<PAGE>
SEMI-ANNUAL REPORT -- June 30, 1999
SKYLINE SPECIAL
EQUITIES PORTFOLIO
-----------------------
SKYLINE SPECIAL EQUITIES PORTFOLIO
SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN
[SKYLINE LOGO]
SKYLINE Funds
<PAGE>
LETTER from William M. Dutton, Portfolio Manager:(1)
- ------------------------------------------------------------------------
June 30, 1999
Dear Shareholder:
OVERVIEW
The Fund advanced 15.25% in the June quarter compared to the 15.55% return for
the Russell 2000 Index. For the first six months of the year, the Fund increased
1.62% compared to a 9.28% gain for the Russell 2000 Index. The Fund trails the
Index for the six-month period due to a weak first quarter.
MARKET REVIEW
The big news of the second quarter was the improved performance of small cap
stocks with the Russell 2000 Index showing a gain of 15.55% compared to a 6.92%
return for the S&P 500 Index. This turnaround started in mid-April when first
quarter earnings reports were announced. Investors noticed that profit growth
was accelerating after a difficult second half of 1998. At the same time,
companies reported that results from Asia were improving. This occurred at a
time when relative valuations favored small cap stocks. The combination of low
valuations and good financial news sparked a meaningful rally.
In terms of investment styles, both growth and value managers could find
something positive in the period. Value-oriented investment strategies saw
improved results due largely to big gains registered by cyclical sectors of the
market. Investors reasoned that improving worldwide economic news was positive
for cyclical companies. At the same time, the technology sector was very strong,
helping growth stock managers. Interestingly, consumer stocks were laggards
during the period despite very strong consumer spending trends.
PORTFOLIO REVIEW
The Fund showed a gain of 15.25% for the second quarter, compared to a gain of
15.55% for the Russell 2000 Index. Sector performance was rather mixed during
the quarter. Two of the cyclical sectors in the Fund, materials & processing and
producer durables, showed very strong returns. Technology was also a top
performer, although the Fund has a modest weighting in this area. Offsetting
these results were lagging returns in certain sectors and a large weighting in
the consumer sector, which did not keep up with the overall market return.
Many individual stocks showed gains of 25% to 60% due to strong company
fundamentals and low valuations at the beginning of the period. Also, a number
of stocks moved higher when the companies received takeover offers or
indications of merger interest. Such price gains reflect just how undervalued
many small cap stocks were earlier in the year. We believe this re-valuation
process is still in its early stages, as many of the holdings in the Fund remain
extremely inexpensive.
OUTLOOK
We believe that a major change occurred in the stock market in April that will
be positive for the Fund going forward. After an extended period of
outperformance by large cap stocks and growth-oriented strategies, a shift
occurred in April that favored
SEMI-ANNUAL REPORT - JUNE 30, 1999 1
<PAGE>
small cap stocks and value-oriented strategies. We believe this shift occurred
because of superior relative valuation, an improving worldwide economic
environment, and better corporate earnings growth.
In terms of relative valuation, small cap stocks have not been so attractively
priced since the early 1970s. After trading near parity with large cap stocks
for most of the past 20 years, small cap stocks are currently trading at a very
large discount. A move back to parity from current levels would provide an
enormous performance advantage for small cap stocks.
We believe the catalyst for such a move is the improving international economic
situation along with better corporate earnings growth. Recent developments on
the international front have been encouraging and corporate earnings growth
picked up in the March quarter following a rather dismal showing in the last
half of 1998. Further improvement in these areas should strongly help small cap
valuations.
The Fund remains very inexpensively priced relative to the market, trading at a
35% discount to the Russell 2000 Index and a 45% discount to the S&P 500 Index.
Many individual holdings are remarkably cheap considering the growth outlooks
for the companies. We believe the move in small cap stocks during the June
quarter is just the beginning of a very long period of strong relative
performance. We believe the Fund is well positioned to benefit from this trend
over the coming years.
/s/ William M. Dutton
- - PORTFOLIO Characteristics(1)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIAL
EQUITIES RUSSELL 2000 S&P 500
<S> <C> <C> <C>
P/E RATIO (MEDIAN) 14.6 22.8 26.2
PRICE/BOOK 1.98 2.44 5.21
PRICE/SALES 0.71 1.22 2.26
- ---------------------------------------------------------------------------------------------
EPS GROWTH--5 YRS (HISTORICAL) 11.4% 14.1% 14.8%
EPS GROWTH--1 YR (FORECASTED) 16.8% 17.1% 18.2%
- ---------------------------------------------------------------------------------------------
MARKET CAP $ WGHTD. MED. $490 million $730 million $70 billion
PORTFOLIO VALUE $398 million $913 billion $11,213 billion
NUMBER OF HOLDINGS 81 2000 500
- ---------------------------------------------------------------------------------------------
TICKER SYMBOL: SKSEX
CUSIP #: 830833208
INITIAL INVESTMENT: $1,000
SUBSEQUENT INVESTMENT: $100
NET ASSET VALUE (PER SHARE): $20.10
</TABLE>
2 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
STOCK Highlights(3)
- ------------------------------------------------------------------------
MOTIVEPOWER INDUSTRIES, INC. (MPO)
MPO is a leading supplier to the railroad industry. MPO provides locomotive
components, conducts locomotive and freight car maintenance, and manufactures
small "switcher" locomotives. As a result, MPO is a primary beneficiary of the
outsourcing trend of freight and commuter railroad lines. In addition, a
locomotive shortage, an aging locomotive fleet, substantial international
opportunities, and a highly-fragmented supplier base are among the dynamics
working in MPO's favor. Additionally, its pending merger with Westinghouse Air
Brake seems to be an excellent combination and should provide significant
revenue and cost synergies. MPO remains an inexpensive stock, trading at 13
times our calendar 1999 earnings estimates.
TRACTOR SUPPLY COMPANY (TSCO)
TSCO operates one of the largest retail farm store chains in the United States,
serving the daily needs of hobby, part-time, and full-time farmers; ranchers;
and rural consumers. By focusing on this specialized niche, TSCO has been able
to differentiate itself from home centers and other specialty retailers and post
a strong long term record of growth. Over the past two years, TSCO has
substantially strengthened its management team, adding two key executives to
head merchandising/marketing and store operations. Their influence has driven
major product assortment changes, more efficient marketing programs, and
computer systems upgrades. These initiatives, while still in progress, have
produced substantially improved financial results. Despite the improved results
and a bright outlook going forward, TSCO continues to trade at a very modest
valuation.
- - TOP Ten Holdings(3)
<TABLE>
<CAPTION>
% OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
CITATION CORP.
Castings manufacturer 2.4%
IMATION CORP.
Data storage products 2.2%
INTERPOOL, INC.
Container leasing firm 2.2%
NEW ENGLAND BUSINESS
Business forms 2.2%
WORLD COLOR PRESS, INC.
Commercial printer 2.0%
LANDSTAR SYSTEM, INC.
Truckload carrier 2.0%
EG&G, INC.
Conglomerate 1.9%
HORACE MANN EDUCATORS CORP.
Property & casualty insurance 1.9%
HELLER FINANCIAL, INC.
Commercial finance 1.8%
IDEX CORP.
Specialty pump products 1.8%
TOP TEN HOLDINGS 20.4%
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 1999 3
<PAGE>
- - PERFORMANCE (%)(1)
- -------------------------------------------------
<TABLE>
<CAPTION>
2Q
1999 YTD 1 yr.
<S> <C> <C> <C>
SPECIAL EQUITIES 15.25 1.62 -10.35
RUSSELL 2000 15.55 9.28 1.50
S&P 500 6.92 12.22 22.71
</TABLE>
<TABLE>
<CAPTION>
Calendar Years
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
SPECIAL EQUITIES -7.2 35.4 30.4 13.8 -1.2
RUSSELL 2000 -2.6 22.4 16.5 28.4 -1.8
S&P 500 28.8 33.4 23.3 37.5 1.3
</TABLE>
- - SECTOR Weightings (as of June 30, 1999)
- ------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Autos & Transportation 8.8%
Consumer Discretionary 30.8%
Consumer Staples 1.3%
Energy 0.5%
Financial Services 20.1%
Health Care 2.8%
Materials & Processing 14.9%
Producer Durables 11.3%
Technology 6.5%
Cash 3.0%
</TABLE>
4 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
3 yrs. 5 yrs. 10 yrs. Inception(2)
<S> <C> <C> <C> <C>
SPECIAL EQUITIES 13.02 14.35 16.65 15.62
RUSSELL 2000 11.22 15.40 12.39 10.77
S&P 500 29.16 27.93 18.78 16.85
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987(2)
<S> <C> <C> <C> <C> <C> <C> <C>
SPECIAL EQUITIES 22.9 42.5 47.4 -9.3 24.0 29.7 -16.9
RUSSELL 2000 18.9 18.4 46.1 -19.5 16.2 24.9 -24.3
S&P 500 10.0 7.7 30.6 -3.2 31.4 16.5 -12.0
</TABLE>
- - SECTOR Performance(1) (as of June 30, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2Q 1999 YTD 1999
------------------------------------------------------- -------------------------------------------------------
SPECIAL RUSSELL SPECIAL RUSSELL
EQUITIES 2000 EQUITIES 2000
<S> <C> <C> <C> <C> <C>
Producer Durables 29.8% 23.7% Consumer Discretionary 10.7% 10.6%
Technology 29.7 21.5 Technology 7.9 17.9
Materials & Processing 20.3 19.9 Energy 4.2 33.2
Energy 17.1 26.3 Health Care 3.8 -0.8
Consumer Discretionary 13.6 9.5 Materials & Processing 2.9 5.9
Autos & Transportation 11.8 23.4 Producer Durables -3.5 10.7
Financial Services 10.6 12.2 Autos & Transportation -6.0 9.4
Health Care 1.0 11.5 Financial Services -8.3 4.7
Consumer Staples -2.3 6.9 Consumer Staples -11.0 -9.8
Other N/A* 18.0 Other N/A* -1.9
Utilities N/A* 16.7 Utilities N/A* 20.9
</TABLE>
* Not applicable
SEMI-ANNUAL REPORT - JUNE 30, 1999 5
<PAGE>
NOTES TO PERFORMANCE
(1) 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. The performance for the one, three, five,
and ten years ended June 30, 1999, and for the period April 23, 1987
(inception) through June 30, 1999, is an average annual return calculation
which is described in the Fund's prospectus.
The Russell 2000 Index is an unmanaged, market value weighted index
comprised of small-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. All indexes and
portfolio characteristics are compiled by Frank Russell Company.
Source: Frank Russell Company.
(2) Return is calculated from the Fund's inception on April 23, 1987.
(3) Fund holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This report is not authorized for distribution unless accompanied or preceded by
a current prospectus.
There are risks of investing in a fund of this type which invests in stocks of
small cap companies, which tend to be more volatile and less liquid than stocks
of large cap companies.
DISTRIBUTOR: FUNDS DISTRIBUTOR INC.
6 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
- - PORTFOLIO Holdings as of June 30, 1999 (unaudited)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- -------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 8.8%
AUTO RELATED - 2.5%
Delco Remy International, Inc.(a) Starters & alternators 345,700 $ 3,802,700
Intermet Corp. Metal castings 417,300 6,311,663
-------------
10,114,363
OTHER TRANSPORTATION - 3.4%
Interpool, Inc. Container leasing firm 666,100 8,659,300
Monaco Coach Corp.(a) RV producer 113,300 4,794,006
-------------
13,453,306
TRUCKING - 2.9%
Landstar System, Inc.(a) Truckload carrier 216,900 7,828,734
U.S. Xpress Enterprises, Inc.(a) Truckload carrier 338,900 3,621,994
-------------
11,450,728
-------------
TOTAL AUTOS & TRANSPORTATION 35,018,397
CONSUMER DISCRETIONARY - 30.8%
APPAREL/TEXTILES - 3.1%
Kellwood Co. Apparel manufacturer 238,800 6,477,450
Warnaco Group, Inc. (The) Apparel manufacturer 221,700 5,930,475
-------------
12,407,925
COMMERCIAL SERVICES - 9.6%
ADVO, Inc.(a) Direct mail marketer 244,800 5,079,600
Borg-Warner Security (a) Security services 275,200 5,590,000
CB Richard Ellis Services, Inc.(a) Real estate related services 167,400 4,164,075
Daisytek International Corp.(a) Computer supplies 285,400 4,655,588
New England Business Business forms 280,000 8,645,000
Standard Register Co. (The) Business forms 225,000 6,918,750
Trammell Crow Co.(a) Commercial real estate 179,100 2,943,956
-------------
37,996,969
CONSUMER PRODUCTS/SERVICES - 1.9%
Maxwell Shoe Co. Inc.(a) Footwear company 273,700 2,480,406
Polaris Industries Inc. Recreational vehicles 117,100 5,093,850
-------------
7,574,256
PRINTING/PUBLISHING - 3.4%
Banta Corp. Commercial printer 187,100 3,929,100
Cadmus Communications Corp. Commercial printer 126,300 1,736,625
World Color Press, Inc.(a) Commercial printer 289,000 7,947,500
-------------
13,613,225
RESTAURANTS - 4.7%
IHOP Corp.(a) Casual dining 274,400 6,602,750
Luby's Cafeterias, Inc. Cafeteria-style restaurants 224,100 3,361,500
NPC International, Inc.(a) Pizza Hut franchisee 213,800 3,287,175
O'Charley's Inc.(a) Casual dining 334,850 5,357,600
-------------
18,609,025
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 1999 7
<PAGE>
- - PORTFOLIO Holdings as of June 30, 1999 (continued, unaudited)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- -------------
RETAIL - 8.1%
<S> <C> <C> <C>
Aaron Rents, Inc. Furniture store operator 261,100 $ 5,809,475
Discount Auto Parts, Inc.(a) Auto parts stores 282,700 6,820,137
Finlay Enterprises, Inc.(a) Leased jewelry departments 262,500 3,510,937
Jo-Ann Stores, Inc.(a) Fabric/craft stores 77,800 1,167,000
MarineMax, Inc.(a) Recreational boats 257,900 3,046,444
Michaels Stores, Inc.(a) Arts & crafts stores 133,900 4,100,687
Stein Mart, Inc.(a) Off-price apparel chain 372,700 3,494,063
Tractor Supply Co.(a) Farm-related products 161,000 4,397,313
-------------
32,346,056
-------------
TOTAL CONSUMER DISCRETIONARY 122,547,456
CONSUMER STAPLES - 1.3%
CONSUMER STAPLES - 1.3%
International Multifoods Corp.(a) Foodservice distribution 230,600 5,202,912
ENERGY - 0.5%
OTHER ENERGY - 0.5%
MarkWest Hydrocarbon, Inc.(a) Natural gas processing 244,100 2,135,875
FINANCIAL SERVICES - 20.1%
BANKS/THRIFTS - 1.5%
Colonial BancGroup, Inc. (The) Alabama bank 417,000 5,811,938
INSURANCE - 14.7%
American Heritage Life Invest. Life insurance 201,900 4,946,550
Chartwell Re Corporation P & C reinsurance 168,300 3,134,588
CNA Surety Corp. Surety insurance 312,800 4,789,750
Delphi Financial Group, Inc.(a) Accident & health insurance 175,490 6,295,703
Financial Security Assurance
Holdings Municipal bond insurance 126,300 6,567,600
Fremont General Corp. Workers' comp. insurance 285,400 5,386,925
Frontier Insurance Group, Inc. Specialty property & casualty 285,800 4,394,175
Gallagher & Co. (Arthur J.) Insurance broker 101,300 5,014,350
Horace Mann Educators Corp. P & C insurance 271,300 7,375,969
SCPIE Holdings Inc. Medical malpractice insurance 161,900 5,281,987
StanCorp Financial Group, Inc.(a) Disability insurance 181,400 5,442,000
-------------
58,629,597
OTHER FINANCIAL SERVICES - 3.9%
ARM Financial Group, Inc. Investment products 256,000 2,176,000
Heller Financial, Inc. Commercial finance 263,400 7,325,812
Raymond James Financial, Inc. Investment services 251,200 6,013,100
-------------
15,514,912
-------------
TOTAL FINANCIAL SERVICES 79,956,447
</TABLE>
8 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- -------------
<S> <C> <C> <C>
HEALTH CARE - 2.8%
HEALTH CARE SERVICES - 1.6%
AmeriPath, Inc.(a) Physician practice management 394,400 $ 3,401,700
US Oncology, Inc(a) Cancer treatment services 235,100 2,821,200
-------------
6,222,900
MEDICAL EQUIPMENT/PRODUCTS - 1.2%
Invacare Corp. Home health care products 187,000 5,002,250
-------------
TOTAL HEALTH CARE 11,225,150
MATERIALS & PROCESSING - 14.9%
BUILDING/CONSTRUCTION PRODUCTS - 4.7%
American Homestar Corp.(a) Manufactured housing company 10,000 68,750
Barnett Inc.(a) Hardware products 294,400 2,208,000
Chicago Bridge & Iron Co. Maker of steel tanks 472,100 6,579,894
Dayton Superior Corp.(a) Concrete accessories 241,400 4,480,987
Nortek, Inc.(a) Building products 142,700 4,468,294
Wilmar Industries, Inc.(a) Apartment repair/ maintenance
products 86,500 1,124,500
-------------
18,930,425
INDUSTRIAL PRODUCTS - 2.6%
Furon Company Polymer-based products 324,000 6,156,000
Lydall, Inc. Specialty filtration products 366,300 4,212,450
-------------
10,368,450
METAL FABRICATIONS - 2.4%
Citation Corp.(a) Castings manufacturer 589,800 9,473,663
PACKAGING/PAPER - 4.3%
Albany International Corp.(a) Paper machine clothing 275,715 5,721,086
BWAY Corp.(a) Metal cans/containers 282,100 4,019,925
Chesapeake Corp. Specialty paper/packaging 139,900 5,237,506
FiberMark, Inc.(a) Fiber-based materials 164,800 2,173,300
-------------
17,151,817
SPECIALTY CHEMICALS - 0.9%
Fuller Company (H.B.) Adhesives and coatings 50,500 3,452,938
-------------
TOTAL MATERIALS & PROCESSING 59,377,293
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 1999 9
<PAGE>
- - PORTFOLIO Holdings as of June 30, 1999 (continued, unaudited)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- -------------
<S> <C> <C> <C>
PRODUCER DURABLES - 11.3%
ELECTRICAL EQUIPMENT/PRODUCTS - 1.6%
General Cable Corp.(a) Wire & cable producer 396,300 $ 6,340,800
MACHINERY - 2.0%
DT Industries, Inc. Packaging equipment 279,700 2,569,744
National Equipment Services, Equipment rental 271,700 3,260,400
Inc.(a)
SunSource Inc. Conglomerate 156,400 2,023,425
-------------
7,853,569
OTHER PRODUCER DURABLES - 7.7%
EG&G, Inc. Conglomerate 211,400 7,531,125
IDEX Corp. Specialty pump products 212,800 6,995,800
Kaydon Corp. Custom engineered parts 179,600 6,039,050
LSI Industries Inc. Lighting/graphics products 216,900 5,232,712
MotivePower Industries, Inc.(a) Locomotive components 266,100 4,789,800
-------------
30,588,487
TOTAL PRODUCER DURABLES 44,782,856
TECHNOLOGY - 6.5%
ELECTRONIC COMPONENTS - 1.3%
Dallas Semiconductor Corp. Electronic components 102,100 5,156,050
OTHER TECHNOLOGY - 4.1%
Imation Corp.(a) Data storage products 356,700 8,850,619
PC Connection, Inc.(a) Computer marketer 184,200 2,221,913
Pomeroy Computer Resources, Inc.(a) Computer products reseller 145,900 2,033,481
PSC Inc.(a) Bar coding equipment 341,100 3,347,044
-------------
16,453,057
SERVICES - 1.1%
Keane, Inc.(a) Software consulting 190,700 4,314,587
-------------
TOTAL TECHNOLOGY 25,923,694
-------------
TOTAL COMMON STOCKS - 97.0%
(Cost $360,907,710) 386,170,080
</TABLE>
10 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
-------------
<S> <C> <C> <C>
MONEY MARKET INSTRUMENTS(b)
Yield 4.701% to 4.890%
due July 1999 to April 2000
American Family Financial Services ($7,588,528 Par Value) $ 7,588,528
General Mills, Inc. ($1,600,000 Par Value) 1,600,000
Pitney Bowes Credit Corp. ($1,146,000 Par Value) 1,146,000
Warner Lambert Corp. ($4,055,662 Par Value) 4,055,662
Wisconsin Corp. Credit Union ($4,803,271 Par Value) 4,803,271
-------------
TOTAL MONEY MARKET INSTRUMENTS - 4.8%
(Cost $19,193,461) 19,193,461
-------------
TOTAL INVESTMENTS - 101.8%
(Cost $380,101,171) 405,363,541
LIABILITIES LESS OTHER ASSETS - (1.8%) (7,218,824)
-------------
NET ASSETS - 100.0% $ 398,144,717
-------------
-------------
</TABLE>
(a) Non-income producing security.
(b) Variable rate demand notes. Interest rates are reset every seven days. Rates
disclosed represent rates in effect on June 30, 1999.
Based on cost of investments for federal income tax purposes of $380,101,171 on
June 30, 1999, net unrealized appreciation was $25,262,370, consisting of gross
unrealized appreciation of $59,271,037 and gross unrealized depreciation of
$34,008,667.
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 1999 11
<PAGE>
STATEMENT of Assets & Liabilities as of June 30, 1999 (unaudited)
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost:
$380,101,171) $405,363,541
Receivable for:
Securities sold $1,505,234
Dividends and interest 356,387
Fund shares sold 456,823 2,318,444
---------- ------------
Total assets 407,681,985
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $ 868,289
Fund shares redeemed 8,190,575
Comprehensive management fee 478,404 9,537,268
---------- ------------
Net assets applicable to shares
outstanding $398,144,717
------------
------------
Shares outstanding--no par value
(unlimited number of shares
authorized) 19,808,148
------------
------------
PRICING OF SHARES
Net asset value, offering price and
redemption price per share $ 20.10
------------
------------
ANALYSIS OF NET ASSETS
Paid-in capital $363,696,906
Undistributed net realized gain on sales
of investments 9,957,932
Unrealized net appreciation of
investments 25,262,370
Accumulated net investment loss (772,491)
------------
Net assets applicable to shares
outstanding $398,144,717
------------
------------
</TABLE>
See accompanying notes to financial statements.
12 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
STATEMENT of Operations Six Months Ended June 30, 1999 (unaudited)
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 1,609,341
Interest 526,218
------------
Total investment income 2,135,559
Expenses:
Comprehensive management fee 2,897,351
Fees to unaffilliated trustees 10,699
------------
Total expenses 2,908,050
------------
Net investment loss (772,491)
Net realized and unrealized gain (loss) on
investments:
Net realized loss on sales of investments (7,073,536)
Net change in unrealized appreciation 9,942,403
------------
Net realized and unrealized gain on investments 2,868,867
------------
Net increase in net assets resulting from
operations $ 2,096,376
------------
------------
</TABLE>
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 1999 13
<PAGE>
STATEMENTS of Changes in Net Assets
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended 6/30/99 Year Ended
(unaudited) 12/31/98
-------------- -------------
<S> <C> <C>
From operations:
Net investment loss $ (772,491) $ (2,391,833)
Net realized (loss) gain on sales of
investments (7,073,536) 23,823,435
Net change in unrealized appreciation 9,942,403 (58,687,760)
-------------- -------------
Net increase (decrease) in net assets
resulting from operations 2,096,376 (37,256,158)
Distributions to shareholders from net
realized gains -- (7,028,589)
From fund share transactions:
Proceeds from fund shares sold 52,526,376 144,759,773
Reinvestment of capital gain
distribution -- 6,858,335
Payments for fund shares redeemed (101,501,657) (129,379,429)
-------------- -------------
Net (decrease) increase in net assets
resulting from share transactions (48,975,281) 22,238,679
-------------- -------------
Total decrease in net assets (46,878,905) (22,046,068)
Net assets at beginning of period 445,023,622 467,069,690
-------------- -------------
Net assets at end of period $ 398,144,717 $ 445,023,622
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
14 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
FINANCIAL Highlights
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended Year Year Year Year Year
6/30/99 Ended Ended Ended Ended Ended
(unaudited) 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
Net asset value at
beginning of period $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64 $ 17.83
--------- -------- -------- -------- -------- --------
Income from Investment
Operations
Net investment loss (0.05) (0.11) (0.07) (0.04) (0.06) (0.08)
Net realized and
unrealized gain (loss)
on investments 0.37 (1.45) 6.46 5.02 2.21 (0.18)
--------- -------- -------- -------- -------- --------
Total from investment
operations 0.32 (1.56) 6.39 4.98 2.15 (0.26)
--------- -------- -------- -------- -------- --------
Less distributions from net
realized gains on
investments -- (0.32) (2.89) (3.61) (1.00) (1.93)
--------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 20.10 $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Total Return 1.62%(a) (7.17%) 35.43% 30.37% 13.83% (1.15%)
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.48%(b) 1.47% 1.48% 1.51% 1.51% 1.49%
Ratio of net investment loss
to average net assets (0.39%)(b) (0.50%) (0.41%) (0.32%) (0.35%) (0.49%)
Portfolio turnover rate 68%(b) 68% 62% 130% 71% 82%
Net assets, end
of period (in thousands) $398,145 $445,024 $467,070 $219,480 $174,899 $202,771
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
</TABLE>
(a) For the six months ended June 30, 1999.
(b) Ratios have been determined on an annualized basis.
Effective August 31, 1995, the Fund's Investment Adviser changed from Mesirow
Asset Management, Inc., to Skyline Asset Management, L.P.
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 1999 15
<PAGE>
NOTES to Financial Statements (unaudited)
- ------------------------------------------------------------------------
Skyline Funds is an open-end, diversified investment management company which
consists of Special Equities Portfolio, Small Cap Value Plus (formerly Special
Equities II), and Small Cap Contrarian. The Funds commenced public offering of
their shares as follows: Special Equities Portfolio on April 23, 1987, Small Cap
Value Plus on February 9, 1993, and Small Cap Contrarian on December 15, 1997.
The following notes relate solely to the accompanying financial statements of
Special Equities Portfolio ("Fund"). Skyline Special Equities Portfolio closed
to new investors on January 30, 1997.
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. For certain fixed-income securities, Skyline Funds' Board
of Trustees has authorized the use of market valuations provided by an
independent pricing service. Variable rate demand notes with sixty days or less
to maturity are valued at amortized cost which approximates market value.
Securities or other assets for which market quotations are not readily
available, which may include certain restricted securities, are valued at a fair
value as determined in good faith by the Skyline Funds' 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 an 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.
/ / FUND SHARE VALUATION - Fund 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. Central time), each day that 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 Fund outstanding.
/ / FEDERAL INCOME TAXES, DIVIDENDS, AND DISTRIBUTIONS TO SHAREHOLDERS - It is
the Fund's policy to comply with the special provisions of the Internal Revenue
Code applicable to regulated investment companies and, in the manner provided
therein, to distribute all of its taxable income to shareholders. Such
provisions were complied with and, therefore, no federal income taxes have been
accrued.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date. Dividends are determined in accordance with tax principles
which may treat certain transactions differently from generally accepted
accounting principles.
16 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
- ------------------------------------------------------------------------
/ / EXPENSES - Expenses arising in connection with a particular fund are
allocated to that fund. Other expenses of the Skyline Funds, such as trustees'
fees, are allocated among the three funds comprising Skyline Funds.
2
TRANSACTIONS WITH AFFILIATES
The Fund's Investment Adviser is Skyline Asset Management, L.P. ("Adviser"). For
the Adviser's management and advisory services and the assumption of most of the
Fund's ordinary operating expenses, the Fund 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 comprehensive management
fee charged for the period ended June 30, 1999 was $2,897,351.
Certain officers and trustees of the Skyline Funds are also officers, limited
partners or shareholders of limited partners of the Adviser. The Fund makes no
direct payments to the officers or trustees who are affiliated with the Adviser.
For the period ended June 30, 1999, the Fund paid fees of $10,699 to its
unaffiliated trustees.
3
FUND SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statements of changes in net assets
were as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
6/30/99 12/31/98
----------------------------
<S> <C> <C>
Shares sold 2,776,199 6,883,008
Shares issued for reinvestment of dividends -- 354,028
------------- -------------
2,776,199 7,237,036
Less shares redeemed (5,464,247) (6,307,941)
------------- -------------
Net (decrease) increase in shares
outstanding (2,688,048) 929,095
------------- -------------
------------- -------------
Paid-In-Capital $ 362,151,924 $ 412,672,188
------------- -------------
------------- -------------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the period
ended June 30, 1999, were as follows:
<TABLE>
<S> <C>
Cost of purchases $ 130,020,789
Proceeds from sales 159,640,131
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 1999 17
<PAGE>
REPORT for the Six Months Ended June 30, 1999
- ------------------------------------------------------------------------
This report, including the unaudited financial statements contained herein, is
submitted for the general information of the shareholders of the Fund.
Funds Distributor Inc. is the principal underwriter of Skyline Funds.
18 SEMI-ANNUAL REPORT - JUNE 30, 1999
<PAGE>
For 24-hour account information CALL: 1.800.828.2SKY
(1.800.828.2759)
To speak with a Skyline Funds Representative during
normal business hours CALL: 1.800.828.2SKY and press 0 when prompted.
- ------------------------------------------------
[SKYLINE FUNDS LOGO]
311 South Wacker Drive
Suite 4500
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