Senior Vice President,
Mesirow Asset Management, Inc.
GEOFFREY P. LUTZ, 45, EXECUTIVE VICE PRESIDENT. Principal-Marketing,
Skyline Asset Management, L.P. and registered representative, Funds Distributor,
Inc. Previously, Vice President, Mesirow Asset Management, Inc. and registered
representative, Mesirow Financial, Inc. and Mesirow Investment Services, Inc.
MICHAEL MALONEY, 34, SENIOR VICE PRESIDENT. Principal-Senior Securities
Analyst, Skyline Asset Management, L.P. Previously, Securities Analyst, Mesirow
Asset Management, Inc. and prior to joining Mesirow Asset Management, Inc.,
Securities Analyst, Baker, Fentress & Company, a closed-end management
investment company.
SCOTT BLIM, 36, SECRETARY AND TREASURER. Chief Operating Officer, Skyline
Asset Management, L.P. Previously, Vice President, Director and Chief
Administrative Officer, Murray Johnstone International Limited, an investment
adviser.
The address of Messrs. Dutton, Kailin, Lutz, Maloney and Blim is c/o Skyline
Asset Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago, Illinois
60606. The addresses of the other trustees are: William L. Achenbach, 510 East
Main Street, Charlottesville, Virginia 23902; Paul J. Finnegan, 110 Michigan
Avenue, Evanston, Illinois 60202; Stephen J. Kendall, 379 Shelbourne Terrace,
Ridgewood, New Jersey 07450; David A. Martin, 135 South LaSalle Street, Chicago,
Illinois 60603.
As of March 31, 1996, the trustees and officers of the Fund owned, in the
aggregate, 32,790 shares of Special Equities Portfolio and 9,054 shares of
Special Equities II, or less than 1% of each Portfolio.
The Trustees of Skyline Fund who are not "interested persons" of Skyline
Fund, as defined in the Investment Company Act of 1940 (the "1940 Act"), receive
from Skyline Fund an annual retainer of $3,000 from each of the Portfolios and a
fee of $400 for each meeting of the board of trustees (or any committee thereof)
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. The following table sets forth compensation paid by
Skyline Fund during the fiscal
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year ended December 31, 1995, to each of the trustees of Skyline Fund. Skyline
Fund has no retirement or pension plans. The trustees and officers affiliated
with Skyline Fund do not receive compensation from Skyline Fund.
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AGGREGATE COMPENSATION
NAME OF TRUSTEE FROM THE FUND
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William L. Achenbach(2)................................................................... $ 1,800
William M. Dutton(1)...................................................................... 0
Paul J. Finnegan(2)....................................................................... 1,800
Stephen F. Kendall(2)..................................................................... 1,800
David A. Martin(2)........................................................................ 1,800
</TABLE>
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(1) Indicates an "interested person" of the Fund, as defined in the 1940 Act,
during the fiscal year ended December 31, 1995.
(2) Each of Messrs. Achenbach, Finnegan, Kendall and Martin became a trustee on
August 31, 1995. Each member of the board who is not an "interested person"
of the Fund receives an annual retainer of $3,000 from each of the
Portfolios and a fee of $400 for each meeting of the board of trustees (or
any committee thereof) attended and are reimbursed for all out-of-pocket
expenses relating to attendance at such meetings.
INVESTMENT ADVISORY SERVICES
Skyline Asset Management, L.P. (the "Adviser") provides investment advisory
and administrative services to the Fund for the Portfolios pursuant to
Investment Advisory Agreements dated August 31, 1995 (the "Agreements"). The
Adviser is a Delaware limited partnership, the general partner of which is
Affiliated Managers Group, Inc. ("AMG") and the limited partners of which are
corporations wholly owned by Messrs. Dutton, Kailin, Lutz and Maloney,
respectively.
AMG is a Boston-based private holding company that makes equity investments
in investment management firms in which management personnel retain a
significant interest in the future of the business. AMG is a Delaware
corporation which has its offices at One International Place, Boston, MA 02110.
AMG may be deemed to have as its parent, Advent VII, L.P., a Delaware limited
partnership, because Advent VII, L.P. owns greater than fifty percent of the
voting stock of AMG. Advent VII, L.P. may be deemed to have, as its parent, its
sole general partner - TA Associates VII, L.P., which is a Delaware limited
partnership, and which in turn may be deemed to have, as its parent, its sole
general partner - TA Associates, Inc., a Delaware corporation. The address of
each of Advent VII, L.P., TA Associates VII, L.P. and TA Associates, Inc., is
c/o TA Associates, Inc., High Street Tower, Suite 2500, 125 High Street, Boston,
MA 02110.
Under the Agreements, the Adviser bears all ordinary costs and expenses
attendant to operating the Portfolios except the advisory fees, fees paid to
non-interested trustees, organization and initial offering expenses, interest
expenses, taxes, portfolio transaction costs, and any extraordinary costs or
expenses such as legal, accounting, or other costs or expenses not incurred in
the course of the Fund's ongoing operation. The initial offering and
organization expenses of $22,241 for Special Equities II were advanced to the
Fund by Mesirow Asset Management, Inc. and Special Equities II is reimbursing
Mesirow Asset Management, Inc. for such expenses in equal installments without
interest over 20 calendar quarters. Reimbursement by Special Equities Portfolio
of organizational expenses advanced by the Mesirow Asset Management, Inc. has
been completed.
Expenses borne by Skyline Fund pursuant to the Agreements, as described
above, that are attributable to a particular Portfolio are charged to that
Portfolio. Other expenses of Skyline Fund are allocated among the Portfolios and
the other series of Skyline Fund on a reasonable basis as determined by Skyline
Fund's board of trustees.
9
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For its management and advisory services, for providing shareholder and
investor servicing, and for the assumption of the Portfolios' ordinary operating
expenses, the Adviser is paid a monthly comprehensive fee from each Portfolio
based on each Portfolio's average daily net assets. Under the Agreements, each
Portfolio pays the Adviser a fee at the annual rate of 1.50% of the first $200
million of its average daily net assets, 1.45% of the next $200 million, 1.40%
of the next $200 million, and 1.35% of any excess over $600 million.
The Adviser has agreed that it will reimburse each Portfolio to the extent
that, in any fiscal year, the aggregate expenses of the Portfolio, including the
advisory fee but excluding extraordinary costs or expenses such as legal,
accounting, or other costs or expenses not incurred in the normal course of
Skyline Fund's ongoing operation, exceed an annual rate of 1.75% of the average
daily net asset value of Special Equities Portfolio and 2.00% of the average
daily net assets of Special Equities II. Reimbursement, if any, is made monthly.
Special Equities Portfolio paid comprehensive management fees to the Adviser
and to the Fund's prior investment adviser totaling $2,890,146, $3,253,041, and
$3,168,446 in the years ended December 31, 1995, 1994, and 1993, respectively.
Special Equities II paid comprehensive management fees to the Adviser and to the
Fund's prior investment adviser totaling $1,407,252 and $1,151,209 in the years
ended December 31, 1995 and 1994, respectively, and $584,271 in the period
ending December 31, 1993.
The Agreements provide that the Adviser shall not be liable for any loss
suffered by Skyline Fund or its shareholders as a consequence of any act of
omission in connection with investment advisory or portfolio services under the
Agreements, except by reason of willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard by the Adviser of its obligations and duties under the
Agreements.
The Agreements may be continued from year to year only so long as the
continuance of each is approved annually (a) by the vote of a majority of the
trustees of Skyline Fund who are not "interested persons" of Skyline Fund or the
Adviser cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the board of trustees of Skyline Fund or by the vote of a
majority (as defined in the 1940 Act) of the outstanding shares of that
Portfolio. The Agreements are terminable with respect to a Portfolio without
penalty, on 60 days' notice, by the trustees of Skyline Fund or by vote of a
majority of the outstanding shares of that Portfolio, or, on not less than 90
days' notice, by the Adviser. Each of the Agreements automatically terminates in
the event of its assignment (as defined in the 1940 Act).
The Adviser specializes in investing in small-cap and mid-cap companies.
Each Portfolio has a portfolio manager who works with a team of the Adviser's
investment professionals and analysts. The portfolio manager for Special
Equities Portfolio is William M. Dutton, President of Skyline Fund. His team for
Special Equities Portfolio includes Kenneth S. Kailin, Executive Vice President
of Skyline Fund. Mr. Kailin is portfolio manager for Special Equities II. His
team for Special Equities II includes Mr. Dutton.
Mr. Dutton is the President and Chief Executive Officer of the Adviser. Mr.
Dutton, who is a certified public accountant, received an undergraduate degree
in English Literature from Princeton University, and has a master's degree in
accounting from the University of Illinois. He joined Mesirow Financial, Inc.,
the former adviser to the Portfolios, as an analyst in 1980 after practicing as
an accountant for one year, and became a portfolio manager in 1984 with Mesirow
Asset Management, Inc. In addition to Special Equities Portfolio, Mr. Dutton
manages separately managed accounts. Mr. Dutton was named 1992 Portfolio Manager
of the Year by Morningstar, Inc.
Mr. Kailin is a Principal-Portfolio Manager of the Adviser. He joined
Mesirow Asset Management, Inc., the former adviser to the Portfolios, in 1987 as
a securities analyst and was promoted to vice
10
<PAGE>
president in 1992 and to senior vice president in 1994. Mr. Kailin received his
Bachelor of Science degree in Finance from Indiana University and his M.B.A.
degree from the University of Chicago. In addition, he holds the Chartered
Financial Analyst designation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Portfolio transactions are placed with those securities brokers and dealers
that the Adviser believes will provide the best value in transaction and
research services either in a particular transaction or over a period of time.
Although some transactions involve only brokerage services, many involve
research services as well.
In valuing brokerage services, the Adviser makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission considered alone) and the best execution in a particular
transaction. Best execution connotes not only general competence and reliability
of a broker, but specific expertise and effort of a broker in overcoming the
anticipated difficulties in fulfilling the requirements of particular
transactions, because the problems of execution and the required skills and
effort vary greatly among transactions.
In valuing research services, the Adviser makes a judgment of the usefulness
of the research information provided by a broker to the Adviser in managing the
Portfolios. Although the information, e.g., data or recommendations concerning
particular securities, sometimes relates to the specific transaction placed with
the broker, the research predominately consists of a wide variety of information
concerning companies, industries, investment strategy, and economic, financial
and political conditions and prospects useful to the Adviser in advising Skyline
Fund and other accounts.
The reasonableness of brokerage commissions paid in relation to transaction
and research services received is evaluated by the staff of the Adviser on an
ongoing basis. The general level of brokerage charges and other aspects of the
portfolio transactions for the Portfolios are reviewed periodically by Skyline
Fund's board of trustees.
The Adviser is the principal source of information and advice to the
Portfolios and is responsible for making and initiating the execution of
investment decisions. However, the board of trustees of Skyline Fund recognizes
that it is important for the Adviser, in performing its responsibilities to
Skyline Fund, to continue to receive and evaluate the broad spectrum of economic
and financial information which many securities brokers have customarily
furnished in connection with brokerage transactions, and that in compensating
brokers for their services, it is in the interest of Skyline Fund to take into
account the value of the information received for use in advising Skyline Fund.
Consequently, the commission paid to a broker providing research services may be
greater than the amount of commission another broker would charge for the same
transaction. The extent, if any, to which receipt of such information may reduce
the expenses of the Adviser in providing management services to Skyline Fund is
not determinable. In addition, the board of trustees understands that other
clients of the Adviser also may benefit from the information obtained for
Skyline Fund, in the same manner that Skyline Fund also may benefit from
information obtained by the Adviser in performing services for others.
Transactions of Skyline Fund in the over-the-counter market and the third
market are executed with primary market makers acting as principals except where
it is believed that better prices and execution may be obtained from others.
The Adviser is further authorized to allocate the orders placed by it on
behalf of Skyline Fund to brokers and dealers who provide research services to
Skyline Fund or the Adviser. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and subject to the policy of
seeking the best price and execution as stated above, sales of shares of Skyline
Fund by a broker-dealer may be considered by the Adviser in the selection of
broker-dealers to execute portfolio transactions for Skyline Fund.
11
<PAGE>
Although investment decisions for Skyline Fund are made independently from
those for other investment advisory clients of the Adviser, the same investment
decision may be made for both Skyline Fund and one or more other advisory
clients. If both Skyline Fund and other clients purchase or sell the same class
of securities on the same day, the transactions will be allocated as to amount
and price in a manner considered equitable to each.
The following table shows the aggregate brokerage commissions (excluding the
gross underwriting spread on securities purchased in underwritten offerings)
paid by Special Equities Portfolio and Special Equities II during the periods
indicated, as well as the aggregate commissions paid to persons who were
affiliated persons of Skyline Fund as of the time such payments were made:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------
1995 1994 1993
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Special Equities Portfolio
Aggregate commissions........................ $ 654,303(100%) $ 1,219,421(100%) $ 1,056,108(100%)
Commissions paid to affiliates............... 14,544(0.2%) 37,106(3.0%) 34,681(3.3%)
Special Equities II
Aggregate commissions........................ $ 508,083(100%) $ 431,312(100%) $ 204,400($100%)
Commissions paid to affiliates............... 0 (0.0%) 7,408(1.7%) 15,472(6.4%)
</TABLE>
The brokerage commissions paid by Special Equities Portfolio to affiliated
persons during the periods indicated were paid in connection with transactions
aggregating 4%, 3%, and 8%, respectively, of the aggregate dollar amount of
transactions involving the payment of brokerage commissions by Special Equities
Portfolio. Of the aggregate brokerage commissions paid during fiscal year 1995,
Special Equities Portfolio paid $510,737 to brokers who furnished research
services.
The brokerage commissions paid by Special Equities II to affiliated persons
during fiscal years 1995, 1994, and 1993 were paid in connection with
transactions aggregating 0%, 2%, and 16%, respectively, of the aggregate dollar
amount of transactions involving the payment of brokerage commissions by Special
Equities II. Of the aggregate brokerage commissions paid during fiscal year
1995, Special Equities II paid $486,090 to brokers who furnished research
services.
The Adviser may place brokerage transactions with brokers affiliated with
the Distributor, Funds Distributor, Inc. Commissions paid to such brokers on any
transaction will not exceed those paid by Skyline Fund in similar transactions
to other brokers.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions are discussed in the prospectus under the headings
"Purchasing Shares," "Redeeming Shares," "Shareholder Services," and "Net Asset
Value." All of that information is incorporated herein by reference.
You may purchase (or redeem) shares of the Portfolios through investment
dealers, banks, or other institutions. However, these institutions may charge
for their services or place limitations on the extent to which you may use the
services offered by Skyline Fund. Skyline Fund imposes no charges other than
those described in the Prospectus and this Statement of Additional Information
if shares are purchased (or redeemed) directly from Skyline Fund. The State of
Texas requires that Skyline Fund disclose in this Statement of Additional
Information, as a reminder to such institutions, that registration as a dealer
in Texas is required in order to engage in that activity in Texas. The State of
Nebraska requires that Skyline Fund disclose in this Statement of Additional
Information, as a reminder to such institutions, that although some such
institutions may be exempt from registration under Nebraska law, their agents or
employees may be required to register.
Shares of the Portfolios may be purchased and redeemed through certain
financial services companies. Generally, such purchases and redemptions will be
effected without any transaction fee, provided that under certain circumstances
a broker may charge transaction fees. For accounting,
12
<PAGE>
servicing, and distribution services provided by such a company with respect to
Skyline Fund shares held by accounts at such company, the company will charge a
fee of up to .35% of the annual average value of those accounts, all of which
fee is paid by the Adviser.
NET ASSET VALUE. The net asset value of the shares of each Portfolio of
Skyline Fund is determined as of the close of regular session trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., Chicago time) each day the
NYSE is open for trading. The net asset value per share of each Portfolio is
determined by dividing the value of all its securities and other assets, less
its liabilities, by the number of shares of the Portfolio outstanding.
Investments are stated at current value. Securities listed or admitted to
trading on a national securities exchange or the Nasdaq National Market are
valued at the last sales price or, if there has been no sale that day, at the
most recent bid price. Other securities traded over-the-counter are valued at
the last reported bid price. Money market instruments with sixty days or less
remaining from the valuation date until maturity are valued on an amortized cost
basis. Securities or other assets for which market quotations are not readily
available will be valued at a fair value as determined in good faith by or under
the direction of Skyline Fund's board of trustees.
The NYSE is currently closed on weekends and on the following holidays: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
REDEMPTION IN KIND. With respect to each Portfolio, Skyline Fund intends to
pay all redemptions in cash and is obligated to redeem shares solely in cash up
to the lesser of $250,000 or one percent of the net assets of the Portfolio
during any 90-day period for any one shareholder. However, redemptions in excess
of such limit may be paid wholly or partly by a distribution in kind of readily
marketable securities. If redemptions are made in kind, the redeeming
shareholders might incur brokerage fees in selling the securities received in
the redemptions.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders having shares of a Portfolio with a minimum
value of $5,000. The Withdrawal Plan provides for monthly or quarterly checks in
any amount not less than $100 (which amount is not necessarily recommended).
There are no separate charges to shareholders under the Withdrawal Plan.
Withdrawals are not dividends and to the extent that the amount of the
checks received under the Withdrawal Plan exceeds the amount of dividends or
capital gains distributions credited to the shareholder's account, the payment
will constitute a depletion of the principal in the shareholder's account.
Withdrawals made concurrently with purchases of additional shares may be
inadvisable because of tax consequences. A Withdrawal Plan may be terminated at
any time upon written notice by the shareholder or Skyline Fund.
TAXES
Each Portfolio is a separate entity for purposes of determining federal tax
treatment. Skyline Fund intends for each Portfolio to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
and thus not be subject to federal income taxes on amounts which it distributes
to shareholders.
GENERAL INFORMATION
CUSTODIAN. Firstar Trust Company ("Firstar"), P.O. Box 701, Milwaukee,
Wisconsin 53201, acts as Custodian of the securities and other assets of Skyline
Fund. As Custodian, Firstar is responsible for, among other things, safeguarding
and controlling Skyline Fund's cash and securities, handling
13
<PAGE>
the receipt and delivery of securities, and collecting interest and dividends on
Skyline Fund's investments. Firstar also performs portfolio accounting services
for the Portfolios. Firstar is not an affiliate of the Adviser or its
affiliates.
AUDITORS. Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago,
Illinois 60606 serves as Skyline Fund's independent auditors, providing services
including (i) audit of the annual financial statements, (ii) assistance and
consultation in connection with Securities and Exchange Commission filings, and
(iii) review of the annual income tax returns filed on behalf of each Portfolio.
DISTRIBUTOR. The shares of each Portfolio are offered for sale on a
continuous basis through Funds Distributor, Inc. ("Distributor") without any
sales commissions or charges to the Portfolios or to their shareholders. The
Chairman of the Distributor, and Chairman and Chief Executive Officer and the
majority shareholder of its parent corporation, Boston Institutional Group,
Inc., is Mr. William J. Nutt, the Chairman and Chief Executive Officer of AMG.
The Distributor acts pursuant to a written Distribution Agreement with Skyline
Fund which continues from year to year, provided such continuance is approved
annually (i) by a majority of the trustees or by a majority of the outstanding
voting securities of the affected Portfolio and (ii) by a majority of the
trustees who are not parties to the Agreement or interested persons of any such
party. The Adviser pays, as a part of its agreement to pay all of the ordinary
operating expenses of the Portfolios, all expenses in connection with
registration of shares of the Portfolios with the Securities and Exchange
Commission and fees in connection with registration of shares under the various
state blue sky laws and assumes the cost of preparation of prospectuses and
other expenses. The Adviser bears all sales and promotional expenses from its
own resources.
As agent, the Distributor offers shares of each Portfolio to investors in
states where the shares are qualified for sale, at net asset value, without
sales commissions or other sales load. The Distributor offers the Portfolios'
shares only on a best-efforts basis.
The Distributor or another broker affiliated with the Distributor may
receive brokerage commissions on purchases and sales of portfolio securities by
the Portfolios. Those amounts, if any, are described under "Portfolio
Transactions and Brokerage."
The Distributor is a selling agent for two series of Portico Funds, Inc. --
Money Market Fund and U.S. Government Money Market Fund. Those funds are the
money market funds for which shareholders may exchange their shares of the
Portfolios through the exchange privilege described in the Prospectus.
FINANCIAL STATEMENTS
Copies of the 1995 annual reports of Special Equities Portfolio and Special
Equities II accompany this Statement of Additional Information. Each report
contains financial statements, notes thereto, supplementary information entitled
"Financial Highlights" and a report of independent auditors, all of which (but
no other part of the reports) is incorporated herein by reference.
A copy of Skyline Fund's Prospectus for Special Equities Portfolio and
Special Equities II and additional copies of the annual report for Special
Equities Portfolio and for Special Equities II may be obtained by writing to the
address shown on the cover page of this Statement of Additional Information, or
by telephoning one of the numbers shown on the cover page.
14
<PAGE>
[Logo]
SKYLINE FUND
SPECIAL EQUITIES PORTFOLIO
ANNUAL REPORT
December 31, 1995
[Logo]
SKYLINE FUND
311 South Wacker Drive
Suite 4500
Chicago, IL 60606
800-458-5222
<PAGE>
2
<PAGE>
SKYLINE FUND SPECIAL EQUITIES PORTFOLIO
DEAR SHAREHOLDER:
Skyline Special Equities Portfolio showed a gain of 0.5% in the fourth quarter.
For the full year, the Portfolio showed an increase of 13.8%. At year-end, a
distribution of $1.00 per share was made to shareholders, comprised of $0.91 of
long-term capital gain and $0.09 of short-term capital gain. The net asset value
closed the year at $16.79 per share.
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY(1)
SPECIAL EQUITIES RUSSELL 2000 S&P 500
-------------------------------------------------------------------
<S> <C> <C> <C>
4th Quarter 0.5% 2.2% 5.9%
1 Year 13.8% 28.4% 37.5%
5 Year 23.7% 21.0% 16.6%
Since Inception(2) 15.6% 10.0% 12.6%
</TABLE>
SHEET 1
<TABLE>
<CAPTION>
INITIAL
INVESTMENT 1987 1988 1989 1990 1991 1992 1993
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPECIAL EQUITIES $ 10,000 $ 8,314 $ 10,787 $ 13,377 $ 12,135 $ 17,885 $ 25,470 $ 31,289
RUSSELL 2000 $ 10,000 $ 7,567 $ 9,540 $ 10,985 $ 8,842 $ 12,913 $ 15,291 $ 18,181
S&P 500 $ 10,000 $ 8,795 $ 10,246 $ 13,468 $ 13,035 $ 17,016 $ 18,323 $ 20,155
</TABLE>
<TABLE>
<CAPTION>
1994 1995
------------------------
<S> <C> <C>
SPECIAL EQUITIES $ 30,929 $ 35,206
RUSSELL 2000 $ 17,851 $ 22,932
S&P 500 $ 20,421 $ 28,083
</TABLE>
NOTE: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SEE "NOTES TO
PERFORMANCE" FOLLOWING THIS LETTER.
ANNUAL REPORT - DECEMBER 31, 1995
3
<PAGE>
While it would be nice in most years to make nearly 14%, it feels very
disappointing in 1995 because so many areas of the stock market showed much
higher returns during this period. It was a period when large company stocks
performed better than small company stocks and growth stocks performed better
than value stocks. Since we focus on small company value-oriented stocks, we
were investing in the area that showed the least dynamic return in 1995. Though
the year was a disappointment, the Portfolios long-term record remains strong.
In fact, this was the first year that Skyline Special Equities Portfolio
underperformed the Russell 2000 Index. The Portfolio has provided an annualized
return of nearly 16% since inception well above the 10% annualized return of the
Russell 2000 and the roughly 13% return of the S&P 500.
MARKET REVIEW
The fourth quarter continued many of the same trends that had been in place for
the first nine months. Large company stocks showed the best returns, with the
S&P 500 Index far outpacing the Russell 2000 Index. Out of the major sectors in
the small company area, health care and financial stocks provided the best
results. These sectors had been strong earlier in the year, and each ended the
year with approximately a 40% return. Technology, which had been the leader all
year, showed flat results in the final quarter but still ended the year with
nearly a 50% return. The weak groups in the quarter were the consumer and auto
and transportation areas, each showing negative results in the fourth quarter.
These groups ended the year with returns under 10%.
For the full year, the stock market was driven higher by a combination of rising
corporate earnings and declining interest rates. Large companies showed the best
earnings growth during the year, and consequently, showed the best stock market
performance. Their superior financial performance may have been the result of
significant overseas operations. A combination of better growth outside the
United States and a declining U.S. currency may have helped large multinational
companies in 1995. While small companies also showed earnings gains, they felt
the impact of a slowing domestic economy more keenly than large companies. This
slowdown in the domestic economy brought interest rates lower which, in turn,
sent P/E multiples higher in the stock market.
The slowdown in the U.S. economy had a major influence on the performance of
various stock market groups. The best performing areas were those that are less
economically sensitive. As mentioned above, health care and financial stocks
each achieved approximately 40% returns for the year. On the other end of the
spectrum, many economically sensitive groups showed relatively weak returns.
Small cap consumer stocks rose less than 10% for the year, as many retailers and
consumer products companies struggled. Intense competitive pressures, along with
less than robust demand, have hurt financial results at consumer companies.
Other areas more closely tied to the economy also suffered. Groups such as
automotive, trucking, building products, steel, and machinery showed well below
average returns.
The great rise in technology stocks was the big story of 1995. As mentioned
above, small cap technology stocks rose approximately 50% in 1995 due to
terrific demand for technology products. This performance enabled mutual fund
managers to show huge gains for the year if they had packed their portfolios
with technology stocks.
LARGEST PORTFOLIO WEIGHTINGS
INSURANCE 15.0%
HEALTH CARE 10.9%
RETAIL 9.0%
TECHNOLOGY 8.0%
ENERGY RELATED 6.4%
ANNUAL REPORT - DECEMBER 31, 1995
4
<PAGE>
However, it appears at the time of this writing that the technology boom in the
stock market is ending. The fourth quarter results in this sector were not good,
and the new year is starting off weak. It is our opinion that the technology
boom we saw in 1995 is a once-a-decade phenomenon, and consequently, not likely
to be repeated for a while.
This was the second year in the past five years that the stock market saw an
"investment mania." In 1991 health care stocks skyrocketed, and then we
witnessed the boom in technology stocks in 1995. These events greatly
benefited "momentum investors"--growth stock managers who invest in sectors of
the market that have particularly strong earnings momentum.
In contrast, the past year has been difficult for investors with a
"contrarian" investment style. As an investor in low P/E stocks, we have a
"contrarian" component to our investment strategy. Many of our investments are
in companies where investor expectations are low due to a perception that the
company or industry may not show strong growth. Historically, we have been well
rewarded by this approach, as these companies perform better than expected.
However, in 1995, the consensus was right and contrarian investing did not
work. "In favor" stocks climbed throughout the year, while "out-of-favor"
stocks declined.
TOP TEN HOLDINGS
PERCENTAGE OF
CORPORATE NAME BUSINESS DESCRIPTION TOTAL NET ASSETS
- --------------------------------------------------------------------------------
PennCorp Financial Group, Inc. Insurance provider 2.3%
- --------------------------------------------------------------------------------
Allied Group, Inc. Auto and homeowners
insurance provider 2.1%
- --------------------------------------------------------------------------------
Integon Corp. High risk auto insurer 1.9%
- --------------------------------------------------------------------------------
Reinsurance Group of Amer. Life reinsurance provider 1.8%
- --------------------------------------------------------------------------------
American Heritage Life Life and health insurance
company 1.8%
- --------------------------------------------------------------------------------
North Fork Bancorp. Inc. Long Island, New York bank 1.7%
- --------------------------------------------------------------------------------
Libbey Inc. Glass tableware producer 1.6%
- --------------------------------------------------------------------------------
Pier 1 Imports, Inc. Specialty retailer 1.6%
- --------------------------------------------------------------------------------
Ameron, Inc. Construction products
manufacturer 1.6%
- --------------------------------------------------------------------------------
Furon Company Industrial products provider 1.6%
- --------------------------------------------------------------------------------
PORTFOLIO REVIEW
Our fourth quarter return of 0.5% was slightly below the Russell 2000 return due
to disappointing results in consumer and certain economically sensitive stocks.
As earnings results were released in the fourth quarter, it became clear that
the economy was softening and many small companies were struggling to increase
earnings.
For the full year, our performance was held back primarily by our sector
weightings. For most of the year, we had an overweighting in economically
sensitive groups and an underweighting in technology and health care.
Economically sensitive groups underperformed dramatically during the year
because companies in this area found it increasingly difficult to produce gains
in earnings. Investors abandoned such companies and embraced companies in
non-cyclical areas which presumably could grow their earnings in a slowing
economy.
The major area that helped us during the year was the financial area. We had a
large weighting in financial stocks throughout the year, with the biggest
position in insurance stocks. Many of these stocks showed substantial gains, led
by PennCorp Financial Group, a life and health
ANNUAL REPORT - DECEMBER 31, 1995
5
<PAGE>
care insurer that showed a gain of over 100% for the year.
Over the past few months, we have made two significant changes to the Portfolio.
First, we have reduced our exposure to economically sensitive groups and
increased our weightings in stocks that are less dependent on economic growth.
We still own plenty of companies that will benefit when the economy picks up,
but we have reduced our risk in the event that the economy continues to soften
or goes into a recession. Second, we have recently reduced the number of stocks
in the Portfolio, investing a greater percentage of our assets in those stocks
where we have the greatest confidence.
OUTLOOK
As is often the case, the outlook for the stock market is somewhat mixed. On the
positive side, the Federal Reserve Board is lowering interest rates and appears
concerned about improving economic activity. And while valuation levels are high
by historical standards, they are not high relative to current interest rate
levels. On the negative side, with earnings at extremely high levels and
interest rates so low, it may be that the stock market is near peak levels.
We continue to believe our Portfolio represents good value in an environment
where many stocks seem richly valued. Our stocks trade at a sharp valuation
discount to the market and could move sharply higher in the right type of
economic climate. We believe that an improvement in economic activity would be
the best thing for our Portfolio.
On a closing note, we want to remind you that, effective January 2, 1996,
Skyline Special Equities Portfolio permits additional investments from existing
shareholders. The Portfolio had been closed to new investments, other than in
retirement plans, for nearly three years because we believe that it is
advantageous to keep the asset base relatively small. However, because we feel
the asset base is now at a manageable level, we can now accommodate new
investments. We hope you will consider making an additional investment in the
Portfolio.
Sincerely,
William M. Dutton
Portfolio Manager
January 22, 1996
NOTES TO PERFORMANCE
(1) The method of calculating the average annual total return is described in
the Funds prospectus. Of course, past performance is no guarantee of future
results. The principal value and return on your investment will fluctuate
and on redemption may be worth more or less than your original cost. We have
included two unmanaged, market value weighted stock market indexes for
comparison purposes. The Russell 2000 Index includes small company stocks
such as those in Special Equities Portfolio. The S&P 500 Index, a widely
quoted stock market index, includes 500 of the largest companies publicly
traded in America. All figures take into account reinvested dividends.
(2) Return is calculated from the Portfolio's inception on April 23, 1987.
ANNUAL REPORT - DECEMBER 31, 1995
6
<PAGE>
PORTFOLIO HOLDINGS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number
of Shares Market Value
<S> <C> <C>
COMMON STOCKS
APPAREL - 1.5%
Donnkenny, Inc.(a) 146,000 $ 2,646,250
AUTO PARTS - 2.0%
APS Holding Corp.(a) 12,400 279,000
Masland Corp. 146,100 2,045,400
SPX Corp. 76,200 1,209,675
-----------
3,534,075
CAPITAL GOODS - 1.3%
Alamo Group, Inc. 123,500 2,223,000
CHEMICALS - 0.8%
Univar Corporation 127,800 1,389,825
CONSTRUCTION/INFRASTRUCTURE - 1.6%
Ameron, Inc. 73,800 2,776,725
CONSUMER PRODUCTS - 3.4%
American Safety Razor Co.(a) 95,700 753,638
Carmike Cinemas, Inc.,
Class A(a) 102,700 2,310,750
Libbey Inc. 128,100 2,882,250
-----------
5,946,638
ENERGY RELATED - 6.4%
Aquila Gas Pipeline Corp. 185,700 2,390,888
Belden & Blake Corp.(a) 60,400 1,057,000
Daniel Industries, Inc. 130,800 1,863,900
Global Industries, Ltd.(a) 71,800 2,154,000
Pride Petroleum Services, Inc.(a) 181,200 1,925,250
Zeigler Coal Holding Co. 134,300 1,863,412
-----------
11,254,450
FINANCIAL RELATED - 24.1%
BANKS/THRIFTS - 5.5%
First Commerce Corp. 74,800 $ 2,393,600
GreenPoint Financial Corp. 75,600 2,022,300
North Fork Bancorp. Inc. 115,200 2,908,800
Webster Financial Corp. 79,200 2,336,400
-----------
9,661,100
FINANCIAL SERVICES - 3.6%
AMRESCO, Inc. 135,100 1,722,525
Legg Mason, Inc. 79,000 2,172,500
Raymond James Financial, Inc. 112,500 2,376,563
-----------
6,271,588
INSURANCE - 15.0%
Allied Group, Inc. 99,800 3,592,800
ALLIED Life Financial Corp. 109,900 1,991,938
American Heritage Life
Investment Corp. 136,900 3,131,588
AmVestors Financial Corp. 144,600 1,699,050
Executive Risk Inc. 81,200 2,354,800
Fremont General Corp. 61,500 2,260,124
Integon Corp. 161,600 3,333,000
PennCorp Financial Group, Inc. 136,700 4,015,562
Reinsurance Group of
America, Inc. 87,000 3,186,375
Selective Insurance Group, Inc. 20,200 717,100
-----------
26,282,337
-----------
TOTAL FINANCIAL RELATED 42,215,025
-----------
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1995
<PAGE>
<TABLE>
<CAPTION>
Number
of Shares Market Value
<S> <C> <C>
HEALTH CARE - 10.9%
Advanced Technology
Laboratories, Inc.(a) 109,400 $ 2,680,300
Allied Healthcare Products, Inc. 99,800 1,596,800
Community Psychiatric
Centers(a) 175,300 2,147,425
GranCare, Inc.(a) 141,500 2,051,750
Maxicare Health Plans, Inc.(a) 91,700 2,464,438
Maxxim Medical, Inc.(a) 113,700 1,904,475
RightCHOICE Managed
Care, Inc.(a) 104,400 1,357,200
Sierra Health Services, Inc.(a) 84,100 2,670,175
SpaceLabs Medical, Inc.(a) 75,000 2,156,250
-----------
19,028,813
HOMEBUILDING/BUILDING PRODUCTS - 2.5%
Interface, Inc. 129,600 2,203,200
Redman Industries, Inc.(a) 63,700 2,149,875
-----------
4,353,075
INDUSTRIAL PRODUCTS - 5.5%
Barnes Group Inc. 44,900 1,616,400
Bearings Inc. 80,400 2,351,700
Belden Inc. 86,200 2,219,650
Furon Company 138,700 2,774,000
SPS Technologies, Inc.(a) 13,680 730,170
-----------
9,691,920
METAL FABRICATION - 4.4%
CasTech Aluminum
Group Inc.(a) 127,800 1,725,300
Chase Brass Industries, Inc.(a) 173,900 2,195,488
Easco, Inc. 167,900 1,448,138
Sinter Metals, Inc.(a) 183,800 2,274,524
-----------
7,643,450
PACKAGING - 1.9%
Mail-Well, Inc.(a) 134,200 $ 1,643,950
Shorewood Packaging Corp.(a) 112,600 1,604,550
-----------
3,248,500
RESTAURANTS - 2.4%
Buffets, Inc.(a) 136,300 1,874,125
IHOP Corp.(a) 88,800 2,308,800
-----------
4,182,925
RETAIL - 9.0%
Aaron Rents, Inc., Class B 140,800 2,534,400
Cole National Corp.(a) 182,600 2,533,575
Pier 1 Imports, Inc. 248,915 2,831,407
Rex Stores Corp. 111,000 1,970,250
Rhodes, Inc.(a) 214,500 2,091,375
Stein Mart, Inc.(a) 168,800 1,856,800
Tractor Supply Company(a) 99,100 1,957,225
-----------
15,775,032
STEEL/IRON - 3.0%
Steel of West Virginia Inc.(a) 181,800 1,681,650
UCAR International Inc. 68,800 2,322,000
WCI Steel, Inc.(a) 279,100 1,221,062
-----------
5,224,712
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1995
<PAGE>
<TABLE>
<CAPTION>
Number
of Shares Market Value
<S> <C> <C>
TECHNOLOGY - 8.0%
Black Box Corp.(a) 92,100 $ 1,508,138
Dallas Semiconductor Corp. 85,900 1,782,425
Integrated Circuit Systems Inc.(a) 111,700 1,382,288
Keane, Inc.(a) 98,300 2,174,888
Marshall Industries(a) 59,800 1,921,075
Pioneer Standard
Electronics, Inc. 50,850 673,762
Primark Corp.(a) 91,300 2,739,000
Tracor, Inc.(a) 129,200 1,873,400
------------
14,054,976
TEMPORARY SERVICES - 2.2%
CDI Corp.(a) 97,400 1,753,200
Interim Services Inc.(a) 61,600 2,140,600
------------
3,893,800
TEXTILES - 0.9%
Galey & Lord, Inc.(a) 149,300 1,604,975
TRANSPORTATION/DELIVERY SERVICES - 3.5%
Interpool, Inc. 118,000 2,109,250
Landstar System Inc. 75,100 2,008,925
United TransNet, Inc.(a) 123,200 1,894,200
------------
6,012,375
------------
TOTAL COMMON STOCKS - 95.3%
(Cost: $146,604,315) 166,700,541
MONEY MARKET INSTRUMENTS (b)
Yield 5.32% to 5.53%
due March 1996 to August 1996
General Mills, Inc. $ 3,090,000
Sara Lee Corp. 1,019,014
Warner-Lambert Co. 3,470,000
Wisconsin Electric Power Co. 1,113,000
------------
TOTAL MONEY MARKET
INSTRUMENTS - 5.0%
(Cost: $8,692,014) 8,692,014
------------
TOTAL INVESTMENTS - 100.3%
(Cost: $155,296,329) 175,392,555
OTHER LIABILITIES LESS ASSETS - (0.3%) (493,083)
NET ASSETS - 100.0% $174,899,472
------------
------------
</TABLE>
(a) Non-income producing security.
(b) Variable rate securities. Interest rates are reset every seven days.
Rates shown are those in effect on December 31, 1995.
Based on cost of investments for federal income tax purposes of $155,296,329 on
December 31, 1995, net unrealized appreciation was $20,096,226. consisting of
gross unrealized appreciation of $27,579,880 and gross unrealized depreciation
of $7,483,654.
See accompanying notes to financial statements.
ANNUAL REPORT - DECEMBER 31, 1995
9
<PAGE>
STATEMENT OF
ASSETS & LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value
(Cost: $155,296,329) $175,392,555
Receivable for:
Securities sold $2,355,495
Dividends and interest 136,746
Shares sold 46,946 2,539,187
----------- -----------
Total assets 177,931,742
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $138,040
Shares redeemed 2,667,711
Advisory fee 225,492
Trustees' fee 1,027 3,032,270
----------- -----------
Net assets applicable to
shares outstanding $174,899,472
-----------
-----------
Shares outstanding--no par value
(unlimited number of shares authorized) 10,418,330
-----------
-----------
PRICING OF SHARES
Net asset value, offering price, and
redemption price per share $16.79
-----------
-----------
ANALYSIS OF NET ASSETS
Excess of amounts received from issuance
of shares over amounts paid on
redemption of shares on account
of capital $152,951,201
Undistributed net realized gain on sales
of investments 1,852,045
Unrealized appreciation of investments 20,096,226
-----------
Net assets applicable to
shares outstanding $174,899,472
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Investment income:
Dividends $ 1,588,018
Interest 640,784
-----------
Total investment income 2,228,802
Expenses:
Investment advisory fee 2,890,146
Fees to unaffiliated trustees 13,337
-----------
Total expenses 2,903,483
-----------
Net investment loss (674,681)
Net realized and unrealized gain
on investments:
Net realized gain on sales
of investments 12,277,032
Net change in unrealized
appreciation 12,856,224
-----------
Net realized and unrealized gain
on investments 25,133,256
-----------
Net increase in net assets
resulting from operations $24,458,575
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
ANNUAL REPORT - DECEMBER 31, 1995
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
From operations:
Net investment loss $ (674,681) $ (1,062,234)
Net realized gain on sales of investments 12,277,032 23,878,878
Net change in unrealized appreciation 12,856,224 (25,670,258)
------------- -------------
Net increase (decrease) in net assets
resulting from operations 24,458,575 (2,853,614)
Distributions to shareholders from
net realized gains (9,995,455) (22,571,495)
From share transactions:
Proceeds from shares sold 11,349,598 20,011,374
Reinvestment of capital gain
distribution 9,858,098 22,234,116
Payments for shares redeemed (63,542,803) (42,060,233)
------------- -------------
Net (decrease) increase in net assets
resulting from share transactions (42,335,107) 185,257
------------- -------------
Total decrease in net assets (27,871,987) (25,239,852)
Net assets at beginning of year 202,771,459 228,011,311
------------- -------------
Net assets at end of year $174,899,472 $202,771,459
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
ANNUAL REPORT - DECEMBER 31, 1995
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 15.64 $ 17.83 $ 17.12 $ 12.67 $ 10.32
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment (loss) income (0.06) (0.08) (0.09) (0.01) 0.01
Net realized and unrealized
gain (loss) on investments 2.21 (0.18) 3.94 5.37 4.74
--------- --------- --------- --------- ---------
Total from Investment Operations 2.15 (0.26) 3.85 5.36 4.75
--------- --------- --------- --------- ---------
Less Distributions
Dividends from net
investment income -- -- -- -- (0.01)
Dividends from net realized
gains on investments (1.00) (1.93) (3.14) (0.91) (2.39)
--------- --------- --------- --------- ---------
Total Distributions (1.00) (1.93) (3.14) (0.91) (2.40)
--------- --------- --------- --------- ---------
Net asset value at end of year $ 16.79 $ 15.64 $ 17.83 $ 17.12 $ 12.67
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return 13.83% (1.15%) 22.85% 42.45% 47.28%
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.51% 1.49% 1.48% 1.51% 1.55%
Ratio of net investment (loss) income
to average net assets (0.35%) (0.49%) (0.54%) (0.19%) 0.09%
Portfolio turnover rate 71% 82% 104% 87% 104%
Net assets, end of year
(in thousands) $174,899 $202,771 $228,011 $172,385 $ 37,495
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Note: Total return does not reflect the effect of any sales charges which may
have been previously charged.
See accompany notes to financial statements.
ANNUAL REPORT - DECEMBER 31, 1995
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Skyline Fund is an open-ended, diversified investment management company which
consists of Special Equities Portfolio and Special Equities II. The Portfolios
commenced public offering of their shares as follows: Special Equities Portfolio
on April 23, 1987, and Special Equities II on February 9, 1993. The following
notes relate solely to the accompanying financial statements of Special Equities
Portfolio ("Portfolio").
1
SIGNIFICANT ACCOUNTING POLICIES
- - SECURITY VALUATION - Investments are stated at value. Securities listed or
admitted to trading on any national securities exchange or the Nasdaq National
Market are valued at the last sales price on the principal exchange or market on
which they are traded or listed or, if there has been no sale that day, at the
most recent bid price. Money market instruments having 60 days or less remaining
from the valuation date until maturity are valued on an amortized cost basis.
Securities or other assets for which market quotations are not readily available
are valued at a fair value as determined in good faith by the Fund's board of
trustees.
- - SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis and includes amortization of premium and discount on money
market instruments. Realized gains and losses from security transactions are
reported on an identified cost basis.
- - PORTFOLIO SHARE VALUATION - Portfolio shares are sold and redeemed on a
continuous basis at net asset value. Net asset value per share is determined as
of the close of regular session trading on the New York Stock Exchange (normally
3:00 p.m. Chicago time), each day the Exchange is open for trading. The net
asset value per share is determined by dividing the value of all securities and
other assets, less liabilities, by the number of shares of the Portfolio
outstanding.
- - FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - It is the
Portfolio's policy to comply with the special provisions of the Internal Revenue
Code available to regulated investment companies and, in the manner provided
therein, to distribute all of its taxable income. Such provisions were complied
with and, therefore, no federal income taxes have been accrued.
- - EXPENSES - Expenses arising in connection with a Portfolio are allocated to
that Portfolio. Other Fund expenses, such as trustees' fees, are allocated
between the two Skyline Fund Portfolios.
- - RECLASSIFICATION - The 1995 net investment loss of $674,681 has been offset
against undistributed net realized gains at December 31, 1995.
2
TRANSACTIONS WITH AFFILIATES
Effective August 31, 1995, the Portfolio's Investment Adviser changed from
Mesirow Asset Management, Inc. to Skyline Asset Management, L.P. For the
Adviser's management and advisory services and the assumption of the Portfolio's
ordinary operating expenses, the Portfolio pays a monthly comprehensive fee
based on its average daily net assets at the annual rate of 1.50% of the first
$200 million, 1.45% of the next $200 million, 1.40% of the next $200 million,
and 1.35% of any excess over $600 million. The total advisory fee
ANNUAL REPORT - DECEMBER 31, 1995
13
<PAGE>
charged for the year ended December 31, 1995 was $2,890,146. The Adviser has
agreed to reimburse the Portfolio to the extent that the aggregate annual
expenses of the Portfolio, including the advisory fee and fees to unaffiliated
trustees, but excluding extraordinary costs or expenses such as legal,
accounting, or other costs or expenses not incurred in the normal course of the
Portfolio's ongoing operations, exceed 1.75% of the average daily net assets of
the Portfolio or such lower limit as is prescribed by any state in which the
Portfolio's shares are being offered for sale.
Portfolio brokerage commissions of $14,544 were paid by the Portfolio to Mesirow
Financial, Inc. during the eight-month period ended August 31, 1995, in
connection with the purchase and sale of investment securities. Mesirow
Financial, Inc. is affiliated with Mesirow Asset Management, Inc.
Certain officers and trustees of the Fund are also shareholders, officers,
and/or directors of the Adviser. The Fund makes no direct payments to its
officers or trustees who are affiliated with the Adviser.
For the year ended December 31, 1995, the Portfolio paid fees of $13,337 to its
unaffiliated trustees.
3
SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statement of changes in net assets are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994
-------------------------------------------------------------
<S> <C> <C>
Shares sold 690,848 1,134,958
Shares issued
in reinvestment
of dividends 593,863 1,459,992
----------- -----------
1,284,711 2,594,950
Less shares redeemed (3,828,091) (2,418,477)
----------- -----------
Net (decrease) increase
in shares outstanding (2,543,380) 176,473
----------- -----------
----------- -----------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1995, are as follows:
Cost of purchases $128,339,423
Proceeds from sales 182,397,604
ANNUAL REPORT - DECEMBER 31, 1995
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Skyline Special Equities Portfolio
and the Board of Trustees of Skyline Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Special Equities Portfolio as of
December 31, 1995, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Skyline Special Equities Portfolio at December 31, 1995, the results of its
operations for the year then ended, the changes in its 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.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1996
ANNUAL REPORT - DECEMBER 31, 1995
15
<PAGE>
FEDERAL TAX STATUS OF 1995 DIVIDENDS
Capital gain dividends paid to you, whether received in cash or reinvested in
shares, must be included in your federal income tax return and must be reported
by the Fund to the Internal Revenue Service in accordance with U.S. Treasury
Department regulations. Short-term capital gain dividends paid to you are
taxable as ordinary income. Long-term capital gain dividends paid to you are
taxable as long-term capital gain income regardless of how long you have held
Fund shares.
REPORT FOR THE YEAR ENDED DECEMBER 31, 1995
This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Portfolio. The
report is not authorized for distribution to prospective investors in the
Portfolio unless it is accompanied or preceded by a currently effective
prospectus of the Fund.
Funds Distributor, Inc. is the principal underwriter of Skyline Fund.
ANNUAL REPORT - DECEMBER 31, 1995
16
<PAGE>
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ANNUAL REPORT - DECEMBER 31, 1995
17
<PAGE>
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ANNUAL REPORT - DECEMBER 31, 1995
18
<PAGE>
19
<PAGE>
[LOGO]
SKYLINE FUND SPECIAL EQUITIES PORTFOLIO
ANNUAL REPORT -- DECEMBER 31, 1995
20
<PAGE>
[LOGO]
SKYLINE FUND
SPECIAL EQUITIES II
ANNUAL REPORT
DECEMBER 31, 1995
[LOGO]
SKYLINE FUND
311 South Wacker Drive
Suite 4500
Chicago, IL 60606
800-458-5222
1
<PAGE>
2
<PAGE>
[LOGO]
SKYLINE FUND SPECIAL EQUITIES II
DEAR SHAREHOLDER:
For the 12-month period ending December 31, 1995, Skyline Special Equities II
returned 21.0%. Two benchmarks of smaller company performance, the Russell 2000
Index and the S&P MidCap 400 Index, returned 28.4% and 31.0%, respectively.
In the fourth quarter, the Portfolio reported a 1.4% total return. This return
compares to 1.4% for the S&P MidCap 400 Index and 2.2% for the Russell 2000
Index. The net asset value for the Portfolio was $11.29 per share at year-end
after distributing $0.97 per share to our shareholders. The average annual total
return on an investment in Special Equities II for the period February 9, 1993
(inception) through December 31, 1995, was 9.8%.(1)
ANNUAL REVIEW
From a historical stock market perspective, the Portfolio's 1995 performance of
21% can be viewed as a very healthy return. On average, the S&P 500 Index, a
large company stock market composite, has returned 11% annually since 1965.(1)
However, 1995 was not a typical year for the stock market or our value-oriented
investment style. Primarily due to weak first half
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
PERCENTAGE OF
CORPORATE NAME BUSINESS DESCRIPTION TOTAL NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C> <C>
First Brands Corp. Consumer products firm 3.0%
- ------------------------------------------------------------------------------------
Jones Apparel Group, Inc. Apparel producer 3.0%
- ------------------------------------------------------------------------------------
AGCO Corp. Agricultural equipment manufacturer 3.0%
- ------------------------------------------------------------------------------------
UCAR International Inc. Steel materials supplier 2.8%
- ------------------------------------------------------------------------------------
Pier 1 Imports, Inc. Specialty retailer 2.7%
- ------------------------------------------------------------------------------------
Sierra Health Services, Inc. Health maintenance organization 2.7%
- ------------------------------------------------------------------------------------
Sybron International Corp. Dental/Laboratory equipment provider 2.7%
- ------------------------------------------------------------------------------------
Dial Corp. (The) Consumer products producer 2.6%
- ------------------------------------------------------------------------------------
Illinois Central Corp., Class A Railroad operator 2.6%
- ------------------------------------------------------------------------------------
PennCorp Financial Group, Inc. Life & health insurance provider 2.6%
- ------------------------------------------------------------------------------------
</TABLE>
ANNUAL REPORT -- DECEMBER 31, 1995
3
<PAGE>
results, the Portfolio trailed the U.S. stock market in 1995. The Portfolio's
strategy of investing in undervalued smaller companies was simply out of favor
over most of last year.
In 1995, the performance of large U.S. companies was simply incredible. For the
first time, the Dow Jones Industrial Average, a barometer of 30 publicly traded
large company stocks, broke through both the 4000 and the 5000 price levels. The
S&P 500's total return of 37.5% was the best year of performance since 1958.
While the stocks of smaller U.S. companies had good returns, they were well
below the performance of large company stocks in 1995. This large versus small
return differential contributed to the Portfolio's relative underperformance.
In 1995, smaller company investment managers using a growth-oriented investment
style tended to outperform
LARGEST PORTFOLLO WEIGHTINGS
INSURANCE 13.6%
CONSUMER PRODUCTS 10.3%
HEALTH CARE 7.8%
BANKS/THRIFTS 6.6%
ELECTRONIC 5.7%
COMPONENTS
value-oriented managers. This result was primarily due to growth managers' heavy
concentrations in the strong performing technology and health care sectors of
the stock market. The growth investment style places primary importance on the
rate of a firm's profit growth. These managers are willing to pay top dollar for
the fastest growing companies. Value managers, conversely, seek to pay a low
price for expected profit growth. This approach is akin to a bargain hunter
searching for both good quality and a good price. Because Special Equities II
uses a value driven, common sense approach, 1995 performance was weak relative
to the appropriate benchmarks.
The best performing economic sectors for the Russell MidCap Index in 1995
included financial, health care, and technology. The worst performing sectors
included consumer discretionary, producer durables, and materials and
processing. While the Portfolio was helped considerably by an overweighting in
financial stocks in 1995, underweighted positions in technology and health care
hindered the Portfolio's relative performance. The Portfolio was also hurt early
in 1995 by holdings in poor performing medical insurance and consumer retail
stocks.
In general, while being a contrarian investor can be productive in many market
environments, it did not work in 1995. During the year, those sectors selling at
a low stock price relative to current profit levels underperformed, while those
sectors with rapid profit growth and high stock prices surged. This environment
caused our value investment style to be out of favor for most of 1995.
FOURTH QUARTER REVIEW
As previously mentioned, in the fourth quarter, the Portfolio reported a 1.4%
total return. Once again, large company stocks outperformed small company
stocks, with the S&P 500 returning 5.9% in the quarter. As has been the case
almost all year, large companies benefited from strong export markets and
investors ran to safe harbors amidst economic and political concerns.
The best performing market sectors of the Russell MidCap Index in the fourth
quarter included health care, energy, and utilities. The worst performing
sectors included technology, producer durables, and consumer discretionary.
ANNUAL REPORT -- DECEMBER 31, 1995
4
<PAGE>
The most noteworthy factor in terms of general stock market performance during
the fourth quarter was the decline of technology stocks. These stocks had led
the market for over a year, with periods of absolute buying mania on the part of
investors. One of the key reasons for the Portfolio's relative underperformance
in 1995 had been our limited exposure to technology. Due to the weakness of the
technology sector in the fourth quarter, we were more than happy to have limited
exposure to that area during the period.
- ---------------------------------------------------------------------------
COMPARISON OF CHANGE
IN VALUE OF A $10,000
INVESTMENT SINCE INCEPTION
-----------------------------------
Average Annual Total Returns
-----------------------------------
1-Year Since Inception(2)
-----------------------------------
21.0% 9.8%
-----------------------------------
NOTE: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SEE "NOTES TO
PERFORMANCE" FOLLOWING THIS LETTER.
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL INVESTMENT 2/9/93-3/31/93 2 QTR 93 3 QTR 93 4 QTR 93 1 QTR 94 2 QTR 94 3 QTR 94
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPECIAL EQUITIES II $ 10,000 $ 10,060 $ 10,050 $ 10,410 $ 11,008 $ 10,835 $ 10,621 $ 11,284
RUSSELL 2000 $ 10,000 $ 9,976 $ 10,193 $ 11,084 $ 11,375 $ 11,073 $ 10,643 $ 11,381
S&P 400 $ 10,000 $ 10,126 $ 10,362 $ 10,883 $ 11,173 $ 10,750 $ 10,358 $ 11,059
S&P 500 $ 10,000 $ 10,177 $ 10,227 $ 10,490 $ 10,732 $ 10,322 $ 10,362 $ 10,872
</TABLE>
<TABLE>
<CAPTION>
4 QTR 94 1 QTR 95 2 QTR 95 3 QTR 95 4 QTR 95
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SPECIAL EQUITIES II $ 10,841 $ 11,119 $ 11,589 $ 12,926 $ 13,112
RUSSELL 2000 $ 11,168 $ 11,683 $ 12,776 $ 14,040 $ 14,346
S&P 400 $ 10,744 $ 11,624 $ 12,638 $ 13,871 $ 14,109
S&P 500 $ 10,873 $ 11,931 $ 13,070 $ 14,115 $ 14,954
</TABLE>
The Portfolio's return for the final quarter of 1995 was helped by our large
weighting in financial stocks and our holdings in consumer staples, retail, and
health care stocks. The Federal Reserve Board reduced interest rates for the
second time in 1995 during the quarter. This reduction reflected fears of a
slowing economy. The lower rates helped the Portfolio's financial stocks, and
the slow growth environment proved healthy for our consumer staples stocks.
The poor performance of the Portfolio's technology and industrial stocks in the
fourth quarter offset much of the gains by other areas. While we were not
overweighted in technology stocks, our holdings were impacted negatively in the
quarter. In addition, the slowing economy led to underperformance in our
industrial holdings.
At the end of the quarter, the Portfolio was 89% invested in stocks, while 11%
was held in cash and cash equivalents. On December 31, 1995, the Portfolio was
well diversified with 45 stock positions. During the quarter, 17 stocks were
sold from the Portfolio and 15 new positions were added. The majority of the
sales occurred due to stock prices reaching our disciplined sell targets.
OUTLOOK
Presently, the U.S. economy appears to be in relatively good shape, with low
interest rates, low inflation, full employment, and reasonable consumer
confidence levels. However, signs of a slowing economy have developed from a
number of sources such as purchasing managers surveys, auto sales, and machine
tool orders. Most economists agree that the U.S. economy will likely experience
slow growth in 1996. This slowed growth should bring further short-term interest
rate cuts by the Federal Reserve Board.
ANNUAL REPORT -- DECEMBER 31, 1995
5
<PAGE>
After an unusually strong stock market in 1995, many investors are concerned
about 1996. Generally, stock market forecasters see positive stock market
returns for the year. This view is based on a slow but growing economy, a
fiscally responsible government due to election year politics, and a Federal
Reserve Board inclined to lower interest rates if the economy slows too quickly.
Investors, however, should be aware that stocks overall are not cheap based on
historic valuation standards and rate reductions can take a long time to
strengthen the economy.
Low interest rates should continue to help financial services companies and may
spur demand for industrial stocks. These are two important areas for value
investors. The technology stock mania, which led to many growth managers'
spectacular 1995 results, appears to be over. In addition, technology stocks
will face increasingly difficult profit comparisons as 1996 unfolds. For these
reasons, we believe value managers may be able to outperform growth managers
over the next year.
Investors have preferred large company stocks over smaller company stocks for
the past two years. This preference is most likely due to their safety and
global growth prospects. Smaller company stocks, however, have tended to
outperform large company stocks over long periods of time. Generally, smaller
companies are able to react quicker to changing environments and grow faster
than large mature giants. Therefore, we believe as corporate profits slow,
smaller stocks may begin to outperform sometime during the course of 1996. In
the meantime, we will remain dedicated toward providing a well-diversified
portfolio of inexpensive small to midsized companies with good growth
prospects.
Sincerely,
/s/ Kenneth S. Kailin
Kenneth S. Kailin, CFA
Portfolio Manager
January 22, 1996
NOTES TO PERFORMANCE
1 The method of calculating the average annual total return is described in
the Fund's prospectus. Of course, past performance is no guarantee of
future results. The principal value and return on your investment will
fluctuate and on redemption may be worth more or less than your original
cost. We have included three unmanaged stock market indexes for comparison
purposes. The Russell 2000 Index is a portfolio of small company stocks.
The S&P MidCap 400 Index tracks the stock market performance of 400
medium-sized companies. The S&P 500 Index, a widely quoted stock market
index, includes 500 of the largest companies publicly traded in America.
All figures take into account reinvested dividends.
2 Return is calculated from the Portfolio's inception on February 9, 1993.
ANNUAL REPORT -- DECEMBER 31, 1995
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO HOLDINGS
DECEMBER 31, 1995
NUMBER
OF SHARES MARKET VALUE
--------- ---------------
<S> <C> <C>
COMMON STOCKS
APPAREL/TEXTILES -- 3.0%
Jones Apparel Group, Inc.(a) 68,000 $ 2,677,500
AUTO PARTS -- 2.4%
Echlin Inc. 59,600 2,175,400
BANKS/THRIFTS -- 6.6%
Cullen/Frost Bankers, Inc. 36,200 1,810,000
GreenPoint Financial Corp. 76,500 2,046,375
Southern National Corp. 76,925 2,019,281
--------------
5,875,656
BUILDING PRODUCTS -- 3.8%
American Standard Co. 72,300 2,024,400
Interface, Inc. 79,700 1,354,900
--------------
3,379,300
CAPITAL GOODS -- 3.0%
AGCO Corp. 51,900 2,646,900
COMPUTER PRODUCTS AND COMPONENTS -- 3.6%
Gateway 2000, Inc.(a) 64,200 1,572,900
Komag, Inc.(a) 34,800 1,605,150
--------------
3,178,050
CONSUMER PRODUCTS -- 10.3%
Alberto-Culver Co., Class A 74,300 2,266,150
Dial Corp. (The) 79,000 2,340,375
First Brands Corp. 56,600 2,695,575
Hudson Foods, Inc., Class A 110,200 1,900,950
--------------
9,203,050
CONSUMER SERVICES -- 1.5%
Buffets, Inc.(a) 85,300 $ 1,172,875
Royal Caribbean Cruises Ltd. 6,000 132,000
--------------
1,304,875
ELECTRONIC COMPONENTS -- 5.7%
Arrow Electronics, Inc.(a) 43,100 1,858,688
Dallas Semiconductor Corp. 63,300 1,313,475
Marshall Industries(a) 60,800 1,953,200
--------------
5,125,363
ENERGY -- 1.8%
Newfield Exploration Company(a) 59,500 1,606,500
FINANCIAL SERVICES -- 5.4%
Advanta Corporation, Class B 45,400 1,651,425
AMRESCO, Inc. 72,300 921,825
AT&T Capital Corp. 18,800 719,100
Finova Group, Inc. 31,700 1,529,525
--------------
4,821,875
HEALTH CARE -- 7.8%
Community Psychiatric Centers(a) 175,700 2,152,325
Sierra Health Services, Inc.(a) 76,700 2,435,225
Sybron International Corp.(a) 99,600 2,365,500
--------------
6,953,050
INDUSTRIAL PRODUCTS -- 5.6%
Belden Inc. 82,000 2,111,500
Kaydon Corp. 44,000 1,336,500
Mark IV Industries, Inc. 79,825 1,576,544
--------------
5,024,544
ANNUAL REPORT -- DECEMBER 31, 1995
7
<PAGE>
NUMBER
OF SHARES MARKET VALUE
--------- --------------
INSURANCE -- 13.6%
Fremont General Corp. 50,800 $ 1,866,900
Paul Revere Corp. (The) 83,000 1,722,250
PennCorp Financial Group, Inc. 77,300 2,270,688
PMI Group, Inc. (The) 38,400 1,737,600
Prudential Reinsurance
Holdings, Inc. 96,500 2,255,687
Reinsurance Group of
America, Inc. 51,600 1,889,850
Selective Insurance Group, Inc. 10,600 376,300
--------------
12,119,275
RAILROADS -- 2.8%
Canadian National Railway Co.(a) 14,500 217,500
Illinois Central Corp., Class A 59,500 2,283,313
--------------
2,500,813
REAL ESTATE INVESTMENT TRUSTS -- 3.6%
Patriot American Hospitality, Inc. 57,900 1,490,925
Public Storage, Inc. 91,000 1,729,000
--------------
3,219,925
RETAIL -- 4.5%
Claire's Stores, Inc. 88,800 1,565,100
Pier 1 Imports, Inc. 215,350 2,449,606
--------------
4,014,706
STEEL/IRON -- 3.5%
UCAR International Inc.(a) 73,300 2,473,875
WCI Steel, Inc.(a) 150,600 658,875
--------------
3,132,750
--------------
TOTAL COMMON STOCKS -- 88.5%
(Cost: $68,580,264) 78,959,532
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
------------
<S> <C>
MONEY MARKET INSTRUMENTS(b)
Yield 5.49% to 5.53%
due March 1996 to August 1996
American Family Financial Services, Inc. $ 270,000
General Mills, Inc. 2,350,000
Sara Lee Corp. 2,119,701
Warner-Lambert Co. 4,485,000
Wisconsin Electric Power Co. 480,000
--------------
TOTAL MONEY MARKET
INSTRUMENTS -- 10.9%
(Cost: $9,704,701) 9,704,701
--------------
TOTAL INVESTMENTS -- 99.4%
(Cost: $78,284,965) 88,664,233
OTHER ASSETS
LESS LIABILITIES -- 0.6% 539,028
--------------
NET ASSETS -- 100.0% $ 89,203,261
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Variable rate securities. Interest rates are reset every seven days. Rates
disclosed represent rates in effect on December 31, 1995.
Based on cost of investments for federal income tax purposes of $78,284,965 on
December 31, 1995, net unrealized appreciation was $10,379,268, consisting of
gross unrealized appreciation of $11,992,913 and gross unrealized depreciation
of $1,613,645.
See accompanying notes to financial statements.
ANNUAL REPORT -- DECEMBER 31, 1995
8
<PAGE>
STATEMENT OF
ASSETS & LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments, at value
(Cost: $78,284,965) $88,664,233
Receivable for:
Dividends and interest $ 141,310
Shares sold 694,895 836,205
-----------
Organization costs,
net of accumulated
amortization of $11,658 10,583
-----------
Total assets 89,511,021
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $ 78,775
Shares redeemed 102,878
Advisory fees 112,085
Trustees' fees 1,876
Organization costs 11,946
Dividends 200 307,760
---------- -----------
Net assets applicable to
shares outstanding $89,203,261
-----------
-----------
Shares outstanding--no par
value (unlimited number of
shares authorized) 7,900,323
-----------
-----------
PRICING OF SHARES
Net asset value, offering price,
and redemption price per share $11.29
-----------
-----------
ANALYSIS OF NET ASSETS
Excess of amounts received from
issuance of shares over amounts
paid on redemption of shares
on account of capital $78,652,675
Undistributed net investment income 34,255
Undistributed net realized gain on sales
of investments 137,063
Unrealized appreciation of investments 10,379,268
-----------
Net assets applicable to
shares outstanding $89,203,261
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends $ 1,497,267
Interest 390,810
------------
Total investment income 1,888,077
Expenses:
Investment advisory fee 1,407,252
Fees to unaffiliated trustees 13,311
Amortization of organization costs 2,712
------------
Total expenses 1,423,275
------------
Net investment income 464,802
Net realized and unrealized
gain on investments:
Net realized gain on sales
of investments 6,706,516
Net change in unrealized appreciation 10,355,575
------------
Net realized and unrealized
gain on investments 17,062,091
------------
Net increase in net assets
resulting from operations $ 17,526,893
------------
------------
</TABLE>
See accompanying notes to financial statements.
ANNUAL REPORT -- DECEMBER 31, 1995
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
From operations:
Net investment income $ 464,802 $ 167,848
Net realized gain on sales of investments 6,706,516 3,856,518
Net change in unrealized appreciation 10,355,575 (5,350,384)
------------ ------------
Net increase (decrease) in net assets
resulting from operations 17,526,893 (1,326,018)
Distributions to shareholders from:
Net investment income (430,547) (167,848)
Net realized gains (6,569,453) (3,944,186)
Return of capital -- (26,346)
------------ ------------
Total distributions (7,000,000) (4,138,380)
From share transactions:
Proceeds from shares sold 15,771,709 60,932,770
Reinvestment of dividends and capital gain distributions 6,866,829 4,028,245
Payments for shares redeemed (43,600,025) (18,466,434)
------------ ------------
Net (decrease) increase in net assets resulting from
share transactions (20,961,487) 46,494,581
------------ ------------
Total (decrease) increase in net assets (10,434,594) 41,030,183
Net assets at beginning of year 99,637,855 58,607,672
------------ ------------
Net assets at end of year $ 89,203,261 $ 99,637,855
------------ ------------
------------ ------------
</TABLE>
See accompaying notes to financial statements.
ANNUAL REPORT -- DECEMBER 31, 1995
10
<PAGE>
FINANCIAL HIGHLIGHT
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED YEAR ENDED FEB 9, 1993(a)-
DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 10.14 $ 10.79 $ 10.00
------- ------- -------
Income from Investment Operations
Net investment income 0.06 0.02 0.01
Net realized and unrealized
gain (loss) on investments 2.06 (0.19) 1.00
------- ------- -------
Total from Investment Operations 2.12 (0.17) 1.01
------- ------- -------
Less Distributions
Dividends from net
investment income (0.06) (0.02) --
Dividends from net realized
gains on investments (0.91) (0.46) (0.22)
Return of capital distribution -- --(d) --
------- ------- -------
Total Distributions (0.97) (0.48) (0.22)
------- ------- -------
Net asset value at end of period $ 11.29 $ 10.14 $ 10.79
------- ------- -------
------- ------- -------
Total Return 20.95% (1.52%) 10.08% (c)
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.52% 1.51% 1.51% (b)
Ratio of net investment income (loss)
to average net assets 0.50% 0.22% (0.10%)(b)
Portfolio turnover rate 102% 82% 111% (b)
Net assets, end of period
(in thousands) $89,203 $99,638 $58,608
------- ------- -------
------- ------- -------
(a) Commencement of operations.
(b) Ratios have been determined on an annualized basis.
(c) For the period February 9, 1993 to December 31, 1993.
(d) Distributions were less than $0.01 per share.
</TABLE>
See accompanying notes to financial statements.
ANNUAL REPORT -- DECEMBER 31, 1995
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Skyline Fund is an open-ended, diversified investment management company which
consists of the Special Equities Portfolio and Special Equities II. The
Portfolios commenced public offering of their shares as follows: Special
Equities Portfolio on April 23, 1987, and Special Equities II on February 9,
1993. The following notes relate solely to the accompanying financial statements
of Special Equities II ("Portfolio").
1
SIGNIFICANT ACCOUNTING POLICIES
/ / SECURITY VALUATION - Investments are stated at value. Securities listed or
admitted to trading on any national securities exchange or the Nasdaq National
Market are valued at the last sales price on the principal exchange or market on
which they are traded or listed or, if there has been no sale that day, at the
most recent bid price. Money market instruments having 60 days or less remaining
from the valuation date until maturity are valued on an amortized cost basis.
Securities or other assets for which market quotations are not readily available
are valued at a fair value as determined in good faith by the Fund's board of
trustees.
/ / SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date (date the order to buy or sell is executed), and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis and includes amortization of money market instrument
premium and discount. Realized gains and losses from security transactions are
reported on an identified cost basis.
/ / PORTFOLIO SHARE VALUATION - Portfolio shares are sold on a continuous basis
and redeemed on a continuous basis at net asset value. Net asset value per share
is determined as of the close of regular session trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time) each day the Exchange is open for
trading. The net asset value per share is determined by dividing the value of
all securities and other assets, less liabilities, by the number of shares of
the Portfolio outstanding.
/ / FEDERAL INCOME TAXES, DIVIDENDS, AND DISTRIBUTIONS TO SHAREHOLDERS - It is
the Portfolio's policy to comply with the special provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner
provided therein, to distribute all of its taxable income. Such provisions were
complied with and, therefore, no federal income taxes have been accrued.
/ / EXPENSES - Expenses arising in connection with a Portfolio are allocated to
that Portfolio. Other Fund expenses, such as trustees' fees, are allocated
between the two Skyline Fund Portfolios.
2
TRANSACTIONS WITH AFFILIATES
Effective August 31, 1995, the Portfolio's Investment Adviser changed from
Mesirow Asset Management, Inc. to Skyline Asset Management, L.P. For the
Adviser's management and advisory services and the assumption of the
Portfolio's ordinary operating expenses, the Portfolio pays a monthly
comprehensive fee based on its average daily net assets at the annual rate of
1.50% of the first $200 million, 1.45% of the next $200 million, 1.40% of the
next $200 million, and 1.35% of any excess over $600 million. The total advisory
fee charged for year ended December 31, 1995 was $1,407,252. The Adviser has
agreed to reimburse the Portfolio to the extent that the aggregate annual
expenses of the
ANNUAL REPORT -- DECEMBER 31, 1995
12
<PAGE>
Portfolio, including the advisory fee and fees to unaffiliated trustees, but
excluding extraordinary costs or expenses such as legal, accounting, or other
costs or expenses not incurred in the normal course of the Portfolio's ongoing
operations, exceed 2.00% of the average daily net assets of the Portfolio or
such lower limit as is prescribed by any state in which the Portfolio's shares
are being offered for sale.
Certain officers and trustees of the Fund are also shareholders, officers,
and/or directors of the Adviser. The Fund makes no direct payments to its
officers or trustees who are affiliated with the Adviser.
For the year ended December 31, 1995, the Portfolio paid fees of $13,311 to its
unaffiliated trustees.
3
SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statement of changes in net assets are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 1,461,900 5,720,483
Shares issued
in reinvestment
of dividends 613,104 402,406
---------- ----------
2,075,004 6,122,889
Less shares redeemed (3,998,270) (1,729,714)
---------- ----------
Net (decrease) increase
in shares outstanding (1,923,266) 4,393,175
---------- ----------
---------- ----------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1995, are as follows:
<TABLE>
<S> <C>
Cost of purchases $89,475,877
Proceeds from sales 121,103,082
</TABLE>
ANNUAL REPORT -- DECEMBER 31, 1995
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Skyline Special Equities II
and the Board of Trustees of Skyline Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Special Equities II as of December 31,
1995, the related statements of operations for the year then ended and changes
in net assets for each of the two years in the period then ended, and the
financial highlights for each of the two years in the period then ended and for
the period from February 9, 1993 to December 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Skyline Special Equities II at December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the two years
in the period then ended, and for the period from February 9, 1993 to December
31, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1996
ANNUAL REPORT -- DECEMBER 31, 1995
14
<PAGE>
FEDERAL TAX STATUS OF 1995 DIVIDENDS
Capital gain dividends paid to you, whether received in cash or reinvested in
shares, must be included in your federal income tax return and must be reported
by the Fund to the Internal Revenue Service in accordance with U.S. Treasury
Department regulations. Short-term capital gain dividends paid to you are
taxable as ordinary income. Long-term capital gain dividends paid to you are
taxable as long-term capital gain income regardless of how long you have held
Fund shares.
REPORT FOR THE YEAR ENDED DECEMBER 31, 1995
This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Portfolio. The
report is not authorized for distribution to prospective investors in the
Portfolio unless it is accompanied or preceded by a currently effective
prospectus of the Fund.
Funds Distributor, Inc. is the principal underwriter of Skyline Fund.
ANNUAL REPORT -- DECEMBER 31, 1995
15
<PAGE>
This page left blank intentionaly.
ANNUAL REPORT -- DECEMBER 31, 1995
16
<PAGE>
This page left blank intentionaly.
ANNUAL REPORT -- DECEMBER 31, 1995
17
<PAGE>
This page left blank intentionaly.
ANNUAL REPORT -- DECEMBER 31, 1995
18
<PAGE>
19
<PAGE>
[LOGO]
SKYLINE FUND SPECIAL EQUITIES II
ANNUAL REPORT - DECEMBER 31, 1995
20
<PAGE>
PART C
OTHER INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements included in Part A of this post-effective amendment:
None.
(2) Financial Statements included in Part B of this amendment:
(i) Skyline Special Equities Portfolio
(incorporated by reference to the following portions of Registrant's 1995
Special Equities Portfolio Annual Report):
-- Report of Independent Auditors
-- Statement of Assets and Liabilities at December 31, 1995
-- Statement of Operations for the year ended December 31, 1995
-- Statement of Changes in Net Assets for the years ended December
31, 1995 and 1994
-- Portfolio of Investments at December 31, 1995
-- Notes to financial statements
(ii) Skyline Special Equities II
(incorporated by reference to the following portions of Registrant's 1995
Special Equities II Annual Report):
-- Report of Independent Auditors
-- Statement of Assets and Liabilities at December 31, 1995
-- Statement of Operations for the year ended December 31, 1995
-- Statement of Changes in Net Assets for the years ended December
31, 1995 and 1994
-- Portfolio of Investments at December 31, 1995
-- Notes to financial statements
Schedule I for each Portfolio has been omitted as the required information is presented
in the Portfolios of Investments at December 31, 1995. Schedules II, III, IV, V, VI and
VII for each Portfolio are omitted as the required information is not present.
(b) Exhibits (as used below, "Registration Statement" means the Registration
Statement on Form N-1A of the registrant, no. 33-11755):
1 Agreement and Declaration of Trust of the registrant
2 By-Laws of the registrant
3 None
4.1 Share certificate for series designated Skyline Special Equities Portfolio
4.2 Share certificate for series designated Skyline Special Equities II
5.1 Investment Advisory Agreement between the registrant and Skyline Asset
Management, L.P., relating to Special Equities Portfolio
5.2 Investment Advisory Agreement between the registrant and Skyline Asset
Management, L.P., relating to Special Equities II
6 Distribution Agreement between the registrant and Funds Distributor, Inc.
7 None
8 Custodian Agreement among the registrant, Skyline Asset Management, L.P.,
and Firstar Trust Company
9.1 Transfer Agent Agreement among the registrant, Skyline Asset Management,
L.P., and Firstar Trust Company, as amended
9.2 Fund Accounting Services Agreement among the registrant, Skyline Asset
Management, L.P., and Firstar Trust Company
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
10.1 Opinion and Consent of Counsel relating to Skyline Special Equities
Portfolio
10.2 Opinion and consent of counsel relating to Skyline Special Equities II
11 Consent of Independent Auditors
12 None
13 Investment representation letter of initial purchaser of shares of benefi-
cial interest of the registrant
14 Skyline Fund Individual Retirement Account Custodial Agreement and
Disclosure Statement and related applications
15 None
16 Schedule for Computation of Performance Quotations
18 None
19 Skyline Fund Account Application
27.1 Financial Data Schedule -- Skyline Special Equities Portfolio
27.2 Financial Data Schedule -- Skyline Special Equities II
ITEM 25. Persons Controlled by or Under Common Control With Registrant.
</TABLE>
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with the
Registrant within the meaning of this item. The information in the Prospectus
under the caption "Management of the Fund" and in the Statement of Additional
Information under the caption "Management of the Fund" and in the first
paragraph under the caption "Investment Advisory Services" is incorporated by
reference.
<TABLE>
<S> <C> <C> <C> <C>
ITEM 26. Number of Holders of Securities.
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF SERIES AS OF MARCH 31, 1996
------------------------------ ------------------------
<S> <C> <C>
Special Equities Portfolio 4,443
Special Equities II 4,297
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
ITEM 27. Indemnification.
</TABLE>
See Article Tenth of Registrant's Agreement and Declaration of Trust which
is incorporated by reference herein to exhibit no. 1 to the Registration
Statement. In addition, the Trust maintains a trustees and officers liability
insurance policy with maximum coverage of $2.5 million under which the Trust and
its trustees and officers will be named insureds.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
<TABLE>
<S> <C> <C> <C> <C>
ITEM 28. Business and Other Connections of Investment Adviser.
</TABLE>
The information in the Statement of Additional Information under the caption
"Management of the Fund" is incorporated by reference. During the past two
years, the officers of Skyline Asset Management, L.P. were officers or employees
of Mesirow Asset Management, Inc., the previous adviser to the Fund. Affiliated
Managers Group, Inc. ("AMG"), the general partner of Skyline Asset
C-2
<PAGE>
Management, L.P., has during such time period been in the business of making
equity investments in investment management firms in which management personnel
retain a significant interest in the future of the business. AMG holds, directly
or indirectly, partnership interests in J.M. Hartwell Limited Partnership
("Hartwell"), Systematic Financial Management, L.P. ("Systematic"), Renaissance
Investment Management ("Renaissance"), and First Quadrant L.P. ("Quadrant") and
an equity interest in Paradigm Asset Management Company, L.L.C. ("Paradigm"),
each of which provides investment advice to a number of other organizations and
individuals. Hartwell's principal business address is 515 Madison Avenue, New
York, New York 10022. Systematic's principal business address is Two Executive
Drive, Fort Lee, New Jersey, 07024. Renaissance's principal business address is
PB-1700 Young Street, Cincinnati, Ohio 45210. Quadrant's principal business
address is 800 E. Colorado Boulevard, Suite 900, Pasadena, California 91101.
Paradigm's principal business address is 366 Madison Avenue, New York, New York
10017.
<TABLE>
<S> <C> <C> <C> <C>
ITEM 29. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") also acts as principal underwriter for
the following investment companies:
Waterhouse Investors Cash Management Fund, Inc.
Fremont Mutual Funds
HT Insight Funds, Inc., d/b/a Harris Insight Funds
The Munder Funds
Panagora Funds
BJB Investment Funds
Foreign Fund, Inc.
(b) The following table sets forth information regarding each director and executive
officer of the Distributor:
</TABLE>
<TABLE>
<CAPTION>
POSITION AND
POSITION AND OFFICES OFFICES WITH
NAME WITH DISTRIBUTOR REGISTRANT
- ----------------------- -------------------------------------------------------------------- -------------------
<S> <C> <C>
William J. Nutt Chairman of the Board of Directors None
Marie E. Connolly President, Chief Executive Officer and Director None
John W. Gomez Director None
Richard W. Healy Senior Vice President None
Richard W. Ingram Senior Vice President None
Rui M. Moura Senior Vice President None
John E. Pelletier Senior Vice President, General Counsel, Secretary and Clerk None
Donald R. Roberson Senior Vice President None
Joesph F. Tower, III Senior Vice President, Treasurer, and Chief Financial Officer None
</TABLE>
The principal business address of all officers and directors of the
Distributor is One Exchange Place, Boston, Massachusetts 02109.
<TABLE>
<S> <C> <C> <C> <C>
(c) Not applicable
ITEM 30. Location of Accounts and Records.
(1) Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(2) Skyline Fund
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11);
Rule 31a-1(d); Rule 31a-1(f); Rule 31a-2(a);
Rule 31a-2(c); Rule 31a-2(e)
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(a)-(b)Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon request and without
charge.
</TABLE>
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago and State of Illinois on April
29, 1996.
SKYLINE FUND
By /s/ WILLIAM M. DUTTON
-----------------------------------
William M. Dutton, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
<C> <S> <C>
/s/ WILLIAM L. ACHENBACH
------------------------------------------- Trustee
William L. Achenbach
/s/ WILLIAM M. DUTTON Trustee
------------------------------------------- President (principal executive
William M. Dutton officer)
/s/ PAUL J. FINNEGAN
-------------------------------------------
Paul J. Finnegan Trustee April 29, 1996
/s/ STEPHEN F. KENDALL
------------------------------------------- Trustee
Stephen F. Kendall
/s/ DAVID A. MARTIN
------------------------------------------- Trustee
David A. Martin
</TABLE>
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1 Agreement and Declaration of Trust of the registrant
2 By-Laws of the registrant
4.1 Share certificate for series designated Skyline Special Equities Portfolio
4.2 Share certificate for series designated Skyline Special Equities II
5.1 Investment Advisory Agreement between the registrant and Skyline Asset Management, L.P., relating to
Special Equities Portfolio
5.2 Investment Advisory Agreement between the registrant and Skyline Asset Management, L.P., relating to
Special Equities II
6 Distribution Agreement between the registrant and Funds Distributor, Inc.
8 Custodian Agreement among the registrant, Skyline Asset Management, L.P., and Firstar Trust Company
9.1 Transfer Agent Agreement among the registrant, Skyline Asset Management, L.P., and Firstar Trust
Company, as amended
9.2 Fund Accounting Services Agreement among the registrant, Skyline Asset Management, L.P., and Firstar
Trust Company
10.1 Opinion and Consent of Counsel relating to Skyline Special Equities Portfolio
10.2 Opinion and Consent of Counsel relating to Skyline Special Equities II
11 Consent of Independent Auditors
13 Investment representation letter of initial purchaser of shares of beneficial interest of the registrant
14 Skyline Fund Individual Retirement Account Custodial Agreement and Disclosure Statement and related
applications
16 Schedule for Computation of Performance Quotations
19 Skyline Fund Account Application
27.1 Financial Data Schedule -- Skyline Special Equities Portfolio
27.2 Financial Data Schedule -- Skyline Special Equities II
</TABLE>
<PAGE>
SKYLINE FUND
AGREEMENT AND DECLARATION OF TRUST
<PAGE>
TABLE OF CONTENTS
Page
----
First: Name . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Second: Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Third: Address and Resident Agent. . . . . . . . . . . . . . . . . . . .3
Fourth: Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
A. Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
B. Division of Beneficial Interest . . . . . . . . . . . . . . . . .3
C. Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . .3
D. Status of Shares and Limitation of Personal Liability . . . . . .4
Fifth: No Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . .4
Sixth: Issue, Redemption, and Repurchase of Shares.. . . . . . . . . . .4
Section I Issue of the Trust's Shares. .. . . . . . . . . . . . .4
1.01. General . . . . . . . . . . . . . . . . . . . . . . . .4
1.02. Price . . . . . . . . . . . . . . . . . . . . . . . . .4
1.03. Fractional Shares . . . . . . . . . . . . . . . . . . .5
1.04. Assets of a Series. . . . . . . . . . . . . . . . . . .5
Section II Redemption and Repurchase of the Trust's Shares . . . .5
2.01. Redemption of Shares. . . . . . . . . . . . . . . . . .5
2.02. Price . . . . . . . . . . . . . . . . . . . . . . . . .5
2.03. Payment . . . . . . . . . . . . . . . . . . . . . . . .5
2.04. Effect of Suspension of Determination of Net
Asset Value . . . . . . . . . . . . . . . . . . . . .6
2.05. Repurchase by Agreement . . . . . . . . . . . . . . . .6
2.06. Redemption of Shareholder's Interest. . . . . . . . . .6
2.07. Additional Provisions Relating to Redemptions
and Repurchase. . . . . . . . . . . . . . . . . . . .7
Section III Net Asset Value of Shares . . . . . . . . . . . . . . .7
3.01. By Whom Determined. . . . . . . . . . . . . . . . . . .7
3.02. When Determined . . . . . . . . . . . . . . . . . . . .7
3.03. Suspension of Determination of Net Asset Value. . . . .7
3.04. Computation of Per Share Net Asset Value. . . . . . . .8
3.05. Miscellaneous . . . . . . . . . . . . . . . . . . . . .8
i
<PAGE>
Section IV Compliance with Investment Company Act of 1940. . . . .9
Seventh: Board of Trustees . . . . . . . . . . . . . . . . . . . . . . . .9
A. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
B. Effect of Death, Resignation, Etc. of a Trustee . . . . . . . . .9
C. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D. Payment of Expenses by Trust. . . . . . . . . . . . . . . . . . 12
E. Ownership of Assets of the Trust. . . . . . . . . . . . . . . . 12
F. Advisory, Management and Distribution . . . . . . . . . . . . . 12
Eighth: Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Trustees, Shareholders, Etc. Not Personally Liable; Notice. . . 13
B. Trustee's Good Faith Action; Expert Advice; No Bond or Surety . 14
C. Liability of Third Persons Dealing with Trustees. . . . . . . . 14
Ninth: Determination of Net Profits, Etc.; Dividends . . . . . . . . . 14
Tenth: Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 15
A. Indemnification Generally . . . . . . . . . . . . . . . . . . . 15
B. Determination of Eligibility. . . . . . . . . . . . . . . . . . 15
C. Indemnification Not Exclusive . . . . . . . . . . . . . . . . . 16
D. Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . 16
E. Contractual Rights. . . . . . . . . . . . . . . . . . . . . . . 16
F. Protection of Rights. . . . . . . . . . . . . . . . . . . . . . 17
Eleventh: Reservation of Right to Amend. . . . . . . . . . . . . . . 17
A. By Board of Trustees. . . . . . . . . . . . . . . . . . . . . . 17
B. By Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 17
Twelfth: Shareholders' Voting Powers and Meetings. . . . . . . . . . . . 17
A. Shareholders' Voting Powers . . . . . . . . . . . . . . . . . . 17
B. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
C. Quorum and Required Vote. . . . . . . . . . . . . . . . . . . . 19
D. Place of Meeting. . . . . . . . . . . . . . . . . . . . . . . . 19
E. Notice of Meetings; Adjournment . . . . . . . . . . . . . . . . 19
F. Share Ledger. . . . . . . . . . . . . . . . . . . . . . . . . . 19
G. Action by Written Consent . . . . . . . . . . . . . . . . . . . 19
Thirteenth: Use of Name. . . . . . . . . . . . . . . . . . . . . . . . 20
Fourteenth: Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 20
A. Duration and Termination of Trust . . . . . . . . . . . . . . . 20
ii
<PAGE>
B. Filing of Copies; References; Headings. . . . . . . . . . . . . 20
C. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . 21
D. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 21
iii
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST ("Declaration of Trust") is made at
Boston, Massachusetts, this 4th day of February, 1987, by the Trustee hereunder,
and by the holders of shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed as a voluntary association with
transferable shares under the laws of the Commonwealth of Massachusetts to carry
on the business of an investment company; and
WHEREAS, the Trustee has agreed to manage all property coming into her
hands as Trustee of a voluntary association in the form of a Massachusetts
business trust in accordance with the provisions hereinafter set forth.
NOW THEREFORE, the Trustee hereby declares that she will hold all cash,
securities and other assets that she may from time to time acquire in any manner
as Trustee hereunder in Trust to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of shares of the applicable series in this Trust as hereinafter set
forth.
FIRST: NAME.
The name of this Trust is SKYLINE FUND (the "Trust").
SECOND: PURPOSES.
The purposes for which the Trust is formed are:
(1) To engage in the business of a management investment company;
(2) To invest and reinvest in, to buy or otherwise acquire, to hold, for
investment or otherwise, to sell or otherwise dispose of, to lend or
to pledge, to trade in or deal in, securities or interests of all
kinds, or obligations of all kinds, or rights, warrants, or contracts,
and to acquire such securities, interests, or obligations, of or
guaranteed by any private or public company, corporation, association,
general or limited partnership, trust or other enterprise or
organization, foreign or domestic, or of or guaranteed by any
national, state or local government, foreign or domestic, or their
agencies, instrumentalities or subdivisions, including but not limited
to bonds, debentures, preferred stocks, common stocks, convertible
securities, bills, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; options; futures contracts
and options on futures contracts; government securities; and money
market instruments, including but not limited to bank certificates of
deposit, finance paper, commercial paper,
<PAGE>
bankers' acceptances, and all kinds of repurchase agreements, of any
corporation, company, trust, association, firm or other business
organization, however established, and of any county, state,
municipality or other political subdivision, or any other governmental
or quasi-governmental agency or instrumentality;
(3) To invest and reinvest in, to buy or otherwise acquire, to hold, for
investment or otherwise, to sell or otherwise dispose of, foreign
currencies, funds, and exchange, and to make deposits in banks, trust
companies, and savings and loan associations, foreign or domestic;
(4) To exercise all rights, powers, and privileges as owner of any
securities, property, or assets which might be exercised by any
individual owning such securities, property, or assets in his own
right;
(5) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop, and dispose of (by sale or otherwise) any property,
real or personal, and any interest therein;
(6) To aid by further investment any corporation, company, trust,
association, or firm, any obligation of or interest in which is held
by the Trust or in the affairs of which the Trust has any direct or
indirect interest; to do all acts and things designed to protect,
preserve, improve, or enhance the value of such obligation or
interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures, and other obligations of
any such corporation, company, trust, association, or firm; and
(7) In general, to carry on any other business in connection with or
incidental to any of the foregoing objects and purposes, and to engage
in any and all lawful business except as may be prohibited to be
engaged in by a business trust organized under the laws of the
Commonwealth of Massachusetts as in force from time to time, to do
everything necessary, suitable, or proper for the accomplishment of
any purpose or the attainment of any object or the furtherance of any
power hereinbefore set forth, either alone or in association with
others, and to do every other act or thing incidental or appurtenant
to or growing out of or connected with the aforesaid business or
purposes, objects, or powers.
The Trust shall have the power to conduct and carry on its business, or any
part thereof, and to have one or more offices, and to exercise any or all of its
trust powers and rights, in the Commonwealth of Massachusetts, in any other
states, territories, districts, colonies, and dependencies of the United States,
and in any or all foreign countries.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing numeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trust.
2
<PAGE>
THIRD: ADDRESS AND RESIDENT AGENT.
The post office address of the principal office of the Trust in the
Commonwealth of Massachusetts is:
c/o CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other office as the Board of Trustees may from time to time designate.
The name and post office address of the resident agent of the Trust in the
Commonwealth of Massachusetts is:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other person as the Board of Trustees may from time to time designate.
Such resident agent is a Massachusetts corporation.
FOURTH: SHARES.
A. DEFINITION. "Shares" means the equal proportionate transferable units
of interest into which the beneficial interest in the Trust shall be divided
from time to time or, if more than one series of shares is authorized by the
Board of Trustees, the equal proportionate units into which each series shall be
divided from time to time.
B. DIVISION OF BENEFICIAL INTEREST. The shares of the Trust shall be
issued in one or more series as the Board of Trustees may, without shareholder
approval, authorize. Each series shall be preferred over all other series with
respect to the assets allocated to that series. The beneficial interest in each
series shall at all times be divided into shares, with or without par value as
the Board of Trustees shall determine, each of which shall represent an equal
proportionate interest in the series with each other share of the same series,
none having priority or preference over another. The number of shares
authorized shall be unlimited, and the shares so authorized may be represented
in part by fractional shares. The Board of Trustees may from time to time
divide or combine the shares of any series into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series.
C. OWNERSHIP OF SHARES. The ownership of shares shall be recorded on the
books of the Trust or its transfer or similar agent. No certificates certifying
the ownership of shares shall be issued except as the Board of Trustees may
otherwise determine from time to time. The Board of Trustees may make such
rules as it considers appropriate for the issuance of share certificates, the
transfer of shares and similar matters. The record books of the Trust as kept
by the Trust or any transfer or similar agent of the Trust, as the case may be,
shall be conclusive as
3
<PAGE>
to who are the shareholders of each series and as to the number of shares of
each series held from time to time by each shareholder.
D. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares shall
be deemed to be personal property giving only the rights provided in this
instrument. Every shareholder by virtue of having become a shareholder shall be
deemed to have expressly assented to and agreed to be bound by the terms hereof
and to have become a party hereto. The death of a shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of such deceased shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Board of Trustees, but
only to the rights of said decedent under this Trust. Ownership of shares shall
not entitle the shareholder to any title in or to the whole or any part of the
trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of shares constitute the shareholders to
be partners. Neither the Trust nor the Board of Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
shareholder, nor, except as specifically provided herein, to call upon any
shareholder for the payment of any sum of money or assessment whatsoever other
than such as the shareholder may at any time personally agree to pay.
FIFTH: NO PREEMPTIVE RIGHTS.
Shareholders shall have no preemptive or other right to receive, purchase,
or subscribe for any additional shares or other securities issued by the Trust.
SIXTH: ISSUE, REDEMPTION, AND REPURCHASE OF SHARES.
SECTION I
ISSUE OF THE TRUST'S SHARES
1.01. GENERAL. The Board of Trustees may from time to time issue,
reissue, sell or cause to be issued and sold any of the Trust's shares in one or
more series as the Board of Trustees may, without shareholder approval,
authorize, including any shares redeemed or repurchased by the Trust, for a
consideration determined in accordance with Section 1.02 hereof; except that
only shares previously contracted to be sold may be issued during any period
when the determination of net asset value is suspended pursuant to the
provisions of Section III hereof.
1.02. PRICE. No shares of a series shall be issued or sold by the Trust,
except as a share dividend distributed to shareholders of such series, for less
than an amount which would result in proceeds to the Trust, in connection with
such transaction, of at least the net asset value per share of such series,
determined as set forth in Section III hereof. The net asset value per share
applicable to any such transaction shall be the net asset value per share of
such series next determined after receipt of an unconditional order for purchase
of shares of such series; except that, subject to applicable rules and
regulations, if any, of the Securities and Exchange Commission or any other
governmental body having similar jurisdiction over the Trust (the "SEC"), the
Board of Trustees may prescribe that requests for purchases received prior to a
time of day (the "cutoff time") preceding the time of day prescribed for
determination of net asset value per share of such series shall be transacted at
the net asset value per share next determined
4
<PAGE>
and that requests for purchase received after the cutoff time and before the
time for determination of the next net asset value per share shall be transacted
at the net asset value per share next determined after the next net asset value
per share of such series. The criteria for determining what constitutes an
unconditional order for purchase of shares of a series and the receipt of such
an order shall be prescribed by the Board of Trustees. All shares, when issued
in accordance with the terms of this Section I, shall be fully paid and
nonassessable.
1.03. FRACTIONAL SHARES. The Trust may issue and sell or cause to be
issued and sold fractions of shares of a series having pro rata all the rights
of full shares of such series, including, without limitation, the right to vote
and to receive dividends.
1.04. ASSETS OF A SERIES. All consideration received by the Trust for
the issue or sale of shares of each series authorized by the Board of Trustees,
together with all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any funds
or payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the series of shares with respect to
which the same were received by the Trust for all purposes, subject only to the
rights of creditors of Trust assets allocated to such series, and shall be so
recorded upon the books of account of the Trust and are herein referred to as
"assets of" such series.
SECTION II
REDEMPTION AND REPURCHASE OF THE TRUST'S SHARES
2.01. REDEMPTION OF SHARES. Any shares of any series of the Trust may be
redeemed at the option of the holder of such shares and, to the extent permitted
in Section 2.06 hereof, at the option of the Trust, at the redemption price for
such shares, determined in the manner set out in this Declaration of Trust or in
any amendment hereto. Unless otherwise provided by resolution of the Board of
Trustees, shares redeemed shall be canceled. Redeemed shares which have not
been canceled may be resold by the Trust. The Trust shall redeem shares subject
to the conditions and at the price determined as hereinafter set forth.
2.02. PRICE. Shares shall be redeemed at the net asset value per share
of the appropriate series, determined as set forth in Section III hereof. The
net asset value per share of such series applicable to any such redemption of
shares shall be the net asset value per share next determined after receipt of a
request for redemption of such shares in proper form, except that, subject to
applicable rules and regulations, if any, of the SEC, the Board of Trustees may
prescribe that requests for redemption received prior to the cutoff time
preceding the time of day prescribed for determination of net asset value per
share of such series shall be transacted at the net asset value per share next
determined and that requests for redemption after the cutoff time and before the
time for determination of the next net asset value per share shall be transacted
at the net asset value per share next determined after the next net asset value
per share. The criteria for determining what constitutes a proper request for
redemption of shares of a series and the receipt of such request for redemption
shall be prescribed by the Board of Trustees.
2.03. PAYMENT. Subject to the provisions of Section 2.04 hereof, payment
for shares of a series shall be made in cash to, or upon the direction of, the
shareholder of record within seven
5
<PAGE>
calendar days after the date of receipt of (a) a written, unconditional and
irrevocable instruction of the shareholder to redeem, in a form acceptable to
the Trust or its designated agent, together with any certificates which may have
been issued therefor, endorsed or accompanied by proper instrument of transfer,
and such other documents as the Trust or its designated agent may require or (b)
such other direction or authorization of redemption by the shareholder as the
Board of Trustees shall authorize. Subject to applicable rules and regulations,
if any, of the SEC, the Trust may pay the redemption price for such shares of a
series in whole or in part by a distribution in kind of securities from the
portfolio of the Trust allocated to such series, in lieu of money, valuing such
securities at their value employed for determining the net asset value governing
such redemption price, and selecting the securities in such manner as the Board
of Trustees may determine to be fair and equitable.
2.04. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE. If,
pursuant to Section 3.03 hereof, the Board of Trustees shall declare a
suspension of the determination of net asset value of a particular series, (a)
the rights of shareholders (including those who shall have requested redemption
pursuant to Sections 2.01, 2.02, and 2.03 hereof but for whom the redemption
price shall not yet have been determined) to have shares redeemed and paid for
by the Trust, and (b) the obligation of the Trust to pay for shares previously
redeemed, shall be suspended until the termination of such suspension. Any
record holder of shares not previously redeemed who shall have his redemption
right so suspended may, during the period of such suspension, by appropriate
written notice of revocation at the office or agency where request for
redemption was made, revoke any request or instruction for redemption not
honored and withdraw any certificates tendered for redemption. The redemption
price of shares for which redemption requests have been made and not revoked
shall be the net asset value of such shares next determined as set forth in
Section III hereof after the termination of such suspension, and payment shall
be made within seven days after the date upon which the requirements of Section
2.03 were met plus the period during which the determination of net asset value
was suspended.
2.05. REPURCHASE BY AGREEMENT. The Trust may repurchase shares of the
Trust directly, or through a principal underwriter or another agent designated
for the purpose, by agreement with the owner thereof at a price not exceeding
the net asset value per share of the appropriate series determined as of the
time when the purchase or contract of purchase is made or the net asset value as
of any time which may be later determined pursuant to Section III hereof,
provided payment is not made for the shares prior to the time as of which such
net asset value is determined. Repurchased shares may be resold by the Trust.
2.06. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust shall have the
right at its option and at any time to redeem shares of any shareholder at the
net asset value thereof determined in accordance with Section III hereof: (i) if
at such time such shareholder owns fewer shares than, or shares having an
aggregate net asset value of less than, an amount determined from time to time
by the Board of Trustees; or (ii) to the extent that such shareholder owns
shares of a particular series of shares equal to or in excess of a percentage of
the outstanding shares of that series determined from time to time by the Board
of Trustees; or (iii) to the extent that such shareholder owns shares of the
Trust representing a percentage equal to or in excess of a percentage of the
aggregate number of outstanding shares of the Trust or the aggregate net asset
6
<PAGE>
value of the Trust determined from time to time by the Board of Trustees, and
subject to the Trust's giving general notice to all shareholders of its
intention to avail itself of such right, either by publication in the Trust's
prospectus, if any, or by such other means as the Board of Trustees may
determine. Subject to the same terms and conditions, the Trust shall also have
the right to redeem shares of the Trust, or a particular series, owned by any
shareholder if, in the opinion of the Board of Trustees, ownership of shares of
the Trust or series, respectively, has or may become concentrated to an extent
which could cause the Trust to become a personal holding company within the
meaning of the Internal Revenue Code.
2.07. ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND REPURCHASE. The
completion of redemption of shares shall constitute a full discharge of the
Trust and the Trustees with respect to such shares, and the Trustees may require
that any certificate or certificates issued by the Trust to evidence the
ownership of such shares shall be surrendered to the Trustees for cancellation
or notation.
SECTION III
NET ASSET VALUE OF SHARES
3.01. BY WHOM DETERMINED. Subject to the provisions of Section 3.04 of
this Article SIXTH, the Board of Trustees shall have the power and duty to
determine from time to time the net asset value per share of the outstanding
shares of each series authorized by the Board of Trustees and any such
determination shall be binding on all parties.
3.02. WHEN DETERMINED. The net asset value of a series shall be
determined at such times as the Board of Trustees, subject to applicable rules
and regulations, if any, of the SEC, shall prescribe, provided that such net
asset value shall be determined at least once each week. In the absence of a
resolution of the Board of Trustees, the net asset value of a series shall be
determined as of the close of trading on the New York Stock Exchange on each
business day.
3.03. SUSPENSION OF DETERMINATION OF NET ASSET VALUE. The Board of
Trustees may declare a suspension of the determination of net asset value of a
series (a) for any period during which trading on the New York Stock Exchange is
restricted, as determined by the SEC, or that Exchange is closed (other than
customary weekend and holiday closings), (b) for any period during which an
emergency exists as a result of which disposal of the investments held by that
series or determination of net asset value of that series is not reasonably
practicable, or (c) for such period as the SEC by order may permit. Such
suspension shall take effect at such time as the Board of Trustees shall specify
and thereafter there shall be no determination of net asset value until the
Board of Trustees shall declare the suspension terminated, except that the
suspension shall terminate in any event on the first day on which (1) the
condition giving rise to the suspension shall have ceased to exist and (2) no
other condition exists under which suspension is authorized under this Section
3.03. Each declaration by the Board of Trustees pursuant to this Section 3.03
shall be consistent with such official rules and regulations, if any, relating
to the subject matter thereof as shall have been promulgated by the SEC. To the
extent not inconsistent with such official rules and regulations, the
determination of the Board of Trustees shall be conclusive.
7
<PAGE>
3.04. COMPUTATION OF PER SHARE NET ASSET VALUE.
a. NET ASSET VALUE PER SHARE. The net asset value of each share of a
series as of any particular time shall be the quotient obtained by dividing the
value of the net assets of the Trust allocated to such series by the total
number of shares of such series outstanding, rounded to such extent as the Board
of Trustees shall determine from time to time.
b. VALUE OF TRUST'S NET ASSETS. The value of the net assets of the
Trust allocated to any series as of any particular time shall be the value of
the assets so allocated less the liabilities of the Trust so allocated,
determined as follows:
(1) each security for which market quotations are readily available
shall be valued at current market value determined by methods
specified by the Board of Trustees;
(2) each other security, including any security within (1) for which
the specified price does not appear to represent a dependable
quotation for such security as of the time of valuation, shall be
valued at a fair value as determined in good faith by the Board of
Trustees;
(3) any cash on hand shall be valued at the face amount thereof;
(4) any cash on deposit, accounts receivable, and cash dividends and
interest declared or accrued and not yet received, any prepaid
expenses, and any other current asset shall be valued at the face
amount thereof, unless the Board of Trustees shall determine that
any such item is not worth its face amount, in which case such
asset shall be valued at a fair value determined in good faith by
the Board of Trustees; and
(5) any other asset shall be valued at a fair value determined in good
faith by the Board of Trustees.
Notwithstanding the foregoing, short-term debt obligations, commercial paper and
repurchase agreements may be, but need not be, valued on the basis of quoted
yields for securities of comparable maturity, quality and type, or on the basis
of amortized cost. The Board of Trustees may appoint persons to assist it in
the determination of the value of assets, liabilities and net asset value per
share of any series and to make the actual calculations pursuant to the
direction of the Board of Trustees.
3.05. MISCELLANEOUS. For the purposes of this Section III:
a. Shares of any series issued shall be deemed to be outstanding
commencing immediately after the time for determination of net asset value per
share or purposes of determining their sales price, pursuant to Section 1.02
hereof, and the net sale price thereof shall thereupon be deemed an asset of
that series.
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b. Shares of any series for which a request for redemption has been
made in proper form or which are being repurchased by the Trust shall be deemed
to be outstanding up to and including the time as of which the redemption or
repurchase price for such shares is determined. After such time, they shall be
deemed to be no longer outstanding and the price until paid shall thereupon be
deemed to be a liability of that series.
c. Funds on deposit and contractual obligations payable to the Trust
in foreign currency and liabilities and contractual obligations payable by the
Trust in foreign currency shall be taken at the current applicable rate of
exchange as nearly as practicable at the time as of which the net asset value is
computed for the series to which such items relate.
SECTION IV
COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940
Notwithstanding any of the foregoing provisions of this Article SIXTH, the
Board of Trustees may prescribe such other bases and times for determining the
per share net asset value of any series of the Trust as it shall deem necessary
or desirable to enable the Trust to comply with any provision of the Investment
Company Act of 1940, or any rule or regulation thereunder, all as now in effect
or hereafter amended or added (the "1940 Act"), including any rule or regulation
adopted by any securities association registered under the Securities Exchange
Act of 1934.
SEVENTH: BOARD OF TRUSTEES.
A. ELECTION. The number of Trustees shall be fixed pursuant to the
By-Laws. Trustees shall be elected by the shareholders, except as otherwise
provided herein. The initial Trustee shall serve until the first meeting of
shareholders at which Trustees are elected and until her successor is elected
and qualified, or until he or she sooner dies, resigns or is removed, shall be
Julie E. Leininger and such other persons as the Trustee or Trustees then in
office shall, prior to any sale of shares pursuant to a public offering,
appoint.
Any vacancy occurring in the Board of Trustees may be filled by the
Trustees, unless immediately after filling any such vacancy, less than
two-thirds of the Trustees then holding office would have been elected to such
office by the shareholders. The Board of Trustees shall call a meeting of
shareholders for the purpose of electing Trustees whenever less than a majority
of the Trustees have been elected by shareholders. Each Trustee elected by the
shareholders or by the Board of Trustees shall serve until the next meeting of
shareholders, if any, called for the purpose of reelecting such Trustee or
electing a successor to such Trustee and until the election and qualification of
his or her successor, or until he or she sooner dies, resigns or is removed. A
Trustee may be removed with or without cause (a) at any meeting called for such
purpose by a vote of two-thirds of the outstanding shares, (b) by the holders of
two-thirds of the outstanding shares by declaration in writing filed with the
Custodian of the securities of the Trust, or (c) by vote of a majority of the
Trustees then in office.
B. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any one of them, shall not
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operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Declaration of Trust.
C. POWERS. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Board of Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility.
Without limiting the foregoing, the Board of Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that such
By-Laws do not reserve that right to the shareholders; they may fill vacancies
in their number, including vacancies resulting from increases in their number,
and may elect and remove such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Board of Trustees is not in
session, exercise some or all of the power and authority of the Board of
Trustees as the Trustees may determine; they may appoint an advisory board, the
members of which shall not be Trustees and need not be shareholders; they may
employ one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such assets
in a system or systems for the central handling of securities, retain a transfer
agent or a shareholder services agent, or both, provide for the distribution of
shares by the Trust, through one or more principal underwriters or otherwise,
set record dates for the determination of shareholders with respect to various
matters and in general delegate such authority as they consider desirable to any
officers of the Trust, to any committee of the Board of Trustees and to any
agent or employee of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Board of Trustees shall have power and
authority:
(1) To invest and reinvest in securities, options, futures contracts,
options on futures contracts and other property, and to hold cash uninvested;
(2) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
(3) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Board of Trustees
shall deem proper, granting to such person or persons such power and discretion
with relation to securities or property as the Board of Trustees shall deem
proper;
(4) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other assets;
(5) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in the name
of the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depository or a nominee or nominees or otherwise;
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(6) To allocate assets, liabilities and expenses of the Trust to a
particular series of shares to apportion the same among two or more series,
provided that any liabilities or expenses incurred by a particular series of
shares shall be payable solely out of the assets of that series;
(7) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which is
or was held in the Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(8) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer. any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Board of Trustees
shall deem proper, and to agree to pay, and to pay, such portion of the expenses
and compensation of such committee, depositary or trustee as the Board of
Trustees shall deem proper;
(9) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust on any matter in controversy, including but not limited to
claims for taxes;
(10) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(11) To borrow funds, securities or other assets;
(12) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guarantee or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all of such obligations
or obligations incurred pursuant to Clause 11 hereof;
(13) To purchase and pay for, entirely out of Trust property, such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(14) To pay pensions for faithful service, as deemed appropriate by the
Board of Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
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including the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees, and agents of the Trust;
(15) To pay remuneration to each Trustee for his service, including
reimbursement of expenses incurred, as shall be fixed from time to time by
resolution of the Board of Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor; and
(16) To do all acts and things appropriate in the furtherance of the
foregoing and in furtherance of the purposes of the Trust.
The Board of Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by Trustees. Except as
otherwise provided herein or from time to time in the By-Laws, any action to be
taken by the Board of Trustees may be taken by a majority of the Trustees
present at a meeting of the Board of Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office.
D. PAYMENT OF EXPENSES BY TRUST. The Board of Trustees is authorized
to pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, as they deem appropriate, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser or manager,
principal underwriter, auditor, counsel, custodian, transfer agent, shareholder
servicing agent, and such other agents or independent contractors and such other
expenses and charges as the Board of Trustees may deem necessary or property to
incur, PROVIDED, HOWEVER, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular series of
shares, as determined by the Board of Trustees, shall be payable solely out of
the assets of that series.
E. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of
the Trust, including all assets allocated to each series of shares, shall at all
times be considered as vested in the Board of Trustees.
F. ADVISORY, MANAGEMENT AND DISTRIBUTION. Subject to a vote of
shareholders meeting the requirements of the 1940 Act, the Board of Trustees
may, at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services with any partnership, corporation, trust,
association or other organization (the "Adviser"), every such contract to comply
with such requirements and restrictions as may be set forth in the By-Laws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Board of Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested,
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and to make changes in the Trust's investments. The Board of Trustees may also,
at any time and from time to time, contract with the Adviser or any other
partnership, corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for the
shares, every such contract to comply with such requirements and restrictions as
may be set forth in the By-Laws; and any such contract may contain such other
terms interpretive of or in addition to said requirements and restrictions as
the Board of Trustees may determine.
The fact that:
(i) any of the shareholders, Trustees, or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter, or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder services or other agency contract may have been or
may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder services or other agency
contract may have been or may hereafter be made by the Trust also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or other agency
contract with one or more other corporations, trusts, associations, or
other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its shareholders.
EIGHTH: LIABILITY:
A. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust or a particular series of shares shall look only to the assets of the
Trust or the assets of that particular series of shares for payment under such
credit, contract or claim; and neither the shareholders nor the Trustees, nor
any of the Trust's officers, employees or agent, whether past, present or
future, shall be personally liable therefor.
The Board of Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, investment adviser or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein shall protect any
Trustee against any liability to which such Trustee would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee.
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Every note, bond, contract, instrument, certificate or undertaking made or
issued by any Trustees or Trustee or by any officers or officer shall give
notice that this Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the shareholders individually but
are binding only upon the assets and property of the Trust, or of the particular
series of shares to which such instrument relates, and may contain such further
recital as he or she or they may deem appropriate, but the omission thereof
shall not operate to bind any Trustees or Trustee or officers or officer, or
shareholders or shareholder individually.
Every note, bond, contract, instrument, certificate, share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Board of Trustees or any of them in connection with the Trust shall
be conclusively deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee, and such Trustees or Trustee shall
not be personally liable thereon.
B. TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR SURETY. The
exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his or her own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
C. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Board of Trustees or any Trustee shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by either
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
NINTH: DETERMINATION OF NET PROFITS, ETC.; DIVIDENDS.
With respect to each series of shares authorized by the Board of Trustees,
the Board is expressly authorized to determine in accordance with generally
accepted accounting principles and practices what constitutes net income,
profits or earnings, or surplus and capital, to include in net income, profits
or earnings the portion of subscription or redemption prices attributable to
accrued net income, profits or earnings in such prices, and to determine what
accounting periods shall be used by the Trust for any purpose, whether annual or
any other period, including daily; to set apart out of any funds of such series
such reserves for such purposes as it shall determine and to abolish the same;
to declare and pay dividends and distributions in cash, securities, or other
property from surplus or capital or any funds of such series legally available
therefor, at such intervals (which may be as frequently as daily) or on such
other periodic basis as it shall determine; to declare such dividends or
distributions by means of a formula or other method of
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determination at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of the declaration thereof; and to provide for the
payment of declared dividends on a date earlier than the specified payment date
in the case of shareholders of such series redeeming their entire ownership of
shares of such series. Inasmuch as the computation of net income, profits or
earnings for Federal income tax purposes may vary from the computation thereof
on the books, the above provisions shall be interpreted to give to the Board of
Trustees the power in its discretion to distribute for any fiscal year as
dividends and as capital gain distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce its liability for taxes.
No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the shares of any series shall be
effected by the Trust other than from the assets of such series.
TENTH: INDEMNIFICATION
A. INDEMNIFICATION GENERALLY. The Trust shall indemnify, to the
fullest extent permitted by applicable law, each person who is or has been a
Trustee or officer (including each person who serves or has served at the
Trust's request as a director, officer, or trustee or another organization in
which the Trust has any interest as a shareholder, creditor or otherwise, and
any heir, administrator or executor of such person) (a "Covered Person") against
all liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
attorneys' fees reasonably incurred by such Covered Person in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil, criminal, administrative or investigative, and any appeal therefrom (a
"Proceeding"), before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party or otherwise or
with which such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Covered Person.
B. DETERMINATION OF ELIGIBILITY. Notwithstanding the provisions of
Section A of Article TENTH, to the extent required under the 1940 Act,
(i) Article TENTH, Section A, shall not protect any person against
any liability to the Trust or to its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office;
(ii) in the absence of a final decision on the merits by a court or
other body before whom a Proceeding was brought that a Covered Person was not
liable by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office, no
indemnification shall be permitted unless a determination that such person was
not so liable shall have been made on behalf of the Trust by (a) the vote of a
majority of the "disinterested, non-party Trustees," as defined below, or (b) an
independent legal counsel as expressed in a written opinion; and
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(iii) the Trust shall not advance attorneys' fees incurred by a
Covered Person in connection with Proceeding unless the Trust receives an
undertaking by or on behalf of the Covered Person to repay the advance (unless
it is ultimately determined that he is entitled to indemnification) and (a) the
Covered Person shall provide security for his undertaking, or (b) the Trust
shall be insured against losses arising by reason of any lawful advances, or (c)
a majority of the disinterested, non-party Trustees of the Trust or an
independent legal counsel, as expressed in a written opinion, shall determine,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification. Such undertaking shall provide that
the Covered Person to whom the advance was made shall not be obligated to repay
pursuant to such undertaking until the final determination of any pending
Proceeding in a court of competent jurisdiction, including appeals therefrom,
concerning the right of such Covered Person to be indemnified by the Trust or
the obligation of such person to repay pursuant to the undertaking.
Any approval pursuant to this Section shall not prevent the recovery from
any Covered Person of any amount paid to such Covered Person in accordance with
this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in, or not
opposed to, the best interests of the Trust or to have been liable to the Trust
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
As used in this Article TENTH, the term "disinterested, non-party Trustee"
is a Trustee who is not an "interested person" of the Trust, as defined in
Section 2(a)(19) of the 1940 Act and against whom none of the Proceedings in
question or another action, suit or other Proceeding on the same or similar
grounds is then or has been pending.
C. INDEMNIFICATION NOT EXCLUSIVE. The right of indemnification hereby
provided shall not be exclusive of or affect any other rights to which any such
Covered Person may be entitled. Nothing contained in this Article shall affect
any rights to indemnification to which Covered Persons and other persons may be
entitled by contract (apart from the provisions of his Article TENTH) or
otherwise under law, nor to limit the power of the Trust to indemnify such
persons.
D. SHAREHOLDERS. In case any shareholder or former shareholder shall
be held to be personally liable solely by reason of his or her being or having
been a shareholder and not because of his or her acts or omissions or from some
other reason, the shareholder or former shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss and expense
arising from such liability.
E. CONTRACTUAL RIGHTS. This Article TENTH shall be deemed to be a
contract between the Trust and each person who is a Covered Person at any time
this Article TENTH is in effect. Any repeal or other modification of this
Article TENTH or of any applicable laws shall not limit any rights of
indemnification then existing or arising out of events, acts, or omissions
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occurring prior to such repeal or modification, including, without limitation,
the right to indemnification for Proceedings commenced after such repeal or
modification to enforce this Article TENTH with respect to events, acts or
omissions prior to such repeal or modification.
F. PROTECTION OF RIGHTS. If a written claim for indemnification by a
Covered Person under this Article TENTH is not promptly paid in full by the
Trust after receipt by the Trust of a such claim, or if expenses have not been
promptly advanced after compliance by a Covered Person with the requirements of
this Article TENTH for such advancement, such Covered Person may, at any time
thereafter, bring suit against the Trust to recover the unpaid amount of the
claim or the advancement of expenses. If successful, in whole or in part, in
such suit, such Covered Person shall also be entitled to be paid the reasonable
expense therefor. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the requirements of this
Article TENTH for advancement of expenses have been met by such Covered Person)
that the indemnification of the Covered Person is prohibited, but the burden of
proving such defense shall be on the Trust. Neither the failure of the Trust,
including its disinterested non-party Trustees or independent legal counsel, to
have made a determination that indemnification of Covered Person is proper in
the circumstances because he or she has met the applicable standard of conduct
required under the 1940 Act, nor the actual determination by the Trust,
including its disinterested non-party Trustees or independent legal counsel,
that the Covered Person had not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that such Covered Person had
not met the applicable standard of conduct.
ELEVENTH: RESERVATION OF RIGHT TO AMEND.
A. BY BOARD OF TRUSTEES. Except when otherwise required by the 1940
Act, this Declaration of Trust may be amended at any time by a majority of the
Trustees then in office, provided notice of any amendment (other than amendments
having the purpose of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision contained
herein, or having any other purpose which is ministerial or clerical in nature)
shall be mailed promptly to shareholders of record at the close of business on
the effective date of such amendment.
B. BY SHAREHOLDERS. Except when otherwise required by the 1940 Act,
this Declaration of Trust may be amended at any time by a majority vote of the
shares of the Trust entitled to be voted.
TWELFTH: SHAREHOLDERS' VOTING POWERS AND MEETINGS.
A. SHAREHOLDERS' VOTING POWERS. The shareholders shall have power to
vote only (i) for the election or removal of Trustees as provided in Article
SEVENTH, Section A; (ii) with respect to any investment adviser as provided in
Article SEVENTH, Section F; (iii) with respect to any termination of this Trust
or a series thereof to the extent and as provided in Article FOURTEENTH; (iv)
with respect to any amendment of this Declaration of Trust to the extent and as
provided in Article ELEVENTH, Section B; (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim
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should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the shareholders; and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
SEC, or as the Board of Trustees may consider necessary or desirable. Each
whole share outstanding on the record date established in accordance with the
By-Laws shall be entitled to one vote as to any matter on which it is entitled
to vote and each fractional share shall be entitled to a proportionate
fractional vote. Notwithstanding any other provision of this Declaration of
Trust, on any matter submitted to a vote of shareholders, shares shall be voted
in the aggregate and not be individual series except: (1) when required by the
1940 Act or other applicable law, shares shall be voted by individual series; or
(2) when the Board of Trustees has determined that the matter affects only the
interests of one or more series, then shareholders of the unaffected series
shall not be entitled to vote thereon. There shall be no cumulative voting in
the election of the Board of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to shares
held in the names of two or more persons shall be valid if executed by any one
of them unless at or prior to exercise of the proxy, the Trust receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a shareholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At all meetings of shareholders,
unless inspectors of election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Unless
otherwise specified in the proxy, the proxy shall apply to all shares of each
series of the Trust owned by the shareholder.
Until shares are issued, the Board of Trustees may exercise all rights of
shareholders and may take any action required by law, this Declaration of Trust
or the By-Laws to be taken by shareholders.
B. MEETINGS. Meetings of shareholders of the Trust or of any series
may be called by the Board of Trustees, the President, the Executive
Vice-President, the Senior Vice President, any Vice-President, or such other
person or persons as may be specified in the By-Laws, and shall be held from
time to time for the purpose of taking action upon any matter requiring the vote
or the authority of the shareholders of the Trust or any series as herein
provided or upon any other matter deemed by the Board of Trustees to be
necessary or desirable. Meetings of shareholders of the Trust or of any series
shall be called by the Secretary or such other person or persons as may be
specified in the By-Laws upon written application by shareholders holding at
least 10% of the outstanding shares of the Trust, if shareholders of all series
are required hereunder to vote in the aggregate and not by individual series at
such meeting, or of any series, if shareholders of such series are entitled
hereunder to vote by individual series at such meeting, requesting that a
meeting be called for a purpose requiring action by the shareholders as provided
herein or in the By-Laws and provided that such application shall state the
purpose or purposes of such meeting and the matters proposed to be acted on.
18
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C. QUORUM AND REQUIRED VOTE. Thirty percent of the shares entitled to
vote shall be a quorum for the transaction of business at a shareholders'
meeting, except that if any provision of law or of this Declaration of Trust
permits or requires that holders of any series shall vote as a series, then
thirty percent of the aggregate number of shares of each series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series. Any lesser number, however, shall be sufficient for adjournments
or if no shares are represented thereat, any officer present thereat entitled to
preside or act as secretary of such meeting may adjourn the meeting. Any
adjourned session or sessions may be held within a reasonable time after the
date set for the original meeting without the necessity of further notice.
Except when a larger vote is required by any provision of this Declaration of
Trust or the By-Laws, a majority of the shares voted shall decide any questions
and a plurality shall elect any Trustee, provided that where any provision of
law or of this Declaration of Trust permits or requires that the holders of any
series shall vote as a series, then a majority of the shares of that series
voted on the matter shall decide that matter insofar as that series is
concerned.
The vote upon any question shall be by written ballot whenever requested by
any person entitled to vote but, unless such a request is made, voting may be
conducted by voice vote or in any other way approved by the meeting.
D. PLACE OF MEETING. All shareholders' meetings shall be held at the
office of the Trust in the City of Chicago, State of Illinois, except that the
Board of Trustees or the President of the Trust may fix a different place of
meeting within the United States, which shall be specified in the notice or
waiver of notice of such meeting.
E. NOTICE OF MEETINGS; ADJOURNMENT. The Secretary or an Assistant
Secretary shall cause notice of the place, date and hour and the purpose or
purposes for which a meeting is called, to be mailed, postage prepaid, not less
than seven days before the date of such meeting, to each shareholder entitled to
vote at such meeting, at his address as it appears on the records of the Trust.
Notice of any shareholders' meeting need not be given to any shareholder who
shall sign a written waiver of such notice, whether before or after the time of
such meeting, which waiver shall be filed with the record of such meeting, or to
any shareholder who shall attend such meeting in person or by proxy. A meeting
of shareholders convened on the date for which it was called may be adjourned
from time to time, without further notice, to a date not more than 120 days
after the original record date.
F. SHARE LEDGER. It shall be the duty of the Secretary or Assistant
Secretary of the Trust to cause an original or duplicate share ledger to be
maintained at the office of the Trust's transfer agent. Such share ledger may
be in written form or any other form capable of being converted into a written
form within a reasonable time for visual inspection.
G. ACTION BY WRITTEN CONSENT. Any action taken by shareholders may be
taken without a meeting if a majority of shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provisions of this Declaration of Trust or the By-Laws) consent to the action in
writing and such written consents are filed with the records
19
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of the meetings of shareholders. Such consent shall be treated for all purposes
as a vote taken at a meeting of shareholders.
THIRTEENTH: USE OF NAME.
The Trust acknowledges that it is adopting its trust name, and may adopt
the name of various series of the Trust, through permission of Mesirow Asset
Management, Inc. and agrees that Mesirow Asset Management, Inc. reserves to
itself and any successor to its business the right to grant to any other entity,
including but not limited to any investment company of which it or any
subsidiary or affiliate thereof or any successor to the business thereof shall
be the investment adviser, the nonexclusive right to use the name Skyline Fund
and any name subsequently adopted as the name of the Trust or, in either case,
any similar name.
FOURTEENTH: MISCELLANEOUS.
A. DURATION AND TERMINATION OF TRUST. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of shareholders holding a majority of the shares
of each series entitled to vote or by the Trustees by written notice to the
shareholders. Any series of shares may be terminated at any time by vote of
shareholders holding a majority of the shares of such series entitled to vote or
by the Trustees by written notice to the shareholders of such series.
Upon termination of the Trust or of any one or more series of shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated as may be determined by the Trustees, the
Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets to distributable form in cash or shares
or other securities, or any combination thereof, and distribute the proceeds to
the shareholders of the series involved, ratably according to the number of
shares of such series held by the several shareholders of such series on the
date termination.
B. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy of
this instrument and of each amendment hereto shall be kept at the office of the
Trust where it may be inspected by any shareholder. A copy of this instrument
and of each amendment hereto shall be filed by the Trust with the Secretary of
the Commonwealth of Massachusetts and with the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such amendments have been made and as to any
matters in connection with the Trust hereunder; and, with the same effect as if
it were the original, may rely on a copy certified by an officer of the Trust to
be a copy of this instrument or of any such amendments. In this instrument and
in any such amendment, references to this instrument, and all expressions such
as "herein", "hereof", and "hereunder", shall be deemed to refer to this
instrument as amended or affected by any such amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts, each of which
shall be deemed an original.
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C. APPLICABLE LAW. This Declaration of Trust is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
D. SEVERABILITY. If any Article or other portion of this Declaration
of Trust shall be invalidated or held to be unenforceable on any ground by any
court of competent jurisdiction, the decision of which shall have not been
reversed on appeal, such invalidity or unenforceability shall not affect the
other provisions hereof, and this Declaration of Trust shall be construed in all
respects as if such invalid or unenforceable provision had been omitted
herefrom.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal in
the City of Boston, Massachusetts, for herself and her assigns, as of the day
and year first above written.
/s/ Julie E. Leininger
-----------------------------------
Julie E. Leininger, Trustee
21
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COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
Boston, 2-4 , 1987
-----------
Then personally appeared the above-named Julie E. Leininger, Trustee, and
acknowledged the foregoing instrument to be her free act and deed, before me.
/s/ Ellen [ILLEGIBLE]
-----------------------------------
Notary Public
My Commission Expires: 12-1-89
---------------
(NOTARIAL SEAL)
22
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SKYLINE FUND
BY-LAWS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL . . . . . . . . . . . . . . . 1
Section 1.01 Agreement and Declaration of Trust. . . . . . . . . . 1
Section 1.02 Principal Office. . . . . . . . . . . . . . . . . . . 1
Section 1.03 Seal. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II BOARD OF TRUSTEES. . . . . . . . . . . . . . . . . . . . . 1
Section 2.01 Number and Term of Office . . . . . . . . . . . . . . 1
Section 2.02 Power to Declare Dividends. . . . . . . . . . . . . . 1
Section 2.03 Annual and Regular Meetings . . . . . . . . . . . . . 2
Section 2.04 Special Meetings. . . . . . . . . . . . . . . . . . . 2
Section 2.05 Notice. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.06 Waiver of Notice. . . . . . . . . . . . . . . . . . . 3
Section 2.07 Quorum and Voting . . . . . . . . . . . . . . . . . . 3
Section 2.08 Action Without a Meeting. . . . . . . . . . . . . . . 3
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES . . . . . . . . . 3
Section 3.01 How Constituted . . . . . . . . . . . . . . . . . . . 3
Section 3.02 Powers of the Executive Committee . . . . . . . . . . 3
Section 3.03 Other Committees of the Board of Trustees . . . . . . 3
Section 3.04 Proceeding, Quorum and Manner of Acting . . . . . . . 4
Section 3.05 Other Committees. . . . . . . . . . . . . . . . . . . 4
Section 3.06 Action Without a Meeting. . . . . . . . . . . . . . . 4
Section 3.07 Waiver of Notice. . . . . . . . . . . . . . . . . . . 4
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.01 General . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.02 Election, Term of Office and Qualifications . . . . . 4
Section 4.03 Resignation . . . . . . . . . . . . . . . . . . . . . 5
Section 4.04 Removal . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.05 Vacancies and Newly Created Offices . . . . . . . . . 5
Section 4.06 President . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.07 Executive Vice-President and Vice-Presidents. . . . . 5
Section 4.08 Treasurer and Assistant Treasurers. . . . . . . . . . 5
Section 4.09 Secretary and Assistant Secretaries . . . . . . . . . 6
Section 4.10 Subordinate Officers. . . . . . . . . . . . . . . . . 6
Section 4.11 Remuneration. . . . . . . . . . . . . . . . . . . . . 6
Section 4.12 Surety Bonds. . . . . . . . . . . . . . . . . . . . . 6
i
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ARTICLE V CUSTODY OF SECURITIES. . . . . . . . . . . . . . . . . . . 6
Section 5.01 Employment of a Custodian . . . . . . . . . . . . . . 6
Section 5.02 Provisions of Custodian Contract. . . . . . . . . . . 7
Section 5.03 Action upon Termination of Custodian Contract . . . . 7
ARTICLE VI EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY BOLDER. . . . . . . . . . . . . . . . . . . . . . 8
Section 6.01 General . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.02 Checks, Notes, Drafts, Etc. . . . . . . . . . . . . . 8
Section 6.03 Rights as Security Holder . . . . . . . . . . . . . . 8
ARTICLE VII SHARES OF BENEFICIAL INTEREST. . . . . . . . . . . . . . . 8
Section 7.01 Certificates. . . . . . . . . . . . . . . . . . . . . 8
Section 7.02 Uncertificated Shares . . . . . . . . . . . . . . . . 9
Section 7.03 Transfers of Shares . . . . . . . . . . . . . . . . . 9
Section 7.04 Registered Shareholders . . . . . . . . . . . . . . . 9
Section 7.05 Transfer Agents and Registrars. . . . . . . . . . . . 9
Section 7.06 Fixing of Record Date . . . . . . . . . . . . . . . . 9
Section 7.07 Lost, Stolen, or Destroyed Certificates . . . . . . . 10
Section 7.08 Discontinuance of Issuance of Certificates. . . . . . 10
ARTICLE VIII FISCAL YEAR, ACCOUNTANT. . . . . . . . . . . . . . . . . . 10
Section 8.01 Fiscal Year . . . . . . . . . . . . . . . . . . . . . 10
Section 8.02 Accountant. . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9.01 General . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9.02 By Shareholders Only. . . . . . . . . . . . . . . . . 11
ii
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SKYLINE FUND
BY-LAWS
(By-Laws Adopted by Board of Trustees on February 4, 1987)
ARTICLE I
AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be
subject to the Agreement and Declaration of Trust as now in effect or
hereinafter amended ("Declaration of Trust") of Skyline Fund, a Massachusetts
business trust established by the Declaration of Trust (the "Trust").
Section 1.02 PRINCIPAL OFFICE. A principal office of the Trust shall be
located in Boston, Massachusetts. The Trust may also maintain a principal
office in the City of Chicago, State of Illinois. The Trust may, in addition,
establish and maintain such other offices and places of business as the Board of
Trustees may from time to time determine.
Section 1.03 SEAL. The seal of the Trust shall be circular in form and
shall bear the name of the Trust, the word "Massachusetts," and the year of its
organization. The form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any officer or Trustee
of the Trust shall have authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board of Trustees, the
seal shall not be necessary to be placed on, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust.
ARTICLE II
BOARD OF TRUSTEES
Section 2.01 NUMBER AND TERM OF OFFICE. The Board of Trustees shall
initially consist of the initial sole Trustee, which number may be increased or
subsequently decreased by a resolution of a majority of the entire Board of
Trustees, provided that the number of Trustees shall not be less than one nor
more than twenty-one. Each Trustee (whenever selected) shall hold office until
the next meeting of shareholders called for the election of Trustees and until
his successor is elected and qualified or until his earlier death, resignation,
or removal. The initial Trustee shall be the person designated in the
Declaration of Trust.
Section 2.02 POWER TO DECLARE DIVIDENDS.
(a) The Board of Trustees, from time to time as it may deem
advisable, may declare and pay dividends to the shareholders of any series of
the Trust in cash or other property of that series, out of any source available
to that series for dividends, according to the respective
<PAGE>
rights and interests of shareholders of that series and in accordance with the
applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to time that
dividends declared on shares of a series may be payable at the election of any
of the shareholders of that series (exercisable before the declaration of the
dividend), either in cash or in shares of that series; provided that the net
asset value of the shares received by a shareholder electing to receive
dividends in shares (determined as of such time as the Board of Trustees shall
have prescribed in accordance with the Declaration of Trust) shall not exceed
the full amount of cash to which the shareholder would be entitled if he elected
to receive cash.
(c) The Board of Trustees shall cause any dividend payment to
shareholders of a series to be accompanied by a written statement if wholly or
partly from any source other than:
(i) such series' accumulated undistributed net income [determined in
accordance with generally accepted accounting principles and the rules and
regulations then in effect of the Securities and Exchange Commission or any
other governmental body having similar jurisdiction over the Trust (the "SEC")]
and not including profits or losses realized upon the sale of securities or
other properties of the series; or
(ii) the series' net income so determined for the current or
preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation and shall be in such form as the SEC may prescribe.
Section 2.03 ANNUAL AND REGULAR MEETINGS. Annual and regular meetings of
the Board of Trustees may be held without call or notice and at such places and
such times as the Board of Trustees may from time to time determine provided
that notice of the first regular meeting following any such determination shall
be given to absent Trustees. Members of the Board of Trustees or any committee
designated thereby may participate in a meeting of such Board or committee by
means of a conference telephone or other communications equipment, by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at a
meeting; provided, however, that the Board of Trustees shall not enter into,
renew, or perform any contract or agreement, written or oral, whereby a person
undertakes regularly to serve or act as investment adviser with respect to any
series of the Trust unless the terms of such contract or agreement and any
renewal thereof have been approved by the vote of a majority of Trustees who are
not parties to such contract or agreement or interested persons of any such
party, which votes shall be cast at a meeting called for the purpose of voting
on such approval at which such persons are physically present.
Section 2.04 SPECIAL MEETINGS. Special meetings of the Board of Trustees
shall be held whenever called and at such place and time determined by the
President, Executive Vice-President or Secretary (or, in the absence or
disability of the President, Executive Vice-President and Secretary, by any
Vice-President), or a majority of the Trustees then in office, at the time and
place specified in the respective notices or waivers of notice of such meetings.
2
<PAGE>
Section 2.05 NOTICE. If notice of a meeting of the Board of Trustees is
required or desired to be given, notice stating the time and place shall be
mailed to each Trustee at his residence or regular place of business at least
five days before the day on which the meeting is to be held or caused to be
delivered to him personally or to be transmitted to him by telephone, telegraph,
cable, or wireless at least one day before the meeting.
Section 2.06 WAIVER OF NOTICE. No notice required or desired to be
given of any meeting need be given to any Trustee who attends such meeting in
person or to any Trustee who waives notice of such meeting in writing (which
wavier shall be filed with records of such meeting), whether before or after the
time of the meeting.
Section 2.07 QUORUM AND VOTING. At all meetings of the Board of
Trustees, the presence of one-third of the number of Trustees then in office
shall constitute a quorum for the transaction of business; provided, however, a
quorum shall not be less than the lesser of two Trustees or 100% of all Trustees
then in office. In the absence of a quorum, a majority of the Trustees present
may adjourn the meeting without further notice, from time to time, until a
quorum shall be present. The action of a majority of the Trustees present at a
meeting at which a quorum is present shall be the action of the Board of
Trustees, unless the concurrence of a greater proportion is required for such
action by law, by the Declaration of Trust, or by these By-Laws.
Section 2.08 ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Trustees may be taken without a
meeting, if written consents thereto are signed by a majority of the Trustees
unless the consent of a larger number is required pursuant to applicable law in
which case the consents of such number shall be required, and such written
consents are filed with the minutes of proceedings of the Board of Trustees.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01 HOW CONSTITUTED. By resolution adopted by the Board of
Trustees, the Board may designate one or more committees, including an Executive
Committee, each of which shall consist of at least two Trustees. Each member of
a committee must be a Trustee and shall hold office during the pleasure of the
Board.
Section 3.02 POWERS OF THE EXECUTIVE COMMITTEE. Unless otherwise
provided by resolution of the Board of Trustees, the Executive Committee shall
have and may exercise all powers of the Board of Trustees in the management of
the business and affairs of the Trust that may lawfully be exercised by an
executive committee, except the power to recommend to shareholders any matter
requiring shareholder approval, amend the Declaration of the Trust or By-Laws,
or approve any merger or share exchange that does not require shareholder
approval.
Section 3.03 OTHER COMMITTEES OF THE BOARD OF TRUSTEES. To the extend
provided by resolution of the Board, other committees of the Board shall have
and may exercise any of the powers that may lawfully be granted to the Executive
Committee.
3
<PAGE>
Section 3.04 PROCEEDING, QUORUM AND MANNER OF ACTING. In the absence of
appropriate resolution of the Board of Trustees, each committee may adopt such
rules and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable, provided that the quorum shall not be less
than two Trustees. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a quorum,
may appoint a member of the Board of Trustees to act in the place of such absent
member.
Section 3.05 OTHER COMMITTEES. The Board of Trustees may appoint other
committees, each consisting of one or more persons, who need not be Trustees.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Trustees, but shall not
exercise any power which may lawfully be exercised only by the Board of Trustees
or a committee thereof.
Section 3.06 ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting or any committee may be taken without a meeting, if
written consents thereto are signed by a majority of the members of the
committee unless the consent of a larger number is required pursuant to
applicable law in which case the consents of such number shall be required,
pursuant to applicable law in which case the consents of such number shall be
required and such written consents are filed with the minutes of proceedings of
the Board of Trustees or of the committee.
Section 3.07 WAIVER OF NOTICE. Whenever any notice of the time, place or
purpose of any meeting of any committee is required to be given under the
provisions of any applicable law or under the provisions of the Declaration of
Trust or these By-Laws, a wavier thereof in writing, signed by the person or
persons entitled to such notice and filed with the records of the meeting,
whether before or after the holding of such meeting, or actual attendance at the
meeting in person, shall be deemed equivalent to the giving of such notice to
such persons.
ARTICLE IV
OFFICERS
Section 4.01 GENERAL. The officers of the Trust shall be a President, a
Secretary and a Treasurer, and may include an Executive Vice-President, one or
more Vice-Presidents, Assistant Secretaries or Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
4.10 hereof. The Board of Trustees may elect, but shall not be required to
elect, a Chairman of the Board.
Section 4.02 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers
of the Trust (except those appointed pursuant to Section 4.10 hereof) shall be
chosen by the Board of Trustees at its first meeting or such subsequent meetings
as shall be held prior to its first annual meeting and thereafter annually. If
any officers are not chosen at any annual meeting, such officers may be chosen
at any subsequent regular or special meeting of the Board. Except as provided
in Sections 4.03, 4.04 and 4.05 hereof, each officer chosen by the Board of
Trustees shall hold office until the next annual meeting of the Board of
Trustees and until his successor shall have been chosen and qualified or until
his earlier death. Any person may hold one or more
4
<PAGE>
offices of the Trust except the offices of the President and Vice-President, but
no officer shall execute, acknowledge, or verify an instrument in more than one
capacity, if such instrument is required by law, by the Declaration of Trust, or
by these By-Laws to be executed, acknowledged or verified by two or more
offices. No officer need be a Trustee.
Section 4.03 RESIGNATION. Any officer may resign his office at any time
by delivering a written resignation to the Board of Trustees, the President, the
Secretary, or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 4.04 REMOVAL. Any officer may be removed from office, whenever
in the Board's judgment the best interest of the Trust will be served thereby,
by the vote of a majority of the Board of Trustees given at any regular or
special meeting. In addition, any officer or agent appointed in accordance with
the provisions of Section 4.10 hereof may be removed, either with or without
cause, by any officer upon whom such power of removal shall have been conferred
by the Board of Trustees.
Section 4.05 VACANCIES AND NEWLY CREATED OFFICES. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification,
or other cause, or if any new office shall be created, such vacancy or newly
created office may be filled by the Board of Trustees at any regular or special
meeting or, in the case of any office created pursuant to Section 4.10 hereof,
by any officer upon whom such power shall have been conferred by the Board of
Trustees. An officer chosen by the Board of Trustees to fill a vacancy or a
newly created office shall serve until the next annual meeting of the Board of
Trustees or until his successor shall have been chosen and qualified or until
his earlier death, resignation or removal.
Section 4.06 PRESIDENT. The President shall be the chief executive
officer of the Trust and shall preside at all shareholders' meetings and at all
meetings of the Board of Trustees. Subject to the supervision of the Board of
Trustees, he shall have general charge of the business, affairs and property of
the Trust and general supervision over its officers, employees and agents.
Section 4.07 EXECUTIVE VICE-PRESIDENT AND VICE-PRESIDENTS. The Board of
Trustees may from time to time elect an Executive Vice-President and one or more
Vice-Presidents, who shall have such powers and perform such duties as from time
to time may be assigned to them by the Board of Trustees or the President. At
the request or in the absence or disability of the President, the Executive
Vice-President, and in his absence or disability the Vice-President (or, if
there are two or more Vice-Presidents, the earliest elected of the
Vice-Presidents present and able to act) may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 4.08 TREASURER AND ASSISTANT TREASURERS. The Treasurer and any
Assistant Treasurer may perform such duties of the President or the Board of
Trustees may assign. The Treasurer shall be the principal financial and
accounting officer of the Trust and shall have general charge of the finances
and books of account of the Trust. Except as otherwise provided by the Board of
Trustees, he shall have general supervision of the funds and property of the
Trust and of the performance by the Custodian of its duties with respect
thereto. He shall render to the Board of Trustees, whenever directed by the
Board, an account of the financial condition of the
5
<PAGE>
Trust and of all his transactions as Treasurer; and as soon as possible after
the close of each fiscal year he shall make and submit to the Board of Trustees
a like report for such fiscal year. He shall perform all the acts incidental to
the office of Treasurer, subject to the control of the Board of Trustees.
Section 4.09 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend to the giving and serving of all notices of the Trust and shall record
all proceedings of the meetings of the shareholders, Trustees, the Executive
Committee and other committees, in a book to be kept for that purpose. He shall
keep in safe custody the seal of the Trust, and shall have charge of the records
of the Trust, including the share books and such other books and papers as the
Board of Trustees may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall, at all reasonable
times, be open to inspection by any Trustee. He shall perform all the acts
incidental to the office of Secretary, subject to the control of the Board of
Trustees.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Trustees may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 4.10 SUBORDINATE OFFICERS. The Board of Trustees from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Trustees may determine. The Board of
Trustees from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4.11 REMUNERATION. The salaries, if any, or other compensation
of the officers of the Trust shall be fixed from time to time by resolution of
the Board of Trustees, except that the Board of Trustees may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 4.10 hereof.
Section 4.12 SURETY BONDS. The Board of Trustees may require any officer
or agent of the Trust to execute a bond to the Trust [including, without
limitation, any bond required by the Investment Company Act of 1940, or any rule
or regulation thereunder, all as now in effect or as hereafter amended or added
(the "1940 Act") and the rules and regulations of the SEC] in such sum and with
such surety or sureties as the Board of Trustees may determine, conditioned upon
the faithful performance of his duties to the Trust, including responsibility
for negligence and for the accounting of any of the Trust's property, funds, or
securities that may come into his hands.
ARTICLE V
CUSTODY OF SECURITIES
Section 5.01 EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all securities owned by the Trust and cash representing the
proceeds from sales of securities owned by the
6
<PAGE>
Trust and of capital stock or other units of beneficial interest issued to the
Trust, payments of principal upon securities owned by the Trust, or capital
distributions in respect to capital stock or other units of beneficial interest
owned by the Trust, pursuant to a written contract with such Custodian. The
Custodian shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits (as shown in its last published
report).
Section 5.02 PROVISIONS OF CUSTODIAN CONTRACT. The Custodian contract
shall be upon such terms and conditions and may provide for such compensation as
the Board of Trustees deems necessary or appropriate, provided such contract
shall further provide that the Custodian shall deliver securities owned by the
Trust only upon sale of such securities for the account of the Trust and receipt
of payment therefor by the Custodian or when such securities may be called,
redeemed, retired, or otherwise become payable. Such limitations shall not
prevent:
(a) the delivery of securities for examination to the broker selling
the same in accord with the "street delivery" custom whereby such securities are
delivered to such broker in exchange for a delivery receipt exchanged on the
same day for an uncertified check of such broker to be presented on the same day
for certification;
(b) the delivery of securities of an issuer in exchange for or for
conversion into other securities alone or cash and other securities, pursuant to
any plan of merger, consolidation, reorganization, recapitalization, or
readjustment of the securities of such issuer;
(c) the conversion by the Custodian of securities owned by the Trust,
pursuant to the provisions of such securities, into other securities;
(d) the surrender by the Custodian of warrants, rights, or similar
securities owned by the Trust in the exercise of such warrants, rights, or
similar securities, or the surrender of interim receipts or temporary securities
for definitive securities;
(e) the delivery of securities as collateral on borrowing effected by
the Trust; or
(f) the delivery of securities owned by the Trust as a redemption in
kind of securities issued by the Trust.
The Custodian shall deliver funds of the Trust for the purchase of
securities for the portfolio of the Trust only upon the delivery of such
securities to the Custodian, but such limitation shall not prevent the release
of funds by the Custodian for redemption of shares issued by the Trust, for
payment of interest, dividend disbursements, taxes or management fees, for
payments in connection with the conversion, exchange or surrender of securities
owned by the Trust as set forth in subparagraphs (b), (c) and (d) above or for
operating expenses of the Trust.
The term "security" shall be broadly construed and shall include, without
limitation, the various types of securities set forth in Section 3(a)(10) of the
Securities Exchange Act of 1934.
Section 5.03 ACTION UPON TERMINATION OF CUSTODIAN CONTRACT. The contract
of employment of the Custodian may be terminated by either party on 60 days'
written notice to the
7
<PAGE>
other party. Upon termination of the Custodian contract, resignation of the
Custodian, or inability of the Custodian to continue to serve, the Board of
Trustees shall use its best efforts to obtain a successor custodian. If a
successor custodian is found, the Trust shall require the retiring Custodian to
deliver the cash and securities owned by the Trust directly to the successor
custodian. In the event that no successor custodian which has the required
qualifications and is willing to serve can be found, the Board of Trustees shall
call a special meeting of the shareholders to submit to the shareholder, before
delivery of the cash and securities owned by the Trust to other than a successor
custodian, the question of whether the Trust shall function without a custodian
or shall be liquidated.
ARTICLE VI
EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY HOLDER
Section 6.01 GENERAL. All deeds, documents, transfers, contracts,
agreements and other instruments requiring execution by the Trust shall be
signed by the President, the Executive Vice-President or the Treasurer, or as
the Board of Trustees may otherwise, from time to time, authorize. Any such
authorization may be general or confined to specific instances.
Section 6.02 CHECKS, NOTES, DRAFTS, ETC. Except as otherwise authorized
by the Board of Trustees, all checks and drafts for the payment of money shall
be signed in the name of the Trust by the Custodian, and all requisitions or
orders for the payment of money by the Custodian or for the issue of checks and
drafts therefor, all promissory notes, all assignments of shares or securities
standing in the name of the Trust and all requisitions or orders for the
assignment of shares or securities standing in the name of the Custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Trust by no less than two of its officers. Promissory notes,
checks, or drafts payable to the Trust may be endorsed only to the order of the
Custodian or its agent.
Section 6.03 RIGHTS AS SECURITY HOLDER. Unless otherwise ordered by the
Board of Trustees, any officer shall have full power and authority on behalf of
the Trust to (1) exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other obligations which may be
owned by the Trust; and (2) attend and to act and to vote, or in the name of the
Trust to execute proxies to vote, at any meeting or security holders of any
company in which the Trust may hold securities. At any such meeting, any
officer shall possess and may exercise (in person or by proxy) any and all
rights, powers and privileges incident to the ownership of such securities.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 7.01 CERTIFICATES. Each shareholder shall be entitled, upon
request, to a certificate or certificates which shall represent and certify
the number, kind, series and class of full shares owned by him in the Trust.
No certificates shall be issued for fractional shares. Each certificate
shall be signed by the President or a Vice-President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and shall be sealed with the seal. The signatures may be either
manual or facsimile signatures and the seal may be either
8
<PAGE>
facsimile or any other form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the certificate is
issued, the certificate may nevertheless be issued by the Trust with the same
effect as if the officer had not ceased to be such officer as of the date of
its issue.
Section 7.02 UNCERTIFICATED SHARES. The Trust's share ledger shall be
deemed to represent and certify the number of full and/or fractional shares of a
series owned of record by a shareholder in those instances where a certificate
for such shares has not been issued.
Section 7.03 TRANSFERS OF SHARES. Shares of any series of the Trust
shall be transferable on the books of the Trust at the request of the record
holder thereof in person or by a duly authorized attorney, upon presentation to
the Trust or its transfer agent of a duly executed assignment or authority to
transfer, or proper evidence of succession, and, if the shares are represented
by a certificate, a duly endorsed certificate or certificates of shares
surrendered for cancellation, and with such proof of the authenticity of the
signatures as the Trust or its transfer agent may reasonably require, provided,
whether or not such shares are represented by any certificate or certificates of
shares, that:
(a) the Trust has no duty to inquire into adverse claims or has
discharged any such duty;
(b) any applicable law relating to the collection of taxes has been
complied with; and
(c) the transfer is in fact rightful or is to a bona fide purchaser.
The transfer shall be recorded on the books of the Trust, the old
certificates, if any, shall be cancelled, and the new record holder, upon
request, shall be entitled to a new certificate or certificates.
Section 7.04 REGISTERED SHAREHOLDERS. The Trust shall be entitled to
treat the holder of record of shares of each series as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Commonwealth of Massachusetts.
Section 7.05 TRANSFER AGENTS AND REGISTRARS. The Board of Trustees may,
from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of the Trust, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made, all
certificates representing shares thereafter issued shall be countersigned by one
of such transfer agents or by one of such registrars or by both and shall not be
valid unless so countersigned. If the same person shall be both transfer agent
and registrar, only one countersignature by such person shall be required.
Section 7.06 FIXING OF RECORD DATE. The Board of Trustees may fix in
advance a date as a record date for the determination of the shareholders of any
series entitled to notice of or to
9
<PAGE>
vote at any meeting of such shareholders or any adjournment thereof, or to
express consent to Trust action in writing without a meeting, or to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any change, conversion, or exchange of shares
of such series, or for the purpose of any other lawful action, provided that
such record date shall not be a date more than 90 days, and, in the case of a
meeting of shareholders, not less than 10 days, prior to the date on which the
particular action requiring such determination of shareholders of such series is
to be taken. In such case only such shareholders as shall be shareholders of
record of such series on the record date so fixed shall be entitled to such
notice of, and to vote at, such meeting or adjournment, or to give such consent,
or to receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take such other action,
as the case may be, notwithstanding any transfer or redemption of any shares of
such series on the books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders, the record date for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the day on which notice of
the meeting is mailed, which shall not be more than 90 days or less than 10 days
before the meeting, or, if notice is waived by all shareholders entitled
thereto, at the close of business on the tenth day before the day on which the
meeting is held.
Section 7.07 LOST, STOLEN, OR DESTROYED CERTIFICATES. Before issuing a
new certificate for shares of any series of the Trust alleged to have been lost,
stolen, or destroyed, the Board of Trustees or any officer authorized by the
Board may, in its or his discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give the Trust a bond or
other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Trust against any
claim that may be made against it on account of alleged loss, theft, or
destruction of any such certificate or the issuance of such new certificate.
Section 7.08 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees
may at any time discontinue the issuance of share certificates and may, by
written notice to each shareholder, require the surrender of share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.
ARTICLE VIII
FISCAL YEAR, ACCOUNTANT
Section 8.01 FISCAL YEAR. The fiscal year of the Trust shall be
established by the Board of Trustees.
Section 8.02 ACCOUNTANT. The Trust shall employ an independent public
accountant or firm of independent public accountants as its Accountant to
examine and certify or issue its report on the financial statements of the
Trust. The Accountant's certificates and reports shall be addressed both to the
Board of Trustees and to the shareholders.
10
<PAGE>
ARTICLE IX
AMENDMENTS
Section 9.01 GENERAL. Except as provided in Section 9.02 hereof, all
By-Laws of the Trust, whether adopted by the Board of Trustees or the
shareholders, shall be subject to amendment, alteration, or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of the Trust
entitled to vote at any meeting, the notice or waiver of notice of which shall
have specified or summarized the proposed amendment, alteration, repeal, or new
By-Law; or
(b) the Trustees, at any regular or special meeting.
Section 9.02 BY SHAREHOLDERS ONLY.
(a) No amendment of any section of these By-Laws shall be made except
by the shareholders of the Trust, if the By-Laws provide that such section may
not be amended, altered or repealed except by the shareholders.
(b) From and after the issue of any shares of the Trust to the
public, no amendment of this Article IX or Article X shall be made except by the
shareholders of the Trust.
END OF BY-LAWS
11
<PAGE>
NUMBER SHARES
SEE REVERSE FOR [LOGO]
CERTAIN DEFINITIONS SKYLINE FUND CUSIP 830833 20 8
SPECIAL EQUITIES PORTFOLIO
A MASSACHUSETTS BUSINESS TRUST
THIS CERTIFIES THAT IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF BENEFICIAL INTEREST,
WITHOUT PAR VALUE, OF
SKYLINE FUND SPECIAL EQUITIES PORTFOLIO
TRANSFERABLE ON THE BOOKS OF THE TRUST BY THE HOLDER HEREOF IN PERSON OR BY
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE DULY ENDORSED OR ASSIGNED. THIS
CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE LAWS OF THE
STATE OF MASSACHUSETTS AND TO THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS
OF THE TRUST AND AMENDMENTS THEREOF.
THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT.
WITNESS THE FACSIMILE SEAL OF THE TRUST AND THE FACSIMILE SIGNATURES OF ITS
DULY AUTHORIZED OFFICERS.
DATED
/s/ Ruth C. Jurkschat SKYLINE FUND /s/ Stephen G. Gaber
- ------------------------- SEAL ------------------------
SECRETARY 1987 PRESIDENT
A MASSACHUSETTS BUSINESS
TRUST
COUNTERSIGNED:
FIRST WISCONSIN TRUST COMPANY
(MILWAUKEE) TRANSFER AGENT
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT-- Custodian
------- -------
(Cust) (Minor)
TEN ENT --as tenants by the entireties under Uniform Gifts to Minors
JT TEN --as joint tenants with right of Act
survivorship and not as tenants -------------------------
in common (State)
Additional abbreviations may also be used though not in the above list
TRANSFER FORM
COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON
For value received hereby sell,
--------------------------------------
assign and tranfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE TYPEWRITE NAME AND ADDRESS)
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the beneficial interest represented by the within certificate, and hereby
irrevocably constitute and appoint attorney,
------------------------------------
to transfer the same on the books of the Trust with full power of substitution
in the premises.
Dated
------------------------------
SIGNATURE GUARANTEED BY
- ------------------------------------ ----------------------------------------
SIGNATURE(S)
SIGNATURE GUARANTEE MUST BE MADE BY NOTICE THE SIGNATURE(S) TO THIS
A MEMBER OR A MEMBER ORGANIZATION OF ASSIGNMENT MUST CORRESPOND WITH THE
THE NEW YORK STOCK EXCHANGE OR BY A NAME AS WRITTEN UPON THE FACE OF THE
COMMERCIAL BANK (NOT A SAVINGS BANK), CERTIFICATE IN EVERY PARTICULAR
OR BY A TRUST COMPANY WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER
--------------------
REDEMPTION FORM
COMPLETE THIS FORM ONLY WHEN REDEEMING SHARES
The undersigned hereby tenders the within certificate properly endorsed in
blank or in favor of the Trust with any requisite guarantee of signature and
supporting papers and requests the redemption of
-------------------------------
( ) Shares
- --------------------------------------------------------- -------------
(INDICATE THE NUMBER OF SHARES TO BE REDEEMED. A NEW
CERTIFICATE WILL BE ISSUED FOR ANY UNREDEEMED BALANCE)
of beneficial interest represented by the within certificate in accordance with
the terms of the agreement and declaration of trust.
Dated
-------------------------------
SIGNATURE GUARANTEED BY
- ------------------------------------ ----------------------------------------
SIGNATURE(S)
SIGNATURE GUARANTEE MUST BE MADE BY NOTICE THE SIGNATURE(S) TO THIS
A MEMBER OR A MEMBER ORGANIZATION OF ASSIGNMENT MUST CORRESPOND WITH THE
THE NEW YORK STOCK EXCHANGE OR BY A NAME AS WRITTEN UPON THE FACE OF THE
COMMERCIAL BANK (NOT A SAVINGS BANK), CERTIFICATE IN EVERY PARTICULAR
OR BY A TRUST COMPANY WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER
----------------------------------------
----------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE>
NUMBER SHARES
SEE REVERSE FOR [LOGO]
CERTAIN DEFINITIONS SKYLINE FUND CUSIP
SPECIAL EQUITIES II
A MASSACHUSETTS BUSINESS TRUST
THIS CERTIFIES THAT IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF BENEFICIAL INTEREST,
WITHOUT PAR VALUE, OF
SKYLINE FUND SPECIAL EQUITIES II
TRANSFERABLE ON THE BOOKS OF THE TRUST BY THE HOLDER HEREOF IN PERSON OR BY
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE DULY ENDORSED OR ASSIGNED. THIS
CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE LAWS OF THE
STATE OF MASSACHUSETTS AND TO THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS
OF THE TRUST AND AMENDMENTS THEREOF.
THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT.
WITNESS THE FACSIMILE SEAL OF THE TRUST AND THE FACSIMILE SIGNATURES OF ITS
DULY AUTHORIZED OFFICERS.
DATED
/s/ Ruth C. Jurkschat SKYLINE FUND /s/ Stephen G. Gaber
- ------------------------- SEAL ------------------------
SECRETARY 1987 PRESIDENT
A MASSACHUSETTS BUSINESS
TRUST
COUNTERSIGNED:
FIRST WISCONSIN TRUST COMPANY
(MILWAUKEE) TRANSFER AGENT
AUTHORIZED SIGNATURE
<PAGE>
SKYLINE FUND
SPECIAL EQUITIES PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, dated the 31st day of August, 1995, made and entered into
by and between SKYLINE FUND, a Massachusetts business trust (the "Fund") on
behalf of the Special Equities Portfolio (the "Portfolio"), and SKYLINE ASSET
MANAGEMENT, L.P., a Delaware limited partnership (the "Adviser").
In consideration of the mutual convenants hereinafter contained, the
parties hereto hereby agree as follows:
1. ENGAGEMENT OF THE ADVISER. The Adviser shall manage the investment
and reinvestment of the assets of the Portfolio. The Adviser shall
determine which investments shall be made or disposed of by the
Portfolio and shall effect such acquisitions and dispositions, all in
furtherance of the Portfolio's investment objective and policies,
subject to the overall control and supervision of the Fund's board of
trustees, for the period and on the terms set forth in this Agreement.
The Adviser is authorized to place the Portfolio's portfolio
transactions with securities broker-dealers and futures commission
merchants and to negotiate the terms of such transactions, including
brokerage commissions, on behalf of the Portfolio. The Adviser is
authorized to exercise discretion within the Fund's policy concerning
allocation of its brokerage business, as permitted by law, including
but not limited to Section 28(e) of the Securities Exchange Act of
1934. The Adviser shall report on such activities to the Fund's board
of trustees and shall submit such reports and other information
thereon as the Fund's board of trustees shall from time to time
request. The Adviser shall provide certain other services to the Fund
in connection with the Fund's ongoing administration and operation.
2. COMPLIANCE WITH APPLICABLE REQUIREMENTS. This Agreement will be
performed in accordance with the requirements of the Investment
Company Act of 1940 (the "Act") and the Investment Advisers Act of
1940 and the rules and regulations under such acts, to the extent that
the subject matter of this Agreement is within the purview of such
acts and such rules and regulations. The Adviser will assist the Fund
in complying with the requirements of the Act and the Securities Act
of 1933, as amended (the "1933 Act") and the rules and regulations
under such acts, and in qualifying as a regulated investment company
under the Internal Revenue Code and applicable regulations of the
Internal Revenue Service thereunder. In carrying out its obligations
under this Agreement the Adviser shall at all times conform to the
provisions of the Agreement and Declaration of Trust and By-Laws of
the Fund, the provisions of the currently effective Registration
Statement
<PAGE>
of the Fund under the Act and the 1933 Act, and any other applicable
provisions of state or federal law.
3. EXPENSES TO BE PAID BY THE ADVISOR. The Advisor shall furnish, at its
own expense, office space to the Fund and all necessary office
facilities, equipment, and personnel for managing the assets of the
Portfolio, providing shareholder servicing and providing general
administrative services to the Portfolio and to the Fund. The Adviser
shall also assume and pay all other ordinary costs and expenses
incurred by it in connection with managing the assets of the Fund; all
ordinary accounting, auditing and legal services, clerical and
statistical services, administrative costs and advisory fees (except
to the extent payable by the Fund pursuant to Section 4); any
compensation of officers and employees of the Fund; all costs
attributable to shareholder and investor services relating to the
Portfolio (including, without limitation, telephone and personnel
expenses and the charges, if any, of third parties performing such
services); all expenses of marketing shares of the Portfolio; all
expenses of maintaining the registration of shares of the Portfolio
under the 1933 Act and of qualifying and maintaining qualification of
shares of the Portfolio under the securities laws of such United
States jurisdictions as the Fund may from time to time reasonably
designate (except to the extent payable by the Fund pursuant to
Section 4); and all expenses of determining daily price computations,
placing of portfolio transaction orders, and performing related
bookkeeping services. The Adviser shall pay all charges of
depositories, custodians, and other agencies for the safekeeping and
servicing of the Fund's cash, securities, and other property and of
the Fund's transfer, dividend disbursing, and redemption agents and
registrars, if any; insurance expenses; all compensation of trustees
who are "interested persons" of the Fund as defined in the Act and all
expenses incurred in connection with their services to the Fund; all
expenses of publication of notices and reports to the Fund's
shareholders; all expenses of proxy solicitations of the Fund or its
board of trustees; and all expenses of maintaining the Fund's
existence and maintaining the registration of the Fund under the Act.
4. EXPENSES TO BE PAID BY THE FUND. Expenses borne by the Fund, as
described below, attributable to the Portfolio are charged against the
Portfolio. Other expenses of the Fund are allocated among its
portfolios on a reasonable basis as determined by the Fund's board of
trustees. The Fund shall pay all fees and expenses incurred in
connection with the services to the Fund of trustees who are not
"interested persons" of the Fund as defined in the Act; all initial
offering and organizational expenses of the Fund, including
typesetting of the Fund's initial prospectus, legal and accounting
expenses, initial registration under the Act, and initial 1933 Act
registration; all taxes and fees payable to federal, state, or other
governmental agencies, domestic or foreign; all stamp or other
transfer taxes; all interest charges; and any extraordinary costs or
expenses such as legal accounting, or other cost or expenses not
incurred in the course of the Fund's ongoing
2
<PAGE>
operation. In addition to the payment of the foregoing expenses the
Fund shall also pay all brokers' commissions and other portfolio
transaction costs.
5. LIMITATION OF EXPENSES. During the term of this Agreement, the total
expenses of the Portfolio, exclusive of extraordinary costs or
expenses such as legal, accounting, or other costs or expenses not
incurred in the course of the Fund's ongoing operation, but including
fees paid to the Adviser pursuant to paragraph 6 below, shall not in
any fiscal year exceed the annual rate of 1.75% of the average daily
net asset value of the Portfolio, and the Adviser agrees to pay any
excess expenses or to reimburse the Portfolio for any sums expended
for such expenses in excess of that amount. Such payment, if any,
will be paid on a monthly basis. Brokers' commissions and other
charges relating to the purchase and sale of securities shall not be
regarded as expenses for this purpose.
In addition, the Adviser agrees that the total annual expenses of the
Portfolio, exclusive of taxes, interest, and extraordinary litigation
expenses, but including fees pad to the Adviser, shall not exceed the
limits prescribed by any state in which the Portfolio's shares are
being offered for sale, and the Adviser has agreed to reimburse the
Portfolio monthly for any such expenses in excess of such limits. The
Fund believes that currently the most restrictive limits are 2.5% of
the first $30 million of the average daily net assets of the
Portfolio, 2.0% of the next $70 million and 1.5% thereafter. Brokers'
commissions and other charges relative to the purchase and sale of
securities are not regarded as expenses for this purpose.
6. COMPENSATION OF THE ADVISER. For the services to be rendered and as
full reimbursement for all expenses of the Fund to be paid by the
Adviser pursuant to this Agreement, the Portfolio shall pay to the
Adviser a monthly fee computed on the basis of the average daily net
asset value of the Portfolio at the following annual rates: (i) 1.50%
of the first $200 million of average daily net assets; (ii) 1.45% of
the next $200 million of average daily net assets; (iii) 1.40% of the
next $200 million average daily net assets; and (iv) 1.35% of average
daily net assets in excess of $600 million. The fee for each calendar
month or portion thereof shall be payable on the first business day of
the next month.
7. SERVICES OF THE ADVISER NOT EXCLUSIVE. The services of the Adviser to
the Fund hereunder are not to be deemed exclusive. The Adviser shall
be free to render similar services to others and engage in other
activities. The Adviser shall be deemed for all purposes to be an
independent contractor and not an agent of the Fund, and unless
otherwise expressly provided or authorized, shall have no authority to
act for or represent the Fund in any way.
8. SERVICES OTHER THAN AS THE ADVISER. The Adviser or its affiliates may
act as broker for the Fund in connection with the purchase of sale of
securities by or for the Fund if and to the extent permitted by
procedures adopted from time to time by the Fund's board of trustees.
Such brokerage services are not within the scope of
3
<PAGE>
the duties of the Adviser under this Agreement and, within the limits
permitted by law and the Fund's board of trustees, the Adviser may
receive brokerage commissions, fees, or other remuneration from the
Fund for such service in addition to its fee for services as the
Adviser. Within the limits permitted by law, the Adviser may receive
compensation from the Fund for other services performed by it for the
Fund which are not within the scope of the duties of the Adviser under
this Agreement.
9. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable to the Fund or its shareholders for any loss suffered by the
Fund or its shareholders from or as a consequence of any act or
omission of the Adviser, or of any of the directors, officers,
employees, or agents of the Adviser, in connection with, pursuant to
or arising out of investment advisory or portfolio investment services
under this Agreement, except by reason of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser in the
performance of such investment advisory or portfolio investment duties
or by reason of reckless disregard by the Adviser of such investment
advisory or portfolio investment obligations and duties under this
Agreement.
With respect to all other services rendered under this Agreement, the
Adviser shall not be liable to the Fund or its shareholders for any
loss suffered by the Fund or its shareholders from or as a consequence
of any act or omission of the Adviser, or of any of the directors,
officers, employees or agents of the Adviser, except by reason of
willful misfeasance, bad faith, gross negligence or negligence on the
part of the Adviser in the performance of such other duties or by
reason of reckless disregard by the Adviser of such other obligations
or duties.
10. DURATION AND RENEWAL. This Agreement has been approved on behalf of
the Portfolio by a majority of those trustees of the Fund who are not
"interested persons" (as defined in the Act) of the Fund or of the
Adviser, voting in person at a meeting called for the purpose of
voting on such approval. Unless terminated as provided in Section 11,
this Agreement shall continue in effect until April 30, 1997, and
thereafter from year to year only so long as such continuance is
specifically approved at least annually by the board of trustees of
the Fund, including a majority of those trustees of the Fund who are
not "interested persons" (as defined in the Act) of the Fund or of the
Adviser, voting in person at a meeting called for the purpose of
voting on such approval.
11. TERMINATION. This Agreement may be terminated at any time, without
payment of any penalty, by the Fund's board of trustees or by a vote
of the holders of a majority (as defined in the Act) of the
outstanding shares of the Portfolio, upon 60 days' written notice to
the Adviser. This Agreement may be terminated by the Adviser at any
time upon 90 days' written notice to the Fund. This Agreement shall
terminate automatically in the event of its assignment (as defined in
the Act).
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<PAGE>
12. AMENDMENT. This Agreement may not be amended without the affirmative
vote of (a) a majority of those trustees who are not "interested
persons" as defined in the Act of the Fund or of the Adviser, voting
in person at a meeting called for the purpose of voting on such
approval, and (b) the holders of a majority of the outstanding shares
of Portfolio.
13. GOVERNING LAW. The terms and provisions of this Agreement shall be
interpreted under and governed by the law of the State of Illinois.
14. LIMITED LIABILITY. Any obligation of the Fund hereunder shall be
binding only on the assets of the Fund (or the applicable Portfolio
thereof) and shall not be binding upon any trustee, officer, employee,
agent or shareholder of the Fund. Neither the authorization of any
action by the trustees or shareholders of the Fund nor the execution
of this Agreement on behalf of the Fund shall impose any liability
upon any trustee or any shareholder.
15. NOTICES. Any notices and communications required hereunder shall be
in writing and shall be deemed given when delivered in person or when
sent by first-class, registered or certified mail to the Adviser at
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606 and to the
Fund at 311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606,
or at such address as either party may from time to time specify by
notice to the other.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ATTEST: SKYLINE FUND
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- --------------------------------
Name: Scott C. Blim Name: William M. Dutton
Title: Secretary Title: President
ATTEST: SKYLINE ASSET MANAGEMENT, L.P.
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- --------------------------------
Name: Scott C. Blim Name: William M. Dutton
Title: Chief Operating Officer Title: President and Chief Executive
Officer
6
<PAGE>
SKYLINE FUND
SPECIAL EQUITIES II
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, dated the 31st day of August, 1995, made and entered into
by and between SKYLINE FUND, a Massachusetts business trust (the "Fund") on
behalf of Special Equities II (the "Portfolio"), and SKYLINE ASSET MANAGEMENT,
L.P., a Delaware limited partnership (the "Adviser").
In consideration of the mutual covenants hereinafter contained, the parties
hereto hereby agree as follows:
1. ENGAGEMENT OF THE ADVISER. The Adviser shall manage the investment
and reinvestment of the assets of the Portfolio. The Adviser shall
determine which investments shall be made or disposed of by the
Portfolio and shall effect such acquisitions and dispositions, all in
furtherance of the Portfolio's investment objective and policies,
subject to the overall control and supervision of the Fund's board of
trustees, for the period and on the terms set forth in this Agreement.
The Adviser is authorized to place the Portfolio's portfolio
transactions with securities broker-dealers and futures commission
merchants and to negotiate the terms of such transactions, including
brokerage commissions, on behalf of the Portfolio. The Adviser is
authorized to exercise discretion within the Fund's policy concerning
allocation of its brokerage business, as permitted by law, including
but not limited to Section 28(e) of the Securities Exchange Act of
1934. The Adviser shall report on such activities to the Fund's board
of trustees and shall submit such reports and other information
thereon as the Fund's board of trustees shall from time to time
request. The Adviser shall provide certain other services to the Fund
in connection with the Fund's ongoing administration and operation.
2. COMPLIANCE WITH APPLICABLE REQUIREMENTS. This Agreement will be
performed in accordance with the requirements of the Investment
Company Act of 1940 (the "Act") and the Investment Advisers Act of
1940 and the rules and regulations under such acts, to the extent that
the subject matter of this Agreement is within the purview of such
acts and such rules and regulations. The Adviser will assist the Fund
in complying with the requirements of the Act and the Securities Act
of 1933, as amended (the "1933 Act") and the rules and regulations
under such acts, and in qualifying as a regulated investment company
under the Internal Revenue Code and applicable regulations of the
Internal Revenue Service thereunder. In carrying out its obligations
under this Agreement the Adviser shall at all times conform to the
provisions of the Agreement and Declaration of Trust and By-Laws of
the Fund, the provisions of the currently effective Registration
Statement of the Fund under the Act and the 1933 Act, and any other
applicable provisions of state or federal law.
<PAGE>
3. EXPENSES TO BE PAID BY THE ADVISOR. The Adviser shall furnish, at its
own expense, office space to the Fund and all necessary office
facilities, equipment, and personnel for managing the assets of the
Portfolio, providing shareholder servicing and providing general
administrative services to the Portfolio and to the Fund. The Adviser
shall also assume and pay all other ordinary costs and expenses
incurred by it in connection with managing the assets of the Fund; all
ordinary accounting, auditing and legal services, clerical and
statistical services, administrative costs and advisory fees (except
to the extent payable by the Fund pursuant to Section 4); any
compensation of officers and employees of the Fund; all costs
attributable to shareholder and investor services relating to the
Portfolio (including, without limitation, telephone and personnel
expenses and the charges, if any, of third parties performing such
services); all expenses of marketing shares of the Portfolio; all
expenses of maintaining the registration of shares of the Portfolio
under the 1933 Act and of qualifying and maintaining qualification of
shares of the Portfolio under the securities laws of such United
States jurisdictions as the Fund may from time to time reasonably
designate (except to the extent payable by the Fund pursuant to
Section 4); and all expenses of determining daily price computations,
placing of portfolio transaction orders, and performing related
bookkeeping services. The Adviser shall pay all charges of
depositories, custodians, and other agencies for the safekeeping and
servicing of the Fund's cash, securities, and other property and of
the Fund's transfer, dividend disbursing, and redemption agents and
registrars, if any; insurance expenses; all compensation of trustees
who are "interested persons" of the Fund as defined in the Act and all
expenses incurred in connection with their services to the Fund; all
expenses of publication of notices and reports to the Fund's
shareholders; all expenses of proxy solicitations of the Fund or its
board of trustees; and all expenses of maintaining the Fund's
existence and maintaining the registration of the Fund under the Act.
4. EXPENSES TO BE PAID BY THE FUND. Expenses borne by the Fund, as
described below, attributable to the Portfolio are charged against the
Portfolio. Other expenses of the Fund are allocated among its
portfolios on a reasonable basis as determined by the Fund's board of
trustees. The Fund shall pay all fees and expenses incurred in
connection with the services to the Fund of trustees who are not
"interested persons" of the Fund as defined in the Act; all initial
offering and organizational expenses of the Fund, including
typesetting of the Fund's initial prospectus, legal and accounting
expenses, initial registration under the Act, and initial 1933 Act
registration; all taxes and fees payable to federal, state, or other
governmental agencies, domestic or foreign; all stamp or other
transfer taxes; all interest charges; and any extraordinary costs or
expenses such as legal accounting, or other cost or expenses not
incurred in the course of the Fund's ongoing operation. In additional
to the payment of the foregoing expenses the Fund shall also pay all
brokers' commissions and other portfolio transaction costs.
2
<PAGE>
5. LIMITATION OF EXPENSES. During the term of this Agreement, the total
expenses of the Portfolio, exclusive of extraordinary costs or
expenses such as legal, accounting, or other costs or expenses not
incurred in the course of the Fund's ongoing operation, but including
fees paid to the Adviser pursuant to paragraph 6 below, shall not in
any fiscal year exceed the annual rate of 2.00% of the average daily
net asset value of the Portfolio, and the Adviser agrees to pay any
excess expenses or to reimburse the Portfolio for any sums expended
for such expenses in excess of that amount. Such payment, if any,
will be paid on a monthly basis. Brokers' commissions and other
charges relating to the purchase and sale of securities shall not be
regarded as expenses for this purpose.
In addition, the Adviser agrees that the total annual expenses of the
Portfolio, exclusive of taxes, interest, and extraordinary litigation
expenses, but including fees paid to the Adviser, shall not exceed the
limits prescribed by any state in which the Portfolio's shares are
being offered for sale, and the Adviser has agreed to reimburse the
Portfolio monthly for any such expenses in excess of such limits. The
Fund believes that currently the most restrictive limits are 2.5% of
the first $30 million of the average daily net assets of the
Portfolio, 2.0% of the next $70 million and 1.5% thereafter. Brokers'
commissions and other charges relative to the purchase and sale of
securities are not regarded as expenses for this purpose.
6. COMPENSATION OF THE ADVISER. For the services to be rendered and as
full reimbursement for all expenses of the Fund to be paid by the
Adviser pursuant to this Agreement, the Portfolio shall pay to the
Adviser a monthly fee computed on the basis of the average daily net
asset value of the Portfolio at the following annual rates: (i) 1.50%
of the first $200 million of average daily net assets; (ii) 1.45 % of
the next $200 million of average daily net assets; (iii) 1.40% of the
next $200 million of average daily net assets; and (iv) 1.35% of
average daily net assets in excess of $600 million. The fee for each
calendar month or portion thereof shall be payable on the first
business day of the next month.
7. SERVICES OF THE ADVISER NOT EXCLUSIVE. The services of the Adviser to
the Fund hereunder are not to be deemed exclusive. The Adviser shall
be free to render similar services to others and engage in other
activities. The Adviser shall be deemed for all purposes to be an
independent contractor and not an agent of the Fund, and unless
otherwise expressly provided or authorized, shall have no authority to
act for or represent the Fund in any way.
8. SERVICES OTHER THAN AS THE ADVISER. The Adviser or its affiliates may
act as broker for the Fund in connection with the purchase or sale of
securities by or for the Fund if and to the extent permitted by
procedures adopted from time to time by the Fund's board of trustees.
Such brokerage services are not within the scope of the duties of the
Adviser under this Agreement and, within the limits permitted by law
and the Fund's board of trustees, the Adviser may receive brokerage
commissions, fees, or other remuneration from the Fund for such
service in
3
<PAGE>
addition to its fee for services as the Adviser. Within the limits
permitted by law, the Adviser may receive compensation from the Fund
for other services performed by it for the Fund which are not within
the scope of the duties of the Adviser under this Agreement.
9. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable to the Fund or its shareholders for any loss suffered by the
Fund or its shareholders from or as a consequence of any act or
omission of the Adviser, or of any of the directors, officers,
employees, or agents of the Adviser, in connection with, pursuant to
or arising out of investment advisory or portfolio investment services
under this Agreement, except by reason of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser in the
performance of such investment advisory or portfolio investment duties
or by reason of reckless disregard by the Adviser of such investment
advisory or portfolio investment obligations and duties under this
Agreement.
With respect to all other services rendered under this Agreement, the
Adviser shall not be liable to the Fund or its shareholders for any
loss suffered by the Fund or its shareholders from or as a consequence
of any act or omission of the Adviser, or of any of the directors,
officers, employees or agents of the Adviser, except by reason of
willful misfeasance, bad faith, gross negligence or negligence on the
part of the Adviser in the performance of such other duties or by
reason of reckless disregard by the Adviser of such other obligations
or duties.
10. DURATION AND RENEWAL. This Agreement has been approved on behalf of
the Portfolio by a majority of those trustees of the Fund who are not
"interested persons" (as defined in the Act) of the Fund or of the
Adviser, voting in person at a meeting called for the purpose of
voting on such approval. Unless terminated as provided in Section 11,
this Agreement shall continue in effect until April 30, 1997, and
thereafter from year to year only so long as such continuance is
specifically approved at least annually by the board of trustees of
the Fund, including a majority of those trustees of the Fund who are
not "interested persons" (as defined in the Act) of the Fund or of the
Adviser, voting in person at a meeting called for the purpose of
voting on such approval.
11. TERMINATION. This Agreement may be terminated at any time, without
payment of any penalty, by the Fund's board of trustees or by a vote
of the holders of a majority (as defined in the Act) of the
outstanding shares of the Portfolio, upon 60 days' written notice to
the Adviser. This Agreement may be terminated by the Adviser at any
time upon 90 days' written notice to the Fund. This Agreement shall
terminate automatically in the event of its assignment (as defined in
the Act).
12. AMENDMENT. This Agreement may not be amended without the affirmative
vote of (a) a majority of those trustees who are not "interested
persons" as defined in the Act of the Fund or of the Adviser, voting
in person at a meeting called for the
4
<PAGE>
purpose of voting on such approval, and (b) the holders of a majority
of the outstanding shares of the Portfolio.
13. GOVERNING LAW. The terms and provisions of this Agreement shall be
interpreted under and governed by the law of the State of Illinois.
14. LIMITED LIABILITY. Any obligation of the Fund hereunder shall be
binding only on the assets of the Fund (or the applicable Portfolio
thereof and shall not be binding upon any trustee, officer, employee,
agent or shareholder of the Fund. Neither the authorization of any
action by the trustees or shareholders of the Fund nor the execution
of this Agreement on behalf of the Fund shall impose any liability
upon any trustee or any shareholder.
15. NOTICES. Any notices and communications required hereunder shall be
in writing and shall be deemed given when delivered in person or when
sent by first-class, registered or certified mail to the Adviser at
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606 and to the
Fund at 311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606,
or at such address as either party may from time to time specify by
notice to the other.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ATTEST: SKYLINE FUND
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- ------------------------------------
Name: Scott C. Blim Name: William M. Dutton
Title: Secretary Title: President
ATTEST: SKYLINE ASSET MANAGEMENT, L.P.
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- ------------------------------------
Name: Scott C. Blim Name: William M. Dutton
Title: Chief Operating Officer Title: President and Chief Executive
Officer
6
<PAGE>
DISTRIBUTION AGREEMENT
SKYLINE FUND
350 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610
August 31, 1995
Funds Distributor, Inc.
One Exchange Place
Tenth Floor
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Exhibit, shares of the Fund. For purposes of this agreement the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by, and
in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended, and will transmit promptly any
orders received by you for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you may enter into sales agreements with
securities dealers, financial institutions and other industry professionals,
such as investment advisers, accountants and estate planning firms, and in so
doing you will act only on your own behalf as principal.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, all
rules and regulations made or adopted pursuant to the Investment Company Act of
1940, as amended, by the Securities and Exchange Commission or by any securities
association registered under the Securities Exchange Act of 1934, as amended.
<PAGE>
1.4 Whenever either party hereto determines that in their judgment such
action is warranted by unusual market, economic or political conditions, or by
abnormal circumstances of any kind to render sales of a Fund's Shares not in the
best interest of the Fund, either party hereto may decline to accept any orders
for, or make any sales of, any Shares until such time as those parties deem it
advisable to accept such orders and to make such sales and each party shall
advise promptly the other party of any such determination.
1.5 The Fund agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided however, that
the Fund shall not pay any of the costs of advertising or promotion for the sale
of Shares.
1.6 The Fund agrees to execute any and all documents and to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
qualification of Shares for sale in such states as you may designate to the Fund
and the Fund may approve, and the Fund agrees to pay all expenses which may be
incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.7 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Fund or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such information, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with: (a) semi-annual reports and annual audited reports of
the Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) quarterly earnings statements prepared by the Fund,
(c) a monthly itemized list of the securities in the Fund's or, if applicable,
each Series' portfolio, (d) monthly balance sheets as soon as practicable after
the end of each month, and (e) from time to time such additional information
regarding the Fund's financial condition as you may reasonably request.
1.8 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, with respect to the Shares have been carefully prepared in
conformity with the requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the statement of additional information
incorporated by reference therein, filed with the Securities and Exchange
Commission and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Fund
2
<PAGE>
represents and warrants to you that any registration statement and prospectus,
when such registration statement becomes effective, will contain all statements
required to be stated therein in conformity with said Acts and the rules and
regulations of said Commission; that all statements of fact contained in any
such registration statement and prospectus will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Fund may, but shall not be obligated to, propose from time
to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Fund's counsel, be necessary or
advisable. If the Fund shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Fund of a
written request from you to do so, you may, at your option, terminate this
agreement or decline to make offers of the Fund's securities until such
amendments are made. The Fund shall not file any amendment to any registration
statement or supplement to any prospectus in the ordinary course of business
without giving you reasonable notice thereof in advance; provided, however, that
nothing contained in this agreement shall in any way limit the Fund's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Fund may deem
advisable, such right being in all respects absolute and unconditional.
1.9 The Fund authorizes you and any dealers with whom you have entered
into dealer agreements to use any prospectus in the form furnished by the Fund
in connection with the sale of Shares. The Fund agrees to indemnify, defend and
hold you, your several officers and directors, and any person who controls you
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which you,
your officers and directors, or any such controlling persons, may incur under
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, or common law or otherwise, arising out of or on the basis of any
untrue statement, or alleged untrue statement, of a material fact required to be
stated in either any registration statement or any prospectus or any statement
of additional information, or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in any
registration statement, any prospectus or any statement of additional
information or necessary to make the statements in any of them not misleading,
except that the Fund's agreement to indemnify you, your officers or directors,
and any such controlling person will not be deemed to cover any such claim,
demand, liability or expense to the extent that it arises out of or is based
upon any such untrue statement, alleged untrue statement, omission or alleged
omission made in any registration statement, any prospectus or any statement of
additional information in reliance upon information furnished by you, your
officers, directors or any such controlling person to the Fund or its
representatives for use in the preparation thereof, and except that the Fund's
agreement to indemnify you and the Fund's representations and warranties set out
in paragraph 1.8 of this Agreement will not be deemed to cover any liability to
the Funds or their shareholders to which you would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of
3
<PAGE>
your duties, or by reason of your reckless disregard of your obligations and
duties under this Agreement ("Disqualifying Conduct"). The Fund's agreement to
indemnify you, your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any action
brought against you, your officers or directors, or any such controlling person,
such notification to be given by letter, by facsimile or by telegram addressed
to the Fund at its address set forth above within a reasonable period of time
after the summons or other first legal process shall have been served. The
failure so to notify the Fund of any such action shall not relieve the Fund from
any liability which the Fund may have to the person against whom such action is
brought by reason of any such untrue, or alleged untrue, statement or omission,
or alleged omission, otherwise than on account of the Fund's indemnity agreement
contained in this paragraph 1.9. The Fund will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or liability, but,
in such case, such defense shall be conducted by counsel of good standing chosen
by the Fund and approved by you. In the event the Fund elects to assume the
defense of any such suit and retain counsel of good standing approved by you,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Fund does not elect
to assume the defense of any such suit, the Fund will reimburse you, your
officers and directors, or the controlling person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel retained by
your or them. The Fund's indemnification agreement contained in this paragraph
1.9 and the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of you, your officers and directors, or any controlling person, and
shall survive the delivery of any Shares. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your several officers and
directors, and their respective estates, and to the benefit of any controlling
persons and their successors. The Fund agrees promptly to notify you of the
commencement of any litigation or proceedings against the Fund or any of its
officers or Board members in connection with the issue and sale of Shares.
1.10 You agree to indemnify, defend and hold the Fund, its several officers
and Board members, and any person who controls the Fund within the meaning of
Section 15 of the Securities Act of 1933, as amended, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers or
Board members, or any such controlling person, may incur under the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its officers or Board members, or such controlling
person resulting from such claims or demands, (a) shall arise out of or be based
upon any unauthorized sales literature, advertisements, information, statements
or representations or any Disqualifying Conduct in connection with the offering
and sale of any Shares, or (b) shall arise out of or be based upon any untrue,
or alleged untrue, statement of a material fact contained in information
furnished in writing by you to the Fund specifically for use in the Fund's
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission, or alleged omission, to state a material fact in connection with
such information furnished in writing
4
<PAGE>
by you to the Fund and required to be stated in such answers or necessary to
make such information not misleading. Your agreement to indemnify the Fund, its
officers and Board members, and any such controlling person, as aforesaid, is
expressly conditioned upon your being notified of any action brought against the
Fund, its officers or Board members, or any such controlling person, such
notification to be given by letter, by facsimile or by telegram addressed to you
at your address set forth above within a reasonable period of time after the
summons or other first legal process shall have been served. You shall have the
right to control the defense of such action, with counsel of your own choosing,
satisfactory to the Fund, if such action is based solely upon such alleged
misstatement or omission on your part, and in any other event the Fund, its
officers or Board members, or such controlling person shall each have the right
to participate in the defense or preparation of the defense of any such action.
The failure so to notify you of any such action shall not relieve you from any
liability which you may have to the Fund, its officers or Board members, or to
such controlling person by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on account of your
indemnity agreement contained in this paragraph 1.10. This agreement of
indemnity will inure exclusively to the Fund's benefit, to the benefit of the
Fund's officers and Board members, and their respective estates, and to the
benefit of any controlling persons and their successors. You agree promptly to
notify the Fund of the commencement of any litigation or proceedings against you
or any of your officers or directors in connection with the issue and sale of
Shares.
1.11 No Shares shall be offered by either you or the Fund under any of the
provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.11 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase any Shares from any shareholder
in accordance with the provisions of the Fund's prospectus or charter documents.
1.12 The Fund agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation of
any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement of
a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
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(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
2. Offering Price
Shares of any class of any Series offered for sale by you shall be at a
price per share (the "offering price") approximately equal to (a) the net asset
value (determined in the manner set forth in the Fund's charter documents) plus
(b) a sales charge, if any and except to those persons set forth in the then-
current prospectus, which shall be the percentage of the net asset value of such
Shares as set forth in the Fund's then-current prospectus. The offering price,
if not an exact multiple of one cent, shall be adjusted to the nearest cent. In
addition, Shares of any class of any Series offered for sale by you may be
subject to a contingent deferred sales charge as set forth in the Fund's then-
current prospectus. You shall be entitled to receive any sales charge or
contingent deferred sales charge in respect of the Shares. Any payments to
dealers shall be governed by a separate agreement between you and such dealer
and the Series' then-current prospectus.
3. Term
This Agreement shall become effective with respect to the Fund as of the
date hereof and will continue for an initial one-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Fund's Board or (ii) by a vote of a majority (as defined in
the Investment Company Act of 1940) of the Shares of the Fund or the relevant
Series, as the case may be, provided that in either event its continuance also
is approved by a majority of the Board members who are not "interested persons"
(as defined in said Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. This agreement
is terminable with respect to the Fund, without penalty, on not less than sixty
days' notice, by the Fund's Board of Trustees, by vote of a majority (as defined
in the Investment Company Act of 1940) of the outstanding voting securities of
such Fund, or by you.
4. Miscellaneous
4.1 The Fund recognizes that your directors, officers and employees may
from time to time serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment companies), and
that you or your affiliates may enter into distribution or other agreements with
such other corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
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4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
5. Representation by the Fund
The Fund represents that a copy of its Declaration is on file with the
Secretary of State of Massachusetts.
6. Limitation of Liability
Except as provided in paragraph 1.10, you shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard of your obligations and
duties under this Agreement. The Fund, you and the Advisor agree that the
obligations of the Fund under this Agreement will not be binding upon any of the
Trustees of the Fund, shareholders of the Fund, nominees, officers, employees or
agents, whether past, present or future, of the Fund, individually, but are
binding only upon the assets and property of the Fund, as provided in the
Declaration. The execution and delivery of the Agreement have been authorized
by the Trustees of the Fund, and signed by an authorized officer of the Fund,
acting as such, and neither the authorization by the Trustees nor the execution
and delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them or any shareholder of the
Fund personally, but will bind on the property of the Fund as provided in the
declaration. No Series will be liable for any claims against any other Series.
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding agreement between us.
Very truly yours,
SKYLINE FUND
By: /s/ William M. Dutton
------------------------------------
Accepted:
FUNDS DISTRIBUTOR, INC.
By: /s/ [ILLEGIBLE] E. Connolly
--------------------------------
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EXHIBIT A
SERIES OF FUNDS
SKYLINE FUND
Skyline Special Equities Portfolio
Skyline Special Equities II
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CUSTODIAN AGREEMENT
THIS AGREEMENT made on August 31, 1995, among Skyline Fund, a
Massachusetts business trust ("Skyline"), Skyline Asset Management, L. P., a
Delaware limited partnership (the "Manager"), and FIRSTAR TRUST COMPANY, a
corporation organized under the laws of the State of Wisconsin (hereinafter
called "Custodian"),
W I T N E S S E T H :
WHEREAS, Skyline is an open-end management investment company
registered under the Investment Company Act of 1940; and
WHEREAS, Skyline has two series, Skyline Special Equities Portfolio
and Skyline Special Equities II (each a "Fund" and together, the "Funds");
WHEREAS, Skyline desires that the securities and cash of each Fund
shall be hereafter held and administered by Custodian pursuant to the terms of
this Agreement;
WHEREAS, Skyline and the Manager have entered into investment advisory
agreements pursuant to which the Manager acts as investment adviser to each of
the Funds and has agreed to pay certain ordinary operating expenses of each
Fund, including the fees and expenses payable to the Custodian under this
Agreement; and
NOW, THEREFORE, in consideration of the mutual agreements herein made,
Skyline, the Manager and the Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of Skyline or a Fund by any two of
the President, a Vice President, the Secretary and the Treasurer of Skyline, or
any other persons duly authorized to sign by the Board of Trustees.
The word "Board" shall mean Board of Trustees of Skyline.
2. Skyline hereby employs Custodian as the custodian of its assets held in
each of the Funds. Skyline agrees to deliver to Custodian all securities and
cash owned by the Funds, and all payments of income, payments of principal or
capital distributions received by the Funds with respect to all securities owned
by the Funds from time to time, and the cash consideration received by Skyline
for such new or treasury shares of beneficial interest in the Funds as may be
issued or sold from time to time.
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3. NAMES, TITLES, AND SIGNATURES OF SKYLINE'S OFFICERS
An officer of Skyline will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Trustees, together with any changes which may occur from time to time.
4. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of each Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of such Fund. Upon receipt of proper instructions, which may by
their terms be continuing instructions when deemed appropriate by the parties,
Custodian shall make payments of cash to, or for the account of a Fund from such
cash only:
(a) for the purchase of securities for the portfolio of that Fund
against the delivery of such securities to Custodian, registered
in the name of the Fund or of the nominee of Custodian referred
to in Section 8 or in proper form for transfer; all securities
accepted by Custodian shall be accompanied by payment of, or a
"due bill" for, any dividends, interest, or other distributions
of the issuer, due the purchaser; (b) in the case of a purchase
effected through a clearing agency or book entry system, in
accordance with the conditions set forth in Section 15 hereof; or
(c) in the case of repurchase agreements entered into between a
Fund and Custodian, or another bank (i) against delivery of the
securities either in certificate form or through an entry
crediting Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by Custodian
along with written evidence of the agreement by Custodian to
repurchase such securities from the Fund.
(b) for the repurchase or redemption of shares of beneficial interest
of a Fund upon delivery thereof to Custodian;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or fees and expenses of Skyline's non-interested
trustees;
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by a Fund provided
that the consideration therefor to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board.
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Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of Skyline's issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to which a Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments. In
furtherance of the foregoing, Custodian is hereby authorized to endorse all
checks, drafts or other orders for the payment of money received by Custodian
for the account of a Fund. Custodian shall collect on a timely basis all income
and other payments with respect to bearer of securities if, on the date of
payment by the issuer, such securities are held by Custodian and shall credit
such income, as collected, to the Fund's custodian account. In any case in
which Custodian does not receive any such due and unpaid income within a
reasonable time after it has made proper demands for the same (which shall be
presumed to consist of at least three demand letters and at least one telephonic
demand), it shall so notify the applicable Fund in writing, including copies of
all demand letters, any written responses thereto, and memoranda of all oral
responses thereto and to telephonic demands, and await proper instructions;
Custodian shall not be obliged to take legal action for collection unless and
until reasonably indemnified to its satisfaction. It shall also notify the
applicable Fund as soon as reasonably practicable whenever income due on
securities, in respect to which such Fund requests such notice, is not collected
in due course.
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to a Fund as of specified times agreed upon from time to
time by Skyline and the Custodian in the amount of checks received in payment
for shares of that Fund which are deposited into that Fund's account.
D. In any and every case where payment for purchase of securities
for the account of a Fund is made by Custodian in advance of receipt of the
securities purchased, in the absence of specific written instructions from
Skyline on behalf of such Fund to so pay in advance, Custodian shall be
absolutely liable to such Fund for such securities to the same extent as if the
securities had been received by Custodian, except that in the case of repurchase
agreements entered into by the Fund with a bank which is a member of the Federal
Reserve System, Custodian may transfer funds to the account of such bank prior
to the receipt of written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a segregated non-
proprietary account of Custodian maintained with a Federal Reserve
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Bank or of the safe-keeping receipt, provided that such securities have in fact
been so transferred by book entry.
5. RECEIPT OF SECURITIES
Custodian shall hold in a separate account, and physically segregated
at all times from those of any other persons, firms, or corporations, pursuant
to the provisions of this Agreement, all non-cash property, including securities
received by it from or for the account of each Fund, provided that securities
may be maintained in a securities depository or book entry system in accordance
with the conditions set forth in Section 16 of this Agreement. All such non-
cash property, including securities, shall be held or disposed of by Custodian
for, and subject at all times to the instructions, of Skyline on behalf of a
Fund and pursuant to the terms of this Agreement. Custodian shall have no power
or authority to assign, hypothecate, pledge, or otherwise dispose of any such
securities and investments, except pursuant to the direction of Skyline on
behalf of a Fund and only for the account of such Fund as set forth in paragraph
6 of this Agreement.
6. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of each Fund, into which
account(s) may be transferred cash and/or securities.
7. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of a Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only upon receipt of proper
instructions, which may by their terms be continuing instructions when deemed
appropriate by the parties, and only:
(a) upon sales of such securities for the account of the Fund and
receipt by Custodian of payment therefor;
(b) when such securities are called, redeemed or retired or otherwise
become payable, provided that the cash or other consideration
therefor is to be delivered to Custodian;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
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(e) upon conversion of such securities pursuant to their terms into
other securities, provided that the securities and cash, if any,
are to be delivered to Custodian;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities, provided that the securities and
cash, if any, are to be delivered to Custodian;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities, provided that the
definitive securities are to be delivered to Custodian;
(h) for the purpose of redeeming in kind shares of beneficial
interest of a Fund upon delivery thereof to Custodian;
(i) upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by a Fund; or
(j) for other proper corporate purposes.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), (h), or (i) of this Section 6
and also, in respect of item (j), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of Skyline's issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
8. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of a Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of that Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of a Fund; (c) hold for the account of a Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of a
Fund, all necessary ownership certificates required by the Internal Revenue Code
or the Income Tax Regulations of the United States Treasury Department or under
the laws of any state now or hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities covered thereby, to the extent
it may lawfully do so.
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9. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
the applicable Fund or of any nominee for the applicable Fund or of any
registered nominee of Custodian assigned exclusively to the applicable Fund (as
defined in the Internal Revenue Code and any Regulations of the Treasury
Department issued hereunder or in any provision of any subsequent federal tax
law exempting such transaction from liability for stock transfer taxes), and
shall execute and deliver all such certificates in connection therewith as may
be required by such laws or regulations or under the laws of any state.
Skyline shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of the applicable registered nominee, any securities
which it may hold for the account of a Fund and which may from time to time be
registered in the name of a Fund. All securities accepted by Custodian on
behalf of a Fund hereunder shall be in "street" or other good delivery form.
10. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of a Fund, except in accordance
with the instructions contained in an officers' certificate. Custodian shall
deliver, or cause to be executed and delivered, to Skyline all notices, proxies
and proxy soliciting materials with relation to such securities, such proxies to
be executed by the registered holder of such securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
Custodian shall transmit promptly to the applicable Fund all written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith) received by
Custodian from issuers of the securities being held for such Fund. With respect
to tender or exchange offers, Custodian shall transmit promptly to the Fund all
written information received by Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If a Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the Fund shall
notify Custodian at least two business days prior to the date on which Custodian
is to take action.
11. TRANSFER TAX AND OTHER DISBURSEMENTS
Each Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities of that Fund made hereunder.
The Manager shall pay or reimburse Custodian from time to time for all other
necessary and proper disbursements and expenses made or incurred by Custodian in
the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the
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Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, or under the laws of any state, to exempt from taxation any
exemptable transfers and/or deliveries of any such securities.
12. CONCERNING CUSTODIAN
Custodian shall be paid by the Manager as compensation for its
services pursuant to this Agreement such compensation as may from time to time
be agreed upon in writing among the parties. Until modified in writing, such
compensation shall be as set forth in Exhibit A attached hereto.
So long as and to the extent that it exercises reasonable care,
Custodian shall not be liable for any action taken in good faith upon any
certificate herein described or certified copy of any resolution of the Board of
Trustees of Skyline, and may rely on the genuineness of any such document which
it may in good faith believe to have been validly executed.
Skyline agrees on behalf of each Fund to indemnify and hold harmless
Custodian and its nominee from all taxes, charges, expenses, assessments, claims
and liabilities (including counsel fees) incurred or assessed against it or by
its nominee in connection with the performance of this Agreement as to that
Fund, except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct. Custodian is authorized to
charge any account of the Funds for such items. In the event of any advance of
cash for any purpose made by Custodian resulting from orders or instructions of
Skyline, on behalf of a Fund, or in the event that Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of that
Fund shall be security therefore.
13. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust company
as a Subcustodian for all or any part of a Fund's assets, provided that such
bank or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000); and provided further that if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
responsible to each Fund on account of actions or omissions of the Subcustodian
as fully as if the Custodian was directly responsible for any such losses under
the terms of the Custodian Agreement.
Notwithstanding anything contained herein, if Skyline on behalf of a
Fund requires the Custodian to engage specific Subcustodians for the safekeeping
and/or clearing of assets, Skyline on behalf of that Fund agrees to indemnify
and hold harmless Custodian from all claims, expenses and liabilities incurred
or assessed against it in connection with the use of such Subcustodian in regard
to the Fund's assets, except as may arise from its own negligent action,
negligent failure to act or willful misconduct.
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14. REPORTS BY CUSTODIAN
Custodian shall furnish each Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of that Fund.
Custodian shall furnish to each Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue and a list of all
securities transactions that remain unsettled at such time. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, Skyline.
15. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by Skyline, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 20S4, Milwaukee, Wisconsin 53201, or to Skyline at 311
South Wacker Drive, Chicago, Illinois 60606-6675, as the case may be. Upon any
termination of this Agreement, Custodian shall deliver to the successor
custodian appointed by Skyline's Board of Trustees (as evidenced by a certified
vote) at the office of the Custodian, all securities and other property held by
it hereunder, with such securities duly endorsed for transfer. If no such
successor custodian shall be appointed, Custodian shall, in like manner, upon
receipt of a certified copy of a vote of the Board of Trustees of Skyline,
deliver at the office of Custodian such securities, funds and other properties
in accordance with such vote. In the event that no written order designating a
successor custodian or certified copy of a vote of the Board of Trustees shall
have been delivered to Custodian on or before the date when such termination
shall become effective, then Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $25,000,000,
all securities, funds and other properties held by Custodian and all instruments
held by Custodian relative thereto and all other property held by it under this
Agreement. Thereafter, such bank or trust company shall be the successor of
Custodian under this Agreement. Notwithstanding the foregoing, custodian shall
not be required to make any such delivery or payment until full payment shall
have been made of all liabilities constituting a charge on or against the
properties then held by custodian or on or against custodian, and until full
payment shall have been made to custodian of all its fees, compensation costs
and expenses, subject to the provisions of Section 12 of this Agreement. In the
event that securities, funds and other properties remain in the possession of
Custodian after the date of termination hereof owning to failure of Skyline to
procure the certified copy of vote referred to or of the Board of Trustees to
appoint a successor custodian, Custodian shall be entitled to compensation for
its services during such period as Custodian retains possession of such
securities, funds and other properties in accordance with the fee schedule most
recently in effect and the provisions of this Agreement relating to the duties
and obligations of Custodian shall remain in full force and effect.
This Agreement may not be assigned by Custodian without the consent of
the Funds, authorized or approved by a resolution of its Board of Trustees.
This Agreement supersedes and terminates, as of the close of business on the
date hereof, all prior contracts between Custodian and Skyline relating to
custody of the assets of the Funds.
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16. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
Custodian may deposit and/or maintain securities owned by the Funds in
a clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, each of which is referred to herein as "a
Securities System," in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and subject to
the following provisions:
1. Custodian may keep securities of a Fund in a Securities System
provided that such securities are represented in an account
("Account") of Custodian in the Securities System which shall not
include any assets of Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2. The records of Custodian with respect to securities of each Fund which
are maintained in the Securities System shall identify by book-entry
those securities belonging to the Fund;
3. Custodian shall pay for securities purchased for the account of a Fund
upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making
of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. Custodian shall transfer
securities sold or loaned for the account of a Fund upon (i) receipt
of advice from the Securities System that payment or collateral for
such securities has been transferred to the Account, and (ii) the
making of an entry on the records of Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of securities for the
account of a Fund shall identify the Fund, be maintained for the Fund
by Custodian and be provided to the Fund at its request.
4. Custodian shall promptly provide Skyline with any report obtained by
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5. Anything to the contrary herein notwithstanding, Custodian shall be
liable to a Fund for any loss or damage to such Fund resulting from
use of the Securities System by reason of any negligence, misfeasance
or misconduct of Custodian or any of its agents or of any of its or
their employees or from failure of Custodian or any such agent to
enforce effectively such rights as it may have against the Securities
System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of Custodian with respect to any claim
against the Securities System or any other person which Custodian may
have as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or damage;
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6. Custodian shall not be authorized to act under this Section in the
absence of an appropriate certificate of Skyline that the Board of
Trustees has approved the use of a particular Securities Systems and
any changes to arrangements in connection therewith.
17. INDEPENDENT ACCOUNTANTS. Custodian shall provide the Funds, at such times
as Skyline may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting control and procedures
for safeguarding securities, including securities deposited and/or maintained in
a Securities System, relating to the services provided by Custodian under this
Agreement; such reports, which shall be of sufficient scope and in sufficient
detail, as may reasonably be required by Skyline, to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, shall so state.
18. RECORDS
Custodian shall prepare and maintain any records relating to its
activities hereunder in such manner as will meet the obligations of Skyline
pursuant to the provisions of the Investment Company Act of 1940, as amended, or
the rules and regulations promulgated thereunder, and applicable federal and
state tax laws and regulations. All such records shall be the property of
Skyline and Custodian agrees to make any such records available to Skyline its
dependent auditors and the Securities and Exchange Commission upon request and
to preserve such records for the periods prescribed in Rule 31a-2 under the
Investment Company Act of 1940, as amended and applicable federal and state tax
laws and regulations.
19. DISCLAIMER OF LIABILITY
This agreement is executed on behalf of Skyline by its officers in
their capacities as officers and not individually. The obligations of Skyline
under this agreement are not binding upon Skyline's trustees, officers, or
shareholders individually but are binding only upon the assets and property of
Skyline, or of the Fund to which the services performed pursuant to this
Agreement relate. Skyline's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR TRUST COMPANY
/s/ Andrea McVoy By: /s/ Robert J. Kern
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
Attest: SKYLINE ASSET MANAGEMENT, L.P.
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- ------------------------------------
Attest: SKYLINE FUND
/s/ Scott C. Blim By: /s/ William M. Dutton
- ----------------------------------- ------------------------------------
11
<PAGE>
MUTUAL FUND CUSTODIAL AGENT SERVICE
SKYLINE SPECIAL EQUITIES I/II
ANNUAL FEE SCHEDULE
- - Annual fee based on market value of assets:
- $0.20 per $1,000 (2 basis points)
less 15% discount
- - Investment transactions: (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery)
- $12.00 per book entry security (depository or Federal Reserve system)
- $25.00 per definitive security (physical)
- $75.00 per Euroclear
- $ 8.00 per principal reduction pass-through certificates
- $35.00 per option/futures contract
- $ 7.50 per variation margin transaction
- $ 7.50 per Fed wire deposit or withdrawal
- - Variable Amount Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which
is 1/4 of 1%, is deducted from the variable amount note income at the time
it is credited to your account
- - Extraordinary expenses: Based on time and complexity involved
- - Out-of-pocket expenses: Charged to the account
- - Fees are billed; monthly, based on market value at the beginning of the
month
<PAGE>
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this 31st day of August, 1995,
by and among Skyline Fund, a Massachusetts business trust ("Skyline"), Skyline
Asset Management, L.P., a Delaware limited partnership (the "Manager"), and
Firstar Trust Company, a corporation organized under the laws of the State of
Wisconsin (hereinafter referred to as the "Agent").
W I T N E S S E T H:
WHEREAS, Skyline is an open-end management investment company registered
under the Investment Company Act of 1940;
WHEREAS, Skyline has two series, Skyline Special Equities Portfolio and
Skyline Special Equities II (each a "Fund" and together, the "Funds");
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers; and
NOW THEREFORE, Skyline, the Manager, and the Agent do mutually promise and
agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement, Skyline
hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent for each Fund.
The Agent shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), in accordance with the
conditions and procedures set forth in the prospectus and statement of
additional information relating to shares of the Funds as in effect from time to
time (together, the "prospectus") including but not limited to:
A. Receive orders for the purchase of shares, with prompt delivery, where
appropriate, of payment and supporting documentation to the Funds'
custodian;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated shares
being held in the appropriate shareholder account;
C. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to the Funds' custodian;
D. Pay monies (upon receipt from the Fund's custodian, where relevant) in
accordance with the instructions of redeeming shareholders;
<PAGE>
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between Funds or between a Fund and any other mutual
fund with which a Fund offers an exchange privilege, as described from
time to time in a Fund's prospectus;
G. Issue and/or cancel certificates as instructed; replace lost, stolen
or destroyed certificates upon receipt of satisfactory indemnification
or surety bond;
H. Prepare and transmit or credit payments for dividends and
distributions declared by the Funds;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Funds and maintain, pursuant to
Rule 17ad-10(e), a record of the total number of shares of the Funds
which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive
and tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare, mail to shareholders, and file U.S. Treasury Department forms
1099 and other appropriate information returns required with respect
to dividends and distributions for all shareholders;
N. Provide shareholder account information upon request, and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Funds; and
O. Provide a Blue Sky System which will enable the Funds to monitor the
total number of shares sold in each state. In addition, the Funds
shall identify to the Agent in writing those transactions and assets
to be treated as exempt from the Blue Sky reporting to the Funds for
each state. The responsibility of the Agent for the Funds' Blue Sky
state registration status is solely limited to the reporting of such
transactions to the Funds.
P. Create and maintain records showing for each investor's account the
following:
A. Names, addresses, and tax identifying numbers;
B. Number of shares held;
2
<PAGE>
C. Historical information regarding the account of each shareholder,
including dividends paid and date and price for all transactions;
D. Any stop or restraining order placed against the account;
E. Information with respect to withholdings in the case of a foreign
account;
F. Any dividend reinvestment order, plan application, dividend
address, and correspondence relating to the current maintenance
of the account;
G. Certificate numbers and denominations for any shareholder holding
certificates; and
H. Any information required in order for the Agent to perform the
calculations contemplated or required by this Agreement.
2. COMPENSATION
The Manager agrees to pay the Agent for performance of the duties listed in
this Agreement as may be agreed from time to time in writing and for reasonable
fees and out-of-pocket expenses including but not limited to the following:
printing, postage, forms, stationery, record retention, mailing, insertion,
programming, labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between Skyline and the Agent.
The Manager agrees to pay all fees and reimbursable expenses within thirty
(30) calendar days following the mailing of the billing notice.
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to Skyline that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is duly qualified to carry on its business in the state of
Wisconsin;
C. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
D. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement; and
E. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
3
<PAGE>
4. REPRESENTATIONS OF SKYLINE
Skyline represents and warrants to the Agent that:
A. It is an open-end diversified investment company under the Investment
Company Act of 1940;
B. It is a business trust organized, existing, and in good standing under
the laws of Massachusetts;
C. It is empowered under applicable laws and by its Declaration of Trust
and bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Declaration of Trust have
been taken to authorize it to enter into and perform this Agreement;
and
E. A registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Funds being offered for sale.
5. REPRESENTATIONS OF MANAGER
Manager represents and warrants to Skyline and the Agent that:
A. It is a limited partnership organized, existing, and in good standing
under the laws of Delaware;
B. It is empowered under applicable laws and by its Agreement of Limited
Partnership to enter into and perform this Agreement; and
C. All requisite action required by its Agreement of Limited Partnership
has been taken to authorize it to enter into and perform this
Agreement.
6. COVENANTS OF SKYLINE AND AGENT
Skyline shall furnish the Agent a certified copy of the resolution of the
Board of Trustees of Skyline authorizing the appointment of the Agent and the
execution of this Agreement. Skyline shall provide to the Agent a copy of its
Declaration of Trust, and bylaws, and all amendments thereto.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of Skyline and will be preserved, maintained and made
4
<PAGE>
available in accordance with such section and rules and will be surrendered to
Skyline on and in accordance with their request.
7. INDEMNIFICATION; REMEDIES UPON BREACH
The Agent agrees to use reasonable care and act in good faith in performing
its duties hereunder.
Provided that the Agent has used reasonable care and acted in good faith,
the Agent shall not be liable or responsible for delays or errors occurring by
reason of circumstances beyond its control, including acts of civil or military
authority, national or state emergencies, fire, mechanical or equipment failure,
flood or catastrophe, acts of God, insurrection or war. In the event of a
mechanical breakdown beyond its control, the Agent shall take all reasonable
steps to minimize service interruptions for any period that such interruption
continues beyond the Agent's control. The Agent will make every reasonable
effort to restore any lost or damaged data, and the correcting of any errors
resulting from such a breakdown will be at the Agent's expense. The Agent
agrees that it shall, at all times, have reasonable contingency plans with
appropriate parties, making reasonable provision for emergency use of electrical
data processing equipment to the extent appropriate equipment is available.
Representatives of Skyline or the Manager shall be entitled to inspect the
Agent's premises and operating capabilities at any time during regular business
hours of the Agent, upon reasonable notice to the Agent.
Skyline, on behalf of a Fund, will indemnify and hold the Agent harmless
against any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action
or suit not resulting from the Agent's bad faith or negligence, and arising out
of or in connection with the Agent's duties on behalf of that Fund hereunder,
including as a result of the Agent acting upon telephone instructions relating
to the exchange or redemption of shares received by the Agent and reasonably
believed by the Agent to have originated from the record owner of the subject
shares; or as a result of the Agent acting upon any instructions executed or
orally communicated by a person duly authorized by Skyline's Board of Trustees
to give such instructions to the Agent by Skyline, according to such lists of
authorized persons furnished to the Agent; or a result of acting in reliance
upon any genuine instrument or stock certificate signed, countersigned or
executed by any person or persons authorized to sign, countersign or execute the
same.
In order for this section to apply, it is understood that if in any case
Skyline may be asked to indemnify or hold harmless the Agent, Skyline shall be
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Agent will use reasonable care to notify Skyline
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against Skyline. Skyline shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that Skyline so elect, Skyline will so notify
the Agent, and thereupon Skyline shall take over complete defense of the claim
and the Agent shall sustain no further legal or other expenses in such situation
for which the Agent shall seek indemnification under this section. The Agent
5
<PAGE>
will in no case confess any claim or make any compromise in any case in which
Skyline will be asked to indemnify the Agent, except with Skyline's prior
written consent.
8. CONFIDENTIALITY
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Funds and their
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by Skyline, on behalf of a Fund which
approval shall not be unreasonably withheld and may not be withheld where the
Agent may be exposed to civil or criminal contempt proceedings for failure to
comply after being requested to divulge such information by duly constituted
authorities.
9. WISCONSIN LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
10. AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon ninety (90) day's written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the
other party.
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered,
or mailed to the principal place of business of the other party.
E. In the event that Skyline on behalf of a Fund gives to the Agent its
written intention to terminate and appoint a successor transfer agent,
the Agent agrees to cooperate in the transfer of its duties and
responsibilities to the successor, including any and all relevant
books, records and other data established or maintained by the Agent
under this Agreement.
F. Should Skyline on behalf of a Fund exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records and
material that are approved in writing in advance by Skyline or the
Manager will be paid by the Manager.
G. This Agreement supersedes and terminates, as of the close of business
on the date hereof, all prior agreements between Skyline and Agent
relating to transfer agency services and shareholder servicing.
6
<PAGE>
11. DISCLAIMER OF LIABILITY
This agreement is executed on behalf of Skyline by its officers in their
capacities as officers and not individually. The obligations of Skyline under
this agreement are not binding upon Skyline's trustees, officers, or
shareholders individually but are binding only upon the assets and property of
Skyline, or of the Fund to which the services performed pursuant to this
agreement relate. Skyline's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts.
Skyline Asset Management, L.P. Firstar Trust Company
By: /s/ William M. Dutton By: /s/ Robert J. Kern
-------------------------------- ------------------------------------
Attest: /s/ Scott C. Blim Attest: /s/ Andrea McVoy
---------------------------- --------------------------------
Assistant Secretary
Skyline Fund
By: /s/ William M. Dutton
------------------------------------
Attest: /s/ Scott C. Blim
--------------------------------
7
<PAGE>
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
SHAREHOLDER ACCOUNTING SERVICES
SKYLINE SPECIAL EQUITIES I/II
ANNUAL FEE SCHEDULE
Annual Fee Schedule
$13.00 per open shareholder account
$6.00 per closed shareholder account
Minimum annual fees of $6,000
$7.50 per Fed wire transfer (billed to investors)
Plus out-of-pocket expenses, including but not limited to:
Postage
Programming
Stationery, envelopes
Mailing
Proxies
Retention of records
Microfilm/fiche of records
Special reports
All other out-of-pocket expenses
ACH fees
Fees are billed monthly
<PAGE>
FUND ACCOUNTING SERVICING AGREEMENT
This contract among Skyline Fund, a Massachusetts business trust ("Skyline"),
Skyline Asset Management, L.P., a Delaware limited partnership which acts as
investment adviser to Skyline ("Manager"), and Firstar Trust Company, a
Wisconsin corporation, (hereinafter called "FTC") is entered into on this 31st
day of August, 1995.
WITNESSETH:
WHEREAS, Skyline is an open-end management investment company registered
under the Investment Company Act of 1940 and currently offering shares of
beneficial interest in series designated Skyline Special Equities Portfolio and
Skyline Special Equities II (each a "Fund" and together the "Funds"); and
WHEREAS, the Manager has entered into an Investment Advisory Agreement with
Skyline (the "Investment Advisory Agreement") for each Fund whereby Manager has
agreed to make certain payments and pay certain expenses on behalf of the Fund;
WHEREAS, FTC is in the business of providing, among other things, mutual
fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. SERVICES. FTC agrees to provide the following mutual fund accounting
services to each Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using
security trade information communicated from the Manager on a timely
basis.
(2) For each valuation date, obtain prices from a pricing source
approved by Skyline's Board of Trustees and apply those prices to the
portfolio positions. For those securities where market quotations are
not readily available, Skyline's Board of Trustees shall approve, in
good faith, the method for determining the fair value for such
securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on sales of portfolio securities of each
Fund and identify them as to short-short, short- or long-term status;
account for periodic distributions of gains or losses to shareholders
and maintain undistributed gain or loss balances as of each valuation
date.
1
<PAGE>
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Funds as to methodology, rate or dollar
amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
(3) Account for Fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC and
the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other Fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions of
earnings to shareholders and maintain undistributed net investment
income balances as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as agreed
upon.
(5) For each business day of the Fund (as set forth in the
prospectus and statement of additional information of Skyline
(together, the "prospectus")) relating to shares of that Fund as in
effect from time to time, determine the net asset value per share of
the Fund according to the accounting policies and procedures set forth
in the prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of Fund operation at such time
as required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share net asset
value for each valuation date to parties as agreed upon from time to
time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
2
<PAGE>
D. Tax Accounting Services:
(1) Maintain tax accounting records for the investment portfolio
of each Fund to support the tax reporting required for regulated
investment companies under the Internal Revenue Code of 1986, as
amended, and regulations thereunder.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax
cost basis designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making Fund accounting records available to
Skyline, the Manager, the Securities and Exchange Commission, and
Skyline's outside auditors.
(2) Create and maintain accounting records in a manner and for
such time periods as are necessary to satisfy the obligations of the
Funds under the Investment Company Act of 1940 and regulations
provided thereunder including Section 31 thereof and rules 31a-1 and
31a-2 thereunder, and applicable federal and state tax laws.
2. CHANGES IN ACCOUNTING PROCEDURES. Any resolution passed by Skyline's
Board of Trustees that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by FTC.
3. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC. FTC reserves the right
to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Funds under
this Agreement.
4. COMPENSATION. FTC shall be compensated by the Manager for providing
the services set forth in this Agreement in accordance with the Fee Schedule
attached hereto as Exhibit A and as mutually agreed upon and amended from time
to time.
5. PERFORMANCE OF SERVICE. FTC shall exercise reasonable care in the
performance of its duties under the Agreement. Skyline agrees to reimburse and
make FTC whole for any loss or damages (including reasonable fees and expenses
of legal counsel) to FTC arising out of or in connection with its actions under
this Agreement, including any act, omission to act, or delay by
3
<PAGE>
FTC . . . reliance on or in accordance with, any written or oral instruction FTC
receives from any duly authorized officer of Skyline, so long as FTC acts in
good faith and is not negligent or guilty of any willful misconduct.
Except as set forth below, FTC shall not be liable or responsible for
delays or errors occurring by reason of circumstances beyond its control,
including acts of civil or military authority, natural or state emergencies,
fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or power supply.
In the event of a mechanical breakdown beyond its control, FTC shall
take all reasonable steps to minimize service interruptions for any period that
such interruption continues beyond FTC's control. FTC will make every
reasonable effort to restore any lost or damaged data and the correcting of any
errors resulting from such a breakdown will be at the expense of FTC. FTC
agrees that it shall at all times have reasonable contingency plans with
appropriate parties, making reasonable provision for emergency use of electrical
data processing equipment to the extent appropriate equipment is available.
Representatives of Skyline and the Manager and their agents shall be entitled to
inspect FTC's premises and operating capabilities at any time during regular
business hours of FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
6. NO AGENCY RELATIONSHIP. Nothing herein contained shall be deemed to
authorize or empower FTC to act as agent for any other party to this Agreement,
or to conduct business in the name of, or for the account of, any other party to
this Agreement.
7. OWNERSHIP OF RECORDS. All records prepared or maintained by FTC on
behalf of the Funds remain the property of the Funds and will be surrendered
promptly on the written request of an authorized officer of the Funds.
8. CONFIDENTIALITY. FTC shall handle in confidence all information
relating to the Funds' business, which is received by FTC during the course of
rendering any service hereunder.
9. DATA NECESSARY TO PERFORM SERVICES. Skyline or its agent, which may
be the Manager or FTC, shall furnish to FTC the data necessary to perform the
services described herein at times and in such form as mutually agreed upon.
10. NOTIFICATION OF ERROR. Skyline will notify FTC of any balancing or
control error caused by FTC within three (3) business days after receipt of any
reports rendered by FTC to the Funds, or within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
11. TERM OF AGREEMENT. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to each party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may
be replaced or modified by a
4
<PAGE>
subsequent agreement between the parties. This Agreement supersedes and
terminates, as of the close of business on the date hereof, all prior agreements
between Skyline and FTC relating to Fund Accounting services.
12. DUTIES IN THE EVENT OF TERMINATION. In the event that in connection
with termination a successor to any of FTC's duties or responsibilities
hereunder is designated by Skyline by written notice to FTC, FTC will promptly,
upon such termination and at the expense of the Manager, transfer to such
Successor all relevant books, records, correspondence and other data established
or maintained by FTC under this Agreement in a form reasonably acceptable to
Skyline (if such form differs from the form in which FTC has maintained the same
in accordance with the terms of this Agreement, the Manager shall pay any
expenses associated with transferring the same to such form), and will cooperate
in the transfer of such duties and responsibilities, including provision for
assistance from FTC's personnel in the establishment of books, records and other
data by such successor.
13. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin.
14. This Agreement is executed on behalf of Skyline by its officers in
their capacities as officers and not individually. The obligations of Skyline
under this Agreement are not binding upon Skyline's trustees, officer, or
shareholders individually but are binding only upon the assets and property of
Skyline, or of the Fund to which the services performed pursuant to this
Agreement relate. Skyline's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
ATTEST: Firstar Trust Company
/s/ Andrea McVoy By /s/ Robert J. Kern
- ----------------------------------- -------------------------------------
Assistant Secretary
ATTEST:
Skyline Asset Management, L.P.
/s/ Scott C. Blim By /s/ William M. Dutton
- ----------------------------------- -------------------------------------
ATTEST: Skyline Fund
/s/ Scott C. Blim By /s/ William M. Dutton
- ----------------------------------- -------------------------------------
5
<PAGE>
FUND VALUATION AND ACCOUNTING
SKYLINE SPECIAL EQUITIES I/II
ANNUAL FEE SCHEDULE
Special Equities I
- - Annual fee per fund based on market value of assets:
- $25,000 base fee
- - Out-of-pocket expenses, including daily pricing service
Special Equities II
- - Annual fee per fund based on market value of assets:
- $15,000 for the first $40,000,000
- 1/100 of 1% (1 basis points) on the next $200,000,000
- 5/1000 of 1% (1/2 basis point) on the balance
- - Out-of-pocket expenses, including daily pricing service
All fees and out-of-pocket expenses are billed MONTHLY
<PAGE>
FUND VALUATION AND ACCOUNTING
ASSET PRICING COSTS
<TABLE>
<CAPTION>
Charge per Item per Valuation
Asset Type (daily, weekly, etc.)
- ---------- -----------------------------
<S> <C>
Domestic and Canadian Equities $0.15
Options $0.15
Corporate/Government/Agency Bonds $0.50
CMOs $0.80
International Equities and Bonds $0.50
Municipal Bonds $0.80
Money Market Instruments $0.80
</TABLE>
PRICING COSTS ARE BILLED MONTHLY
<PAGE>
[ROPES & GRAY LETTERHEAD]
April 13, 1987
Skyline Fund
c/o Mesirow Financial Corp.
350 North Clark Street
Chicago, Illinois 60610
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale
from time to time of an indefinite number of shares of beneficial interest of
the series named the Balanced Portfolio (the "Balanced Portfolio Shares") and an
indefinite number of shares of beneficial interest of the series named the
Special Equities Portfolio (the "Special Equities Shares", together with the
Balanced Portfolio Shares, the "Shares") of Skyline Fund (the "Trust"), being
registered under the Securities Act of 1933 by a Registration Statement on Form
N-1A.
We have acted as Massachusetts counsel for the Trust in connection with its
organization and are familiar with the action taken by its trustees to authorize
the issuance of the Shares. We have examined its by-laws and its Agreement and
Declaration of Trust on file at the Office of the Secretary of the Commonwealth
of Massachusetts and we have also examined such other documents as we deem
necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register or qualify the
sale of the Shares under any applicable state and federal laws regulating sales
and offerings of securities and that upon sales of the Shares the Trust will
receive the net asset value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing unincorporated
voluntary association under the laws of The Commonwealth of Massachusetts which,
unless terminated as provided in its Agreement and Declaration of Trust, shall
continue in existence without limitation of time.
2. The Trust is authorized to issue an unlimited number of Shares and
upon the issue of any thereof at net asset value and receipt by the Trust of the
authorized consideration therefor, the Shares so issued will be validly issued,
fully paid and nonassessable by the Trust (although shareholders of the Trust
may be subject to liability under certain circumstances as described in the
Prospectus included in the Registration Statement of the Trust referred to above
under the caption "The Fund and its Shares").
<PAGE>
ROPES & GRAY
Skyline Fund - 2 - April 13, 1987
3. Under Massachusetts law, shareholders of the Trust will not be liable
personally for contract claims made under any agreement, obligation or
undertaking governed by Massachusetts law and containing a disclaimer of such
liability or when adequate notice is otherwise given.
We consent to the filing of this opinion with and as part of the
Registration Statement of the Trust referred to above.
Very truly yours,
/s/ Ropes & Gray
----------------------
Ropes & Gray
<PAGE>
[ROPES & GRAY LETTERHEAD]
December 4, 1992
Skyline Fund
350 North Clark Street
Chicago, Illinois 60610
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale
from time to time of an indefinite number of shares of beneficial interest of
the series named Special Equities II (the "Shares") of Skyline Fund (the
"Trust"), being registered under the Securities Act of 1933 by a Post-Effective
Amendment to the Registration Statement on Form N-1A, No. 33-11755.
We have acted as Massachusetts counsel for the Trust in connection with
this opinion and are familiar with the action taken by its trustees to authorize
the issuance of the Shares. We have examined its by-laws and its Agreement and
Declaration of Trust on file at the Office of the Secretary of State of The
Commonwealth of Massachusetts and we have also examined such other documents as
we deem necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register or qualify the
sale of the Shares under any applicable state and federal laws regulating sales
and offerings of securities and that upon sales of the Shares the Trust will
receive the net asset value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing unincorporated
voluntary association under the laws of The Commonwealth of Massachusetts which,
unless terminated as provided in its Agreement and Declaration of Trust, shall
continue in existence without limitation of time.
2. The Trust is authorized to issue an unlimited number of Shares and
upon the issue of any thereof at net asset value and receipt by the Trust of the
authorized consideration therefor, the Shares so issued will be validly issued,
fully paid and nonassessable by the Trust (although shareholders of the Trust
may be subject to liability under certain circumstances as described in the
Prospectus included in the Registration Statement of the Trust referred to above
under the caption "The Fund and its Shares").
<PAGE>
ROPES & GRAY
Skyline Fund - 2 - December 4, 1992
3. Under Massachusetts law, shareholders of the Trust will not be liable
personally for contract claims made under any agreement, obligation or
undertaking governed by Massachusetts law and containing a disclaimer of such
liability or when adequate notice is otherwise given.
We consent to the filing of this opinion with and as part of the
Registration Statement of the Trust referred to above.
Very truly yours,
/s/ Ropes & Gray
-------------------------
Ropes & Gray
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Highlights" and to the incorporation by reference of our reports with respect
to the Skyline Special Equities Portfolio and Skyline Special Equities II dated
January 19, 1996 in the Registration Statement of Skyline Fund-Registered
Trademark- on Form N-1A and the related Prospectus filed with the Securities
and Exchange Commission in this Post-Effective Amendment No. 21 to the
Registration Statement under the Securities Act of 1933 (File No. 33-11755) and
in this Amendment No. 23 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-5022).
/s/ Ernst & Young LLP
-----------------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
April 29, 1996
<PAGE>
SKYLINE FUND SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for and agrees to purchase the number of
shares of beneficial interest of said Massachusetts business trust set forth
opposite its name below, and for the consideration indicated:
Name of Class and Consideration
Subscriber Number of Shares to be Received
---------- ---------------- --------------
Mesirow Asset a) 5,000 shares of the a) $ 50,000
Management, Inc. Balanced Portfolio
b) 5,000 shares of the b) $ 50,000
Special Equities Portfolio
The indicated consideration shall be paid at such time as the Board of
Trustees shall determine.
The undersigned represents and warrants that it is subscribing for the
shares set forth above for its own account, for investment and not with a view
to the distribution thereof. The undersigned further understands that each
share of beneficial interest in Skyline Fund to be issued pursuant to this
Subscription Agreement is subject to the following statement:
These Skyline Fund shares of beneficial interest have not been
registered under the Securities Act of 1933. They may not be
sold or offered for sale in the absence of a registration statement
which is effective under that Act as to said securities or an
opinion, in form and substance satisfactory to the Fund and given
by counsel satisfactory to the Fund, to the effect that such
registration is not required.
Dated: March , 1987 MESIROW FINANCIAL SERVICES, INC.
-----
Attest: By:
----------------------- ------------------------------
----------------------- ------------------------------
Secretary Managing Director
ACCEPTED:
SKYLINE FUND
Attest: By:
----------------------- ------------------------------
Ruth C. Jurkschat Stephen G. Gaber
Secretary President
<PAGE>
[logo]
SKYLINE
FUND
-----
----------------
I R A P L A N
----------------
-----
Firstar Trust Company, Custodian
Skyline Fund
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(1-800-458-5222)
<PAGE>
TABLE OF CONTENTS
How To Open An Skyline IRA Account . . . . . . . . . . . . . . . . . see below
General Information about the IRA Plan . . . . . . . . . . . . . . . . . . 1-3
Types of Accounts (General Information). . . . . . . . . . . . . . . . . . . 1
Regular IRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Spousal IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SEP-IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Rollover IRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transfer From a Qualified Retirement Plan to a Skyline IRA . . . . . . . . . 2
Transfer To a Skyline IRA From Another IRA . . . . . . . . . . . . . . . . . 2
Investment of Your IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Telephone Exchange Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tax Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
When Can an Account be Opened? . . . . . . . . . . . . . . . . . . . . . . . 3
Do I Pay Tax on Dividends and Distributions? . . . . . . . . . . . . . . . . 4
When May I Make Withdrawals? . . . . . . . . . . . . . . . . . . . . . . . . 4
What If I Make A Withdrawal Before Age 59-1/2? . . . . . . . . . . . . . . . 4
Minimum Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
IRA Custodial Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Application and Beneficiary Forms . . . . . . . . . . . . . . . . . . .19
Transfer Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
HOW TO OPEN AN
SKYLINE IRA ACCOUNT
Fill out the application and beneficiary form at the back of this booklet and
mail it, together with your check, to Firstar Trust Company at the address shown
on the application.
How to Use the EXTRA APPLICATION in This Booklet
If you are setting up a Spousal Account with a non-working spouse (see page 1),
two separate accounts will be required. Have your non-working spouse fill out
the extra Application and Beneficiary Form, and return it along with yours to
Firstar Trust Company.
An EMPLOYED spouse is entitled to open his/her own IRA. The extra application
will come in handy for this purpose, too.
If you intend to make an IRA contribution for more than one year at this time,
please indicate the years and the amount for each year.
THIS BOOKLET IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT SKYLINE FUND
PROSPECTUS.
i
<PAGE>
GENERAL INFORMATION ABOUT THE
INDIVIDUAL RETIREMENT ACCOUNT PLAN
(EFFECTIVE FEBRUARY __, 1993)
REGULAR IRA
Who qualifies? You qualify in any year when you have earnings from employment
or self-employment. You qualify even if you are also covered by a retirement
program of your employer or a Keogh plan. However, if you and/or your spouse
are active participants in such a plan, your deduction for your IRA contribution
may be reduced or eliminated depending on your income. See the Disclosure
Statement, Section (2), "Deductible Contributions" and "Nondeductible
Contributions."
You may contribute up to $2,000 or 100% of your earned income, whichever is
less. Alimony and separate maintenance payments are treated as earned income
for this purpose.
You may not contribute to your regular IRA for any year if you are over age
70-1/2 before the end of the year.
SPOUSAL IRA
If your spouse has no earned income (or elects to be treated as having no earned
income) and you file a joint return, you may contribute up to the lesser of
$2,250 or 100% of your earned income. The contribution may be divided between
your IRA and your spouse's IRA in any way you decide, so long as the portion
allocated to either one does not exceed $2,000. Your spouse's election is made
by claiming a spousal IRA deduction on your tax return.
SEP-IRA
Your employer may set up a simplified employee pension plan (SEP) and contribute
to your IRA and the IRA of each other eligible employee up to $30,000 or 15% of
compensation, whichever is less. The employer contribution must be based on a
written formula, which cannot discriminate in favor of officers, shareholders or
self-employed or highly compensated individuals.
If your employer chooses and certain conditions are satisfied, you can elect to
have your salary reduced by no more than an amount specified by law and to have
the reduction contributed to your SEP-IRA, too.
You can have a Regular IRA, even if you have a SEP-IRA, too.
1
<PAGE>
ROLLOVER IRA
If you receive a distribution from the qualified retirement plan of a former
employer, you may be eligible to roll over the distribution to an IRA free of
tax. You may under certain circumstances make a rollover again to the profit
sharing or pension plan of a new employer. If you want to have that right,
however, your rollover IRA derived from an employer's qualified plan must be
kept separate from any other IRA you may have. Qualified retirement plans are
required to withhold 20% of most distributions to you for payment of income
taxes unless your plan balance is transferred directly to an IRA or another
qualified plan. This means that a direct transfer may be preferable to a
rollover for moving your qualified plan balance to a Skyline IRA. See "Transfer
From a Qualified Retirement Plan to a Skyline IRA," below.
You may also make a rollover from another IRA derived from your own yearly
contributions. However, a rollover of the same funds from one IRA to another
may be made no more than once during a 12-month period.
Any rollover must be made within 60 days after receipt of the distribution from
your employer's qualified plan or your previous IRA. Otherwise, the
distribution will be subject to tax for the year you receive it.
See Disclosure Statement, Section 1(c), "Rollover IRAs."
TRANSFER FROM A QUALIFIED RETIREMENT PLAN TO A SKYLINE IRA
You may transfer funds from your employer's qualified retirement plan directly
to a Skyline IRA. Under a new law passed by Congress, retirement plans are
required to transfer distributions directly to an IRA if the employee directs,
and must withhold 20% of the distribution for taxes if a distribution is not
transferred directly to an IRA or another plan. Generally speaking, these new
rules regarding direct transfers apply to any distribution that could be rolled
over into an IRA.
The procedure for making a direct transfer from a retirement plan into a Skyline
IRA is the same as the procedure for a direct transfer from another IRA,
discussed below.
TRANSFER TO A SKYLINE IRA FROM ANOTHER IRA
You may also transfer funds directly from another IRA to a Skyline IRA. The 12-
month restriction on IRA rollovers does not apply to direct transfers. The
transfer must be direct from your existing IRA to a Skyline IRA without your
having physical contact with the funds transferred. To make a transfer:
1) Follow the procedure for opening an account.
2) Complete the attached Transfer Form to instruct your present custodian or
trustee to transfer the assets of your present account to Firstar Trust Company
as successor custodian. Have your signature guaranteed if required by your
present custodian.
3) Send the completed transfer form, along with the Skyline IRA application and
beneficiary form, to Firstar Trust Company.
2
<PAGE>
4) Firstar Trust Company and your present custodian or trustee will complete
the details of transferring your funds to your Skyline IRA.
INVESTMENT OF YOUR IRA
Contributions to your IRA are invested at your election in the Skyline Value
Portfolio, Skyline Special Equities Portfolio, Skyline Special Equities II,
Skyline Monthly Income Portfolio or either of the two money market funds -
Reserve Fund Primary Portfolio or Government Portfolio. You may invest in any
of the funds only if shares are then being offered in your state.
TELEPHONE EXCHANGE PLAN
A limited telephone exchange privilege is available by making your election on
the IRA application. You may exchange among Special Equities Portfolio, Special
Equities II and the money market funds, or among Value Portfolio, Monthly Income
Portfolio and the money market funds. You may not exchange from Special
Equities Portfolio, Special Equities II to Value Portfolio or Monthly Income
Portfolio, or vice versa.
TAX BENEFITS
You may be able to deduct part or all of the yearly contributions to your IRA
from your gross income, depending on whether you and/or your spouse are active
participants in a retirement program of your employer or a Keogh plan, and
depending on your income. See the Disclosure Statement, Section (2),
"Deductible Contributions." You may claim such a deduction even if you do not
itemize your deductions. The Skyline IRA is in the form of IRS Form 5305-A,
which is automatically deemed acceptable by the Internal Revenue Service. The
approval by the IRS relates only to the form of the account and not to the
merits of using the account as a retirement plan.
WHEN CAN AN ACCOUNT BE OPENED?
You can open your account and make a contribution for any year at any time up to
the due date of your federal income tax return for that year (excluding
extensions). Rollovers and direct transfers from other IRAs or retirement plans
can be made at any time during the year, so long as a rollover contribution is
made within 60 days after the distribution from the other IRA or retirement plan
is received by you. A distribution from a qualified plan may be subject to
income tax withholding even if the distribution is rolled over to an IRA. See
"Rollover IRA" and "Transfer From a Qualified Plan to a Skyline IRA," above.
3
<PAGE>
DO I PAY TAX ON DIVIDENDS AND DISTRIBUTIONS?
No, all dividends and distributions accumulate tax-free. Tax is paid when you
(or your spouse, if a spousal account is elected) withdraw your retirement
benefits. See the Disclosure Statement, Section (5), "Income and Penalty
Taxes."
WHEN MAY I MAKE WITHDRAWALS?
Withdrawals can start after age 59-1/2, and MUST start by April 1 after the end
of the year in which you (or your spouse, in the case of a spousal account)
reach age 70-1/2. Withdrawals can be made in a lump sum or in installments.
The Internal Revenue Code imposes complex limits on the length of time over
which withdrawals from an IRA can be made. See the Disclosure Statement,
Section (4), "Distributions from your IRA." Withdrawals are subject to tax as
ordinary income, except for any portion rolled over to another IRA or considered
to be a return of nondeductible contributions. See Disclosure Statement,
Section (5), "Income and Penalty Taxes."
WHAT IF I MAKE A WITHDRAWAL BEFORE AGE 59-1/2?
A withdrawal can be made without penalty before age 59-1/2 only in case of death
or permanent disability, or in the case of certain periodic payments.
Otherwise, a withdrawal before age 59-1/2 is a premature withdrawal and is
subject to a penalty tax of 10% of the portion that is included in your income,
in addition to the regular income tax. But neither the regular income tax nor
the 10% penalty tax applies to any portion rolled over to another IRA or
considered as a return of your nondeductible contributions.
MINIMUM CONTRIBUTION
The initial contribution and each subsequent contribution must be at least
$1,000. However, you are not required to make a contribution every year.
4
<PAGE>
CUSTODIAN FEES
Acceptance fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 8.00
Annual maintenance fee . . . . . . . . . . . . . . . . . . . . . . . . .$10.00
Distribution to a Participant. . . . . . . . . . . . . . . . . . . . . .$15.00
Refund of Excess Contribution. . . . . . . . . . . . . . . . . . . . . .$15.00
Periodic Distributions Per Participant
(a) Automatic monthly. . . . . . . . . . . . . . . . . . . . . . . . . .$ 2.50
(b) Automatic quarterly. . . . . . . . . . . . . . . . . . . . . . . . .$ 2.50
(c) Automatic annual . . . . . . . . . . . . . . . . . . . . . . . . . .$ 2.50
Any Outgoing Wire . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 7.50
Note: Each IRA account is subject to the above fees, including Spousal IRAs
and each of multiple accounts for the same participant.
If you do not add the $8.00 acceptance fee to your initial contribution, it will
be deducted from your account. The $10.00 annual maintenance fee will be
deducted from your account.
--------------------
THE SKYLINE IRA PLAN IS SPONSORED BY SKYLINE FUND. THIS BRIEF OUTLINE OF THE
PLAN IS NOT INTENDED AS A FULL EXPLANATION OF THE INDIVIDUAL RETIREMENT PLAN,
BUT WE HOPE THAT WE HAVE ANSWERED SOME OF THE QUESTIONS THAT OCCUR TO YOU.
WE URGE YOU TO READ THE ENCLOSED MATERIAL THOROUGHLY.
5
<PAGE>
SKYLINE FUND INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
(February __, 1993)
This Disclosure Statement is being given to you to assure that you are
informed and understand the nature of an Individual Retirement Account ("IRA").
This disclosure statement explains the rules governing IRAs.
YOUR RIGHT TO REVOKE THIS IRA. You may revoke this IRA at any time
within seven days after the later of the date you received this Disclosure
Statement or the day you established this IRA. For purposes of revocation, it
will be assumed that you received the Disclosure Statement no later than the
date of your check or transfer direction with which you opened your IRA. To
revoke the IRA, you must either mail or deliver a notice of revocation to the
following address:
Firstar Trust Company, Custodian
Skyline Fund
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
If a notice of revocation is mailed, it will be deemed mailed on the
date of the postmark (or if sent by certified or registered mail, the date of
certification or registration) if it is deposited in the mail in the United
States, first class postage prepaid and properly addressed. If you revoke your
IRA, you are entitled to a return of the entire amount contributed.
(1) TYPES OF IRAS; ELIGIBILITY
IN GENERAL. There are several types of IRAs. For example, there is a
"Regular IRA" to which you may make contributions for yourself. There is also a
"Spousal IRA" which you may be able to set up for your spouse. There is also a
"Rollover IRA" which you can set up to receive assets from a qualified plan,
annuity or another IRA. Finally, there is a SEP-IRA (which is also known as a
Simplified Employee Pension Plan) which your employer can establish for you.
Following is a general description of the rules which apply to each of these
types of IRAs and who is eligible to establish them.
(a) REGULAR IRA. You may contribute up to the lesser of $2,000 or
100% of your compensation if you have not reached age 70 1/2 during the taxable
year. You may make this contribution even if you or your spouse is an active
participant in a qualified employer plan. However, as explained below, the
amount of the contribution which you may deduct may be limited. Compensation
includes wages, salary, commissions, bonuses, tips, etc. but does not include
income from interest, dividends or other earnings or profits from property, or
amounts not includible in your gross income.
(b) SPOUSAL IRA. You may contribute to your IRA and an IRA for your
non-working spouse if: (1) you have received compensation during the taxable
year and (2) you file a joint income tax return for the year with your spouse.
Under such an arrangement, you may qualify for a total deduction equal to the
lesser of $2,250 or 100% of your compensation for the taxable year. You can
determine how to divide the contribution between the two accounts but you cannot
contribute more than $2,000 annually into either one. While you cannot
contribute to your IRA in the taxable year in which you reach 70 1/2, you can
still contribute to your spouse's IRA if he or she has not reached 70 1/2. A
Spousal IRA does not involve the creation of a joint account. The account of
each spouse is separately owned and treated independently from the account of
the other spouse.
A "non-working spouse" is one who had no earned income for the year,
or elects to be treated as having no earned income for this purpose. Your
spouse's election is made by claiming a spousal IRA deduction on your tax
return.
6
<PAGE>
(c) ROLLOVER IRAs. All or a portion of certain distributions from
qualified retirement plans, annuities and other IRAs may be "rolled over" tax-
free within 60 days after receipt of the distribution without regard to the
limits on deductible contributions, but no deduction is allowed with respect to
such a contribution. The amount rolled over cannot exceed the fair market value
of all property received, reduced by employee contributions (except voluntary
deductible employee contributions made pursuant to a qualified plan). If you
make a rollover from a qualified employer plan to an IRA, you may in turn, under
certain circumstances make a rollover from the IRA into the qualified pension or
profit-sharing plan, qualified annuity plan, or tax-sheltered annuity or
custodial account of a subsequent employer. To preserve that right, however,
you must keep the rollover IRA separate from any other IRA you may have, since
you cannot make a rollover to an employer plan from an IRA to which you have
made yearly contributions. You can also transfer assets you hold in one IRA to
another IRA by directing the current trustee or custodian to transfer those
assets directly to the new IRA. You may also direct the trustee or custodian of
any qualified retirement plan to transfer a distribution from the plan directly
to an IRA. You can direct such a so-called "trustee-to-trustee transfer" at any
time. However, you may make a rollover of the same assets from one IRA to
another IRA only once during a one-year period. A decision to make a rollover
from a qualified plan, as signified by checking the rollover box on the
Application, is irrevocable.
Rollover amounts you receive may not be deposited in your spouse's
IRA, but if you should die while still a participant in a qualified plan, in
certain cases your spouse may be allowed to make a tax-free rollover to an IRA
of all or any part of the assets distributed from the qualified plan, excluding
any contributions (other than voluntary deductible employee contributions) made
by you to such plan. The amount of the death payout rolled over by a spouse
into an IRA may not subsequently be rolled over into another employer's
qualified plan or annuity.
The Unemployment Compensation Amendments Act of 1992 (the "1992 Act")
made several changes to the tax treatment of rollovers and direct transfers from
qualified retirement plans, effective January 1, 1993:
First, the 1992 Act expanded the types of distributions that can
be rolled over into an IRA. Under prior law, only certain types of total
and partial distributions could be rolled over. Under the new law, any
distribution from a plan can be rolled over unless it is either (1) one of
a series of substantially equal periodic payments (such as an annuity), or
(2) a minimum distribution required to be made after you reach the age of
70 1/2.
Second, if a distribution from a plan can be rolled over to an
IRA, the plan is required by law to transfer the distribution directly to
an IRA, or another employer's plan, if you so direct.
Finally, if you do not direct the distribution to be transferred
directly to an IRA or another plan, the plan making the distribution will
be required to withhold 20% of the distribution for the payment of income
taxes.
Strict requirements must be met to qualify for tax-free rollover
treatment. You should consult your personal tax advisor in connection with
rollovers to and from your IRA.
(d) SIMPLIFIED EMPLOYEE PENSION PLAN (SEP)-IRA. An employer may
adopt a SEP-IRA and contribute to your SEP-IRA even if you are covered by
another retirement plan. The Code permits an employer to contribute to your
SEP-IRA up to 15% of your compensation (computed without regard to the
contribution) or $30,000 (or such other amount as may be prescribed by the
Secretary of the Treasury), whichever is less. The contributions are deductible
by the employer and are generally not includible in your income until you
receive distributions. Employer contributions must be made under a written
allocation formula which cannot discriminate in favor of so-called "highly
compensated employees" (as defined in the Code). Employer contributions are
considered discriminatory unless they bear a uniform relationship to the first
$200,000 of each participant's compensation.
An employer must cover each employee who has attained age 21 and has
performed service for the employer during at least three of the immediately
preceding five calendar years, but employees who earn less
7
<PAGE>
than $300 in the year in question, employees covered by certain collective
bargaining agreements and certain nonresident aliens may be excluded. "Leased
employees" (i.e., those individuals who are not the employer's employees, who
are hired through a "leasing organization" and who provide services of a nature
normally performed by employees in the employer's business on a substantially
full-time basis for more than a year) must be treated as regular employees for
the purposes of making SEP-IRA contributions, unless the leasing organization
provides prescribed minimum pension benefits to the leased employees. Any
SEP-IRA contribution made by the leasing organization attributable to services
performed for the employer may be used to reduce the employer's contribution to
a leased employee's SEP-IRA.
Generally, if the employer does not maintain an integrated plan at any
time during the taxable year, Old Age and Survivor Disability Insurance
contributions ("OASDI") may be taken into account as contributions by the
employer to the employee's SEP-IRA but only if such OASDI contributions are
taken into account with respect to each employee maintaining a SEP-IRA. If the
SEP-IRA is part of a top-heavy plan as defined in the Code, the employer must
make a minimum contribution to each non-key employee's SEP-IRA for each year
that the plan is top-heavy. Generally, a plan is top-heavy if the aggregate of
the accounts of key employees as defined in Code Section 416 (i.e., certain
officers, owners and highly compensated individuals) exceeds 60% of the
aggregate of the accounts of all employees. If the employer maintains more than
one plan, such plans may, or under certain circumstances must, be aggregated for
purposes of determining whether the SEP-IRA is top-heavy. Generally, the
minimum contribution required to be made to the SEP-IRA of each non-key employee
in a top-heavy year is 3% of the employee's compensation.
If your employer chooses and if certain conditions are satisfied, you
can elect to have your salary reduced by up to $7,000 (or such higher amount as
is specified from time to time by the Secretary of the Treasury) and to
contribute the reduction to your SEP-IRA. If you reduce your salary under a
salary reduction agreement, your salary subject to federal income tax is
reduced. Salary reduction is permitted for a year only if your employer does
not have more than 25 employees at any time during the preceding year, all
employees who participate in the Plan are eligible for salary reduction and at
least one-half of the employees (including those not eligible for a SEP-IRA)
choose to make salary reduction contributions which may be made by highly
compensated individuals. There are also other rules which apply to salary
reduction contributions.
The rules governing integrated and salary reduction SEP-IRAs are
complex. We suggest that you discuss them with your tax advisor.
You may contribute to a Regular IRA even if you participate in a
SEP-IRA. Except as otherwise noted, your SEP-IRA generally is subject to the
rules governing a Regular IRA. Your rights to withdraw amounts held in a
SEP-IRA cannot be restricted by your employer.
(2) CONTRIBUTIONS
IN GENERAL. As explained in this part, the amount of your IRA
contributions which you can deduct is subject to limits. All contributions and
transfers to your Skyline IRA must be in cash, except that a rollover
contribution may be made either in cash or in shares of Skyline Fund.
Contributions to your Regular IRA or Spousal IRA may be made up to the due date
for filing your tax return for the taxable year (excluding extensions thereof)
even if you file before the due date. In making contributions, you must
indicate the tax year to which the contribution applies. If no tax year is
designated, the custodian will assume that the contribution is intended to apply
to the calendar year in which it is received. The time limit for designating
the applicable tax year is April 15.
Contributions made by an employer to your SEP-IRA for a calendar year
may be made no later than the due date of your employer's tax return (including
extensions). In making a SEP-IRA contribution, the tax year to which the
contribution relates must also be specified or it will be deemed to relate to
the calendar year in which it is received. In a SEP-IRA, this designation of
the tax year of a contribution must be made by the due date for contributions
described above.
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DEDUCTIBLE CONTRIBUTIONS. If you are single and are not an "active
participant" in a retirement plan maintained by your employer, you can deduct
the full amount of your IRA contribution up to the lesser of $2,000 or 100% of
your compensation for the year. If you are married, you can deduct the full
amount of your IRA contribution so long as neither you nor your spouse is an
"active participant" in a retirement plan maintained by your respective
employers. These plans include qualified pension, profit-sharing, stock bonus
or money purchase plans, 401(k) plans, SEP-IRAs, qualified annuity plans, tax-
sheltered annuities and custodial accounts and deferred compensation plans of
governmental agencies. In general, you are considered to be an active
participant in a plan if an employer contribution or forfeiture was credited to
your account during the year in the case of a defined contribution plan or, in
the case of a defined benefit plan, you are eligible to participate even if you
choose not to. You are considered to be an active participant in a plan if you
make a contribution to the plan during a year even if your employer does not.
For active participation, it does not matter whether any interest you have in a
plan is vested or unvested.
If you or your spouse is an active participant in a plan, the amount
of the deduction you can claim for an IRA contribution is reduced or totally
denied depending upon the amount by which your adjusted gross income for the
year exceeds the "applicable dollar amount." The applicable dollar amount is
$25,000 for single people and $40,000 for married individuals filing a joint tax
return. If you are married but are filing separate tax returns, your applicable
dollar amount is $0.
If your adjusted gross income exceeds your applicable dollar amount by
more than $10,000, you may not deduct any portion of your IRA contribution.
However, if it is between $0 and $10,000 more than your applicable dollar
amount, you can claim a tax deduction for your contribution. To determine the
amount of the deduction, follow these steps. First, determine the amount of the
contribution you can make. If, for example, you have compensation in excess of
$2,000 you could make a $2,000 contribution to your Regular IRA. Next, subtract
the applicable dollar amount from your adjusted gross income. If you are single
and your adjusted gross income is $30,000, the difference would be $5,000.
Next, divide this difference by $10,000. In the example $5,000/$10,000 equals
1/2. Accordingly, you may deduct 1/2 of your contribution. If the deduction
limitation is not a multiple of $10, round the deduction to the next $10. If
your adjusted gross income does not exceed $35,000 and you are single or $50,000
and you are married, you can deduct $200 regardless of how the computation comes
out.
Married persons who file separate returns are treated as unmarried for
purposes of these rules if they did not live together at any time during the
year.
NONDEDUCTIBLE CONTRIBUTIONS. Even though you may not be entitled to
claim a deduction for contributions to your IRA, you are still allowed to make
the contributions to the extent described in "Types of IRAs" above. To the
extent that the amount of your contribution exceeds the deduction limit, it is
considered a nondeductible contribution. Earnings on these contributions are
not taxed until distributed, just like the earnings on deductible contributions.
It may therefore be worthwhile making nondeductible contributions.
You are required to report the amount of your nondeductible
contributions on Form 8606 and attach it to your income tax return. If you
overstate this amount, you may be liable for a tax penalty of $100 per
overstatement.
(3) INVESTMENT AND HOLDING OF CONTRIBUTIONS
Contributions to your IRA, and the earnings thereon, are invested in
shares of one or more of the Portfolios of Skyline Fund or Reserve Fund Primary
Portfolio or Government Portfolio. You may invest in any of those funds only
if, at the time of your investment, shares are being offered for sale to
investors in your state.
The assets in your account are held in a custodial account exclusively
for your benefit and the benefit of such beneficiaries as you may designate in
writing delivered to the Custodian. The balance in your IRA represents a
separate account which is clearly identified as your property and generally may
not be combined for investment with the property of another individual. Your
right to the entire balance in your account is
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nonforfeitable. No part of the assets of your account may be invested in life
insurance contracts or in collectibles such as works of art, antiques, coins,
stamps, etc.
(4) DISTRIBUTIONS FROM YOUR IRA
DISTRIBUTION DURING YOUR LIFE. The law permits distributions to be
made from an IRA at any time after you attain age 59 1/2 without penalty, and
requires that distributions commence no later than April 1 following the
calendar year in which you attain age 70 1/2. Distributions may be in the form
of a single payment or, in accordance with regulations, in substantially equal
monthly, quarterly or annual payments over your life or the joint lives of you
and your designated beneficiary, or over a period certain not extending beyond
your life expectancy or the joint and last survivor life expectancy of you and
your designated beneficiary. However, if your beneficiary is not your spouse,
the law imposes an additional requirement called the minimum distribution
incidental benefit requirement. In general, this requirement puts a further
limit on the maximum payout period. This further limit is based on a table in
the income tax regulations, and if this limit applies to you, you should consult
your tax advisor to determine your minimum distribution.
If you direct distributions over your life or the joint lives of you
and your designated beneficiary, the Custodian will purchase an immediate
annuity contract from an insurance company you choose with your IRA and your
payments will be made under the annuity. You must provide a completed annuity
application from the insurance company of your choosing.
Any distribution instruction must specify the reason for the
distribution. Examples of such reasons are: premature distributions (i.e.,
distributions before age 59 1/2), rollovers, disability, death, normal (59 1/2
or over), excess contribution returns and other.
DISTRIBUTIONS AFTER YOUR DEATH. If you die after distributions have
begun to you, the balance of your IRA must be distributed to your designated
beneficiary at least as rapidly as under the method of distribution in effect
before your death.
If you die before the distribution of your interest has begun, the
entire balance of the account must be distributed by December 31 of the year
in which the 5th anniversary of your death occurs. However, distribution
need not be made within this 5-year period if your beneficiary receives
payments over a period measured by his or her life or the life expectancy
beginning no later than December 31 of the year following the year in which
you die. If the beneficiary is your spouse, those installment payments don't
have to begin until the later of December 31 of the year following the year
in which you die or December 31 of the year in which you would have reached
age 70 1/2. In addition, a distribution need not be made within 5 years of
your death if your spouse is your beneficiary and he or she elects to treat
the entire interest in the IRA (or the remaining part of such interest if
distribution has already begun) as his or her own IRA subject to the regular
IRA distribution requirements. In such a case, your spouse will be
considered to be the covered individual under the IRA. If you die before the
entire IRA has been distributed to you and your spouse is not your
beneficiary, no additional cash contributions or rollover contributions may
be accepted by the IRA.
If distributions are made from your IRA to your surviving spouse (or
to a trust of which your surviving spouse is the income beneficiary), the amount
which your surviving spouse or the trust is entitled to receive in each year
must be at least equal to the income of your IRA (or of the portion of your IRA
which benefits your surviving spouse or the trust) for that year.
(5) INCOME AND PENALTY TAXES
INCOME TAX TREATMENT. Income tax on deductible IRA contributions and
earnings on both deductible and nondeductible IRA contributions is generally
deferred until you receive distributions. If you have made both deductible and
nondeductible contributions to IRAs you maintain, a portion of each distribution
you receive from any IRA (whether or not it is the one to which you made
nondeductible contributions) will be considered to be a return of nondeductible
contributions and therefore not included in your income for tax purposes.
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The balance of each distribution will be taxed as ordinary income regardless of
its original source. The amount of any distribution which is considered to be a
return of nondeductible contributions (and therefore not taxed) is determined by
multiplying the amount of the distribution by a fraction. The numerator of the
fraction is the aggregate amount of nondeductible contributions you have made to
all of your IRAs over the years and the denominator is the balance in all your
IRAs at the end of the year (after adding back any distributions you received
during the year). The aggregate amount which can be excluded from income for
all years cannot exceed the amount of nondeductible contributions that you made
in those years.
Taxable distributions from your account are taxed as ordinary income
regardless of their original source. They are not eligible for special tax
treatment that may apply to lump sum distributions from qualified employer
plans. A distribution from your account after you attain age 65 is eligible for
the retirement income credit.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS. Your IRA is intended to
provide income for you upon retirement. Accordingly, the law generally imposes
a penalty on premature distributions. If you receive a taxable distribution
from the IRA before reaching age 59 1/2, a nondeductible 10% penalty will be
imposed on the portion of the distribution which is included in your gross
income. This penalty is in addition to any income tax you must pay on the
distribution itself. The penalty does not apply to the extent that the
distribution is considered a return of nondeductible contributions or a return
of an excess contribution which is permitted tax-free (see below). The penalty
also will not apply if the distribution is made due to your permanent disability
or death or if the distribution is one of a series of substantially equal
periodic payments made over your life (or life expectancy) or over the joint
lives (or life expectancies) of you and your beneficiary. Further, the penalty
does not apply in the case of a qualifying rollover distribution.
PENALTY TAX FOR EXCESS CONTRIBUTIONS. Contributions to an IRA above
the permissible limits are nondeductible and are subject to an annual
nondeductible excise tax of 6% of the amount of such excess contributions for
each year that the excess is not withdrawn or eliminated. The tax is paid by
the person to whom a deduction is allowed or in the case of a Rollover IRA, by
the person for whose benefit it is established. If the person who contributed
the excess takes no deduction for it and withdraws the excess amount plus the
net earnings attributable to such excess on or before the due date (including
extensions) for filing the Federal income tax return for the year for which the
contribution was made, the 6% excise tax will not be applied but the 10% tax on
premature distributions will be applied to the amount of net earnings.
Generally, if the excess is withdrawn after the due date (including extensions)
for filing the tax return for the year for which the contribution was made, not
only will the excess contribution be subject to the 6% excise tax, but the
amount of such excess and the net income attributable to it will also be
includible in income; and if you have not attained the age of 59 1/2, or are not
disabled, you will also be subject to the previously mentioned 10% penalty tax
on premature distributions. The law provides, however, that if an individual
has made a contribution to an IRA for a year which does not exceed $2,250
(excluding rollover amounts), all or part of which is an excess contribution for
which he did not claim a deduction, and he does not correct the excess
contribution before the due date (including extensions) for filing his tax
return for the year, he nevertheless may withdraw the excess amount contributed
(without the net income attributable thereto) at any time without incurring the
10% penalty tax on premature distributions or being required to include the
amount withdrawn in income. The 6% excise tax will be imposed even in this
special situation for the year of the excess contribution and each subsequent
year until the excess is withdrawn or eliminated.
The rules discussed above generally apply to SEP-IRAs as well. The
law also allows you to withdraw tax-free and without penalty an excess
contribution, regardless of the amount, made with respect to a rollover
contribution (including an attempted rollover contribution), if the excess
contribution occurred because you reasonably relied on erroneous information
required to be supplied by the plan, trust or institution making the
distribution that was the subject of the rollover.
As an alternative to withdrawing excess contributions made to an IRA,
such amounts may be eliminated by making reduced contributions; however, you
will be required to pay the 6% excise tax on the amount of the excess for the
year of the contribution and for each subsequent year until the amount of the
excess is deducted in a later year for which you have not contributed the
maximum deductible amount. If a contribution is made to
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your account in an amount less than the permissible limit in order to correct an
excess contribution for a previous year for which you did not claim a deduction,
you may under certain circumstances, taking into account the limits on
contributions, be allowed to treat the amount of the reduction in the current
year's contribution as an additional contribution for the current taxable year.
PENALTY TAX FOR UNDER-DISTRIBUTION. If after April 1, following the
year in which you attain age 70 1/2, the amount distributed is less than the
minimum amount required by law to be distributed, a 50% excise tax may be
imposed on any such deficiency. The minimum amount required by law to be
distributed is generally based on your life expectancy or the joint and survivor
life expectancy of you and your beneficiary. However, if your beneficiary is
not your spouse, the law imposes an additional requirement which is called the
minimum distribution incidental benefit requirement. In general, this
requirement is designed to prevent you from naming a beneficiary who is much
younger than yourself in order to extend your payout period. You should consult
your tax advisor to determine your maximum distribution.
The Internal Revenue Service may waive the penalty tax for under-
distribution if the deficiency was due to reasonable error and reasonable steps
are being taken to correct the deficiency.
PENALTY TAX FOR EXCESS DISTRIBUTIONS. A 15% penalty tax is imposed on
annual distributions from retirement arrangements (including IRAs) to the extent
that such distributions in a year are considered "excess distributions." A
distribution is an "excess distribution" if it exceeds $150,000 (or such higher
amount as may be specified by the IRS) during any calendar year. This $150,000
amount will be $112,500 (adjusted for cost-of-living increases) if you elect to
have your distribution governed under certain tax rules. You should discuss how
this rule applies to you and how you make this election with your tax advisor.
PROHIBITED TRANSACTIONS AND PLEDGING ACCOUNT ASSETS. If during any
taxable year you engage in a so-called "prohibited transaction" with respect to
your IRA, the account will lose its tax-exempt status. In this event, the fair
market value of all account assets, valued as of the first day of such taxable
year, will be deemed distributed to you and includible in your gross income.
These prohibited transactions would include borrowing money from your account.
If you pledge your account or any portion thereof as security for a loan, such
pledged portion will be deemed distributed to you and, to the extent that it
does not represent a return of nondeductible contributions, includible in your
gross income. If you have not yet attained age 59 1/2, an additional tax equal
to 10% of the amount pledged will be imposed on such funds includible in gross
income. If your spouse engages in a prohibited transaction with respect to his
or her account, the results will be the same.
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(6) MISCELLANEOUS
FEDERAL INCOME TAX WITHHOLDING. Distributions from an IRA to the
covered individual or to a beneficiary are subject to Federal income tax
withholding unless the covered individual or beneficiary elects to have no
withholding apply. The current withholding rate required by the Internal
Revenue Code is 10%. Additional information concerning withholding and election
forms will be available no later than at the time a distribution is requested.
FEDERAL ESTATE AND GIFT TAXES. Generally, your IRA will be included
in your estate for Federal estate tax purposes. If your spouse is your
beneficiary, your IRA may qualify for a deduction for purposes of that tax. An
election under an IRA to have a distribution payable to a beneficiary on the
death of the covered individual will not be treated as a gift subject to Federal
gift tax.
REPORTS TO THE INTERNAL REVENUE SERVICE. You are not required to file
Form 5329 with the IRS unless you owe one of the IRA penalty taxes. These are
the taxes on excess contributions, premature distributions, prohibited
transactions and underdistributions after age 70 1/2.
FINANCIAL INFORMATION. The growth in value of the mutual fund shares
held in your account can neither be guaranteed nor projected.
PLAN SPONSOR. Skyline Fund is the sponsor of the Skyline Fund IRA and
performs most of the ministerial functions in connection with the maintenance of
the accounts established under the Skyline Fund IRA.
CUSTODIAN FEES. Firstar Trust Company as the Custodian of your IRA
currently charges an acceptance fee of $8.00 per IRA application, and an annual
maintenance fee of $10.00 per account, per fund in which you have an investment.
You should refer to the fee schedule for other fees which may be applicable.
Note that Spousal IRAs require separate accounts. Each spouse's account is
subject to the above fees.
If you do not add the $8.00 acceptance fee to your initial
contribution, it will be deducted from your account. The $10.00 annual
maintenance fee will be deducted from your account.
The Custodian may change any of the above fees from time to time.
IRS APPROVAL STATUS. The Skyline IRA is in the form of IRS Form
5305-A, which is automatically deemed acceptable by the IRS as to form. The
approval by the IRS relates only to the form of the account and not to the
merits of using the account as a retirement plan.
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Form 5305-A
(Rev. October, 1992)
Department of the Treasury
Internal Revenue Service
SKYLINE FUND INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
(Under Section 408(a) of the Internal Revenue Code)
(February __, 1993)
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold and silver coins and
coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary,
the distribution of the Depositor's interest in the custodial account
shall be made in accordance with the following requirements and shall
otherwise comply with section 408(a)(6) and Proposed Regulations section
1.408-8, including the incidental death benefit provisions of Proposed
Regulations section 1.401(a)(9)-2, the provisions of which are incorporated
by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years. The
life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, (April 1
following the calendar year end in which the Depositor reaches age 70 1/2). By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
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(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last survivor lives of
the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last survivor expectancy
of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election of the Depositor
or, if the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the Depositor's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Depositor would have
turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Depositor's required
beginning date, even though payments may actually have been made before that
date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in the
account.
5. In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire Interest in the Custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies). In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
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ARTICLE V
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under section 408(i)
and Regulations section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the
provisions of the Code wand related regulations. Other amendments may be made
with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. DEFINITIONS.
"Investment Company" shall mean an investment company as defined in
Internal Revenue Code Section 851(a), shares of which Skyline Fund has agreed to
offer for investment under this Account. "Investment Company Shares" or
"Shares" shall mean shares of beneficial interest or capital stock of the
Investment Company.
2. INVESTMENT OF ACCOUNT ASSETS.
(a) Each contribution forwarded by the Depositor to the Custodian shall
identify the Depositor's account number and be accompanied by a statement signed
by the Depositor identifying the Investment Company Shares in which that
contribution is to be invested. The Custodian may return to the Depositor,
without liability for interest thereon, any contributions which are not
accompanied by adequate account identification or an appropriate signed
statement directing investment of those contributions.
(b) Contributions shall be invested in whole and fractional Investment
Company Shares at the price and in the manner in which such shares are then
being publicly offered by the Investment Company. All distributions received on
Investment Company Shares held in the Custodial Account shall be reinvested in
like Shares and credited to such Account. If any distribution of Investment
Company Shares may be received at the election of the shareholder in additional
like Shares or in cash or other property, the Custodian shall elect to receive
such distribution in additional like Investment Company Shares.
(c) All Investment Company Shares acquired by the Custodian shall be
registered in the name of the Custodian or its registered nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares held in
the Custodial Account and the Custodian shall not vote any of such shares,
except upon written direction of the Depositor. The Custodian agrees to forward
to every Depositor a then current Prospectus, reports, notices, proxies and
related proxy soliciting materials applicable to Investment Company Shares
received by the Custodian.
(d) The Depositor may at any time, by a manually signed direction
delivered to the Custodian, redeem any number of Investment Company Shares held
for his account and reinvest the proceeds in the Shares of any other Investment
Company. Telephone redemptions and reinvestments shall be done at the price and
in the manner in which such Shares are then being redeemed or offered by the
respective Investment Companies.
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3. AMENDMENT AND TERMINATION.
(a) The Custodian may, with the written approval of each Investment
Company, amend the Custodial Account in whole or in part (including retroactive
amendments) by delivering to the Depositor written notice of such amendment
setting forth the substance and effective date of the amendment. The Depositor
shall be deemed to have consented to any such amendments not objected to in
writing by the Depositor within thirty (30) days of receipt of the notice,
provided that no amendment shall cause or permit any part of the assets of the
Custodial Account to be diverted to purposes other than for the exclusive
benefit of the Depositor or his beneficiaries, nor shall any amendment be made
except in accordance with the applicable law and regulations affecting this
Custodial Account.
(b) The Depositor may at any time terminate the Custodial Account by
delivering to the Custodian a written notice of such termination setting forth
the effective date thereof, together with any required withholding information.
(c) The Custodial Account created by this Agreement shall automatically
terminate upon distribution to the Depositor or the beneficiary designated under
Paragraph 6 of Article VIII hereof of the entire balance in the Custodial
Account.
(d) The Custodian may be removed by the Depositor at any time upon thirty
(30) days written notice to the Custodian. The Custodian may elect to terminate
the Custodial Account upon thirty (30) days written notice to the Depositor.
4. TAXES AND CUSTODIAL FEES. Any income taxes or other taxes of any kind
whatsoever that may be levied or assessed upon or in respect of the assets of
the Custodial Account, or the income arising therefrom, any transfer taxes
incurred, all other administrative expenses incurred by the Custodian in the
performance of its duties, including fees for legal services rendered to the
Custodian, and the Custodian's compensation, shall be paid from the Custodial
Account. Unusual administrative responsibilities not contemplated by the fee
schedule will result in such additional charges as will reasonably compensate
the Custodian for the services performed.
The custodian fee listed in the fee schedule will be deducted by the
Custodian from the initial contribution received from the Depositor. The annual
maintenance fee will be deducted on the last business day in September for each
year and enough fund shares will be redeemed to cover this fee. Fees as listed
on the fee schedule will be deducted from the refund or redemption proceeds at
the time of distribution or redemption and the remaining balance will be
remitted to the Depositor in the case of distribution, or will be reinvested in
accordance with the Depositor's instructions.
5. REPORTS AND NOTICES.
(a) The Custodian shall keep adequate records of transactions it is
required to perform hereunder. No later than sixty (60) days after the close of
each calendar year, or after the Custodian's resignation or removal pursuant to
Article VIII, Paragraph 3, the Custodian shall render to Depositor a written
report or reports reflecting the transactions effected by it during such period
and the assets and liabilities of the Custodial Account at the close of the
period.
(b) All communications or notices required or permitted to be given herein
shall be deemed to be given upon receipt by the Custodian at P.O. Box 701,
Milwaukee, Wisconsin 53201-0701, the Investment Company and Skyline Fund at P.O.
Box 701, Milwaukee, Wisconsin 53201-0701, or the Depositor at his most recent
address shown in the Custodian's records. The Depositor agrees to advise the
Custodian promptly, in writing, of any change of address.
6. DESIGNATION OF BENEFICIARY. The Depositor shall have the right, by written
notice to the Custodian, to designate a beneficiary or beneficiaries, primary
and contingent, to receive any benefit to which such Depositor may be entitled
in the event of his death prior to the complete distribution of such benefit.
In the event the Depositor has
17
<PAGE>
not designated any beneficiaries, or if all beneficiaries shall predecease the
Depositor, the following persons shall take in the order named:
(a) Spouse of the Depositor;
(b) If the spouse shall predecease the Depositor, then in equal shares to
any children surviving the Depositor and to the descendants then living of a
deceased child, by the right of representation, or
(c) If the Depositor shall leave neither spouse nor descendants surviving,
then to the personal representative of the Depositor's estate.
7. INALIENABILITY OF BENEFITS. The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy of
any kind of any attempt to cause such benefits to be so subjected shall not be
recognized except to the extent as may be required by law.
8. ROLLOVER CONTRIBUTIONS. The Custodian may receive rollover contributions
as described in section 408(d)(3) or any other applicable provisions of the
Code, and regulations promulgated thereunder. If any property is transferred to
the Custodian as a rollover contribution, such property shall be sold by the
Custodian and the proceeds reinvested as provided in section 2 of this Article
VIII. The Custodian reserves the right to refuse to accept any contributions
which are not in the form of cash.
9. CONFLICT IN PROVISIONS. To the extent that any of the provisions of
Article VIII shall conflict with the provisions of Articles IV-VII, the
provisions of Article VIII shall prevail.
10. STATUS OF DEPOSITORS. Neither the Depositor nor any other person shall
have any legal or equitable right against the Custodian or the Investment
Company except as provided herein. The Depositor agrees to indemnify and hold
the Custodian harmless from and against any liability that the Custodian may
incur in the administration of the Account unless arising from the Custodian's
own negligence or misconduct.
11. LOSS OF EXEMPTION. If the Custodian receives notice that the Depositor's
Account has lost its tax-exempt status under section 408 of the Code for any
reason, including by reason of a transaction prohibited by section 4975 of the
Code, the Custodian shall distribute to the Depositor the entire balance in the
Account, in cash or in kind, in the sole discretion of the Custodian no later
than 90 days after the date the Custodian receives such notice.
12. APPLICABLE STATE LAW. This Custodial Account shall be construed,
administered and enforced according to the laws of the State of Wisconsin except
to the extent Federal law supersedes Wisconsin law.
13. DISTRIBUTIONS TO SURVIVING SPOUSE. If distributions from the Custodial
Account are to be made to the Depositor's surviving spouse, or to a trust of
which the Depositor's surviving spouse is the income beneficiary, the amount
which the surviving spouse (or such trust) is entitled to receive in each year
shall not be less than the income of the Custodial Account (or of the portion of
the Custodial Account with respect to which the surviving spouse or such trust
is the beneficiary) for such year, as determined under section 2056(b)(7) of the
Code.
18
<PAGE>
SKYLINE FUND IRA APPLICATION
COMPLETE THIS APPLICATION AND SEND ALONG WITH YOUR CHECK MADE PAYABLE TO FIRSTAR
TRUST COMPANY, TO: FIRSTAR TRUST COMPANY, Attn: Skyline Fund, P.O. Box 701,
Milwaukee, WI 53201-0107.
1. IRA APPLICANT:
Name of Individual: Social Security No.:
--------------------------------------- -----------------------------------
Street Address: Birth Date:
--------------------------------------- -----------------------------------
City: State: Zip Code:
------------------------------ -------------------- -----------------------
Home Phone:( ) Business Phone:( )
------------------------------------ --------------------------------------
2. CONTRIBUTION IS FOR CURRENT YEAR UNLESS YOU SPECIFY DIFFERENT YEAR BELOW
Contribution is for 19_____. If no year is indicated, current year will be
assumed.
3. CONTRIBUTION TYPE (Check one. For contributions which are NOT Regular, see
the appropriate section of the IRA Disclosure Statement in the Plan Booklet
for special instructions.) A Rollover consists of a qualifying
distribution which is paid to you from an employer's qualified plan or from
another IRA, to be deposited in your Skyline IRA within 60 days.
[ ] Regular [ ] Rollover [ ] Transfer [ ] Spousal [ ]SEP
Check one: This Rollover is from [ ] an employer's qualified plan or an
IRA derived from a rollover from such a plan, [ ] an IRA to which you
contributed or [ ] a SEP-IRA
4. INVESTMENT OF CONTRIBUTIONS
Instructions:
(1) If you do not choose a Fund, all of your contributions will be
invested in the Skyline Value Portfolio.
(2) Investment Minimums Per Fund Account: $1,000
(3) There is an Annual Maintenance Fee charged by the Custodian of $8 per
Fund account. This fee is paid automatically by redeeming shares from
your account unless you add the fee to your contribution check or
enclose a separate check for your fee made payable to Firstar Trust
Company. Please see the Plan Booklet for further information on
Custodian Fees.
FUND DOLLAR AMOUNT TO BE INVESTED
---- ----------------------------
SKYLINE VALUE BALANCED PORTFOLIO $
-----------------
SKYLINE SPECIAL EQUITIES PORTFOLIO $
-----------------
SKYLINE SPECIAL EQUITIES II $
-----------------
SKYLINE MONTHLY INCOME PORTFOLIO $
-----------------
RESERVE FUND PRIMARY PORTFOLIO $
-----------------
RESERVE FUND GOVERNMENT PORTFOLIO $
-----------------
Total Contributions $
-----------------
-----------------
Total Fees ($8 per Fund Account) $
-----------------
-----------------
Total $
-----------------
-----------------
5. TELEPHONE EXCHANGE. The telephone exchange privilege offered by Skyline
Fund is automatically available unless you check the box below. The
exchange privilege authorizes the Funds and their transfer agents to act on
telephone instructions from any person to make an exchange. THE TELEPHONE
EXCHANGE PRIVILEGE IS LIMITED AS DESCRIBED IN THE SKYLINE FUND
PROSPECTUSES.
[ ] I do not authorize telephone exchanges
I hereby adopt the Skyline Fund Individual Retirement Plan and Custodial
Agreement. I appoint Firstar Trust Company as Custodian and agree to be bound
by the provisions of the Plan and Custodial Agreement. I certify that the
foregoing information is correct and that I received a copy of the Disclosure
Statement relating to the Plan and custodian fees, as well as a copy of the
current prospectus(es) of the Fund(s) in which my initial investment is to be
made.
--------------------------------------------
Signature of Applicant
DEALER
-----------------------------
BRANCH OFFICE
----------------------
REPRESENTATIVE
---------------------
REPRESENTATIVE NUMBER Date
-------------- --------------------------------------
THIS DOCUMENT WILL BE RETAINED BY FIRSTAR TRUST COMPANY.
19
<PAGE>
SKYLINE FUND BENEFICIARY FORM FOR INDIVIDUAL RETIREMENT ACCOUNT
NAME OF IRA APPLICANT:_______________________________________
I hereby revoke all my prior Designations of Beneficiary and designate the
following as my Beneficiary(ies) under my Skyline Fund Individual Retirement
Account (IRA):
BENEFICIARY:
_____________________________________________ ______________________________
Name Relationship
_____________________________________________ ______________________________
Street Address Social Security No.
_______________________ ______________ _____________ ____________________
City State Zip Code Birth Date
SIGNATURE OF APPLICANT:
_______________________________ __________________________________________
Date Signature of Applicant
GENERAL PROVISIONS
1. Unless otherwise provided above, (a) every payment under my IRA by reason
of my death shall be made to my Beneficiary if he or she is living at the
time such payment becomes due; and (b) if there is no designated
Beneficiary living at the time any such payment becomes due, the payment
shall be made to my estate.
2. A Beneficiary Designation shall be valid only if dated and signed by me and
filed with the Custodian under the Plan before my death.
3. The terms, provisions and limitations of the IRA plan and Custodial
Agreement, as amended from time to time, are controlling over these General
Provisions and shall always govern all rights of myself, my Beneficiaries
and all persons claiming under, by or through them, or any of them.
20
<PAGE>
TRANSFER FORM
SKYLINE COMPLETE THIS FORM
TO TRANSFER AN EXISTING IRA OR PLAN BALANCE
TO A SKYLINE IRA
PART I (To be completed by investor and mailed to Firstar Trust
Company, Attention: Skyline Fund, P.O. Box 701, Milwaukee,
WI 53201-0701. If you are opening a new account, enclose
a Skyline IRA application.)
TO: NAME OF PRESENT CUSTODIAN/TRUSTEE:
___________________________________________________________________________
Mutual Fund (if applicable) __________________ Acct. No. ______________________
Address ______________________________________ Phone No. ______________________
Street
___________________________________ _____________ ____________________
City State Zip Code
Present Custodian/Trustee:
I have established an account under the Skyline Fund Individual Retirement
Account. Please transfer the assets (cash only) indicated below to Firstar
Trust Company as successor custodian.
[ ] All Assets [ ] $___________only [ ] At maturity date of __________
[ ] Immediately (I am aware of any penalties which may occur)
TO: FIRSTAR TRUST COMPANY:
The assets received are to be invested in:
[ ] My existing Skyline IRA in __________________ Account No._______________
(Fund name)
[ ] My new Skyline IRA. (A signed IRA Application must be completed and
returned with this Transfer Form.)
___________________________________________________ ___________________________
Investor's Name Daytime Phone
__________________________________ ___________________ _________ ____________
Street City State Zip Code
Investor's Signature _________________________________ Date ___________________
- --------------------------------------------------------------------------------
PART II (To be completed by Firstar Trust Company)
TO: THE ABOVE-NAMED CUSTODIAN/TRUSTEE:
Firstar Company accepts its appointment as custodian for the above account.
Please forward a check, as directed above by the investor, payable to:
Firstar Trust Company, FBO ________________________________________
Reference No. ________________ (Please include this number on your check)
Mail check and accompanying documents, if any, to:
Firstar Trust Company, P.O. Box 7019, Milwaukee, WI 53201-0107
Authorized Signature: _________________________________________________
Date ________________________________ Phone No.________________________________
21
<PAGE>
DEALER INFORMATION
____________________________________ __________________________________________
Dealer Name Branch Office Location Branch Number
____________________________________ __________________________________________
Home Office Address Registered Rep Name--Registered Rep Number
____________________________________ __________________________________________
City State Zip Authorized Signature
23
<PAGE>
Skyline Special Equities Portfolio
Total Return Calculation - 1 Year
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- ---------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 12/31/94 $15.64 63.939 63.939
12/26/95 Dividend (12/27/95 NAV) 0.9058 0.0951 $64.00 $16.60 3.855 67.794
Redemption Price per Share $16.79
---------
Ending Redeemable Value at 12/31/95 $1,138.26
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV= $1,138.26 (Amount that investment could be redeemed for at the end
of the period)
P= $1,000.00 (Hypothetical initial investment)
n= 1 (Number of years from beginning of period to end of period)
t= 13.8261% (Total return - 1 year)
<PAGE>
Skyline Special Equities Portfolio
Total Return Calculation - 5 Years
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 12/31/90 $10.32 96.899 96.899
09/13/91 Dividend (09/16/91 NAV) 0.0000 0.0100 $0.97 $13.90 0.070 96.969
12/24/91 Dividend (12/26/91 NAV) 0.6871 1.7120 $232.63 $12.02 19.354 116.323
12/28/92 Dividend (12/29/92 NAV) 0.1960 0.7100 $105.39 $16.79 6.277 122.600
12/28/93 Dividend (12/29/93 NAV) 1.1650 1.9750 $384.96 $17.49 22.010 144.610
12/21/94 Dividend (12/22/94 NAV) 1.1938 0.7393 $279.53 $15.23 18.354 162.964
12/26/95 Dividend (12/27/95 NAV) 0.9058 0.0951 $163.13 $16.60 9.827 172.791
Redemption Price per Share $16.79
---------
Ending Redeemable Value at 12/31/95 $2,901.16
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV = $2,901.16 (Amount that investment could be redeemed for at the end
of the period)
P = $1,000.00 (Hypothetical initial investment)
n = 1
t = 190.1161% (Total return - 5 years)
<PAGE>
Skyline Special Equities Portfolio
Total Return Calculation Life of Portfolio
4/23/87 to 12/31/95
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
Beg. NAV on 4/23/87 $9.61 104.058 104.058
12/29/88 Dividend (12/30/88 NAV) 0.0000 0.0460 $4.79 $10.32 0.464 104.522
12/27/89 Dividend (12/28/89 NAV) 0.3583 0.9350 $135.15 $11.36 11.897 116.419
09/14/90 Dividend (09/17/90 NAV) 0.0000 0.0100 $1.16 $10.81 0.107 116.526
12/10/90 Dividend (12/11/90 NAV) 0.0000 0.0900 $10.49 $9.89 1.061 117.587
09/13/91 Dividend (09/16/91 NAV) 0.0000 0.0100 $1.18 $13.90 0.085 117.672
12/24/91 Dividend (12/26/91 NAV) 0.6871 1.7120 $282.30 $12.02 23.486 141.158
12/28/92 Dividend (12/29/92 NAV) 0.1960 0.7100 $127.89 $16.79 7.617 148.775
12/28/93 Dividend (12/29/93 NAV) 1.1650 1.9750 $467.15 $17.49 26.710 175.485
12/21/94 Dividend (12/22/94 NAV) 1.1938 0.7393 $339.21 $15.23 22.272 197.757
12/26/95 Dividend (12/27/95 NAV) 0.9058 0.0951 $197.95 $16.60 11.925 209.682
Redemption Price per Share $16.79
---------
Ending Redeemable Value at 12/31/95 $3,520.56
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV= $3,520.56 (Amount that investment could be redeemed for at the end
of the period)
P= $1,000.00 (Hypothetical initial investment)
n= 1
t= 252.0561% (Total return - Life of Portfolio)
<PAGE>
Skyline Special Equities Portfolio
Average Annual Total Return Calculation - 5 Years
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 12/31/90 $10.32 96.899 96.899
09/13/91 Dividend (09/16/91 NAV) 0.0000 0.0100 $0.97 $13.90 0.070 96.969
12/24/91 Dividend (12/26/91 NAV) 0.6871 1.7120 $232.63 $12.02 19.354 116.323
12/28/92 Dividend (12/29/92 NAV) 0.1960 0.7100 $105.39 $16.79 6.277 122.600
12/28/93 Dividend (12/29/93 NAV) 1.1650 1.9750 $384.96 $17.49 22.010 144.610
12/21/94 Dividend (12/22/94 NAV) 1.1938 0.7393 $279.53 $15.23 18.354 162.964
12/26/95 Dividend (12/27/95 NAV) 0.9058 0.0951 $163.13 $16.60 9.827 172.791
Redemption Price per Share $16.79
---------
Ending Redeemable Value at 12/31/95 $2,901.16
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV= $2,901.16 (Amount that investment could be redeemed for at the end of
the period)
P= $1,000.00 (Hypothetical initial investment)
n= 5 (Number of years from beginning of period to end of period)
t= 23.7412% (Average annual total return - 5 years)
<PAGE>
Skyline Special Equities Portfolio
Average Annual Total Return Calculation - Life of Portfolio
4/23/87 to 12/31/95
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 4/23/87 $9.61 104.058 104.058
12/29/88 Dividend (12/30/88 NAV) 0.0000 0.0460 $4.79 $10.32 0.464 104.522
12/27/89 Dividend (12/28/89 NAV) 0.3583 0.9350 $135.15 $11.36 11.897 116.419
09/14/90 Dividend (09/17/90 NAV) 0.0000 0.0100 $1.16 $10.81 0.107 116.526
12/10/90 Dividend (12/11/90 NAV) 0.0000 0.0900 $10.49 $9.89 1.061 117.587
09/13/91 Dividend (09/16/91 NAV) 0.0000 0.0100 $1.18 $13.90 0.085 117.672
12/24/91 Dividend (12/26/91 NAV) 0.6871 1.7120 $282.30 $12.02 23.486 141.158
12/28/92 Dividend (12/29/92 NAV) 0.1960 0.7100 $127.89 $16.79 7.617 148.775
12/28/93 Dividend (12/29/93 NAV) 1.1650 1.9750 $467.15 $17.49 26.710 175.485
12/21/94 Dividend (12/22/94 NAV) 1.1938 0.7393 $339.21 $15.23 22.272 197.757
12/26/95 Dividend (12/27/95 NAV) 0.9058 0.0951 $197.95 $16.60 11.925 209.682
Redemption Price per Share $16.79
---------
Ending Redeemable Value at 12/31/95 $3,520.56
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV= $3,520.56 (Amount that investment could be redeemed for at the end of
the period)
P= $1,000.00 (Hypothetical initial investment)
n= 8.693151 (Number of years from beginning of period to end of period)
(4/23/87 to 12/31/95 = 3,175 days,
[(2,443/365)+(732/366)] = 8.693151)
t= 15.5789% (Average Annual Total return - Life of Portfolio)
Start of fund 04/23/87
Report Date 12/31/95
# of days 3175
Includes 3 leap years
<PAGE>
Skyline Special Equities II
Total Return Calculation - 1 Year
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 12/31/94 $10.14 98.619 98.619
12/26/95 Dividend (12/27/95 NAV) 0.5920 0.3745 $95.31 $11.20 8.510 107.129
Redemption Price per Share $11.29
---------
Ending Redeemable Value at 12/31/95 $1,209.49
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV = $1,209.49 (Amount that investment could be redeemed for at the end
of the period)
P = $1,000.00 (Hypothetical initial investment)
n = 1 (Number of years from beginning of period to end of
period)
t = 20.9486% (Total return - 1 year)
<PAGE>
Skyline Special Equities II
Total Return Calculation Life of Portfolio
02/09/93 to 12/31/95
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- -------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 02/09/93 $10.00 100.000 100.000
12/28/93 Dividend (12/29/93 NAV) 0.0900 0.1250 $21.50 $10.63 2.023 102.023
12/21/94 Dividend (12/22/94 NAV) 0.2570 0.2228 $48.95 $10.01 4.890 106.913
12/26/95 Dividend (12/27/95 NAV) 0.5920 0.3745 $103.33 $11.20 9.226 116.139
Redemption Price per Share $11.29
---------
Ending Redeemable Value at 12/31/95 $1,311.21
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV = $1,311.21 (Amount that investment could be redeemed for at the end of
the period)
P = $1,000.00 (Hypothetical initial investment)
n = 1
t = 31.1209% (Total return - Life of Portfolio)
<PAGE>
Skyline Special Equities II
Average Annual Total Return Calculation Life of Portfolio
02/09/93 to 12/31/95
<TABLE>
<CAPTION>
LTCG Ordinary Ending
Dividend Dividend Total Re-invest Resulting Share
Per Share Per Share Dividend NAV Shares Balance
--------- --------- -------- --------- --------- --------
Initial Investment $1,000.00
Sales Load $0.00
---------
$1,000.00
<S> <C> <C> <C> <C> <C> <C>
Beg. NAV on 02/09/93 $10.00 100.000 100.000
12/28/93 Dividend (12/29/93 NAV) 0.0900 0.1250 $21.50 $10.63 2.023 102.023
12/21/94 Dividend (12/22/94 NAV) 0.2570 0.2228 $48.95 $10.01 4.890 106.913
12/26/95 Dividend (12/27/95 NAV) 0.5920 0.3745 $103.33 $11.20 9.226 116.139
Redemption Price per Share $11.29
---------
Ending Redeemable Value at 12/31/95 $1,311.21
</TABLE>
ERV = P(1 + t) TO THE POWER OF n
ERV = $1,311.21 (Amount that investment could be redeemed for at the end of
the period)
P = $1,000.00 (Hypothetical initial investment)
n = 2.893151 (Number of years from beginning of period to end of period)
(02/09/93 to 12/31/95 = 1056 days, [(1056/365)] = 2.893151)
t = 9.8178% (Average annual total return - Life of Portfolio)
Start of fund 02/09/93
Report Date 12/31/95
# of days 1056
<PAGE>
THIS APPLICATION IS TO:
/ / Establish a new account
/ / Change an existing account
- ---------------------------------------------------
SKYLINE FUND ACCOUNT NUMBER
Mailing Instructions
Return signed application with your check made payable to
the Portfolio in which you are investing to:
Mutual Fund Services
Attn: Skyline Fund
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
If you have any questions, please call Skyline Fund at 800-458-5222.
Account Registration
Check type of account and complete all information. Unless otherwise
indicated, each account with multiple owners is deemed to be held in joint
tenancy with right of survivorship except where this form of ownership is not
recognized under applicable local law.
TAX IDENTIFICATION NUMBER
-----------------------------------------------------------------------
SOCIAL SECURITY NUMBER OR EMPLOYER NUMBER
(USE MINOR'S SOCIAL SECURITY NUMBER FOR TRANSFER/GIFT TO MINORS)
/ / INDIVIDUAL OR JOINT ACCOUNT
-----------------------------------------------------------------------
INDIVIDUAL OWNER'S FULL NAME
-----------------------------------------------------------------------
JOINT TENANT'S FULL NAME
/ / TRANSFER TO A MINOR
--------------------------------------- as custodian for
CUSTODIAN'S NAME (ONE NAME ONLY)
--------------------------------------- under the
MINOR'S NAME
--------------------- Uniform Transfer/Gift to Minors Act
STATE
---------------------------------------
MINOR'S DATE OF BIRTH
/ / TRUST
-----------------------------------------------------------------------
NAME OF TRUST DATE OF TRUST
-----------------------------------------------------------------------
NAME OF TRUSTEE(S)
/ / ORGANIZATION
-----------------------------------------------------------------------
NAME OF ORGANIZATION
Type: / / Corporation / / Partnership
/ / Exempt from backup withholding
/ / Other (please specify)
----------------------------------
[Logo] S K Y L I N E F U N D
- ----------------------------------------------------------------------------
APPLICATION
PLEASE DO NOT REMOVE MAILING LABEL, CORRECTIONS SHOULD BE MADE BELOW.
Address
- ----------------------------------------------------------------------------
ADDRESS
- ----------------------------------------------------------------------------
CITY/STATE/ZIP
( )
- ----------------------------------------------------------------------------
DAYTIME PHONE
( )
- ----------------------------------------------------------------------------
EVENING PHONE
U.S. Citizen / / Yes / / No
Initial Investment &
Portfolio Options
You must select a Portfolio. Make check payable to the Portfolio in which you
are investing.
Initial investment of $
------------------------------------
$1,000 MINIMUM
SKYLINE FUND
/ / Special Equities Portfolio (closed to new investors)
/ / Special Equities II
SKYLINE-PORTICO MONEY MARKET FUND
/ / Money Market Fund
/ / U.S. Government Money Market Fund
Distribution Option
Your distributions will be reinvested in additional shares of the Fund unless
the following boxes are checked. Please mail me a check for each:
/ / Dividend / / Capital gain distribution
<PAGE>
Automatic Investment Plan
You can purchase shares regularly by requesting electronic transfer of money
from your checking, NOW or savings account to your Skyline Fund account.
Investments will be made on the 5th of the month, or the following business
day.
GUIDELINES
- - Your bank must be a member of the Automated Clearing House (ACH).
- - If the transfer is from a checking account, this
application must be accompanied by a voided check.
- - If the transfer is from a savings account, this application
must be accompanied by a withdrawal slip including
your financial institution's nine digit routing number.
- - Please allow 15 business days prior to the next transaction.
- - Your Skyline Fund account must be established with a $1,000
minimum balance before your first scheduled investment under
the Plan goes into effect.
- - The minimum monthly investment under the Plan is $50.
- - If an automatic purchase cannot be made due to insufficient
funds or any other reason, a $15 service fee will be assessed.
- - The Plan will be terminated upon redemption, including redemption
by exchange, of all shares.
- - Termination or changes must be in writing to Firstar Trust.
Monthly investment of $
---------------------------------
$50 MINIMUM
/ / Checking or NOW Account / / Savings Account
-----------------------------------------------------------------------
CHECKING/NOW OR SAVINGS ACCOUNT NUMBER
-----------------------------------------------------------------------
NAME(S) ON ACCOUNT
-----------------------------------------------------------------------
NAME OF BANK (MUST BE A MEMBER OF AUTOMATED CLEARING HOUSE - ACH)
-----------------------------------------------------------------------
BANK ADDRESS
-----------------------------------------------------------------------
CITY/STATE/ZIP
-----------------------------------------------------------------------
SIGNATURE OF JOINT OWNER OF ACCOUNT (IF ANY)
I (we) authorize you via the ACH Network to honor all debit entries initiated
by me (us) from time to time through Mellon Bank on behalf of Firstar Trust
Company. All such debits are subject to sufficient collected funds in my
(our) account to pay the debit when presented. I (we) agree that your
treatment of each entry, and your rights to respect it, shall be the same as
if it were signed personally by me (or either of us). I (we) further agree
that if any such entries are dishonored with good and sufficient cause, you
shall be under no liability whatsoever.
Telephonic Redemptions
You can redeem shares in your Skyline Fund account by telephone. All
redemption proceeds will be sent to the address below:
/ / Payment to be made to my address of record, or
/ / Payment to my brokerage account listed below
/ / Payment to my financial institution listed below
- ----------------------------------------------------------------------------
BROKERAGE FIRM ACCOUNT NO.
- ----------------------------------------------------------------------------
BANK NAME BANK ABA ROUTING NO.
- ----------------------------------------------------------------------------
ADDRESS
- ----------------------------------------------------------------------------
CITY/STATE/ZIP
Exchange Privilege
Exchange privilege is automatic unless checked below.
Exchanges may only be made to identically registered accounts.
(The Fund reserves the right to record all exchange requests and the
exchange privilege may be changed or withdrawn by the Fund at any time.)
/ / I DO NOT AUTHORIZE TELEPHONE EXCHANGES
Dealer Information (if applicable)
- ----------------------------- --------------------------------
DEALER NAME BRANCH OFFICE LOCATION
- ----------------------------- --------------------------------
HOME OFFICE ADDRESS RR NAME -- RR NUMBER
- ----------------------------- --------------------------------
CITY/STATE/ZIP AUTHORIZED SIGNATURE
Shareholder Authorization
Under penalties of perjury, the undersigned hereby certify (1) that the
Social Security Number given is correct and (2) that the account owner is not
subject to backup withholding because (a) the undersigned have not been
notified of being subject to backup withholding as a result of a failure to
report all interest or dividend, or (b) the I.R.S. has provided notification
that the account owner is no longer subject to backup withholding. (Cross
out (2) if it is not correct.) The undersigned certify that they are of
legal age and have received and read the prospectus and agree to its terms.
In accordance with the terms and conditions set forth in this form, the
current prospectus I have received, and the instructions above, please
establish a shareholder account in accordance with the instructions on this
application. APPLICATIONS WHICH ARE NOT FULLY COMPLETED MAY BE REJECTED.
This application may be used to open new account(s) or to revise existing
account(s).
/ / SELECT ONLY IF YOU ARE PARTICIPATING IN THE AUTOMATIC INVESTMENT PLAN
I (we) have read and understand the guidelines for Skyline Fund Automatic
Investment Plan. I (we) also understand that the Plan may be terminated or
modified at any time without notice by Skyline Fund or Firstar Trust Company.
I (we) understand that the Exchange Privilege will apply to may (our)
account unless I (we) have specifically declined the privilege. I (we)
understand that by signing this application, unless the Privilege is
declined. I (we) agree that neither the Funds nor their Transfer Agent,
their agents, officers, trustees, or employees will be liable for any loss,
liability, cost or expense for acting on instructions given under the
Privilege, placing the risk of any loss on me (us). See "How to Redeem
Shares By Exchange" in the prospectus.
- ----------------------------------------------------------------------------
SIGNATURE (OWNER, TRUSTEE) DATE
- -----------------------------------------------------------------------
SIGNATURE (OWNER, CO-TRUSTEE) DATE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-SAR
12/31/95 AND 12/31/95 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> SKYLINE SPECIAL EQUITIES PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 155,296
<INVESTMENTS-AT-VALUE> 175,393
<RECEIVABLES> 2,539
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,932
<PAYABLE-FOR-SECURITIES> 138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,895
<TOTAL-LIABILITIES> 3,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 152,951
<SHARES-COMMON-STOCK> 10,418
<SHARES-COMMON-PRIOR> 12,962
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,852
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,097
<NET-ASSETS> 174,899
<DIVIDEND-INCOME> 1,588
<INTEREST-INCOME> 641
<OTHER-INCOME> 0
<EXPENSES-NET> 2,903
<NET-INVESTMENT-INCOME> (674)
<REALIZED-GAINS-CURRENT> 12,277
<APPREC-INCREASE-CURRENT> 12,856
<NET-CHANGE-FROM-OPS> 24,459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9,995
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 691
<NUMBER-OF-SHARES-REDEEMED> 3,828
<SHARES-REINVESTED> 594
<NET-CHANGE-IN-ASSETS> (27,872)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 245
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,903
<AVERAGE-NET-ASSETS> 192,571
<PER-SHARE-NAV-BEGIN> 15.64
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.79
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-SAR
12/31/95 AND 12/31/95 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> SKYLINE SPECIAL EQUITIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 78,285
<INVESTMENTS-AT-VALUE> 88,664
<RECEIVABLES> 836
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,511
<PAYABLE-FOR-SECURITIES> 79
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229
<TOTAL-LIABILITIES> 308
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,653
<SHARES-COMMON-STOCK> 7,900
<SHARES-COMMON-PRIOR> 9,824
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 137
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,379
<NET-ASSETS> 89,203
<DIVIDEND-INCOME> 1,497
<INTEREST-INCOME> 390
<OTHER-INCOME> 0
<EXPENSES-NET> 1,423
<NET-INVESTMENT-INCOME> 464
<REALIZED-GAINS-CURRENT> 6,707
<APPREC-INCREASE-CURRENT> 10,356
<NET-CHANGE-FROM-OPS> 17,527
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 431
<DISTRIBUTIONS-OF-GAINS> 6,569
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,462
<NUMBER-OF-SHARES-REDEEMED> 3,998
<SHARES-REINVESTED> 613
<NET-CHANGE-IN-ASSETS> (10,435)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,423
<AVERAGE-NET-ASSETS> 93,787
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 2.06
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> .91
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
