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Skyline Funds
311 S. Wacker Drive, Suite 4500
Chicago, IL 60606
SKYLINE SMALL CAP VALUE PLUS
AND
SKYLINE SMALL CAP CONTRARIAN
January 10, 2000
Dear Shareholder:
Skyline Funds will hold a Special Meeting of Shareholders on Tuesday,
February 29, 2000, in Chicago. The purpose of the meeting is to ask you to vote
on a proposed reorganization of each of Skyline Small Cap Value Plus and Skyline
Small Cap Contrarian into Skyline Special Equities Portfolio. The enclosed
material provides a detailed discussion of the proposed merger and includes all
the material you will need to vote on the merger.
Both Value Plus and Contrarian use a small cap value investment strategy
that is similar to the strategy Special Equities Portfolio uses. Value Plus
invests in slightly larger companies, with higher earnings growth rates and
slightly higher valuations than the companies in which Special Equities
Portfolio invests. Contrarian invests in slightly smaller companies (although it
has the ability to invest in slightly larger ones), which trade at lower
valuations than the companies in which Special Equities Portfolio invests.
Value Plus and Contrarian have not experienced the growth in assets that we
had anticipated. After careful consideration of various options, Skyline Funds'
Board of Trustees has decided to recommend to you that each of Value Plus and
Contrarian be merged into Special Equities Portfolio.
The Board of Trustees believes that the shareholders of Value Plus and
Contrarian would be better served if the time, energy and resources of Skyline
Asset Management, L.P. (the Funds' investment adviser) were focused on selecting
undervalued small company stocks for investment by one Fund. The proposed
reorganization will provide you with an opportunity to invest in Special
Equities Portfolio, the Skyline Funds' flagship fund, which until October 1999
was closed to new investors. Special Equities Portfolio has one of the best
long-term records in the small cap value category.
Special Equities Portfolio has investment policies similar to those of
Value Plus and Contrarian. The enclosed material describes in detail the
investment objective, policies and strategies of Special Equities Portfolio.
The following list of questions and answers is meant to provide you with a
helpful summary of some of the information contained in the Proxy
Statement/Prospectus. Please read the entire Proxy Statement/Prospectus
carefully and cast your vote by completing and returning the enclosed proxy card
or call 1-800-690-6903 and follow the instructions you receive by telephone.
To help avoid additional expense, be sure to vote promptly. If you have any
questions, please call us at 1-800-828-2759. We will be glad to help you.
Sincerely,
William M. Dutton
President
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ANSWERS TO SOME OF YOUR QUESTIONS
Although you should read the full text of the enclosed Proxy
Statement/Prospectus, we hope the following brief overview will explain why
Skyline Funds' Board of Trustees believes you should vote for the proposal to
merge each of Skyline Small Cap Value Plus and Skyline Small Cap Contrarian
into Skyline Special Equities Portfolio.
1. HAS THE BOARD OF TRUSTEES APPROVED THE PROPOSAL?
The Board of Trustees unanimously approved the proposal (including all
the Trustees who are not affiliated with the Funds' investment
adviser), and urges you to vote yes.
2. WHY HAS THE BOARD OF TRUSTEES DECIDED TO RECOMMEND THE REORGANIZATION OF
VALUE PLUS AND CONTRARIAN INTO SPECIAL EQUITIES PORTFOLIO AND WHAT ARE THE
ADVANTAGES OF THE REORGANIZATION?
Merging the two smaller Funds - Value Plus and Contrarian - into the
larger fund, Special Equities Portfolio, will permit the members of
Skyline Funds' research team to focus all of their time, energy and
resources on one fund. We believe this focus will offer you better
capital appreciation potential over a long-term period. As a result,
your Trustees concluded that the interests of the Value Plus and
Contrarian shareholders would be better served if the Funds were merged
into Special Equities Portfolio at this time.
3. WILL THE INVESTMENT APPROACH OF VALUE PLUS AND CONTRARIAN CONTINUE AFTER
THE MERGER?
No, the particular investment approaches used by Value Plus and
Contrarian will not continue. Special Equities Portfolio will continue
to invest in companies with below average valuations and above average
earnings growth prospects, but the Fund expects that the
capitalization of the small companies in which it invests will
increase from $1 billion or less to $2 billion or less. This change
is an effort to improve liquidity and recognize that there has been
growth in capitalization generally of the small cap market.
4. DOES SPECIAL EQUITIES PORTFOLIO HAVE INVESTMENT POLICIES THAT ARE SIMILAR
TO THOSE OF CONTRARIAN AND VALUE PLUS?
All three Funds' investment policies are similar. All three Funds
invest in a relatively narrow segment of the market - small cap,
value-oriented stocks. Focusing on this segment, Contrarian emphasizes
value to a greater extent than Value Plus, and Value Plus puts more
emphasis on growth. Special Equities Portfolio is between the two.
5. HOW HAS SPECIAL EQUITIES PORTFOLIO PERFORMED AND WHO WILL BE THE PORTFOLIO
MANAGER OF SPECIAL EQUITIES PORTFOLIO AFTER THE MERGER?
For the period through November 30, 1999, Special Equities Portfolio
has the best performance record of all small cap value funds that
have been in existence since April 23, 1987, when Special Equities
Portfolio began operations. Special Equities Portfolio was ranked by
Lipper, Inc. #1 of all 15 small cap value funds for that period, with
an average annual total return of 13.66%.* Over that period, Special
Equities Portfolio outperformed by 4.18% per year the average small
cap value fund's average annual total return of 9.48%, again
according to information supplied by
- ----------------------
* For the periods ending November 30, 1999, Lipper, Inc. ranked Special
Equities Portfolio #301 for the one-year period, #76 for the
five-year period and #2 for the ten-year period, based on total
return, out of 309, 101, and 25 small cap value funds, respectively.
<PAGE>
Lipper, Inc. During the same period, the Russell 2000 Index, the
Fund's benchmark, had an average annual total return fo 10.36%. More
information about the performance of Special Equities Portfolio, and
the performance of Value Plus and Contrarian, is included in the
Proxy Statement/Prospectus under the heading "Comparative Performance
Information."
Bill Dutton has been the portfolio manager of Special Equities
Portfolio since its inception and will continue to be the portfolio
manager after the merger.
6. SINCE VALUE PLUS' INCEPTION DATE, HOW HAS IT PERFORMED VS. SPECIAL EQUITIES
PORTFOLIO?
For the period from February 9, 1993, when Value Plus began
operations, through November 30, 1999, Value Plus achieved an average
annual total return of 10.16% and Special Equities Portfolio achieved
an average annual total return of 9.34%. From the inception of
Special Equities Portfolio on April 23, 1987 through November 30,
1999, Special Equities Portfolio's average annual total return was
13.66%.
In some years, Value Plus has performed better (1995), or significantly
better (1999 YTD), while in other years, Special Equities Portfolio has
performed better (1996 and 1997). In 1994 and 1998, the performance
of the two Funds was very close. One reason for these differences in
performance is the slight style difference in which each Fund has
approached the small cap value category. The slight style differences
between the Funds are described in the enclosed Proxy
Statement/Prospectus under the heading "Summary of Investment
Objectives and Strategies" and each Fund's performance is described
under the heading "Comparative Performance Information."
7. HOW HAS CONTRARIAN PERFORMED COMPARED TO SPECIAL EQUITIES PORTFOLIO?
Contrarian had weaker performance in 1998 and stronger performance
year-to-date in 1999. Each Fund's performance is described in the
enclosed Proxy Statement/Prospectus under the heading "Comparative
Performance Information."
8. HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
The expense structures of all the Funds are similar. All the Funds have
a comprehensive fee arrangement in which they pay the Adviser a single
fee and the Adviser pays almost all of the Funds' ordinary operating
expenses. The overall expense ratio of Special Equities Portfolio is
slightly lower than the expense ratios of the other Funds because it
has a larger asset base, and has reached the first point at which its
rate of management fee is reduced.
9. WHAT WILL BE THE SIZE OF SPECIAL EQUITIES PORTFOLIO AFTER THE MERGER AND
WHAT IMPACT IS THAT EXPECTED TO HAVE ON THE FUND?
As of November 30, 1999, Special Equities Portfolio had about $255.8
million in net assets, Value Plus had about $71.9 million and
Contrarian had about $4.2 million. If those amounts were the same on
the closing date, Special Equities Portfolio would have about $331.9
million in net assets. We think that the Special Equities Portfolio
management team has the capacity to manage assets at a higher level.
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10. HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF SPECIAL EQUITIES PORTFOLIO
THAT I WILL RECEIVE?
You will receive shares of Special Equities Portfolio equal in value to
your shares of Contrarian or Value Plus, in each case at net asset
value on the closing date of the merger.
11. WHAT ARE THE FEDERAL TAX IMPLICATIONS OF THE MERGER?
The merger will not be taxable. You will have no immediate tax
consequences. Your basis in your Contrarian or Value Plus shares will
carry over as your basis in your new Special Equities Portfolio shares.
If you have a loss on your Contrarian or Value Plus shares that you
would like to recognize for income tax purposes, you may do so by
exchanging your Value Plus or Contrarian shares for shares of Special
Equities Portfolio before the merger. You may do so by calling
1-800-828-2759 and using Skyline's telephone exchange feature, or
through your investment professional.
12. HOW MANY VOTES AM I ENTITLED TO CAST?
You are entitled to one vote for each share you hold, with a fraction
of a vote for each fraction of a share.
13. HOW DO I VOTE MY SHARES?
You can vote your shares in one of two ways:
- - BY TELEPHONE. To vote your shares by telephone, call 1-800-690-6903 and
follow the instructions of the representative who answers your call.
- - IN WRITING. To vote your shares in writing, mark your vote on the enclosed
proxy card, sign and date it, and return it in the enclosed postage-paid
envelope.
14. HOW DO I SIGN THE PROXY CARD?
Sign your proxy card exactly as your name (or names) appear on the
card.
WHAT IF I HAVE QUESTIONS?
Call us at 1-800-828-2759.
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SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
February 29, 2000
To the Shareholders of Skyline Small Cap Value Plus and Skyline Small Cap
Contrarian:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of each of Skyline Small Cap Value Plus ("Value Plus") and Skyline
Small Cap Contrarian ("Contrarian"), each a series of Skyline Funds ("Skyline"),
will be held on Tuesday, February 29, 2000, at 10:00 a.m., Central Time, at the
Metropolitan Club, Sears Tower, 233 South Wacker Drive, 67th Floor, Chicago,
Illinois. The purpose of the Meeting is to consider and to act upon the
following proposals:
1. To approve a Plan of Reorganization (the "Plan") providing for
- the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Value Plus
by Skyline Special Equities Portfolio ("Special Equities
Portfolio"), a series of Skyline, in exchange solely for shares
of Special Equities Portfolio, followed by the pro rata
distribution of such shares of Special Equities Portfolio to the
Value Plus shareholders; and
- the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Contrarian
by Special Equities Portfolio, in exchange solely for shares of
Special Equities Portfolio, followed by the pro rata distribution
of such shares of Special Equities Portfolio to the Contrarian
shareholders.
2. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Shareholders of record at the close of business on December 23, 1999, the
record date for this proxy solicitation, are entitled to notice of and to vote
at the Special Meeting, or at any postponements or adjournments of that meeting.
By Order of the Board of Trustees
Stephen F. Kendall
SECRETARY
Chicago, Illinois
Please indicate your voting instructions and whether you will be attending the
meeting in person on the enclosed proxy card, date and sign, and return it in
the enclosed envelope. Please mail your proxy card promptly to help save the
cost of additional solicitations.
<PAGE>
SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
1.800.828.2759
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PROXY STATEMENT/PROSPECTUS
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The Board of Trustees of Skyline Funds ("Skyline") has approved a Plan of
Reorganization (the "Plan"), which would merge Skyline Small Cap Value Plus
("Value Plus") and Skyline Small Cap Contrarian ("Contrarian" and with Value
Plus, the "Acquired Funds") into Skyline Special Equities Portfolio ("Special
Equities Portfolio"). The Acquired Funds and Special Equities Portfolio are each
a series of Skyline, a Massachusetts business trust. Each is a registered
open-end management investment company and Skyline Asset Management, L.P. (the
"Adviser") is the investment adviser to all three Funds.
Shareholder approval is necessary to proceed with the Reorganization of the
Acquired Funds (called the "Reorganization"). Therefore, we are sending you this
Proxy Statement/Prospectus in connection with the solicitation of proxies by the
Board of Trustees of Skyline for use at the Special Meeting of Shareholders of
Value Plus and Contrarian, to be held at 10:00 a.m., Central Time, on Tuesday,
February 29, 2000, at the Metropolitan Club, Sears Tower, 233 South Wacker
Drive, 67th Floor, Chicago, Illinois.
The purpose of the Meeting is to consider and vote on the Plan. Pursuant to
the Plan, Special Equities Portfolio will acquire substantially all of the
assets of each of Value Plus and Contrarian and assume substantially all of each
Acquired Fund's liabilities, in exchange solely for shares of beneficial
interest, no par value, of Special Equities Portfolio ("Shares"). The Acquired
Funds would then distribute the Shares pro rata to their shareholders. After the
distribution, the Acquired Funds will be liquidated and discontinued as separate
series of Skyline.
After the Reorganization, the aggregate value of your Shares should be
equal to the aggregate value of your Value Plus or Contrarian shares immediately
prior to the Reorganization. The Reorganization will not be a taxable event, and
you will recognize no gain or loss through the exchange of shares in the
Reorganization based on the difference between the value of the Shares received
in the Reorganization and your tax basis in the shares of Value Plus and/or
Contrarian that you surrendered in the Reorganization. See "Tax Considerations."
The investment objectives of Value Plus, Contrarian and Special Equities
Portfolio are identical - each Fund seeks maximum capital appreciation through
investment in common stocks that the Adviser considers to be undervalued. The
risks of investing in Special Equities Portfolio are also similar to the risks
of investing in the Acquired Funds. We have compared the investment objectives
and policies of the Acquired Funds to Special Equities Portfolio under the
heading "Summary of Investment Objectives and Strategies."
This Proxy Statement/Prospectus gives the basic information that a
shareholder of Value Plus or Contrarian should know before voting on the
Reorganization. It also constitutes an
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offering of shares of Special Equities Portfolio. Please read this Proxy
Statement/Prospectus carefully and keep it for future reference. The following
documents are on file with the SEC and are deemed to be legally part of this
document:
- the Statement of Additional Information, dated December 23, 1999,
relating to this Proxy Statement/Prospectus (the "Reorganization
SAI");
- the Prospectus and the Statement of Additional Information of Skyline
(covering Value Plus, Contrarian and Special Equities Portfolio), each
dated May 1, 1999 (the "May 1, 1999 Prospectus" and the "May 1, 1999
SAI," respectively);
- the Annual Reports of Skyline dated December 31, 1998; and
- the Semi-Annual Reports of Skyline dated June 30, 1999.
Copies of these documents may be obtained without charge by contacting us at
Skyline Funds, c/o Firstar Mutual Fund Services, L.L.C., P.O. Box 701,
Milwaukee, Wisconsin 53201-0701, 1.800.828.2759. The May 1, 1999 Prospectus
accompanies this Proxy Statement/Prospectus.
The date of this Proxy Statement/Prospectus is December 23, 1999.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND'S SHARES
OR DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY ..........................................................................................................1
INTRODUCTION.............................................................................................1
PROPOSED REORGANIZATION..................................................................................1
REASONS FOR THE PROPOSED REORGANIZATION..................................................................2
FEDERAL TAX CONSEQUENCES.................................................................................2
SUMMARY OF INVESTMENT OBJECTIVES AND POLICIES............................................................2
RISKS ...................................................................................................3
MANAGEMENT AND OPERATIONS; ADVISORY AND DISTRIBUTION FEES................................................3
PORTFOLIO MANAGERS.......................................................................................4
PURCHASES AND REDEMPTIONS; SHAREHOLDER SERVICES..........................................................4
EXPENSES ................................................................................................5
PROPOSAL: PLAN OF REORGANIZATION.................................................................................6
DESCRIPTION OF THE PLAN..................................................................................6
REASONS FOR THE PROPOSED REORGANIZATION..................................................................7
DESCRIPTION OF SECURITIES TO BE ISSUED...................................................................8
CAPITALIZATION...........................................................................................9
COMPARATIVE PERFORMANCE INFORMATION......................................................................9
TAX CONSIDERATIONS......................................................................................11
VOTING INFORMATION...............................................................................................13
QUORUM .................................................................................................13
SHAREHOLDER APPROVAL....................................................................................13
OTHER INFORMATION................................................................................................14
PRINCIPAL SHAREHOLDERS..................................................................................14
AUDITORS ...............................................................................................15
INTERESTS OF EXPERTS AND COUNSEL........................................................................15
OTHER MATTERS...........................................................................................15
SHAREHOLDER MEETINGS....................................................................................15
AVAILABLE INFORMATION...................................................................................15
PLAN OF REORGANIZATION AND LIQUIDATION...................................................................APPENDIX A
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (EXCERPTED FROM THE
FUNDS'ANNUAL REPORTS DATED DECEMBER 31, 1998)...................................................APPENDIX B
</TABLE>
i
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SUMMARY
This Proxy Statement/Prospectus is being furnished to the shareholders of
the Acquired Funds in connection with the solicitation of proxies by the Board
of Trustees of Skyline to be used at a Special Meeting of Shareholders of the
Acquired Funds to be held on Tuesday, February 29, 2000, at 10:00 a.m., Central
Time, at the Metropolitan Club, Sears Tower, 233 South Wacker Drive, 67th Floor,
Chicago, Illinois. The purpose of the Meeting is to consider and vote on the
Plan, pursuant to which Special Equities Portfolio would acquire all or
substantially all of the assets and assume all or substantially all of the
liabilities of each Acquired Fund, in exchange for the Shares. The Shares will
be distributed, pro rata, to the shareholders of Value Plus and Contrarian.
Then, Value Plus and Contrarian will be liquidated and discontinued.
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus (including a copy of the Plan attached as
Appendix A), as well as the May 1, 1999 Prospectus, which accompanies this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in all respects by reference to the more detailed information
appearing elsewhere in this Proxy Statement/Prospectus, the Plan and the May 1,
1999 Prospectus.
INTRODUCTION
The Plan will allow shareholders of the Acquired Funds to become
shareholders of Special Equities Portfolio. The Acquired Funds and Special
Equities Portfolio (collectively, the "Funds") are each a series of Skyline, a
Massachusetts business trust, and have similar investment objectives, policies,
strategies and risks.
The shareholders will be asked at the Meeting to vote upon and approve the
Plan and the Reorganization. If approved, we expect to consummate the
Reorganization immediately before the close of trading on February 29, 2000, or
such later date as Skyline may determine (the "Closing Date"). Prior to the
Closing Date, shareholders of the Acquired Funds may continue to purchase shares
of the Acquired Funds in their existing accounts. Each shareholder of an
Acquired Fund on the Closing Date will become a shareholder of Special Equities
Portfolio.
PROPOSED REORGANIZATION
The Plan describes the essential terms of the proposed Reorganization and
is attached as Appendix A to this Proxy Statement/Prospectus. Pursuant to the
Plan, all or substantially all of the assets and liabilities of the Acquired
Funds will be transferred to Special Equities Portfolio in exchange for the
Shares. The aggregate net asset value of the Shares issued in the Reorganization
will be equal to the aggregate value of the assets of the Acquired Funds
transferred in the Reorganization. Each Acquired Fund will distribute the shares
of Special Equities Portfolio received by it in the Reorganization to its
shareholders on a pro rata basis. Thereafter, the Acquired Funds will be
discontinued as designated series of shares of Skyline, and the shareholders of
the Acquired Funds will become shareholders of Special Equities Portfolio. It is
expected that the value of a shareholder's account in Special Equities Portfolio
immediately after the Reorganization will be the same as the value of such
shareholder's account in Value Plus and/or Contrarian immediately prior to the
Reorganization.
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REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees believes that the shareholders of the Acquired Funds
would be better served if the time, energy and resources of the Adviser were
focused on selecting undervalued small company stocks for investment by one
fund. The Reorganization would combine three funds with identical investment
objectives, similar policies and fee structures, and identical investment
advisory and other service providers, and enable shareholders of the Acquired
Funds to remain shareholders of Skyline. Shareholders should not experience any
adverse tax consequences as a result of the Reorganization. See "Tax
Considerations."
For these and additional reasons set forth below under "Plan of
Reorganization," the Board of Trustees of Skyline has concluded that the
proposed Reorganization is fair to, and in the best interest of, the
shareholders of the Acquired Funds.
FEDERAL TAX CONSEQUENCES
As described more fully under "Tax Considerations," below, the
Reorganization will not be a taxable event to the Acquired Funds and their
shareholders. Consequently, a shareholder will not recognize a gain or loss when
he or she receives shares of Special Equities Portfolio in exchange for shares
of an Acquired Fund. The basis of the shares of Special Equities Portfolio that
a shareholder receives will be the same as the basis of the shareholder's Value
Plus and/or Contrarian shares immediately before the Reorganization.
SOME SHAREHOLDERS OF VALUE PLUS AND CONTRARIAN HAVE AN UNREALIZED LOSS OR
GAIN ON THEIR SHARES, AND MAY WISH TO RECOGNIZE THAT LOSS OR GAIN FOR TAX
PURPOSES. A SHAREHOLDER MAY RECOGNIZE THAT LOSS OR GAIN BY EXCHANGING VALUE PLUS
OR CONTRARIAN SHARES FOR SPECIAL EQUITIES PORTFOLIO SHARES BEFORE THE
REORGANIZATION. THIS EXCHANGE IS TREATED AS A SALE FOR FEDERAL INCOME TAX
PURPOSES AND A SHAREHOLDER WHOSE ACCOUNT IS SUBJECT TO TAX WILL RECOGNIZE ANY
LOSS OR GAIN ON THE SHARES EXCHANGED. A SHAREHOLDER MAY EXCHANGE SHARES THROUGH
SKYLINE'S TELEPHONE EXCHANGE PLAN BY CALLING 1-800-828-2759, OR THROUGH AN
INVESTMENT PROFESSIONAL.
SUMMARY OF INVESTMENT OBJECTIVES AND STRATEGIES
The investment objectives of Value Plus, Contrarian and Special Equities
Portfolio are identical. Each Fund seeks maximum capital appreciation primarily
through investment in common stocks that the Adviser considers to be
undervalued.
The investment strategies of the Funds are slightly different. Special
Equities Portfolio seeks to achieve its objective through investment in small
company stocks that have below average valuations and above average earnings
growth. Special Equities Portfolio has emphasized investments in small company
stocks with an aggregate market value of less than $1 billion. Special
Equities Portfolio will continue to emphasize investments in small company
stocks, but the Fund expects that the capitalization of the small companies in
which it invests will increase from $1 billion or less to $2 billion or less.
This change is an effort to improve liquidity and recognize that there has
been growth in capitalization generally of the small cap market.
Value Plus also invests in small company stocks (those with an aggregate
market value of less than $2 billion) with attractive valuations and solid
growth prospects; however, Value Plus generally invests in companies with
higher growth rates and valuations than Special Equities Portfolio.
Contrarian seeks to achieve its investment objective by investing in small
company stocks (those with an aggregate market value of less than $2 billion)
that are out-of-favor in the investment community. Contrarian's investment
strategy favors deep value stocks that generally have lower valuations than
Special Equities Portfolio.
2
<PAGE>
In selecting stocks for each Fund, the Adviser considers several factors in
determining whether a stock is undervalued, including those described in the
accompanying May 1, 1999 Prospectus under "How We Choose Investments."
Although Special Equities Portfolio, going forward, may invest in companies
that are slightly larger than those companies in which it currently invests,
the slight style differences described in the May 1, 1999 Prospectus (that
Special Equities Portfolio invests mostly in stocks with slightly lower growth
rates and valuations than Value Plus, and higher valuations than Contrarian,
which has invested mostly in deep value stocks with lower valuations) will
remain true.
RISKS
Skyline believes that owning shares of Special Equities Portfolio will not
involve any unique or special risks compared to owning shares of the Acquired
Funds. However, Skyline cannot guarantee that Special Equities Portfolio will
achieve its investment objective.
An investment in Special Equities Portfolio, like an investment in the
Acquired Funds, is subject to market risk - the risk that a particular stock, or
stocks in general, may fall in value. If the stocks owned by Special Equities
Portfolio fall in value, the investment in that Fund would also fall in value.
Stocks tend to have periods of rising prices and periods of falling prices, and
a shareholder could lose money on the investment.
Compared to large companies, small companies like those in which Special
Equities Portfolio and the Acquired Funds invest 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.
MANAGEMENT AND OPERATIONS; ADVISORY AND DISTRIBUTION FEES
Skyline Asset Management, L.P. serves as investment adviser for the Funds.
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 investment advisory agreement (the "Advisory
Agreement") between each Fund and the Adviser, 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 to limit the
expenses of Special Equities Portfolio, Value Plus and Contrarian to 1.75%,
2.00% and 1.75%, respectively.
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 Distributor acts pursuant to
a written distribution agreement (the "Agreement") with Skyline which continues
from year to year, provided that continuation 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 or substantially all sales and promotional
expenses from its own resources.
3
<PAGE>
Firstar Bank Milwaukee 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.
PORTFOLIO MANAGERS
William M. Dutton is the portfolio manager of Special Equities Portfolio
and the president of Skyline. He has been the portfolio manager of Special
Equities Portfolio since its inception in 1987. 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. Kenneth S. Kailin is portfolio manager of Value
Plus and an executive vice president of Skyline. He has been the portfolio
manager of Value Plus since its inception in 1993. Daren C. Heitman is portfolio
manager of Contrarian and a senior vice president of Skyline. He has been the
portfolio manager of Contrarian since its inception in 1997.
PURCHASES AND REDEMPTIONS; SHAREHOLDER SERVICES
The Funds are all "no-load" funds. There is no sales charge on the purchase
or sale of shares. However, shareholders will indirectly pay various other
expenses because the Funds pay fees and other expenses that reduce the return on
the investment, which are more fully described under "Expenses." The manner in
which shares of each Fund may be purchased and redeemed, as well as the exchange
rights and other shareholder services offered by each Fund, are identical. See
"Information on Purchasing Shares," "Redeeming Shares" and "Shareholder
Services" in the accompanying May 1, 1999 Prospectus.
The following table sets forth the shareholder transaction expenses and
annual operating expenses for the Funds, including pro forma expenses estimated
by management (giving effect to the Reorganization), for the fiscal year ended
December 31, 1998. The purpose of this expense information is to illustrate the
various costs and expenses an investor will bear directly or indirectly in the
Funds. More detailed information concerning these expenses is set forth in the
sections entitled "Fees and Expenses," "Information on Purchasing Shares,"
"Shareholder Services" and "Distributions and Taxes" in the accompanying May 1,
1999 Prospectus. The examples shown below should not be considered a
representation of future expenses. Actual expenses may be greater or less than
shown.
4
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
Special
Equities Pro Forma
Value Plus Contrarian Portfolio Combined Fund
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
(paid directly from a shareholder's investment)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge............................. none none none none
Deferred sales charge............................ none none none none
Exchange fee..................................... none none none none
Redemption fee................................... none none none none
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (deducted from Fund
assets)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive management fee*.................... 1.50% 1.50% 1.46% 1.46%
12b-1 fees....................................... none none none none
Other expenses................................... .01% .34% .01% .01%
-----------------------------------------------------------------
Total annual fund operating expenses - gross..... 1.51% 1.84% 1.47% 1.47%
After contractual expense reimbursement
Reimbursements................................ 0 (.09)% 0 0
-----------------------------------------------------------------
Total annual fund operating expenses - net ... 1.51% 1.75% 1.47% 1.47%
</TABLE>
- ---------------------
* 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 Special Equities Portfolio, Value Plus and Contrarian
to 1.75%, 2.00% and 1.75%, respectively, of the Fund's average daily net
assets. This limitation cannot be changed without shareholder approval. (See
"Who Manages the Funds -- THE ADVISER" in the May 1, 1999 Prospectus.)
EXAMPLE
A shareholder would pay the following expenses on a $10,000 investment,
assuming: (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Plus $154 $477 $824 $1,802
Contrarian $178 $551 $949 $2,062
Special Equities Portfolio $150 $465 $803 $1,757
Pro Forma Combined Fund $150 $465 $803 $1,757
</TABLE>
5
<PAGE>
PROPOSAL: PLAN OF REORGANIZATION
The Board of Trustees of Skyline recommends that the shareholders of Value
Plus and Contrarian vote to approve the Plan and the Reorganization contemplated
thereby. The Board believes that the Plan is fair to, and in the best interest
of, the shareholders of Value Plus and Contrarian.
DESCRIPTION OF THE PLAN
The terms and conditions under which the proposed Reorganization may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, because this is a summary, it does not contain all of
the information that may be important. Shareholders should read the Plan before
deciding how to vote. This summary is qualified in its entirety by reference to
the Plan, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus.
The Plan contemplates the transfer of all or substantially all of the
assets and liabilities of the Acquired Funds to Special Equities Portfolio in
exchange for shares of Special Equities Portfolio. The shares will then be
distributed, pro rata, on the Closing Date to the shareholders of the Acquired
Funds.
If shareholders approve the Plan, Special Equities Portfolio will acquire
all or substantially all of the assets of the Acquired Funds, including without
limitation all cash, cash equivalents, securities, receivables and other
property owned by the Acquired Funds. It will also assume all or substantially
all of the debts, liabilities, obligations or duties of the Acquired Funds.
Special Equities Portfolio does not expect that as a condition or result of the
Reorganization, it will need to sell securities that it acquires from the
Acquired Funds. Such securities are consistent with Special Equities Portfolio's
investment objective and strategies, and will be subject to the same investment
analysis as any other securities that Special Equities Portfolio holds before
being sold.
In consideration for the net assets of the Acquired Funds transferred in
the Reorganization, Special Equities Portfolio will issue to each of the
Acquired Funds shares of Special Equities Portfolio having an aggregate net
asset value equal to the value of the net assets so transferred by each Acquired
Fund. The net assets of the Acquired Funds and the per share net asset value of
the Shares of Special Equities Portfolio will be valued as of the close of
business on the New York Stock Exchange on the Closing Date. All such valuations
will be conducted in accordance with the policies and procedures of the Funds,
as described under "Information on Purchasing Shares - Determining the Share
Price" in the accompanying May 1, 1999 Prospectus.
On the Closing Date, each Acquired Fund will distribute pro rata to its
shareholders of record the shares of Special Equities Portfolio received by it.
This distribution will be accomplished by opening accounts on the books of
Special Equities Portfolio in the names of shareholders of the Acquired Funds
and by transferring the shares credited to a shareholder's account of the
Acquired Funds to the new Special Equities Portfolio's account. Each account
opened will represent the respective pro rata number of Portfolio Shares due to
each shareholder of Value Plus and/or Contrarian. Fractional Shares of Special
Equities Portfolio will be rounded to the nearest thousandth of a share. THE
EXCHANGE OF SHARES WILL TAKE PLACE AUTOMATICALLY ON THE CLOSING DATE.
SHAREHOLDERS WILL NOT NEED TO SUBMIT TRANSMITTAL FORMS OR OTHER DOCUMENTS.
6
<PAGE>
After the Closing Date, every shareholder of Value Plus and Contrarian will
own shares of Special Equities Portfolio, the aggregate net asset value of which
is expected to equal the aggregate net asset value of such shareholder's Value
Plus and Contrarian shares immediately prior to the Reorganization. Moreover,
because the Special Equities Portfolio shares will be issued at net asset value
in exchange for the net assets of the Acquired Funds, and the aggregate value of
those assets would equal the aggregate value of the shares of the Acquired Funds
issued in exchange therefor, the net asset value per share of Special Equities
Portfolio will not change as a result of the Reorganization. Therefore, the
Reorganization will not result in economic dilution to any Skyline shareholder.
On or about the Closing Date, each Acquired Fund will declare and pay a
dividend to its shareholders, so that for the short taxable year of each
Acquired Fund that ends on the date of its liquidation, that Acquired Fund would
have distributed an aggregate amount of dividends that: (a) is equal to at least
the sum of its net capital gain and 90% of its investment company taxable income
for such year; and (b) is sufficient to avoid any excise tax on the Acquired
Fund for the calendar year in which the Closing Date occurs.
Prior to the Closing Date, Skyline may terminate the Plan and abandon the
Reorganization at any time, before or after approval by the shareholders of the
Acquired Funds. In addition, Skyline may amend the Plan in any manner, except
that no amendment may be made subsequent to the Meeting which would
detrimentally affect the value of the shares of Special Equities Portfolio to be
issued.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of Skyline, including all of the trustees who are not
"interested persons" as defined by the Investment Company Act of 1940, has
unanimously determined that the interests of the shareholders of the Acquired
Funds will not be diluted as a result of the proposed transaction, and that the
proposed transaction is fair to, and in the best interest of, the shareholders
of the Acquired Funds. In reaching such conclusion, the Board of Trustees
considered a number of factors, including the following:
(1) the compatibility of the objectives, policies, restrictions and risks
of the Funds;
(2) the historical performance of the Funds;
(3) the Funds' identical advisory and other fee structures, and other
shareholder services, and the fact that the Funds have the same
investment adviser, distributor and other service providers;
(4) the relative size of the Funds;
(5) the opportunity provided by the Reorganization for shareholders of
Value Plus and Contrarian to continue as Skyline shareholders;
(6) the lack of adverse tax consequences resulting from the
Reorganization; and
(7) the potential benefits and detriments to each Acquired Fund's
shareholders of alternatives to the Reorganization, including
continued operation of the Fund or possible liquidation.
7
<PAGE>
The Board believes that the Reorganization combines similar funds with the
same investment objective and similar policies (except for certain of each
Acquired Fund's investment strategies) and permits the shareholders of the
Acquired Funds to pursue substantially the same (or similar) investment goals in
a larger combined Fund. The Board believes that the shareholders of the Acquired
Funds would be better served if the time, energy and resources of the Adviser
were focused on selecting undervalued small company stocks for investment by one
combined Fund, rather than spreading out this time, energy and resources among
the three Funds.
The Board also believes that shareholders will benefit from lower advisory
fees. As described above in "Management and Operation; Advisory and Distribution
Fees," under the Investment Advisory Agreement between each Fund and the
Adviser, 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 and 1.40% of the next $200 million. As of September 30, 1999, Special
Equities Portfolio had net assets of $306.9 million, surpassing the first
breakpoint. If the funds were reorganized on September 30, 1999, the combined
net assets would be $384.5 million, bringing the combined fund closer to the
next breakpoint of $400 million.
DESCRIPTION OF SECURITIES TO BE ISSUED
Skyline was organized as a Massachusetts business trust on February 4,
1987, and is an open-end, diversified management investment company. 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. 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.
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 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
8
<PAGE>
personally liable for the obligations of that Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
remote, since such risk is limited to circumstances in which the disclaimer is
inoperative and Skyline itself is unable to meet its obligations.
CAPITALIZATION
The following table shows the capitalization of Value Plus, Contrarian and
Special Equities Portfolio, respectively, as of September 30, 1999, and the
unaudited pro forma capitalization of the combined Special Equities Portfolio as
of that date:
<TABLE>
<CAPTION>
Special Pro Forma
Equities Combined
Value Plus Contrarian Portfolio Fund
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets (in thousands)........................ $ 73,137 $ 4,411 $ 306,924 $ 384,472
Net Asset Value Per Share........................ $ 11.16 $ 7.99 $ 17.58 $ 17.58
Shares Outstanding (in thousands)................ 6,551 552 17,456 21,870
</TABLE>
COMPARATIVE PERFORMANCE INFORMATION
The following charts show the annual performance of each of Value Plus,
Contrarian and Special Equities Portfolio for the periods indicated. This
information is intended to help assess the volatility 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 the investment will fluctuate and on
redemption may be worth more or less than the original cost.
VALUE PLUS*
ANNUAL TOTAL RETURNS (%)
[Graph follows:]
<TABLE>
<S> <C>
1994 -1.5
1995 21.0
1996 26.6
1997 26.2
1998 -6.7
</TABLE>
*Total return for the nine months ended September 30, 1999, was -5.26%.
9
<PAGE>
CONTRARIAN*
ANNUAL TOTAL RETURNS (%)
[Graph follows:]
<TABLE>
<S> <C>
1998 -28.4
</TABLE>
[Graph]
*Total return for the nine months ended September 30, 1999, was 11.59%.
SPECIAL EQUITIES PORTFOLIO*
ANNUAL TOTAL RETURNS (%)
[Graph follows:]
<TABLE>
<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>
*Total return for the nine months ended September 30, 1999, was -11.12%.
During the periods described above in the charts, Value Plus' highest and
lowest quarterly returns were 19.28% for the quarter ended June 30, 1997, and
- -18.70% for the quarter ended September 30, 1998, respectively; Contrarian's
highest and lowest quarterly returns were 10.00% for the quarter ended March 31,
1998, and -29.20% for the quarter ended September 30, 1998, respectively; and
Special Equities Portfolio's highest and lowest quarterly returns were 27.81%
for the quarter ended March 31, 1991, and -20.54% for the quarter ended
September 30, 1990, respectively;
The following tables compare each Fund's average annual total returns for
one, five, and 10 year periods ending December 31, 1998 to its market benchmark.
This information is intended to help assess each Fund's variability. Performance
for each Fund, for the Russell 2000 and S&P 500 also is shown from that Fund's
date of inception (12/15/97 for Contrarian, 2/9/93 for Value Plus and 4/23/87
for Special Equities Portfolio).
10
<PAGE>
VALUE PLUS*
<TABLE>
<CAPTION>
Total
Average Annual Total Returns for Periods Ended December 31, 1998 (%) Return
From 9 Months ended
1 Year 5 Years 2/9/93 9/30/99
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Plus -6.66% 12.18% 12.05% -5.26%
Russell 2000** -2.55% 11.86% 12.41% 2.37%
S&P 500** 28.76% 24.15% 21.59% 5.29%
<CAPTION>
CONTRARIAN*
Total
Average Annual Total Returns for Periods Ended December 31, 1998 (%) Return
From 9 Months ended
1 Year 12/15/97 9/30/99
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contrarian -28.40% -27.33% 11.59%
Russell 2000** -2.55% 1.21% 2.37%
S&P 500** 28.76% 28.29% 5.29%
<CAPTION>
SPECIAL EQUITIES PORTFOLIO*
Total
Average Annual Total Returns for Periods Ended December 31, 1998 (%) Return
From 9 Months ended
1 Year 5 Years 10 Years 4/23/87 9/30/99
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special Equities -7.17% 13.02% 18.26% 16.17% -11.12%
Portfolio
Russell 2000** -2.55% 11.86% 12.92% 10.41% 2.37%
S&P 500** 28.76% 24.15% 19.22% 16.47% 5.29%
</TABLE>
*The average annual total return for Value Plus since inception (2/9/93)
through November 30, 1999 was 10.16%; for Contrarian since inception
(12/15/97) through November 30, 1999 was -11.61% and for Special Equities
Portfolio since inception (4/23/87) through November 30, 1999 was 13.66%.
**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
TAX CONSIDERATIONS
Bell, Boyd & Lloyd has given a legal opinion to Skyline to the effect that
for Federal income tax purposes, and assuming the transactions are consummated
in accordance with the Plan of Reorganization:
- the transfer of all or substantially all of the assets and liabilities
of each Acquired Fund to Special Equities Portfolio in exchange for
shares of Special Equities Portfolio and the distribution of those
shares to shareholders of each Acquired Fund will in the case of each
Acquired Fund constitute a "Reorganization" under
11
<PAGE>
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code");
- under Sections 361(a), 361(c)(1) and 357(a) of the Code, no gain or
loss will be recognized by an Acquired Fund as a result of the
Reorganization;
- under Section 354(a)(1) of the Code, shareholders of an Acquired Fund
will recognize no gain or loss because of the distribution of shares
of Special Equities Portfolio in the Reorganization;
- under Section 358(a)(1) of the Code, the basis of the Shares received
by a shareholder of an Acquired Fund will be the same as the basis of
the Acquired Fund's shares held by such shareholder immediately before
the Closing Date;
- under Section 362(b) of the Code, the basis to Special Equities
Portfolio of the assets of each Acquired Fund received will be the
same as the basis of the assets in the hands of that Acquired Fund
immediately before the Reorganization;
- under Section 1223(1) of the Code, shareholders' holding periods for
their shares of Special Equities Portfolio acquired in the
Reorganization will include the period that they held their shares of
the corresponding Acquired Fund if the shares of the Acquired Fund
were held as a capital asset;
- under Section 1223(2) of the Code, the holding period for Special
Equities Portfolio with respect to the assets received in the
Reorganization will include the period that such assets were held by
the corresponding Acquired Fund; and
- under Section 381 of the Code, Special Equities Portfolio will succeed
to the earnings and profits, or the deficit in earnings and profits,
of the Acquired Funds.
Skyline has not sought a tax ruling from the Internal Revenue Service
("IRS"). The opinion of counsel is not binding on the IRS, and the IRS could
take a contrary position. Shareholders should consult their own advisors
concerning the potential tax consequences, including state and local income tax
consequences.
Skyline complies with Subchapter M of the Code and, as a result, does not
pay any corporate level federal or state income tax.
SOME SHAREHOLDERS OF VALUE PLUS AND CONTRARIAN HAVE AN UNREALIZED LOSS OR
GAIN ON THEIR SHARES, AND MAY WISH TO RECOGNIZE THAT LOSS OR GAIN FOR TAX
PURPOSES. A SHAREHOLDER MAY RECOGNIZE THAT LOSS OR GAIN BY EXCHANGING VALUE PLUS
OR CONTRARIAN SHARES FOR SPECIAL EQUITIES PORTFOLIO SHARES BEFORE THE
REORGANIZATION. THIS EXCHANGE IS TREATED AS A SALE FOR FEDERAL INCOME TAX
PURPOSES AND A SHAREHOLDER WHOSE ACCOUNT IS SUBJECT TO TAX WILL RECOGNIZE ANY
LOSS OR GAIN ON THE SHARES EXCHANGED. A SHAREHOLDER MAY EXCHANGE SHARES THROUGH
SKYLINE'S TELEPHONE EXCHANGE PLAN BY CALLING 1-800-828-2759, OR THROUGH AN
INVESTMENT PROFESSIONAL.
12
<PAGE>
VOTING INFORMATION
This Proxy Statement/Prospectus is being furnished to the shareholders of
each Acquired Fund in connection with the solicitation of proxies by Skyline's
Board of Trustees for use at the Meeting. Expenses in connection with the
solicitation of proxies will be borne by the Adviser. Solicitation of proxies
will be conducted principally by the mailing of this Proxy Statement/Prospectus
and the accompanying proxy card. Proxies also may be solicited in person, by
telephone, by facsimile or, without special compensation, by officers of Skyline
or by officers and employees of the Adviser. The Acquired Funds have engaged the
services of D.F. King & Co., Inc. to assist in the solicitation of proxies for
the Meeting. Upon request, the Adviser will reimburse brokers, dealers, banks
and voting trustees, or their nominees, for reasonable expenses incurred in
forwarding copies of the proxy materials to the beneficial owners of the shares
that such persons hold of record. Proxy materials are expected to be mailed to
shareholders of the Acquired Funds on or about January 10, 2000.
The Board of Trustees has determined that the shares of each Acquired Fund
are to be voted as a separate series on the proposal to approve the Plan and
that holders of shares of Special Equities Portfolio are not entitled to vote on
the proposal to approve the Plan.
QUORUM
The presence at the Meeting, in person or by proxy, of shareholders
representing one-third of all Skyline shares outstanding and entitled to vote
on the Plan constitutes a quorum for the transaction of business. For
purposes of determining the presence or absence of a quorum and for
determining whether sufficient votes have been received for approval of any
matter to be acted upon at the Meeting, abstentions and broker non-votes
(I.E., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other person entitled to
vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present at the Meeting, but which have not been voted. For this reason,
abstentions and broker non-votes will assist Skyline in obtaining a quorum,
but generally will have the practical effect of a "no" vote for purposes of
obtaining the requisite vote for approval of Proposal 1.
SHAREHOLDER APPROVAL
Approval of the proposed Plan and Reorganization for a Fund will require
the affirmative vote of a majority of the outstanding shares of that Fund,
voting separately. Abstentions and broker non-votes will have the same effect as
votes cast against approval of the Plan.
In the event that sufficient votes in favor of the proposal to approve the
Plan are not received by the scheduled time of the Meeting, the persons named as
proxies in the enclosed proxy may propose and vote in favor of one or more
adjournments of the Meeting to permit further solicitation of proxies without
the necessity of further notice. Any such adjournment will require the
affirmative vote of a majority of the shares present at the session of the
Meeting to be adjourned.
Shareholders of record of each Acquired Fund at the close of business on
December 23, 1999 (the "Record Date"), will be entitled to notice of, and to
vote, at the Meeting or any adjournment thereof. Each such shareholder will be
entitled to one vote for each share (with a proportionate vote for each
fractional share) held by such shareholder on each matter presented
13
<PAGE>
at the Meeting. As of the Record Date, there were 5,442,571.701 shares of Value
Plus and 490,066.437 shares of Contrarian outstanding.
Shareholders are requested to complete, date, sign and promptly return the
accompanying proxy in the enclosed envelope. If the enclosed proxy is properly
executed and returned in time to be voted at the Meeting, the shares represented
by the proxy will, unless such proxy has previously been revoked, be voted in
accordance with the instructions marked on the proxy. Unless instructions to the
contrary are marked on the proxy, the proxy will be voted FOR the proposal
described in this proxy statement and in the discretion of the persons named as
proxies in connection with any other matters as may properly come before the
Meeting. Skyline's Board of Trustees does not know of any matters to be
considered at the Meeting other than the matters referred to in the "Notice of
Special Meeting." A shareholder may revoke his or her proxy at any time prior to
its exercise by delivering written notice of revocation to the Secretary of
Skyline, by executing and delivering a later dated proxy to Skyline or by
attending the Meeting in person to vote the shares of the Acquired Funds held by
such shareholder.
Skyline has also arranged to have votes recorded by telephone. Any expenses
in connection with telephone voting will be paid by the Adviser. If votes are
recorded by telephone, Skyline will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the voting of their
shares in accordance with their instructions and to confirm that their
instructions have been properly recorded. Proxies given by telephone may be
revoked at any time before they are voted in the same manner that proxies by
mail may be revoked.
OTHER INFORMATION
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
September 30, 1999, were Charles Schwab & Co., Inc., as a nominee for various
beneficial owners, which held 29.3% of the shares of Special Equities Portfolio;
Charles Schwab & Co., Inc., as a nominee for various beneficial owners, which
held 21.1% of the shares of Value Plus; Hartford Life Insurance Company Deferred
Pension III Separate Account, which held 9.2%, of the shares of Value Plus;
Charles Schwab & Co., Inc., as a nominee for various beneficial owners, which
held 34.6% of the shares of Contrarian; and NFSC, as a nominee for LPR
Associates, Ltd., which held 6.8%, of the shares of 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.
As of September 30, 1999, the trustees and officers of Skyline owned, in
the aggregate, 142,269.921 shares of Special Equities Portfolio, 19,923.980
shares of Value Plus and 57,472.922 shares of Contrarian, which represents less
than 1% of each of Special Equities Portfolio and Value Plus and 10.4% of
Contrarian. Neither Skyline nor any Fund is "controlled" (as that term is
defined in the 1940 Act) by any person.
14
<PAGE>
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. Ernst & Young has no
direct or indirect financial interest in Skyline or the Funds except as auditors
and independent public accountants. A representative of Ernst & Young will
attend the meeting.
INTERESTS OF EXPERTS AND COUNSEL
No expert or counsel named herein has a substantial interest in Skyline,
any Fund, the Reorganization or any other transaction contemplated by this Proxy
Statement/Prospectus.
OTHER MATTERS
The Board of Trustees has not been informed and is not aware that any other
matter will be brought before the Meeting. However, unless expressly indicated
otherwise on the enclosed form of proxy, proxies may be voted with discretionary
authority with respect to any other matter that may properly be presented at the
meeting or any adjournment thereof.
SHAREHOLDER MEETINGS
Skyline is organized as a Massachusetts business trust, and as such is not
required to hold annual meetings of shareholders. Skyline's Bylaws provide that
Skyline is not required to hold a shareholder meeting in any year in which the
election of trustees, approval of an investment advisory agreement (or any
sub-advisory agreement) or ratification of the selection of independent public
accountants is not required to be acted upon by shareholders of Skyline or any
of its series, including the Funds, under the 1940 Act. Meetings of shareholders
of any series of Skyline will be held as determined necessary by the Board of
Trustees of Skyline and in accordance with the 1940 Act. However, shareholders
of any series wishing to submit proposals for inclusion in a proxy statement for
any future shareholder meetings should send their written proposals to the
Secretary of Skyline at 311 South Wacker Drive, Suite 4500, Chicago, Illinois
60606.
AVAILABLE INFORMATION
Skyline has filed with the Commission a Registration Statement on Form N-14
(the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to the shares of Special Equities Portfolio offered hereby. As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus omits certain information, exhibits and undertakings
contained in that Registration Statement. Such additional information can be
inspected at the principal offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional office at 7 World Trade
Center, New York, New York 10048. Copies of the Registration Statement can be
obtained from the Commission at prescribed rates by writing to the Commission at
either address. The Commission also maintains a Web site at http:\\www.sec.gov
that will contain a copy of the Registration Statement, all post-effective
amendments to Skyline's Registration Statement on Form N-1A filed since 1994,
and reports and certain other publicly available documents about Skyline and the
Funds.
15
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus in
connection with the offer contained in this Proxy Statement/Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by Skyline. This Proxy Statement/Prospectus does not
constitute an offer to sell securities in any state or other jurisdiction to any
person to whom it would be unlawful to make such offer in such state or
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there have been no changes in the affairs of Skyline subsequent to the date of
this Proxy Statement/Prospectus.
16
<PAGE>
APPENDIX A
SKYLINE FUNDS
PLAN OF REORGANIZATION
This Plan of Reorganization (this "Plan") is made as of this 16th day of
November, 1999, by Skyline Funds, a Massachusetts business trust ("Skyline"), on
behalf of its series designated Skyline Small Cap Value Plus ("Value Plus"),
Skyline Small Cap Contrarian ("Contrarian") and Skyline Special Equities
Portfolio ("Special Equities Portfolio").
RECITALS
WHEREAS, Skyline: (a) is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts; (b) is
registered as an open-end management investment company under the Investment
Company Act; and (c) currently has designated three separate series of shares of
beneficial interest known as Value Plus, Contrarian and Special Equities
Portfolio; and
WHEREAS, the Board of Trustees of Skyline deems it advisable that Special
Equities Portfolio acquire all of the assets of each of Value Plus and
Contrarian in exchange for the assumption by Special Equities Portfolio of all
of the liabilities of each of Value Plus and Contrarian and the issuance of
shares of beneficial interest of Special Equities Portfolio, which are
thereafter to be distributed by each of Value Plus and Contrarian to its
shareholders in liquidation of each of Value Plus and Contrarian, all upon the
terms and conditions set forth in this Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. DEFINITIONS.
For purposes of this Plan, the following terms shall have the respective
meanings set forth below:
1.1 "Acquired Funds" means Value Plus and Contrarian.
1.2 "Acquired Fund Shareholders" means the holders of record of the issued
and outstanding shares of beneficial interest of the Acquired Funds as of the
Closing Date.
1.3 "Closing" means the transfer to Special Equities Portfolio of
substantially all of the assets of each of Value Plus and Contrarian against
delivery to each of Value Plus and Contrarian of the Special Equities Portfolio
Shares as described in Section 2.1 of this Plan.
1.4 "Closing Date" means February 29, 2000, or such other date as Skyline
may determine.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
A-1
<PAGE>
1.6 "Contrarian" means Skyline Small Cap Contrarian, a designated series of
Skyline.
1.7 "Contrarian Shares" means the issued and outstanding shares of
beneficial interest of Contrarian.
1.8 "Custodian" means Firstar Bank, acting in its capacity as custodian
with respect to the assets of Skyline.
1.9 "Effective Time" means immediately prior to the close of trading on the
New York Stock Exchange on the Closing Date.
1.10 "Excluded Assets" shall have the meaning set forth in Section 2.3 of
this Plan.
1.11 "Excluded Liabilities" shall have the meaning set forth in Section 2.3
of this Plan.
1.12 "Investment Company Act" means the Investment Company Act of 1940, as
amended, and all of the rules and regulations adopted thereunder by the SEC.
1.13 "Person" means an individual or a corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, or other entity, as the context requires.
1.14 "Plan" means this Plan of Reorganization, together with all schedules
and exhibits attached hereto, as the same may be amended from time to time in
accordance with the terms hereof.
1.15 "Reorganization" means the transactions described in and contemplated
by this Plan.
1.16 "Required Shareholder Vote" shall have the meaning specified in
Section 3.1 of this Plan.
1.17 "SEC" means the United States Securities and Exchange Commission.
1.18 "Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted by the SEC pursuant thereto.
1.19 "Shareholder Meeting" means a special meeting of the shareholders of
Value Plus and Contrarian to be convened in accordance with applicable law and
the Agreement and Declaration of Trust and Bylaws of Skyline to consider and
vote upon the approval of this Plan and the transactions contemplated hereby.
1.20 "Skyline" means Skyline Funds, a Massachusetts business trust which:
(a) is duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts; (b) is registered as an open-end management
investment company under the Investment Company Act; and (c) at the date of this
Agreement has designated three separate series of its shares of beneficial
interest, no par value, known as Value Plus, Contrarian and Special Equities
Portfolio.
1.21 "Skyline Prospectus" means the Prospectus, dated May 1, 1999, of
Skyline relating to each of Value Plus, Contrarian and Special Equities
Portfolio.
A-2
<PAGE>
1.22 "Special Equities Portfolio" means Skyline Special Equities Portfolio,
a designated series of Skyline.
1.23 "Special Equities Portfolio Shares" means the shares of beneficial
interest of Special Equities Portfolio to be issued pursuant to this Plan, as
described in Section 2.1 hereof.
1.24 "Value Plus" means Skyline Small Cap Value Plus, a designated series
of Skyline.
1.25 "Value Plus Shares" means the issued and outstanding shares of
beneficial interest of Value Plus.
2. Reorganization and Liquidation of Value Plus and Contrarian.
2.1 TRANSFER OF EACH ACQUIRED FUND'S ASSETS; ISSUANCE OF SPECIAL EQUITIES
PORTFOLIO SHARES. At or prior to the Effective Time, substantially all of the
assets of each Acquired Fund, except the Excluded Assets, shall be delivered to
the Custodian for the account of Special Equities Portfolio, in exchange for
(i), and against delivery to each Acquired Fund at the Effective Time of, that
number of Special Equities Portfolio Shares (including, if applicable,
fractional shares rounded to the nearest thousandth of one whole share) having
an aggregate net asset value equal to the value of the assets of each Acquired
Fund so delivered and (ii) the assumption by Special Equities Portfolio of all
the liabilities of the Acquired Fund except Excluded Liabilities, all determined
and adjusted as provided in Section 2.2 of this Plan. As of the Effective Time
and following delivery of such assets to the Custodian, Special Equities
Portfolio shall receive good and marketable title to such assets free and clear
of all liens, security interests, pledges, charges, claims or encumbrances of
any and every kind.
2.2 COMPUTATION OF NET ASSET VALUE.
(a) The net asset value of Special Equities Portfolio Shares and the
net value of the assets of each Acquired Fund transferred pursuant to this Plan
shall, in each case, be the net asset value per share of such series next
determined after receipt of an unconditional order for purchase of shares of
such series as of the close of regular session trading on the New York Stock
Exchange on the Closing Date.
(b) The net asset value of Special Equities Portfolio Shares shall be
computed in accordance with the practices and procedures of Special Equities
Portfolio described in the Skyline Prospectus. Likewise, the value of the assets
of each Acquired Fund to be transferred pursuant to this Plan shall be computed
in accordance with the practices and procedures of each Acquired Fund described
in the Skyline Prospectus.
2.3 EXCLUDED ASSETS AND LIABILITIES. There shall be excluded from the
assets of Contrarian described in Section 2.1 all pre-paid organizational
expenses and other assets of Contrarian that would not have value to Special
Equities Portfolio (the "Excluded Assets"). There shall be excluded from the
liabilities of Contrarian described in Section 2.1 all organizational expenses
and other liabilities of Contrarian that would not have value to Special
Equities Portfolio.
2.4 CLOSING OF BOOKS. The assets of each Acquired Fund and the per share
net asset value of Special Equities Portfolio Shares shall be valued as of the
close of regular session trading on the New York Stock Exchange on the Closing
Date. The stock transfer books of each Acquired Fund shall be permanently closed
as of the close of regular session trading on
A-3
<PAGE>
the Closing Date, and only requests for the redemption of shares of each
Acquired Fund received in proper form prior to the close of regular session
trading on the New York Stock Exchange on the Closing Date shall be accepted by
that Acquired Fund. Redemption requests thereafter received by each Acquired
Fund shall be deemed to be redemption requests for Special Equities Portfolio
Shares (assuming that the transactions contemplated by this Plan have been
consummated) to be distributed to the Acquired Fund Shareholders pursuant to
this Plan.
2.5 LIQUIDATION. As soon as reasonably practicable after the Closing Date,
each Acquired Fund shall pay or make provisions for all of its debts,
liabilities and taxes, and distribute all remaining assets, including Special
Equities Portfolio Shares received by it in the Reorganization and the balance,
if any, of the Excluded Assets, to the Acquired Fund Shareholders, and each
Acquired Fund's status as a designated series of shares of Skyline shall be
terminated.
2.6 ISSUANCE OF SPECIAL EQUITIES PORTFOLIO SHARES. On the Closing Date,
Skyline shall instruct its transfer agent to record on Skyline's books and
records the pro rata interest of each of the Acquired Fund Shareholders in
Special Equities Portfolio Shares in the name of such Acquired Fund Shareholder.
All Value Plus Shares and Contrarian Shares then issued and outstanding shall
thereupon be canceled on the books of Skyline. Skyline shall forward a
confirmation of such ownership to each of the Acquired Fund Shareholders. No
redemption or repurchase of such Special Equities Portfolio Shares credited to
any Acquired Fund Shareholder in respect of his or her Acquired Fund Shares
which are represented by an unsurrendered stock certificate shall be permitted
until such certificate has been surrendered to Skyline for cancellation, or if
such certificate is lost or misplaced, until a lost certificate affidavit has
been executed and delivered to Skyline.
2.7 TAX CONSEQUENCES. It is intended that (a) the transfer by each Acquired
Fund of all of its assets to Special Equities Portfolio in exchange for Special
Equities Portfolio Shares, and the distribution of such Special Equities
Portfolio Shares to the Acquired Fund Shareholders, as provided in this Plan,
will constitute a Reorganization within the meaning of Section 368(a)(1)(C) of
the Code; (b) no income, gain or loss will be recognized by the Acquired Funds
as a result of such transactions; (c) no income, gain or loss will be recognized
by Special Equities Portfolio as a result of such transactions; (d) no income,
gain or loss will be recognized by the Acquired Fund Shareholders on the
distribution to them by the Acquired Funds of Special Equities Portfolio Shares
in exchange for Value Plus Shares and/or Contrarian Shares (but Acquired Fund
Shareholders subject to taxation will recognize income upon receipt of any net
investment income or net capital gains of such Acquired Fund which are
distributed by such Acquired Fund prior to the Closing Date of the
Reorganization); (e) the tax basis of the Special Equities Portfolio Shares
received by each Acquired Fund Shareholder will be the same as the tax basis of
the shareholder's Value Plus Shares and/or Contrarian Shares exchanged therefor;
(f) the tax basis of the assets of the Acquired Fund received by Special
Equities Portfolio will be the same as the basis of the assets in the hands of
the corresponding Acquired Fund immediately prior to the transactions; (g) a
shareholder's holding period for Special Equities Portfolio Shares will be
determined by including the period for which the shareholder held Value Plus
Shares and/or Contrarian Shares exchanged therefor, provided that the
shareholder held such Value Plus Shares and/or Contrarian Shares as a capital
asset at the Closing; (h) the holding period of Special Equities Portfolio with
respect to the assets of each Acquired Fund will include the period for which
such assets were held by the corresponding Acquired Fund provided that the
Acquired Fund held such assets as capital assets; and (i) Special Equities
Portfolio will succeed
A-4
<PAGE>
to and take into account the earnings and profits, or deficit in earnings and
profits, of the corresponding Acquired Fund as of the Closing of the
Reorganization.
3. CONDITIONS PRECEDENT TO CLOSING.
The Closing of the Reorganization as to each Acquired Fund is subject to
the conditions that on or before the Closing Date:
3.1 APPROVAL OF PLAN BY ACQUIRED FUND SHAREHOLDERS. The Shareholder Meeting
shall have been duly called and held in accordance with the provisions of the
Investment Company Act, Massachusetts Law and the Agreement and Declaration of
Trust and Bylaws of Skyline, including compliance with the notice and quorum
requirements thereunder, and at such meeting the Plan shall have been approved
by the affirmative vote of, for Value Plus, more than 50% of Value Plus Shares
outstanding and entitled to vote on approval of the Plan at the Shareholder
Meeting and, for Contrarian, more than 50% of Contrarian Shares outstanding and
entitled to vote on approval of the Plan at the Shareholder Meeting (the
"Required Shareholder Vote").
3.2 NO ADVERSE ACTIONS. On the Closing Date, no action, suit or other
proceeding shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit or obtain damages or other relief in
connection with this Plan or the transactions contemplated hereby.
3.3 CONSENTS AND APPROVALS. All consents of other parties and all other
consents, orders and permits of federal, state and local regulatory authorities
(including those of the SEC and of state Blue Sky or securities authorities)
deemed necessary by Skyline to permit consummation, in all material respects, of
the transactions contemplated hereby, shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of that Acquired Fund.
3.4 EFFECTIVENESS OF REGISTRATION STATEMENT ON FORM N-14. Skyline's
Registration Statement on Form N-14 to be prepared and filed with the SEC with
respect to Special Equities Portfolio Shares, including the Proxy Statement of
the Acquired Funds soliciting approval of the Plan at the Shareholder Meeting
constituting a part thereof, shall have become effective under the Securities
Act and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of Skyline, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
3.5 DISPOSITION OF INELIGIBLE INVESTMENTS BY EACH ACQUIRED FUND. Prior to
the Closing Date, each Acquired Fund shall sell, liquidate or otherwise dispose
of such securities and instruments (or portions thereof) in its investment
portfolio as and to the extent necessary to enable Special Equities Portfolio to
own, purchase or hold all of the securities and instruments in the Acquired
Fund's investment portfolio being transferred to Special Equities Portfolio in
the Reorganization without causing a violation of any of Special Equities
Portfolio's investment restrictions or policies.
3.6 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS BY ACQUIRED FUND. Prior to
or on the Closing Date, that Acquired Fund shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income for taxable years ending on or prior to the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gain
A-5
<PAGE>
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carried forward).
4. EXPENSES.
Skyline Asset Management, L.P., Skyline's investment adviser, will bear all
expenses in connection with the entering into and carrying out the provisions of
this Plan.
5. TERMINATION.
This Plan may be terminated at any time by Skyline, and will be terminated
by Skyline if any of the conditions precedent to the Reorganization set forth in
Article 3 has not been satisfied as of the Closing Date. In the event of any
such termination, there shall be no liability for damage on the part of any of
Value Plus, Contrarian or Special Equities Portfolio.
6. AMENDMENT.
This Plan may be amended, modified or supplemented in such manner as
Skyline determines; provided, however, that following approval of the Plan by
the Required Shareholder Vote, no such amendment may have the effect of changing
the provisions for determining the number of Special Equities Portfolio Shares
to be issued to the Acquired Fund Shareholders pursuant to this Plan to the
detriment of the Acquired Fund Shareholders without their further approval.
7. MISCELLANEOUS.
7.1 SEPARATE APPLICATION TO EACH ACQUIRED FUND. This Plan shall be
construed to apply separately to each Acquired Fund, so that, if all conditions
precedent to closing for one Acquired Fund have been satisfied or waived, the
Reorganization contemplated hereby may be completed as to that Acquired Fund
even if not all conditions precedent to closing as to the other Acquired Fund
have been satisfied or waived.
7.2 HEADINGS. The Article and Section headings contained in this Plan are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Plan.
7.3 GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, Skyline's
Agreement and Declaration of Trust and Bylaws, and the Skyline Prospectus.
7.4 LIMITATION OF LIABILITY. The Agreement and Declaration of Trust of
Skyline is on file with the Secretary of State of the Commonwealth of
Massachusetts. This Agreement is executed on behalf of Skyline by an officer of
Skyline in his capacity as an officer and not individually and the obligations
of Skyline under this Agreement are not binding upon Skyline's trustees,
officers or shareholders individually but are binding only upon the assets and
property of each Acquired Fund or Special Equities Portfolio as the case may be.
A-6
<PAGE>
IN WITNESS WHEREOF, on the authority of the Board of Trustees of Skyline,
this Plan has been executed by its duly authorized officer as of the day and
year first written above.
BY ORDER OF THE BOARD OF TRUSTEES
OF SKYLINE FUNDS
(On Behalf of Skyline Small Cap Value Plus, Skyline
Small Cap Contrarian and Skyline Special Equities
Portfolio)
By: /s/ William M. Dutton
----------------------------
William M. Dutton, President
A-7
<PAGE>
APPENDIX B
SKYLINE FUNDS
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(excerpted from the Funds' Annual Reports dated December 31, 1998
SPECIAL EQUITIES PORTFOLIO
- - LETTER from William M. Dutton, Portfolio Manager:(1)
- ---------------------------------------------
December 31, 1998
Dear Shareholder:
OVERVIEW
The Fund showed a gain of 10.97% in the 4th quarter, as the stock market moved
up strongly from its depressed level in September. For the year, the Fund showed
a loss of 7.17% due to its decline in the second and third quarters of 1998. The
Russell 2000 Index delivered a gain of 16.31% for the 4th quarter and showed a
loss of 2.55% for the year. The Fund lagged the Index primarily because of its
sector weightings, which were tilted toward economically sensitive stocks, a
group that performed poorly for both the quarter and the year. While it is
disappointing to trail the Index, we are very proud of our long-term consistent
performance record. The Fund has trailed the Russell 2000 Index in only two of
its 12 years of operation.
MARKET REVIEW
The big news of 1998 was the dominant performance of large company stocks
compared to small company stocks. The S&P 500 Index showed a gain of 28.76% for
the year compared to a loss of 2.55% for the Russell 2000 Index. This is the
greatest disparity in performance between large and small company stocks since
the Russell 2000 Index was created in 1979 and is likely one of the largest in
the history of the stock market. Performance was directly correlated to size in
1998 as, even within the S&P 500 Index, the larger companies did better than the
smaller companies. Interestingly, while the S&P 500 Index gained almost 30% for
the year, the majority of stocks on the New York Stock Exchange showed a loss
for the year.
The difference in performance in 1998 between large and small company stocks is
explained by changes in their price/earnings multiples, as profit growth appears
to have been about the same for each sector. With long-term interest rates
declining from about 6% to 5% during the year, the P/E multiple of the S&P 500
Index increased nearly 30% and the P/E multiple of the Russell 2000 Index
declined about 10%. It is highly unusual for such a major valuation diversion to
occur. Most stock market observers attribute it to investors' desire for safety
and liquidity during a time of international financial problems and fears of
worldwide recession. Also, the increasing popularity of indexing techniques
enhanced the returns of large cap stocks. While investors favored large cap
stocks during 1998 for these reasons, we believe a terrific opportunity for
small cap stocks has been created since they are at extraordinarily low relative
valuation levels.
While the Russell 2000 Index ended the year nearly unchanged, there was enormous
volatility during the year. Small stocks began the year with a nice advance,
only to fall nearly 40% from their peak in April to their trough in early
October. The subsequent rally, aided by three interest rate cuts by the Federal
Reserve Board, nearly brought the Index back to even. This volatility was caused
by two key problems. First, investors
ANNUAL REPORT - DECEMBER 31, 1998
B-1
<PAGE>
became very nervous about overseas problems in Asia, Latin America, and Russia.
Second, U.S. companies began experiencing profit deterioration in the middle of
the year.
Within the small cap market, growth stock investors showed better returns than
value investors for both the fourth quarter and the year. Growth stock investors
were helped by superior returns in technology, health care, and consumer stocks,
areas in which they tend to focus. Value investors were hurt by sub-par returns
in financial, energy, and economically sensitive stocks. While economic
statistics indicate that the economy is healthy, economic weakness showed up in
the industrial side of the economy and in the energy sector, hurting stock
returns in those areas. Though pockets of the economy remain strong, such as the
consumer area, overall economic growth has moderated somewhat over the past
year. In general, a slowdown in economic growth causes problems for
value-oriented investors.
PORTFOLIO REVIEW
The Fund showed a gain of 10.97% in the 4th quarter compared to a gain of 16.31%
for the Russell 2000 Index. For the year, the Fund showed a loss of 7.17%
compared to a loss of 2.55% for the Russell 2000 Index. The Fund lagged the
Index primarily because its value-oriented investment style led to heavily
weighted positions in economically sensitive industries, which were hurt by the
slowdown in the economy, and low weightings in technology and utilities, the two
top performing sectors in the market for the year. Also, stock selection was not
as strong as usual, as the Fund had too many stocks show significant declines.
In terms of sector performance, results were quite mixed for both the fourth
quarter and the year. The consumer and financial sectors, which made up 40%-50%
of the Fund for most of the year, generally performed well, showing nice gains
for both periods. On the other hand, economically sensitive sectors, which made
up about 30%-35% of the Fund, showed sub-par returns for the quarter and
negative returns for the year. The energy sector was a problem all year,
although it did not significantly hurt the Fund because of its low weighting.
In terms of individual stock selection, the Fund had too many stocks show
significant declines during the year. Most of the major stock setbacks occurred
in sectors where there were major fundamental problems such as the energy,
industrial, and technology areas. Certain individual stocks in these sectors
were severely hurt by Asian related problems.
OUTLOOK
Our outlook for the Fund is extremely positive, particularly over the next three
to five years. The most positive factor is the attractive relative valuation of
the Fund. On a P/E multiple basis, the Fund trades at an approximate 30%
discount to the Russell 2000 Index and a 44% discount to the S&P 500 Index. The
Fund has never traded at such a large discount to the S&P 500 Index. The P/E of
the Fund is approximately 14 times trailing 12-month earnings, which is
extremely inexpensive in a 5% interest rate environment.
ANNUAL REPORT - DECEMBER 31, 1998
B-2
<PAGE>
In our opinion, a strong economy is the best catalyst for improving stock prices
in the Fund. The Federal Reserve Board and central banks around the world are
lowering interest rates to generate better economic growth. If they are
successful, it should create an environment where most companies show improving
earnings. Also, it would likely improve investor confidence, a necessary
condition in order to improve the valuation of small cap stocks.
Our only reservation is about near-term performance. This is because certain
segments of the stock market appear to be at inflated levels, particularly large
cap growth stocks and certain technology stocks. If these segments of the market
decline, the Fund will almost certainly decline also. However, we are extremely
optimistic about performance over the long term since the valuation of the Fund
today is so compelling relative to both large cap stocks and current interest
rates.
/s/ WILLIAM M. DUTTON
ANNUAL REPORT - DECEMBER 31, 1998
B-3
<PAGE>
- - PERFORMANCE (%)(1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
1998 3 YRS. 5 YRS. 10 YRS. INCEPTION(2)
<S> <C> <C> <C> <C> <C>
SPECIAL EQUITIES -7.17 17.90 13.02 18.26 15.17
RUSSELL 2000 -2.55 11.58 11.86 12.92 10.41
S&P 500 28.76 28.40 24.15 19.22 16.47
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1998
B-4
<PAGE>
- - CHANGE in Value of a $10,000 Investment(1)
- ---------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT SINCE INCEPTION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPECIAL RUSSELL S&P
EQUITIES PORTFOLIO 2000 500
<S> <C> <C> <C>
Initial Investment $10,000 $10,000 $10,000
1987 $8,314 $7,567 $8,794
1988 $10,787 $9,449 $10,247
1989 $13,377 $10,986 $13,469
1990 $12,135 $8,843 $13,037
1991 $17,885 $12,914 $17,018
1992 $25,470 $15,294 $18,325
1993 $31,289 $18,184 $20,158
1994 $30,929 $17,582 $20,424
1995 $35,206 $22,932 $28,087
1996 $45,897 $26,715 $34,617
1997 $62,161 $32,663 $46,172
1998 $57,703 $31,849 $59,513
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1998
B-5
<PAGE>
NOTES TO PERFORMANCE
(1) The performance for the one, three, five, and ten years ended December 31,
1998, and for the period April 23, 1987 (inception) through December 31,
1998, is an average annual return calculation which is described in the
Fund's prospectus. Of course, past performance is no guarantee of future
results. The principal value and return on your investment will fluctuate
and on redemption may be worth more or less than your original cost.
The Russell 2000 Index is an unmanaged, market value weighted index
comprised of small-sized companies. The S&P 500 Index, a widely quoted stock
market index, includes 500 of the largest companies publicly traded in
America. All figures take into account reinvested dividends. All indexes and
portfolio characteristics are compiled by Frank Russell Company.
Source: Frank Russell Company.
Distributions were paid to shareholders in December of 1998.
(2) Return is calculated from the Fund's inception on April 23, 1987.
ANNUAL REPORT - DECEMBER 31, 1998
B-6
<PAGE>
VALUE PLUS
- - LETTER from Kenneth S. Kailin, Portfolio Manager:(1)
- ---------------------------------------------
December 31, 1998
Dear Shareholder:
OVERVIEW
The Fund showed a gain of 8.19% in the fourth quarter, as the stock market moved
up strongly from its depressed level in September. For the year, the Fund
declined 6.66% due to weak results in the second and third quarters of 1998. The
Russell 2000 Index delivered a gain of 16.31% for the fourth quarter and showed
a loss of 2.55% for the year.
MARKET REVIEW
The big news of 1998 was the dominant performance of large company stocks
compared to small company stocks. The S&P 500 Index showed a gain of 28.76% for
the year compared to a loss of 2.55% for the Russell 2000 Index. This is the
greatest disparity in performance between large and small company stocks since
the Russell 2000 Index was created in 1979 and is likely one of the largest in
the history of the stock market. Performance was directly correlated to size in
1998 as, even within the S&P 500 Index, the larger companies did better than the
smaller companies. Interestingly, while the S&P 500 Index gained almost 30% for
the year, the majority of stocks on the New York Stock Exchange showed a loss
for the year.
The difference in performance in 1998 between large and small company stocks is
explained by changes in their price/earnings multiples, as profit growth appears
to have been about the same for each sector. With long-term interest rates
declining from about 6% to 5% during the year, the P/E multiple of the S&P 500
Index increased nearly 30% and the P/E multiple of the Russell 2000 Index
declined about 10%. It is highly unusual for such a major valuation diversion to
occur. Most stock market observers attribute it to investors' desire for safety
and liquidity during a time of international financial problems and fears of
worldwide recession. Also, the increasing popularity of indexing techniques
enhanced the returns of large cap stocks. While investors favored large cap
stocks during 1998 for these reasons, we believe a terrific opportunity for
small cap stocks has been created since they are at extraordinarily low relative
valuation levels.
While the Russell 2000 Index ended the year nearly unchanged, there was enormous
volatility during the year. Small stocks began the year with a nice advance,
only to fall nearly 40% from their peak in April to their trough in early
October. The subsequent rally, aided by three interest rate cuts by the Federal
Reserve Board, nearly brought the Index back to even. This volatility was caused
by two key problems. First, investors became very nervous about overseas
problems in Asia, Latin America, and Russia. Second, U.S. companies began
experiencing profit deterioration in the middle of the year.
Within the small cap market, growth stock investors showed better returns than
value investors did for both the fourth quarter and the year. Growth stock
investors were
ANNUAL REPORT - DECEMBER 31, 1998
B-7
<PAGE>
helped by superior returns in technology, health care, and consumer stocks,
areas in which they tend to focus. Value investors were hurt by sub-par returns
in financial, energy, and economically sensitive stocks. While economic
statistics indicate that the economy is healthy, economic weakness showed up in
the industrial side of the economy and in the energy sector, hurting stock
returns in those areas. Though pockets of the economy remain strong, such as the
consumer area, overall economic growth has moderated over the past year. In
general, a slowdown in economic growth causes problems for value-oriented
investors.
PORTFOLIO REVIEW
The Fund's performance, while up 8.19% in the fourth quarter, did lag our
benchmark as value stocks were out of favor. For the year, the Fund was down
6.66% as small cap stocks declined in the Fall period. The first quarter of 1998
got off to a fast start with strong positive double-digit returns for the Fund.
Corporate earnings were strong and investors felt Asian economic woes would not
meaningfully impact U.S. companies. The Fund had good stock selections and
industry weightings in consumer discretionary, health care, and financial
stocks. Thus the Fund outperformed key benchmarks in the first quarter. However,
beginning in the second quarter, corporate profits began to slow and earnings
started falling short of investor expectations. Results began to slide
accordingly and the Fund's returns modestly lagged key benchmarks. In the third
quarter, weakening corporate profits combined with fears of economic meltdowns
around the world led investors to run from small cap stocks. Performance results
for the Fund were slightly better than key benchmarks in the very difficult
third period. In the fourth quarter, stocks came roaring back, but small cap
value names generally did not keep pace, causing the Fund to rise moderately and
lag the Russell 2000 Index for both the final quarter and the year.
Consumer discretionary and financial services stocks were the most heavily
weighted sectors in the Fund for both the fourth quarter and the year.
Consumer-related stock holdings were increased during the course of the year as
consumer spending trends appeared solid and numerous companies that possessed
the combination of good growth prospects and low valuation were uncovered. The
Fund's performance in this important sector was positive, but only modestly for
the fourth quarter and saw single digit declines over the 12-month period.
Investor fears regarding possible weak holiday shopping held back the
performance of many retail and apparel stocks. In addition, clouded corporate
announcements regarding near-term profit outlook hurt several of the Fund's
consumer stocks in the fourth quarter. Thus both the heavy stock weighting and
sub-par stock selection held back performance. However, we still believe the
consumer discretionary sector is healthy and our stocks hold exciting prospects.
Financial service stocks accounted for over 25% of the Fund at year-end. The
combination of solid profit growth outlooks and very reasonable valuations were
plentiful in this sector. Returns, however, for this area in the fourth quarter
were also only modestly positive and over the 12-month period produced single
digit declines. This decline was surprising considering the low levels of
inflation, reasonable loan
ANNUAL REPORT - DECEMBER 31, 1998
B-8
<PAGE>
demand, and a backdrop of multiple interest rate cuts by the Federal Reserve.
Based on good growth outlooks and low valuations these stocks appear very
compelling at the present time.
Technology issues represented about 15% of the Fund at the end of the quarter
and were strong performers in the quarter, with the Fund's holdings returning
over 25%. A number of these stocks rebounded strongly from deep drops in the
third quarter. Generally, technology firms saw business strengthen modestly
after being weak for much of the year.
OUTLOOK
As we enter 1999, the economy looks to be fragile, but growing. Capital spending
plans by businesses look weak and pricing pressures due to foreign competition
and excess capacity have continued. Corporate profit growth has slowed, and more
companies are reporting disappointments relative to expectations. Consumer
spending, however, seems healthy as jobs are plentiful, credit is easy, and low
interest rates provide re-financing and home purchasing opportunities. Since
consumer spending and Federal Reserve policies are the biggest factors for
economic growth it appears an overall slow growth environment should continue.
Domestic companies are expected to grow profits faster and carry much more
reasonable valuation levels. By historical standards the Russell 2000 Index
would have to outperform the S&P 500 Index by well over 30% to just get back to
long-term normal valuation levels. Poor performance by small company stocks
historically has been followed by an extended period of outperformance. An
investor should prefer faster growing, less expensive companies to slower
growing, very expensive companies.
At year-end, consumer discretionary stocks had the highest weighting in the Fund
relative to the Russell 2000 Index. The stocks in this sector are very diverse,
ranging from Nautica Enterprises, Inc., a well-known apparel manufacturer, to
United Stationers, Inc., a distributor of office supplies. The stocks owned by
the Fund in this sector are expected to show solid earnings growth and carry a
low valuation level relative to the Russell 2000 Index. In addition, while the
industrial environment is weak, the consumer is continuing to spend based on
strong employment trends and low interest rates.
In a slow growth environment, the ability for a company to increase profits and
not disappoint investor expectations takes on greater importance. Thus our
investment style of purchasing low expectation stocks with strong near-term
earnings growth and low valuations seems quite appropriate.
/s/ Kenneth S. Kailin
ANNUAL REPORT - DECEMBER 31, 1998
B-9
<PAGE>
- - PERFORMANCE (%)(1)
- -------------------------------------------------
<TABLE>
<CAPTION>
SINCE
1998 3 YRS. 5 YRS. INCEPTION(2)
<S> <C> <C> <C> <C>
SMALL CAP VALUE PLUS -6.66 14.25 12.18 12.05
RUSSELL 2000 -2.55 11.58 11.86 12.41
S&P 500 28.76 28.40 24.15 21.59
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1998
B-10
<PAGE>
- - CHANGE in Value of a $10,000 Investment(1)
- ---------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT SINCE INCEPTION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SMALL CAP RUSSELL S&P
VALUE PLUS 2000 500
<S> <C> <C> <C>
Initial Investment $10,000 $10,000 $10,000
1993 $11,008 $11,376 $10,732
1994 $10,841 $11,169 $10,874
1995 $13,112 $14,346 $14,953
1996 $16,599 $16,712 $18,431
1997 $20,950 $20,448 $24,582
1998 $19,555 $19,998 $31,652
</TABLE>
Note: Past performance is no guarantee of future results. See "Notes to
Performance" at the end of this section.
ANNUAL REPORT - DECEMBER 31, 1998
B-11
<PAGE>
NOTES TO PERFORMANCE
(1) The performance for the one, three, and five years ended December 31, 1998,
and for the period February 9, 1993 (inception) through December 31, 1998,
is an average annual total return calculation which is described in the
Fund's prospectus. Of course, past performance is no guarantee of future
results. The principal value and return on your investment will fluctuate
and on redemption may be worth more or less than your original cost.
The Russell 2000 Index is an unmanaged, market value weighted index
comprised of small-sized companies. The S&P 500 Index, a widely quoted stock
market index, includes 500 of the largest companies publicly traded in
America. All figures take into account reinvested dividends. All indexes and
portfolio characteristics are compiled by Frank Russell Company.
Source: Frank Russell Company.
Distributions were paid to shareholders in December of 1998.
(2) Return is calculated from the Fund's inception on February 9, 1993.
ANNUAL REPORT - DECEMBER 31, 1998
B-12
<PAGE>
CONTRARIAN
- - LETTER from Daren C. Heitman, Portfolio Manager:(1)
- ---------------------------------------------
December 31, 1998
Dear Shareholder:
OVERVIEW
The Fund showed a gain of 1.13% in the fourth quarter, and for the year, the
Fund showed a loss of 28.40%. The Russell 2000 Index delivered a gain of 16.31%
for the fourth quarter and showed a loss of 2.55% for the year.
MARKET REVIEW
The big news of 1998 was the dominant performance of large company stocks
compared to small company stocks. The S&P 500 Index showed a gain of 28.76% for
the year compared to a loss of 2.55% for the Russell 2000 Index. This is the
greatest disparity in performance between large and small company stocks since
the Russell 2000 Index was created in 1979 and is likely one of the largest in
the history of the stock market. Performance was directly correlated to size in
1998 as, even within the S&P 500 Index, the larger companies did better than the
smaller companies. Interestingly, while the S&P 500 Index gained almost 30% for
the year, the majority of stocks on the New York Stock Exchange showed a loss
for the year.
The difference in performance in 1998 between large and small company stocks is
explained by changes in their price/earnings multiples, as profit growth appears
to have been about the same for each sector. With long-term interest rates
declining from about 6% to 5% during the year, the P/E multiple of the S&P 500
Index increased nearly 30% and the P/E multiple of the Russell 2000 Index
declined about 10%. It is highly unusual for such a major valuation diversion to
occur. Most stock market observers attribute it to investors' desire for safety
and liquidity during a time of international financial problems and fears of
worldwide recession. Also, the increasing popularity of indexing techniques
enhanced the returns of large cap stocks. While investors favored large cap
stocks during 1998 for these reasons, we believe a terrific opportunity for
small cap stocks has been created since they are at extraordinarily low relative
valuation levels.
While the Russell 2000 Index ended the year nearly unchanged, there was enormous
volatility during the year. Small stocks began the year with a nice advance,
only to fall nearly 40% from their peak in April to their trough in early
October. The subsequent rally, aided by three interest rate cuts by the Federal
Reserve Board, nearly brought the Index back to even. This volatility was caused
by two key problems. First, investors became very nervous about overseas
problems in Asia, Latin America, and Russia. Second, U.S. companies began
experiencing profit deterioration in the middle of the year.
Within the small cap market, growth stock investors showed better returns than
value investors for both the fourth quarter and the year. Growth stock investors
were helped by superior returns in technology, health care, and consumer stocks,
areas in which they tend to focus. Value investors were hurt by sub-par returns
in financial, energy,
ANNUAL REPORT - DECEMBER 31, 1998
B-13
<PAGE>
and economically sensitive stocks. While economic statistics indicate that the
economy is healthy, economic weakness showed up in the industrial side of the
economy and in the energy sector, hurting stock returns in those areas. Though
pockets of the economy remain strong, such as the consumer area, overall
economic growth has somewhat moderated over the past year. In general, a
slowdown in economic growth causes problems for value-oriented investors.
PORTFOLIO REVIEW
We are very disappointed with the performance of the Fund in 1998. While the
external environment clearly created headwind for our contrarian style, the
degree of underperformance also required us to look internally for answers. We
believe two issues contributed to the poor performance and we have made
adjustments to address them. Most importantly, we emerged from this analysis
committed as ever to the underlying strategy and any adjustments we make will
not change the fundamental characteristics of the Fund.
Issue number one was a lack of companies reporting improvements in their
fundamentals. We began the year with a portfolio of companies with poor business
trends, and very few of them showed a meaningful improvement as the year
progressed. This should correct itself partially with the passage of time, as we
believe many of the companies we originally chose for the Fund will recover. In
addition, we are also proactively adding new stocks with better near-term
business trends to inject some momentum into the Fund. These new companies still
have contrarian attributes; they are simply further into their turnarounds than
the companies we originally purchased.
The second issue relates to diversification. In 1998, the stocks of small
companies with poor business trends were highly correlated due to the external
environment. This correlation worked to the disadvantage of the Fund's
performance. We owned very small companies with strong value characteristics in
a market where investors wanted large companies with growth characteristics.
Making matters worse, our contrarian instincts drew us to troubled companies in
an environment where investors seemed to want only companies with strong near
term outlooks, regardless of valuation. While the Fund will always be a
small-cap, contrarian fund, we can diversify within this category of stocks to
minimize the chance of repeating 1998's performance. For example, we can move
away from the micro-cap bias currently imbedded in the Fund by investing in
companies with higher market capitalizations. The adjustment outlined in the
preceding paragraph addresses this diversification goal.
OUTLOOK
In our opinion, a strong economy is the best catalyst for improving stock prices
in the Fund. The Federal Reserve Board and central banks around the world are
lowering interest rates to generate better economic growth. If they are
successful, it should create a better environment for the companies in the Fund
to show an improvement in their earnings. Also, it would likely improve investor
confidence, a necessary condition in order to improve the valuation of small cap
stocks in general. The Fund's deep value orientation should provide attractive
leverage to these potential changes in the environment.
ANNUAL REPORT - DECEMBER 31, 1998
B-14
<PAGE>
Our only reservation is about near-term performance. This is because certain
segments of the stock market appear to be at inflated levels, particularly large
cap growth stocks and certain technology stocks. If these segments of the market
decline significantly, the Fund will very likely decline also. However, we are
extremely optimistic about performance over the long term because the valuation
of the Fund today is so compelling relative to large cap stocks, current
interest rates, and the potential earnings of the companies in the Fund.
Despite the rough inaugural year, we are still confident our contrarian style
can deliver strong results, particularly over a long time frame. The most
positive factor is the attractive absolute valuation of the Fund. As mentioned
in the past, the Fund's extremely low price/book value ratio gives it enormous
leverage to a turnaround in the underlying companies' results. We believe, with
time, more and more of the companies in the Fund will achieve this turnaround.
/s/ Daren Heitman
ANNUAL REPORT - DECEMBER 31, 1998
B-15
<PAGE>
- - PERFORMANCE (%)(1)
- ---------------------------------------------
<TABLE>
<CAPTION>
SINCE
1998 INCEPTION(2)
<S> <C> <C>
SMALL CAP CONTRARIAN -28.40 -27.33
RUSSELL 2000 -2.55 1.21
S&P 500 28.76 28.29
</TABLE>
ANNUAL REPORT - DECEMBER 31, 1998
B-16
<PAGE>
- - CHANGE in Value of a $10,000 Investment(1)
- ---------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT SINCE INCEPTION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SMALL CAP RUSSELL S&P
<S> <C> <C> <C>
Contrarian 2000 500
Initial Investment $10,000 $10,000 $10,000
1997 $10,000 $10,391 $10,080
1998 $7,160 $10,126 $12,748
</TABLE>
Note: Past performance is no guarantee of future results. See "Notes to
Performance" at the end of this section.
ANNUAL REPORT - DECEMBER 31, 1998
B-17
<PAGE>
NOTES TO PERFORMANCE
(1) The performance for the year ended December 31, 1998, and for period
December 15, 1997 (inception) through December 31, 1997, is an average
annual total return calculation which is described in the Fund's prospectus.
Of course, past performance is no guarantee of future results. The principal
value and return on your investment will fluctuate and on redemption may be
worth more or less than your original cost.
The Russell 2000 Index is an unmanaged, market value weighted index
comprised of small-sized companies. The S&P 500 Index, a widely quoted stock
market index, includes 500 of the largest companies publicly traded in
America. All figures take into account reinvested dividends. All indexes and
portfolio characteristics are compiled by Frank Russell Company.
Source: Frank Russell Company.
(2) Return is calculated from the Fund's inception on December 15, 1997.
ANNUAL REPORT - DECEMBER 31, 1998
B-18
<PAGE>
SKYLINE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 23, 1999
SKYLINE SMALL CAP VALUE PLUS
AND
SKYLINE SMALL CAP CONTRARIAN
REORGANIZATION INTO
SKYLINE SPECIAL EQUITIES PORTFOLIO
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
1-800-828-2759
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the Proxy Statement/Prospectus dated December
23, 1999, relating to the reorganization of Skyline Small Cap Value Plus ("Value
Plus") and Skyline Small Cap Contrarian ("Contrarian" and together with Value
Plus, the "Acquired Funds"), each a separate series of Skyline Funds
("Skyline"), into the Skyline Special Equities Portfolio ("Special Equities
Portfolio"), another series of Skyline. In connection with the Reorganization,
Special Equities Portfolio will acquire all or substantially all of the assets
and liabilities of the Acquired Funds. In consideration for each Acquired Fund's
transfer of assets to Special Equities Portfolio, Special Equities Portfolio
will issue to each Acquired Fund shares of beneficial interest, no par value
(the "Shares"), of Special Equities Portfolio with an aggregate net asset value
equal to the aggregate value of the assets transferred by each Acquired Fund.
Each Acquired Fund will thereafter distribute the Shares of Special Equities
Portfolio received by them to their shareholders on a pro rata basis, and the
Acquired Funds subsequently will be liquidated and discontinued. As a result of
the Reorganization, shareholders of each Acquired Fund will become shareholders
of Special Equities Portfolio. It is expected that the aggregate net asset value
of the Shares of Special Equities Portfolio that each shareholder of an Acquired
Fund receives will be equal, immediately following the Reorganization, to the
aggregate net asset value of the shares of that Acquired Fund held by such
shareholder immediately prior to the Reorganization. The Reorganization will not
be a taxable transaction to the Acquired Funds or their shareholders.
The information otherwise required to be set forth in this Statement of
Additional Information is included in: (i) the Prospectus of Skyline (relating
to each of Value Plus, Contrarian and Special Equities Portfolio), dated May 1,
1999 (the "May 1, 1999 Prospectus"); (ii) the Statement of Additional
Information of Skyline (relating to each of Value Plus, Contrarian and Special
Equities Portfolio), dated May 1, 1999 (the "May 1, 1999 SAI"); (iii) Skyline's
1998 Annual Report to Shareholders (the "Annual Report"); and (iv) Skyline's
June 30, 1999 Semi-Annual Report to Shareholders (the "Semi-Annual Report"). The
May 1, 1999 Prospectus, the May 1, 1999 SAI, the Annual Report and the
Semi-Annual Report are incorporated by reference herein.
You may obtain a copy of the Proxy Statement/Prospectus, the May 1,
1999 Prospectus, the May 1, 1999 SAI, the Annual Report and the Semi-Annual
Report free of charge by writing to us at 311 South Wacker Drive, Suite 4500,
Chicago, IL 60606, or by calling us at 1-800-828-2759.
S-1
<PAGE>
EXPERTS
The audited financial statements of Skyline incorporated by reference
into this Statement of Additional Information have been audited by Ernst & Young
LLP, independent public accountants, as indicated in their report with respect
thereto, which also is incorporated by reference into this Statement of
Additional Information, in reliance upon the authority of said firm as experts
in accounting and auditing in giving said report.
HISTORICAL FINANCIAL STATEMENTS
The following audited historical financial statements and footnotes of
Value Plus, Contrarian and Special Equities Portfolio, together with the Report
of the Independent Accountants thereon, are incorporated herein by reference
from the Annual Report:
(1) Statement of Assets and Liabilities for each of Value Plus,
Contrarian and Special Equities Portfolio as of December 31,
1998;
(2) Statement of Operations for each of Value Plus, Contrarian and
Special Equities Portfolio for the year ended December 31,
1998;
(3) Statement of Changes in Net Assets for each of Value Plus,
Contrarian and Special Equities Portfolio for the year ended
December 31, 1998, and the period ended December 31, 1997;
(4) Schedule of Investments for each of Value Plus, Contrarian and
Special Equities Portfolio as of December 31, 1998;
(5) Financial Highlights for each of Value Plus, Contrarian and
Special Equities Portfolio as of December 31, 1998; and
(6) Notes to Financial Statements.
The following unaudited historical financial statements and footnotes
of Value Plus, Contrarian and Special Equities Portfolio are incorporated herein
by reference from the Semi-Annual Report:
(1) Statement of Assets and Liabilities for each of Value Plus,
Contrarian and Special Equities Portfolio as of June 30, 1999;
(2) Statement of Operations for each of Value Plus, Contrarian and
Special Equities Portfolio for the six months ended June 30,
1999.
(3) Statement of Changes in Net Assets for each of Value Plus,
Contrarian and Special Equities Portfolio for the six months
ended June 30, 1999, and the year ended December 31, 1998;
(4) Schedule of Investments for each of Value Plus, Contrarian and
Special Equities Portfolio as of June 30, 1999; and
S-2
<PAGE>
(5) Financial Highlights for each of Value Plus, Contrarian and
Special Equities Portfolio as of June 30, 1999.
S-3
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Financial information for Contrarian is not included in the pro forma
financial information because the net asset value of Contrarian is less than 10%
of the net asset value of Special Equities Portfolio.
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
FOR VALUE PLUS AND SPECIAL EQUITIES
AS OF JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND COMBINED FUND
SKYLINE SPECIAL SKYLINE SMALL CAP PRO FORMA ADJUSTMENTS SKYLINE SPECIAL
EQUITIES VALUE PLUS EQUITIES
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, at value $ 405,364 $ 92,565 $ 497,929
Liabilities less cash and other $ (7,219) $ (2,341) $ (9,560)
assets
Net Asset $ 398,145 $ 90,224 $ 488,369
Shares Outstanding 19,808 7,358 (2,869) (A) 24,297
Net Asset Value per share and $ 20.10 $ 12.26 $ 20.10
maximum offering price
</TABLE>
NOTE: Pro forma combined statement of assets and liabilities has been prepared
as if the merger took effect on June 30, 1999.
(A) Adjustment to reflect exchange of Skyline Small Cap Value Plus shares
for Skyline Special Equities shares.
S-4
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR VALUE PLUS AND SPECIAL EQUITIES
FOR THE YEAR ENDED JUNE 30, 1999 (Unaudited)
(in thousands)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND
SKYLINE SPECIAL SKYLINE SMALL CAP PRO FORMA
EQUITIES VALUE PLUS ADJUSTMENTS
----------------------- -------------------------- ------------------
<S> <C> <C> <C>
INCOME
DIVIDEND INCOME $3,062 $844
INTEREST INCOME $1,118 $388
----------------------- ---------------------------
TOTAL INCOME $4,180 $1,232
EXPENSES
COMPREHENSIVE MANAGEMENT FEE $6,142 $1,786
FEES TO UNAFFILIATED TRUSTEES $22 14
AMORTIZATION OF ORGANIZATIONAL COSTS 3 $(3) (B)
----------------------- ---------------------------
TOTAL EXPENSES $6,164 $1,803
----------------------- ---------------------------
NET INVESTMENT INCOME (LOSS) (1,984) (571)
NET REALIZED LOSS ON SALES OF INVESTMENTS (17,749) (15,651)
CHANGE IN UNREALIZED APPRECIATION (40,227) (3,994)
----------------------- ---------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (57,976) (19,645)
----------------------- ---------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(59,960) $(20,216)
----------------------- ---------------------------
----------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
COMBINED FUND
SKYLINE SPECIAL
EQUITIES
----------------------
<S> <C>
INCOME
DIVIDEND INCOME $3,906
INTEREST INCOME $1,506
----------------------
TOTAL INCOME $5,412
EXPENSES
COMPREHENSIVE MANAGEMENT FEE $7,928
FEES TO UNAFFILIATED TRUSTEES 36
AMORTIZATION OF ORGANIZATIONAL COSTS
----------------------
TOTAL EXPENSES $7,964
----------------------
NET INVESTMENT INCOME (LOSS) (2,552)
NET REALIZED LOSS ON SALES OF INVESTMENTS (33,400)
CHANGE IN UNREALIZED APPRECIATION (44,221)
----------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (77,621)
----------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(80,173)
----------------------
----------------------
</TABLE>
NOTE: PRO FORMA COMBINED STATEMENT OF OPERATIONS HAS BEEN PREPARED AS IF THE
MERGER TOOK EFFECT ON JULY 1, 1998.
(B) ADJUSTMENT TO ELIMINATE AMORTIZATION OF ORGANIZATION COSTS OF SKYLINE
SMALL CAP VALUE PLUS.
S-5
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
FOR VALUE PLUS AND SPECIAL EQUITIES PORTFOLIO
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
---------------------- ------------------------------------------
<S> <C>
Autos & Transportation
Auto Related
Dura Automotive Systems OEM auto parts producer
Delco Remy International, Inc. Starters & alternators
Intermet Corp. Metal castings
Airline
Mesaba Holdings, Inc. Regional airline
Other Transportation
Interpool, Inc. Container leasing firm
Monaco Coach Corp. RV producer
Trucking
Covenant Transport, Inc. Specialty truckload carrier
Landstar System, Inc. Truckload carrier
U.S. Xpress Enterprises, Inc. Truckload carrier
Total Autos & Transportation
Consumer Discretionary
Apparel/Textiles
Gildan Activewear Inc. Shirt manufacturer
Kellwood Co. Apparel manufacturer
Warnaco Group, Inc. (The) Apparel manufacturer
Commercial Services
Heidrick & Struggles International, Inc. Executive recruiting
RemedyTemp, Inc. Staffing services
Safety-Kleen Corp. Industrial waste services
United Stationers Inc. Office products distributor
ADVO, Inc. Direct mail marketer
Borg-Warner Security Security services
CB Richard Ellis Services, Inc. Real estate related services
Daisytek International Corp. Distributes computer supplies
New England Business Business forms
Standard Register Co. (The) Business forms
Trammell Crow Co. Commercial real estate services
Consumer Products/Services
Department 56, Inc. Decorative collectibles
Kenneth Cole Productions Footwear/accessories maker
Midas, Inc. Auto service centers franchiser
Maxwell Shoe Co. Inc. Footwear company
Polaris Industries Inc. Snowmobiles, ATVs, motorcycles
<CAPTION>
-----------------------------------------------------------
ACQUIRING FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ------------------------------------ -------------
<S> <C> <C> <C>
Autos & Transportation
Auto Related
Dura Automotive Systems
Delco Remy International, Inc. 345,700 $ 3,802,700 1.0%
Intermet Corp. 417,300 $ 6,311,663 1.6%
-----------------
$ 10,114,363 2.5%
Airline
Mesaba Holdings, Inc.
Other Transportation
Interpool, Inc. 666,100 $ 8,659,300 2.2%
Monaco Coach Corp. 113,300 $ 4,794,006 1.2%
-----------------
$ 13,453,306 3.4%
Trucking
Covenant Transport, Inc.
Landstar System, Inc. 216,900 $ 7,828,734 2.0%
U.S. Xpress Enterprises, Inc. 338,900 $ 3,621,994 0.9%
-----------------
$ 11,450,728 2.9%
-----------------
Total Autos & Transportation $ 35,018,397 8.8%
Consumer Discretionary
Apparel/Textiles
Gildan Activewear Inc.
Kellwood Co. 238,800 $ 6,477,450 1.6%
Warnaco Group, Inc. (The) 221,700 $ 5,930,475 1.5%
-----------------
$ 12,407,925 3.1%
Commercial Services
Heidrick & Struggles International, Inc.
RemedyTemp, Inc.
Safety-Kleen Corp.
United Stationers Inc.
ADVO, Inc. 244,800 $ 5,079,600 1.3%
Borg-Warner Security 275,200 $ 5,590,000 1.4%
CB Richard Ellis Services, Inc. 167,400 $ 4,164,075 1.0%
Daisytek International Corp. 285,400 $ 4,655,588 1.2%
New England Business 280,000 $ 8,645,000 2.2%
Standard Register Co. (The) 225,000 $ 6,918,750 1.7%
Trammell Crow Co. 179,100 $ 2,943,956 0.7%
-----------------
$ 37,996,969 9.5%
Consumer Products/Services
Department 56, Inc.
Kenneth Cole Productions
Midas, Inc.
Maxwell Shoe Co. Inc. 273,700 $ 2,480,406 0.6%
Polaris Industries Inc. 117,100 $ 5,093,850 1.3%
-----------------
$ 7,574,256 1.9%
<CAPTION>
--------------------------------------------------------
ACQUIRED FUND
SMALL CAP VALUE PLUS
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Autos & Transportation
Auto Related
Dura Automotive Systems 60,700 $2,018,275 2.2%
Delco Remy International, Inc.
Intermet Corp.
---------------
$ 2,018,275 2.2%
Airline
Mesaba Holdings, Inc. 89,300 $1,138,575 1.3%
Other Transportation
Interpool, Inc.
Monaco Coach Corp.
Trucking
Covenant Transport, Inc. 132,900 $2,093,175 2.3%
Landstar System, Inc.
U.S. Xpress Enterprises, Inc.
---------------
$ 2,093,175 2.3%
---------------
Total Autos & Transportation $5,250,025 5.8%
Consumer Discretionary
Apparel/Textiles
Gildan Activewear Inc. 113,000 $1,906,875 2.1%
Kellwood Co.
Warnaco Group, Inc. (The) 58,300 $1,559,525 1.7%
---------------
$3,466,400 3.8%
Commercial Services
Heidrick & Struggles International, Inc. 101,600 $1,930,400 2.1%
RemedyTemp, Inc. 120,300 $1,624,050 1.8%
Safety-Kleen Corp. 147,375 $2,671,172 3.0%
United Stationers Inc. 72,900 $1,603,800 1.8%
ADVO, Inc.
Borg-Warner Security
CB Richard Ellis Services, Inc.
Daisytek International Corp.
New England Business
Standard Register Co. (The)
Trammell Crow Co.
---------------
$7,829,422 8.7%
Consumer Products/Services
Department 56, Inc. 53,400 $1,435,125 1.6%
Kenneth Cole Productions 61,900 $1,725,462 1.9%
Midas, Inc. 61,300 $1,739,388 1.9%
Maxwell Shoe Co. Inc.
Polaris Industries Inc.
---------------
$4,899,975 5.4%
<CAPTION>
-----------------------------------------------------------
COMBINED FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- -------------------------------------- --------------
<S> <C> <C> <C>
Autos & Transportation
Auto Related
Dura Automotive Systems 60,700 $2,018,275 0.4%
345,700 $3,802,700 0.8%
Intermet Corp. 417,300 $6,311,663 1.3%
Delco Remy International, Inc. -----------------
$12,132,638 2.5%
Airline
Mesaba Holdings, Inc. 89,300 $1,138,575 0.2%
Other Transportation
Interpool, Inc. 666,100 $8,659,300 1.8%
Monaco Coach Corp. 113,300 $4,794,006 1.0%
-----------------
$13,453,306 2.8%
Trucking
Covenant Transport, Inc. 132,900 $2,093,175 0.4%
Landstar System, Inc. 216,900 $7,828,734 1.6%
U.S. Xpress Enterprises, Inc. 338,900 $3,621,994 0.7%
-----------------
$13,543,903 2.8%
-----------------
Total Autos & Transportation $40,268,422 8.2%
Consumer Discretionary
Apparel/Textiles
Gildan Activewear Inc. 113,000 $1,906,875 0.4%
Kellwood Co. 238,800 $6,477,450 1.3%
280,000 $7,490,000 1.5%
Warnaco Group, Inc. (The) -----------------
$15,874,325 3.3%
Commercial Services
Heidrick & Struggles International, Inc. 101,600 $1,930,400 0.4%
RemedyTemp, Inc. 120,300 $1,624,050 0.3%
Safety-Kleen Corp. 147,375 $2,671,172 0.5%
United Stationers Inc. 72,900 $1,603,800 0.3%
ADVO, Inc. 244,800 $5,079,600 1.0%
Borg-Warner Security 275,200 $5,590,000 1.1%
CB Richard Ellis Services, Inc. 167,400 $4,164,075 0.9%
Daisytek International Corp. 285,400 $4,655,588 1.0%
New England Business 280,000 $8,645,000 1.8%
Standard Register Co. (The) 225,000 $6,918,750 1.4%
Trammell Crow Co. 179,100 $2,943,956 0.6%
-----------------
$45,826,391 9.4%
Consumer Products/Services
Department 56, Inc. 53,400 $1,435,125 0.3%
Kenneth Cole Productions 61,900 $1,725,462 0.4%
Midas, Inc. 61,300 $1,739,388 0.4%
Maxwell Shoe Co. Inc. 273,700 $2,480,406 0.5%
Polaris Industries Inc. 117,100 $5,093,850 1.0%
-----------------
$12,474,231 2.6%
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
---------------------- ------------------------------------------
<S> <C>
Printing/Publishing
Banta Corp. Commercial printer
Cadmus Communications Corp. Commercial printer
World Color Press, Inc. Commercial printer
Restaurants
CEC Entertainment, Inc. Children-oriented casual dining
IHOP Corp. Casual dining
Luby's Cafeterias, Inc. Cafeteria-style restaurants
NPC International, Inc. Pizza Hut franchisee
O'Charley's Inc. Casual dining
Retail
Gadzooks, Inc. Teen apparel retailer
Whitehall Jewellers, Inc. Jewelry store chain
Aaron Rents, Inc. Furniture store operator
Discount Auto Parts, Inc. Auto parts stores
Finlay Enterprises, Inc. Leased jewelry departments
Jo-Ann Stores, Inc. Fabric/craft stores
MarineMax, Inc. Recreational boats
Michaels Stores, Inc. Arts & crafts stores
Stein Mart, Inc. Off-price apparel chain
Tractor Supply Co. Farm-related products
Total Consumer Discretionary
Consumer Staples
Consumer Staples
Del Monte Foods Co. Canned foods
International Home Foods, Inc. Packaged-foods manufacturer
International Multifoods Corp. Foodservice distribution
Energy
Other Energy
MarkWest Hydrocarbon, Inc. Natural gas processing services
Exploration & Production
Newfield Exploration Co. Oil & gas producer
Total Energy
Financial Services
Banks/Thrifts
Colonial BancGroup, Inc. (The) Alabama bank
Peoples Heritage Financial Group New England-based thrift
Insurance
Fremont General Corp. Workers' compensation insurance
HCC Insurance Holdings, Inc. Property & casualty insurance
Radian Group Inc. Mortgage insurance
American Heritage Life Invest. Life insurance
Chartwell Re Corporation P & C reinsurance
CNA Surety Corp. Surety insurance
Delphi Financial Group, Inc. Accident & health insurance
Financial Security Assurance Holdings Municipal bond insurance
Fremont General Corp. Workers' compensation insurance
<CAPTION>
-----------------------------------------------------------
ACQUIRING FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ------------------------------------ -------------
<S> <C> <C> <C>
Printing/Publishing
Banta Corp. 187,100 $ 3,929,100 1.0%
Cadmus Communications Corp. 126,300 $ 1,736,625 0.4%
World Color Press, Inc. 289,000 $ 7,947,500 2.0%
-------------
$ 13,613,225 3.4%
Restaurants
CEC Entertainment, Inc.
IHOP Corp. 274,400 $ 6,602,750 1.7%
Luby's Cafeterias, Inc. 224,100 $ 3,361,500 0.8%
NPC International, Inc. 213,800 $ 3,287,175 0.8%
O'Charley's Inc. 334,850 $ 5,357,600 1.3%
-------------
$ 18,609,025 4.7%
Retail
Gadzooks, Inc.
Whitehall Jewellers, Inc.
Aaron Rents, Inc. 261,100 $ 5,809,475 1.5%
Discount Auto Parts, Inc. 282,700 $ 6,820,137 1.7%
Finlay Enterprises, Inc. 262,500 $ 3,510,937 0.9%
Jo-Ann Stores, Inc. 77,800 $ 1,167,000 0.3%
MarineMax, Inc. 257,900 $ 3,046,444 0.8%
Michaels Stores, Inc. 133,900 $ 4,100,687 1.0%
Stein Mart, Inc. 372,700 $ 3,494,063 0.9%
Tractor Supply Co. 161,000 $ 4,397,313 1.1%
-------------
$ 32,346,056 8.1%
-------------
Total Consumer Discretionary $ 122,547,456 30.8%
Consumer Staples
Consumer Staples
Del Monte Foods Co.
International Home Foods, Inc.
International Multifoods Corp. 230,600 $ 5,202,912 1.3%
-------------
$ 5,202,912 1.3%
Energy
Other Energy
MarkWest Hydrocarbon, Inc. 244,100 $ 2,135,875 0.5%
Exploration & Production
Newfield Exploration Co.
-------------
Total Energy $ 2,135,875
Financial Services
Banks/Thrifts
Colonial BancGroup, Inc. (The) 417,000 $ 5,811,938 1.5%
Peoples Heritage Financial Group -------------
$ 5,811,938 1.5%
Insurance
Fremont General Corp.
HCC Insurance Holdings, Inc.
Radian Group Inc.
American Heritage Life Invest. 201,900 $ 4,946,550 1.2%
Chartwell Re Corporation 168,300 $ 3,134,588 0.8%
CNA Surety Corp. 312,800 $ 4,789,750 1.2%
Delphi Financial Group, Inc. 175,490 $ 6,295,703 1.6%
Financial Security Assurance Holdings 126,300 $ 6,567,600 1.6%
Fremont General Corp. 285,400 $ 5,386,925 1.4%
<CAPTION>
--------------------------------------------------------
ACQUIRED FUND
SMALL CAP VALUE PLUS
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Printing/Publishing
Banta Corp.
Cadmus Communications Corp.
World Color Press, Inc. 65,600 $ 1,804,000 2.0%
------------
$ 1,804,000 2.0%
Restaurants
CEC Entertainment, Inc. 26,700 $ 1,128,075 1.3%
IHOP Corp.
Luby's Cafeterias, Inc.
NPC International, Inc.
O'Charley's Inc.
------------
$ 1,128,075 1.3%
Retail
Gadzooks, Inc. 43,300 $ 692,800 0.8%
Whitehall Jewellers, Inc. 32,300 $ 862,006 1.0%
Aaron Rents, Inc.
Discount Auto Parts, Inc.
Finlay Enterprises, Inc.
Jo-Ann Stores, Inc.
MarineMax, Inc.
Michaels Stores, Inc.
Stein Mart, Inc.
Tractor Supply Co.
------------
$ 1,554,806 1.7%
------------
Total Consumer Discretionary $ 20,682,678 22.9%
Consumer Staples
Consumer Staples
Del Monte Foods Co. 145,800 $ 2,442,150 2.7%
International Home Foods, Inc. 102,100 $ 1,882,469 2.1%
------------
International Multifoods Corp. $ 4,324,619 4.8%
Energy
Other Energy
MarkWest Hydrocarbon, Inc.
Exploration & Production
Newfield Exploration Co. 82,600 $ 2,348,937 2.6%
------------
Total Energy $ 2,348,937
Financial Services
Banks/Thrifts
Colonial BancGroup, Inc. (The)
Peoples Heritage Financial Group 90,600 $ 1,704,412 1.9%
------------
$ 1,704,412 1.9%
Insurance
Fremont General Corp. 43,700 $ 824,838 0.9%
HCC Insurance Holdings, Inc. 59,100 $ 1,340,831 1.5%
Radian Group Inc. 25,500 $ 1,244,719 1.4%
American Heritage Life Invest.
Chartwell Re Corporation
CNA Surety Corp. 63,100 $ 966,219 1.1%
Delphi Financial Group, Inc.
Financial Security Assurance Holdings
Fremont General Corp.
<CAPTION>
-----------------------------------------------------------
COMBINED FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- -------------------------------------- --------------
<S> <C> <C> <C>
Printing/Publishing
Banta Corp. 187,100 $ 3,929,100 0.8%
Cadmus Communications Corp. 126,300 $ 1,736,625 0.4%
World Color Press, Inc. 354,600 $ 9,751,500 2.0%
------------
$ 15,417,225 3.2%
Restaurants
CEC Entertainment, Inc. 26,700 $ 1,128,075 0.2%
IHOP Corp. 274,400 $ 6,602,750 1.4%
Luby's Cafeterias, Inc. 224,100 $ 3,361,500 0.7%
NPC International, Inc. 213,800 $ 3,287,175 0.7%
O'Charley's Inc. 334,850 $ 5,357,600 1.1%
------------
$ 19,737,100 4.0%
Retail
Gadzooks, Inc. 43,300 $ 692,800 0.1%
Whitehall Jewellers, Inc. 32,300 $ 862,006 0.2%
Aaron Rents, Inc. 261,100 $ 5,809,475 1.2%
Discount Auto Parts, Inc. 282,700 $ 6,820,137 1.4%
Finlay Enterprises, Inc. 262,500 $ 3,510,937 0.7%
Jo-Ann Stores, Inc. 77,800 $ 1,167,000 0.2%
MarineMax, Inc. 257,900 $ 3,046,444 0.6%
Michaels Stores, Inc. 133,900 $ 4,100,687 0.8%
Stein Mart, Inc. 372,700 $ 3,494,063 0.7%
Tractor Supply Co. 161,000 $ 4,397,313 0.9%
------------
$ 33,900,862 6.9%
------------
Total Consumer Discretionary $143,230,134 29.3%
Consumer Staples
Consumer Staples
Del Monte Foods Co. 145,800 $ 2,442,150 0.5%
International Home Foods, Inc. 102,100 $ 1,882,469 0.4%
International Multifoods Corp. 230,600 $ 5,202,912 1.1%
------------
$ 9,527,531 2.0%
Energy
Other Energy
MarkWest Hydrocarbon, Inc. 244,100 $ 2,135,875 0.4%
Exploration & Production
Newfield Exploration Co. 82,600 $ 2,348,937 0.5%
------------
Total Energy $ 4,484,812 0.9%
Financial Services
Banks/Thrifts
Colonial BancGroup, Inc. (The) 417,000 $ 5,811,938 1.2%
Peoples Heritage Financial Group 90,600 $ 1,704,412 0.3%
------------
$ 7,516,350 1.5%
Insurance
Fremont General Corp. 43,700 $ 824,838 0.2%
HCC Insurance Holdings, Inc. 59,100 $ 1,340,831 0.3%
Radian Group Inc. 25,500 $ 1,244,719 0.3%
American Heritage Life Invest. 201,900 $ 4,946,550 1.0%
Chartwell Re Corporation 168,300 $ 3,134,588 0.6%
CNA Surety Corp. 375,900 $ 5,755,969 1.2%
Delphi Financial Group, Inc. 175,490 $ 6,295,703 1.3%
Financial Security Assurance Holdings 126,300 $ 6,567,600 1.3%
Fremont General Corp. 285,400 $ 5,386,925 1.1%
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
---------------------- ------------------------------------------
<S> <C>
Frontier Insurance Group, Inc. Specialty property & casualty
Gallagher & Co. (Arthur J.) Insurance broker
Horace Mann Educators Corp. Property & casualty insurance
SCPIE Holdings Inc. Medical malpractice insurance
StanCorp Financial Group, Inc. Disability insurance
Other Financial Services
American Capital Strategies, Ltd. Commercial finance
Gabelli Asset Management Inc. Asset management
ARM Financial Group, Inc. Investment products
Heller Financial, Inc. Commercial finance
Raymond James Financial, Inc. Investment services
Real Estate Investment Trusts
Prentiss Properties Trust Office/industrial properties REIT
Total Financial Services
Health Care
Health Care Services
AmeriPath, Inc. Physician practice management
US Oncology, Inc Cancer treatment services
Medical Equipment/Products
Arrow International, Inc. Disposable catheters producer
Cooper Companies, Inc. (The) Eyecare products
DENTSPLY International Inc. Dental products manufacturer
Wesley Jessen VisionCare, Inc. Contact lenses manufacturer
Invacare Corp. Home health care products
Total Health Care
Materials & Processing
Building/Construction Products
American Homestar Corp. Manufactured housing company
Barnett Inc. Hardware products
Chicago Bridge & Iron Co. Maker of steel tanks
Dayton Superior Corp. Concrete accessories
Nortek, Inc. Building products
Wilmar Industries, Inc. Apartment repair/maintenance products
Industrial Products
Furon Company Polymer-based products
Lydall, Inc. Specialty filtration products
Metal Fabrications
Citation Corp. Castings manufacturer
<CAPTION>
-----------------------------------------------------------
ACQUIRING FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ------------------------------------ -------------
<S> <C> <C> <C>
Frontier Insurance Group, Inc. 285,800 $ 4,394,175 1.1%
Gallagher & Co. (Arthur J.) 101,300 $ 5,014,350 1.3%
Horace Mann Educators Corp. 271,300 $ 7,375,969 1.9%
SCPIE Holdings Inc. 161,900 $ 5,281,987 1.3%
StanCorp Financial Group, Inc. 181,400 $ 5,442,000 1.4%
------------
$ 58,629,597 14.7%
Other Financial Services
American Capital Strategies, Ltd.
Gabelli Asset Management Inc.
ARM Financial Group, Inc. 256,000 $ 2,176,000 0.5%
Heller Financial, Inc. 263,400 $ 7,325,812 1.8%
Raymond James Financial, Inc. 251,200 $ 6,013,100 1.5%
------------
$ 15,514,912 3.9%
Real Estate Investment Trusts
Prentiss Properties Trust
------------
Total Financial Services $ 79,956,447 20.1%
Health Care
Health Care Services
AmeriPath, Inc. 394,400 $ 3,401,700 0.9%
US Oncology, Inc 235,100 $ 2,821,200 0.7%
------------
$ 6,222,900 1.6%
Medical Equipment/Products
Arrow International, Inc.
Cooper Companies, Inc. (The)
DENTSPLY International Inc.
Wesley Jessen VisionCare, Inc.
Invacare Corp. 187,000 $ 5,002,250 1.3%
------------
$ 5,002,250 1.3%
------------
Total Health Care $ 11,225,150 2.8%
Materials & Processing
Building/Construction Products
American Homestar Corp. 10,000 $ 68,750 0.0%
Barnett Inc. 294,400 $ 2,208,000 0.6%
Chicago Bridge & Iron Co. 472,100 $ 6,579,894 1.7%
Dayton Superior Corp. 241,400 $ 4,480,987 1.1%
Nortek, Inc. 142,700 $ 4,468,294 1.1%
Wilmar Industries, Inc. 86,500 $ 1,124,500 0.3%
------------
$ 18,930,425 4.8%
Industrial Products
Furon Company 324,000 $ 6,156,000 1.5%
Lydall, Inc. 366,300 $ 4,212,450 1.1%
------------
$ 10,368,450 2.6%
Metal Fabrications
Citation Corp. 589,800 $ 9,473,663 2.4%
<CAPTION>
--------------------------------------------------
ACQUIRED FUND
SMALL CAP VALUE PLUS
--------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
- ---------------------- ---------------------------------- -------------
<S> <C> <C> <C>
Frontier Insurance Group, Inc.
Gallagher & Co. (Arthur J.)
Horace Mann Educators Corp.
SCPIE Holdings Inc.
StanCorp Financial Group, Inc. 32,800 $ 984,000 1.1%
------------
$ 5,360,607 5.9%
Other Financial Services
American Capital Strategies, Ltd. 79,000 $ 1,441,750 1.6%
Gabelli Asset Management Inc. 115,400 $ 1,824,762 2.0%
ARM Financial Group, Inc. 63,200 $ 537,200 0.6%
Heller Financial, Inc. 63,500 $ 1,766,094 2.0%
Raymond James Financial, Inc. 60,500 $ 1,448,219 1.6%
------------
$ 7,018,025 7.8%
Real Estate Investment Trusts
Prentiss Properties Trust 67,900 $ 1,595,650 1.8%
------------
Total Financial Services $ 15,678,694 17.4%
Health Care
Health Care Services
AmeriPath, Inc.
US Oncology, Inc 65,600 $ 787,200 0.9%
------------
$ 787,200 0.9%
Medical Equipment/Products
Arrow International, Inc. 55,900 $ 1,446,411 1.6%
Cooper Companies, Inc. (The) 61,400 $ 1,531,163 1.7%
DENTSPLY International Inc. 62,000 $ 1,790,250 2.0%
Wesley Jessen VisionCare, Inc. 71,500 $ 2,314,813 2.6%
Invacare Corp.
------------
$ 7,082,637 7.9%
------------
Total Health Care $ 7,869,837 8.7%
Materials & Processing
Building/Construction Products
American Homestar Corp.
Barnett Inc.
Chicago Bridge & Iron Co.
Dayton Superior Corp.
Nortek, Inc.
Wilmar Industries, Inc.
Industrial Products
Furon Company
Lydall, Inc.
Metal Fabrications
Citation Corp.
<CAPTION>
-----------------------------------------------------------
COMBINED FUND
SPECIAL EQUITIES
-----------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- --------------------------------- -------------
<S> <C> <C> <C>
Frontier Insurance Group, Inc. 285,800 $ 4,394,175 0.9%
Gallagher & Co. (Arthur J.) 101,300 $ 5,014,350 1.0%
Horace Mann Educators Corp. 271,300 $ 7,375,969 1.5%
SCPIE Holdings Inc. 161,900 $ 5,281,987 1.1%
StanCorp Financial Group, Inc. 214,200 $ 6,426,000 1.3%
-----------
$63,990,204 13.1%
Other Financial Services
American Capital Strategies, Ltd. 79,000 $ 1,441,750 0.3%
Gabelli Asset Management Inc. 115,400 $ 1,824,762 0.4%
ARM Financial Group, Inc. 319,200 $ 2,713,200 0.6%
Heller Financial, Inc. 326,900 $ 9,091,906 1.9%
Raymond James Financial, Inc. 311,700 $ 7,461,319 1.5%
-----------
$22,532,937 4.6%
Real Estate Investment Trusts
Prentiss Properties Trust 67,900 $ 1,595,650 0.3%
-----------
Total Financial Services $95,635,141 19.6%
Health Care
Health Care Services
AmeriPath, Inc. 394,400 $ 3,401,700 0.7%
US Oncology, Inc 300,700 $ 3,608,400 0.7%
-----------
$ 7,010,100 1.4%
Medical Equipment/Products
Arrow International, Inc. 55,900 $ 1,446,411 0.3%
Cooper Companies, Inc. (The) 61,400 $ 1,531,163 0.3%
DENTSPLY International Inc. 62,000 $ 1,790,250 0.4%
Wesley Jessen VisionCare, Inc. 71,500 $ 2,314,813 0.5%
Invacare Corp. 187,000 $ 5,002,250 1.0%
-----------
$12,084,887 2.5%
-----------
Total Health Care $19,094,987 3.9%
Materials & Processing
Building/Construction Products
American Homestar Corp. 10,000 $ 68,750 0.0%
Barnett Inc. 294,400 $ 2,208,000 0.5%
Chicago Bridge & Iron Co. 472,100 $ 6,579,894 1.3%
Dayton Superior Corp. 241,400 $ 4,480,987 0.9%
Nortek, Inc. 142,700 $ 4,468,294 0.9%
Wilmar Industries, Inc. 86,500 $ 1,124,500 0.2%
-----------
$18,930,425 3.9%
Industrial Products
Furon Company 324,000 $ 6,156,000 1.3%
Lydall, Inc. 366,300 $ 4,212,450 0.9%
-----------
$10,368,450 2.1%
Metal Fabrications
Citation Corp. 589,800 $ 9,473,663 1.9%
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
- ------------------------ ------------------------------------------
<S> <C>
Packaging/Paper
Ivex Packaging Corp. Consumer & industrial packaging
Albany International Corp. Paper machine clothing
BWAY Corp. Metal cans/containers
Chesapeake Corp. Specialty paper and packaging
FiberMark, Inc. Fiber-based materials
Specialty Chemicals
Spartech Corp. Plastics
Fuller Company (H.B.) Adhesives and coatings
Total Materials & Processing
Producer Durables
Aerospace Related
Kellstrom Industries, Inc. Resells used aircraft parts
TriStar Aerospace Co. Distributes aerospace products
Diversified Manufacturing
Applied Power Inc. Industrial products manufacturer
Pentair, Inc. Diversified manufacturer
Electrical Equipment/Products
Belden Inc. Wire & cable manufacturer
General Cable Corp. Wire & cable producer
Machinery
DT Industries, Inc. Packaging equipment
National Equipment Services, Inc. Equipment rental
SunSource Inc. Conglomerate
Other Producer Durables
EG&G, Inc. Conglomerate
IDEX Corp. Specialty pump products
Kaydon Corp. Custom engineered parts
LSI Industries Inc. Lighting/graphics products
MotivePower Industries, Inc. Locomotive components
Total Producer Durables
Technology
Contract Manufacturing
DII Group, Inc. Electronics manufacturing
SCI Systems, Inc. Electronics manufacturing
Distribution
ScanSource Inc. Specialty technology products
<CAPTION>
--------------------------------------------------------
ACQUIRING FUND
SPECIAL EQUITIES
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Packaging/Paper
Ivex Packaging Corp.
Albany International Corp. 275,715 $ 5,721,086 1.4%
BWAY Corp. 282,100 $ 4,019,925 1.0%
Chesapeake Corp. 139,900 $ 5,237,506 1.3%
FiberMark, Inc. 164,800 $ 2,173,300 0.5%
------------
$ 17,151,817 4.3%
Specialty Chemicals
Spartech Corp.
Fuller Company (H.B.) 50,500 $ 3,452,938 0.9%
------------
$ 3,452,938 0.9%
------------
Total Materials & Processing $ 59,377,293 14.9%
Producer Durables
Aerospace Related
Kellstrom Industries, Inc.
TriStar Aerospace Co.
Diversified Manufacturing
Applied Power Inc.
Pentair, Inc.
Electrical Equipment/Products
Belden Inc.
General Cable Corp. 396,300 $ 6,340,800 1.6%
------------
$ 6,340,800 1.6%
Machinery
DT Industries, Inc. 279,700 $ 2,569,744 0.6%
National Equipment Services, Inc. 271,700 $ 3,260,400 0.8%
SunSource Inc. 156,400 $ 2,023,425 0.5%
------------
$ 7,853,569 2.0%
Other Producer Durables
EG&G, Inc. 211,400 $ 7,531,125 1.9%
IDEX Corp. 212,800 $ 6,995,800 1.8%
Kaydon Corp. 179,600 $ 6,039,050 1.5%
LSI Industries Inc. 216,900 $ 5,232,712 1.3%
MotivePower Industries, Inc. 266,100 $ 4,789,800 1.2%
------------
$ 30,588,487 7.7%
------------
Total Producer Durables $ 44,782,856 11.2%
Technology
Contract Manufacturing
DII Group, Inc.
SCI Systems, Inc.
Distribution
ScanSource Inc.
<CAPTION>
--------------------------------------------------------
ACQUIRED FUND
SMALL CAP VALUE PLUS
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Packaging/Paper
Ivex Packaging Corp. 132,500 $ 2,915,000 3.2%
Albany International Corp.
BWAY Corp.
Chesapeake Corp.
FiberMark, Inc.
-----------
$ 2,915,000 3.2%
Specialty Chemicals
Spartech Corp. 59,500 $ 1,881,688 2.1%
Fuller Company (H.B.)
-----------
$ 1,881,688 2.1%
-----------
Total Materials & Processing $ 4,796,688 5.3%
Producer Durables
Aerospace Related
Kellstrom Industries, Inc. 77,600 $ 1,416,200 1.6%
TriStar Aerospace Co. 204,200 $ 1,684,650 1.9%
-----------
$ 3,100,850 3.4%
Diversified Manufacturing
Applied Power Inc. 65,400 $ 1,786,238 2.0%
Pentair, Inc. 44,900 $ 2,054,175 2.3%
-----------
$ 3,840,413 4.3%
Electrical Equipment/Products
Belden Inc. 40,400 $ 967,075 1.1%
General Cable Corp.
-----------
$ 967,075 1.1%
Machinery
DT Industries, Inc.
National Equipment Services, Inc.
SunSource Inc.
Other Producer Durables
EG&G, Inc.
IDEX Corp.
Kaydon Corp.
LSI Industries Inc.
MotivePower Industries, Inc.
-----------
-----------
Total Producer Durables $7,908,338 8.8%
Technology
Contract Manufacturing
DII Group, Inc. 63,200 $2,358,150 2.6%
SCI Systems, Inc. 27,600 $1,311,000 1.5%
-----------
$3,669,150 4.1%
Distribution
ScanSource Inc. 55,000 $1,189,375 1.3%
<CAPTION>
--------------------------------------------------------
COMBINED FUND
SPECIAL EQUITIES
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Packaging/Paper
Ivex Packaging Corp. 132,500 $ 2,915,000 0.6%
Albany International Corp. 275,715 $ 5,721,086 1.2%
BWAY Corp. 282,100 $ 4,019,925 0.8%
Chesapeake Corp. 139,900 $ 5,237,506 1.1%
FiberMark, Inc. 164,800 $ 2,173,300 0.4%
-----------
$20,066,817 4.1%
Specialty Chemicals
Spartech Corp. 59,500 $ 1,881,688 0.4%
Fuller Company (H.B.) 50,500 $ 3,452,938 0.7%
-----------
$ 5,334,626 1.1%
-----------
Total Materials & Processing $64,173,981 13.1%
Producer Durables
Aerospace Related
Kellstrom Industries, Inc. 77,600 $ 1,416,200 0.3%
TriStar Aerospace Co. 204,200 $ 1,684,650 0.3%
-----------
$ 3,100,850 0.6%
Diversified Manufacturing
Applied Power Inc. 65,400 $ 1,786,238 0.4%
Pentair, Inc. 44,900 $ 2,054,175 0.4%
-----------
$ 3,840,413 0.8%
Electrical Equipment/Products
Belden Inc. 40,400 $967,075 0.2%
General Cable Corp. 396,300 $ 6,340,800 1.3%
-----------
$ 7,307,875 1.5%
Machinery
DT Industries, Inc. 279,700 $ 2,569,744 0.5%
National Equipment Services, Inc. 271,700 $ 3,260,400 0.7%
SunSource Inc. 156,400 $ 2,023,425 0.4%
-----------
$ 7,853,569 1.6%
Other Producer Durables
EG&G, Inc. 211,400 $ 7,531,125 1.5%
IDEX Corp. 212,800 $ 6,995,800 1.4%
Kaydon Corp. 179,600 $ 6,039,050 1.2%
LSI Industries Inc. 216,900 $ 5,232,712 1.1%
MotivePower Industries, Inc. 266,100 $ 4,789,800 1.0%
-----------
$30,588,487 6.3%
-----------
Total Producer Durables $52,691,194 10.8%
Technology
Contract Manufacturing
DII Group, Inc. 63,200 $ 2,358,150 0.5%
SCI Systems, Inc. 27,600 $ 1,311,000 0.3%
-----------
$ 3,669,150 0.8%
Distribution
ScanSource Inc. 55,000 $ 1,189,375 0.2%
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
- ------------------------ ------------------------------------------
<S> <C>
Electronic Components
Artesyn Technologies, Inc. Power supplies
CTS Corp. Broad line specialty products
Dallas Semiconductor Corp. Electronic components
Other Technology
Black Box Corp. Network/communication products
National Data Corp. Data processing services
Zebra Technologies Corp. Bar coding equipment
Imation Corp. Data storage products
PC Connection, Inc. Computer marketer
Pomeroy Computer Resources, Inc. Computer products reseller
PSC Inc. Bar coding equipment
Services
CACI International Inc. Technology services provider
Keane, Inc. Software consulting
Metro Information Services, Inc. Information technology staffing
Keane, Inc. Software consulting
Total Technology
TOTAL COMMON STOCKS
MONEY MARKET INSTRUMENTS
Yield 4.7006% to 4.890%
due July 1999 to April 2000
American Family Financial Services
General Mills, Inc.
Pitney Bowes Credit Corp.
Warner Lambert Corp.
Wisconsin Corp. Credit Union
TOTAL MONEY MARKET INSTRUMENTS
TOTAL INVESTMENTS
OTHER LIABILITIES LESS ASSETS
NET ASSETS
<CAPTION>
--------------------------------------------------------
ACQUIRING FUND
SPECIAL EQUITIES
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Electronic Components
Artesyn Technologies, Inc.
CTS Corp.
Dallas Semiconductor Corp. 102,100 $ 5,156,050 1.3%
------------
$ 5,156,050 1.3%
Other Technology
Black Box Corp.
National Data Corp.
Zebra Technologies Corp.
Imation Corp. 356,700 $ 8,850,619 2.2%
PC Connection, Inc. 184,200 $ 2,221,913 0.6%
Pomeroy Computer Resources, Inc. 145,900 $ 2,033,481 0.5%
PSC Inc. 341,100 $ 3,347,044 0.8%
------------
$ 16,453,057 4.1%
Services
CACI International Inc.
Keane, Inc.
Metro Information Services, Inc.
Keane, Inc. 190,700 $ 4,314,587 1.1%
------------
$ 4,314,587 1.1%
------------
Total Technology $ 25,923,694 6.5%
------------
TOTAL COMMON STOCKS $386,170,080 97.0%
MONEY MARKET INSTRUMENTS
Yield 4.7006% to 4.890%
due July 1999 to April 2000
American Family Financial Services $ 7,588,528 1.9%
General Mills, Inc. $ 1,600,000 0.4%
Pitney Bowes Credit Corp. $ 1,146,000 0.3%
Warner Lambert Corp. $ 4,055,662 1.0%
Wisconsin Corp. Credit Union $ 4,803,271 1.2%
------------
TOTAL MONEY MARKET INSTRUMENTS $ 19,193,461 4.8%
------------
TOTAL INVESTMENTS $405,363,541 101.8%
OTHER LIABILITIES LESS ASSETS $ (7,218,824) -1.8%
------------
NET ASSETS $398,144,717 100.0%
============
<CAPTION>
--------------------------------------------------------
ACQUIRED FUND
SMALL CAP VALUE PLUS
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
---------------------- ----------------------------------- --------------
<S> <C> <C> <C>
Electronic Components
Artesyn Technologies, Inc. 91,100 $ 2,021,281 2.2%
CTS Corp. 24,300 $ 1,701,000 1.9%
Dallas Semiconductor Corp.
-----------
$ 3,722,281 4.1%
Other Technology
Black Box Corp. 37,700 $ 1,889,712 2.1%
National Data Corp. 34,000 $ 1,453,500 1.6%
Zebra Technologies Corp. 44,900 $ 1,725,844 1.9%
Imation Corp.
PC Connection, Inc.
Pomeroy Computer Resources, Inc.
PSC Inc.
-----------
$ 5,069,056 5.6%
Services
CACI International Inc. 96,000 $ 2,160,000 2.4%
Keane, Inc. 41,300 $ 934,413 1.0%
Metro Information Services, Inc. 55,200 $ 917,700 1.0%
Keane, Inc.
-----------
$ 4,012,113 4.4%
-----------
Total Technology $17,661,975 19.6%
-----------
TOTAL COMMON STOCKS $86,521,791 95.9%
MONEY MARKET INSTRUMENTS
Yield 4.7006% to 4.890%
due July 1999 to April 2000
American Family Financial Services
General Mills, Inc. $ 3,048,290 3.4%
Pitney Bowes Credit Corp. $ 312,000 0.3%
Warner Lambert Corp. $ 981,958 1.1%
Wisconsin Corp. Credit Union $ 1,701,524 1.9%
-----------
TOTAL MONEY MARKET INSTRUMENTS $ 6,043,772 6.7%
-----------
TOTAL INVESTMENTS $92,565,563 102.6%
OTHER LIABILITIES LESS ASSETS $(2,341,079) -2.6%
-----------
NET ASSETS $90,224,484 100.0%
===========
<CAPTION>
--------------------------------------------------------
COMBINED FUND
SPECIAL EQUITIES
--------------------------------------------------------
COMMON NUMBER OF MARKET % OF
STOCKS SHARES VALUE NET ASSETS
- ------------------------ ----------------------------------- --------------
<S> <C> <C> <C>
Electronic Components
Artesyn Technologies, Inc. 91,100 $ 2,021,281 0.4%
CTS Corp. 24,300 $ 1,701,000 0.3%
Dallas Semiconductor Corp. 102,100 $ 5,156,050 1.1%
------------
$ 8,878,331 1.8%
Other Technology
Black Box Corp. 37,700 $ 1,889,712 0.4%
National Data Corp. 34,000 $ 1,453,500 0.3%
Zebra Technologies Corp. 44,900 $ 1,725,844 0.4%
Imation Corp. 356,700 $ 8,850,619 1.8%
PC Connection, Inc. 184,200 $ 2,221,913 0.5%
Pomeroy Computer Resources, Inc. 145,900 $ 2,033,481 0.4%
PSC Inc. 341,100 $ 3,347,044 0.7%
------------
$ 21,522,113 4.4%
Services
CACI International Inc. 96,000 $ 2,160,000 0.4%
Keane, Inc. 41,300 $ 934,413 0.2%
Metro Information Services, Inc. 55,200 $ 917,700 0.2%
Keane, Inc. 190,700 $ 4,314,587 0.9%
------------
$ 8,326,700 1.7%
------------
0.0%
Total Technology $ 43,585,669 8.9%
------------
TOTAL COMMON STOCKS
$472,691,871 96.8%
MONEY MARKET INSTRUMENTS
Yield 4.7006% to 4.890%
due July 1999 to April 2000
American Family Financial Services
General Mills, Inc. $ 7,588,528 1.6%
Pitney Bowes Credit Corp. $ 4,648,290 1.0%
Warner Lambert Corp. $ 1,458,000 0.3%
Wisconsin Corp. Credit Union $ 5,037,620 1.0%
$ 6,504,795 1.3%
------------
TOTAL MONEY MARKET INSTRUMENTS $ 25,237,233 5.2%
------------
TOTAL INVESTMENTS $497,929,104 102.0%
OTHER LIABILITIES LESS ASSETS ($9,559,903) -2.0%
------------
NET ASSETS
$488,369,201 100.0%
============
</TABLE>
NOTE: Pro forma combined schedule of investments has been prepared as if the
merger took effect on June 30, 1999.
S-11
<PAGE>
SKYLINE FUNDS
311 SOUTH WACKER DRIVE
SUITE 4500
CHICAGO, ILLINOIS 60606
SKYLINE FUNDS
SKYLINE SMALL CAP VALUE PLUS
Revocable Proxy for Special Meeting of Stockholders. This Proxy is Solicited on
Behalf of the Board of Trustees.
The undersigned hereby appoints William M. Dutton and Stephen F. Kendall, and
each of them, proxy, with full power of substitution, to vote all shares of
stock the undersigned is entitled to vote at the Special Meeting of Stockholders
of Skyline Small Cap Value Plus and Skyline Small Cap Contrarian to be held at
the Metropolitan Club, Sears Tower, 233 South Wacker Drive, 67th Floor, Chicago,
Illinois at 10:00 a.m. on Tuesday, February 29, 2000, or at any adjournment
thereof, with respect to the matters set forth on this proxy and described in
the Notice of Special Meeting and Proxy Statement/Prospectus, receipt of which
is hereby acknowledged.
Shares listed below represent an aggregate total of all Skyline Small Cap Value
Plus shares registered in the name printed to the left.
(If stock is owned by more than one person, all owners should sign. Persons
signing as executors, administrators, trustees or in similar capacities should
so indicate.)
- - To vote by mail, sign below exactly as your name appears above and return
the card in the envelope provided.
- - To vote by touch-tone phone, call 1-800-690-6903.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
SKYVAL KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
- --------------------------------------------------------------------------------
SKYLINE SMALL CAP VALUE PLUS
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO DIRECTION IS SUPPLIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. Please
vote by filling in the appropriate boxes below, as shown, using blue or black
ink or dark pencil. Do not use red ink.
VOTE ON PROPOSALS
1. To approve the Plan of Reorganization (the "Plan") providing for (a)
the transfer of all or substantially all of the assets and liabilities
of Skyline Small Cap Value Plus ("Value Plus") to Skyline Special
Equities Portfolio ("Special Equities Portfolio") in exchange for
shares of beneficial interest of Special Equities Portfolio, followed
by (b) the distribution of shares of Special Equities Portfolio, pro
rata, to Value Plus shareholders and (c) liquidation of Value Plus.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting.
(Please sign exactly as name appears above.)
- ---------------------------------------- -----------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
<PAGE>
SKYLINE FUNDS
311 SOUTH WACKER DRIVE
SUITE 4500
CHICAGO, ILLINOIS 60606
SKYLINE FUNDS
SKYLINE SMALL CAP CONTRARIAN
Revocable Proxy for Special Meeting of Stockholders. This Proxy is Solicited on
Behalf of the Board of Trustees.
The undersigned hereby appoints William M. Dutton and Stephen F. Kendall, and
each of them, proxy, with full power of substitution, to vote all shares of
stock the undersigned is entitled to vote at the Special Meeting of Stockholders
of Skyline Small Cap Value Plus and Skyline Small Cap Contrarian to be held at
the Metropolitan Club, Sears Tower, 233 South Wacker Drive, 67th Floor, Chicago,
Illinois at 10:00 a.m. on Tuesday, February 29, 2000, or at any adjournment
thereof, with respect to the matters set forth on this proxy and described in
the Notice of Special Meeting and Proxy Statement/Prospectus, receipt of which
is hereby acknowledged.
Shares listed below represent an aggregate total of all Skyline Small Cap
Contrarian shares registered in the name printed to the left.
(If stock is owned by more than one person, all owners should sign. Persons
signing as executors, administrators, trustees or in similar capacities should
so indicate.)
- - To vote by mail, sign below exactly as your name appears above and return
the card in the envelope provided.
- - To vote by touch-tone phone, call 1-800-690-6903.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
SKYCON KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
- --------------------------------------------------------------------------------
SKYLINE SMALL CAP CONTRARIAN
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO DIRECTION IS SUPPLIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. Please
vote by filling in the appropriate boxes below, as shown, using blue or black
ink or dark pencil. Do not use red ink.
VOTE ON PROPOSALS
1. To approve the Plan of Reorganization (the "Plan") providing for (a)
the transfer of all or substantially all of the assets and liabilities
of Skyline Small Cap Contrarian ("Contrarian") to Skyline Special
Equities Portfolio ("Special Equities Portfolio") in exchange for
shares of beneficial interest of Special Equities Portfolio, followed
by (b) the distribution of shares of Special Equities Portfolio, pro
rata, to Contrarian shareholders and (c) liquidation of Contrarian.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting.
(Please sign exactly as name appears above.)
- ---------------------------------------- -----------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
