<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1999
Securities Act registration no. 33-11755
Investment Company Act registration no. 811-5022
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 27 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 29 [X]
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SKYLINE FUNDS-Registered Trademark-
(Registrant)
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
Telephone Number: 312/913-0900
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William M. Dutton Janet D. Olsen
Skyline Funds Bell, Boyd & Lloyd
311 South Wacker Drive, Suite 4500 Three First National Plaza, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
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Amending Parts A, B and C and filing Exhibits
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---
X on May 1, 1999 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on ____________ pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on ____________ pursuant to paragraph (a)(2) of rule 485
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<PAGE>
SKYLINE FUNDS-REGISTERED TRADEMARK-
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SKYLINE SPECIAL EQUITIES PORTFOLIO
SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN
NO LOAD
NO FRONT- OR BACK-END LOADS
NO 12b-1 FEES
The Securities and Exchange Commission has not approved any Fund's shares or
determined whether this prospectus is accurate or complete. Any representation
to the contrary is a crime.
PROSPECTUS
MAY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SKYLINE SPECIAL EQUITIES PORTFOLIO........................... 1
SKYLINE SMALL CAP VALUE PLUS................................. 3
SKYLINE SMALL CAP CONTRARIAN................................. 5
ARE THE FUNDS RIGHT FOR YOU?................................. 7
FEES AND EXPENSES............................................ 7
HOW WE CHOOSE INVESTMENTS.................................... 8
STRATEGIES THAT APPLY TO ALL FUNDS.................... 8
SKYLINE SPECIAL EQUITIES PORTFOLIO.................... 9
SKYLINE SMALL CAP VALUE PLUS.......................... 10
SKYLINE SMALL CAP CONTRARIAN.......................... 11
WHO MANAGES THE FUNDS........................................ 11
THE PORTFOLIO MANAGERS................................ 11
THE ADVISER........................................... 12
RISKS........................................................ 13
HOW WE MANAGE RISK........................................... 14
TYPES OF SKYLINE FUNDS ACCOUNTS.............................. 15
INFORMATION ON PURCHASING SHARES............................. 16
TO OPEN A NEW ACCOUNT WITH THE SKYLINE FUNDS.......... 16
TO ADD TO AN EXISTING ACCOUNT......................... 17
RULES THAT APPLY TO ALL SHARE PURCHASES............... 19
DETERMINING THE SHARE PRICE........................... 20
ELIGIBILITY TO INVEST IN SPECIAL EQUITIES
PORTFOLIOS........................................... 20
REDEEMING SHARES............................................. 21
RULES THAT APPLY TO ALL SHARE REDEMPTIONS............. 23
SIGNATURE GUARANTEES.................................. 25
SHAREHOLDER SERVICES......................................... 25
SHAREHOLDER ACCOUNTS.................................. 25
CHANGES TO YOUR ADDRESS............................... 26
EXCHANGE PLAN......................................... 26
AUTOMATIC INVESTMENT PLAN............................. 27
ELECTRONIC SHARE PURCHASES............................ 27
SYSTEMATIC WITHDRAWAL PLAN............................ 28
RETIREMENT PLANS...................................... 28
DISTRIBUTIONS AND TAXES...................................... 28
DISTRIBUTION PAYMENT AND REINVESTMENT OPTIONS......... 28
TAXES AND TAX REPORTING............................... 29
BUYING AND SELLING SHARES CLOSE TO A RECORD DATE...... 29
SHAREHOLDER INQUIRIES........................................ 29
THE FUNDS' SERVICE PROVIDERS................................. 30
FINANCIAL HIGHLIGHTS......................................... 30
</TABLE>
i
<PAGE>
SKYLINE SPECIAL EQUITIES PORTFOLIO*
INVESTMENT OBJECTIVE
The Fund seeks maximum capital appreciation primarily through investment in
common stocks that its investment adviser considers to be undervalued.
PRINCIPAL INVESTMENT STRATEGIES
Skyline Special Equities Portfolio is a small cap value investment. The Fund
emphasizes investments in companies that have below average valuations and above
average earnings growth prospects. The Fund also invests in stocks that are
depressed due to current problems at the company where there is an expectation
that the company's operations will improve. The Fund emphasizes investments in
small companies whose outstanding shares have an aggregate market value of less
than $1 billion.
HOW THE FUND HAS PERFORMED
The following charts show the annual performance of the Fund during the past
10 years, as well as the Fund's average annual total return for the one, five
and ten year periods ended December 31, 1998, and since the Fund's inception on
April 23, 1987. This information is intended to help you assess the variability
of Fund returns over the periods indicated. Returns include the reinvestment of
dividends and distributions. Of course, past performance does not guarantee
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%)
<S> <C>
1989 24.0
1990 -9.3
1991 47.4
1992 42.5
1993 22.9
1994 -1.2
1995 13.8
1996 30.4
1997 35.4
1998 -7.2
</TABLE>
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* Skyline Special Equities Portfolio closed on January 30, 1997, to investment
by new investors.
1
<PAGE>
During the 10 years ended December 31, 1998, the Fund's highest and lowest
quarterly returns were:
- Highest quarterly return: 27.81%, during the quarter ended
March 31, 1991
- Lowest quarterly return: -20.54%, during the quarter ended
September 30, 1990.
<TABLE>
<CAPTION>
Average Annual Total Returns for Periods Ended
December 31, 1998(%)*
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Since
1 5 10 Inception
Year Years Years April 23, 1987
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<S> <C> <C> <C> <C>
Fund..................... -7.17 13.02 18.26 16.17
Russell 2000............. -2.55 11.86 12.92 10.41
S&P 500.................. 28.76 24.15 19.22 16.47
</TABLE>
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* 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.
RISKS
Your investment in the Fund is subject to market risk--the risk that a
particular stock, or stocks in general, may fall in value. If the stocks owned
by the Fund fall in value, your investment in the Fund would also fall in value.
Stocks tend to have periods of rising prices and periods of falling prices, and
you could lose money on your investment.
In the short-term, stock prices fluctuate widely in response to company,
market or economic news. Compared to large companies, small companies like those
in which the Fund invests often have a shorter history of operations or a
narrower product line, and may have a harder time raising additional capital
when they need it. As a result, the stock prices of small companies tend to move
more abruptly than stocks of large companies. There are also risks of investing
in value-oriented stocks, including the risk that value-oriented stocks will
underperform growth-oriented stocks during some periods.
2
<PAGE>
SKYLINE SMALL CAP VALUE PLUS
INVESTMENT OBJECTIVE
The Fund seeks maximum capital appreciation primarily through investment in
common stocks that its investment adviser considers to be undervalued.
PRINCIPAL INVESTMENT STRATEGIES
Skyline Small Cap Value Plus is a small cap value investment with an emphasis
on earnings growth. The Fund emphasizes investments in companies that have
attractive valuations plus solid growth prospects. These companies often have
earnings growth prospects that are superior to the average publicly traded
company. The Fund emphasizes investments in small companies whose outstanding
shares have an aggregate market value of less than $2 billion.
HOW THE FUND HAS PERFORMED
The following charts show the annual performance of Skyline Small Cap Value
Plus since January 1, 1994, as well as the Fund's average annual total return
for the one and five year periods ended December 31, 1998 and from inception.
This information is intended to help you assess the variability of Fund returns
over the periods indicated. Returns include the reinvestment of dividends and
distributions. Of course, past performance does not guarantee 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%)
<S> <C>
1994 -1.5
1995 21.0
1996 26.6
1997 26.2
1998 -6.7
</TABLE>
3
<PAGE>
Since 1994, the highest and lowest quarterly returns were:
- Highest quarterly return: 19.28%, in the quarter ended June 30,
1997
- Lowest quarterly return: -18.70%, in the quarter ended
September 30, 1998.
<TABLE>
<CAPTION>
Average Annual Total Returns for Periods Ended
December 31, 1998(%)*
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Since
1 5 Inception
Year Years February 9, 1993
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<S> <C> <C> <C>
Fund......................... -6.66 12.18 12.05
Russell 2000................. -2.55 11.86 12.41
S&P 500...................... 28.76 24.15 21.59
</TABLE>
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* 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.
RISKS
Your investment in the Fund is subject to market risk--the risk that a
particular stock, or stocks in general, may fall in value. If the stocks owned
by the Fund fall in value, your investment in the Fund would also fall in value.
Stocks tend to have periods of rising prices and periods of falling prices, and
you could lose money on your investment.
In the short-term, stock prices fluctuate widely in response to company,
market or economic news. Compared to large companies, small companies like those
in which the Fund invests often have a shorter history of operations or a
narrower product line, and may have a harder time raising additional capital
when they need it. As a result, the stock prices of small companies tend to move
more abruptly than stocks of large companies. There are also risks of investing
in value-oriented stocks, including the risk that value-oriented stocks will
underperform growth-oriented stocks during some periods.
4
<PAGE>
SKYLINE SMALL CAP CONTRARIAN
INVESTMENT OBJECTIVE
The Fund seeks maximum capital appreciation primarily through investment in
common stocks that its investment adviser considers to be undervalued.
PRINCIPAL INVESTMENT STRATEGIES
Skyline Small Cap Contrarian is a small cap deep value investment. The Fund
emphasizes investments in stocks that are out-of-favor in the investment
community. It seeks to invest in solid, high quality companies that trade at low
valuations, usually because of disappointing financial results which the Fund's
investment adviser considers to be short term. Since these stocks have very low
valuations, the adviser believes there is great potential for capital
appreciation if the company's financial results improve. The Fund emphasizes
investments in small companies whose outstanding shares have an aggregate market
value of less than $2 billion.
HOW THE FUND HAS PERFORMED
The following charts show Small Cap Contrarian's annual performance since
January 1, 1998, as well as the Fund's average annual total return for 1998 and
since inception. This information is intended to help you assess the variability
of Fund returns over the periods indicated. Of course, past performance does not
guarantee 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%)
<S> <C>
1998 -28.4
</TABLE>
5
<PAGE>
Since 1998, the Fund's highest and lowest quarterly returns were:
- Highest quarterly return: 10.00%, in the quarter ended
March 31, 1998
- Lowest quarterly return: -29.20%, in the quarter ended
September 30, 1998
<TABLE>
<CAPTION>
Average Annual Total Returns for Periods Ended
December 31, 1998(%)*
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1
Year
Since
Inception
December 15, 1997
- --------------------------------------------------------------------
<S> <C> <C>
Fund................................ -28.40 -27.33
Russell 2000........................ -2.55 1.21
S&P 500............................. 28.76 28.29
</TABLE>
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* 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.
RISKS
Your investment in the Fund is subject to market risk--the risk that a
particular stock, or stocks in general, may fall in value. If the stocks owned
by the Fund fall in value, your investment in the Fund would also fall in value.
Stocks tend to have periods of rising prices and periods of falling prices, and
you could lose money on your investment.
In the short-term, stock prices fluctuate widely in response to company,
market or economic news. Compared to large companies, small companies like those
in which the Fund invests often have a shorter history of operations or a
narrower product line, and may have a harder time raising additional capital
when they need it. As a result, the stock prices of small companies tend to move
more abruptly than stocks of large companies. There are also risks of investing
in value-oriented stocks, including the risk that value-oriented stocks will
underperform growth-oriented stocks during some periods.
6
<PAGE>
ARE THE FUNDS RIGHT FOR YOU?
The Funds are designed for shareholders who are long-term investors, who can
accept more risk and volatility than the general stock market, and who are
willing to accept fluctuations in share price.
The Funds are not appropriate for shareholders who need regular income, have a
short-term investment horizon, or who are unwilling to accept fluctuation in
share price or possible losses.
FEES AND EXPENSES
The Funds are "no-load" funds. You do not pay any sales charge when you
purchase or sell your shares. However, you will indirectly pay various other
expenses because the Funds pay fees and other expenses that reduce the return on
your investment. The following table describes the fees and expenses that you
may pay if you invest in shares of Skyline Special Equities Portfolio, Skyline
Small Cap Value Plus or Skyline Small Cap Contrarian.
<TABLE>
<CAPTION>
Skyline Small Skyline Small
Skyline Special Cap Value Cap
Equities Portfolio Plus Contrarian
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SHAREHOLDER TRANSACTION EXPENSES
(paid directly from your investment)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge.......... none none none
Deferred sales charge......... none none none
Exchange fee.................. none none none
Redemption fee................ none none none
<CAPTION>
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ANNUAL FUND OPERATING EXPENSES
(deducted from Fund Assets)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Comprehensive Management Fee
(including most operating
expenses)*.................. 1.46% 1.50% 1.50%
Distribution (12b-1) Fees..... none none none
Other Expenses................ .01% .01% .34%
-------------------------------------------------
Total Annual Fund Operating
Expenses -- Gross........... 1.47 % 1.51 % 1.84 %
After Contractual Expense
Reimbursement
Reimbursements.............. 0 0 (.09 )%
-------------------------------------------------
Total Annual Fund Operating
Expenses -- Net............ 1.47 % 1.51 % 1.75 %
</TABLE>
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* Under the Advisory Agreement, the Adviser pays all of the ordinary operating
expenses of each Fund, except the fees and expenses of Skyline's
non-interested trustees and organization costs. The Adviser has agreed to
limit the expenses of Skyline Special Equities Portfolio, Skyline Small Cap
Value Plus and Skyline Small Cap Contrarian to 1.75%, 2.00% and 1.75%,
respectively, of the Fund's average daily net assets. This limitation can not
be changed without shareholder approval. (See "Who Manages the Funds -- THE
ADVISER.")
7
<PAGE>
The following Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in each of the Funds for the time periods indicated and
then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Your actual returns and costs may be higher
or lower.
<TABLE>
<CAPTION>
SKYLINE SKYLINE SKYLINE
SPECIAL EQUITIES SMALL CAP SMALL CAP
PORTFOLIO VALUE PLUS CONTRARIAN
-----------------------------------------------
<S> <C> <C> <C>
1 year..... $ 150 $ 154 $ 178
3 years.... 465 477 551
5 years.... 803 824 949
10 years... 1,757 1,802 2,062
</TABLE>
THE EXAMPLE IS FOR ILLUSTRATION ONLY. IT IS NOT MEANT TO SUGGEST THE FUNDS'
ACTUAL OR EXPECTED COSTS OR EXPENSES, WHICH MAY BE MORE OR LESS THAN THE AMOUNTS
SHOWN. THE AMOUNTS IN THE EXAMPLE INCLUDE THE EFFECTS OF THE ADVISER'S AGREEMENT
TO LIMIT THE EXPENSES OF SMALL CAP CONTRARIAN.
HOW WE CHOOSE INVESTMENTS
STRATEGIES THAT APPLY TO ALL FUNDS
SKYLINE'S RESEARCH AND BUY/SELL DISCIPLINE
SKYLINE'S RESEARCH
When looking for investment ideas for the Skyline Funds, the Funds' investment
adviser, Skyline Asset Management, L.P. (called the "Adviser" in this
prospectus), relies on a number of sources, both internal and external. For
example, the Adviser meets with hundreds of companies annually, works with more
than 100 brokerage firms (including small regional firms), and uses
sophisticated computer screens to help focus on companies that meet the Funds'
investment criteria.
The Adviser screens stocks for each Fund using:
- valuation measures, including price to earnings, price to book,
price to cash flow, and price to sales ratios--each Fund has its own
targets for valuation and earnings growth prospects;
- a small capitalization range; and
- a bottom up approach--one stock at a time, without market
forecasts.
8
<PAGE>
Potential stock ideas that pass the initial review stage are researched
in-depth by an analyst. For most stocks researched, the Adviser's analysts:
- review corporate documents;
- review existing research reports written by third-party sources;
- prepare a comprehensive income statement model;
- review industry comparisons; and
- meet/talk with company's senior management, usually the Chief
Financial Officer and/or the Chief Executive Officer.
If the stock idea still appears to be an attractive investment after that
research, the analyst presents it to the Adviser's investment research group for
discussion. After the group's review and input, each portfolio manager
personally makes the final buy or sell decision for each Fund.
SKYLINE'S BUY/SELL DISCIPLINE
Each manager has a disciplined sell strategy. On an ongoing basis, the Adviser
challenges the assumptions and re-evaluates purchase decisions to ensure that
each security provides an attractive risk/return profile.
The Funds do not use a "hold" concept, where a stock is included in the
portfolio but the portfolio manager is not willing to invest new money in the
stock. We believe that each holding in the Funds' portfolios should be
considered a "buy" at all times. Once the portfolio manager no longer wants to
buy the stock, it should be sold and replaced with a better stock. Stocks will
be replaced when they achieve sell targets, when the portfolio manager believes
they no longer have strong appreciation potential or when fundamental conditions
deteriorate such that the original investment thesis is no longer valid.
SKYLINE SPECIAL EQUITIES PORTFOLIO*
Skyline Special Equities Portfolio seeks maximum capital appreciation
primarily through investment in common stocks that the Adviser considers to be
undervalued.
Companies in which Skyline Special Equities Portfolio invests 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.
- ------------------------
* Skyline Special Equities Portfolio closed on January 30, 1997 to investment by
new investors.
9
<PAGE>
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 $1 billion.
The Adviser attempts to identify companies that it believes are neglected by the
investment community.
The Fund is ordinarily substantially fully invested, and under normal market
conditions, at least 65% of the assets of the Fund will be invested in common
stocks. The Fund may, from time to time, take temporary defensive positions that
are inconsistent with these principal investment strategies. When the Adviser
believes a temporary defensive position is necessary, the Fund may invest in
high-quality fixed-income securities or hold assets in cash or cash equivalents.
Taking a defensive position might prevent the Fund from achieving its investment
objective.
SKYLINE SMALL CAP VALUE PLUS
Skyline Small Cap Value Plus seeks maximum capital appreciation primarily
through investment in common stocks that the Adviser considers undervalued.
Skyline Small Cap Value Plus emphasizes investments in companies that have
attractive valuations plus solid growth prospects. Compared to the other Skyline
Funds, Skyline Small Cap Value Plus generally invests in companies with higher
earnings growth rates which usually have slightly higher valuations. The
companies in which Skyline Small Cap Value Plus invests often have earnings
growth prospects that are superior to the average publicly traded company. In
purchasing these stocks, strict attention is also paid to valuation. The Adviser
generally favors stocks that trade at relatively low multiples of earnings,
sales and/or cash flow.
Skyline Small Cap Value Plus emphasizes investments in small companies whose
outstanding shares have an aggregate market value under $2 billion. The Adviser
attempts to identify companies that it believes are neglected by the investment
community.
The Fund is ordinarily substantially fully invested, and under normal market
conditions, at least 65% of the assets of the Fund will be invested in common
stocks of small capitalization issuers. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with these principal
investment strategies. When the
10
<PAGE>
Adviser believes a temporary defensive position is necessary, the Fund may
invest in high-quality fixed-income securities or hold assets in cash or cash
equivalents. Taking a defensive position might prevent the Fund from achieving
its investment objective.
Prior to April 28, 1998, Skyline Small Cap Value Plus was named Skyline
Special Equities II.
SKYLINE SMALL CAP CONTRARIAN
Skyline Small Cap Contrarian seeks maximum capital appreciation primarily
through investment in common stocks that the Adviser considers undervalued.
Skyline Small Cap Contrarian emphasizes investments in stocks that are
out-of-favor in the investment community. The Fund seeks to invest in solid,
high quality companies that are trading at low valuations, usually because of
disappointing financial results which the Adviser considers to be short term.
Since these stocks have very low valuations, the Adviser believes there is great
potential for capital appreciation if the company's financial results improve.
The Fund emphasizes investments in small companies whose outstanding shares have
an aggregate market value of less than $2 billion.
Skyline Small Cap Contrarian is ordinarily substantially fully invested, and
under normal market conditions, at least 65% of the Fund's assets will be
invested in common stocks of small capitalization issuers.
WHO MANAGES THE FUNDS
THE PORTFOLIO MANAGERS
Each Fund has a portfolio manager who works with a team of the Adviser's
investment professionals and analysts. The Funds' portfolio managers make all
final investment decisions for the Funds.
WILLIAM M. DUTTON is portfolio manager of Skyline Special Equities Portfolio.
Mr. Dutton is president of Skyline Funds and has been the portfolio manager of
Skyline Special Equities Portfolio since its inception in 1987. He is managing
partner and chief investment officer of the Adviser. Mr. Dutton has managed
small cap portfolios since 1985, including Skyline Growth Fund, L.L.C., a
private investment company, and the small cap investment portfolios of a number
of prominent institutional clients. In 1992, he was named "Portfolio Manager of
the Year" by Morningstar, an independent mutual fund rating service. Mr. Dutton
graduated with a Bachelor of Arts degree in English Literature from Princeton
University and received a Master's degree in Accounting from the University of
Illinois. He is also a Certified Public Accountant.
11
<PAGE>
KENNETH S. KAILIN is portfolio manager of Skyline Small Cap Value Plus. Mr.
Kailin is executive vice president of Skyline Funds and has been the portfolio
manager of Skyline Small Cap Value Plus since its inception in 1993. He is a
partner of the Adviser. Mr. Kailin also manages portfolios that invest in small
capitalization stocks for institutional clients. Mr. Kailin joined Skyline's
previous adviser over a decade ago as a security analyst working for Mr. Dutton.
In 1990, he became a portfolio manager. Mr. Kailin received his Bachelor of
Science degree in Finance from Indiana University and his M.B.A. from the
University of Chicago. He is also a Chartered Financial Analyst.
DAREN C. HEITMAN is portfolio manager of Skyline Small Cap Contrarian. Mr.
Heitman is a senior vice president of Skyline Funds. With over seven years of
experience researching small capitalization companies, Mr. Heitman most recently
worked as a small cap securities analyst with Mr. Dutton, portfolio manager of
Skyline Special Equities Portfolio. Mr. Heitman joined Skyline's previous
adviser in 1993 as an analyst in its institutional equity research division.
Prior to that, Mr. Heitman worked for The Ohio Company as a research analyst for
two years. Mr. Heitman has a B.B.A. in Finance from Iowa State University with a
minor in economics. Mr. Heitman is also a Chartered Financial Analyst.
THE ADVISER
Skyline's investment adviser is Skyline Asset Management, L.P., 311 South
Wacker Drive, Suite 4500, Chicago, Illinois 60606. The Adviser has advised and
managed the Skyline Funds since 1995; the partners of the Adviser have been a
part of the management of the Skyline Funds since Skyline was organized in 1987.
The officers of the Adviser manage the day-to-day operations of the Adviser. The
Adviser manages the Funds' investments. In addition, the Adviser provides office
space, facilities, equipment, and personnel for managing the assets and
administering Skyline's day-to-day operations, and provides shareholder and
investor services.
For its advisory, management, and administrative services, and for the
assumption of Skyline's ordinary operating expenses, each Fund pays the Adviser
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 average daily net assets in excess of $600
million. The Adviser has agreed to limit each Fund's expenses (including the
Adviser's fee, trustees' fees and expenses, and reimbursement of organizational
expenses, but excluding extraordinary costs or expenses not incurred in the
ordinary course of Skyline's operation) to 1.75% of the average daily net assets
of Skyline Special Equities Portfolio, 2.00% of the average daily net assets of
Skyline Small Cap Value Plus, and 1.75% of the
12
<PAGE>
average daily net assets of Skyline Small Cap Contrarian. Expenses incurred in
excess of these limits, if any, will be reimbursed to the Fund by the Adviser.
For the most recent fiscal year, the Funds paid the following comprehensive
management fees to the Adviser: 1.46% of average net assets for Skyline Special
Equities Portfolio, 1.50% of average net assets for Skyline Small Cap Value
Plus, and 1.50% of average net assets for Skyline Small Cap Contrarian.
RISKS
Risk is a part of investing in mutual funds that invest in stocks. The biggest
risk of investing in any of the Skyline Funds is market risk -- the risk that a
particular stock or stocks of companies in a particular industry, or stocks of
small companies may fall in value. As a result, you may receive little or no
return on your investment or may lose part or all of your investment.
Stock markets tend to move in cycles, with periods of rising stock prices and
periods of falling stock prices. As a result, the Funds should be considered
long-term investments, designed to provide the best results when held for
several years or more.
Because the Funds invest in stocks of small companies, which tend to be more
volatile and less liquid than stocks of large companies, investing in one of the
Skyline Funds may involve an above-average degree of risk. Small companies, as
compared to large 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 have a
smaller public market for their securities.
The Funds invest in "value" stocks--stocks that are undervalued and,
consequently, offer potential for appreciation. Value-oriented stocks have
historically underperformed stocks with stronger growth characteristics during
some periods and have outperformed during other periods.
Each Fund buys and sells securities in the normal course of its investment
activities. The proportion of the Fund's investment portfolio that is sold and
replaced with new securities during a year is known as the portfolio turnover
rate. Portfolio turnover can occur for a number of reasons such as general
conditions in the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of holding or
changing a portfolio investment. Because of each Fund's flexibility of
investment and emphasis on growth of capital, it may have greater portfolio
turnover than mutual funds that have primary objectives of income or maintenance
of a balanced investment position. A high rate of portfolio
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turnover, if it should occur, would result in increased transaction expenses.
High portfolio turnover also may result in the realization of capital gains or
losses and, to the extent net short-term capital gains are realized, any
distributions resulting from such gains will be considered ordinary income for
Federal income tax purposes. See "Taxes" in this prospectus and "Taxes" in the
statement of additional information.
Like other mutual funds, financial and business organizations and individuals
around the world, each of the Funds could be adversely affected if the computer
systems used by the Adviser, and other service providers do not properly process
and calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Adviser is taking steps that it
believes are reasonably designed to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Funds' other major service
providers. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
HOW WE MANAGE RISK
Each Fund attempts to reduce risk through portfolio diversification and the
use of a stock selection strategy that emphasizes undervalued common stocks,
many of which already reflect low valuations, to produce a favorable risk/reward
ratio.
The Funds have adopted certain investment limitations that cannot be changed
without shareholder approval and are designed to limit investment risk and
maintain portfolio diversification. The Skyline Funds may not have more than:
- 5% of its total assets in any one issuer, or 10% of the voting
securities of that issuer (this restriction doesn't apply to U.S.
government securities, and it only applies to 75% of the assets of Small
Cap Contrarian); or
- 25% of its total assets invested in companies in a single industry.
Each Fund may, from time to time, take a temporary defensive position that is
inconsistent with its principal investment strategies. When the Adviser believes
a temporary defensive position is necessary, a Fund may invest in high-quality
fixed-income securities or hold assets in cash or cash equivalents. Taking a
defensive position might prevent the Fund from achieving its investment
objective.
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TYPES OF SKYLINE FUNDS ACCOUNTS
You may set up an account directly with Skyline Funds, in any of the following
ways.
INDIVIDUAL/JOINT TENANT
Individual accounts are owned by one individual. Joint tenant accounts have
two or more owners, and provide for rights of survivorship. Both accounts are
registered under one tax identification number.
GIFTS/TRANSFERS TO A MINORS (UGMA/UTMA)
These custodial accounts provide a way to invest money on behalf of a minor
child. An individual may give up to a total of $10,000 a year (including amounts
placed in UGMA/UTMA accounts), per child, without paying federal gift tax. The
account is registered under the minor's social security number and earnings are
taxed at the minor's income level. Depending on state laws, you may set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
TRUST
You must establish a trust before investing money on behalf of the trust. The
account is registered under the trust's tax identification number.
BUSINESS/ORGANIZATION
You may invest money on behalf of a corporation, association, partnership or
other group. The Skyline Funds require a corporate resolution or certificate of
authorization to redeem shares.
RETIREMENT ACCOUNTS
Retirement plans provide individuals with tax-advantaged ways to save for
retirement, through contributions, which may be tax deductible, and tax-deferred
growth.
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
Traditional IRAs allow individuals with earned income who are under the age of
70 1/2 to save up to $2000 per tax year for retirement. Contributions may be tax
deductible, subject to certain limits, and earnings grow tax-deferred.
ROTH IRAS
Roth IRAs allow individuals with earned income up to $110,000 per year, to
save up to $2000 per tax year for retirement. Married couples with annual
incomes up to $160,000 can contribute up to $4,000.
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Contributions to Roth IRAs are not tax-deductible, but withdrawals are not
taxable if the Roth IRA has been held at least five years, and you are at least
59 1/2, disabled, or use the proceeds (up to $10,000) to purchase a first home.
ROLLOVER IRAS
Rollover IRAs allow individuals to rollover eligible distributions from an
employer-sponsored retirement plan into an IRA.
SIMPLE IRAS
SIMPLE-IRAs allow small business owners or those who are self-employed and
their eligible employees to elect to have a portion of their pay withheld on a
before-tax basis and saved in a tax-deferred account maintained for the
individual employee. The employer is also generally required to make a
contribution for each employee who elects to contribute.
OTHER RETIREMENT PLANS
The Skyline Funds may be used as investments in other kinds of retirement
plans, including Keogh or corporate profit-sharing and money purchase plans,
403(b) plans, and 401(k) plans. All of these accounts need to be established by
the trustee of the plan.
INFORMATION ON PURCHASING SHARES
You may purchase shares of the Skyline Funds directly from the Funds or
through certain broker-dealers or other intermediaries, some of which may charge
a transaction fee. Skyline has authorized some intermediaries (called
"authorized agents" in this prospectus) to accept purchase orders and redemption
requests on Skyline's behalf. In some cases, an authorized agent or another
intermediary may not charge any transaction or other fees directly to you, but
instead may receive a fee from the Adviser based on the value of Skyline Fund
shares purchased through that agent. Any questions about purchasing shares
through an intermediary should be directed to the Skyline Funds at (800)
828.2759, or to the agent or intermediary.
TO OPEN A NEW ACCOUNT WITH THE SKYLINE FUNDS:
BY MAIL
CHECK
- Complete and sign a Skyline Funds application. Make your check
payable to the name of the Fund you are investing in.
- Mail your completed application and check to: Skyline Funds,
c/o Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201.
If you are using an overnight courier,
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send to: Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Third Floor, Milwaukee, WI 53202.
EXCHANGE
- Write to Skyline Funds requesting that a new account be
established by exchanging assets from an existing account invested in the
Skyline Funds. All clients on the account registration must sign the
request.
- The accounts must be registered identically and the dollar
amount exchanged must meet the minimum initial investment amount of
$1,000.
- Mail your written request to: Skyline Funds, c/o Firstar Mutual
Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201. If you are using an
overnight courier, send to Skyline Funds, c/o Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Third Floor, Milwaukee, WI 53202.
BY WIRE
- Call Skyline Funds at (800) 828.2759 for instructions if you want
to use a wire transfer to purchase shares of a Fund.
BY TELEPHONE
TELEPHONE EXCHANGE
Call Skyline Funds at (800) 828.2759 to establish a new account by exchanging
assets from an existing account in the Skyline Funds.
- To be eligible to use the telephone for exchanging assets, you
must have authorized telephone exchange on your original account
application and the accounts must be registered identically.
- The dollar amount exchanged must meet the minimum initial
investment of $1,000.
TO ADD TO AN EXISTING ACCOUNT:
BY MAIL
CHECK
- Complete the additional investment form provided at the bottom
of your account statement or write a note providing your account number
and registration. Make your check payable to the Fund you are invested in.
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- Mail to: Skyline Funds, c/o Firstar Mutual Fund Services, LLC,
P.O. Box 701, Milwaukee, WI 53201. If you are using an overnight courier,
send to: Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Third Floor, Milwaukee, WI 53202.
EXCHANGE
- Write to the Skyline Funds requesting an exchange of assets
from one account to another account in the Skyline Funds. The request must
be signed by all clients on the account registration.
- Your accounts must be registered identically.
- Mail your written request to: Skyline Funds, c/o Firstar Mutual
Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201. If you are using an
overnight courier, send to Skyline Funds, c/o Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Third Floor, Milwaukee, WI 53202.
BY WIRE
- Call Skyline Funds at (800) 828.2759 for instructions if you want
to use a wire transfer to purchase shares of a Fund.
BY TELEPHONE
EXCHANGE
- Call Skyline Funds at (800) 828.2759 to add to an existing
account by exchanging assets from another account invested in the Skyline
Funds.
- To be eligible to use the telephone for exchanging assets, you
must have authorized telephone exchange on your original account
application and your accounts must be registered identically.
ELECTRONIC FUNDS PURCHASE
- Once you have established a Skyline Funds account, electronic
funds purchase allows you to purchase shares over the telephone by
debiting your bank account. To electronically debit your bank account, you
must hold your bank account at a financial institution that is an
Automatic Clearing House member. Simply complete the appropriate section
on the account application form and attach a voided check from your bank
account. Skyline Funds will complete most electronic purchases within the
same business day, if you call to place your order by 3:00 p.m., Central
Time. For more information on electronic funds purchase, see "Shareholder
Services--Electronic Funds Purchases" on page 27.
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BY SYSTEMATIC INVESTMENT
AUTOMATIC INVESTMENT PLAN
- Once you have established a Skyline Funds account, systematic
investing allows you to make regular investments through automatic
deductions from your bank account. Simply complete the appropriate section
on the account application form and attach a voided check from your bank
account. For more information about systematic investing, see "Shareholder
Services--Automatic Investment Plan" on page 27.
DIVIDEND PURCHASE PLAN
- You may use the dividend and capital gain distributions paid by a
Fund to buy shares of another Fund (including the Firstar Money Market
Funds). The account into which the dividend and capital gain are to be
invested must meet the applicable minimum balance, and the account
registrations must be identical.
RULES THAT APPLY TO ALL SHARE PURCHASES:
- You must make all share purchases in U.S. dollars and checks
must be drawn on U.S. banks. Skyline does not accept third party checks or
credit card checks for any purchase (initial or subsequent share
purchases).
- If your check to purchase a Fund's shares does not clear, you will
be responsible for any resulting loss incurred by that Fund. A charge
(currently $25) will be assessed for any returned check.
- If you are going to open a new account by wire, you must fax
your application form to the transfer agent before sending the wire. You
must also promptly mail the original application form to Skyline Funds c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201 (if using regular mail). Skyline will not establish any account
services until we receive your completed application.
- The minimum initial investment to open an account is $1,000,
and subsequent investments must be at least $100.
- You must provide your Social Security or Taxpayer Identification
Number on the application form, and certify that it is correct, before we
will open an account for you. If you do not provide your correct Social
Security or Taxpayer Identification Number,
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or do not certify it, Skyline Funds may be required to withhold Federal
income tax at a rate of 31% ("backup withholding") from dividend payments
and redemption proceeds to you.
- We may reject a share purchase if we think accepting it would be
harmful to existing shareholders. We believe that frequent purchases and
redemptions of a Fund's shares by investors utilizing market-timing
strategies can adversely affect the management of the Funds. We intend to
reject purchase orders from investors we believe are market-timers.
- Generally, Skyline does not issue share certificates representing
shares, although share certificates in full share amounts will be
furnished upon your written request. Fractional shares, if any, will be
carried on Skyline's books without issuance of certificates.
DETERMINING THE SHARE PRICE
The purchase price of a Fund's shares is the net asset value per share next
computed after receipt by Skyline's transfer agent or authorized agent (from the
Distributor or an authorized broker-dealer or directly from you) of your order
completed in accordance with the instructions on the account application.
Skyline's transfer agent or authorized agent must receive your order before the
close of regular session trading on the New York Stock Exchange (normally 3:00
p.m., Central Time) to receive the net asset value calculated on that day.
The net asset value per share of each Fund is determined by dividing the value
of all of its securities and other assets, less its liabilities, by the number
of shares of the Fund outstanding. Skyline values each security traded on a
national stock exchange or on the NASDAQ National Market at the last sale price
or, if there have been no sales on the valuation day, at the most recent bid
price. Money market instruments with sixty days or less remaining from the
valuation date until maturity are valued on an amortized cost basis. Skyline
values other securities traded over-the-counter at the last reported bid price.
Skyline values other assets and securities by methods that Skyline's board of
trustees believes will determine a fair value.
ELIGIBILITY TO INVEST IN SPECIAL EQUITIES PORTFOLIO
SKYLINE SPECIAL EQUITIES PORTFOLIO IS CLOSED TO NEW INVESTORS. SKYLINE SPECIAL
EQUITIES PORTFOLIO CLOSED ON JANUARY 30, 1997, TO INVESTMENT BY NEW INVESTORS.
If you owned shares of Skyline Special Equities Portfolio as of January 30, 1997
(called the "Closing Date" in the discussion below), you may continue to add to
your existing account(s). You may open a new account if you:
- owned shares of Special Equities Portfolio as of the Closing Date;
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- are a client of a financial advisor or planner who had $250,000 or
more of client assets invested in the Fund as of the Closing Date;
- are a client, or an affiliate of a client, of the Adviser whose assets
are managed by William M. Dutton;
- are a client of Mesirow Asset Management, Inc., Skyline's former
investment adviser, or Mesirow Financial, Inc., Skyline's former
distributor;
- are a trustee of Skyline or a member of a trustee's immediate
family, or an employee of the Adviser or a member of an employee's
immediate family;
- are a retirement plan account (including ERISA accounts and
IRAs) for an employee of the Adviser or a trustee of Skyline, or a member
of their immediate families;
- are a retirement plan 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;
- are a tax-qualified pension, profit-sharing or deferred
compensation plan, including a governmental plan or a 403 annuity plan,
but not including any type of IRA;
- are a member of Skyline Growth Fund, L.L.C., a private
investment company managed by the Adviser; or
- are transferring or rolling over into a Skyline Funds IRA assets
from an employee benefit plan through which you held shares of the Fund,
or investing part or all of the proceeds of a distribution from a plan
through which you held shares of the Fund which does not permit transfers
or rollovers.
If you have questions about your eligibility to purchase shares of Skyline
Special Equities Portfolio, call the Skyline Funds at (800) 828.2759.
Purchases of shares of Skyline Small Cap Value Plus and Skyline Small Cap
Contrarian are not affected by this restriction.
REDEEMING SHARES
There are several ways to redeem your Fund shares. You may send us a written
request, call us (if you have already authorized us to accept telephone
instructions), exchange into another Skyline Fund or one of the available money
market funds, or participate in our systematic
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withdraw plan. For your protection, some redemption requests may require a
signature guarantee. For further details, please see SIGNATURE GUARANTEES. The
redemption process is outlined in the following pages.
BY MAIL
- To redeem shares by mail, send a written request to Skyline's
transfer agent: Skyline Funds, c/o Firstar Mutual Fund Services, LLC, P.O.
Box 701, Milwaukee, WI 53201. If you are using an overnight courier, send
to Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East Michigan
Street, Third Floor, Milwaukee, WI 53202, or an authorized agent.
- All the owners of an account must sign the redemption request.
Signatures must appear exactly as they are on the account registration. We
will not accept redemption requests received by fax or other electronic
means.
BY TELEPHONE
Call Skyline Funds at (800) 828.2759 to request that we redeem shares from
your account by telephone.
- To be eligible to redeem shares by telephone, you must have
authorized telephone redemption on your account application prior to
calling the Skyline Funds with your redemption request.
- You may add the ability to redeem by telephone, if you did not
authorize it on your original account application, but you will have to
make the request in writing and have your signature(s) guaranteed.
- To reduce the risk of a fraudulent instruction, we will send your
redemption check only to the address or bank/brokerage account as shown on
our records. We record all telephone redemption requests.
- You may not redeem shares held in an IRA account by telephone.
- During periods of volatile economic and market conditions, you
may have difficulty making a redemption request by telephone, in which
case you will need to make your redemption request in writing.
BY WIRE
MAIL
- To redeem shares by mail and have the proceeds sent to your
bank or brokerage account by wire transfer, send a written request to
Skyline's transfer agent: Skyline Funds, c/o Firstar
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Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201. If you are
using an overnight courier, send to Skyline Funds, c/o Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Third Floor, Milwaukee, WI 53202,
or an authorized agent.
- You must provide the name of the bank/broker, name(s) on the
account, address and ABA number on your written request. We will deduct
the wire fee, currently $12.00, from the proceeds.
- All the owners of an account must sign the redemption request
and have their signatures guaranteed. Signatures must appear exactly as
they are on the account registration. We will not accept redemption
requests received by fax or other electronic means.
TELEPHONE
- Call Skyline Funds at (800) 828.2759 to request that we redeem
shares from your account by telephone and send the redemption proceeds by
wire transfer to a predetermined bank or brokerage account.
- To be eligible to redeem shares by telephone and have the
proceeds sent to you by wire transfer, you must have authorized telephone
redemption by wire transfer on your account registration prior to calling
the Skyline Funds with your redemption request.
- You may add the ability to redeem by telephone, if you did not
authorize it on your original account application, but you must make the
request in writing and have your signature(s) guaranteed.
- To reduce the risk of a fraudulent instruction, we will send your
redemption proceeds only to the address or bank/brokerage account as shown
on our records. We record all telephone redemption requests.
- You may not redeem shares held in an IRA account by telephone.
- During periods of volatile economic and market conditions, you
may have difficulty making a redemption request by telephone, in which
case a redemption request would have to be made in writing.
RULES THAT APPLY TO ALL SHARE REDEMPTIONS:
- The price you receive for your redeemed shares is the net asset
value next determined after Skyline's transfer agent or an
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authorized agent receives your request. We calculate net asset value as of
the time of the close of regular session trading on the New York Stock
Exchange (normally 3:00 p.m., Central Time). See "Determining the Share
Price"
- Skyline charges no fees for a redemption paid by check, but an
authorized agent may charge a fee for this service. Skyline's transfer
agent does charge a wire fee, currently $12.00, on redemptions by wire
transfer.
- Skyline Funds will pay all redemption proceeds by check or wire.
If specified in the account application, the check will be made payable
and sent to a designated financial institution. We will only send a wire
to the bank or brokerage account as shown on your original account
application, or in a written instruction you have given us with your
signature guaranteed. We generally pay wire requests the next business day
after we receive your redemption request and we will deduct the cost of
the wire transfer (currently $12.00) from the proceeds. We reserve the
right to change the wire transfer fee and any similar service fee without
prior notice to you. Skyline does not permit wires to third parties other
than your designated bank or brokerage account.
- Skyline Funds 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 you
redeem shares within 15 days after they have been purchased by check,
Skyline 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, which may take up to 15 days from the date of purchase.
- Skyline Funds reserves the right to redeem shares in any account
with a balance less than $750 in share value in the Fund. Prior to any
such redemption, Skyline will give shareholders with accounts not meeting
the minimum balance requirement 30 days' written notice during which time
they may increase their investment to avoid having shares redeemed. We
will waive the $750 minimum balance requirement if an account balance
drops below $750 due to market activity.
- If you purchased your shares through an authorized agent or
another intermediary, you may also redeem your shares through that
intermediary. Contact that intermediary for information about its
requirements. An intermediary may charge a fee for its services.
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- If you are making a redemption request on behalf of a
corporation, partnership, trust, fiduciary, executor, or administrator,
you must send us written evidence of your authority to act.
- WE WILL NOT MAKE YOUR REDEMPTION CHECK PAYABLE TO ANYONE OTHER
THAN YOU (USING THE NAME SHOWN ON THE FUND'S RECORDS), OR YOUR DESIGNATED
BANK OR BROKER/DEALER, FOR DEPOSIT TO AN ACCOUNT YOU HAVE AUTHORIZED.
- The post office will not forward your redemption check if you
move. If you have moved, indicate your change of address on your
redemption request and have your signature(s) guaranteed.
SIGNATURE GUARANTEES. A signature guarantee is a way to protect the Funds and
their shareholders, by guaranteeing that the person signing a request is really
the person he or she claims to be. We try to balance the need to protect the
Funds with the inconvenience to you of having to have your signature guaranteed.
You must obtain a signature guarantee on a written redemption request if:
- the redemption check is to be sent to an address other than the
address shown on your account,
- the redemption check is to be sent to a bank or brokerage
account not previously authorized in accordance with the instructions on
your account,
- the proceeds of the redemption would be more than $10,000,
- YOU CHANGED YOUR ADDRESS OF RECORD BY TELEPHONE OR IN WRITING WITHIN
THE LAST 60 DAYS, or
- you are redeeming shares that have been issued in certificate
form.
Your signature must be guaranteed by 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 CANNOT
GUARANTEE A SIGNATURE.
SHAREHOLDER SERVICES
SHAREHOLDER ACCOUNTS. You will receive a quarterly account statement showing
transactions in the Fund's shares with a balance denominated in the Fund's
shares. You will also receive a confirmation showing each purchase, redemption,
dividend reinvestment, and change of shareholder address. For a fee, you may
obtain a historical transcript of your account by requesting one in writing from
Firstar Mutual Fund Services, LLC. If you transfer ownership of your account,
Skyline Funds
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<PAGE>
requires each record owner of the account to provide a signature guarantee. For
additional information, please call Skyline Funds at (800) 828.2759.
CHANGES TO YOUR ADDRESS. You may change your address of record in writing or
over the telephone. To change your address of record by written request, write
to Skyline's transfer agent: Skyline Funds, c/o Firstar Mutual Fund Services,
LLC, P.O. Box 701, Milwaukee, WI 53201. If you are using an overnight courier,
send to Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East Michigan
Street, Third Floor, Milwaukee, WI 53202. You may also change your address by
calling Skyline at (800) 828.2759. However, if you have changed your address of
record within the last 60 days, you may only redeem your shares in writing and
must include a signature guarantee.
EXCHANGE PLAN. Skyline offers an exchange plan among the Funds and two
portfolio series of Firstar Funds, Inc.--Money Market Fund and U.S. Government
Money Market Fund. Because Skyline Special Equities Portfolio is closed to new
investors, you may use the exchange privilege to exchange into that Fund only if
you currently are eligible to invest in that Fund. All exchanges are made at the
net asset value per share next calculated after the receipt of an exchange
request. To be effective on that date, a request to exchange into or out of a
Firstar Money Market Fund must be received by the purchase or redemption cutoff
time described in the Firstar Money Market Funds' prospectus, a copy of which
can be obtained from Skyline at (800) 828.2759.
You may not use the telephone exchange plan 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 you notify Skyline on the account
application that such authorization has been withheld. Unless authorization is
withheld, Skyline will honor exchange requests by telephone at (800) 828.2759.
Skyline records all telephone exchange requests. Skyline and its transfer agent
will be liable for losses resulting from unauthorized telephone redemptions only
if they do not follow reasonable procedures designed to verify the identity of
the caller. You should immediately verify your trade confirmations when you
receive them. 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.
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SKYLINE RESERVES THE RIGHT TO TEMPORARILY OR PERMANENTLY TERMINATE, WITH OR
WITHOUT ADVANCE NOTICE, THE EXCHANGE PRIVILEGE OF ANY INVESTOR WHO MAKES
EXCESSIVE USE OF THE EXCHANGE PRIVILEGE (FOR EXAMPLE, MORE THAN FOUR EXCHANGES
PER CALENDAR YEAR).
Exchanges of shares are taxable events and may result in a gain or loss for
federal income tax purposes.
AUTOMATIC INVESTMENT PLAN. Once you have established a Skyline Funds account,
you have the option to start an Automatic Investment Plan. Systematic investing
allows you to make regular investments through automatic deductions from your
bank account. Simply complete the appropriate section of the account application
and attach a voided check from your bank account.
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of Fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, but does not assure a profit.
Because Skyline Special Equities Portfolio is closed to most new investors,
you may use the automatic investment plan to invest in Special Equities
Portfolio only if you are eligible to invest in that Fund.
You may call Skyline at (800) 828-2759 to make certain changes to your
automatic investment plan. You may change the dollar amount of your automatic
investment, change the date of your automatic investment, suspend your automatic
investments for up to six months or terminate your participation in the plan.
You should call Skyline at least three days prior to your next investment date
for these changes to take effect for that investment. You can change your bank
account information by sending a letter along with a voided check or a
withdrawal slip for your new bank account.
Skyline will waive the minimum subsequent investment amount of $100.00 for
automatic investments. Automatic investments may be as low as $50.00 per
purchase. Before establishing this plan to make investments in the Firstar Money
Market Funds, a shareholder should obtain and read carefully the Firstar Money
Market Funds prospectus, a copy of which may be obtained by calling Skyline
Funds at (800) 828.2759.
ELECTRONIC FUNDS PURCHASES. Once you have established a Skyline Funds
account, you may purchase shares over the telephone by debiting
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<PAGE>
your bank account. To electronically debit your bank account, you must hold your
bank account at a financial institution that is an Automated Clearing House
member. Simply complete the appropriate section on the account application form
and attach a voided check from your bank account.
The purchase price for the shares will be the net asset value per share next
computed after receipt by Skyline's transfer agent of your telephone purchase if
you call to place your order by 3:00 p.m., Central Time. Skyline will initiate
most electronic transfers from your banking account to pay for the share
purchase within that same business day. Skyline may modify or terminate the
ability to purchase shares by phone at any time, or from time to time, without
notice to shareholders.
Skyline and its transfer agent will be liable for losses resulting from
unauthorized telephone purchases only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immediately
verify your trade confirmations when you receive them.
SYSTEMATIC WITHDRAWAL PLAN. You may also arrange for us to redeem shares with
a specified dollar value on a periodic basis. Payment is sent by check to the
record shareholder(s) of the account. To initiate the Systematic Withdrawal
Plan, your account must have a share balance of $5,000 or more and the periodic
withdrawal must be in an amount of $100 or more. Skyline may modify or terminate
the Systematic Withdrawal Plan at any time, or from time to time, without notice
to shareholders.
RETIREMENT PLANS. You may use Skyline Funds as an investment for your
Individual Retirement Account ("IRA"), including regular IRAs, SEP-IRAs,
SIMPLE-IRAs and Roth 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. Master
IRA plans, information regarding plan administration, fees, and other details
are available from the Distributor and authorized broker-dealers. For more
information on opening a retirement plan account with the Skyline Funds, please
call (800) 828.2759.
DISTRIBUTIONS AND TAXES
DISTRIBUTION PAYMENT AND REINVESTMENT OPTIONS. The Funds automatically
reinvest your dividends and distributions in additional Fund shares unless you
request otherwise. You may have your dividends paid to you by check, deposited
directly into your bank account, or reinvested in Skyline Funds or one of the
Firstar Money
28
<PAGE>
Market Funds. The Funds 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. Because of the kinds of investments the Funds make,
their distributions tend to be more from short-term and long-term gains than
from investment income.
TAXES AND TAX REPORTING. The Funds' distributions are taxed as ordinary
income or capital gains. Dividends from a Fund's long-term capital gains are
taxable as capital gains, while dividends from short-term capital gains and net
investment income are generally taxable as ordinary income. The tax you pay on a
capital gains distribution depends generally on how long the Fund has held the
portfolio securities it sold, and so may qualify as long-term capital gains even
if you have held your Fund shares less than 12 months.
Early in each year, you will receive a statement showing the amount and nature
of all dividends and capital gain distributions paid to you during the year. The
tax status of your dividends and distributions is not affected by whether you
reinvest them or receive them in cash. The sale of shares in your account may
produce a gain or loss, and is a taxable event. For tax purposes, an exchange is
the same as a sale. Shareholders who are not subject to income taxation will not
be required to pay tax on amounts distributed to them.
Tax laws are subject to change, so we urge you to consult your tax adviser
about your particular tax situation. Please note that if you do not give us your
correct Social Security number or employer identification number, federal law
requires us to withhold federal income tax from your distributions and
redemption proceeds at a rate of 31%.
BUYING AND SELLING SHARES CLOSE TO A RECORD DATE. Any dividends or
distributions have the effect of reducing the per share net asset value by the
amount of the dividends or distributions. Buying Fund shares shortly before the
record date for a dividend is sometimes called "buying the dividend." The entire
dividend will be taxable to you, even though a portion of the dividend
effectively represents a return of your purchase price.
SHAREHOLDER INQUIRIES
Inquiries should be addressed to Skyline Funds, c/o Firstar Bank Milwaukee,
P.O. Box 701, Milwaukee, Wisconsin 53201. Telephone inquiries may be made at
(800)828.2759.
29
<PAGE>
THE FUNDS' SERVICE PROVIDERS
Firstar Mutual Fund Services, LLC is the Funds' transfer agent, shareholder
servicing agent and provides accounting services to the Funds and Firstar Bank
Milwaukee is the custodian of the Funds' assets. Firstar's address is P.O. Box
701, Milwaukee, Wisconsin 53201.
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand each Fund's recent
past financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The information presented has
been audited and reported on by Ernst & Young LLP, Skyline Funds' independent
auditors. The auditors' report and further information about the performance of
the Funds are contained in the Funds' Annual Reports and the Statement of
Additional Information, which may be obtained from Skyline free of charge.
30
<PAGE>
SKYLINE SPECIAL EQUITIES PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year..................... $ 21.66 $ 18.16 $ 16.79 $ 15.64 $ 17.83
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment loss........ (0.11) (0.07) (0.04) (0.06) (0.08)
Net realized and unrealized
(loss) gain on
investments............... (1.45) 6.46 5.02 2.21 (0.18)
--------- --------- --------- --------- ---------
Total from investment
operations................ (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
year........................ $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN................. (7.17%) 35.43% 30.37% 13.83% (1.15%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to
average net assets........ 1.47% 1.48% 1.51% 1.51% 1.49%
Ratio of net investment
loss to average net
assets.................... (0.50%) (0.41%) (0.32%) (0.35%) (0.49%)
Portfolio turnover rate.... 68% 62% 130% 71% 82%
Net assets at end of year (in
thousands).................. $ 445,024 $ 467,070 $ 219,480 $ 174,899 $ 202,771
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
See "Notes to Financial Highlights" on page 33.
31
<PAGE>
SKYLINE SMALL CAP VALUE PLUS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of
year.......................... $ 12.75 $ 11.94 $ 11.29 $ 10.14 $ 10.79
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment (loss)
income...................... (0.06) (0.03) (0.02) 0.06 0.02
Net realized and unrealized
(loss) gain on
investments................. (0.79) 3.13 2.94 2.06 (0.19)
--------- --------- --------- --------- ---------
Total from investment
operations.................. (0.85) 3.10 2.92 2.12 (0.17)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income...................... -- -- (0.01) (0.06) (0.02)
Dividends from net realized
gains on investments........ (0.11) (2.29) (2.26) (0.91) (0.46)
Dividends from return of
capital..................... (0.01) -- -- -- --
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............ (0.12) (2.29) (2.27) (0.97) (0.48)
--------- --------- --------- --------- ---------
Net asset value at end of
year.......................... $ 11.78 $ 12.75 $ 11.94 $ 11.29 $ 10.14
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN................... (6.66%) 26.21% 26.60% 20.95% (1.52%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets.................. 1.51% 1.51% 1.53% 1.52% 1.51%
Ratio of net investment
(loss) income to average net
assets...................... (0.43%) (0.30%) (0.24%) 0.50% 0.22%
Portfolio turnover rate...... 106% 104% 145% 102% 82%
Net assets at end of year (in
thousands).................... $ 134,902 $ 165,687 $ 105,333 $ 89,203 $ 99,638
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
See "Notes to Financial Highlights" on page 33.
32
<PAGE>
SKYLINE SMALL CAP CONTRARIAN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 15, 1997(b)
DECEMBER 31, 1998 TO DECEMBER 31, 1997
----------------- ---------------------
<S> <C> <C>
Net asset value at beginning of period....... $10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................ (0.09) 0.00
Net realized and unrealized loss on
investments............................... (2.75) 0.00
------- -------
Total from investment operations........... (2.84) 0.00
------- -------
Net asset value at end of period............. $ 7.16 $ 10.00
------- -------
------- -------
TOTAL RETURN................................. (28.40%) 0.00%(d)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets:
Before expense reimbursement............. 1.84% 1.71%(c)
After expense reimbursement.............. 1.75% 1.71%(c)
Ratio of net investment (loss) to average
net assets:
Before expense reimbursement............. (1.14%) (0.29%)(c)
After expense reimbursement.............. (1.05%) (0.29%)(c)
Portfolio turnover rate.................... 80% 0%(c)
Net assets at end of period (in thousands)... $5,198 $ 4,753
------- -------
------- -------
</TABLE>
- ------------------------------
NOTES TO FINANCIAL HIGHLIGHTS:
(a) Effective September 1, 1995, Skyline Asset Management, L.P. became the
investment adviser to Skyline Special Equities Portfolio and Skyline Small
Cap Value Plus.
(b) Commencement of operations.
(c) Ratios have been determined on an annualized basis.
(d) For the period December 15, 1997 through December 31, 1997.
33
<PAGE>
Additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this Prospectus,
contains detailed information on fund policies and operation. Shareholder
reports contain management's discussion of market conditions, investment
strategies and performance results as of the Funds' latest semi-annual or annual
fiscal year end. You may obtain free copies of Skyline Funds' annual and
semi-annual reports, the Statement of Additional Information, or request any
other information and discuss your questions about the Funds by writing or
calling:
Skyline Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 828.2759
In addition, you may obtain this and other information about Skyline Funds
directly from the Securities and Exchange Commission (SEC). You may visit the
SEC online at http://www.sec.gov or in person at the SEC's Public Reference Room
in Washington D.C. You may also call the SEC at (800) SEC-0330, or send your
request and the appropriate duplicating fee to the SEC's Public Reference
Section, Washington, DC 20549-6009.
SKYLINE FUNDS-REGISTERED TRADEMARK-
- ----------------------------
SKYLINE SPECIAL EQUITIES PORTFOLIO
SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN
PROSPECTUS
MAY 1, 1999
- ----------------------------
311 SOUTH WACKER DRIVE, SUITE 4500
CHICAGO, IL 60606
(800) 828-2759
SKYLINE FUNDS, THE SKYLINE LOGO, AND SKYLINE SPECIAL EQUITIES PORTFOLIO ARE
REGISTERED SERVICE MARKS OF AFFILIATED MANAGERS GROUP, INC.
Investment Company Act file number: 811-5022
<PAGE>
SKYLINE FUNDS(R)
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
(800) 828-2759
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
- --------------------------------------------------------------------------------
Skyline Special Equities Portfolio, Skyline Small Cap Value Plus, and
Skyline Small Cap Contrarian are each a series of Skyline Funds ("Skyline").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Skyline Funds Prospectus for Skyline Special Equities
Portfolio, Skyline Small Cap Value Plus, and Skyline Small Cap Contrarian dated
May 1, 1999, and any supplement to that Prospectus. The Funds' Prospectus can
be obtained without charge by calling or writing to Skyline.
TABLE OF CONTENTS
Page
SKYLINE.......................................................................2
SHARES .....................................................................2
INVESTMENT POLICIES...........................................................3
INVESTMENT RESTRICTIONS.......................................................4
PERFORMANCE INFORMATION.......................................................7
PRINCIPAL SHAREHOLDERS.......................................................10
MANAGEMENT OF SKYLINE........................................................11
INVESTMENT ADVISORY SERVICES.................................................13
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................15
PURCHASE AND REDEMPTION OF SHARES............................................17
TAXES ....................................................................18
GENERAL INFORMATION..........................................................19
FINANCIAL STATEMENTS.........................................................20
1
<PAGE>
SKYLINE
Skyline was organized as a Massachusetts business trust on February 4,
1987, and is an open-end, diversified management investment company. Skyline
currently has three series of shares: Skyline Special Equities Portfolio which
began operations April 23, 1987, Skyline Small Cap Value Plus which began
operations on February 9, 1993, and Skyline Small Cap Contrarian which began
operations on December 15, 1997. Skyline's name was changed to "Skyline Funds"
effective as of April 25, 1997, pursuant to an amendment to its Agreement and
Declaration of Trust. As used in this Statement of Additional Information,
"Special Equities Portfolio" means Skyline Special Equities Portfolio, "Small
Cap Value Plus" means Skyline Small Cap Value Plus, and "Small Cap Contrarian"
means Skyline Small Cap Contrarian. Prior to April 28, 1998, Skyline Small Cap
Value Plus was named Skyline Special Equities II. Special Equities Portfolio,
Small Cap Value Plus, and Small Cap Contrarian are sometimes referred to
collectively as the "Funds" and individually as a "Fund." Skyline Asset
Management, L.P. (the "Adviser") provides investment advisory and administrative
services to each of the Funds.
SHARES
Under the terms of Skyline's Agreement and Declaration of Trust,
Skyline 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 three 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 Skyline'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.
Each Skyline share has one vote and fractional shares have fractional
votes. A separate vote of the shareholders of each Fund is required for approval
of Skyline's investment advisory agreement, any change in a Fund's fundamental
investment policies and restrictions, and any matters that affect only one Fund.
Shareholders of a Fund are not entitled to vote on any matter not affecting that
Fund. All shareholders of Skyline vote together in the election of trustees. As
a Massachusetts business trust, Skyline is not required to hold annual
shareholder meetings. However, Skyline may call special meetings to elect or
remove trustees, change fundamental policies or approve an investment advisory
agreement. Upon request of at least 10% of the outstanding shares of Skyline,
Skyline will call a special meeting of shareholders for a purpose that requires
action by the shareholders.
Under Massachusetts law, the shareholders of Skyline may, under certain
circumstances, be held personally liable for Skyline's obligations. However,
Skyline's Agreement and Declaration of Trust disclaims liability of
shareholders, Skyline's trustees, and Skyline's officers for acts or obligations
of Skyline or the Funds and requires that notice of such disclaimer be given in
each agreement, obligation, or contract entered into or executed by Skyline or
the board of trustees. Skyline's Agreement and Declaration of Trust provides for
indemnification out of the assets of a Fund of all losses and expenses of any
shareholder held personally liable for the
2
<PAGE>
obligations of that Fund. 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 Skyline itself is
unable to meet its obligations.
INVESTMENT POLICIES
TEMPORARY INVESTMENTS. To manage cash inflows or in anticipation of
redemptions, each Fund may, from time to time, take temporary investment
positions that are inconsistent with its principal investment strategies. When
the Adviser believes a temporary defensive position is necessary, each Fund may
invest, without limitation, in high-quality fixed-income securities and may hold
assets in cash or cash equivalents. Taking such a position might prevent the
Fund from achieving its investment objective.
REPURCHASE AGREEMENTS. Each Fund may invest up to 5% of its net assets
in repurchase agreements. Repurchase agreements involve the acquisition by a
Fund of an underlying debt instrument, subject to an obligation of the seller to
repurchase and the Fund to resell the instrument, at a fixed price, including
yield, within a specified term. A Fund 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 Funds did not
invest in repurchase agreements in the most recent fiscal year and have no
present intention of investing in repurchase agreements in the coming year.
FOREIGN SECURITIES. The Funds 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 guaranteed by a United States person. No Fund expects to
invest more than 5% of its net assets in foreign securities.
PORTFOLIO TURNOVER. The portfolio turnover rate of Special Equities
Portfolio was 62% in 1997 and 68% in 1998. The portfolio turnover rate of Small
Cap Value Plus was 104% in 1997 and 106% in 1998. The portfolio turnover rate of
Small Cap Contrarian increased from 0% during the period of its operation in
1997 to 80% for 1998. This very low turnover rate in 1997 was due to Small Cap
Contrarian's very short period of operations.
Although the Funds do not purchase securities with an expectation of
rapid turnover, no limitations exist on the length of time that portfolio
securities must be held. At times, each Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of each Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The turnover rate may
vary greatly from year to year, but is expected to be less than 100%. A high
rate of
3
<PAGE>
portfolio turnover, if it should occur, would result in increased transaction
expenses. High portfolio turnover also may result in the realization of capital
gains or losses and, to the extent net short-term capital gains are realized,
any distributions resulting from such gains will be considered ordinary income
for Federal income tax purposes. (See "Distributions and Taxes" in the Funds'
prospectus, and "Taxes" in this statement of additional information.)
INVESTMENT RESTRICTIONS
For each Fund, Skyline has adopted certain fundamental investment
restrictions that may not be changed without the approval of a majority of the
Portfolio's outstanding shares. The Funds' fundamental investment restrictions
are as follows:
SPECIAL EQUITIES PORTFOLIO AND SMALL CAP VALUE PLUS. Neither Fund
may:
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 Fund's assets at the time of borrowing (including
the amount borrowed) (such Fund 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 Fund 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.
4
<PAGE>
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.
SMALL CAP CONTRARIAN. The Fund may not:
1. Borrow money except (i) from banks for temporary or
emergency purposes in amounts not exceeding 10% of the value of the
Fund's assets at the time of borrowing (including the amount borrowed)1
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 25% of the value of its assets in
real estate investment trusts).
3. As to 75% of its total assets, invest more than 5% of its
total assets (valued at the time of investment) in securities of any
one issuer, except United States government obligations or bank
certificates of deposit and bankers' acceptances.
4. As to 75% of its total assets, 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
the issuer.
5. Issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
6. Sell securities short or purchase securities on margin (but
the Fund 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).
- --------
1 The Fund will not purchase securities when its borrowings exceed 5% of
the value of its assets.
5
<PAGE>
7. Invest 25% or more of its total assets (valued at the time
of investment) in the securities of companies in a single industry,
except United States 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 also has adopted the following additional restrictions and
policies with respect to each Fund (which may be changed by the board of
trustees without shareholder approval). Under these additional policies and
restrictions, a Fund may not:
A. Invest in companies for the purpose of exercising
control or management.
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 Fund may
neither purchase more than 3% of the voting securities of any one
investment company nor invest more than 10% of the Fund's assets
(valued at the time of investment) in all investment company securities
purchased by the Fund.
C. Invest in securities of other open-end investment
companies.
D. Invest more than 15% of its net 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.
E. For Special Equities Portfolio, invest less than 65% of its
total assets in common stocks and for Small Cap Value Plus and Small
Cap Contrarian, invest less than 65% of its total assets in common
stocks of small-capitalization issuers.
F. Invest in financial futures, options, or options on
financial futures.
G. Invest in commodities or commodity contracts.
6
<PAGE>
PERFORMANCE INFORMATION
From time to time Skyline may quote total return performance data for
the Funds. Total return for a period is the percentage change in value during
the period of an investment in a Fund'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) to the power of 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, 1998 of an investment of $1,000 in Special Equities Portfolio, Small Cap
Value Plus, and Small Cap Contrarian were:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL TOTAL
RETURN (%) RETURN (%)
SPECIAL EQUITIES PORTFOLIO
<S> <C> <C>
1 Year............................................ (7.17%) (7.17%)
5 Years........................................... 84.42% 13.02%
10 Years.......................................... 434.94% 18.26%
Life of the Fund (April 23, 1987)................. 477.03% 16.17%
SMALL CAP VALUE PLUS
1 Year............................................ (6.66%) (6.66%)
5 Years........................................... 77.64% 12.18%
Life of the Fund (February 9, 1993)............... 95.55% 12.05%
SMALL CAP CONTRARIAN
1 Year............................................ (28.40%) (28.40%)
Life of the Fund (December 15, 1997).............. (28.40%) (27.33%)
</TABLE>
7
<PAGE>
Total return and average annual total return figures assume
reinvestment of all dividends and distributions. Income taxes are not taken
into account. The Funds' performance figures are not a guarantee of future
results. The performance of a Fund is a result of conditions in the
securities markets, portfolio management, and operating expenses. Although
total return information is useful in reviewing a Fund'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 Fund 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 the
Adviser, 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 Funds. The comparison of a Fund to an alternative
investment should consider differences in features and expected performance.
A Fund 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 that might mention Skyline and the Funds include, but are not limited
to, the following:
Barron's Investor's Daily
Bloomberg Personal Finance Kiplinger's Personal Finance
Business Week Los Angeles Times
Changing Times Money
Chicago The Mutual Fund Letter
Chicago Tribune Mutual Fund Values (Morningstar)
Chicago Sun-Times Newsweek
Crain's Chicago Business The New York Times
Consumer Reports Pensions and Investments
Consumer Digest Personal Investor
Financial Planning Smart Money
Financial World Time
FA Advisor USA Today
Forbes U.S. News and World Report
Fortune The Wall Street Journal
Institutional Investor Worth
Investment News
When a newspaper, magazine, or other publication mentions Skyline or a
Fund, such mention may include: (i) listings of some or all of a Fund's
holdings; (ii) descriptions of characteristics of some or all of the securities
held by a Fund, including price-to-earnings, price-
8
<PAGE>
to-sales, and price-to-book value 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 Fund, in the view of Skyline, a portfolio manager or the Adviser.
Each Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of the Funds may be compared to stock market indexes or
averages, including the following:
<TABLE>
<S> <C>
Dow Jones Industrial Average New York Stock Exchange Composite Index
Russell 1000 Index American Stock Exchange Composite Index
Russell 2000 Index NASDAQ Over-the-Counter Composite Index
Russell 2500 Index NASDAQ Over-the-Counter Industrials Index
Russell 3000 Index (These indexes generally reflect the
Russell MidCap Index performance of stocks traded in the
Russell 2000 Value Index indicated markets.)
Standard & Poor's Small Cap 600 Index
Standard & Poor's 500 Stock Index
Standard & Poor's MidCap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire Quantum Small Value Index
Wilshire Next 1750 Index
Wilshire Quantum Small Cap Index
(These indexes are widely recognized
indicators of general
U.S. stock market results.)
</TABLE>
The Funds' performance may also be compared to mutual fund industry
indexes or averages, including the following: Value Line Index; Lipper Small-Cap
Value Equity Index; Lipper Small-Cap General Equity Index; Lipper Small-Cap
Growth Equity Index; Lipper Small-Cap Aggressive Equity 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; Morningstar Small Cap Value Average.
Lipper and Morningstar, Inc. ("Morningstar"), classify, calculate, and
publish the Lipper and Morningstar averages, respectively, which are unweighted
averages of total return performance of mutual funds. The Funds 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 Fund to a different category or develop (and place
9
<PAGE>
a Fund into) a new category, each Fund may compare its performance or ranking
against other funds in the newly assigned category, as published by the service.
Moreover, the Funds may compare their 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 Fund's risk score (which is a function of the Fund's monthly
returns less the 3-month Treasury bill return) from the Fund'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 Funds 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 Funds may use Ibbotson's historical data regarding the Consumer Price Index.
The Funds may also use historical data compiled by Prudential Securities, Inc.,
or by other similar sources believed by Skyline 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 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
Fund as of March 31, 1999 were Charles Schwab & Co., Inc., as a nominee for
various beneficial owners, which held 30.4% of the shares of Special Equities
Portfolio, Charles Schwab & Co., Inc., as a nominee for various beneficial
owners, which held 19.3% and Hartford Life Insurance Company Deferred Pension
III Separate Account, which held 7.5% of the shares of Small Cap Value Plus,
and Charles Schwab & Co., Inc., as a nominee for various beneficial owners,
which held 25.7% and NFSC, as a nominee for LPR Associates, Ltd., which held
6.8%, of the shares of Small Cap Contrarian. The address of Charles Schwab &
Co., Inc. is 101 Montgomery Street, San Francisco, California 94104. The
address of the Hartford Life Insurance Company Deferred Pension III Separate
Account is P.O. Box 2999, Hartford, Connecticut 06104. The address of NFSC
is 834 Greenfield Avenue, Pittsburgh, Pennsylvania 15217.
10
<PAGE>
MANAGEMENT OF SKYLINE
The board of trustees has overall responsibility for the conduct of
Skyline's affairs. The trustees serve indefinite terms of unlimited duration
provided that a majority of trustees always has been elected by Skyline's
shareholders. The trustees appoint their own successors, provided that at least
two-thirds of the trustees, after such appointment, have been elected by
Skyline's shareholders. Skyline's shareholders may remove a trustee, with or
without cause, upon the declaration in writing or vote of two-thirds of
Skyline's outstanding shares. A trustee may be removed with or without cause
upon the written declaration of a majority of the trustees.
Trustees and officers of Skyline, and their principal business
occupations during at least the last five years, are shown below.
WILLIAM M. DUTTON,* 46, PRESIDENT AND TRUSTEE. Managing Partner
and Chief Investment Officer, Skyline Asset Management, L.P. and registered
representative, Funds Distributor, Inc., since September 1995. Previously,
Executive Vice President and Portfolio Manager (Special Equities Portfolio),
Mesirow Asset Management, Inc.
WILLIAM L. ACHENBACH, 56, TRUSTEE. President, W.L. Achenbach &
Associates, Inc., a financial counseling firm, since July 1992. Previously,
Executive Vice President, Brownson, Rehmus & Foxworth, Inc., a financial
counseling firm.
PAUL J. FINNEGAN, 46, TRUSTEE. Vice President, Madison Dearborn
Partners, Inc., a venture capital firm, since January 1993. Previously, Vice
President, First Chicago Venture Capital, a venture capital firm.
DAVID A. MARTIN, 47, TRUSTEE. Attorney and Principal, Righeimer,
Martin & Cinquino, P.C.
RICHARD K. PEARSON, 59, TRUSTEE. Retired. President, First DuPage
Bancorp., Inc. (Westmont, Illinois) since November 1998, Director, Citizens
Savings Bank (Anamosa, Iowa), since February 1998, and Director, First
Community Bank (Milton, Wisconsin), since January 1998. Previously, Director
and President, LaSalle Bank, Westmont (Westmont, Illinois), from 1994 to 1997,
and Director, Chief Executive Officer, and President, LaSalle Bank, Northbrook
(Northbrook, Illinois), from 1986 to 1994.
STEPHEN F. KENDALL, 44, EXECUTIVE VICE PRESIDENT, TREASURER AND
SECRETARY, Partner and Chief Operating Officer, Skyline Asset Management, L.P.,
since January 1998. Previously, Regional Vice President, Metro Region, Nabisco
Biscuit Company.
- --------------
* Indicates an "interested person" of Skyline, as defined in the
Investment Company Act of 1940.
11
<PAGE>
KENNETH S. KAILIN, 40, EXECUTIVE VICE PRESIDENT. Partner and
Portfolio Manager, Skyline Asset Management, L.P., since September 1995.
Previously, Senior Vice President and Portfolio Manager (Small Cap Value
Plus), Mesirow Asset Management, Inc.
GEOFFREY P. LUTZ, 48, EXECUTIVE VICE PRESIDENT. Partner and
Institutional Marketing, Skyline Asset Management, L.P. and registered
representative, Funds Distributor, Inc., since September 1995. Previously,
Vice President, Mesirow Asset Management, Inc., and registered representative,
Mesirow Financial, Inc. and Mesirow Investment Services, Inc.
MICHAEL MALONEY, 37, SENIOR VICE PRESIDENT. Partner and Securities
Analyst, Skyline Asset Management, L.P., since September 1995. Securities
Analyst, Mesirow Asset Management, Inc., from February 1993 to August 1995, and
prior to joining Mesirow Asset Management, Inc., Securities Analyst, Baker,
Fentress & Company, a closed-end management investment company.
DAREN C. HEITMAN, 32, SENIOR VICE PRESIDENT. Portfolio Manager,
Skyline Asset Management, L.P., since August 1997. Securities Analyst with
Skyline Asset Management, L.P. from September 1995 to August 1997. Securities
Analyst with Mesirow Asset Management, Inc. from May 1994 to August 1995, and
Securities Analyst with Mesirow Financial, Inc. from January 1993 to May
1994. Prior to joining Mesirow Financial, Inc., Securities Analyst, The Ohio
Company, a regional brokerage firm.
MICHELE M. BRENNAN, 27, VICE PRESIDENT. Director of Fund
Marketing, Skyline Asset Management, L.P., since August 1996. Previously,
Regional Marketing Associate, Strong Capital Management, an investment adviser.
Messrs. Achenbach, Finnegan, Martin and Pearson serve as members of the
Committee of the Independent Trustees, which functions as an audit committee. As
such, the Committee makes recommendations to the Board of Trustees regarding the
selection of auditors, confers with the auditors regarding the scope and results
of the audit.
The address of Messrs. Dutton, Kendall, Kailin, Lutz, Maloney,
Heitman and Blim and Ms. Brennan 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, Three First National Plaza,
Suite 3800, Chicago, Illinois 60602; David A. Martin, 135 South LaSalle
Street, Chicago, Illinois 60603; and Richard K. Pearson, 401 South Quincy
Street, Hinsdale, Illinois 60521.
As of March 31, 1999, the trustees and officers of Skyline owned, in
the aggregate, 140,977 shares of Special Equities Portfolio, 19,010 shares of
Small Cap Value Plus, and 61,641 shares of Small Cap Contrarian, which
represents less than 1% of each of
12
<PAGE>
Skyline Special Equities Portfolio and Skyline Small Cap Value Plus and 11% of
Skyline Small Cap Contrarian.
The trustees of Skyline who are not "interested persons" of Skyline, as
defined in the Investment Company Act of 1940 (the "1940 Act"), receive from
Skyline an annual retainer of $3,000 from each of the Funds 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 during the
fiscal year ended December 31, 1998, to each of the trustees of Skyline. Skyline
has no retirement or pension plans. The trustees and officers affiliated with
Skyline do not receive compensation from Skyline.
<TABLE>
Aggregate Compensation
Name Of Trustee from skyline funds
- ----------------- -------------------------
<S> <C>
William L. Achenbach....................................... $14,480
William M. Dutton(1)....................................... 0
Paul J. Finnegan........................................... 12,200
David A. Martin............................................ 12,200
Richard K. Pearson......................................... 11,800
- ----------------------------
(1) Indicates an "interested person" of Skyline, as defined in the 1940 Act.
</TABLE>
INVESTMENT ADVISORY SERVICES
The Adviser provides investment advisory and administrative services to
Skyline for Special Equities Portfolio, Small Cap Value Plus and Small Cap
Contrarian pursuant to Investment Advisory Agreements dated May 28, 1998
(collectively, the "Agreements"). The Adviser is a Delaware limited partnership
that was formed in 1995. The general partner of the Adviser is Affiliated
Managers Group, Inc. ("AMG") and the limited partners of which are corporations
wholly owned by Messrs. Dutton, Kailin, Lutz, Maloney, Kendall, Mark Odegard and
Bill Fiedler, respectively. AMG is a publicly-traded Delaware corporation which
acquires interests in investment management firms. AMG has its offices at Two
International Place, 23rd Floor, Boston, MA 02110.
Under the Agreements, the Adviser pays all of the Funds' ordinary costs
and expenses attendant to operating the Funds 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 Skyline's ongoing operation. The initial offering and
organization expenses for Small Cap Contrarian were advanced to Skyline by the
Adviser, and Small Cap Contrarian is reimbursing the Adviser for such expenses
in equal installments without interest over 20 calendar quarters.
13
<PAGE>
Expenses borne by Skyline pursuant to the Agreements, as described
above, that are attributable to a particular Fund are charged to that Fund.
Other expenses of Skyline are allocated among the Funds on a reasonable basis as
determined by Skyline's board of trustees.
For its management and advisory services, for providing shareholder and
investor servicing, and for the assumption of the Funds' ordinary operating
expenses, the Adviser is paid a monthly comprehensive fee from each Fund based
on each Fund's average daily net assets. Under the Agreements, each Fund 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 Fund to the extent
that, in any fiscal year, the aggregate expenses of the Fund, including the
advisory fee, trustees' fees and expenses, and reimbursement of organizational
expenses, but excluding extraordinary costs or expenses such as legal,
accounting, or other costs or expenses not incurred in the normal course of
Skyline's ongoing operation, exceed an annual rate of 1.75% of the average daily
net assets of Special Equities Portfolio, 2.00% of the average daily net assets
of Small Cap Value Plus, and 1.75% of the average daily net assets of Small Cap
Contrarian. Reimbursement, if any, is made monthly.
Special Equities Portfolio paid comprehensive management fees to the
Adviser totaling $7,049,303, $5,196,131 and $2,508,468 in the years ended
December 31, 1998, 1997 and 1996, respectively. Small Cap Value Plus paid
comprehensive management fees to the Adviser totaling $2,332,288, $1,995,055
and $1,428,303 in the years ended December 31, 1998, 1997 and 1996,
respectively. Small Cap Contrarian paid comprehensive management fees to the
Adviser totaling $98,075 in the year ended December 31, 1998 and $2,758 for
the period from December 15, 1997 until December 31, 1997.
The Agreements provide that the Adviser shall not be liable for any
loss suffered by Skyline or its shareholders as a consequence of any act of
omission in connection with investment advisory or portfolio services under the
Agreement, 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
the Adviser's reckless disregard 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 who are not "interested persons" of Skyline 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 or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of that Fund. The Agreements
are terminable with respect to a Fund without penalty, on 60 days' notice, by
the trustees of Skyline or by vote of a majority of the outstanding shares of
that Fund, 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).
14
<PAGE>
The Adviser specializes in investing in stocks of companies with
small market capitalizations. Each Fund has a portfolio manager who is
responsible for the day-to-day management of that Fund. Each portfolio
manager 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. His team for Special Equities Portfolio
includes Kenneth S. Kailin, Executive Vice President of Skyline. Mr. Kailin
is portfolio manager for Small Cap Value Plus. His team for Small Cap Value
Plus includes Mr. Dutton. The portfolio manager for Small Cap Contrarian is
Daren C. Heitman, Senior Vice President of Skyline. His team for Small Cap
Contrarian includes Mr. Dutton and Mr. Kailin.
Mr. Dutton is the Adviser's Managing Partner and Chief Investment
Officer. 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 Services Inc., 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., the former adviser to Skyline. 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 Partner and Portfolio Manager of the Adviser. He
joined Mesirow Asset Management, Inc., in 1987 as a securities analyst and was
promoted to vice 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.
Mr. Heitman is a Portfolio Manager of the Adviser and has been a
securities analyst for the Adviser since September 1995. He joined Mesirow
Financial, Inc. as a securities analyst in 1993 after working for
approximately two years as a securities analyst for The Ohio Company, a
regional brokerage firm, and became a securities analyst in 1994 with Mesirow
Asset Management, Inc. Mr. Heitman received a Bachelor of Business
Administration degree in Finance from Iowa State University. 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,
15
<PAGE>
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 Funds. 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 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 Funds are reviewed periodically by
Skyline's board of trustees.
The Adviser is the principal source of information and advice to the
Funds and is responsible for making and initiating the execution of investment
decisions. However, the board of trustees of Skyline recognizes that it is
important for the Adviser, in performing its responsibilities to Skyline, 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 to take into account the value
of the information received for use in advising Skyline. 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 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, in the same manner
that Skyline also may benefit from information obtained by the Adviser in
performing services for others.
Transactions of Skyline 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 to brokers and dealers who provide research services to
Skyline 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
by a broker-dealer may be considered by the Adviser in the selection of
broker-dealers to execute portfolio transactions for Skyline.
Although investment decisions for Skyline are made independently from
those for other investment advisory clients of the Adviser, the same investment
decision may be made for both Skyline and one or more other advisory clients. If
both Skyline and other clients purchase or sell
16
<PAGE>
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, Small Cap Value
Plus and Small Cap Contrarian during the periods indicated. No commissions
were paid to persons who were affiliated persons of Skyline as of the time
such payments were made.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Special Equities Portfolio
Aggregate commissions $1,120,059(100%) $ 995,672(100%) $ 857,984(100%)
Small Cap Value Plus
Aggregate commissions $ 976,104(100%) $ 490,153(100%) $ 541,341(100%)
Small Cap Contrarian
Aggregate commissions $ 44,498(100%) $ 12,023(100%) N/A
</TABLE>
Of the aggregate brokerage commissions paid during fiscal year 1998,
Special Equities Portfolio paid $976,104 to brokers who furnished research
services, and such brokers effected transactions aggregating 89% of the
aggregate dollar amount of transactions involving the payment of brokerage
commissions by Special Equities Portfolio. Of the aggregate brokerage
commissions that Small Cap Value Plus paid during fiscal year 1998, $566,132
of that amount was paid to brokers who furnished research services, and such
brokers effected transactions aggregating 96% of the aggregate dollar amount
of transactions involving the payment of brokerage commissions by Small Cap
Value Plus. Of the aggregate brokerage commissions that Small Cap Contrarian
paid during fiscal year 1998, $42,081 of that amount was paid to brokers who
furnished research services, and such brokers effected transactions
aggregating 92% of that aggregate dollar amount of transactions involving the
payment of brokerage commissions by Small Cap Contrarian.
The Adviser may place brokerage transactions with brokers affiliated
with the distributor for Skyline, Funds Distributor, Inc. Commissions paid to
such brokers on any transaction will not exceed those paid by Skyline in similar
transactions to other brokers.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions are discussed in the Prospectus under the
headings "Types of Skyline Funds Accounts and Information on Purchasing Shares,"
"Redeeming Shares," and "Shareholder Services." All of that information is
incorporated herein by reference.
NET ASSET VALUE. The net asset value of the shares of each Fund is
determined as of the close of regular session trading on the New York Stock
Exchange (currently 3:00 p.m., central time) each day it is open for trading.
The net asset value per share of each Fund is determined by
17
<PAGE>
dividing the value of all its securities and other assets, less its liabilities,
by the number of shares of the Fund 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 have been no sales on the valuation
date, 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's board of trustees.
The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King's Birthday, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.
REDEMPTION IN KIND. With respect to each Fund, Skyline 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 Fund 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 Fund 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.
TAXES
Each Fund is a separate entity for federal income tax purposes. Skyline
intends for each Fund to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. To qualify, each Fund must meet
certain income, distribution and diversification requirements. In any year in
which a Fund 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.
18
<PAGE>
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. Firstar Bank Milwaukee, P.O. Box 701,
Milwaukee, Wisconsin 53201, acts as Custodian of the securities and other assets
of Skyline. As Custodian, Firstar Bank Milwaukee is responsible for, among other
things, safeguarding and controlling Skyline's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on
Skyline's investments. Firstar Mutual Fund Services, LLC performs transfer agent
and portfolio accounting services for the Funds. Firstar Bank Milwaukee and
Firstar Mutual Fund Services, LLC are not affiliates of the Adviser or its
affiliates.
INDEPENDENT AUDITORS. Ernst & Young LLP, Sears Tower, 233 South
Wacker Drive, Chicago, Illinois 60606 serves as Skyline'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 Fund.
DISTRIBUTOR. The shares of each Fund are offered for sale on a
continuous basis through Funds Distributor, Inc. ("Distributor"), without any
sales commissions or charges to the Funds 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 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 Fund 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 Funds, all expenses in connection with registration of shares of
the Funds with the Securities and Exchange Commission and notice filing fees
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 Fund to investors in
states where the shares are available for sale, at net asset value, without
sales commissions or other sales load. The Distributor offers the Funds' 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 Funds. Those amounts, if any, are described under "Portfolio Transactions
and Brokerage."
The Distributor is a selling agent for two series of Firstar 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
Funds through the exchange privilege described in the Prospectus.
19
<PAGE>
FINANCIAL STATEMENTS OF SKYLINE SPECIAL EQUITIES
- - PORTFOLIO Holdings as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 10.8%
AUTO RELATED - 2.8%
Aftermarket Technology(a) Auto drive train products 325,600 $ 2,564,100
Delco Remy International, Inc.(a) Starters & alternators 370,400 3,634,550
Intermet Corp. Metal castings 470,100 6,140,681
-------------
12,339,331
OTHER TRANSPORTATION - 4.6%
Interpool, Inc. Container leasing firm 669,900 11,220,825
Kitty Hawk, Inc.(a) Air freight services 310,900 3,419,900
Monaco Coach Corp.(a) RV producer 198,900 5,270,850
Trailer Bridge, Inc.(a) Marine transportation 316,800 485,100
-------------
20,396,675
TRUCKING - 3.4%
Landstar System, Inc.(a) Truckload carrier 242,000 9,861,500
U.S. Xpress Enterprises, Inc.(a) Truckload carrier 367,000 5,505,000
-------------
15,366,500
-------------
TOTAL AUTOS & TRANSPORTATION 48,102,506
CONSUMER DISCRETIONARY - 29.5%
APPAREL/TEXTILES - 1.6%
Gerber Childrenswear, Inc.(a) Infant/toddler apparel 220,500 1,915,594
Kellwood Co. Apparel manufacturer 208,200 5,205,000
-------------
7,120,594
COMMERCIAL SERVICES - 6.6%
Borg-Warner Security(a) Security services 280,700 5,263,125
Daisytek International Corp.(a) Computer supplies 272,900 5,185,100
New England Business Business forms 303,800 11,886,175
Standard Register Co. (The) Business forms 237,700 7,353,844
-------------
29,688,244
CONSUMER PRODUCTS/SERVICES - 1.3%
Gibson Greetings, Inc.(a) Greeting cards 243,600 2,892,750
Maxwell Shoe Co. Inc.(a) Footwear company 264,200 2,889,687
-------------
5,782,437
PRINTING/PUBLISHING - 4.0%
Banta Corp. Commercial printer 226,200 6,192,225
Cadmus Communications Corp. Commercial printer 135,900 2,565,113
World Color Press, Inc.(a) Commercial printer 297,100 9,042,981
-------------
17,800,319
RESTAURANTS - 6.0%
CEC Entertainment, Inc.(a) Children-oriented casual dining 205,100 5,691,525
IHOP Corp.(a) Casual dining 212,100 8,470,744
O'Charley's Inc.(a) Casual dining 385,150 5,440,244
Ryan's Family Steak Houses(a) Casual dining 381,500 4,721,062
Sonic Corp.(a) Fast-food restaurants 90,900 2,261,138
-------------
26,584,713
</TABLE>
20
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
RETAIL - 10.0%
Ames Department Stores, Inc.(a) Major discount retail chain 179,300 $ 4,841,100
Discount Auto Parts, Inc.(a) Auto parts stores 335,200 7,353,450
Fingerhut Companies, Inc. Catalog retailer 54,600 842,888
Finlay Enterprises, Inc.(a) Leased jewelry departments 227,100 2,299,388
Jo-Ann Stores, Inc.(a) Fabric/craft stores 219,900 3,545,887
MarineMax, Inc.(a) Recreational boats 289,700 2,281,387
Michaels Stores, Inc.(a) Arts & crafts stores 107,300 1,941,459
Pier 1 Imports, Inc. Housewares stores 527,100 5,106,281
Stein Mart, Inc.(a) Off-price apparel chain 258,600 1,802,119
Tractor Supply Co.(a) Farm-related products 254,300 6,103,200
Zale Corp.(a) Jewelry retailer 253,500 8,175,375
-------------
44,292,534
-------------
TOTAL CONSUMER DISCRETIONARY 131,268,841
CONSUMER STAPLES - 1.5%
CONSUMER STAPLES - 1.5%
International Multifoods Corp. Foodservice distribution 259,700 6,703,506
ENERGY - 2.1%
EXPLORATION & PRODUCTION - 0.5%
Miller Exploration Co.(a) Oil & gas producer 446,100 2,007,450
OTHER ENERGY - 1.6%
Cal Dive International, Inc.(a) Oil services company 135,300 2,807,475
MarkWest Hydrocarbon, Inc.(a) Natural gas processing 272,300 2,450,700
Willbros Group, Inc.(a) Engineering/construction firm 322,600 1,794,463
-------------
7,052,638
-------------
TOTAL ENERGY 9,060,088
FINANCIAL SERVICES - 16.4%
INSURANCE - 12.3%
American Heritage Life Invest. Life insurance 289,700 7,079,544
Chartwell Re Corporation P&C reinsurance 157,600 3,743,000
CNA Surety Corp. Surety insurance 351,900 5,542,425
Delphi Financial Group, Inc.(a) Accident & health insurance 239,249 12,545,619
Financial Security Assurance
Holdings Municipal bond insurance 140,800 7,638,400
Fremont General Corp. Workers' comp. insurance 300,200 7,429,950
Horace Mann Educators Corp. P&C insurance 177,200 5,050,200
SCPIE Holdings Inc. Medical malpractice insurance 182,600 5,535,063
-------------
54,564,201
</TABLE>
21
<PAGE>
- - PORTFOLIO Holdings as of December 31, 1998 (continued)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
OTHER FINANCIAL SERVICES - 4.1%
ARM Financial Group, Inc. Investment products 208,900 $ 4,634,969
Heller Financial, Inc. Commercial finance 298,000 8,753,750
Raymond James Financial, Inc. Investment services 237,300 5,012,962
-------------
18,401,681
-------------
TOTAL FINANCIAL SERVICES 72,965,882
HEALTH CARE - 2.1%
HEALTH CARE SERVICES - 2.1%
AmeriPath, Inc.(a) Physician practice mgt. 334,900 2,993,169
Trigon Healthcare, Inc.(a) Health maintenance org. 174,400 6,507,300
-------------
9,500,469
MATERIALS & PROCESSING - 13.9%
BUILDING/CONSTRUCTION PRODUCTS - 5.3%
American Homestar Corp.(a) Manufactured housing 224,000 3,360,000
Barnett Inc.(a) Hardware products 91,100 1,252,625
Chicago Bridge & Iron Co. Maker of steel tanks 478,800 5,895,225
Dayton Superior Corp.(a) Concrete accessories 270,300 5,203,275
Interface, Inc. Carpet producer 393,700 3,654,028
Nortek, Inc.(a) Building products 160,700 4,439,338
-------------
23,804,491
INDUSTRIAL PRODUCTS - 2.7%
Furon Company Polymer-based products 459,900 7,847,044
Lydall, Inc.(a) Specialty filtration products 345,700 4,105,187
-------------
11,952,231
METAL FABRICATIONS - 1.8%
Citation Corp.(a) Castings manufacturer 622,400 7,857,800
PACKAGING/PAPER - 3.0%
Albany International Corp.(a) Paper machine clothing 238,816 4,522,572
BWAY Corp.(a) Metal cans/containers 273,600 4,121,100
Chesapeake Corp. Specialty paper/packaging 57,600 2,124,000
FiberMark, Inc.(a) Fiber-based materials 184,300 2,511,087
-------------
13,278,759
SPECIALTY CHEMICALS - 1.1%
Fuller Company (H.B.) Adhesives and coatings 104,100 5,009,812
-------------
TOTAL MATERIALS & PROCESSING 61,903,093
PRODUCER DURABLES - 10.0%
ELECTRICAL EQUIPMENT/PRODUCTS - 3.1%
Belden Inc. Wire & cable manufacturer 96,600 2,046,713
General Cable Corp. Wire & cable producer 301,000 6,170,500
MagneTek, Inc.(a) Lighting, ballasts, motors 496,900 5,745,406
-------------
13,962,619
</TABLE>
22
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
MACHINERY - 2.5%
DT Industries, Inc. Packaging equipment 303,200 $ 4,775,400
National Equipment Services,
Inc.(a) Equipment rental 271,300 3,119,950
SunSource Inc. Conglomerate 167,200 3,145,450
-------------
11,040,800
OTHER PRODUCER DURABLES - 4.4%
EG&G, Inc. Conglomerate 226,900 6,310,656
IDEX Corp. Specialty pump products 194,300 4,760,350
LSI Industries Inc. Lighting/graphics products 228,000 5,115,750
Tokheim Corp.(a) Gas station pumps/eqpt 341,900 3,333,525
-------------
19,520,281
-------------
TOTAL PRODUCER DURABLES 44,523,700
TECHNOLOGY - 6.5%
ELECTRONIC COMPONENTS - 1.0%
Dallas Semiconductor Corp. Electronic components 107,400 4,376,550
OTHER TECHNOLOGY - 5.5%
Black Box Corp.(a) Networking/communications 210,200 7,961,325
Imation Corp.(a) Data storage products 321,400 5,624,500
National Data Corp. Health care information 111,100 5,409,181
PSC Inc.(a) Bar coding equipment 307,900 2,925,050
Richardson Electronics, Ltd. Distributes electronic components 269,700 2,595,863
-------------
24,515,919
-------------
TOTAL TECHNOLOGY 28,892,469
-------------
TOTAL COMMON STOCKS - 92.8%
(Cost $397,600,587) 412,920,554
</TABLE>
23
<PAGE>
- - PORTFOLIO Holdings as of December 31, 1998 (continued)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
-------------
<S> <C> <C> <C>
MONEY MARKET INSTRUMENTS(b)
Yield 5.23% to 5.30%
due February 1999 to July 1999
American Family Financial Services $ 206,000
General Mills, Inc. 11,448,384
Pitney Bowes Credit Corp. 9,943,257
Sara Lee Corp. 3,724,305
Warner Lambert Corp. 506,000
Wisconsin Corp. Credit Union 1,994,000
Wisconsin Electric Power Corp. 954,343
-------------
TOTAL MONEY MARKET INSTRUMENTS - 6.5%
(Cost: $28,776,289) 28,776,289
-------------
TOTAL INVESTMENTS - 99.3%
(Cost $426,376,876) 441,696,843
OTHER ASSETS LESS LIABILITIES - 0.7% 3,326,779
-------------
NET ASSETS - 100.0% $ 445,023,622
-------------
-------------
</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 December 31, 1998.
Based on cost of investments for federal income tax purposes of $426,376,876 on
December 31, 1998, net unrealized appreciation was $15,319,967, consisting of
gross unrealized appreciation of $66,743,622 and gross unrealized depreciation
of $51,423,655.
See accompanying notes to financial statements.
24
<PAGE>
- - STATEMENT of Assets & Liabilities as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost:
$426,376,876) $441,696,843
Receivable for:
Securities sold $5,281,891
Dividends and interest 286,529
Shares sold 871,206 6,439,626
---------- ------------
Total assets 448,136,469
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $ 989,242
Shares redeemed 1,587,818
Comprehensive management fee 535,787 3,112,847
---------- ------------
Net assets applicable to shares
outstanding $445,023,622
------------
------------
Shares outstanding--no par value
(unlimited number of shares
authorized) 22,496,196
------------
------------
PRICING OF SHARES
Net asset value, offering price and
redemption price per share $ 19.78
------------
------------
ANALYSIS OF NET ASSETS
Paid-in capital $412,672,188
Undistributed net realized gain on sales
of investments 17,031,467
Unrealized appreciation of investments 15,319,967
------------
Net assets applicable to shares
outstanding $445,023,622
------------
------------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
- - STATEMENT of Operations Year Ended December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 2,825,172
Interest 1,854,780
------------
Total investment income 4,679,952
Expenses:
Comprehensive management fee 7,049,303
Fees to unaffilliated trustees 22,482
------------
Total expenses 7,071,785
------------
Net investment loss (2,391,833)
Net realized and unrealized gain (loss) on
investments:
Net realized gain on sales of investments 23,823,435
Net change in unrealized appreciation (58,687,760)
------------
Net realized and unrealized loss on investments (34,864,325)
------------
Net decrease in net assets resulting from
operations $(37,256,158)
------------
------------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
- - STATEMENTS of Changes in Net Assets
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
------------- ------------
<S> <C> <C>
From operations:
Net investment loss $ (2,391,833) $ (1,451,263)
Net realized gain on sales of
investments 23,823,435 54,539,741
Net change in unrealized appreciation (58,687,760) 45,751,321
------------- ------------
Net (decrease) increase in net assets
resulting from operations (37,256,158) 98,839,799
Distributions to shareholders from net
realized gains (7,028,589) (54,133,704)
From share transactions:
Proceeds from shares sold 144,759,773 210,895,971
Reinvestment of capital gain
distribution 6,858,335 52,981,301
Payments for shares redeemed (129,379,429) (60,994,053)
------------- ------------
Net increase in net assets resulting
from share transactions 22,238,679 202,883,219
------------- ------------
Total (decrease) increase in net assets (22,046,068) 247,589,314
Net assets at beginning year 467,069,690 219,480,376
------------- ------------
Net assets at end of year $ 445,023,622 $467,069,690
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
- - FINANCIAL Highlights
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
------------------------------------------------
Net asset value at
beginning of year $ 21.66 $ 18.16 $ 16.79 $ 15.64 $ 17.83
-------- -------- -------- -------- --------
Income from Investment
Operations
Net investment loss (0.11) (0.07) (0.04) (0.06) (0.08)
Net realized and
unrealized (loss)
gain on investments (1.45) 6.46 5.02 2.21 (0.18)
-------- -------- -------- -------- --------
Total from
investment
operations (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
year $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return (7.17%) 35.43% 30.37% 13.83% (1.15%)
Ratios/Supplemental Data
Ratio of expenses to
average net assets 1.47% 1.48% 1.51% 1.51% 1.49%
Ratio of net investment
loss to average net
assets (0.50%) (0.41%) (0.32%) (0.35%) (0.49%)
Portfolio turnover rate 68% 62% 130% 71% 82%
Net assets, end of year
(in thousands) $445,024 $467,070 $219,480 $174,899 $202,771
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
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.
28
<PAGE>
- -NOTES to Financial Statements
- ---------------------------------------------
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 a pricing
service. Variable rate demand notes are valued at cost which equals 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 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.
/ / 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 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 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.
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.
29
<PAGE>
- -NOTES to Financial Statements (continued)
- ------------------------------------------------------------------------
/ / EXPENSES - Expenses arising in connection with a Fund are allocated to that
Fund. Other Skyline Funds' expenses, such as trustees' fees, are allocated among
the three 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 year ended December 31, 1998 was $7,049,303.
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 year ended December 31, 1998, the Fund paid fees of $22,971 to its
unaffiliated trustees.
3
SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statements of changes in net assets
were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------------------
<S> <C> <C>
Shares sold 6,883,008 9,851,723
Shares issued for reinvestment of dividends 354,028 2,483,873
----------- -----------
7,237,036 12,335,596
Less shares redeemed (6,307,941) (2,855,781)
----------- -----------
Net increase in shares outstanding 929,095 9,479,815
----------- -----------
----------- -----------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1998, were as follows:
<TABLE>
<S> <C>
Cost of purchases $ 312,797,833
Proceeds from sales 306,668,148
</TABLE>
30
<PAGE>
- - REPORT of Independent Auditors
- ---------------------------------------------
To the Shareholders of Skyline Special Equities Portfolio
and the Board of Trustees of Skyline Funds
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Special Equities Portfolio as of
December 31, 1998, 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, 1998 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, 1998, 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.
/s/ Ernst & Young LLP
Chicago, Illinois
January 25, 1999
31
<PAGE>
- - FEDERAL Tax Status of 1998 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 of Results of Shareholder Meeting
- ---------------------------------------------
On August 28, 1998, Skyline Funds held a Special Meeting of Shareholders at
which the Fund's shareholders approved a new investment advisory agreement
between the Fund and Skyline Asset Management, L.P. (the "Adviser") without any
substantive changes from the agreement with the Adviser that existed prior to
the Special Meeting and elected Richard K. Pearson to the Board of Trustees. The
members of the Board of Trustees who continued in office after the meeting are
William L. Achenbach, William M. Dutton, Paul J. Finnegan and David A. Martin.
The holders of the majority of the outstanding shares of the Fund approved the
new investment advisory agreement by the votes shown below:
<TABLE>
<S> <C>
For 15,341,035
Against 181,906
Abstain 146,696
Total 15,669,637
</TABLE>
The holders of the majority of the shares of all Funds voting together elected
Mr. Pearson to the Board of Trustees by the votes shown below:
<TABLE>
<S> <C>
For 23,261,507
Withheld 511,956
Total 23,773,463
</TABLE>
- - REPORT for the Year Ended December 31, 1998
- ---------------------------------------------
This report, including the audited 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.
32
<PAGE>
FINANCIAL STATEMENTS OF SKYLINE SMALL CAP VALUE PLUS
- - PORTFOLIO Holdings as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 3.3%
AUTO RELATED - 1.7%
Dura Automotive Systems, Inc.(a)
OEM auto parts producer 68,300 $ 2,330,737
TRUCKING - 1.6%
Covenant Transport, Inc.(a)
Specialty truckload carrier 122,300 2,186,113
-------------
TOTAL AUTOS & TRANSPORTATION 4,516,850
CONSUMER DISCRETIONARY - 28.2%
APPAREL/TEXTILES - 4.6%
Gildan Activewear Inc.(a) Apparel manufacturer 215,700 1,806,488
Kellwood Co. Apparel manufacturer 92,400 2,310,000
Nautica Enterprises, Inc.(a) Men's sportswear 135,800 2,037,000
-------------
6,153,488
COMMERCIAL SERVICES - 5.6%
RemedyTemp, Inc.(a) Staffing services 103,000 1,557,875
Safety-Kleen Corp.(a) Waste recycling firm 219,675 3,102,909
United Stationers Inc.(a) Office products distributor 110,200 2,865,200
-------------
7,525,984
CONSUMER PRODUCTS/SERVICES - 6.5%
Department 56, Inc.(a) Decorative collectibles 36,700 1,378,544
Kenneth Cole Productions(a) Footwear/accessories maker 173,700 3,256,875
Midas, Inc. Auto service centers franchiser 131,700 4,099,162
-------------
8,734,581
PRINTING/PUBLISHING - 2.3%
World Color Press, Inc.(a) Commercial printer 100,400 3,055,925
RETAIL - 9.2%
Claire's Stores, Inc. Fashion accessories stores 150,100 3,077,050
Elder-Beerman Stores(a) Department stores 191,700 2,216,531
Michaels Stores, Inc.(a) Arts & crafts stores 94,100 1,702,622
Pier 1 Imports, Inc. Housewares stores 184,000 1,782,500
Zale Corp.(a) Jewelry retailer 112,100 3,615,225
-------------
12,393,928
-------------
TOTAL CONSUMER DISCRETIONARY 37,863,906
</TABLE>
33
<PAGE>
- - PORTFOLIO Holdings as of December 31, 1998 (continued)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
CONSUMER STAPLES - 3.0%
CONSUMER STAPLES - 3.0%
International Home Foods, Inc.(a) Mfgr of shelf-staple foods 104,600 $ 1,765,125
International Multifoods Corp. Foodservice distribution 91,300 2,356,681
-------------
4,121,806
ENERGY - 2.1%
EXPLORATION & PRODUCTION - 2.1%
Newfield Exploration Co. Oil & gas producer 136,100 2,841,088
FINANCIAL SERVICES - 27.1%
BANKS/THRIFTS - 2.5%
Peoples Heritage Financial Group Maine-based thrift 165,400 3,308,000
INSURANCE - 15.5%
American Heritage Life Invest. Life insurance 86,400 2,111,400
CMAC Investment Corp. Mortgage insurance 93,200 4,281,375
CNA Surety Corp. Surety insurance 191,600 3,017,700
Enhance Financial Services Group Specialty reinsurance 145,600 4,368,000
Fremont General Corp. Workers' comp. insurance 133,800 3,311,550
HCC Insurance Holdings, Inc. P&C insurance 155,600 2,742,450
Horace Mann Educators Corp. P&C insurance 37,200 1,060,200
-------------
20,892,675
OTHER FINANCIAL SERVICES - 6.0%
American Capital Strategies, Ltd. Commercial finance 76,700 1,323,075
ARM Financial Group, Inc. Investment products 95,800 2,125,562
Heller Financial, Inc. Commercial finance 100,200 2,943,375
Raymond James Financial, Inc. Investment services 83,300 1,759,713
-------------
8,151,725
REAL ESTATE INVESTMENT TRUSTS - 3.1%
Parkway Properties, Inc. Office buildings REIT 72,000 2,250,000
Prentiss Properties Trust Office/industrial properties REIT 85,900 1,916,644
-------------
4,166,644
-------------
TOTAL FINANCIAL SERVICES 36,519,044
</TABLE>
34
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
HEALTH CARE - 11.9%
HEALTH CARE SERVICES - 2.3%
Trigon Healthcare, Inc.(a) Health maintenance organization 84,100 $ 3,137,981
MEDICAL EQUIPMENT/PRODUCTS - 9.6%
ADAC Laboratories(a) Medical imaging systems 123,000 2,456,156
Arrow International, Inc. Disposable catheters producer 86,300 2,707,663
DENTSPLY International Inc. Dental products manufacturer 131,300 3,380,975
Wesley Jessen VisionCare, Inc.(a) Contact lenses 157,000 4,356,750
-------------
12,901,544
-------------
TOTAL HEALTH CARE 16,039,525
MATERIALS & PROCESSING - 0.8%
BUILDING/CONSTRUCTION PRODUCTS - 0.8%
Interface, Inc. Carpet producer 121,200 1,124,888
PRODUCER DURABLES - 4.8%
AEROSPACE RELATED - 1.3%
TriStar Aerospace Co.(a) Distributes aerospace products 250,700 1,754,900
ELECTRICAL EQUIPMENT/PRODUCTS - 0.9%
General Cable Corp. Wire & cable producer 60,850 1,247,425
OTHER PRODUCER DURABLES - 2.6%
Pentair, Inc. Diversified manufacturer 87,900 3,499,519
-------------
TOTAL PRODUCER DURABLES 6,501,844
TECHNOLOGY - 15.2%
CONTRACT MANUFACTURING - 2.6%
DII Group, Inc.(a) Electronics manufacturing 153,800 3,537,400
DISTRIBUTION - 3.4%
Anixter International Inc.(a) Networking products 224,500 4,560,156
ELECTRONIC COMPONENTS - 1.7%
Artesyn Technologies, Inc. Power supplies 161,200 2,256,800
</TABLE>
35
<PAGE>
- - PORTFOLIO Holdings as of December 31, 1998 (continued)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- -------------
<S> <C> <C> <C>
OTHER TECHNOLOGY - 7.5%
Black Box Corp.(a) Networking/communications 76,700 $ 2,905,012
CACI International Inc.(a) Technology services provider 105,300 1,776,937
Hypercom Corp.(a) Electronic payment systems 150,400 1,485,200
Learning Co., Inc. (The)(a) Children's software 68,100 1,766,344
National Data Corp. Health care information 45,300 2,205,544
-------------
10,139,037
-------------
TOTAL TECHNOLOGY 20,493,393
-------------
TOTAL COMMON STOCKS - 96.4%
(Cost $117,524,468) 130,022,344
MONEY MARKET INSTRUMENTS(b)
Yield 5.23% to 5.30%
due February 1999 to July 1999
Sara Lee Corp. 172,717
Pitney Bowes Credit Corp. 2,414,156
Wisconsin Corp. Credit Union 2,384,330
-------------
TOTAL MONEY MARKET INSTRUMENTS - 3.7%
(Cost: $4,971,203) 4,971,203
-------------
TOTAL INVESTMENTS - 100.1%
(Cost $122,495,671) 134,993,547
OTHER LIABILITIES LESS ASSETS - (0.1%) (91,967)
-------------
NET ASSETS - 100.0% $ 134,901,580
-------------
-------------
</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 December 31, 1998.
Based on cost of investments for federal income tax purposes of $122,495,671 on
December 31, 1998, net unrealized appreciation was $12,497,876, consisting of
gross unrealized appreciation of $18,509,546 and gross unrealized depreciation
of $6,011,670.
See accompanying notes to financial statements.
36
<PAGE>
- - STATEMENT of Assets & Liabilities as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost:
$122,495,671) $134,993,547
Receivable for:
Securities sold $ 924,604
Dividends and interest 122,699
Shares sold 347,612 1,394,915
----------
Organization costs, net of accumulated
amortization of $19,801 2,440
------------
Total assets 136,390,902
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $1,000,548
Shares redeemed 319,728
Comprehensive management fee 166,606
Organization costs 2,440 1,489,322
---------- ------------
Net assets applicable to shares
outstanding $134,901,580
------------
------------
Shares outstanding--no par value
(unlimited number of shares
authorized) 11,454,561
------------
------------
PRICING OF SHARES
Net asset value, offering price and
redemption price per share $ 11.78
------------
------------
ANALYSIS OF NET ASSETS
Paid-in capital $123,879,870
Undistributed net realized loss on
sales of investments (1,476,166)
Unrealized appreciation of investments 12,497,876
------------
Net assets applicable to shares
outstanding $134,901,580
------------
------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
- - STATEMENT of Operations For the Year Ended December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 1,163,664
Interest 516,675
-----------
Total investment income 1,680,339
Expenses:
Comprehensive management fee 2,332,288
Fees to unaffiliated trustees 14,218
Amortization of organization costs 2,712
-----------
Total expenses 2,349,218
-----------
Net investment loss (668,879)
Net realized and unrealized loss on investments:
Net realized loss on sales of investments (1,476,166)
Net change in unrealized appreciation (7,833,754)
-----------
Net realized and unrealized loss on investments (9,309,920)
-----------
Net decrease in net assets resulting from
operations $(9,978,799)
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
- - STATEMENTS of Changes in Net Assets
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
------------- ------------
<S> <C> <C>
From operations:
Net investment loss $ (668,879) $ (394,072)
Net realized (loss) gain on sales of
investments (1,476,166) 22,856,580
Net change in unrealized appreciation (7,833,754) 7,533,967
------------- ------------
Net (decrease) increase in net assets
resulting from operations (9,978,799) 29,996,475
Distributions to shareholders from:
Net realized gains (1,234,409) (25,152,661)
Return of capital (112,960) --
------------- ------------
Decrease in net assets resulting from
distributions to shareholders (1,347,369) (25,152,661)
From share transactions:
Proceeds from shares sold 94,550,013 124,093,499
Reinvestments of capital gain
distributions 1,318,065 24,674,327
Payments for shares redeemed (115,327,102) (93,257,451)
------------- ------------
Net (decrease) increase in net assets
resulting from share transactions (19,459,024) 55,510,375
------------- ------------
Total (decrease) increase in net assets (30,785,192) 60,354,189
Net assets at beginning of year 165,686,772 105,332,583
------------- ------------
Net assets at end of year $ 134,901,580 $165,686,772
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
- - FINANCIAL Highlights
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
---------------------------------------------------
Net asset value at
beginning of year $ 12.75 $ 11.94 $ 11.29 $ 10.14 $ 10.79
-------- -------- -------- --------- ---------
Income from investment
operations
Net investment (loss)
income (0.06) (0.03) (0.02) 0.06 0.02
Net realized and
unrealized (loss) gain
on investments (0.79) 3.13 2.94 2.06 (0.19)
-------- -------- -------- --------- ---------
Total from investment
operations (0.85) 3.10 2.92 2.12 (0.17)
-------- -------- -------- --------- ---------
Less distributions from:
Dividends from net
investment income -- -- (0.01) (0.06) (0.02)
Dividends from net realized
gains on investments (0.11) (2.29) (2.26) (0.91) (0.46)
Dividends from return of
capital (0.01) -- -- -- --
-------- -------- -------- --------- ---------
Total distributions (0.12) (2.29) (2.27) (0.97) (0.48)
-------- -------- -------- --------- ---------
Net asset value at end of year $ 11.78 $ 12.75 $ 11.94 $ 11.29 $ 10.14
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
Total Return (6.66%) 26.21% 26.60% 20.95% (1.52%)
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.51% 1.51% 1.53% 1.52% 1.51%
Ratio of net investment
(loss) income to average
net assets (0.43%) (0.30%) (0.24%) 0.50% 0.22%
Portfolio turnover rate 106% 104% 145% 102% 82%
Net assets, end of year (in
thousands) $134,902 $165,687 $105,333 $ 89,203 $ 99,638
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
</TABLE>
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.
40
<PAGE>
- -NOTES to Financial Statements
- ---------------------------------------------
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
Small Cap Value Plus ("Fund").
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 a pricing
service. Variable rate demand notes are valued at cost which equals 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 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.
/ / FUND SHARE VALUATION - Fund 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. Central 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 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 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.
As of December 31, 1998, the Fund had capital loss carryforwards of $1,476,166.
This loss may be used to offset future gains arising in tax years through 2006.
41
<PAGE>
- -NOTES to Financial Statements (continued)
- ------------------------------------------------------------------------
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.
/ / EXPENSES - Expenses arising in connection with a Fund are allocated to that
Fund. Other Skyline Funds' expenses, such as trustees' fees, are allocated among
the three 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 year ended December 31, 1998 was $2,332,288.
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 year ended December 31, 1998, fees of $15,556 were paid by the Fund to
the unaffiliated trustees.
3
SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statements of changes in net assets
were as follows:
<TABLE>
<CAPTION>
Year Ended Year ended
12/31/98 12/31/97
------------------------
<S> <C> <C>
Shares sold 7,559,639 9,132,124
Shares issued in reinvestment of dividends 113,150 1,959,834
----------- -----------
7,672,789 11,091,958
Less shares redeemed (9,216,532) (6,913,355)
----------- -----------
Net (decrease) increase in shares outstanding (1,543,743) 4,178,603
----------- -----------
----------- -----------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1998 were as follows:
<TABLE>
<S> <C>
Cost of purchases $ 153,606,350
Proceeds from sales 170,675,964
</TABLE>
42
<PAGE>
- - REPORT of Independent Auditors
- ---------------------------------------------
To the Shareholders of Skyline Small Cap Value Plus
and the Board of Trustees of Skyline Funds
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Small Cap Value Plus (formerly Skyline
Special Equities II) as of December 31, 1998, 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, 1998, 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 Small Cap Value Plus at December 31, 1998, 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.
/s/ Ernst & Young LLP
Chicago, Illinois
January 25, 1999
43
<PAGE>
- - FEDERAL Tax Status of 1998 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. Distributions as a return of capital are not taxable, but reduce
the cost basis of shares held.
- - REPORT of Results of Shareholder Meeting
- ---------------------------------------------
On August 28, 1998, Skyline Funds held a Special Meeting of Shareholders at
which the Fund's shareholders approved a new investment advisory agreement
between the Fund and Skyline Asset Management, L.P. (the "Adviser") without any
substantive changes from the agreement with the Adviser that existed prior to
the Special Meeting and elected Richard K. Pearson to the Board of Trustees. The
members of the Board of Trustees who continued in office after the meeting are
William L. Achenbach, William M. Dutton, Paul J. Finnegan and David A. Martin.
The holders of the majority of the outstanding shares of the Fund approved the
new investment advisory agreement by the votes shown below:
<TABLE>
<S> <C>
For 7,459,189
Against 119,927
Abstain 118,318
Total 7,697,434
</TABLE>
The holders of the majority of the shares of all Funds voting together elected
Mr. Pearson to the Board of Trustees by the votes shown below:
<TABLE>
<S> <C>
For 23,261,507
Withheld 511,956
Total 23,773,463
</TABLE>
- - REPORT for the Year Ended December 31, 1998
- ---------------------------------------------
This report, including the audited 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.
44
<PAGE>
FINANCIAL STATEMENTS OF SKYLINE SMALL CAP CONTRARIAN
- - PORTFOLIO Holdings as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- ------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 7.5%
OTHER TRANSPORTATION - 7.5%
Kitty Hawk, Inc.(a) Air freight services 13,600 $ 149,600
Mesa Air Group, Inc.(a) Regional airline 15,100 117,969
Trailer Bridge, Inc.(a) Marine transportation 78,800 120,662
------------
388,231
CONSUMER DISCRETIONARY - 28.3%
COMMERCIAL SERVICES - 16.3%
Angelica Corp. Textile rental services 8,200 152,725
DIMON Inc. Tobacco leaf wholesaler 19,900 148,006
Insurance Auto Auctions(a) Auto salvage 11,000 130,625
LESCO, Inc. Lawn care products 8,300 106,863
Right Mgmt Consultants(a) Outplacement & HR services 10,900 160,775
Unisource Worldwide, Inc. Paper/shipping supplies 20,500 148,625
------------
847,619
CONSUMER PRODUCTS/SERVICES - 6.0%
Drypers Corp.(a) Makes disposable diapers 39,900 129,675
LADD Furniture, Inc.(a) Furniture manufacturer 8,100 131,119
Singer Company N.V. (The)(a) Consumer durables 13,200 51,975
------------
312,769
RETAIL - 6.0%
Discount Auto Parts, Inc.(a) Auto parts stores 3,200 70,200
InterTAN, Inc.(a) Consumer electronics retailer 27,200 158,100
Lechters, Inc.(a) Housewares chain 32,700 80,728
------------
309,028
------------
TOTAL CONSUMER DISCRETIONARY 1,469,416
ENERGY - 4.2%
EXPLORATION & PRODUCTION - 1.0%
Comstock Resources, Inc.(a) Oil & gas producer 17,200 52,675
OTHER ENERGY - 3.2%
Willbros Group, Inc.(a) Engineering/construction 30,200 167,988
------------
TOTAL ENERGY 220,663
FINANCIAL SERVICES - 11.8%
INSURANCE - 7.4%
GAINSCO, INC. P&C insurance 15,400 94,325
Highlands Insurance Group, Inc.(a) P&C insurance 11,000 143,687
Navigators Group, Inc. (The)(a) P&C insurance 9,300 144,150
------------
382,162
</TABLE>
45
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- ------------
<S> <C> <C> <C>
OTHER FINANCIAL SERVICES - 4.4%
American Capital Strategies, Ltd. Commercial finance 5,900 $ 101,775
Credit Acceptance Corp.(a) Automobile finance services 17,800 130,163
------------
231,938
------------
TOTAL FINANCIAL SERVICES 614,100
HEALTH CARE - 12.0%
HEALTH CARE SERVICES - 10.0%
ClinTrials Research Inc.(a) Contract research firm 42,000 165,375
Coram Healthcare Corp.(a) Home infusion services 104,500 195,937
Quest Diagnostics Inc.(a) Diagnostic testing services 8,800 156,750
------------
518,062
MEDICAL EQUIPMENT/PRODUCTS - 2.0%
Allied Healthcare Products, Inc.(a) Makes respiratory products 65,100 105,788
------------
TOTAL HEALTH CARE 623,850
MATERIALS & PROCESSING - 13.2%
BUILDING/CONSTRUCTION PRODUCTS - 1.2%
American Residential(a) HVAC repair services 19,200 62,400
INDUSTRIAL PRODUCTS - 2.9%
Global Industrial Tech.(a) Conglomerate 14,200 151,762
METAL FABRICATIONS - 5.3%
Atchison Casting Corp.(a) Steel & iron castings 12,700 117,475
Citation Corp.(a) Castings manufacturer 12,200 154,025
------------
271,500
SPECIALTY CHEMICALS - 1.4%
Wellman, Inc. PET resins/polyester fibers 7,400 75,387
STEEL/IRON - 2.4%
Birmingham Steel Corp.(a) Steel mini-mill 30,000 125,625
------------
TOTAL MATERIALS & PROCESSING 686,674
PRODUCER DURABLES - 7.6%
CAPITAL GOODS - 0.2%
Kennametal Inc. Metal-cutting tools 400 8,500
ELECTRICAL EQUIPMENT/PRODUCTS - 3.2%
Sensormatic Electronics Corp.(a) Anti-theft devices 24,300 168,581
</TABLE>
46
<PAGE>
- - PORTFOLIO Holdings as of December 31, 1998 (continued)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY NUMBER MARKET
DESCRIPTION OF SHARES VALUE
----------------------------------- --------- ------------
<S> <C> <C> <C>
MACHINERY - 4.2%
Brown & Sharpe Manufacturing Metrology instruments 11,900 $ 95,200
DT Industries, Inc. Packaging equipment 7,700 121,275
------------
216,475
------------
TOTAL PRODUCER DURABLES 393,556
TECHNOLOGY - 11.0%
CONTRACT MANUFACTURING - 3.2%
Smartflex Systems, Inc.(a) Flexible circuit assembler 23,100 167,475
OTHER TECHNOLOGY - 7.8%
GENICOM Corp.(a) Computer support services 34,600 76,769
Imation Corp.(a) Data storage products 10,000 175,000
PSC Inc.(a) Bar coding equipment 16,300 154,850
------------
406,619
------------
TOTAL TECHNOLOGY 574,094
OTHER - 3.0%
SPACEHAB, Inc.(a) Lab & supply modules 14,800 155,400
------------
TOTAL COMMON STOCKS - 98.6%
(Cost $6,815,294) 5,125,984
MONEY MARKET INSTRUMENTS(b)
Yield 5.23% to 5.30%
due July 1999
Sara Lee Corp. 34,247
Wisconsin Corp. Credit Union 106,970
------------
TOTAL MONEY MARKET INSTRUMENTS - 2.7%
(Cost: $141,217) 141,217
------------
TOTAL INVESTMENTS - 101.3%
(Cost $6,956,511) 5,267,201
OTHER LIABILITIES LESS ASSETS - (1.3%) (69,385)
------------
NET ASSETS - 100.0% $ 5,197,816
------------
------------
</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 December 31, 1998. Based on cost of
investments.
Based on cost of investments for federal income tax purposes of $6,956,511 on
December 31, 1998, net unrealized depreciation was $1,689,310, consisting of
gross unrealized appreciation of $205,532 and gross unrealized depreciation of
$1,894,842
See accompanying notes to financial statements.
47
<PAGE>
- - STATEMENT of Assets & Liabilities as of December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost: $6,956,511) $ 5,267,201
Receivable for:
Securities sold $129,436
Dividends and interest 3,169
Shares sold 12,100
Due from Adviser 659 145,364
--------
Organization costs, net of accumulated
amortization of $10,432 36,848
-----------
Total assets 5,449,413
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $196,740
Shares redeemed 10,683
Comprehensive management fee 7,326
Organization costs 36,848 251,597
-------- -----------
Net assets applicable to shares
outstanding $ 5,197,816
-----------
-----------
Shares outstanding--no par value
(unlimited number of shares
authorized) 725,870
-----------
-----------
PRICING OF SHARES
Net asset value, offering price and
redemption price per share $ 7.16
-----------
-----------
ANALYSIS OF NET ASSETS
Paid-in capital $ 7,641,734
Undistributed net realized loss on sales
of investments (754,608)
Unrealized depreciation of investments (1,689,310)
-----------
Net assets applicable to shares
outstanding $ 5,197,816
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
- - STATEMENT of Operations Year Ended December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 21,772
Interest 23,953
-----------
Total investment income 45,725
Expenses:
Comprehensive management fee 98,075
Fees to unafilliated trustees 12,152
Amortization of organization costs 9,994
-----------
Total expenses 120,221
Less expense reimbursement by Adviser (5,788)
-----------
Total expenses absorbed by the Fund 114,433
-----------
Net investment loss (68,708)
Net realized and unrealized loss on investments:
Net realized loss on sales of investments (754,608)
Net change in unrealized appreciation (1,700,480)
-----------
Net realized and unrealized loss on investments (2,455,088)
-----------
Net decrease in net assets resulting from
operations $(2,523,796)
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
- - STATEMENTS of Changes in Net Assets
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
12/31/98 12/15/97(a) - 12/31/97
------------ ----------------------
<S> <C> <C>
From operations:
Net investment loss $ (68,708) $ (544)
Net realized loss on sales of
investments (754,608) --
Net change in unrealized appreciation (1,700,480) 11,170
------------- ------------
Net (decrease) increase in net assets
resulting from operations (2,523,796) 10,626
From share transactions:
Proceeds from shares sold 6,055,498 4,743,861
Payments for shares redeemed (3,086,403) (1,970)
------------- ------------
Net increase in net assets resulting
from share transactions 2,969,095 4,741,891
------------- ------------
Total increase in net assets 445,299 4,752,517
Net assets at beginning of period 4,752,517 --
------------- ------------
Net assets at end of period $5,197,816 $4,752,517
------------- ------------
------------- ------------
</TABLE>
(a) Commencement of operations.
See accompanying notes to financial statements.
50
<PAGE>
- - FINANCIAL Highlights
- ---------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED 12/15/97(A) TO
12/31/98 12/31/97
----------------------------
<S> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.00
---------- -------
Income from investment operations
Net investment loss (0.09) 0.00
Net realized and unrealized loss on
investments (2.75) 0.00
---------- -------
Total from investment operations (2.84) 0.00
---------- -------
Net asset value at end of period $ 7.16 $ 10.00
---------- -------
---------- -------
Total Return (28.40%) 0.00%(b)
Ratios/Supplemental Data
Ratio of expenses to average net
assets:
Before expense reimbursement 1.84% 1.71%(c)
After expense reimbursement 1.75% 1.71%(c)
Ratio of net investment loss to
average net assets:
Before expense reimbursement (1.14%) (0.29%)(c)
After expense reimbursement (1.05%) (0.29%)(c)
Portfolio turnover rate 80% 0%(c)
Net assets, end of period (in
thousands) $ 5,198 $ 4,753
---------- -------
---------- -------
</TABLE>
a Commencement of operations.
b For the period December 15, 1997 to December 31, 1997.
c Ratios have been determined on an annualized basis.
See accompanying notes to financial statements.
51
<PAGE>
- -NOTES to Financial Statements
- ---------------------------------------------
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
Small Cap Contrarian ("Fund").
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 a pricing
service. Variable rate demand notes are valued at cost which equals 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 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.
/ / 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 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 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.
As of December 31, 1998, the Fund had capital loss carryforwards of $754,608.
This loss may be used to offset future gains arising in tax years through 2006.
52
<PAGE>
- -NOTES to Financial Statements (continued)
- ------------------------------------------------------------------------
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.
/ / EXPENSES - Expenses arising in connection with a Fund are allocated to that
Fund. Other Skyline Funds' expenses, such as trustees' fees, are allocated among
the three 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 year ended December 31, 1998 was $98,075. The Adviser has
agreed to reimburse the Fund to the extent that the aggregate annual expenses of
the Fund, 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 Fund's ongoing
operations, exceed 1.75% of the average daily net assets of the Fund. For the
year ended December 31, 1998 the Adviser reimbursed the Fund $5,788.
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 year ended December 31, 1998, the Fund paid fees of $12,152 to its
unaffiliated trustees.
In connection with the organization of the Fund, organizational costs of $47,280
were advanced to the Fund by the Adviser. This expense is being amortized on a
straight line basis through December 15, 2002. The Fund will reimburse the
Adviser for such expenses in equal installments without interest over 20
calendar quarters.
53
<PAGE>
- ------------------------------------------------------------------------
3
SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statements of changes in net assets
were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED 12/15/97 TO
12/31/98 12/31/97
-----------------------------
<S> <C> <C>
Shares sold 657,971 475,238
Less shares redeemed (407,139) (200)
----------- ----------------
Net increase in shares outstanding 250,832 475,038
----------- ----------------
----------- ----------------
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1998, were as follows:
<TABLE>
<S> <C>
Cost of purchases $ 8,114,979
Proceeds from sales 4,787,726
</TABLE>
54
<PAGE>
- - REPORT of Independent Auditors
- ---------------------------------------------
To the Shareholders of Skyline Small Cap Contrarian
and the Board of Trustees of Skyline Funds
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Small Cap Contrarian as of December 31,
1998, 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 the year then ended and for the period December 15,
1997 (commencement of operations) to December 31, 1997. 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, 1998, 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 Small Cap Contrarian at December 31, 1998, 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 the year then ended
and for the period December 15, 1997 to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
January 25, 1999
55
<PAGE>
- - REPORT of Results of Shareholder Meeting
- ---------------------------------------------
On August 28, 1998, Skyline Funds held a Special Meeting of Shareholders at
which the Fund's shareholders approved a new investment advisory agreement
between the Fund and Skyline Asset Management, L.P. (the "Adviser") without any
substantive changes from the agreement with the Adviser that existed prior to
the Special Meeting and elected Richard K. Pearson to the Board of Trustees. The
members of the Board of Trustees who continued in office after the meeting are
William L. Achenbach, William M. Dutton, Paul J. Finnegan and David A. Martin.
The holders of the majority of the outstanding shares of the Fund approved the
new investment advisory agreement by the votes shown below:
<TABLE>
<S> <C>
For 395,421
Against 3,960
Abstain 7,007
Total 406,388
</TABLE>
The holders of the majority of the shares of all Funds voting together elected
Mr. Pearson to the Board of Trustees by the votes shown below:
<TABLE>
<S> <C>
For 23,261,507
Withheld 511,956
Total 23,773,463
</TABLE>
- - REPORT for the Year Ended December 31, 1998
- ---------------------------------------------
This report, including the audited 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.
56
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
Note: As used herein, "Registration Statement" means the Registrant's
Registration Statement on Form N-1A, no. 33-11755,
"Post-effective Amendment no. 21" refers to post-effective
amendment no. 21 to the Registration Statement that was filed on
April 29, 1996, "Post-effective Amendment no. 22" refers to
post-effective amendment no. 22 to the Registration Statement
that was filed on April 25, 1997, "Post-effective Amendment no.
23" refers to post-effective amendment no. 23 to the Registration
Statement that was filed on August 29, 1997, "Post-effective
Amendment no. 24" refers to post-effective amendment no. 24 to
the Registration Statement that was filed on February 27, 1998,
"Post-effective Amendment no. 25" refers to post-effective
amendment no. 25 to the Registration Statement that was filed on
April 28, 1998 and "Post-effective Amendment no. 26" refers to
post-effective amendment no. 26 to the Registration Statement
that was filed on February 26, 1999.
(a) 1. Agreement and Declaration of Trust of the Registrant
(incorporated by reference to exhibit 1 to Post-effective
Amendment no. 21)
2. Amendment No. 1 to Agreement and Declaration of Trust
(incorporated by reference to exhibit 1.2 to Post-effective
Amendment no. 22)
(b) By-Laws of the Registrant (incorporated by reference to exhibit 2
to Post-effective Amendment no. 21)
(c) 1. Share certificate for series designated Skyline Special
Equities Portfolio (incorporated by reference to exhibit 4.1
to Post-effective Amendment no. 24)
2. Share certificate for series designated Skyline Small Cap
Value Plus (incorporated by reference to exhibit 4.2 to
Post-effective Amendment no. 24)
3. Share certificate for series designated Skyline Small Cap
Contrarian (incorporated by reference to exhibit 4.3 to
Post-effective Amendment no. 24)
(d) 1. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Special
Equities Portfolio (incorporated by reference to exhibit
(d)1 to Post-effective Amendment no. 26)
2. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Small
Cap Value Plus (incorporated by reference to exhibit (d)2
to Post-effective Amendment no. 26)
C-1
<PAGE>
3. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Small
Cap Contrarian (incorporated by reference to exhibit (d)3
to Post-effective Amendment no. 26)
(e) 1. Distribution Agreement between the Registrant and Funds
Distributor, Inc. (incorporated by reference to exhibit 6 to
Post-effective Amendment no. 21)
2. Amendment to Distribution Agreement between the Registrant
and Funds Distributor, Inc. (incorporated by reference to
exhibit 6.2 to Post-effective Amendment no. 24)
(f) None
(g) Amended and Restated Custodian Agreement among the Registrant,
Skyline Asset Management, L.P., and Firstar Trust Company
(incorporated by reference to exhibit 8 to Post-effective
Amendment no. 25)
(h) 1. Amended and Restated Transfer Agent Agreement among the
Registrant, Skyline Asset Management, L.P., and Firstar
Trust Company (incorporated by reference to exhibit 8 to
Post-effective Amendment no. 25)
2. Amended and Restated Fund Accounting Services Agreement
among the Registrant, Skyline Asset Management, L.P., and
Firstar Trust Company (incorporated by reference to exhibit
8 to Post-effective Amendment no. 25)
(i) Opinion and Consent of Counsel relating to Skyline Special
Equities Portfolio, Skyline Small Cap Value Plus, and Skyline
Small Cap Contrarian
(j) Consent of Independent Auditors
(k) None
(l) Investment representation letter of initial purchaser of shares
of beneficial interest of the Registrant (incorporated by
reference to exhibit 13 to Post-effective Amendment no. 21)
(m) None
(n) 1. Financial Data Schedule -- Skyline Special Equities
Portfolio
2. Financial Data Schedule -- Skyline Small Cap Value Plus
3. Financial Data Schedule -- Skyline Small Cap Contrarian
(o) None
C-2
<PAGE>
(p) Skyline Funds Account Application
ITEM 24. Persons Controlled by or Under Common Control With Registrant.
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 Statement of
Additional Information under the caption "Management of Skyline" and in the
first paragraph under the caption "Investment Advisory Services" is incorporated
by reference.
ITEM 25. Indemnification.
Article Tenth of Registrant's Agreement and Declaration of Trust
(exhibit (a) to this registration statement, which is incorporated herein by
reference) provides that Registrant shall provide certain indemnification of its
trustees and officers. In accordance with Section 17(h) of the Investment
Company Act, that provision shall not protect any person against any liability
to the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, negligence or reckless disregard of
the duties involved in the conduct of his office.
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.
The Registrant, its trustees and officers, Skyline Asset Management,
L.P. (the "Adviser") (the investment adviser to Registrant) and certain
affiliated persons of the Adviser and affiliated persons of such persons are
insured under a policy of insurance maintained by Registrant, the Adviser and
those affiliates, within the limits and subject to the limitations of the
policy, against certain expenses in connection with the defense of actions,
suits or proceedings, and certain liabilities that might be imposed as a result
of such actions, suits or proceedings, to which they are parties by reason of
being or having been such trustees, directors or officers. The policy expressly
excludes coverage for any trustee or officer whose personal dishonesty,
fraudulent breach of trust, lack of good faith, or intention to deceive or
defraud has been finally adjudicated or may be established or who willfully
fails to act prudently.
C-3
<PAGE>
ITEM 26. Business and Other Connections of Investment Adviser.
The information in the Statement of Additional Information under the
caption "Management of Skyline" is incorporated by reference. Affiliated
Managers Group, Inc. ("AMG"), the general partner of Skyline Asset 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 or other equity interests in a number of entities, each
of which provides investment advice to a number of other organizations and
individuals.
ITEM 27. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") currently acts as
distributor for:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc., d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
The JPM Series Trust
The JPM Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
C-4
<PAGE>
Orbitex Group of Funds
St. Clair Funds, Inc.
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
The Distributor is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. The Distributor is an indirect wholly-owned subsidiary of Boston
Institutional Group, Inc., a holding company all of whose outstanding shares are
owned by key employees.
(b) The following is a list of the executive officers, directors and partners
of the Distributor:
Director, President and Chief - Marie E. Connolly
Executive Officer
Executive Vice President - George A. Rio
Executive Vice President - Richard W. Ingram
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President - Michael S. Petrucelli
Senior Vice President, General -Margaret W. Chambers
Counsel, Chief Compliance Officer,
Secretary and Clerk
Director, Senior Vice President, - Joseph F. Tower, III
Treasurer and Chief Financial
Officer
Senior Vice President - Allen B. Closser
Senior Vice President - Paula R. David
C-5
<PAGE>
Senior Vice President - Bernard A. Whalen
Director - William J. Nutt
None of the directors and officers of the Distributor hold positions or offices
with the Registrant. The principal business address of all officers and
directors of the Distributor is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
(c) Not applicable
ITEM 28. Location of Accounts and Records.
(1) Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201
Rule 31a-1(a); Rule 31a-1(b)(1)
(2) Firstar Bank Milwaukee
P.O. Box 701
Milwaukee, Wisconsin 53201
Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
(3) Skyline Funds
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Rule 31a-1(a); Rule 31a-1(b)(4), (9), (10), (11);
Rule 31a-1(d); Rule 31a-1(f); Rule 31a-2(a);
Rule 31a-2(c); Rule 31a-2(e)
ITEM 29. Management Services.
Not applicable.
ITEM 30. Undertakings.
Not applicable.
C-6
<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 post-effective amendment pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on April 29, 1999.
SKYLINE FUNDS
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.
/s/ William L. Achenbach Trustee )
- --------------------------- )
William L. Achenbach )
)
)
)
/s/ William M. Dutton Trustee )
- --------------------------- President )
William M. Dutton (principal executive )
officer) )
)
)
/s/ Paul J. Finnegan Trustee ) April 29, 1999
- --------------------------- )
Paul J. Finnegan )
)
)
)
/s/ David A. Martin Trustee )
- --------------------------- )
David A. Martin )
)
)
)
/s/ Richard K. Pearson Trustee )
- --------------------------- )
Richard K. Pearson )
)
)
)
/s/ Scott C. Blim Secretary and Treasurer )
- --------------------------- (principal accounting and )
Scott C. Blim financial officer)
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
Exhibit Exhibit
Number -------
------
(i) Opinion and Consent of Counsel relating to Skyline
Special Equities Portfolio, Skyline Small Cap
Value Plus, and Skyline Small Cap Contrarian
(j) Consent of Independent Auditors
(n) 1. Financial Data Schedule - Skyline Special Equities
Portfolio
2. Financial Data Schedule - Skyline Small Cap Value
Plus
3. Financial Data Schedule - Skyline Small Cap
Contrarian
(p) Skyline Funds Account Application
<PAGE>
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELEPHONE (617) 523-1231
April 29, 1999
Skyline Funds
311 South Wacker Drive
Suite 4500
Chicago, IL 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 27 to the Registration
Statement of Skyline Funds (the "Trust"), on Form N-1A filed with the
Securities and Exchange Commission (Securities Act Registration No. 33-11755,
Investment Company Act Registration No. 811-5022). As special Massachusetts
counsel to the Trust, we hereby consent to the incorporation by reference
therein of our opinion, dated April 28, 1998 originally filed as Exhibit 10
to Post-Effective Amendment No. 25 to such Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our reports dated
January 25, 1999 on the 1998 financial statements of Skyline Special Equities
Portfolio, Skyline Small Cap Value Plus, and Skyline Small Cap Contrarian,
comprising the Skyline Funds and their incorporation by reference in the
Registration Statement (Form N-1A) and in the related Prospectus and
Statement of Additional Information, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 27 to the Registration
Statement under the Securities Act of 1933 (Registration No. 33-11755) and in
the Amendment No. 29 to the Registration Statement under the Investment
Company Act of 1940 (Registration No. 811-05022).
/s/ Ernst & Young LLP
Chicago, Illinois
April 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/98
NSAR AND AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810308
<NAME> SKYLINE FUNDS
<SERIES>
<NUMBER> 002
<NAME> SKYLINE SPECIAL EQUITIES PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 426,377
<INVESTMENTS-AT-VALUE> 441,697
<RECEIVABLES> 6,439
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 448,136
<PAYABLE-FOR-SECURITIES> 989
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,124
<TOTAL-LIABILITIES> 3,113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,672
<SHARES-COMMON-STOCK> 22,496
<SHARES-COMMON-PRIOR> 21,567
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,032
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,320
<NET-ASSETS> 445,024
<DIVIDEND-INCOME> 2,825
<INTEREST-INCOME> 1,855
<OTHER-INCOME> 0
<EXPENSES-NET> 7,072
<NET-INVESTMENT-INCOME> (2,392)
<REALIZED-GAINS-CURRENT> (23,823)
<APPREC-INCREASE-CURRENT> (53,688)
<NET-CHANGE-FROM-OPS> (37,256)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7,029
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,883
<NUMBER-OF-SHARES-REDEEMED> 6,308
<SHARES-REINVESTED> 354
<NET-CHANGE-IN-ASSETS> (22,046)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,628
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,049
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,072
<AVERAGE-NET-ASSETS> 482,183
<PER-SHARE-NAV-BEGIN> 21.66
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> (1.45)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.78
<EXPENSE-RATIO> 1.47
<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 12/31/98
NSAR AND AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810308
<NAME> SKYLINE FUNDS
<SERIES>
<NUMBER> 004
<NAME> SKYLINE SMALL CAP VALUE PLUS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 122,496
<INVESTMENTS-AT-VALUE> 134,994
<RECEIVABLES> 1,395
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,391
<PAYABLE-FOR-SECURITIES> 1,001
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 488
<TOTAL-LIABILITIES> 1,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,880
<SHARES-COMMON-STOCK> 11,455
<SHARES-COMMON-PRIOR> 12,998
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,589)
<OVERDISTRIBUTION-GAINS> 113
<ACCUM-APPREC-OR-DEPREC> 12,498
<NET-ASSETS> 134,902
<DIVIDEND-INCOME> 1,164
<INTEREST-INCOME> 517
<OTHER-INCOME> 0
<EXPENSES-NET> 2,349
<NET-INVESTMENT-INCOME> (669)
<REALIZED-GAINS-CURRENT> (1,476)
<APPREC-INCREASE-CURRENT> (7,834)
<NET-CHANGE-FROM-OPS> (9,979)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,234)
<DISTRIBUTIONS-OTHER> (113)
<NUMBER-OF-SHARES-SOLD> 7,560
<NUMBER-OF-SHARES-REDEEMED> 9,217
<SHARES-REINVESTED> 113
<NET-CHANGE-IN-ASSETS> (30,785)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,234
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,349
<AVERAGE-NET-ASSETS> 156,506
<PER-SHARE-NAV-BEGIN> 12.75
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (0.79)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 11.78
<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 12/31/98
NSAR AND AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810308
<NAME> SKYLINE FUNDS
<SERIES>
<NUMBER> 006
<NAME> SKYLINE SMALL CAP CONTRARIAN
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,957
<INVESTMENTS-AT-VALUE> 5,267
<RECEIVABLES> 145
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,449
<PAYABLE-FOR-SECURITIES> 197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 252
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,642
<SHARES-COMMON-STOCK> 726
<SHARES-COMMON-PRIOR> 475
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,689)
<NET-ASSETS> 5,198
<DIVIDEND-INCOME> 22
<INTEREST-INCOME> 24
<OTHER-INCOME> 0
<EXPENSES-NET> 114
<NET-INVESTMENT-INCOME> (69)
<REALIZED-GAINS-CURRENT> (755)
<APPREC-INCREASE-CURRENT> (1,700)
<NET-CHANGE-FROM-OPS> (2,524)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 658
<NUMBER-OF-SHARES-REDEEMED> 407
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120
<AVERAGE-NET-ASSETS> 6,540
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> (2.75)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.16
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
[LOGO]
SKYLINE FUNDS
- -------------------------------------------------------------------------------
APPLICATION
THIS APPLICATION IS TO:
/ / Establish a new account
/ / Change an existing account
- -------------------------------------------------------------------------------
SKYLINE FUNDS ACCOUNT NUMBER
- -------------------------------------------------------------------------------
MAILING INSTRUCTIONS
- -------------------------------------------------------------------------------
Regular Delivery:
Mutual Fund Services
Attn: Skyline Funds
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express:
Mutual Fund Services
Attn: Skyline Funds
Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, WI 53202-5207
IF YOU HAVE ANY QUESTIONS, PLEASE CALL SKYLINE FUNDS AT 800.828.2759.
- -------------------------------------------------------------------------------
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.
DO NOT USE THIS APPLICATION FOR IRA ACCOUNTS.
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 OR ORGANIZATION
---------------------------------------------------------------------------
NAME OF TRUST OR ORGANIZATION DATE OF TRUST
---------------------------------------------------------------------------
NAME OF TRUSTEE(S)
Type: / / Trust / / Corporation / / Partnership
/ / Other (please specify)
-------------------------------------------
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY/STATE/ZIP
( )
- -------------------------------------------------------------------------------
DAYTIME PHONE
( )
- -------------------------------------------------------------------------------
EVENING PHONE
U.S. Citizen / / Yes / / No
- -------------------------------------------------------------------------------
INITIAL INVESTMENT
- -------------------------------------------------------------------------------
Initial investment by check only. Make check payable to the Fund in which you
are investing. Please be sure to read the prospectus for the Skyline Funds.
Initial investment of $
---------------------------------------------------------
$1,000 MINIMUM
SKYLINE FUNDS
/ / Special Equities Portfolio (014) (CLOSED TO NEW INVESTORS)
/ / Small Cap Value Plus (020)
/ / Small Cap Contrarian (024)
SKYLINE--FIRSTAR MONEY MARKET FUNDS
/ / Money Market Fund (022)
/ / U.S. Government Money Market Fund (023)
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
Exchange privilege is AUTOMATIC unless checked below. Exchanges may only be made
to identically registered accounts. Skyline Funds reserves the right to record
all exchange requests and the exchange privilege may be changed or withdrawn by
Skyline at any time.
/ / I DO NOT AUTHORIZE TELEPHONE EXCHANGES.
<PAGE>
- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASE
- -------------------------------------------------------------------------------
You can purchase shares regularly by requesting electronic transfer of money
from your checking, NOW or savings account to your Skyline Funds account.
Investments will be made on any day of the month, or the following business day.
You can also purchase shares by telephone by requesting electronic transfer of
money from your checking, NOW or savings account to your Skyline Funds account.
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 Funds account must be established with a $1,000 minimum balance
before your first scheduled investment under the Plan goes into effect.
- - The minimum investment for each telephone purchase is $100.
- - 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 $25 service fee will be assessed.
- - The Plan will be terminated upon redemption, including redemption by
exchange, of all shares.
- -------------------------------------------------------------------------------
TELEPHONE REDEMPTION
- -------------------------------------------------------------------------------
You can redeem shares in your Skyline Funds account by telephone. All
redemption proceeds will be sent as directed below.
/ / Payment to be made to my address of record, or
/ / Payment to my brokerage account listed below, or
/ / Payment to my financial institution listed below
BANK NAME/ACCOUNT # BANK ABA ROUTING NO.
- -------------------------------------------------------------------------------
BROKERAGE FIRM (if applicable) ACCOUNT NO.
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY/STATE/ZIP
- -------------------------------------------------------------------------------
DUPLICATE STATEMENT
- -------------------------------------------------------------------------------
- ----------------------------------- ----------------------------------------
INVESTMENT ADVISOR# RR#
- ----------------------------------- ----------------------------------------
FIRM NAME ADVISOR NAME
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY/STATE/ZIP
( ) ( )
- ----------------------------------- ----------------------------------------
PHONE FAX
- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
Is Duplicate Statement going
to a broker dealer? / / Yes / / No
If yes, please provide
--------------------------------------------------------
broker dealer name
/ / Please start my Automatic Investment Plan beginning ____________ (month),
___________ (year). I hereby instruct Firstar Mutual Fund Services, LLC,
as agent for Skyline Funds, to automatically transfer $__________________
directly from my / / checking or NOW account / / savings account (check
one) named below on the ___ day of each month or the first business day
thereafter into (check one):
/ / Special Equities Portfolio
/ / Small Cap Value Plus
/ / Small Cap Contrarian
/ / I would like to make purchases by telephone. I hereby instruct Firstar
Mutual Fund Services, LLC, as agent for Skyline Funds, to transfer the
amounts that I indicate by telephone from the account indicated below into
the Skyline Funds account that I indicate by telephone.
- -------------------------------------------------------------------------------
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 have read and understand the conditions of the Automatic Investment Plan
and telephone purchase. I authorize you to honor all debit entries via the
ACH Network initiated through Firstar Bank on behalf of Firstar Mutual Fund
Services, LLC. All such debits are subject to sufficient collected funds in
my account to pay the debit when presented. I understand that the Plan may be
terminated or modified at any time by Skyline Funds.
- -------------------------------------------------------------------------------
SHAREHOLDER AUTHORIZATION
- -------------------------------------------------------------------------------
Please establish a shareholder account in accordance with the instructions on
this application. I (we) certify that I am (we are) of legal age and have
received and read the prospectus and agree to its terms. APPLICATIONS WHICH
ARE NOT SIGNED OR FULLY COMPLETED WILL BE REJECTED. This application may be
used to open new account(s) or to revise existing account(s).
I (we) understand that the Exchange Privilege will apply to my (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 Skyline Funds nor their Transfer Agent, 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 "Shareholder Services--Exchange Plan" in the
prospectus.
UNDER PENALTIES OF PERJURY, THE UNDERSIGNED HEREBY CERTIFY (1) THAT THE
SOCIAL SECURITY NUMBER GIVEN IS CORRECT AND (2) THAT THE ACCOUNT OWNER(S) IS
(ARE) 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 DIVIDENDS, OR (b) THE I.R.S. HAS PROVIDED
NOTIFICATION THAT THE ACCOUNT OWNER(S) IS (ARE) NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (CROSS OUT (2) IF IT IS NOT CORRECT.)
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
- -------------------------------------------------------------------------------
SIGNATURE (OWNER, TRUSTEE) DATE
- -------------------------------------------------------------------------------
SIGNATURE (JOINT OWNER, CO-TRUSTEE) DATE
DISTRIBUTOR: FUNDS DISTRIBUTOR INC.
05/99
