<PAGE>
SEMI-ANNUAL REPORT -- June 30, 2000
SKYLINE SPECIAL
EQUITIES PORTFOLIO
-----------------------------------------
[GRAPHIC]
SKYLINE SPECIAL EQUITIES PORTFOLIO
[SKYLINE FUNDS LOGO]
<PAGE>
LETTER FROM WILLIAM M. DUTTON, PORTFOLIO MANAGER:(1)
------------------------------------------------------------------------
June 30, 2000
Dear Shareholder:
OVERVIEW
The Fund showed a gain of 3.76% for the second quarter, bringing the
year-to-date return to 7.67%. This compares favorably to the returns for the
small cap indexes. The Russell 2000 Index showed a loss of 3.78% for the quarter
and a gain of 3.04% for the first half of the year. The Russell 2000 Value Index
showed a gain of 1.95% for the quarter and a gain of 5.85% for the first half of
the year.
Value-oriented investment strategies did better in the June quarter, as the love
affair with technology stocks came to an end in mid-March. The Fund benefited
from this improved environment for value stocks. Also, stock selection in the
Fund was strong, as the majority of the companies in the Fund reported very good
financial results.
MARKET REVIEW
Although the small cap market showed little net change in the second quarter,
there was great volatility during the period. Small growth stocks showed sharp
declines in April and May due primarily to the correction in technology stocks
that started in mid-March. The month of June saw a big rebound in this area, but
not enough to show positive results for the quarter. Value-oriented stocks held
up better during the April-May correction and therefore provided better returns
for the quarter.
The only sectors to show significant positive results for the quarter were
health care and energy. Investors are concerned about a slowdown in the economy
and consequently are avoiding economically sensitive stocks. Health care is
considered a defensive area and a desirable place to invest during an economic
slowdown. Energy is benefiting from high oil and gas prices.
For the first half of the year, a similar pattern existed concerning sector
performance. Energy and health care stood out as the best performers, followed
by technology and producer durables. The latter sectors showed year-to-date
gains only because of very strong first quarter returns. Consumer stocks were
notable laggards for the first half of the year as investors were concerned
about a slowdown in consumer spending.
PORTFOLIO REVIEW
The Fund performed better than the small cap benchmarks for both the quarter and
first half of the year primarily because of good stock selection. A high
percentage of the companies in the Fund reported very strong financial results,
leading to increases in share prices. Many holdings appreciated simply because
they were so undervalued at the beginning of the year. The Fund also had a
number of companies that received takeover offers, some at significant premiums
to existing market prices.
SEMI-ANNUAL REPORT - JUNE 30, 2000 1
<PAGE>
Favorable stock selection was somewhat offset by disadvantageous sector
weightings. The Fund has been heavily weighted in consumer and other
economically sensitive stocks, areas that lagged during the period. The best
performing sectors of the market -- health care and energy -- have generally
been under-represented in the Fund.
The Fund continues to be held back by significant P/E compression as
out-of-favor sectors are accorded surprisingly low multiples. Also, companies
that report disappointing financial results typically find that their stock
price drops dramatically, usually to a degree that is quite disproportionate to
the financial shortfall. Since the Fund has many stocks that carry extremely low
valuations, we believe there is a huge opportunity going forward for capital
appreciation.
OUTLOOK
We believe the market is in a transition phase that could eventually lead to
better performance for value-oriented strategies. Value investors have been hurt
over the past two years by a number of factors, including a Federal Reserve
Board that seems determined to slow the economy and a wild bull market in
technology stocks that threw valuation out the window as an investment
parameter. Although the Federal Reserve may not be done with its interest rate
hikes and technology fundamentals remain strong, the stock market, in our
opinion, is sensing that a new environment may soon emerge where valuation again
matters in the investment equation. The better relative performance of
value-oriented stocks since mid-March is a sign that a leadership transition may
be underway.
A change in stock market leadership makes sense to us. The stock price moves of
the past year have created valuation differences that, in our opinion, are
absurd. Within the small cap universe, many growth stocks trade at the highest
valuation levels of the past 30 years. At the same time, many small cap
value-oriented stocks trade at levels normally seen only in deep bear markets.
If one believes that stock markets generally find appropriate and sensible
pricing levels for individual securities, this situation must change.
The Fund is positioned to perform well if the environment is friendly to small
cap value investing. Many stocks in the Fund are very cheap, with the median P/E
at about 13 times trailing 12-month earnings. At the same time, we expect the
median company in the Fund to show earnings growth of 16.5% over the next year.
We are optimistic that the combination of low valuations and strong fundamentals
should lead to continued strong performance returns in the future.
/s/ William M. Dutton
2 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
PORTFOLIO CHARACTERISTICS(1)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIAL RUSSELL 2000
EQUITIES VALUE RUSSELL 2000 S&P 500
<S> <C> <C> <C> <C>
P/E RATIO (MEDIAN) 12.6 14.2 22.1 19.4
PRICE/BOOK 1.94 1.38 2.44 5.21
PRICE/SALES 0.74 0.78 1.30 2.38
--------------------------------------------------------------------------------------------
EPS GROWTH--5 YRS (HISTORICAL) 11.4% 10.8% 13.1% 17.3%
EPS GROWTH--1 YR (FORECASTED) 18.8% 12.9% 20.4% 23.9%
--------------------------------------------------------------------------------------------
MARKET CAP $ WGHTD. MED. $840 million $750 million $850 million $95 billion
PORTFOLIO VALUE $235 million $435 billion $966 billion $12,493 billion
NUMBER OF HOLDINGS 67 1,292 2,000 500
--------------------------------------------------------------------------------------------
TICKER SYMBOL SKSEX
CUSIP #: 830833208
INITIAL INVESTMENT: $1,000
SUBSEQUENT INVESTMENT: $100
NET ASSET VALUE (PER SHARE): $17.12
--------------------------------------------------------------------------------------------
</TABLE>
- TOP TEN HOLDINGS(3)
<TABLE>
<CAPTION>
% OF NET ASSETS
-------------------------------------------------
<S> <C>
BELDEN INC.
Wire & cable manufacturer 2.9
INVACARE CORP.
Home health care products 2.7
ARROW ELECTRONICS, INC.
Distributes electronic
components 2.3
GALLAGHER & CO. (ARTHUR J.)
Insurance broker 2.2
POLARIS INDUSTRIES INC.
Snowmobiles, ATVs, motorcycles 2.1
JACOBS ENGINEERING GROUP INC.
Engineering and construction 2.1
TIDEWATER INC.
Supply boat operator 2.1
APPLIED POWER INC.
Industrial products
manufacturer 2.1
STANCORP FINANCIAL GROUP, INC.
Disability insurance 2.1
TECH DATA CORPORATION
Distributor of PCs and
peripherals 2.0
TOP TEN HOLDINGS 22.6%
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 2000 3
<PAGE>
- PERFORMANCE (%)(1)
-------------------------------------------------
<TABLE>
<CAPTION>
2Q
2000 YTD 1 yr. 3 yrs.
<S> <C> <C> <C> <C>
SPECIAL EQUITIES 3.76 7.67 -8.12 -1.33
RUSSELL 2000 VALUE 1.95 5.85 -0.94 3.84
RUSSELL 2000 -3.78 3.04 14.32 10.57
S&P 500 -2.87 -0.49 7.42 19.76
</TABLE>
<TABLE>
<CAPTION>
Calendar Years
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
SPECIAL EQUITIES -13.3 -7.2 35.4 30.4 13.8 -1.2
RUSSELL 2000 VALUE -1.5 -6.5 31.8 21.4 25.8 -1.6
RUSSELL 2000 21.3 -2.6 22.4 16.5 28.4 -1.8
S&P 500 21.1 28.8 33.4 23.3 37.5 1.3
</TABLE>
- SECTOR WEIGHTINGS (AS OF JUNE 30, 2000)
------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Autos & Transportation 3.3%
Consumer Discretionary 30.6%
Consumer Staples 4.1%
Energy 6.6%
Financial Services 16.6%
Health Care 6.5%
Materials & Processing 5.7%
Producer Durables 11.6%
Technology 10.1%
Cash 4.9%
</TABLE>
4 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
5 yrs. 10 yrs. Inception(2)
<S> <C> <C> <C> <C>
SPECIAL EQUITIES 10.39 14.06 13.62
RUSSELL 2000 VALUE 11.70 13.16 10.90
RUSSELL 2000 14.27 13.56 11.03
S&P 500 23.89 17.84 16.10
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987(2)
<S> <C> <C> <C> <C> <C> <C> <C>
SPECIAL EQUITIES 22.9 42.5 47.4 -9.3 24.0 29.7 -16.9
RUSSELL 2000 VALUE 23.8 29.1 41.7 -21.8 12.4 29.5 -21.5
RUSSELL 2000 18.9 18.4 46.1 -19.5 16.2 24.9 -24.3
S&P 500 10.0 7.7 30.6 -3.2 31.4 16.5 -12.0
</TABLE>
- SECTOR PERFORMANCE(1) (AS OF JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2Q 2000 YTD 2000
--------------------------------------------------------- ---------------------------------------------------------
RUSSELL RUSSELL
SPECIAL 2000 RUSSELL SPECIAL 2000 RUSSELL
EQUITIES VALUE 2000 EQUITIES VALUE 2000
<S> <C> <C> <C> <C> <C> <C> <C>
Autos & Transportation 26.5% -11.4% -5.9% Autos & Transportation 39.2% -12.9% -8.5%
Energy 11.9 12.6 13.0 Technology 38.3 35.2 4.7
Financial Services 9.8 4.0 1.7 Energy 37.7 57.5 58.1
Technology 5.5 0.3 -13.8 Financial Services 19.1 2.2 -0.7
Consumer Discretionary 2.3 -2.0 -8.3 Materials & Processing 11.0 -10.2 -7.1
Health Care 1.4 17.5 18.5 Health Care 7.2 34.9 36.8
Consumer Staples 0.9 0.9 3.6 Producer Durables 1.9 15.9 13.0
Producer Durables -1.8 3.4 -3.6 Consumer Staples -5.2 -5.2 -3.4
Materials & Processing -2.6 -3.9 -5.1 Consumer Discretionary -6.1 -8.4 -17.0
Utilities N/A* -2.8 -16.2 Utilities N/A* 0.8 -10.1
Other N/A* -0.2 -1.6 Other N/A* -6.5 -5.3
</TABLE>
* Not applicable
SEMI-ANNUAL REPORT - JUNE 30, 2000 5
<PAGE>
STOCK HIGHLIGHTS(3)
------------------------------------------------------------------------
ANNTAYLOR STORES CORP. (ANN)
ANN is one of the country's leading women's apparel retailers, primarily for
25-55 year-old women looking for fashion forward, but not trendy, high quality
career, casual, and weekend wear. ANN's formula of focused merchandising, total
wardrobing, and personalized customer service has fostered an unusually high
degree of loyalty among its customer base. This has translated into a strong
record of growth. In addition, ANN is growing their less mature "Ann Taylor
Loft" concept, which features the same Ann Taylor style, but at more affordable
price points. Financial returns at these stores have been strong. As a result,
management has decided to substantially accelerate their store opening plans for
Loft over the next several years. The combination of continued solid growth from
the core Ann Taylor stores coupled with the rapid roll out of the Loft stores,
should lead to a sustained period of strong earnings growth. Despite the
favorable outlook, the stock remains inexpensive.
DENTSPLY INTERNATIONAL INC. (XRAY)
XRAY is the world's leading manufacturer of professional dental products. The
professional dental market is growing at a high single digit rate due to the
aging of the population. XRAY is able to grow faster than the industry by
developing new products that allow dentists to increase their efficiency and
which are less painful for the patient. Additionally, XRAY operates in over 100
countries and enjoys the faster growth of developing economies. XRAY's
fundamentals are improving after suffering through a number of external
challenges that slowed their earnings growth in 1999. XRAY generates significant
cash flow which management has used to aggressively buy back stock. XRAY trades
at a significant discount to the market with the prospect of mid-teens earnings
growth.
6 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
NOTES TO PERFORMANCE
------------------------------------------------------------------------
NOTES TO PERFORMANCE
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE AND
RETURN ON YOUR INVESTMENT WILL FLUCTUATE AND ON REDEMPTION MAY BE WORTH MORE
OR LESS THAN YOUR ORIGINAL COST. The performance for the one, three, five,
and ten years ended June 30, 2000, and for the period April 23, 1987
(inception) through June 30, 2000, is an average annual return calculation
which is described in the Fund's prospectus.
The Russell 2000 Value Index is an unmanaged, value-oriented index comprised
of small stocks that have relatively low price-to-book ratios. The Russell
2000 Index is an unmanaged, market value weighted index comprised of
small-sized companies. The S&P 500 Index, a widely quoted stock market
index, includes 500 of the largest companies publicly traded in America. All
figures take into account reinvested dividends. All indexes and portfolio
characteristics are compiled by Frank Russell Company.
Source: Frank Russell Company.
(2) Return is calculated from the Fund's inception on April 23, 1987. The
Russell 2000 Value performance reflects an inception date of May 1, 1987.
(3) Fund holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This report is not authorized for distribution unless accompanied or preceded by
a current prospectus.
There are risks of investing in a fund of this type which invests in stocks of
small sized companies, which tend to be more volatile and less liquid than
stocks of large cap companies.
DISTRIBUTOR: FUNDS DISTRIBUTOR INC.
SEMI-ANNUAL REPORT - JUNE 30, 2000 7
<PAGE>
- PORTFOLIO HOLDINGS AS OF JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 3.3%
OTHER TRANSPORTATION - 1.7%
Interpool, Inc. Container leasing firm 406,300 $ 3,961,425
TRUCKING - 1.6%
Landstar System, Inc.(a) Truckload carrier 66,200 3,943,038
------------
TOTAL AUTOS & TRANSPORTATION 7,904,463
CONSUMER DISCRETIONARY - 30.6%
APPAREL/TEXTILES - 1.1%
Kellwood Co. Apparel manufacturer 127,500 2,693,437
COMMERCIAL SERVICES - 6.8%
ADVO, Inc.(a) Direct mail marketer 80,900 3,397,800
APAC TeleServices, Inc.(a) Customer management services 72,600 803,138
Burns Int'l Services Corp.(a) Security services 238,800 2,985,000
Interim Services Inc.(a) Staffing provider 168,500 2,990,875
New England Business Business forms 180,300 2,929,875
United Stationers Inc.(a) Office products distributor 86,700 2,806,912
------------
15,913,600
CONSUMER PRODUCTS/SERVICES - 5.7%
ITT Educational Services Inc.(a) Vocational schools 178,200 3,129,637
Polaris Industries Inc. Snowmobiles, ATVs, motorcycles 153,800 4,921,600
Rayovac Corp.(a) Battery producer 118,100 2,642,488
School Specialty, Inc.(a) Non-textbook school supplies 143,900 2,671,144
------------
13,364,869
RESTAURANTS - 6.7%
CEC Entertainment, Inc. Children-oriented casual dining 148,000 3,792,500
IHOP Corp.(a) Casual dining 204,400 3,423,700
O'Charley's Inc.(a) Casual dining 280,450 3,821,132
Ruby Tuesday, Inc. Casual dining 371,300 4,664,456
------------
15,701,788
RETAIL - 10.3%
Aaron Rents, Inc. Furniture rental chain 184,800 2,321,550
AnnTaylor Stores Corp.(a) Specialty women's stores 104,600 3,464,875
CSK Auto Corp.(a) DIY auto parts chain 316,300 2,392,019
Discount Auto Parts, Inc.(a) Auto parts stores 210,200 2,102,000
Guitar Center Inc.(a) Musical instrument retailer 177,700 1,865,850
Men's Warehouse Inc.(a) Men's apparel 120,600 2,690,887
Michaels Stores, Inc.(a) Arts & crafts stores 49,000 2,244,813
Pier 1 Imports, Inc. Home furnishings retailer 263,300 2,567,175
ShopKo Stores, Inc.(a) Specialty discount retailer 117,000 1,798,875
Tractor Supply Co.(a) Farm-related products 161,900 2,681,468
------------
24,129,512
------------
TOTAL CONSUMER DISCRETIONARY 71,803,206
</TABLE>
8 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
CONSUMER STAPLES - 4.1%
CONSUMER STAPLES - 4.1%
Del Monte Foods Co.(a) Canned foods 348,000 $ 2,370,750
International Multifoods Corp. Foodservice distribution 231,400 4,006,112
Universal Foods Corp. Supplier of ingredients 180,300 3,335,550
------------
TOTAL CONSUMER STAPLES 9,712,412
ENERGY - 6.6%
EQUIPMENT & SERVICES - 2.1%
Tidewater Inc. Supply boat operator 135,700 4,885,200
EXPLORATION & PRODUCTION - 4.5%
HS Resources, Inc.(a) Independent oil & gas exploration 91,600 2,748,000
Newfield Exploration Co.(a) Oil & gas producer 99,700 3,900,763
Ocean Energy, Inc.(a) Independent oil & gas exploration 275,500 3,908,656
------------
10,557,419
------------
TOTAL ENERGY 15,442,619
FINANCIAL SERVICES - 16.6%
BANKS/THRIFTS - 2.6%
BancWest Corp. Commercial bank 184,600 3,034,363
East West Bancorp, Inc. Commercial bank 213,400 3,067,625
------------
6,101,988
INSURANCE - 8.9%
CNA Surety Corp. Surety insurance 197,900 2,362,431
Delphi Financial Group, Inc.(a) Accident & health insurance 122,588 4,160,330
Gallagher & Co. (Arthur J.) Insurance broker 120,200 5,048,400
HSB Group, Inc. Property Insurer 38,100 1,185,863
Old Republic In'l. Corp. Multi-line insurance company 205,700 3,394,050
StanCorp Financial Group, Inc. Disability insurance 151,200 4,857,300
------------
21,008,374
OTHER FINANCIAL SERVICES - 5.1%
Heller Financial, Inc. Commercial finance 209,200 4,288,600
Neuberger Berman Inc. Investment manager 67,200 3,124,800
Raymond James Financial, Inc. Investment services 197,100 4,434,750
------------
11,848,150
------------
TOTAL FINANCIAL SERVICES 38,958,512
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 2000 9
<PAGE>
- PORTFOLIO HOLDINGS AS OF JUNE 30, 2000 (CONTINUED, UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
HEALTH CARE - 6.5%
HEALTH CARE SERVICES - 0.9%
AmeriPath, Inc.(a) Physician practice management 243,800 $ 2,163,725
MEDICAL EQUIPMENT/PRODUCTS - 5.6%
ConMed Corporation(a) Supplier of medical instruments 89,900 2,326,162
DENTSPLY International Inc. Dental products manufacturer 143,100 4,409,269
Invacare Corp. Home health care products 238,800 6,268,500
------------
13,003,931
------------
TOTAL HEALTH CARE 15,167,656
MATERIALS & PROCESSING - 5.7%
BUILDING/CONSTRUCTION PRODUCTS - 4.7%
Barnett Inc.(a) Hardware products 224,100 2,297,025
Chicago Bridge & Iron Co. Maker of steel tanks 260,100 3,820,219
Jacobs Engineering Group Inc.(a) Engineering and construction 149,700 4,893,319
------------
11,010,563
PACKAGING/PAPER - 1.0%
Albany International Corp.(a) Paper machine clothing 159,142 2,307,559
------------
TOTAL MATERIALS & PROCESSING 13,318,122
PRODUCER DURABLES - 11.6%
DIVERSIFIED MANUFACTURING - 3.4%
Applied Power Inc. Industrial products manufacturer 145,300 4,867,550
Pentair, Inc. Diversified manufacturer 88,300 3,134,650
------------
8,002,200
ELECTRICAL EQUIPMENT/PRODUCTS - 2.9%
Belden Inc. Wire & cable manufacturer 261,700 6,706,062
OTHER PRODUCER DURABLES - 5.3%
IDEX Corp. Specialty pump products 142,300 4,491,344
ITT Industries, Inc.(a) Engineered products manufacturer 89,900 2,730,713
LSI Industries Inc. Lighting/graphics products 155,400 2,360,137
Snap-on Inc. Professional tools 108,800 2,896,800
------------
12,478,994
------------
TOTAL PRODUCER DURABLES 27,187,256
</TABLE>
10 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
TECHNOLOGY - 10.1%
DISTRIBUTION - 6.1%
Arrow Electronics, Inc.(a) Distributes electronic components 171,700 $ 5,322,700
Ingram Micro Inc.(a) Electronics distributor 238,000 4,150,125
Tech Data Corporation(a) Distributor of PCs and peripherals 107,900 4,700,394
------------
14,173,219
ELECTRONIC COMPONENTS - 1.1%
Artesyn Technologies, Inc.(a) Power supplies 96,300 2,678,344
OTHER TECHNOLOGY - 1.9%
Maxtor Corp.(a) Disk drive manufacturer 211,100 2,229,744
Pomeroy Computer Computer products reseller 152,900 2,255,275
Resources, Inc.(a)
------------
4,485,019
SERVICES - 1.0%
CACI International Inc.(a) Technology services provider 118,100 2,302,949
------------
TOTAL TECHNOLOGY 23,639,531
TOTAL COMMON STOCKS - 95.1%
(Cost $207,913,440) 223,133,777
MONEY MARKET INSTRUMENTS(b)
Yield 6.274% to 6.344%
due September 2000 to January 2001
American Family Financial Services 4,019,968
General Mills, Inc. 443,481
Sara Lee 2,743,159
Wisconsin Corp. Credit Union 2,186,314
Wisconsin Electric 5,357
------------
TOTAL MONEY MARKET INSTRUMENTS - 4.0%
(Cost $9,398,279) 9,398,279
------------
TOTAL INVESTMENTS - 99.1%
(Cost $217,311,719) 232,532,056
OTHER ASSETS LESS LIABILITIES - 0.9% 2,063,003
------------
NET ASSETS - 100.0% $234,595,059
============
</TABLE>
(a) Non-income producing security.
(b) Variable rate demand notes. Interest rates are reset every seven days. Rates
disclosed represent rates in effect on June 30, 2000.
Based on cost of investments for federal income tax purposes of $217,311,719 on
June 30, 2000, net unrealized appreciation was $15,220,337, consisting of gross
unrealized appreciation of $34,286,046 and gross unrealized depreciation of
$19,065,709.
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 2000 11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost: $217,311,719) $232,532,056
Receivable for:
Securities sold $5,233,356
Fund shares sold 105,702
Dividends and interest 250,330 5,589,388
---------- ------------
Total assets 238,121,444
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $2,499,673
Fund shares redeemed 735,882
Comprehensive management fee 290,830 3,526,385
---------- ------------
Net assets applicable to shares outstanding $234,595,059
============
Shares outstanding--no par value (unlimited number
of shares authorized) 13,705,190
============
PRICING OF SHARES
Net asset value, offering price and redemption price
per share $ 17.12
============
ANALYSIS OF NET ASSETS
Paid-in capital $248,160,575
Accumulated net realized loss on sales of
investments (28,785,853)
Unrealized appreciation of investments 15,220,337
------------
Net assets applicable to shares outstanding $234,595,059
============
</TABLE>
See accompanying notes to financial statements.
12 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 1,004,602
Interest 188,311
-----------
Total investment income 1,192,913
Expenses:
Comprehensive management fee 1,670,124
Fees to unaffilliated trustees 15,181
-----------
Total expenses 1,685,305
-----------
Net investment loss (492,392)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 4,714,175
Net change in unrealized appreciation 14,702,174
-----------
Net realized and unrealized gain on investments 19,416,349
-----------
Net increase in net assets resulting from operations $18,923,957
===========
</TABLE>
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 2000 13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended 6/30/00 Year Ended
(unaudited) 12/31/99
------------- -------------
<S> <C> <C>
From operations:
Net investment loss $ (492,392) $ (1,125,613)
Net realized gain (loss) on sales of
investments 4,714,175 (33,501,167)
Net change in unrealized appreciation
(depreciation) 14,702,174 (20,304,001)
------------ -------------
Net increase (decrease) in net assets
resulting from operations 18,923,957 (54,930,781)
Distributions to shareholders from net
realized gains -- (17,030,328)
From fund share transactions:
Proceeds from fund shares sold 83,884,053 95,398,045
Reinvestment of capital gain distribution 16,679,785
Payments for fund shares redeemed (94,061,053) (264,794,438)
------------ -------------
Net decrease in net assets resulting from
share transactions (see notes 3 and 4) (4,674,803) (152,716,608)
------------ -------------
Total increase (decrease) in net assets 14,249,154 (224,677,717)
Net assets at beginning of period 220,345,905 445,023,622
------------ -------------
Net assets at end of period $234,595,059 $ 220,345,905
============ =============
</TABLE>
See accompanying notes to financial statements.
14 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Year
6/30/00 Ended Ended Ended Ended Ended
(unaudited) 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------
Net asset value at
beginning of period $ 15.90 $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
-------- -------- -------- -------- -------- --------
Income from Investment
Operations
Net investment loss (0.04) (0.14) (0.11) (0.07) (0.04) (0.06)
Net realized and
unrealized gain
(loss) on investments 1.26 (2.51) (1.45) 6.46 5.02 2.21
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.22 (2.65) (1.56) 6.39 4.98 2.15
-------- -------- -------- -------- -------- --------
Less distributions from net
realized gains on
investments -- (1.23) (0.32) (2.89) (3.61) (1.00)
-------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 17.12 $ 15.90 $ 19.78 $ 21.66 $ 18.16 $ 16.79
======== ======== ======== ======== ======== ========
Total Return 7.67%(a) (13.28%) (7.17%) 35.43% 30.37% 13.83%
Ratios/Supplemental Data
Ratio of expenses to
average net assets 1.52%(b) 1.48% 1.47% 1.48% 1.51% 1.51%
Ratio of net investment
loss to average net
assets (0.44%)(b) (0.32%) (0.50%) (0.41%) (0.32%) (0.35%)
Portfolio turnover rate 73%(b) 81% 68% 62% 130% 71%
Net assets, end
of period
(in thousands) $234,595 $220,346 $445,024 $467,070 $219,480 $174,899
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<S> <C>
Effective August 31, 1995, the Fund's Investment Adviser changed from Mesirow Asset
Management, Inc., to Skyline Asset Management, L.P.
(a) For the six months ended June 30, 2000.
(b) Ratios have been determined on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
SEMI-ANNUAL REPORT - JUNE 30, 2000 15
<PAGE>
-NOTES TO FINANCIAL STATEMENTS
---------------------------------------------
Skyline Funds is an open-end, diversified investment management company the sole
portfolio of which is Special Equities Portfolio (the "Fund"). The Fund
commenced public offering of its shares on April 23, 1987. Skyline Special
Equities Portfolio closed to new investors on January 30, 1997 and opened to new
investors on October 27, 1999.
1
SIGNIFICANT ACCOUNTING POLICIES
/ / SECURITY VALUATION - Investments are stated at value. Securities listed or
admitted to trading on any national securities exchange or the Nasdaq National
Market are valued at the last sales price on the principal exchange or market on
which they are traded or listed or, if there has been no sale that day, at the
most recent bid price. For certain fixed-income securities, Skyline Funds' Board
of Trustees has authorized the use of market valuations provided by an
independent pricing service. Variable rate demand notes with sixty days or less
to maturity are valued at amortized cost which approximates market value.
Securities or other assets for which market quotations are not readily
available, which may include certain restricted securities, are valued at a fair
value as determined in good faith by the Skyline Funds' Board of Trustees.
/ / SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis and includes amortization of premium and discount on money
market instruments. Realized gains and losses from security transactions are
reported on an identified cost basis.
/ / FUND SHARE VALUATION - Fund shares are sold and redeemed on a continuous
basis at net asset value. Net asset value per share is determined as of the
close of regular session trading on the New York Stock Exchange (normally 3:00
p.m. Central time), each day that the Exchange is open for trading. The net
asset value per share is determined by dividing the value of all securities and
other assets, less liabilities, by the number of shares of the Fund outstanding.
/ / FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS - It is the Fund's policy
to comply with the special provisions of the Internal Revenue Code applicable to
regulated investment companies and, in the manner provided therein, to
distribute all of its taxable income to shareholders. Such provisions were
complied with and, therefore, no federal income taxes have been accrued.
As of December 31, 1999, the Fund had capital loss carryforwards of $16,805,761.
This loss may be used to offset capital gains arising in tax years through 2007.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date. Dividends are determined in accordance with tax principles
which may treat certain transactions differently from generally accepted
accounting principles.
16 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
------------------------------------------------------------------------
/ / EXPENSES - Through February 29, 2000, Skyline Funds consisted of three
portfolios (funds). See Note 3, Acquisitions of Funds. Expenses arising in
connection with a particular fund were allocated to that fund. Other expenses of
the Skyline Funds, such as trustees' fees, were allocated proportionately among
the three funds then comprising Skyline Funds.
/ / LINE OF CREDIT - The Fund has a $10 million ($3 million committed) revolving
credit facility for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. The Adviser pays a commitment fee of 10 basis points per annum of
the average daily unutilized portion of the committed line of credit. Under the
terms of the credit agreement, interest on each loan would be fixed at the prime
rate less 150 basis points. There were no borrowings under this agreement during
the six months ended June 30, 2000.
2
TRANSACTIONS WITH AFFILIATES
The Fund's Investment Adviser is Skyline Asset Management, L.P. ("Adviser"). For
the Adviser's management and advisory services and the assumption of most of the
Fund's ordinary operating expenses, the Fund pays a monthly comprehensive fee
based on its average daily net assets at the annual rate of 1.50% of the first
$200 million, 1.45% of the next $200 million, 1.40% of the next $200 million,
and 1.35% of any excess over $600 million. The total comprehensive management
fee charged for the six months ended June 30, 2000 was $1,670,124.
Certain officers and trustees of the Skyline Funds are also officers, limited
partners or shareholders of limited partners of the Adviser. The Fund makes no
direct payments to the officers or trustees who are affiliated with the Adviser.
For the six months ended June 30, 2000, the Fund paid fees of $15,181 to its
unaffiliated trustees.
3
ACQUISITIONS OF FUNDS
On February 29, 2000, Skyline Special Equities Portfolio acquired all of the net
assets of Skyline Small Cap Value Plus and Skyline Small Cap Contrarian, each of
which was also a portfolio of Skyline Funds, pursuant to a plan of
reorganization approved by the Shareholders of Skyline Small Cap Value Plus and
Skyline Small Cap Contrarian. The acquisitions were accomplished by a tax-free
exchange of 3,903,850 shares of Skyline Special Equities Portfolio (valued at
$58,634,136) for the 5,424,907 shares of Skyline Small Cap Value Plus and
468,882 shares of Skyline Small Cap Contrarian outstanding on February 29, 2000.
Skyline Small Cap Value Plus's net assets at that date ($55,554,187), including
$5,678,738 of unrealized appreciation, and Skyline Small Cap Contrarian's net
assets at that date ($3,079,949), including $176,541 of unrealized depreciation,
were combined with those of Skyline Special Equities Portfolio. The net
SEMI-ANNUAL REPORT - JUNE 30, 2000 17
<PAGE>
-NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------------------------
assets of Skyline Special Equities Portfolio, Skyline Small Cap Value Plus, and
Small Cap Contrarian immediately before the acquisition were, $180,825,745,
$55,554,187, and $3,079,949, respectively.
4
FUND SHARE TRANSACTIONS
As of June 30, 2000, there were an unlimited number of shares of beneficial
interest, no par value, authorized. Transactions in the fund's shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Shares Amount
------------------------ ----------------------------
<S> <C> <C> <C> <C>
Six Months Six Months
Ended Year Ended Ended Year Ended
6/30/00 12/31/99 6/30/00 12/31/99
-------------------------------------------------------
Shares sold 1,911,961 5,235,896 $ 30,752,114 $ 95,398,045
Shares issued in
connection with
acquisition of
Skyline Small Cap
Value Plus and
Skyline Contrarian
Funds 3,903,850 58,634,136
Shares issued for
reinvestment of
dividends -- 1,065,801 -- 16,679,785
---------- ----------- ------------ -------------
5,815,811 6,301,697 89,386,250 112,077,830
Shares redeemed (5,966,985) (14,941,529) (94,061,053) (264,794,438)
---------- ----------- ------------ -------------
Net decrease (151,174) (8,639,832) $ (4,674,803) $(152,716,608)
========== =========== ============ =============
</TABLE>
5
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the six
months ended June 30, 2000, were as follows:
<TABLE>
<S> <C>
Cost of purchases $ 97,390,418
Proceeds from sales 160,847,977
</TABLE>
18 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
This page left blank intentionally.
SEMI-ANNUAL REPORT - JUNE 30, 2000 19
<PAGE>
This page left blank intentionally.
20 SEMI-ANNUAL REPORT - JUNE 30, 2000
<PAGE>
FOR 24-HOUR ACCOUNT INFORMATION CALL: 1.800.828.2SKY
(1.800.828.2759)
TO SPEAK WITH A SKYLINE FUNDS REPRESENTATIVE DURING
NORMAL BUSINESS HOURS CALL: 1.800.828.2SKY AND PRESS 0 WHEN PROMPTED.
------------------------------------------------
[SKYLINE FUNDS LOGO]
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
