<PAGE>
As filed with the Securities and Exchange Commission on November 22, 1999
Securities Act registration no. 333-_______
Investment Company Act file no. 811-5022
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No.
- --------------------------------------------------------------------------------
SKYLINE FUNDS -Registered Trademark-
(Registrant)
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
Telephone Number: 312/913-0900
- --------------------------------------------------------------------------------
William M. Dutton Janet D. Olsen
Skyline Funds Bell, Boyd & Lloyd
311 South Wacker Drive, # 4500 Three First National Plaza, #3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
Approximate date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933
Title of securities being registered: shares of beneficial interest of Skyline
Special Equities Portfolio, a series of Skyline Funds.
Registration fee: No filing fee is due because of the Registrant's reliance on
Section 24(f) of the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective on December 23, 1999,
pursuant to Rule 488.
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<PAGE>
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 merger 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 the Acquired
Funds 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 merger
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-xxx-xxxx 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
<PAGE>
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 Adviser), and urges you to
vote yes.
2. WHY HAS THE BOARD OF TRUSTEES DECIDED TO RECOMMEND THE MERGER OF VALUE PLUS
AND CONTRARIAN INTO SPECIAL EQUITIES PORTFOLIO AND WHAT ARE THE ADVANTAGES
OF THE MERGER?
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 just as it always has, in companies with below average
valuations and above average earnings growth prospects.
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?
Special Equities Portfolio has one of the best long term records in the
small cap value category. Specific information about all three funds'
performance is included in the Proxy Statement/Prospectus under the
heading "Comparative Performance Information." Bill Dutton is the
portfolio manager of Special Equities Portfolio 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?
Since the inception of Value Plus, both Special Equities Portfolio and
Value Plus have similar investment performance records. In some years,
Value Plus has performed better (1995 and 1999 YTD) while in other
years, Special Equities Portfolio has performed better (1996 and 1997).
In 1994 and 1998, both funds' performance were very close. One reason
why these differences in performance exist is the slight style
difference in which both funds approach the small cap value category.
<PAGE>
7. HOW HAS CONTRARIAN PERFORMED COMPARED TO SPECIAL EQUITIES PORTFOLIO?
Contrarian had weaker performance in 1998 and stronger performance
year-to-date in 1999.
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 September 30, 1999, Special Equities had about $306.9 million in
net assets, Value Plus had about $73.1 million and Contrarian had about
$4.4 million. If those amounts were the same on the closing date,
Special Equities Portfolio would have about $384.4 million in net
assets. We think that the Special Equities Portfolio management team
has the capacity to manage assets at a higher level.
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-xxx-xxxx 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.
<PAGE>
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.
<PAGE>
The information in this proxy statement/prospectus is not complete and may be
changed. We may not use this proxy statement/prospectus to sell securities until
the registration statement filed with the Securities and Exchange Commission is
effective. This proxy statement/prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any State
where the offer or sale is not permitted.
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
__________________________________, 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
1.800.828.2SKY
--------------------------
--------------------------
PROXY STATEMENT/PROSPECTUS
--------------------------
--------------------------
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 ____________________________________,
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"). Value Plus and Contrarian would then distribute the Shares pro
rata to their shareholders. After the distribution, Value Plus and Contrarian
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 its investment 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 Value Plus and
Contrarian to Special Equities Portfolio under the heading "Summary of
Investment Objectives and Strategies".
<PAGE>
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 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 Report of Skyline dated December 31, 1998; and
- the Semi-Annual Report 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
PAGE
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
i
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AUDITORS.............................................................15
INTERESTS OF EXPERTS AND COUNSEL.....................................15
OTHER MATTERS........................................................15
SHAREHOLDER MEETINGS.................................................15
AVAILABLE INFORMATION................................................15
PLAN OF REORGANIZATION AND LIQUIDATION........................................17
ii
<PAGE>
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 ___________________________________,
Chicago, Illinois. The purpose of the Meeting is to consider and vote on the
Plan, pursuant to which Special Equities Portfolio would acquire
substantially all of the assets and assume 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 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 Value Plus and Contrarian
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.
<PAGE>
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 similar investment
objectives, 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 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 each Fund are slightly different. Special
Equities Portfolio seeks to achieve its objective through investment in small
company stocks (those with an aggregate market value of less than $1 billion)
that have below average valuations and above average earnings growth. 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.
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
2
<PAGE>
Prospectus under "How We Choose Investments." As described more fully under
"Comparison of the Funds," Value Plus invests mostly in stocks with slightly
higher growth rates and valuations, and Contrarian invests mostly in deep value
stocks.
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
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 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 sales and promotional expenses from its
own resources.
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,
3
<PAGE>
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 the 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 interests 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 substantially all of the assets
and liabilities of each of Value Plus and Contrarian 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 Value
Plus and Contrarian.
If shareholders approve the Plan, Special Equities Portfolio will
acquire 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 substantially
all of the debts, liabilities, obligations or duties of the Acquired Funds.
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 Value Plus and
Contrarian and by transferring the shares credited to a shareholder's account of
Value Plus and Contrarian to the new Special Equities Portfolio' account. Each
account opened will represent the respective pro rata number of Special Equities
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.
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
6
<PAGE>
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 interests 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.
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 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
7
<PAGE>
were focused on selecting undervalued small company stocks for investment by one
combined Fund, rather than spreading out this talent among 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 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 it is limited to circumstances in which the
disclaimer is inoperative and Skyline itself is unable to meet its obligations.
8
<PAGE>
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 giving effect to the Reorganization:
<TABLE>
<CAPTION>
Special Pro Forma
Equities Combined Fund
Value Plus Contrarian Portfolio
-----------------------------------------------------------------
<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 variability of Fund returns over the
periods indicated. Returns include the reinvestment of dividends and
distributions. Of course, past performance does not guarantee future results.
The principal value and return on the investment will fluctuate and on
redemption may be worth more or less than the original cost.
VALUE PLUS
Annual Total Returns (%)
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -1.5 21.0 26.6 26.2 -6.7
</TABLE>
*Total return for the nine months ended September 30, 1999 was -5.26%.
9
<PAGE>
CONTRARIAN
[CHART]
<TABLE>
<CAPTION>
1998
<S> <C>
Annual Total Returns (%) -28.4
</TABLE>
*Total return for the nine months ended September 30, 1999 was 11.59%.
SPECIAL EQUITIES PORTFOLIO
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Total Returns (%) 24.0 -9.3 47.4 42.5 22.9 -1.2 13.8 30.4 35.4 -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 tables below compares each Fund's average annual total return to
its market benchmark for the periods indicated. Performance for each Fund,
and for the Russell 2000 and S&P 500 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%
</TABLE>
CONTRARIAN
<TABLE>
<CAPTION>
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%
</TABLE>
SPECIAL EQUITIES PORTFOLIO
<TABLE>
<CAPTION>
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 -7.17% 13.02% 18.26% 16.17% -11.12%
Equities
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 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 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
11
<PAGE>
case of each Acquired Fund constitute a "Reorganization" under
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 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 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 for which 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 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 Skyline Asset Management, L.P.
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, or by telephone or 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, Skyline
Asset Management, L.P. 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 shares which 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 Plan and the Reorganization contemplated thereby 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
13
<PAGE>
proportionate vote for each fractional share) held by such shareholder on each
matter presented at the Meeting. As of the Record Date, there were _____ shares
of Value Plus and _____ 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 thereby 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 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 or 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 may also arrange to have votes recorded by telephone. Any
expenses in connection with telephone voting would be paid by the Skyline Asset
Management, L.P. 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% and Hartford Life Insurance Company Deferred Pension III Separate
Account, which held 9.2% of the shares of Value Plus, and Charles Schwab & Co.,
Inc., as a nominee for various beneficial owners, which held 34.6% 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 when and 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").
R E C I T A L S
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; and
WHEREAS, the Board of Trustees of Skyline deems it advisable that
Special Equities acquire substantially all of the assets of each of Value Plus
and Contrarian in exchange for the assumption by Special Equities of
substantially all of the liabilities of each of Value Plus and Contrarian and
the issuance of shares of beneficial interest of Special Equities, 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.
A G R E E M E N T
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 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 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.
1.21 "Skyline Prospectus" means the Prospectus, dated May 1, 1999, of
Skyline relating to each of Value Plus, Contrarian and Special Equities.
A-2
<PAGE>
1.22 "Special Equities" means Skyline Special Equities Portfolio, a
designated series of Skyline.
1.23 "Special Equities Shares" means the shares of beneficial interest
of Special Equities 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 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, in exchange for (i), and
against delivery to each Acquired Fund at the Effective Time of, that number of
Special Equities 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 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 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 Shares and the net
value of the assets of each Acquired Fund transferred pursuant to this Plan
shall, in each case, be determined 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 Shares shall be
computed in accordance with the practices and procedures of Special Equities
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 (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.
2.4 CLOSING OF BOOKS. The assets of each Acquired Fund and the per
share net asset value of Special Equities 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 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
A-3
<PAGE>
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 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 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 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
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 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 in exchange for Special
Equities Shares, and the distribution of such Special Equities 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 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 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 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 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 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 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 will succeed 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.
A-4
<PAGE>
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 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
to own, purchase or hold all of the securities and instruments in the Acquired
Fund's investment portfolio being transferred to Special Equities in the
Reorganization without causing a violation of any of Special Equities'
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 realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carried forward).
A-5
<PAGE>
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.
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 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 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>
The information in this Statement of Additional Information is not complete
and may be changed. We may not use this Statement of Additional Information
to sell securities until the registration statement filed with the Securities
and Exchange Commission is effective. This Statement of Additional
Information is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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
1-800-828-2SKY
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"),
another series of Skyline. In connection with the Reorganization, Special
Equities will acquire substantially all of the assets and liabilities of the
Acquired Funds. In consideration for each Acquired Fund's transfer of assets to
Special Equities, Special Equities will issue to each Acquired Fund shares of
beneficial interest, no par value (the "Shares"), of Special Equities 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 received by each 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. It is expected that the aggregate net asset
value of the Shares of Special Equities 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), 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), 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
thereto of Value Plus, Contrarian and Special Equities, 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 as of December 31, 1998;
(2) Statement of Operations for each of Value Plus, Contrarian and
Special Equities for the year ended December 31, 1998;
(3) Statement of Changes in Net Assets for each of Value Plus,
Contrarian and Special Equities 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 as of December 31, 1998;
(5) Financial Highlights for each of Value Plus, Contrarian and
Special Equities as of December 31, 1998; and
(6) Notes to Financial Statements.
The following unaudited historical financial statements and footnotes
thereto of Value Plus, Contrarian and Special Equities 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 as of June 30, 1999;
(2) Statement of Operations for each of Value Plus, Contrarian and
Special Equities for the six months ended June 30, 1999;
(3) Statement of Changes in Net Assets for each of Value Plus,
Contrarian and Special Equities 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 as of June 30, 1999; and
(5) Financial Highlights for each of Value Plus, Contrarian and
Special Equities as of June 30, 1996.
S-2
<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-3
<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-4
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
FOR VALUE PLUS AND SPECIAL EQUITIES PORTFOLIO
AS OF JUNE 30, 1999
S-5
<PAGE>
<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
Printing/Publishing
Banta Corp. Commercial printer
Cadmus Communications Corp. Commercial printer
World Color Press, Inc. Commercial printer
<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%
Printing/Publishing
Banta Corp. 187,100 $ 3,929,100 1.0%
Cadmus Communications Corp. 126,300 $ 1,736,625 0.4%
<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%
Printing/Publishing
Banta Corp.
Cadmus Communications Corp.
<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%
Printing/Publishing
Banta Corp. 187,100 $3,929,100 0.8%
Cadmus Communications Corp. 126,300 $1,736,625 0.4%
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
COMMON COMPANY
STOCKS DESCRIPTION
---------------------- ------------------------------------------
<S> <C>
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>
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>
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>
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-7
<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 $ 1,446,412 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-8
<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-9
<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-10
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. Indemnification
Article Tenth of Registrant's Agreement and Declaration of
Trust (exhibit (a) to this registration statement, which is incorporated herein
by reference) provides that Registrant shall provide certain indemnification of
its trustees and officers. In accordance with Section 17(h) of the Investment
Company Act, that provision shall not protect any person against any liability
to the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, negligence or reckless disregard of
the duties involved in the conduct of his office.
In so far as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be permitted to
trustees, officers, and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant, its trustees and officers, Skyline Asset
Management, L.P. (the "Adviser") (the investment adviser to Registrant) and
certain affiliated persons of the Adviser and affiliated persons of such persons
are insured under a policy of insurance maintained by Registrant, the Adviser
and those affiliates, within the limits and subject to the limitations of the
policy, against certain expenses in connection with the defense of actions,
suits or proceedings, and certain liabilities that might be imposed as a result
of such actions, suits or proceedings, to which they are parties by reason of
being or having been such trustees, directors or officers. The policy expressly
excludes coverage for any trustee or officer whose personal dishonesty,
fraudulent breach of trust, lack of good faith, or intention to deceive or
defraud has been finally adjudicated or may be established or who willfully
fails to act prudently.
ITEM 16. Exhibits
NOTE: As used herein, "Registration Statement" means the Registrant's
Registration Statement on Form N-1A, no. 33-11755, "Post-effective Amendment
no. 21" refers to post-effective amendment no. 21 to the Registration Statement
that was filed on April 29, 1996, "Post-effective Amendment no. 22" refers to
post-effective amendment no. 22 to the Registration Statement that was filed on
April 25, 1997, "Post-effective Amendment no. 23" refers to post-effective
amendment no. 23 to the Registration Statement that was filed on August 29,
1997, and "Post-effective Amendment no. 24" refers to post-effective amendment
no. 24 to the Registration Statement that was filed on February 27, 1998 and
"Post-effective Amendment no. 25" refers to post-effective no. 25 to the
Registration Statement that was filed on April 28, 1998.
C-1
<PAGE>
(1) a. Agreement and Declaration of Trust of the Registrant
(incorporated by reference to exhibit 1 to Post-effective
Amendment no. 21)
b. Amendment No. 1 to Agreement and Declaration of Trust
(incorporated by reference to exhibit 1.2 to Post-effective
Amendment no. 22)
(2) By-Laws of the Registrant (incorporated by reference to exhibit 2
to Post-effective Amendment no. 21)
(3) None
(4) Skyline Funds' Plan of Reorganization dated November 16, 1999
(5) a. Share certificate for series designated Skyline Special
Equities Portfolio (incorporated by reference to exhibit 4.1 to
Post-effective Amendment no. 24)
b. Share certificate for series designated Skyline Small Cap
Value Plus (incorporated by reference to exhibit 4.2 to
Post-effective Amendment no. 24)
c. Share certificate for series designated Skyline Small Cap
Contrarian (incorporated by reference to exhibit 4.3 to
Post-effective Amendment no. 24)
(6) a. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Special
Equities Portfolio (incorporated by reference to exhibit d(1)
to Post-effective Amendment no. 26)
b. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Small Cap
Value Plus (incorporated by reference to exhibit d(2) to Post-
effective Amendment no. 26)
c. Investment Advisory Agreement between the Registrant and
Skyline Asset Management, L.P., relating to Skyline Small Cap
Contrarian (incorporated by reference to exhibit d(3) to Post-
effective Amendment no. 26)
(7) a. Distribution Agreement between the Registrant and Funds
Distributor, Inc. (incorporated by reference to exhibit 6 to
Post-effective Amendment no. 21)
b. Amendment to Distribution Agreement between the Registrant
and Funds Distributor, Inc. (incorporated by reference to exhibit
6.2 to Post-effective Amendment no. 24)
C-2
<PAGE>
(8) None
(9) Amended and Restated Custodian Agreement among the Registrant,
Skyline Asset Management, L.P., and Firstar Trust Company
(incorporated by reference to exhibit 8 to Post-effective
Amendment no. 25)
(10) None
(11) Opinion of counsel on legality of securities
(12) Tax opinion
(13) 1. Amended and Restated Transfer Agent Agreement among the
Registrant, Skyline Asset Management, L.P., and Firstar Trust
Company (incorporated by reference to exhibit 8 to Post-effective
Amendment no. 25)
2. Amended and Restated Fund Accounting Services Agreement
among the Registrant, Skyline Asset Management, L.P., and Firstar
Trust (incorporated by reference to exhibit 8 to Post-effective
Amendment no. 25) Company (incorporated by reference to exhibit 8
to Post-effective Amendment no. 25)
(14) Consent of Independent Auditors
(15) None
(16) None
ITEM 17 Undertakings
Not applicable.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the registrant, in the City of Chicago and State of
Illinois on the 22nd day of November, 1999.
SKYLINE FUNDS
By /s/ William M. Dutton
---------------------------------
William M. Dutton, President
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated.
/s/ William L. Achenbach Trustee )
- ------------------------- )
William L. Achenbach )
)
)
)
/s/ William M. Dutton Trustee )
- ------------------------- President )
William M. Dutton (principal executive officer )
)
)
)
)
/s/ Paul J. Finnegan Trustee )November 22, 1999
- ------------------------- )
Paul J. Finnegan )
)
)
)
/s/ David A. Martin Trustee )
- ------------------------- )
David A. Martin )
)
)
)
/s/ Richard K. Pearson Trustee )
- ------------------------- )
Richard K. Pearson )
)
)
)
/s/ Stephen F. Kendall Secretary and Treasurer )
- ------------------------- (principal accounting and )
Stephen F. Kendall financial officer)
<PAGE>
SKYLINE FUNDS
SKYLINE SMALL CAP VALUE PLUS
SKYLINE SMALL CAP CONTRARIAN FUND
Revocable Proxy for Special Meeting of Stockholders. This Proxy is Solicited on
Behalf of the Board of Trustees.
The undersigned hereby appoints _________________, _________________ and
_________________, 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 ______________________________, Chicago, Illinois
at ________ on Tuesday, February 29, 1999, 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 and Skyline Small Cap Contrarian Fund shares registered in the name printed
below.
Dated: , 2000
----------------------------
------------------------------------------
------------------------------------------
(Please sign exactly as name
appears at 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.)
<PAGE>
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.
1. VALUE PLUS SHAREHOLDERS ONLY:
To approve the Plan of Reorganization (the "Plan") providing
for (a) the transfer of substantially all of the assets and
liabilities of Value Plus to 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 / /
CONTRARIAN SHAREHOLDERS ONLY:
To approve the Plan of Reorganization (the "Plan") providing
for (a) the transfer of substantially all of the assets and
liabilities of Contrarian to 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.
<PAGE>
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").
R E C I T A L S
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; and
WHEREAS, the Board of Trustees of Skyline deems it advisable that
Special Equities acquire substantially all of the assets of each of Value Plus
and Contrarian in exchange for the assumption by Special Equities of
substantially all of the liabilities of each of Value Plus and Contrarian and
the issuance of shares of beneficial interest of Special Equities, 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.
A G R E E M E N T
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:
<PAGE>
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 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 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.
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" 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
<PAGE>
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.
1.21 "Skyline Prospectus" means the Prospectus, dated May 1, 1999, of
Skyline relating to each of Value Plus, Contrarian and Special Equities.
1.22 "Special Equities" means Skyline Special Equities Portfolio, a
designated series of Skyline.
1.23 "Special Equities Shares" means the shares of beneficial interest
of Special Equities 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 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, in exchange for (i), and
against delivery to each Acquired Fund at the Effective Time of, that number of
Special Equities 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 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 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 Shares and the net
value of the assets of each Acquired Fund transferred pursuant to this Plan
shall, in each case, be determined 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 Shares shall be
computed in accordance with the practices and procedures of Special Equities
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.
<PAGE>
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 (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.
2.4 CLOSING OF BOOKS. The assets of each Acquired Fund and the per
share net asset value of Special Equities 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 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 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 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 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
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 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 in exchange for Special
Equities Shares, and the distribution of such Special Equities 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 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 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 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 will be the same as the basis of the assets in the
hands of
<PAGE>
the corresponding Acquired Fund immediately prior to the transactions;
(g) a shareholder's holding period for Special Equities 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 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 will succeed 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.
<PAGE>
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 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
to own, purchase or hold all of the securities and instruments in the Acquired
Fund's investment portfolio being transferred to Special Equities in the
Reorganization without causing a violation of any of Special Equities'
investment restrictions or policies.
<PAGE>
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 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.
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 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 as the case may be.
<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
<PAGE>
November 22, 1999
Skyline Funds
311 South Wacker Drive #4500
Chicago, IL 60606
Ladies and Gentlemen:
Reference is made to the registration statement on Form N-14 being
filed herewith with the Securities and Exchange Commission (the "Registration
Statement") with respect to certain shares of beneficial interest (the "Shares")
of Skyline Funds, an unincorporated association of the type commonly referred to
as a Massachusetts business trust (the "Trust"), representing interests in
Skyline Special Equities Portfolio, a series of the Trust, to be issued pursuant
to a certain Agreement and Plan of Reorganization (the "Reorganization
Agreement") by Skyline Funds on behalf of its series designated Skyline Small
Cap Value Plus, Skyline Small Cap Contrarian and Skyline Special Equities
Portfolio, as described in the Registration Statement.
We have examined such records, documents and other instruments and have
made such other examinations and inquiries as we have deemed necessary to enable
us to express the opinion set forth below.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued in accordance with the terms of the Reorganization
Agreement, will be validly issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR
LLP
DOCSC\818364.1
<PAGE>
November 22, 1999
The Board of Trustees
Skyline Funds
311 South Wacker Drive
Chicago, Illinois 60606
Re: Federal Income Tax Consequences of the Transfer of Substantially
All the Assets of Skyline Small Cap Value Plus and Skyline Small
Cap Contrarian to Skyline Special Equities Portfolio
----------------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning the Federal income tax
consequences of the transactions described below.
Skyline Small Cap Value Plus and Skyline Small Cap Contrarian
("Acquired Funds") are series of Skyline Funds ("Skyline"), a Massachusetts
business trust. Skyline Special Equities Portfolio ("Acquiring Fund") is also a
series of Skyline. Pursuant to the Plan of Reorganization dated as of November
16, 1999 (the "Merger Agreement"), which is described in greater detail in the
preliminary Proxy Statement/Prospectus dated November 22, 1999 (the "Proxy
Statement"), each Acquired Fund will transfer all its assets to Acquiring Fund
in exchange for shares of Acquiring Fund and the assumption by Acquiring Fund of
all the liabilities of such Acquired Fund. Each Acquired Fund will liquidate and
distribute the shares of Acquiring Fund among its shareholders in exchange for
their Acquired Fund shares. These transactions are referred to as the
"Reorganization."
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including the Merger Agreement and the
Proxy Statement. In our examination of documents, we have assumed, with your
consent, that all documents submitted to us as photocopies or telecopies
faithfully reproduce the
<PAGE>
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements of fact set forth in such documents are accurate. In addition, we
have obtained such additional information and representations as we have deemed
relevant and necessary through consultation with various representatives of the
Acquired Funds and Acquiring Fund. We hereby consent to the reference to our
firm under the caption "Tax Considerations" in the Proxy Statement.
We have assumed, with your consent, that the following statements are
true and correct on the date hereof and will be true at the effective date of
the Reorganization:
1. The Reorganization will be consummated in compliance with the
material terms of the Merger Agreement, none of the material terms and
conditions therein have been waived or modified, and neither of the Acquired
Funds nor Acquiring Fund has any plan or intention to waive or to modify any
such material term or condition.
2. Immediately following the Reorganization, Acquiring Fund will
possess the same assets and liabilities as those possessed by each Acquired Fund
immediately before the Reorganization.
3. The fair market value of the Acquiring Fund shares and other
consideration that will be received by each Acquired Fund will be approximately
equal to the fair market value of the assets transferred in exchange therefor.
4. Acquiring Fund will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by each Acquired Fund immediately prior to the
Reorganization. For purposes of this assumption, amounts used by each
Acquired Fund or Acquiring Fund to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal, or customary
dividends, distributions of net realized capital gain or transactions in the
ordinary course of each Acquired Fund's business as a regulated investment
company) made by each Acquired Fund immediately preceding the Reorganization
will be included as assets held by each Acquired Fund immediately prior to
the Reorganization.
5. Acquiring Fund has no plan or intention to reacquire any of the
shares of Acquiring Fund issued in the Reorganization except through redemptions
in the ordinary course of its business as a regulated investment company.
6. Acquiring Fund has no plan or intention to issue additional
shares following the transaction except in the ordinary course of its business
as a regulated investment company.
7. Acquiring Fund has no plan or intention following the
Reorganization to sell or otherwise to dispose of any of the assets of either
Acquired Fund acquired in the Reorganization, except for dispositions made in
the ordinary course of its business as a regulated investment company.
<PAGE>
8. The liabilities of each Acquired Fund assumed by Acquiring Fund
and the liabilities to which the transferred assets of each Acquired Fund are
subject were incurred by each Acquired Fund in the ordinary course of its
business.
9. Following the Reorganization, Acquiring Fund will continue the
historic business of each Acquired Fund or use a significant portion of each
Acquired Fund's historic business assets in a business, and Acquiring Fund and
each Acquired Fund will have substantially identical investment strategies and
objectives.
10. In connection with the Reorganization, the Acquiring Fund will
not bear any of the expenses of either Acquired Fund, nor will either Acquired
Fund bear any of the expenses of the Acquiring Fund, other than expenses
directly and solely related to the Reorganization.
11. There is no intercorporate indebtedness existing between
Acquiring Fund and either Acquired Fund that was, or will be, issued, acquired,
or settled at a discount.
12. Each Acquired Fund and Acquiring Fund are regulated investment
companies and Acquiring Fund intends to continue to qualify as a regulated
investment company.
13. The fair market value of the assets of each Acquired Fund
transferred to Acquiring Fund will equal or exceed the sum of the liabilities
assumed by Acquiring Fund, plus the amount of liabilities, if any, to which the
transferred assets are subject.
14. Neither Acquired Fund is under the jurisdiction of a court in a
case under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a federal or state court.
15. Each Acquired Fund will liquidate promptly after the effective
date of the transfer of its assets to and the assumption of its liabilities by
Acquiring Fund.
Based upon the foregoing, it is our opinion that:
A. The transfer of all the assets and liabilities of each Acquired
Fund to Acquiring Fund in exchange for shares of Acquiring Fund
and the distribution of those shares to shareholders of each
Acquired Fund will in the case of each Acquired Fund constitute a
"reorganization" under Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code");
B. 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;
C. 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 Acquiring Fund in the Reorganization;
<PAGE>
D. Under Section 358(a)(1) of the Code, the basis of the Acquiring
Fund shares received by a shareholder of an Acquired Fund will be
the same as the basis of the Acquired Fund shares immediately
before the Closing Date;
E. Under Section 362(b) of the Code, the basis to Acquiring Fund 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;
F. Under Section 1223(1) of the Code, shareholders' holding periods
for their shares of Acquiring Fund will include the period they
held their shares of the corresponding Acquired Fund, if the
shares of the Acquired Fund were held as a capital asset;
G. Under Section 1223(2) of the Code, the holding period for
Acquiring Fund with respect to the assets received in the
Reorganization will include the period for which such assets were
held by the corresponding Acquired Fund; and
H. Under Section 381 of the Code, Acquiring Fund will succeed to the
earnings and profits, or deficit in earnings and profits, of the
Acquired Funds.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based on the documents that we
have examined, the additional information that we have obtained, and the
statements of fact set out herein that we have assumed, with your consent, to be
true and correct. Our opinions cannot be relied upon if any of the facts
contained in such documents or in any such additional information is, or later
becomes, inaccurate or if any of the assumed facts set out herein is, or later
becomes, inaccurate. Finally, our opinions are limited to the tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Reorganization.
Very truly yours,
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Auditors" and
"Experts" and to the incorporation by reference of our report dated
January 25, 1999, for Skyline Small Cap Value Plus, Skyline Small Cap
Contrarian, and Skyline Special Equities Portfolio in the Registration
Statement (Form N-14) and related Prospectus/Proxy of Skyline Funds filed
with the Securities and Exchange Commission under the Securities Act of 1933.
Ernst & Young LLP
Chicago , Illinois
November 22, 1999
