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As filed with the Securities and Exchange Commission on March 1,2000.
Securities Act registration no. 33-11755
Investment Company Act registration no. 811-5022
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 28 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 30 [X]
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SKYLINE FUNDS -Registered Trademark-
(Registrant)
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606
Telephone Number: 312/913-0900
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William M. Dutton Janet D. Olsen
Skyline Funds Bell, Boyd & Lloyd LLC
311 South Wacker Drive, Suite 4500 Three First National Plaza, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
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Amending Parts A, B and C and filing Exhibits
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It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
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on _____________ pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on _____________ pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on _____________ pursuant to paragraph (a)(2) of rule 485
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SKYLINE FUNDS-REGISTERED TRADEMARK-
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SPECIAL EQUITIES PORTFOLIO
PURE NO LOAD
NO 12b-1 FEES
The Securities and Exchange Commission has not approved the Fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a crime.
PROSPECTUS
MARCH 1, 2000
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TABLE OF CONTENTS
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Page
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SKYLINE SPECIAL EQUITIES PORTFOLIO.......................... 1
INVESTMENT OBJECTIVE................................. 1
PRINCIPAL INVESTMENT STRATEGIES...................... 1
RISKS................................................ 1
IS THE FUND RIGHT FOR YOU?........................... 1
HOW THE FUND HAS PERFORMED........................... 2
FEES AND EXPENSES........................................... 3
HOW WE CHOOSE INVESTMENTS................................... 4
THE FUND............................................. 4
SKYLINE'S RESEARCH................................... 5
SKYLINE'S BUY/SELL DISCIPLINE........................ 5
WHO MANAGES THE FUND........................................ 6
THE PORTFOLIO MANAGER................................ 6
THE ADVISER.......................................... 6
RISKS....................................................... 7
HOW WE MANAGE RISK.......................................... 8
TYPES OF ACCOUNTS........................................... 8
INFORMATION ON PURCHASING SHARES............................ 10
TO OPEN A NEW ACCOUNT WITH US........................ 10
TO ADD TO AN EXISTING ACCOUNT........................ 11
RULES THAT APPLY TO ALL SHARE PURCHASES.............. 12
DETERMINING THE SHARE PRICE.......................... 13
INFORMATION ON REDEEMING SHARES............................. 13
RULES THAT APPLY TO ALL SHARE REDEMPTIONS............ 15
SIGNATURE GUARANTEES................................. 17
SHAREHOLDER SERVICES........................................ 17
SHAREHOLDER ACCOUNTS................................. 17
CHANGES TO YOUR ADDRESS.............................. 17
EXCHANGE PLAN........................................ 18
AUTOMATIC INVESTMENT PLAN............................ 18
ELECTRONIC FUNDS PURCHASES........................... 19
SYSTEMATIC WITHDRAWAL PLAN........................... 19
RETIREMENT PLANS..................................... 20
DISTRIBUTIONS AND TAXES..................................... 20
DISTRIBUTION PAYMENT AND REINVESTMENT OPTIONS........ 20
TAXES AND TAX REPORTING.............................. 20
BUYING AND SELLING SHARES CLOSE TO A RECORD DATE..... 21
SHAREHOLDER INQUIRIES....................................... 21
OUR SERVICE PROVIDERS....................................... 21
FINANCIAL HIGHLIGHTS........................................ 21
</TABLE>
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SKYLINE SPECIAL EQUITIES PORTFOLIO
INVESTMENT OBJECTIVE
The Fund seeks maximum capital appreciation primarily through investment in
common stocks that its investment adviser considers to be undervalued.
PRINCIPAL INVESTMENT STRATEGIES
Special Equities Portfolio is a small cap value investment. The Fund
emphasizes investments in companies that have below average valuations and above
average earnings growth prospects. The Fund also invests in stocks that are
depressed due to current problems at the company where there is an expectation
that the company's operations will improve. The Fund emphasizes investments in
small companies whose outstanding shares have an aggregate market value of less
than $2 billion.
RISKS
Your investment in the Fund is subject to market risk--the risk that a
particular stock, or stocks in general, may fall in value. If the stocks owned
by the Fund fall in value, your investment in the Fund would also fall in value.
Stocks tend to have periods of rising prices and periods of falling prices, and
you could lose money on your investment.
In the short-term, stock prices fluctuate widely in response to company,
market or economic news. Compared to large companies, small companies like those
in which the Fund invests often have a shorter history of operations or a
narrower product line, and may have a harder time raising additional capital
when they need it. As a result, the stock prices of small companies tend to move
more abruptly than stocks of large companies. There are also risks of investing
in value-oriented stocks, including the risk that value-oriented stocks will
underperform growth-oriented stocks during some periods.
IS THE FUND RIGHT FOR YOU?
The Fund is designed for shareholders who are long-term investors, who can
accept more risk and volatility than the general stock market, and who are
willing to accept fluctuations in share price.
This Fund is not appropriate for shareholders who need regular income, have a
short-term investment horizon, or who are unwilling to accept fluctuation in
share price or possible losses.
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HOW THE FUND HAS PERFORMED
The bar chart and table that follow are intended to help you assess the
variability of the Fund's returns over the periods indicated. Returns include
the reinvestment of dividends and distributions. Of course, past performance
does not guarantee future results. The principal value and return on your
investment will fluctuate and on redemption may be worth more or less than your
original cost.
The following chart shows the annual performance of the Fund during the past
ten years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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Annual Total Returns (%)
1990 -9.3
1991 47.4
1992 42.5
1993 22.9
1994 -1.2
1995 13.8
1996 30.4
1997 35.4
1998 -7.2
1999 -13.3
</TABLE>
During the 10 years ended December 31, 1999, the Fund's highest and lowest
quarterly returns were:
- Highest quarterly return: 27.81%, during the quarter ended
March 31, 1991
- Lowest quarterly return: -20.54%, during the quarter ended
September 30, 1990
The table on the following page shows how the Fund's average annual
performance for the one, five, and ten year periods ended December 31, 1999, and
since the Fund's inception on April 23, 1987 compares with broad measures of
market performance.
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Average Annual Total Returns for Periods Ended
December 31, 1999 (%)
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Since
Inception
1 Year 5 Years 10 Years April 23, 1987
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<S> <C> <C> <C> <C>
Fund................. -13.28 10.10 14.10 13.53
Russell 2000 Value*.. -1.49 13.14 12.46 10.88**
Russell 2000*........ 21.26 16.69 13.40 11.23
S&P 500*............. 21.14 28.66 18.25 16.83
</TABLE>
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* 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.
** Return is calculated from an inception date of 5/1/87.
FEES AND EXPENSES
This Fund is a "no-load" fund. You do not pay any sales charge when you
purchase or sell your shares. However, you will indirectly pay various other
expenses because the Fund pays fees and other expenses that reduce the return on
your investment. The following table describes the fees and expenses that you
may pay if you invest in shares of the Fund.
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Special Equities Portfolio
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SHAREHOLDER TRANSACTION EXPENSES
(paid directly from your investment)
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Maximum sales charge........................................ None
Deferred sales charge....................................... None
Exchange fee................................................ None
Redemption fee.............................................. None
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ANNUAL FUND OPERATING EXPENSES
(deducted from Fund assets)
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Comprehensive Management Fee (including most operating
expenses)*................................................ 1.47%
Distribution (12b-1) Fees................................... None
Other Expenses.............................................. .01%
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Total Annual Fund Operating Expenses........................ 1.48%
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* Under the Advisory Agreement, Skyline Asset Management, L.P. ("Adviser") pays
all of the ordinary operating expenses of the Fund, except the fees and
expenses of the Fund's non-interested trustees. (See "Who Manages the
Fund--THE ADVISER.")
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The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Your actual returns and costs may be higher or lower.
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1 year..................................... $ 151
3 years.................................... 468
5 years.................................... 808
10 years................................... 1,768
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THE EXAMPLE IS FOR ILLUSTRATION ONLY. IT IS NOT MEANT TO SUGGEST THE FUND'S
ACTUAL OR EXPECTED COSTS OR EXPENSES, WHICH MAY BE MORE OR LESS THAN THE AMOUNTS
SHOWN.
HOW WE CHOOSE INVESTMENTS
THE FUND
The Fund seeks maximum capital appreciation primarily through investment in
common stocks that the Fund's investment adviser, Skyline Asset Management, L.P.
(called the "Adviser" in this Prospectus), considers to be undervalued.
Companies in which the Fund invests generally fall into one of the following
three categories:
1. A company that the Adviser believes will achieve above average growth in
earnings, but that is selling at a price/earnings ratio below the average
for the overall stock market.
2. A company that has experienced problems leading to a depressed stock price
where the Adviser believes that there is a reasonable likelihood that the
company's operations will improve.
3. A company that does not fall into the above categories, but because of
special circumstances appears undervalued and, consequently, offers
potential for appreciation.
The Fund emphasizes investments in small companies whose outstanding shares
have an aggregate market value of less than $2 billion. The Adviser attempts to
identify companies that it believes are neglected by the investment community.
The Fund is ordinarily substantially fully invested, and under normal market
conditions, at least 65% of the assets of the Fund will be invested in common
stocks. The Fund may, from time to time, take a temporary defensive position
that is inconsistent with its principal
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investment strategies. When the Adviser believes a temporary defensive position
is necessary, the Fund may invest in high-quality fixed-income securities or
hold assets in cash or cash equivalents. Taking a defensive position might
prevent the Fund from achieving its investment objective.
SKYLINE'S RESEARCH
When looking for investment ideas for the Fund, the Adviser's investment
staff, comprised of all the analysts and the portfolio manager (the "investment
staff"), relies on a number of sources, both internal and external. For example,
the investment staff meets with hundreds of companies annually, works with more
than 100 brokerage firms (including small regional firms), and uses
sophisticated computer screens to help focus on companies that meet the Fund's
investment criteria.
The investment staff screens stocks for the Fund using:
- valuation measures, including price to earnings, price to book,
price to cash flow, and price to sales ratios;
- earnings growth prospects;
- a small capitalization range; and
- a bottom up approach--one stock at a time, without market
forecasts.
Potential stock ideas that pass the initial review stage are researched
in-depth by an analyst of the Adviser. For most stocks researched, the analyst:
- reviews corporate documents;
- reviews existing research reports written by third-party sources;
- prepares a comprehensive income statement model;
- reviews industry comparisons; and
- meets and talks with the company's senior management, usually
the CFO and/or CEO.
If the stock idea still appears to be an attractive investment after that
research, the analyst presents it to the investment staff for discussion. After
the investment staff's review and input, the portfolio manager personally makes
the final buy or sell decision for the Fund.
SKYLINE'S BUY/SELL DISCIPLINE
The Adviser believes that each holding in the Fund's portfolio should be
considered a "buy" at all times. Once the portfolio manager no longer wants to
buy the stock, it should be sold and replaced with a better stock. In general,
stocks are replaced when they achieve sell targets, when the investment staff
believes they no longer have strong appreciation potential or when fundamental
conditions deteriorate such that the original investment thesis is no longer
valid. Assumptions and
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purchase decisions are re-evaluated on an on-going basis for each portfolio
security so that the portfolio remains consistent with the Adviser's investment
philosophies.
WHO MANAGES THE FUND
THE PORTFOLIO MANAGER
WILLIAM M. DUTTON is portfolio manager of Special Equities Portfolio. He works
as a member of the investment staff, but makes all final investment decisions
for the Fund. Mr. Dutton is president of Skyline Funds and has been the
portfolio manager of the Fund since its inception in 1987. He is managing
partner and chief investment officer of the Adviser. Mr. Dutton has managed
small cap portfolios since 1985, including Skyline Growth Fund, L.L.C., a
private investment company, and the small cap investment portfolios of a number
of prominent institutional clients. In 1992, he was named "Portfolio Manager of
the Year" by Morningstar, an independent mutual fund rating service. Mr. Dutton
graduated with a Bachelor of Arts degree in English Literature from Princeton
University and received a Master's degree in Accounting from the University of
Illinois. He is also a Certified Public Accountant.
THE ADVISER
The Fund's investment adviser is Skyline Asset Management, L.P., 311 South
Wacker Drive, Suite 4500, Chicago, Illinois 60606. The Adviser has advised and
managed the Fund since 1995; the partners of the Adviser have been a part of the
management of the Fund since the Fund was organized in 1987. The officers of the
Adviser manage the day-to-day operations of the Adviser. The Adviser manages the
Fund's investments. In addition, the Adviser provides office space, facilities,
equipment, and personnel for managing the assets and administering the Fund's
day-to-day operations, and provides shareholder and investor services.
For its advisory, management, and administrative services, and for the
assumption of its ordinary operating expenses, the Fund pays the Adviser a
monthly comprehensive fee based on its average daily net assets at the annual
rate of 1.50% of the first $200 million, 1.45% of the next $200 million, 1.40%
of the next $200 million and 1.35% of average daily net assets in excess of $600
million. The Adviser has agreed to limit the Fund's expenses (including the
Adviser's fee, and trustees' fees and expenses, but excluding extraordinary
costs or expenses not incurred in the ordinary course of the Fund's operation)
to 1.75% of the average daily net assets of the Fund. Expenses incurred
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in excess of these limits, if any, will be reimbursed to the Fund by the
Adviser. For the most recent fiscal year, the Fund paid 1.47% of its average net
assets in comprehensive management fees to the Adviser.
RISKS
Risk is a part of investing in mutual funds that invest in stocks. The biggest
risk of investing in the Fund is market risk--the risk that a particular stock,
stocks of companies in a particular industry, or stocks of small companies may
fall in value. As a result, you may receive little or no return on your
investment or may lose part or all of your investment.
Stock markets tend to move in cycles, with periods of rising stock prices and
periods of falling stock prices. As a result, the Fund should be considered a
long-term investment, designed to provide the best results when held for several
years or more.
Because the Fund invests in stocks of small companies, which tend to be more
volatile and less liquid than stocks of large companies, investing in the Fund
may involve an above-average degree of risk. Small companies, as compared to
large companies, may have a shorter history of operations, may not have as great
an ability to raise additional capital, may have a less diversified product line
making them susceptible to market pressure, and have a smaller public market for
their securities.
The Fund invests in "value" stocks--stocks that are undervalued and,
consequently, offer potential for appreciation. Value-oriented stocks have
historically underperformed stocks with stronger growth characteristics during
some periods and have outperformed during other periods.
The Fund buys and sells securities in the normal course of its investment
activities. The proportion of the Fund's investment portfolio that is sold and
replaced with new securities during a year is known as the portfolio turnover
rate. Portfolio turnover can occur for a number of reasons such as general
conditions in the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of holding or
changing a portfolio investment. Because of the Fund's flexibility of investment
and emphasis on growth of capital, it may have greater portfolio turnover than
mutual funds that have primary objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover, if it should occur,
would result in increased transaction expenses. High portfolio turnover also may
result in the realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting from such
gains will be
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considered ordinary income for Federal income tax purposes. See "Taxes" in this
prospectus and "Taxes" in the Statement of Additional Information.
HOW WE MANAGE RISK
The Adviser attempts to reduce risk through portfolio diversification and the
use of a stock selection strategy that emphasizes undervalued common stocks,
many of which already reflect low valuations, to produce a favorable risk/reward
ratio.
The Fund has adopted certain investment limitations that cannot be changed
without shareholder approval and are designed to limit investment risk and
maintain portfolio diversification. In particular, the Fund may not invest more
than:
- 5% of its total assets (valued at the time of investment) in any
one issuer, or acquire 10% of the voting securities of that issuer (this
restriction does not apply to government securities); or
- 25% of its total assets (valued at the time of investment) invested
in companies in a single industry (this restriction does not apply to
government securities).
The Fund may, from time to time, take a temporary defensive position that is
inconsistent with its principal investment strategies. When the Adviser believes
a temporary defensive position is necessary, the Fund may invest in high-quality
fixed-income securities or hold assets in cash or cash equivalents. Taking a
defensive position might prevent the Fund from achieving its investment
objective.
TYPES OF ACCOUNTS
You may set up an account directly with us, in any of the following ways.
INDIVIDUAL/JOINT TENANT
Individual accounts are owned by one individual. Joint tenant accounts have
two or more owners, and provide for rights of survivorship. Both accounts are
registered under one tax identification number.
GIFTS/TRANSFERS TO A MINORS (UGMA/UTMA)
These custodial accounts provide a way to invest money on behalf of a minor
child. An individual may give up to a total of $10,000 a year (including amounts
placed in UGMA/UTMA accounts), per child, without paying Federal gift tax. The
account is registered under the minor's social security number and earnings are
taxed at the minor's
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income level. Depending on state laws, you may set up a custodial account under
the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act
(UTMA).
TRUST
You must establish a trust before investing money on behalf of the trust. The
account is registered under the trust's tax identification number.
BUSINESS/ORGANIZATION
You may invest money on behalf of a corporation, association, partnership or
other group. We require a corporate resolution or certificate of authorization
to redeem shares.
RETIREMENT ACCOUNTS
Retirement plans provide individuals with tax-advantaged ways to save for
retirement, through contributions, which may be tax deductible, and tax-deferred
growth.
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
Traditional IRAs allow individuals with earned income who are under the age of
70 1/2 to save up to $2,000 per tax year for retirement. Contributions may be
tax deductible, subject to certain limits, and earnings grow tax-deferred. The
amount you can contribute to a traditional IRA in any year is reduced by the
amount you contribute to a Roth IRA.
ROTH IRAS
Roth IRAs allow individuals with adjusted gross incomes up to $95,000 per
year, to contribute up to $2,000 per tax year for retirement. Married couples
with adjusted gross incomes up to $150,000 who file a joint return can
contribute up to $4,000. Contributions to Roth IRAs are not tax-deductible, but
withdrawals are not taxable if the Roth IRA has been held at least five years,
and you are at least 59 1/2, disabled, or use the proceeds (up to $10,000) to
purchase a first home. The amount you can contribute to a Roth IRA in any year
is reduced by the amount you contribute to a traditional IRA.
ROLLOVER IRAS
Rollover IRAs allow individuals to rollover eligible distributions from an
employer-sponsored retirement plan into an IRA.
SIMPLE IRAS
SIMPLE-IRAs allow small business owners or those who are self-employed and
their eligible employees to elect to have a portion of their pay withheld on a
before-tax basis and saved in a tax-deferred account
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maintained for the individual employee. Generally, the employer is also required
to make a contribution for each employee who elects to contribute.
OTHER RETIREMENT PLANS
The Fund may be used as an investment in other kinds of retirement plans,
including Keogh or corporate profit-sharing and money purchase plans, 403(b)
plans, and 401(k) plans. All of these accounts need to be established by the
trustee of the plan.
INFORMATION ON PURCHASING SHARES
You may purchase shares of the Fund by setting up an account directly with us
or through certain broker-dealers or other intermediaries, some of which may
charge a transaction fee. We have authorized some intermediaries (called
"authorized agents" in this prospectus) to accept purchase orders and redemption
requests on our behalf. In some cases, an authorized agent or another
intermediary may not charge any transaction or other fees directly to you, but
instead may receive a fee from the Adviser based on the value of Fund shares
purchased through that agent. Any questions about purchasing shares through an
intermediary should be directed to us at 800.828.2759, or to the agent or
intermediary.
TO OPEN A NEW ACCOUNT WITH US:
BY MAIL
CHECK
- Complete and sign a Skyline Funds application. Make your check
payable to Skyline Funds.
- Mail your completed application and check to: Skyline Funds, c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201. If
you are using an overnight courier, send to: Skyline Funds, c/o Firstar
Mutual Fund Services, LLC, 615 East Michigan Street, Third Floor,
Milwaukee, WI 53202.
BY WIRE
- Call us at 800.828.2759 for instructions if you want to use a wire
transfer to purchase shares of the Fund.
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TO ADD TO AN EXISTING ACCOUNT:
BY MAIL
CHECK
- Complete the additional investment form provided with your
quarterly account statement or write a note providing your account number
and registration. Make your check payable to Skyline Funds.
- Mail to: Skyline Funds, c/o Firstar Mutual Fund Services, LLC,
P.O. Box 701, Milwaukee, WI 53201. If you are using an overnight courier,
send to: Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Third Floor, Milwaukee, WI 53202.
BY WIRE
- Call us at 800.828.2759 for instructions if you want to use a wire
transfer to purchase shares of the Fund.
BY TELEPHONE
ELECTRONIC FUNDS PURCHASE
- Once you have established a Skyline Funds account, electronic
funds purchase allows you to purchase shares over the telephone by
debiting your bank account. To electronically debit your bank account, you
must hold your bank account at a financial institution that is an
Automatic Clearing House member. Simply complete the appropriate section
on the account application form and attach a voided check from your bank
account. We will complete most electronic purchases within the same
business day, if you call to place your order by 3:00 p.m., Central Time.
For more information on electronic funds purchase, see "Shareholder
Services--Electronic Funds Purchases."
EXCHANGE
- You may exchange into the Fund from two portfolio series of
Firstar Funds, Inc.--Money Market Fund and U.S. Government Money Market
Fund.
- For more information about exchanging out of a Firstar Money
Market Fund, you should consult the Firstar Money Market Funds'
prospectus, a copy of which can be obtained from us at 800.828.2759.
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BY AUTOMATIC INVESTMENT
AUTOMATIC INVESTMENT PLAN
- Once you have established a Skyline Funds account, automatic
investing allows you to make regular investments through automatic
deductions from your bank account. Simply complete the appropriate section
on the account application form and attach a voided check from your bank
account. For more information about automatic investing, see "Shareholder
Services--Automatic Investment Plan."
DIVIDEND PURCHASE PLAN
- You may use the dividend and capital gain distributions paid by
the Fund to buy shares of Money Market Fund and U.S. Government Money
Market Fund, portfolio series of Firstar Funds, Inc. You may obtain a copy
of the Firstar Money Market Funds' Prospectus from us at 800.828.2759. The
account into which the dividend and capital gain are to be invested must
meet the applicable minimum balance, and the account registrations must be
identical.
RULES THAT APPLY TO ALL SHARE PURCHASES:
- You must make all share purchases in U.S. dollars and checks
must be drawn on U.S. banks. We do not accept third party checks or credit
card checks for any purchase (initial or subsequent share purchases).
- If your check to purchase the Fund's shares does not clear, you
will be responsible for any resulting loss incurred by the Fund. A charge
(currently $25) will be assessed for any returned check.
- If you are going to open a new account by wire, you must fax
your application form to the transfer agent before sending the wire. You
must also promptly mail the original application form to Skyline Funds c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201 (if using regular mail). We will not establish any account services
until we receive your completed application.
- The minimum initial investment to open an account is $1,000,
and subsequent investments must be at least $100.
- You must provide your Social Security or Taxpayer Identification
Number on the application form, and certify that it is correct, before we
will open an account for you. If you do not provide your correct Social
Security or Taxpayer Identification Number,
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or do not certify it, we may be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividend payments and redemption
proceeds to you.
- We may reject a share purchase if we think accepting it would be
harmful to existing shareholders. We believe that frequent purchases and
redemptions of a Fund's shares by investors utilizing market-timing
strategies can adversely affect the management of the Fund. We intend to
reject purchase orders from investors we believe are market-timers.
- Generally, we do not issue share certificates representing shares,
although share certificates in full share amounts will be furnished upon
your written request. Fractional shares, if any, will be carried on our
books without issuance of certificates.
DETERMINING THE SHARE PRICE
The purchase price of the Fund's shares is the net asset value per share next
computed after receipt by our transfer agent or authorized agent (from the
Distributor or an authorized broker-dealer or directly from you) of your order
completed in accordance with the instructions on the account application. Our
transfer agent or authorized agent must receive your order before the close of
regular session trading on the New York Stock Exchange (normally 3:00 p.m.,
Central Time) to receive the net asset value calculated on that day. The Fund's
net asset value will not be calculated on days when the New York Stock Exchange
is closed.
The net asset value per share of the Fund is determined by dividing the value
of all of its securities and other assets, less its liabilities, by the number
of shares of the Fund outstanding. Skyline values each security traded on a
national stock exchange or on the NASDAQ National Market at the last sale price
or, if there have been no sales on the valuation day, at the most recent bid
price. Money market instruments with sixty days or less remaining from the
valuation date until maturity are valued on an amortized cost basis. We value
other securities traded over-the-counter at the last reported bid price. We
value other assets and securities by methods that our board of trustees believes
will determine a fair value.
INFORMATION ON REDEEMING SHARES
There are several ways to redeem your Fund shares. You may send us a written
request, call us (if you have already authorized us to accept telephone
instructions), exchange into one of the available money market funds, or
participate in our systematic withdrawal plan. For
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your protection, some redemption requests may require a signature guarantee. For
further details, please see SIGNATURE GUARANTEES. The redemption process is
outlined in the following pages.
BY MAIL
- To redeem shares by mail, send a written request to Skyline's
transfer agent: Skyline Funds, c/o Firstar Mutual Fund Services, LLC, P.O.
Box 701, Milwaukee, WI 53201. If you are using an overnight courier, send
to Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East Michigan
Street, Third Floor, Milwaukee, WI 53202, or an authorized agent.
- All the owners of an account must sign the redemption request.
Signatures must appear exactly as they are on the account registration. We
will not accept redemption requests received by fax or other electronic
means.
BY TELEPHONE
Call us at 800.828.2759 to request that we redeem shares from your account by
telephone.
- To be eligible to redeem shares by telephone, you must have
authorized telephone redemption on your account application prior to
calling us with your redemption request.
- You may add the ability to redeem by telephone, if you did not
authorize it on your original account application, but you will have to
make the request in writing and have your signature(s) guaranteed.
- To reduce the risk of a fraudulent instruction, we will send your
redemption check only to the address or bank/brokerage account as shown on
our records. We record all telephone redemption requests.
- You may not redeem shares held in an IRA account by telephone.
- During periods of volatile economic and market conditions, you
may have difficulty making a redemption request by telephone, in which
case you will need to make your redemption request in writing.
BY WIRE
MAIL
- To redeem shares by mail and have the proceeds sent to your
bank or brokerage account by wire transfer, send a written request to
Skyline's transfer agent: Skyline Funds, c/o Firstar Mutual Fund Services,
LLC, P.O. Box 701, Milwaukee, WI 53201.
14
<PAGE>
If you are using an overnight courier, send to Skyline Funds, c/o Firstar
Mutual Fund Services, LLC, 615 East Michigan Street, Third Floor,
Milwaukee, WI 53202, or an authorized agent.
- You must provide the name of the bank/broker, name(s) on the
account, address and ABA number on your written request. We will deduct
the wire fee, currently $12.00, from the proceeds.
- All the owners of an account must sign the redemption request
and have their signatures guaranteed. Signatures must appear exactly as
they are on the account registration. We will not accept redemption
requests received by fax or other electronic means.
TELEPHONE
- Call us at 800.828.2759 to request that we redeem shares from
your account by telephone and send the redemption proceeds by wire
transfer to a predetermined bank or brokerage account.
- To be eligible to redeem shares by telephone and have the
proceeds sent to you by wire transfer, you must have authorized telephone
redemption by wire transfer on your account registration prior to calling
us with your redemption request.
- You may add the ability to redeem by telephone, if you did not
authorize it on your original account application, but you must make the
request in writing and have your signature(s) guaranteed.
- To reduce the risk of a fraudulent instruction, we will send your
redemption proceeds only to the address or bank/brokerage account as shown
on our records. We record all telephone redemption requests.
- You may not redeem shares held in an IRA account by telephone.
- During periods of volatile economic and market conditions, you
may have difficulty making a redemption request by telephone, in which
case a redemption request would have to be made in writing.
RULES THAT APPLY TO ALL SHARE REDEMPTIONS:
- The price you receive for your redeemed shares is the net asset
value next determined after our transfer agent or an authorized agent
receives your request. We calculate net asset value as of the time of the
close of regular session trading on the New York Stock Exchange (normally
3:00 p.m., Central Time). See "Determining the Share Price."
15
<PAGE>
- We do not charge any fees for a redemption paid by check, but an
authorized agent may charge a fee for this service. Our transfer agent
does charge a wire fee, currently $12.00, on redemptions by wire transfer.
- We will pay all redemption proceeds by check or wire. If specified
in the account application, the check will be made payable and sent to a
designated financial institution. We will only send a wire to the bank or
brokerage account as shown on your original account application, or in a
written instruction you have given us with your signature guaranteed. We
generally pay wire requests the next business day after we receive your
redemption request and we will deduct the cost of the wire transfer
(currently $12.00) from the proceeds. We reserve the right to change the
wire transfer fee and any similar service fee without prior notice to you.
We do not permit wires to third parties other than your designated bank or
brokerage account.
- We may suspend or postpone the right of redemption at times
when trading on the New York Stock Exchange is restricted or as otherwise
permitted by the Securities and Exchange Commission. If you redeem shares
within 15 days after they have been purchased by check, we may delay
payment of the redemption proceeds until we can verify that payment for
the purchase of the shares has been (or will be) received, which may take
up to 15 days from the date of purchase.
- We reserve the right to redeem shares in any account with a
balance less than $750 in share value in the Fund. Prior to any such
redemption, we will give shareholders with accounts not meeting the
minimum balance requirement 30 days' written notice during which time they
may increase their investment to avoid having shares redeemed. We will
waive the $750 minimum balance requirement if an account balance drops
below $750 due to market activity.
- If you purchased your shares through an authorized agent or
another intermediary, you may also redeem your shares through that
intermediary. Contact that intermediary for information about its
requirements. An intermediary may charge a fee for its services.
- If you are making a redemption request on behalf of a
corporation, partnership, trust, fiduciary, executor, or administrator,
you must send us written evidence of your authority to act.
16
<PAGE>
- WE WILL NOT MAKE YOUR REDEMPTION CHECK PAYABLE TO ANYONE OTHER
THAN YOU (USING THE NAME SHOWN ON THE FUND'S RECORDS), OR YOUR DESIGNATED
BANK OR BROKER/DEALER, FOR DEPOSIT TO AN ACCOUNT YOU HAVE AUTHORIZED.
- The post office will not forward your redemption check if you
move. If you have moved, indicate your change of address on your
redemption request and have your signature guaranteed.
SIGNATURE GUARANTEES. A signature guarantee is a way to protect the Fund and
its shareholders, by guaranteeing that the person signing a request is really
the person he or she claims to be. We try to balance the need to protect the
Fund with the inconvenience to you of having your signature guaranteed. You must
obtain a signature guarantee on a written redemption request if:
- the redemption check is to be sent to an address other than the
address shown on your account,
- the redemption check is to be sent to a bank or brokerage
account not previously authorized in accordance with the instructions on
your account,
- the proceeds of the redemption would be more than $10,000,
- YOU CHANGED YOUR ADDRESS OF RECORD BY TELEPHONE OR IN WRITING WITHIN
THE LAST 60 DAYS, OR
- you are redeeming shares that have been issued in certificate
form.
Your signature must be guaranteed by a bank, member firm of a national
securities exchange, savings and loan association, credit union or other entity
authorized by state law to guarantee signatures. A NOTARY PUBLIC CANNOT
GUARANTEE A SIGNATURE.
SHAREHOLDER SERVICES
SHAREHOLDER ACCOUNTS. You will receive a quarterly account statement showing
transactions in the Fund's shares with a balance denominated in the Fund's
shares. You will also receive a confirmation showing each purchase, redemption,
dividend reinvestment, and change of shareholder address. For a fee, you may
obtain a historical transcript of your account by requesting one in writing from
Firstar Mutual Fund Services, LLC. If you transfer ownership of your account, we
require each record owner of the account to provide a signature guarantee. For
additional information, please call us at 800.828.2759.
CHANGES TO YOUR ADDRESS. You may change your address of record over the
telephone or in writing. You may change your address by calling us at
800.828.2759. To change your address of record by written
17
<PAGE>
request, write to our transfer agent: Skyline Funds, c/o Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, WI 53201. If you are using an overnight
courier, send to Skyline Funds, c/o Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Third Floor, Milwaukee, WI 53202. However, if you have changed
your address of record within the last 60 days, you may only redeem your shares
in writing and must include a signature guarantee.
EXCHANGE PLAN. Skyline offers an exchange plan between the Fund and two
portfolio series of Firstar Funds, Inc.--Money Market Fund and U.S. Government
Money Market Fund. All exchanges are made at the net asset value per share next
calculated after the receipt of an exchange request. To be effective on that
date, a request to exchange in or out of a Firstar Money Market Fund must be
received by the purchase or redemption cutoff time described in the Firstar
Money Market Funds' prospectus, a copy of which can be obtained from us at
800.828.2759.
You may not use the telephone exchange plan for shares for which certificates
have been issued or which have been held for fewer than 15 days. Exchanges by
telephone are an automatic privilege unless you notify us on the account
application that such authorization has been withheld. Unless authorization is
withheld, we will honor exchange requests by telephone at 800.828.2759. We
record all telephone exchange requests. We, and our transfer agent, will be
liable for losses resulting from unauthorized telephone redemptions only if we
do not follow reasonable procedures designed to verify the identity of the
caller. You should immediately verify your trade confirmations when you receive
them. To reduce the risk of any fraudulent instruction, the registration of the
account into which shares are to be exchanged must be identical to the
registration of the originating account.
WE RESERVE THE RIGHT TO TEMPORARILY OR PERMANENTLY TERMINATE, WITH OR WITHOUT
ADVANCE NOTICE, THE EXCHANGE PRIVILEGE OF ANY INVESTOR WHO MAKES EXCESSIVE USE
OF THE EXCHANGE PRIVILEGE (FOR EXAMPLE, MORE THAN FOUR EXCHANGES PER CALENDAR
YEAR).
Exchanges of shares are taxable events and may result in a gain or loss for
federal income tax purposes.
AUTOMATIC INVESTMENT PLAN. Once you have established an account, you have the
option to start an Automatic Investment Plan. Automatic investing allows you to
make regular investments through automatic deductions from your bank account.
Simply complete the appropriate section of the account application and attach a
voided check from your bank account.
One of the benefits of automatic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of
18
<PAGE>
years regardless of the share price, you buy more shares when the price is low
and fewer shares when the price is high. As a result, the average share price
you pay should be less than the average share price of Fund shares over the same
period. To be effective, dollar cost averaging requires that you invest over a
long period of time, but does not assure a profit.
You may call us at 800.828.2759 to make certain changes to your automatic
investment plan. You may change the dollar amount of your automatic investment,
change the date of your automatic investment, suspend your automatic investments
for up to six months or terminate your participation in the plan. You should
call us at least three days prior to your next investment date for these changes
to take effect for that investment. You can change your bank account information
by sending a letter along with a voided check or a withdrawal slip for your new
bank account. We will waive the minimum subsequent investment amount of $100.00
for automatic investments. Automatic investments may be as low as $50.00 per
purchase.
ELECTRONIC FUNDS PURCHASES. Once you have established an account, you may
purchase shares over the telephone by debiting your bank account. To
electronically debit your bank account, you must hold your bank account at a
financial institution that is an Automatic Clearing House member. Simply
complete the appropriate section on the account application form and attach a
voided check from your bank account.
The purchase price for the shares will be the net asset value per share next
computed after receipt by our transfer agent of your telephone purchase if you
call to place your order by 3:00 p.m., Central Time. We will initiate most
electronic transfers from your banking account to pay for the share purchase
within that same business day. We may modify or terminate the ability to
purchase shares by phone at any time, or from time to time, without notice to
shareholders.
We, and our transfer agent, will be liable for losses resulting from
unauthorized telephone purchases only if we do not follow reasonable procedures
designed to verify the identity of the caller. You should immediately verify
your trade confirmations when you receive them.
SYSTEMATIC WITHDRAWAL PLAN. You may also arrange for us to redeem shares with
a specified dollar value on a periodic basis. Payment is sent by check to the
record shareholder(s) of the account. To initiate the Systematic Withdrawal
Plan, your account must have a share balance of $5,000 or more and the periodic
withdrawal must be in an amount of $100 or more. Skyline may modify or terminate
the Systematic Withdrawal Plan at any time, or from time to time, without notice
to shareholders.
19
<PAGE>
RETIREMENT PLANS. You may use the Fund as an investment for your Individual
Retirement Account ("IRA"), including regular IRAs, SEP-IRAs, SIMPLE-IRAs and
Roth IRAs, profit sharing or pension plans, Section 401(k) plans, Section
403(b)(7) plans in the case of employees of public school systems and certain
non-profit organizations, and certain other qualified plans. Master IRA plans,
information regarding plan administration, fees, and other details are available
from the Distributor and authorized broker-dealers. For more information on
opening a retirement plan account with us, please call 800.828.2759.
DISTRIBUTIONS AND TAXES
DISTRIBUTION PAYMENT AND REINVESTMENT OPTIONS. The Fund automatically
reinvests your dividends and distributions in additional Fund shares unless you
request otherwise. You may have your dividends paid to you by check, deposited
directly into your bank account, or reinvested in the Fund or one of the Firstar
Money Market Funds. The Fund expects to declare and pay net investment income
dividends and distributions of net realized short- and long-term capital gains,
if any, at least annually. Because of the kinds of investments the Fund makes,
its distributions tend to be more from short-term and long-term gains than from
investment income.
TAXES AND TAX REPORTING. The Fund's distributions are taxed as ordinary
income or capital gains. Dividends from the Fund's long-term capital gains are
taxable as capital gains, while dividends from short-term capital gains and net
investment income are generally taxable as ordinary income. The tax you pay on a
capital gains distribution depends generally on how long the Fund has held the
portfolio securities it sold, and so may qualify as long-term capital gains even
if you have held your Fund shares less than 12 months.
Early in each year, you will receive a statement showing the amount and nature
of all dividends and capital gain distributions paid to you during the year. The
tax status of your dividends and distributions is not affected by whether you
reinvest them or receive them in cash. The sale of shares in your account may
produce a gain or loss, and is a taxable event. For tax purposes, an exchange is
the same as a sale. Shareholders who are not subject to income taxation will not
be required to pay tax on amounts distributed to them.
Tax laws are subject to change, so we urge you to consult your tax adviser
about your particular tax situation. Please note that if you do not give us your
correct Social Security number or employer identification number, federal law
requires us to withhold federal income tax from your distributions and
redemption proceeds at a rate of 31%.
20
<PAGE>
BUYING AND SELLING SHARES CLOSE TO A RECORD DATE. Any dividends or
distributions have the effect of reducing the per share net asset value by the
amount of the dividends or distributions. Buying Fund shares shortly before the
record date for a dividend is sometimes called "buying the dividend." The entire
dividend will be taxable to you, even though a portion of the dividend
effectively represents a return of your purchase price.
SHAREHOLDER INQUIRIES
Inquiries should be addressed to Skyline Funds, c/o Firstar Bank Milwaukee,
P.O. Box 701, Milwaukee, Wisconsin 53201. Telephone inquiries may be made at
800.828.2759.
OUR SERVICE PROVIDERS
Firstar Mutual Fund Services, LLC is the Funds' transfer agent, shareholder
servicing agent and provides accounting services to the Fund and Firstar Bank
Milwaukee is the custodian of the Fund's assets. Firstar's address is
P.O. Box 701, Milwaukee, Wisconsin 53201.
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's recent past
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The information presented has
been audited and reported on by Ernst & Young LLP, Skyline Funds' independent
auditors. The auditors' report, the Fund's financial statements, and further
information about the performance of the Fund is contained in the Fund's Annual
Reports and the Statement of Additional Information, which may be obtained from
us free of charge.
21
<PAGE>
SPECIAL EQUITIES PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year..................... $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment loss........ (0.14) (0.11) (0.07) (0.04) (0.06)
Net realized and unrealized
(loss) gain on
investments............... (2.51) (1.45) 6.46 5.02 2.21
-------- -------- -------- -------- --------
Total from investment
operations................ (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
year...................... $ 15.90 $ 19.78 $ 21.66 $ 18.16 $ 16.79
======== ======== ======== ======== ========
TOTAL RETURN................. (13.28%) (7.17%) 35.43% 30.37% 13.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to
average net assets........ 1.48% 1.47% 1.48% 1.51% 1.51%
Ratio of net investment
loss to average net
assets.................... (0.32%) (0.50%) (0.41%) (0.32%) (0.35%)
Portfolio turnover rate.... 81% 68% 62% 130% 71%
Net assets at end of year (in
thousands).................. $220,346 $445,024 $467,070 $219,480 $174,899
======== ======== ======== ======== ========
</TABLE>
- ------------------------
NOTE TO FINANCIAL HIGHLIGHTS:
(a) Effective September 1, 1995, Skyline Asset Management, L.P. became the
investment adviser to Skyline Special Equities Portfolio.
22
<PAGE>
Additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this Prospectus,
contains detailed information on Skyline Funds policies and operation.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of our latest semi-annual or
annual fiscal year end. You may obtain free copies of our annual and semi-annual
reports, the Statement of Additional Information, or request any other
information and discuss your questions about us by writing or calling:
Skyline Funds
c/o Firstar Mutual Fund
Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
800.828.2759
In addition, you may obtain this and other information about us directly from
the Securities and Exchange Commission (SEC). You may visit the SEC online at
http://www.sec.gov or in person at the SEC's Public Reference Room in Washington
D.C. You may obtain information about the Public Reference Room by calling the
SEC at (800) 942-8090. After paying the appropriate duplicating fee, you may
also obtain copies by writing to the SEC's Public Reference Section at 450 5th
Street, N.W., Washington, DC 20549-6009 or by e-mail request at
[email protected].
SKYLINE FUNDS-REGISTERED TRADEMARK-
- ----------------------------
SPECIAL EQUITIES PORTFOLIO
PROSPECTUS
MARCH 1, 2000
- ----------------------------
311 SOUTH WACKER DRIVE
SUITE 4500
CHICAGO, IL 60606
800.828.2759
SKYLINE FUNDS, THE SKYLINE LOGO, AND SPECIAL EQUITIES PORTFOLIO
ARE REGISTERED SERVICE MARKS OF AFFILIATED MANAGERS GROUP, INC.
Investment Company Act file number: 811-5022
<PAGE>
SKYLINE FUNDS-Registered Trademark-
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
(800) 828.2759
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
- -------------------------------------------------------------------------------
Skyline Special Equities Portfolio is a series of Skyline Funds
("Skyline"). This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Skyline Funds Prospectus for Skyline
Special Equities Portfolio dated March 1, 2000, and any supplement to that
Prospectus. The Fund's Prospectus can be obtained without charge by calling or
writing to Skyline.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SKYLINE .......................................................2
SHARES .......................................................2
INVESTMENT POLICIES.............................................2
INVESTMENT RESTRICTIONS.........................................3
PERFORMANCE INFORMATION.........................................5
PRINCIPAL SHAREHOLDERS..........................................8
MANAGEMENT OF SKYLINE...........................................9
INVESTMENT ADVISORY SERVICES...................................11
PORTFOLIO TRANSACTIONS AND BROKERAGE...........................13
PURCHASE AND REDEMPTION OF SHARES..............................14
TAXES ......................................................15
GENERAL INFORMATION............................................15
FINANCIAL STATEMENTS...........................................17
</TABLE>
<PAGE>
SKYLINE
Skyline was organized as a Massachusetts business trust on February 4,
1987, and is an open-end, diversified management investment company. Skyline
currently has one series of shares, Skyline Special Equities Portfolio, which
began operations April 23, 1987. Skyline's name was changed to "Skyline Funds"
effective as of April 25, 1997, pursuant to an amendment to its Agreement and
Declaration of Trust. As used in this Statement of Additional Information,
"Special Equities Portfolio" means Skyline Special Equities Portfolio. Special
Equities Portfolio is sometimes referred to as the "Fund." Skyline Asset
Management, L.P. (the "Adviser") provides investment advisory and administrative
services to the Fund.
SHARES
Under the terms of Skyline's Agreement and Declaration of Trust, Skyline
may issue an unlimited number of shares of beneficial interest without par value
for each series of shares authorized by the trustees. Currently, there is one
series authorized and outstanding. All shares issued will be fully paid and
non-assessable and will have no preemptive or conversion rights. Each share 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
have equal rights in the event of liquidation of that series.
Each Skyline share has one vote and fractional shares have fractional
votes. 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 Fund 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 the Fund of all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is remote, since it is limited to circumstances in which the
disclaimer is inoperative and Skyline itself is unable to meet its obligations.
INVESTMENT POLICIES
TEMPORARY INVESTMENTS. To manage cash inflows or in anticipation of
redemptions, the Fund may, from time to time, take temporary investment
positions that are inconsistent with its principal investment strategies. When
the Adviser believes a temporary defensive position is necessary, the Fund may
invest, without limitation, in high-quality fixed-income securities and
2
<PAGE>
may hold assets in cash or cash equivalents. Taking such a position might
prevent the Fund from achieving its investment objective.
REPURCHASE AGREEMENTS. The Fund may invest up to 5% of its net assets in
repurchase agreements. Repurchase agreements involve the acquisition by a Fund
of an underlying debt instrument, subject to an obligation of the seller to
repurchase and the Fund to resell the instrument, at a fixed price, including
yield, within a specified term. The Fund could suffer a loss and increased
expense in connection with the sale of the securities if the seller does not
repurchase them in accordance with the terms of the repurchase agreement. The
Fund did not invest in repurchase agreements in the most recent fiscal year and
has no present intention of investing in repurchase agreements in the coming
year.
FOREIGN SECURITIES. The Fund may invest in securities of foreign issuers
that are not publicly traded in the United States ("foreign securities").
Investment in foreign securities may represent a greater degree of risk
(including risk related to exchange rate fluctuations, tax provisions, exchange
and currency controls, and expropriation of assets) than investment in
securities of domestic issuers. For this purpose, foreign securities do not
include securities guaranteed by a United States person. The Fund does not
expect to invest more than 5% of its net assets in foreign securities.
PORTFOLIO TURNOVER. The portfolio turnover rate of Special Equities
Portfolio was 68% in 1998 and 81% in 1999. Although the Fund does not purchase
securities with an expectation of rapid turnover, no limitations exist on the
length of time that portfolio securities must be held. At times, the Fund may
invest for short-term capital appreciation. Portfolio turnover can occur for a
number of reasons such as general conditions in the securities markets, more
favorable investment opportunities in other securities, or other factors
relating to the desirability of holding or changing a portfolio investment.
Because of the Fund's flexibility of investment and emphasis on growth of
capital, it may have greater portfolio turnover than that of mutual fund that
has a primary objective of income or maintenance of a balanced investment
position. The turnover rate may vary greatly from year to year, but is expected
to be less than 100%. A high rate of portfolio turnover, if it should occur,
would result in increased transaction expenses. High portfolio turnover also may
result in the realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting from such
gains will be considered ordinary income for Federal income tax purposes. (See
"Distributions and Taxes" in the Fund's prospectus, and "Taxes" in this
statement of additional information.)
INVESTMENT RESTRICTIONS
Skyline has adopted certain fundamental investment restrictions that may
not be changed without the approval of a majority of the Fund's outstanding
shares. The Fund's fundamental investment restrictions are as follows:
The Fund may not:
1. Issue senior securities or borrow money except (i) from banks for
temporary or emergency purposes in amounts not exceeding 10% of the value
of the
3
<PAGE>
Fund's assets at the time of borrowing (including the amount borrowed) (the
Fund will not purchase securities when its borrowings exceed 5% of the
value of its assets), and (ii) in connection with transactions in options,
futures, or futures options.
2. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein, except that it
may not invest over 10% of the value of its assets in real estate
investment trusts).
3. Invest more than 5% of its assets (valued at the time of
investment) in securities of any one issuer, except government obligations
or bank certificates of deposit and bankers' acceptances.
4. Acquire securities of any one issuer which at the time of
investment (i) represent more than 10% of the outstanding voting securities
of the issuer or (ii) have a value greater than 10% of the value of the
outstanding voting securities of any one issuer.
5. Invest more than 5% of its assets (measured at the time of
investment) in securities of an issuer with less than three years operating
history (including predecessors).
6. Sell securities short or purchase securities on margin (but the
Fund may obtain such short-term credits as may be necessary for the
clearance of transactions and may make margin payments in connection with
transactions in options, futures, and options on futures).
7. Invest more than 25% of its assets (valued at the time of
investment) in the securities of companies in any one single industry,
except government obligations.
8. Make loans to other persons except that it reserves freedom of
action, consistent with its other investment policies and restrictions, to
purchase bonds or other debt obligations of types commonly offered publicly
or privately and purchased by financial institutions, even though the
purchase of such debt obligations may be deemed to be making loans.
9. Underwrite any issue of securities, except as it may be deemed to
be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies,
and limitations.
Skyline also has adopted the following additional restrictions and policies
with respect to the Fund (which may be changed by the board of trustees without
shareholder approval). Under these additional policies and restrictions, the
Fund may not:
A. Invest in companies for the purpose of exercising control or
management.
4
<PAGE>
B. Acquire securities of other investment companies except (i) by
purchase in the open market, where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission and (ii) where the acquisition results from a dividend, or a
merger, consolidation or other reorganization. In addition to this
restriction, the 1940 Act provides that the Fund may neither purchase more
than 3% of the voting securities of any one investment company nor invest
more than 10% of the Fund's assets (valued at the time of investment) in
all investment company securities purchased by the Fund.
C. Invest in securities of other open-end investment companies.
D. Invest more than 15% of its net assets (valued at the time of
investment) in restricted securities or securities which are not readily
marketable, including (i) securities subject to legal or contractual
restrictions on resale, (ii) fixed time deposits or certificates of deposit
subject to withdrawal penalties, other than overnight deposits, or (iii)
repurchase agreements which expire in excess of seven days.
E. Invest less than 65% of its total assets in common stocks of
small-capitalization issuers.
F. Invest in financial futures, options, or options on financial
futures.
G. Invest in commodities or commodity contracts.
PERFORMANCE INFORMATION
From time to time Skyline may quote total return performance data for the
Fund. Total return for a period is the percentage change in value during the
period of an investment in the Fund's shares including the value of shares
acquired through reinvestment of all dividends and capital gains distributions.
An average annual total return for a given period may be computed by finding the
average annual compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the value of that investment that could be redeemed at the
end of the period, assuming reinvestment of all distributions. Average annual
total return is computed as follows:
n
ERV = P(l+T)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 investment made at
the beginning of the period at the end
of the period (or fractional portion
thereof)
5
<PAGE>
For example, total return and average annual total return at December 31,
1999 of an investment of $1,000 in Special Equities Portfolio were:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL TOTAL
RETURN (%) RETURN (%)
----------- -----------
<S> <C> <C>
1 Year.......................................... -13.28% -13.28%
5 Years......................................... 61.79% 10.10%
10 Years........................................ 274.07% 14.10%
Life of the Fund (April 23, 1987)............... 400.39% 13.53%
</TABLE>
Total return and average annual total return figures assume reinvestment of
all dividends and distributions. Income taxes are not taken into account. The
Fund's performance figures are not a guarantee of future results. The Fund's
performance is a result of conditions in the securities markets, portfolio
management, and operating expenses. Although total return information is useful
in reviewing the Fund's performance and in providing some basis for comparison
with other investment alternatives, it should not be used for comparison with
other investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts, limited
liability investment companies or partnerships managed or advised by the
Adviser, and other competing investment products available from or through other
financial institutions. The composition of these indexes, averages or accounts
differs from that of the Fund. The comparison of the Fund to an alternative
investment should consider differences in features and expected performance.
The Fund may also note (or provide reprints of articles or charts
containing) its mention (including performance or other comparative rankings) in
newspapers, magazines, or other media from time to time. Newspapers and
magazines that might mention Skyline and the Fund include, but are not limited
to, the following:
<TABLE>
<S> <C>
Barron's Investor's Daily
Bloomberg Personal Finance Kiplinger's Personal Finance
Business Week Los Angeles Times
Changing Times Money
Chicago The Mutual Fund Letter
Chicago Tribune Mutual Fund Values (Morningstar)
Chicago Sun-Times Newsweek
Crain's Chicago Business The New York Times
Consumer Reports Pensions and Investments
Consumer Digest Personal Investor
Financial Planning Smart Money
Financial World Time
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
FA Advisor USA Today
Forbes U.S. News and World Report
Fortune The Wall Street Journal
Institutional Investor Worth
Investment News
</TABLE>
When a newspaper, magazine, or other publication mentions Skyline or the
Fund, such mention may include: (i) listings of some or all of the Fund's
holdings; (ii) descriptions of characteristics of some or all of the securities
held by the Fund, including price-to-earnings, price-to-sales, and price-to-book
value ratios, earnings, growth rates and other statistical information, and
comparisons of that information to similar statistics for the securities
comprising any of the indexes or averages listed below; and (iii) descriptions
of the economic and market outlook generally and for the Fund, in the view of
Skyline, a portfolio manager or the Adviser.
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of the Fund may be compared to stock market indexes or
averages, including the following:
<TABLE>
<S> <C>
Dow Jones Industrial Average New York Stock Exchange Composite Index
Russell 1000 Index American Stock Exchange Composite Index
Russell 2000 Index NASDAQ Over-the-Counter Composite Index
Russell 2500 Index NASDAQ Over-the-Counter Industrials Index
Russell 3000 Index (These indexes generally reflect the
Russell MidCap Index performance of stocks traded in the
Russell 2000 Value Index indicated markets.)
Standard & Poor's Small Cap 600 Index
Standard & Poor's 500 Stock Index
Standard & Poor's MidCap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire Quantum Small Value Index
Wilshire Next 1750 Index
Wilshire Quantum Small Cap Index
(These indexes are widely recognized
indicators of general
U.S. stock market results.)
</TABLE>
The Fund's performance may also be compared to mutual fund industry indexes
or averages, including the following: Value Line Index; Lipper Small-Cap Value
Equity Index; Lipper Small-Cap General Equity Index; Lipper Small-Cap Growth
Equity Index; Lipper Small-Cap Aggressive Equity Index; Morningstar Growth
Average; Morningstar Aggressive Growth
7
<PAGE>
Average; Morningstar U.S. Diversified Average; Morningstar Equity Fund Average;
Morningstar Hybrid Fund Average; Morningstar All Equity Fund Average;
Morningstar General Equity Average; Morningstar MidCap/Value Average; and
Morningstar Small Cap Value Average.
Lipper and Morningstar, Inc. ("Morningstar"), classify, calculate, and
publish the Lipper and Morningstar averages, respectively, which are unweighted
averages of total return performance of mutual funds. The Fund may also use
comparative performance as computed in a ranking by Lipper or category averages
and rankings provided by another independent service. Should Lipper or another
service reclassify the Fund to a different category or develop (and place the
Fund into) a new category, the Fund may compare its performance or ranking
against other funds in the newly assigned category, as published by the service.
Moreover, the Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service, and may cite its rating,
recognition or other mention by Morningstar or any other entity. Morningstar's
rating system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is computed by
subtracting a fund's risk score (which is a function of the fund's monthly
returns less the 3-month Treasury bill return) from the fund's load-adjusted
total return score. This numerical score is then translated into rating
categories, with the top 10% labeled five star, the next 22.5% labeled four
star, the next 35% labeled three star, the next 22.5% labeled two star and the
bottom 10% one star. A high rating reflects either above-average returns or
below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds and U.S. Treasury bills. Similarly,
the Fund may use Ibbotson's historical data regarding the Consumer Price Index.
The Fund may also use historical data compiled by Prudential Securities, Inc.,
or by other similar sources believed by Skyline to be accurate, illustrating the
past performance of small-capitalization stocks, large-capitalization stocks,
common stocks, equity securities, growth stocks (small-capitalization,
large-capitalization, or both) and value stocks (small-capitalization,
large-capitalization, or both).
PRINCIPAL SHAREHOLDERS
The only persons known by Skyline to own of record or "beneficially"
(within the meaning of that term as defined in rule 13d-3 under the Securities
Exchange Act of 1934) 5% or more of the outstanding shares of the Fund as of
January 31, 2000 were Charles Schwab & Co., Inc., as a nominee for various
beneficial owners, which held 27.2% and Boston Safe Dep. and Trust as a trustee
for the benefit of Eastman Kodak employees, which held 5.4% of the shares of
Special Equities Portfolio. The address of Charles Schwab & Co., Inc. is 101
Montgomery Street, San Francisco, California 94104. The address of Boston Safe
Dep. and Trust is 1 Cabot Road, Medford, Massachusetts 02155.
8
<PAGE>
MANAGEMENT OF SKYLINE
The board of trustees has overall responsibility for the conduct of
Skyline's affairs. The trustees serve indefinite terms of unlimited duration
provided that a majority of trustees always has been elected by Skyline's
shareholders. The trustees appoint their own successors, provided that at least
two-thirds of the trustees, after such appointment, have been elected by
Skyline's shareholders. Skyline's shareholders may remove a trustee, with or
without cause, upon the declaration in writing or vote of two-thirds of
Skyline's outstanding shares. A trustee may be removed with or without cause
upon the written declaration of a majority of the trustees.
Trustees and officers of Skyline, and their principal business occupations
during at least the last five years, are shown below.
WILLIAM M. DUTTON,* 46, PRESIDENT AND TRUSTEE. Managing Partner, Chief
Investment Officer and Portfolio Manager, Skyline Asset Management, L.P. and
registered representative, Fund Distributor, Inc., since September 1995.
Previously, Executive Vice President and Portfolio Manager (Special Equities
Portfolio), Mesirow Asset Management, Inc.
WILLIAM L. ACHENBACH, 57, TRUSTEE. President, W.L. Achenbach & Associates,
Inc., a financial counseling firm.
PAUL J. FINNEGAN, 46, TRUSTEE. Managing Director, Madison Dearborn
Partners, Inc., a venture capital firm.
DAVID A. MARTIN, 48, TRUSTEE. Attorney and Principal, Righeimer, Martin &
Cinquino, P.C.
RICHARD K. PEARSON, 60, TRUSTEE. President, First DuPage Bancorp, Inc.
(Westmont, Illinois) and President and Chief Executive Officer, First DuPage
Bank since November 1998, Director, Citizens Savings Bank (Anamosa, Iowa),
since February 1998, and Director, First Community Bank (Milton, Wisconsin),
since January 1998. Previously, Director and President, LaSalle Bank,
Westmont (Westmont, Illinois), from 1994 to 1997.
STEPHEN F. KENDALL, 45, EXECUTIVE VICE PRESIDENT, TREASURER AND SECRETARY.
Partner and Chief Operating Officer, Skyline Asset Management, L.P., since
January 1998. Previously, Regional Vice President, Metro Region, Nabisco Biscuit
Company.
KENNETH S. KAILIN, 41, EXECUTIVE VICE PRESIDENT. Partner, Portfolio
Management, Skyline Asset Management, L.P., since September 1995. Portfolio
Manager, Skyline Asset Management, L.P. from September 1995 to February 2000,
and prior to joining Skyline Asset Management, Senior Vice President and
Portfolio Manager, Mesirow Asset Management, Inc.
- ---------------------
* Indicates an "interested person" of Skyline, as defined in the Investment
Company Act of 1940.
9
<PAGE>
GEOFFREY P. LUTZ, 49, EXECUTIVE VICE PRESIDENT. Partner and Institutional
Marketing, Skyline Asset Management, L.P. and registered representative, Fund
Distributor, Inc., since September 1995. Previously, Vice President, Mesirow
Asset Management, Inc., and registered representative, Mesirow Financial, Inc.
and Mesirow Investment Services, Inc.
MICHAEL MALONEY, 38, SENIOR VICE PRESIDENT. Partner and Securities Analyst,
Skyline Asset Management, L.P., since September 1995. Previously, Securities
Analyst, Mesirow Asset Management, Inc.
MICHELE M. BRENNAN, 28, VICE PRESIDENT. Director of Fund Marketing, Skyline
Asset Management, L.P., since August 1996. Previously, Regional Marketing
Associate, Strong Capital Management, an investment adviser.
Messrs. Achenbach, Finnegan, Martin and Pearson serve as members of the
Committee of the Independent Trustees, which functions as an audit committee. As
such, the Committee makes recommendations to the Board of Trustees regarding the
selection of auditors, confers with the auditors regarding the scope and results
of the audit.
The address of Messrs. Dutton, Kendall, Kailin, Lutz, and Maloney and Ms.
Brennan is c/o Skyline Asset Management, L.P., 311 South Wacker Drive, Suite
4500, Chicago, Illinois 60606. The addresses of the other trustees are: William
L. Achenbach, 510 East Main Street, Charlottesville, Virginia 22902; Paul J.
Finnegan, Three First National Plaza, Suite 3800, Chicago, Illinois 60602; David
A. Martin, 135 South LaSalle Street, Chicago, Illinois 60603; and Richard K.
Pearson, 401 South Quincy Street, Hinsdale, Illinois 60521.
As of January 31, 2000, the trustees and officers of Skyline owned, in
the aggregate, 167,780 shares of Special Equities Portfolio, 12,936 shares of
Skyline Small Cap Value Plus, and 40,563 shares of Skyline Small Cap
Contrarian, which represents 1% of Special Equities Portfolio, less than 1%
of Skyline Small Cap Value Plus and 9% of Skyline Small Cap Contrarian. After
the reorganization of each of Skyline Small Cap Value Plus and Skyline Small
Cap Contrarian into Special Equities Portfolio, the aggregate value of the
shares of Special Equities Portfolio received by the trustees and officers of
Skyline in exchange for their shares of Small Cap Value Plus and Small Cap
Contrarian will be equal to the aggregate net asset value of such trustee or
officer's Small Cap Value Plus and Small Cap Contrarian shares immediately
prior to the reorganization.
Effective March 1, 2000, the trustees of Skyline who are not
"interested persons" of Skyline, as defined in the Investment Company Act of
1940 (the "1940 Act"), will receive from Skyline an annual aggregate retainer
of $6,000 and a fee of $400 for each meeting of the board of trustees (or any
committee thereof) attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings.
10
<PAGE>
The following table sets forth compensation paid by Skyline during the
fiscal year ended December 31, 1999, to each trustee of Skyline. Skyline has no
retirement or pension plans. The trustees and officers affiliated with Skyline
do not receive compensation from Skyline.
<TABLE>
<CAPTION>
Aggregate Compensation
Name of Trustee From Skyline Funds
- -------------------------------------------------------------------------------
<S> <C>
William L. Achenbach................ $11,400
William M. Dutton(1).................. 0
Paul J. Finnegan.................... 11,400
David A. Martin..................... 11,800
Richard K. Pearson.................. 11,800
</TABLE>
- ----------------------------
(1) Indicates an "interested person" of Skyline, as defined in the 1940 Act.
INVESTMENT ADVISORY SERVICES
The Adviser provides investment advisory and administrative services to
Skyline for Special Equities Portfolio pursuant to an Investment Advisory
Agreement dated May 28, 1998 (the "Agreement"). The Adviser is a Delaware
limited partnership that was formed in 1995. The general partner of the Adviser
is Affiliated Managers Group, Inc. ("AMG") and the limited partners are
corporations wholly owned by Messrs. Dutton, Kailin, Lutz, Maloney, Kendall,
Mark Odegard and Bill Fiedler, respectively. AMG is a publicly traded Delaware
corporation which acquires interests in investment management firms. AMG has its
offices at Two International Place, 23rd Floor, Boston, MA 02110.
Under the Agreement, the Adviser pays all of the Fund's ordinary costs and
expenses attendant to operating the Fund except the advisory fees, fees paid to
non-interested trustees, organization and initial offering expenses, interest
expenses, taxes, portfolio transaction costs, and any extraordinary costs or
expenses such as legal, accounting, or other costs or expenses not incurred in
the course of Skyline's ongoing operation.
For its management and advisory services, for providing shareholder and
investor servicing, and for the assumption of the Fund's ordinary operating
expenses, the Adviser is paid a monthly comprehensive fee from the Fund based on
the Fund's average daily net assets. Under the Agreement, the Fund pays the
Adviser a fee at the annual rate of 1.50% of the first $200 million of its
average daily net assets, 1.45% of the next $200 million, 1.40% of the next $200
million, and 1.35% of any excess over $600 million.
The Adviser has agreed that it will reimburse the Fund to the extent that,
in any fiscal year, the aggregate expenses of the Fund, including the advisory
fee, and trustees' fees and expenses, but excluding extraordinary costs or
expenses such as legal, accounting, or other costs or expenses not incurred
in the normal course of Skyline's ongoing operation, exceed an annual rate of
1.75% of the average daily net assets of Special Equities Portfolio.
Reimbursement, if any, is made monthly.
11
<PAGE>
The Fund paid comprehensive management fees to the Adviser totaling
$5,246,839, $7,049,303 and $5,196,131 in the fiscal years ended December 31,
1999, 1998 and 1997, respectively.
The Agreement provides that the Adviser shall not be liable for any loss
suffered by Skyline or its shareholders as a consequence of any act of omission
in connection with investment advisory or portfolio services under the
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties or from
the Adviser's reckless disregard of its obligations and duties under the
Agreement.
The Agreement may be continued from year to year only so long as its
continuance is approved annually (a) by the vote of a majority of the trustees
of Skyline who are not "interested persons" of Skyline or the Adviser cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the board of trustees of Skyline or by the vote of a majority (as defined in
the 1940 Act) of the outstanding shares of the Fund. The Agreement is terminable
with respect to the Fund without penalty, on 60 days' notice, by the trustees of
Skyline or by vote of a majority of the outstanding shares of the Fund, or, on
not less than 90 days' notice, by the Adviser. The Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Adviser specializes in investing in stocks of companies with small
market capitalizations. The Fund has a portfolio manager who is responsible for
its day-to-day management. The portfolio manager works with a team of the
Adviser's investment professionals and analysts. The portfolio manager for
Special Equities Portfolio is William M. Dutton, President of Skyline.
Mr. Dutton is the Adviser's Managing Partner and Chief Investment Officer.
Mr. Dutton, who is a certified public accountant, received an undergraduate
degree in English Literature from Princeton University, and has a master's
degree in accounting from the University of Illinois. He joined Mesirow
Financial Services Inc., as an analyst in 1980 after practicing as an accountant
for one year, and became a portfolio manager in 1984 with Mesirow Asset
Management, Inc., the former adviser to Skyline. In addition to Special Equities
Portfolio, Mr. Dutton manages separately managed accounts. Mr. Dutton was named
1992 Portfolio Manager of the Year by Morningstar, Inc.
CODE OF ETHICS
The 1940 Act and rules thereunder require that Skyline and the Adviser
establish standards and procedures for the detection and prevention of certain
conflicts of interest, including activities by which persons having knowledge of
the investments and investment intentions of Skyline might take advantage of
that knowledge for their own benefit. Skyline and the Adviser have adopted a
Code of Ethics to meet those concerns and legal requirements. Although the Code
does not prohibit employees who have knowledge of the investments and investment
intentions of Skyline from engaging in personal securities investing, it does
regulate such personal securities investing by these employees as a part of the
effort by Skyline and the Adviser to detect and prevent conflicts of interest.
12
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Portfolio transactions are placed with those securities brokers and dealers
that the Adviser believes will provide the best value in transaction and
research services either in a particular transaction or over a period of time.
Although some transactions involve only brokerage services, many involve
research services as well.
In valuing brokerage services, the Adviser makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission considered alone) and the best execution in a particular
transaction. Best execution connotes not only general competence and reliability
of a broker, but specific expertise and effort of a broker in overcoming the
anticipated difficulties in fulfilling the requirements of particular
transactions, because the problems of execution and the required skills and
effort vary greatly among transactions.
In valuing research services, the Adviser makes a judgment of the
usefulness of the research information provided by a broker to the Adviser in
managing the Fund. Although the information, e.g., data or recommendations
concerning particular securities, sometimes relates to the specific transaction
placed with the broker, the research predominately consists of a wide variety of
information concerning companies, industries, investment strategy, and economic,
financial and political conditions and prospects useful to the Adviser in
advising Skyline and other accounts.
The reasonableness of brokerage commissions paid in relation to transaction
and research services received is evaluated by the staff of the Adviser on an
ongoing basis. The general level of brokerage charges and other aspects of the
portfolio transactions for the Fund are reviewed periodically by Skyline's board
of trustees.
The Adviser is the principal source of information and advice to the Fund
and is responsible for making and initiating the execution of investment
decisions. However, the board of trustees of Skyline recognizes that it is
important for the Adviser, in performing its responsibilities to Skyline, to
continue to receive and evaluate the broad spectrum of economic and financial
information which many securities brokers have customarily furnished in
connection with brokerage transactions, and that in compensating brokers for
their services, it is in the interest of Skyline to take into account the value
of the information received for use in advising Skyline. Consequently, the
commission paid to a broker providing research services may be greater than the
amount of commission another broker would charge for the same transaction. The
extent, if any, to which receipt of such information may reduce the expenses of
the Adviser in providing management services to Skyline is not determinable. In
addition, the board of trustees understands that other clients of the Adviser
also may benefit from the information obtained for Skyline, in the same manner
that Skyline also may benefit from information obtained by the Adviser in
performing services for others.
Transactions of Skyline in the over-the-counter market and the third market
are executed with primary market makers acting as principals except where it is
believed that better prices and execution may be obtained from others.
13
<PAGE>
The Adviser is further authorized to allocate the orders placed by it on
behalf of Skyline to brokers and dealers who provide research services to
Skyline or the Adviser. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to the policy of
seeking the best price and execution as stated above, sales of shares of Skyline
by a broker-dealer may be considered by the Adviser in the selection of
broker-dealers to execute portfolio transactions for Skyline.
Although investment decisions for Skyline are made independently from those
for other investment advisory clients of the Adviser, the same investment
decision may be made for both Skyline and one or more other advisory clients. If
both Skyline and other clients purchase or sell the same class of securities on
the same day, the transactions will be allocated as to amount and price in a
manner considered equitable to each.
The following table shows the aggregate brokerage commissions (excluding
the gross underwriting spread on securities purchased in underwritten offerings)
paid by Special Equities Portfolio during the periods indicated. No commissions
were paid to persons who were affiliated persons of Skyline as of the time such
payments were made.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate commissions $1,418,582(100%) $1,120,059(100%) $995,672(100%)
</TABLE>
Of the aggregate brokerage commissions paid during the fiscal year ending
December 31, 1999, Special Equities Portfolio paid $1,079,107 to brokers who
furnished research services, and such brokers effected transactions aggregating
73% of the aggregate dollar amount of transactions involving the payment of
brokerage commissions by Special Equities Portfolio.
The Adviser may place brokerage transactions with brokers affiliated with
the distributor for Skyline, Fund Distributor, Inc. Commissions paid to such
brokers on any transaction will not exceed those paid by Skyline in similar
transactions to other brokers.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions are discussed in the Prospectus under the
headings "Types of Skyline Funds Accounts and Information on Purchasing Shares,"
"Redeeming Shares," and "Shareholder Services." All of that information is
incorporated herein by reference.
NET ASSET VALUE. The net asset value of the shares of the Fund is
determined as of the close of regular session trading on the New York Stock
Exchange (currently 3:00 p.m., central time) each day it is open for trading.
The net asset value per share of the Fund is determined by dividing the value of
all its securities and other assets, less its liabilities, by the number of
shares of the Fund outstanding.
Investments are stated at current value. Securities listed or admitted to
trading on a national securities exchange or the Nasdaq National Market are
valued at the last sales price or, if
14
<PAGE>
there have been no sales on the valuation date, at the most recent bid price.
Other securities traded over-the-counter are valued at the last reported bid
price. Money market instruments with sixty days or less remaining from the
valuation date until maturity are valued on an amortized cost basis. Securities
or other assets for which market quotations are not readily available will be
valued at a fair value as determined in good faith by or under the direction of
Skyline's board of trustees.
The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King's Birthday, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.
REDEMPTION IN KIND. With respect to the Fund, Skyline intends to pay all
redemptions in cash and is obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net assets of the Fund during any
90-day period for any one shareholder. However, redemptions in excess of such
limit may be paid wholly or partly by a distribution in kind of readily
marketable securities. If redemptions are made in kind, the redeeming
shareholders might incur brokerage fees in selling the securities received in
the redemptions.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders having shares of the Fund with a minimum
value of $5,000. The Withdrawal Plan provides for monthly or quarterly checks in
any amount not less than $100 (which amount is not necessarily recommended).
There are no separate charges to shareholders under the Withdrawal Plan.
Withdrawals are not dividends and to the extent that the amount of the
checks received under the Withdrawal Plan exceeds the amount of dividends or
capital gains distributions credited to the shareholder's account, the payment
will constitute a depletion of the principal in the shareholder's account.
Withdrawals made concurrently with purchases of additional shares may be
inadvisable because of tax consequences. A Withdrawal Plan may be terminated at
any time upon written notice by the shareholder or Skyline.
TAXES
The Fund is a separate entity for federal income tax purposes. Skyline
intends for the Fund to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. To qualify, the Fund must meet
certain income, distribution and diversification requirements. In any year in
which the Fund so qualifies, it generally will not be subject to federal income
or excise tax to the extent that its taxable income is distributed to
shareholders.
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. Firstar Bank Milwaukee, P.O. Box 701,
Milwaukee, Wisconsin 53201, acts as Custodian of the securities and other assets
of Skyline. As Custodian, Firstar Bank Milwaukee is responsible for, among other
things, safeguarding and controlling Skyline's cash and securities, handling the
receipt and delivery of securities, and collecting
15
<PAGE>
interest and dividends on Skyline's investments. Firstar Mutual Fund Services,
LLC performs transfer agent and portfolio accounting services for the Fund.
Firstar Bank Milwaukee and Firstar Mutual Fund Services, LLC are not affiliates
of the Adviser or its affiliates.
INDEPENDENT AUDITORS. Ernst & Young LLP, Sears Tower, 233 South Wacker
Drive, Chicago, Illinois 60606 serves as Skyline's independent auditors,
providing services including (i) audit of the annual financial statements, (ii)
assistance and consultation in connection with Securities and Exchange
Commission filings, and (iii) review of the annual income tax returns filed on
behalf of the Fund.
DISTRIBUTOR. The shares of the Fund are offered for sale on a continuous
basis through Fund Distributor, Inc. ("Distributor"), without any sales
commissions or charges to the Fund or to their shareholders. The Chairman of the
Distributor, and Chairman and Chief Executive Officer and the majority
shareholder of its parent corporation, Boston Institutional Group, Inc., is Mr.
William J. Nutt, the Chairman and Chief Executive Officer of AMG. The
Distributor acts pursuant to a written Distribution Agreement with Skyline which
continues from year to year, provided such continuance is approved annually (i)
by a majority of the trustees or by a majority of the outstanding voting
securities of the affected Fund and (ii) by a majority of the trustees who are
not parties to the Agreement or interested persons of any such party. The
Adviser pays, as a part of its agreement to pay all of the ordinary operating
expenses of the Fund, all expenses in connection with registration of shares of
the Fund with the Securities and Exchange Commission and notice filing fees
under the various state blue sky laws and assumes the cost of preparation of
prospectuses and other expenses. The Adviser bears all sales and promotional
expenses from its own resources.
As agent, the Distributor offers shares of the Fund to investors in states
where the shares are available for sale, at net asset value, without sales
commissions or other sales load. The Distributor offers the Fund's shares only
on a best-efforts basis.
The Distributor or another broker affiliated with the Distributor may
receive brokerage commissions on purchases and sales of portfolio securities by
the Fund. Those amounts, if any, are described under "Portfolio Transactions and
Brokerage."
The Distributor is a selling agent for two series of Firstar Fund, Inc. --
Money Market Fund and U.S. Government Money Market Fund. Those funds are the
money market funds for which shareholders may exchange their shares of the Fund
through the exchange privilege described in the Prospectus.
16
<PAGE>
FINANCIAL STATEMENTS
- - PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
COMMON STOCKS
AUTOS & TRANSPORTATION - 4.9%
AUTO RELATED - 0.8%
Delco Remy International, Inc.(a) Starters & alternators 216,200 $ 1,783,650
OTHER TRANSPORTATION - 1.4%
Interpool, Inc. Container leasing firm 418,100 3,109,619
TRUCKING - 2.7%
Landstar System, Inc.(a) Truckload carrier 139,500 5,972,344
------------
TOTAL AUTOS & TRANSPORTATION 10,865,613
CONSUMER DISCRETIONARY - 30.7%
APPAREL/TEXTILES - 3.9%
Kellwood Co. Apparel manufacturer 294,800 5,730,175
Warnaco Group, Inc. (The) Apparel manufacturer 238,900 2,941,456
------------
8,671,631
COMMERCIAL SERVICES - 9.0%
ADVO, Inc.(a) Direct mail marketer 235,400 5,590,750
Burns International Services Security services 243,100 2,628,519
Corp.(a)
Daisytek International Corp.(a) Distributes computer 97,700 2,277,631
supplies
G&K Services, Inc. Uniform rental 71,600 2,318,050
Interim Services Inc.(a) Staffing provider 78,500 1,942,875
New England Business Business forms 206,200 5,039,013
------------
19,796,838
CONSUMER PRODUCTS/SERVICES - 3.4%
Polaris Industries Inc. Snowmobiles, ATVs, 142,900 5,180,125
motorcycles
School Specialty, Inc.(a) Non-textbook school supplies 146,500 2,215,812
------------
7,395,937
RESTAURANTS - 5.1%
Brinker International, Inc.(a) Casual dining 9,200 221,950
IHOP Corp.(a) Casual dining 218,000 3,637,875
NPC International, Inc.(a) Pizza Hut franchisee 199,100 1,567,913
O'Charley's Inc.(a) Casual dining 277,050 3,636,281
Ruby Tuesday, Inc. Casual dining 123,500 2,246,156
------------
11,310,175
RETAIL - 9.3%
Aaron Rents, Inc. Furniture rental chain 233,600 4,146,400
CSK Auto Corp.(a) DIY auto parts chain 191,800 3,356,500
Discount Auto Parts, Inc.(a) Auto parts stores 212,800 3,843,700
Finlay Enterprises, Inc.(a) Leased jewelry departments 183,100 2,654,950
MarineMax, Inc.(a) Recreational boats 167,500 1,591,250
ShopKo Stores, Inc.(a) Specialty discount retailer 97,700 2,247,100
Tractor Supply Co.(a) Farm-related products 163,900 2,622,400
------------
20,462,300
------------
TOTAL CONSUMER DISCRETIONARY 67,636,881
</TABLE>
17
<PAGE>
- - PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999 (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
CONSUMER STAPLES - 2.4%
CONSUMER STAPLES - 2.4%
International Home Foods, Inc.(a) Packaged-foods manufacturer 155,900 $ 2,708,763
International Multifoods Corp. Foodservice distribution 186,700 2,473,775
------------
5,182,538
FINANCIAL SERVICES - 22.7%
BANKS/THRIFTS - 6.6%
BancWest Corp. Commercial bank 258,200 5,034,900
Chittenden Corporation Vermont-based commercial 109,900 3,255,788
bank
Colonial BancGroup, Inc. (The) Alabama bank 312,300 3,240,112
East West Bancorp, Inc. Commercial bank 260,900 2,984,044
------------
14,514,844
INSURANCE - 10.3%
CNA Surety Corp. Surety insurance 198,900 2,585,700
Delphi Financial Group, Inc.(a) Accident & health insurance 155,988 4,679,663
Financial Security Assurance Municipal bond insurance 94,200 4,910,175
Holdings
Gallagher & Co. (Arthur J.) Insurance broker 99,400 6,436,150
StanCorp Financial Group, Inc. Disability insurance 164,600 4,145,862
------------
22,757,550
OTHER FINANCIAL SERVICES - 5.8%
Heller Financial, Inc. Commercial finance 259,700 5,210,232
Neuberger Berman Inc.(a) Investment manager 116,800 2,905,400
Raymond James Financial, Inc. Investment services 245,900 4,595,256
------------
12,710,888
------------
TOTAL FINANCIAL SERVICES 49,983,282
HEALTH CARE - 6.3%
HEALTH CARE SERVICES - 2.1%
AmeriPath, Inc.(a) Physician practice 277,400 2,271,212
management
Manor Care, Inc.(a) Nursing home operator 153,600 2,457,600
------------
4,728,812
MEDICAL EQUIPMENT/PRODUCTS - 4.2%
DENTSPLY International Inc. Dental products manufacturer 92,200 2,178,225
Invacare Corp. Home health care products 235,800 4,730,738
Wesley Jessen VisionCare, Inc.(a) Contact lense manufacturer 62,000 2,348,250
------------
9,257,213
------------
TOTAL HEALTH CARE 13,986,025
</TABLE>
18
<PAGE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
MATERIALS & PROCESSING - 10.0%
BUILDING/CONSTRUCTION PRODUCTS - 6.3%
Barnett Inc.(a) Hardware products 225,100 $ 2,335,412
Chicago Bridge & Iron Co. Maker of steel tanks 287,700 3,955,875
Dayton Superior Corp.(a) Concrete accessories 169,400 2,752,750
Jacobs Engineering Group Inc.(a) Engineering and construction 151,700 4,930,250
------------
13,974,287
METAL FABRICATIONS - 1.2%
Shaw Group Inc.(a) Pipe fabricator 102,800 2,602,125
PACKAGING/PAPER - 2.5%
Albany International Corp.(a) Paper machine clothing 274,543 4,255,412
BWAY Corp.(a) Metal cans/containers 193,500 1,185,188
------------
5,440,600
------------
TOTAL MATERIALS & PROCESSING 22,017,012
PRODUCER DURABLES - 14.9%
DIVERSIFIED MANUFACTURING - 2.2%
Applied Power Inc. Industrial products manufacturer 72,100 2,649,675
Pentair, Inc. Diversified manufacturer 61,000 2,348,500
------------
4,998,175
ELECTRICAL EQUIPMENT/PRODUCTS - 3.0%
Baldor Electric Company Motor manufacturer 72,600 1,315,875
Belden Inc. Wire & cable manufacturer 247,100 5,189,100
------------
6,504,975
OTHER PRODUCER DURABLES - 9.7%
IDEX Corp. Specialty pump products 223,200 6,779,700
Kaydon Corp. Custom engineered parts 198,800 5,330,325
LSI Industries Inc. Lighting/graphics products 171,800 3,715,175
MSC Industrial Direct Co. Inc.(a) Direct marketer of industrial
products 239,800 3,177,350
Snap-on Inc. Professional tools 85,600 2,273,750
------------
21,276,300
------------
TOTAL PRODUCER DURABLES 32,779,450
TECHNOLOGY - 6.5%
DISTRIBUTION - 2.8%
Arrow Electronics, Inc.(a) Distributes electronic components 245,800 6,237,175
ELECTRONIC COMPONENTS - 1.1%
Tektronix, Inc. Electronic measurement products 60,600 2,355,825
OTHER TECHNOLOGY - 1.3%
Pomeroy Computer Resources, Inc.(a) Computer products reseller 88,900 1,177,925
PSC Inc.(a) Bar coding equipment 221,100 1,630,612
------------
2,808,537
</TABLE>
19
<PAGE>
- - PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999 (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Number Market
Description of Shares Value
----------------------------------- --------- ------------
<S> <C> <C> <C>
SERVICES - 1.3%
American Management Systems Inc.(a) Information technology service
provider 61,000 $ 1,913,875
CACI International Inc.(a) Technology services provider 42,700 966,087
------------
2,879,962
------------
TOTAL TECHNOLOGY 14,281,499
------------
TOTAL COMMON STOCKS - 98.4%
(Cost $221,716,334) 216,732,300
MONEY MARKET INSTRUMENTS(b)
Yield 6.043% to 6.160%
due February 2000 to April 2000
American Family Financial Services 870,000
General Mills, Inc. 568,929
Pitney Bowes Credit Corp. 865,663
Sara Lee 561,252
Warner Lambert Corp. 1,829,325
Wisconsin Corp. Credit Union 3,037,716
Wisconsin Electric 46,635
------------
TOTAL MONEY MARKET INSTRUMENTS - 3.5%
(Cost $7,779,520) 7,779,520
------------
TOTAL INVESTMENTS - 101.9%
(Cost $229,495,854) 224,511,820
OTHER LIABILITIES LESS OTHER ASSETS - (1.9%) (4,165,915)
------------
NET ASSETS - 100.0% $220,345,905
============
</TABLE>
(a) Non-income producing security.
(b) Variable rate demand notes. Interest rates are reset every seven days. Rates
disclosed represent rates in effect on December 31, 1999.
Based on cost of investments for federal income tax purposes of $229,495,854 on
December 31, 1999, net unrealized depreciation was $4,984,034, consisting of
gross unrealized appreciation of $21,239,718 and gross unrealized depreciation
of $26,223,752.
See accompanying notes to financial statements.
20
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1999
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Cost: $229,495,854) $224,511,820
Receivable for:
Securities sold $3,077,850
Fund shares sold 127,527
Dividends and interest 266,715 3,472,092
---------- ------------
Total assets 227,983,912
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $4,199,832
Fund shares redeemed 3,149,380
Comprehensive management fee 288,795 7,638,007
---------- ------------
Net assets applicable to shares outstanding $220,345,905
============
Shares outstanding--no par value
(unlimited number of shares authorized) 13,856,364
============
PRICING OF SHARES
Net asset value, offering price and
redemption price per share $ 15.90
============
ANALYSIS OF NET ASSETS
Paid-in capital $258,829,967
Accumulated net realized loss on sales of
investments (33,500,028)
Net unrealized depreciation of investments (4,984,034)
------------
Net assets applicable to shares outstanding $220,345,905
============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends $ 2,977,093
Interest 1,167,044
------------
Total investment income 4,144,137
Expenses:
Comprehensive management fee 5,246,839
Fees to unaffiliated trustees 22,911
------------
Total expenses 5,269,750
------------
Net investment loss (1,125,613)
Net realized and unrealized loss on investments:
Net realized loss on sales of investments (33,501,167)
Net change in net unrealized appreciation or depreciation (20,304,001)
------------
Net realized and unrealized loss on investments (53,805,168)
------------
Net decrease in net assets resulting from operations $(54,930,781)
============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/99 12/31/98
------------- ------------
<S> <C> <C>
From operations:
Net investment loss $ (1,125,613) $(2,391,833)
Net realized (loss) gain on sales of
investments (33,501,167) 23,823,435
Net change in net unrealized appreciation or
depreciation (20,304,001) (58,687,760)
------------- ------------
Net decrease in net assets resulting from
operations (54,930,781) (37,256,158)
Distributions to shareholders from net
realized gains (17,030,328) (7,028,589)
From fund share transactions:
Proceeds from fund shares sold 95,398,045 144,759,773
Reinvestment of capital gain distribution 16,679,785 6,858,335
Payments for fund shares redeemed (264,794,438) (129,379,429)
------------- ------------
Net (decrease) increase in net assets
resulting from share transactions (152,716,608) 22,238,679
------------- ------------
Total decrease in net assets (224,677,717) (22,046,068)
Net assets at beginning of year 445,023,622 467,069,690
------------- ------------
Net assets at end of year $ 220,345,905 $445,023,622
============= ============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net asset value at
beginning of year $ 19.78 $ 21.66 $ 18.16 $ 16.79 $ 15.64
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment loss (0.14) (0.11) (0.07) (0.04) (0.06)
Net realized and unrealized gain
(loss) on investments (2.51) (1.45) 6.46 5.02 2.21
-------- -------- -------- -------- --------
Total from investment
operations (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 year $ 15.90 $ 19.78 $ 21.66 $ 18.16 $ 16.79
======== ======== ======== ======== ========
Total Return (13.28%) (7.17%) 35.43% 30.37% 13.83%
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.48% 1.47% 1.48% 1.51% 1.51%
Ratio of net investment loss to
average net assets (0.32%) (0.50%) (0.41%) (0.32%) (0.35%)
Portfolio turnover rate 81% 68% 62% 130% 71%
Net assets, end
of year (in thousands) $220,346 $445,024 $467,070 $219,480 $174,899
======== ======== ======== ======== ========
</TABLE>
Effective August 31, 1995, the Fund's Investment Adviser changed from Mesirow
Asset Management, Inc., to Skyline Asset Management, L.P.
See accompanying notes to financial statements.
24
<PAGE>
- -NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------
Skyline Funds is an open-end, diversified investment management company which
consists of Special Equities Portfolio, Small Cap Value Plus (formerly Special
Equities II), and Small Cap Contrarian. The Funds commenced public offering of
their shares as follows: Special Equities Portfolio on April 23, 1987, Small Cap
Value Plus on February 9, 1993, and Small Cap Contrarian on December 15, 1997.
The following notes relate solely to the accompanying financial statements of
Special Equities Portfolio ("Fund"). Skyline Special Equities Portfolio closed
to new investors on January 30, 1997 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 future 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.
25
<PAGE>
- -NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------
/ / EXPENSES - Expenses arising in connection with a particular fund are
allocated to that fund. Other expenses of the Skyline Funds, such as trustees'
fees, are allocated proportionately among the three funds comprising Skyline
Funds.
/ / LINE OF CREDIT - The Funds share in 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 year ended December 31, 1999.
2
TRANSACTIONS WITH AFFILIATES
The Fund's Investment Adviser is Skyline Asset Management, L.P. ("Adviser"). For
the Adviser's management and advisory services and the assumption of most of the
Fund's ordinary operating expenses, the Fund pays a monthly comprehensive fee
based on its average daily net assets at the annual rate of 1.50% of the first
$200 million, 1.45% of the next $200 million, 1.40% of the next $200 million,
and 1.35% of any excess over $600 million. The total comprehensive management
fee charged for the year ended December 31, 1999 was $5,246,839.
Certain officers and trustees of the Skyline Funds are also officers, limited
partners or shareholders of limited partners of the Adviser. The Fund makes no
direct payments to the officers or trustees who are affiliated with the Adviser.
For the year ended December 31, 1999, the Fund paid fees of $22,911 to its
unaffiliated trustees.
3
FUND SHARE TRANSACTIONS
Shares sold and redeemed as shown in the statements of changes in net assets
were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/99 12/31/98
---------------------------
<S> <C> <C>
Shares sold 5,235,896 6,883,008
Shares issued for reinvestment of dividends 1,065,801 354,028
------------ ------------
6,301,697 7,237,036
Less shares redeemed (14,941,529) (6,307,941)
------------ ------------
Net (decrease) increase in shares
outstanding (8,639,832) 929,095
============ ============
</TABLE>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the year
ended December 31, 1999, were as follows:
<TABLE>
<S> <C>
Cost of purchases $271,171,871
Proceeds from sales 413,554,957
</TABLE>
26
<PAGE>
- ------------------------------------------------------------------------
5
SUBSEQUENT EVENT
A special meeting of Shareholders of Skyline Small Cap Value Plus and Skyline
Small Cap Contrarian is scheduled to be held on Tuesday, February 29, 2000. The
purpose of the special meeting is to approve the Plan of Reorganization (the
"Plan"), which was previously approved by Skyline Funds' Board of Trustees. The
proposed Plan provides for the acquisition of the assets and assumption of the
liabilities of Skyline Small Cap Value Plus and Skyline Small Cap Contrarian by
Skyline Special Equities, in exchange solely for shares of Skyline Special
Equities.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------
To the Shareholders of Skyline Special Equities Portfolio
and the Board of Trustees of Skyline Funds
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Skyline Special Equities Portfolio as of
December 31, 1999, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1999 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Skyline Special Equities Portfolio at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
January 31, 2000
28
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
Note: As used herein, "Registration Statement" means the Registrant's
Registration Statement on Form N-1A, no. 33-11755,
"Post-effective Amendment no. 21" refers to post-effective
amendment no. 21 to the Registration Statement that was filed on
April 29, 1996, "Post-effective Amendment no. 22" refers to
post-effective amendment no. 22 to the Registration Statement
that was filed on April 25, 1997, "Post-effective Amendment no.
23" refers to post-effective amendment no. 23 to the Registration
Statement that was filed on August 29, 1997, and "Post-effective
Amendment no. 24" refers to post-effective amendment no. 24 to
the Registration Statement that was filed on February 27, 1998,
"post-effective Amendment no. 25" refers to post-effective
amendment no. 25 to the Registration Statement that was filed on
April 28, 1998 and "Post-effective Amendment no. 26" refers to
post-effective amendment no. 26 to the Registration Statement
that was filed on February 26, 1999.
(a) 1. Agreement and Declaration of Trust of the Registrant
(incorporated by reference to exhibit 1 to Post-effective
Amendment no. 21)
2. Amendment No. 1 to Agreement and Declaration of Trust
(incorporated by reference to exhibit 1.2 to Post-effective
Amendment no. 22)
(b) By-Laws of the Registrant (incorporated by reference to exhibit 2
to Post-effective Amendment no. 21)
(c) Share certificate for series designated Skyline Special Equities
Portfolio (incorporated by reference to exhibit 4.1 to
Post-effective Amendment no. 24)
(d) 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)
(e) 1. Distribution Agreement between the Registrant and Funds
Distributor, Inc. (incorporated by reference to exhibit 6 to
Post-effective Amendment no. 21)
2. Amendment to Distribution Agreement between the Registrant
and Funds Distributor, Inc. (incorporated by reference to
exhibit 6.2 to Post-effective Amendment no. 24)
(f) None
C-1
<PAGE>
(g) Amended and Restated Custodian Agreement among the Registrant,
Skyline Asset Management, L.P., and Firstar Trust Company
(incorporated by reference to exhibit 8 to Post-effective
Amendment no. 25)
(h) 1. Amended and Restated Transfer Agent Agreement among the
Registrant, Skyline Asset Management, L.P., and Firstar
Trust Company (incorporated by reference to exhibit 8 to
Post-effective Amendment no. 25)
2. Amended and Restated Fund Accounting Services Agreement
among the Registrant, Skyline Asset Management, L.P., and
Firstar Trust Company (incorporated by reference to exhibit
8 to Post-effective Amendment no. 25)
(i) Consent of Counsel relating to Skyline Special Equities
Portfolio
(j) Consent of Independent Auditors
(k) None
(l) Investment representation letter of initial purchaser of
shares of beneficial interest of the Registrant
(incorporated by reference to exhibit 13 to Post-effective
Amendment no. 21)
(m) None
(n) None
(p) Code of Ethics of Skyline Asset Management, L.P. and Skyline
Funds
ITEM 24. Persons Controlled by or Under Common Control With
Registrant.
The Registrant does not consider that there are any persons
directly or indirectly controlled by, or under common control with, the
Registrant within the meaning of this item. The information in the Statement of
Additional Information under the caption "Management of Skyline" and in the
first paragraph under the caption "Investment Advisory Services" is incorporated
by reference.
ITEM 25. Indemnification.
Article Tenth of Registrant's Agreement and Declaration of
Trust (exhibit (a) to this registration statement, which is incorporated herein
by reference) provides that Registrant shall provide certain indemnification of
its trustees and officers. In accordance with Section 17(h) of the Investment
Company Act, that provision shall not protect any person against any liability
to the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, negligence or reckless disregard of
the duties involved in the conduct of his office.
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant, its trustees and officers, Skyline Asset
Management, L.P. (the "Adviser") (the investment adviser to Registrant) and
certain affiliated persons of the Adviser and affiliated persons of such persons
are insured under a policy of insurance maintained by Registrant, the Adviser
and those affiliates, within the limits and subject to the limitations of the
policy, against certain expenses in connection with the defense of actions,
suits or proceedings, and certain liabilities that might be imposed as a result
of such actions, suits or proceedings, to which they are parties by reason of
being or having been such trustees, directors or officers. The policy expressly
excludes coverage for any trustee or officer whose personal dishonesty,
fraudulent breach of trust, lack of good faith, or intention to deceive or
defraud has been finally adjudicated or may be established or who willfully
fails to act prudently.
ITEM 26. Business and Other Connections of Investment Adviser.
The information in the Statement of Additional Information
under the caption "Management of Skyline" is incorporated by reference.
Affiliated Managers Group, Inc. ("AMG"), the general partner of Skyline Asset
Management, L.P., has during such time period been in the business of acquiring
interests in investment management firms in which management personnel retain a
significant interest. AMG holds, directly or indirectly, partnership or other
equity interests in a number of entities, each of which provides investment
advice to a number of other organizations and individuals.
ITEM 27. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") currently
acts as distributor for:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
C-3
<PAGE>
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
CDC MPT Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
HT Insight Funds, Inc., d/b/a Harris Insight Funds
IBT Merrimac Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
The JPM Series Trust
The JPM Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
Saratoga Advantage Trust
SG Cowen Funds
St. Clair Funds, Inc.
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
The Distributor is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. The Distributor is an indirect wholly-owned subsidiary of Boston
Institutional Group, Inc., a holding company all of whose outstanding shares are
owned by key employees.
(b) The following is a list of the executive officers, directors and partners
of the Distributor:
Director, President and Chief Executive Officer - Marie E. Connolly
Executive Vice President - George A. Rio
Executive Vice President - Charles W. Carr
C-4
<PAGE>
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President, General - Margaret W. Chambers
Counsel, Chief Compliance Officer, Secretary
and Clerk
Director, Senior Vice President, Treasurer - Joseph F. Tower, III
and Chief Financial Officer
Senior Vice President - Judith K. Benson
Senior Vice President - Erik A. Liik
Senior Vice President - Gary S. McDonald
Senior Vice President - John Prosperi
Senior Vice President - Vincent DiGaetano
Senior Vice President - Paula R. David
Senior Vice President - John Lehning
Director - William J. Nutt
None of the directors and officers of the Distributor hold positions or offices
with the Registrant. The principal business address of all officers and
directors of the Distributor is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
(c) Not applicable
ITEM 28. Location of Accounts and Records.
(1) Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201
Rule 31a-1(a); Rule 31a-1(b)(1)
(2) Firstar Bank Milwaukee
P.O. Box 701
Milwaukee, Wisconsin 53201
Rule 31a-1(a); Rule 31a-1(b)(1),(2),(3),
(5),(6),(7),(8)
(3) Skyline Funds
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Rule 31a-1(a); Rule 31a-1(b)(4),(9),(10), (11);
Rule 31a-1(d); Rule 31a-1(f); Rule 31a-2(a);
Rule 31a-2(c); Rule 31a-2(e)
C-5
<PAGE>
ITEM 29. Management Services.
Not applicable.
ITEM 30. Undertakings.
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies that it meets
all the requirements for effectiveness of this post-effective amendment pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on February 29, 2000.
SKYLINE FUNDS
By /s/ William M. Dutton
----------------------------------
William M. Dutton, President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the registration statement has been signed below by the
following persons in the capacities and on the date indicated.
/s/ William L. Achenbach Trustee )
- ----------------------
William L. Achenbach )
)
)
)
/s/ William M. Dutton Trustee )
- ---------------------- President
William M. Dutton (principal executive officer) )
)
)
)
)
/s/ Paul J. Finnegan Trustee ) February 29, 2000
- ----------------------
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>
Index of Exhibits Filed With This Amendment
-------------------------------------------
<TABLE>
<CAPTION>
Exhibit Exhibit
Number -------
------
<S> <C>
(i) Consent of Counsel relating to Skyline Special Equities
Portfolio
(j) Consent of Independent Auditors
(p) Code of Ethics of Skyline Asset Management, L.P. and
Skyline Funds
</TABLE>
<PAGE>
[Letterhead of Goodwin,
Procter & Hoar LLP]
February 28, 2000
Skyline Funds
311 South Wacker Drive
Suite 4500
Chicago, IL 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 28 to the Registration
Statement of Skyline Funds (the "Trust"), on Form N-1A filed with the
Securities and Exchange Commission (Securities Act Registration No. 33-11755,
Investment Company Act Registration No. 811-5022). As special Massachusetts
counsel to the Trust, we hereby consent to the incorporation by reference
therein of our opinion, dated April 28, 1998 (as to Special Equities
Portfolio) originally filed as Exhibit 10 to Post-Effective Amendment No. 25
to such Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
January 31, 2000 on the 1999 financial statements of Skyline Special Equities
Portfolio, and its incorporation by reference in the Registration Statement
(Form N-1A) and in the related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 28 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-11755) and in the Amendment No.
30 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-5022).
/s/ Ernst & Young LLP
Chicago, Illinois
February 25, 2000
<PAGE>
CODE OF ETHICS OF
SKYLINE ASSET MANAGEMENT, L.P.
AND SKYLINE FUNDS
(EFFECTIVE FEBRUARY 29, 2000)
I. STATEMENT OF POLICY
-------------------
This Code of Ethics ("Code") is being adopted under Rule 17j-1 promulgated
by the Securities and Exchange Commission pursuant to Section 17(j) of the
Investment Company Act of 1940, as amended (the "1940 Act"). In general, Rule
17j-1 imposes an obligation on registered investment companies and their
investment advisers and principal underwriters to adopt written Codes of Ethics
covering the securities activities of certain of their directors, officers and
employees. This Code is designed to ensure that those individuals who have
access to information regarding the portfolio securities activities of
registered investment company clients not intentionally use information
concerning such clients' portfolio securities activities for his or her personal
benefit and to the detriment of such client.
This Code is intended to cover all Access Persons and the Independent
Trustees (as these and other capitalized terms are defined in Section II of this
Code). All Access Persons and Independent Trustees are subject to and bound by
the terms of this Code.
It is not the intention of this Code to prohibit personal securities
transactions by Access Persons or Independent Trustees, but rather to prescribe
rules designed to prevent actual and apparent conflicts of interest. While it is
not possible to specifically define and prescribe rules addressing all possible
situations in which conflicts may arise, this Code sets forth the Adviser's and
Skyline Funds' policy regarding conduct in those situations in which conflicts
are most likely to develop.
GENERAL PRINCIPLES
Every Access Person and Independent Trustee should keep the following
general fiduciary principles in mind in discharging his or her obligations under
the Code. Each Access Person and Independent Trustee shall:
a. at all times, place the interests of Investment Advisory Clients
before his or her personal interests;
b. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
c. not take any inappropriate advantage of his or her position with or on
behalf of any Investment Advisory Client.
1
<PAGE>
INVESTMENT COMPANY ACT PROHIBITIONS
- -----------------------------------
The Investment Company Act and rules make it illegal for any person covered
by the Code, directly or indirectly, in connection with the purchase or sale of
a security held or to be acquired by Skyline Funds to:
a. employ any device, scheme, or artifice to defraud Skyline Funds;
b. make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light
of circumstances under which they are made, not misleading or in any
way mislead Skyline Funds regarding a material fact;
c. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon Skyline Funds; or
d. engage in any manipulative practice with respect to Skyline Funds.
The restrictions on personal securities transactions contained in this Code
are intended to help the Adviser monitor for compliance with these prohibitions.
II. DEFINITIONS
-----------
a. "ACCESS PERSON" shall mean all full-time principals, employees and
officers of the Adviser or Skyline Funds or Additional Advisory Persons and any
temporary or part-time employees of the Adviser or Skyline Funds or Additional
Advisory Persons who are designated as Access Persons by the Designated Officer.
b. "ADDITIONAL ADVISORY PERSON" shall mean any employee of the Adviser,
Skyline Funds or any company in a Control relationship with the Adviser who, in
connection with his or her regular functions or duties, makes, participates in
or obtains information regarding a purchase or sale of a Security by an
Investment Advisory Client of the Adviser or whose functions relate to making of
any recommendations with respect to such purchases or sales, or any natural
person in a Control relationship to the Adviser who obtains information
concerning recommendations made to the Adviser with respect to the purchase or
sale of a Security.
c. "ADVISER" shall mean Skyline Asset Management, L.P., a Delaware
limited partnership.
d. "ALTERNATE DESIGNATED OFFICER" shall mean the President of the Adviser
or an officer of the Adviser other than the Designated Officer.
e. "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder. Application of this definition is explained in more
detail in Appendix A hereto.
2
<PAGE>
f. "CODE" shall mean this Code of Ethics.
g. A Security is being "CONSIDERED FOR PURCHASE OR SALE" when the Adviser
has formally undertaken a project to report on a specific Security or to prepare
a draft or final report on such Security.
h. "CONTROL" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act. Generally, it means the power to exercise a controlling
influence on the management or policies of a company, unless such power is
solely the result of an official position with such company.
i. "DESIGNATED OFFICER" shall mean the Chief Operating Officer of the
Adviser or such other person designated by the Adviser, who shall be responsible
for management of the Adviser's program of compliance with the Code of Ethics.
j. "INDEPENDENT TRUSTEE" shall mean those trustees of Skyline Funds who
are not "interested persons" of Skyline Funds within the meaning of the 1940
Act.
k. "INVESTMENT ADVISORY CLIENT" shall mean any Investment Company
managed, advised and/or subadvised by the Adviser and any other client or
account which is advised by the Adviser as to the value of Securities or as to
the advisability of investing in, purchasing or selling Securities.
l. "INVESTMENT COMPANY" shall have the same meaning as set forth in
Section 3 of the Investment Company Act of 1940, as amended.
m. "INVESTMENT COMPANY CLIENT" shall mean any registered investment
company managed, advised and/or subadvised by the Adviser.
n. "1940 ACT" means the Investment Company Act of 1940, as amended.
o. "PORTFOLIO MANAGER" shall mean any Access Person with direct
responsibility and authority to make investment decisions affecting any
Investment Company Client.
p. A "PURCHASE" or "SALE" of a Security includes, among other things, the
writing of an option to purchase or sell a Security.
q. "SECURITY" shall have the same meaning as that set forth in Section
2(a)(36) of the 1940 Act (generally, all securities, including bonds and
options, warrants and other rights to purchase securities) except that it shall
not include (i) securities issued by the Government of the United States or an
agency or instrumentality thereof (including all short-term debt securities
which are "government securities" within the meaning of Section 2(a)(16) of the
1940 Act), (ii) bankers' acceptances, (iii) bank certificates of deposit, (iv)
commercial paper, (v) repurchase agreements, and (vi) shares of registered
open-end investment companies.
3
<PAGE>
III. RESTRICTIONS
------------
A. BLACKOUT PERIODS
----------------
(i) No Independent Trustee shall purchase or sell, directly or
indirectly, any Security in which he or she has, or by
reason of such transaction acquires, any direct or indirect
beneficial ownership on a day during which he or she knows
or should have known (a) that any Investment Advisory Client
has a pending "buy" or "sell" order in that same Security
until that order is executed or withdrawn or (b) that such
Security is being considered for purchase or sale on behalf
of any Investment Advisory Client.
(ii) No Access Person shall purchase or sell, directly or
indirectly, any Security in which he or she has, or by
reason of such transaction acquires, any direct or indirect
beneficial ownership within at least seven calendar days
before and after any Investment Advisory Client trades (or
has traded) in that Security, except that Access Persons
shall be permitted to purchase or sell such Securities if
all of the following conditions are met: (a) the Adviser's
trader has certified to the Designated Officer or the
Alternate Designated Officer, if the Designated Officer
wishes to purchase or sell such Securities, that all
purchase or sale transactions of the Investment Company
Client have been completed for that day; (b) the Portfolio
Manager of that Investment Company Client has certified to
the Designated Officer or Alternate Designated Officer that
the Access Person's purchase or sale transaction is not
likely to have an adverse impact on the Investment Company
Client, including the Investment Company Client's ability to
purchase or sell such Securities in the future; (c) the
Access Person otherwise complies with the Compliance
Procedures set forth in Section V. of this Code; and (d) the
Access Person is able to complete the purchase or sale
transaction of such Securities on the same date as
permission is granted by the Designated Officer or Alternate
Designated Officer.
B. INITIAL PUBLIC OFFERINGS
No Access Person shall acquire direct or indirect beneficial
ownership of any Security in an initial public offering.
4
<PAGE>
C. PRIVATE PLACEMENTS
------------------
With regard to private placements:
(i) Each Access Person contemplating the acquisition of
direct or indirect beneficial ownership of a Security
in a private placement transaction shall obtain
express prior written approval from the Designated
Officer or, if the Designated Officer is
contemplating such an acquisition, the Alternate
Designated Officer for any such acquisition (who, in
making such determination, shall consider among other
factors, whether the investment opportunity should be
reserved for one or more Investment Advisory Clients,
and whether such opportunity is being offered to such
Access Person by virtue of his or her position with
an Investment Advisory Client); and
(ii) If an Access Person shall have acquired direct or
indirect beneficial ownership of a Security of an
issuer in a private placement transaction, such
Access Person shall disclose such personal investment
to the Designated Officer or, if the Designated
Officer shall have acquired such ownership, the
Alternative Designated Officer prior to each
subsequent recommendation to any Investment Advisory
Client for which he acts in a capacity as an Access
Person, for investment in that issuer.
(iii) If an Access Person shall have acquired direct or
indirect beneficial ownership of a Security of an
issuer in a private placement transaction, any
subsequent decision or recommendation by such Access
Person to purchase Securities of the same issuer for
the account of an Investment Advisory Client shall be
subject to an independent review by advisory
personnel with no personal interest in the issuer.
D. SHORT-TERM TRADING PROFITS
--------------------------
No Access Person shall profit from the purchase and sale, or sale
and purchase, of the same (or "equivalent") Securities of which
such Access Person has, or by reason of such transactions
acquired, direct or indirect beneficial ownership, within 60
calendar days, except to the extent that the transaction has been
pre-cleared in accordance with the procedures set forth in
Article V of this Code, with consideration given to all relevant
circumstances, including the frequency with which the Access
Person engages in similar transactions moments. Any profit so
realized without prior approval shall be disgorged as directed by
the Designated Officer or, if any profit is so realized by the
Designated Officer, the Alternate Designated Officer. For
purposes of this paragraph (d) the term "equivalent" shall mean,
with respect to another Security (the "subject
5
<PAGE>
Security"), any Security of the same class as the subject
Security, as well as any option (including puts and calls),
warrant, convertible security, subscription or stock appreciation
right, or other right or privilege on, for or with respect to the
subject Security.
E. GIFTS
-----
No Access Person or a member of his or her family shall seek or
accept gifts, favors, preferential treatment or special
arrangements from any broker, dealer, investment adviser,
financial institution or other supplier of goods and services to
the Adviser or its Investment Advisory Clients, or from any
company whose Securities have been purchased or sold or
considered for purchase or sale on behalf of the Adviser's
Investment Advisory Clients. The foregoing sentence shall not
prohibit any benefit or direct or indirect compensation to the
Access Person from any entity under common Control with the
Adviser for bona fide services rendered as an officer, director
or employee of such person. This prohibition shall not apply to
(i) gifts of small value, usually in the nature of reminder
advertising, such as pens, calendars, etc., which in the
aggregate do not exceed $100 in value in any one calendar year,
and (ii) a reasonable level of participation in lunches, dinners,
cocktail parties, sporting events or similar social gatherings
conducted for business purposes.
F. RECEIPT OF BROKERAGE DISCOUNTS. ETC.
------------------------------------
No Access Person shall, with respect to an amount in which he or
she has any direct or indirect beneficial ownership, accept any
discount or other special consideration from any registered
broker or dealer which is not made generally available to all
other customers and clients of such broker or dealer.
G. SERVICE AS A DIRECTOR
---------------------
(i) No Access Person shall serve on a board of directors of a
publicly traded company without prior authorization from the
Chief Executive Officer, based upon a determination that
such board service would be consistent with the interests of
Investment Advisory Clients and their respective
shareholders.
(ii) If board service of an Access Person is authorized, such
Access Person shall be isolated from investment decisions
with respect to the company of which he or she is a director
through procedures approved by the Designated Officer.
6
<PAGE>
H. REQUIRED DISCLOSURE BY PERSONS MAKING RECOMMENDATIONS.
------------------------------------------------------
No Access Person shall recommend any Security for purchase or
sale by an Investment Advisory Client without having disclosed to
the Investment Advisory Client in a memorandum accompanying said
recommendation any purchase or sale within the preceding six
months of shares of that class of Security (or any class of
Securities of the same issuer) in which the Access Person had a
direct or indirect beneficial ownership and, if such Access
Person has beneficial ownership of 0.5% or more of that class of
Security (or any other class of Securities of that issuer), the
extent of such beneficial ownership.
I. OUTSIDE INVESTMENT ADVISORY SERVICES.
-------------------------------------
No Access Person may render investment advisory services to any
person or entity not (i) a client of the Adviser, or (ii) a
member of (or trust or other arrangement for the benefit of) the
family of, or a close personal friend of, such Access Person,
without first obtaining the permission of the Designated Officer
or, if the Designated Officer is seeking to render such services,
the Alternate Designated Officer. This restriction is
supplemental to, and does not in any way modify, the obligations
of any Access Person who has a separate agreement with the
Adviser or its general partner with respect to competitive
activities.
J. NONPUBLIC MATERIAL INFORMATION.
-------------------------------
No Access Person or Independent Trustee shall utilize nonpublic
material information about any issuer of Securities in the course
of rendering investment advice or making investment decisions on
behalf of the Adviser or its Investment Advisory Clients.
Nonpublic material information is material information not
generally available to the public. No Access Person or
Independent Trustee should solicit from any issuer of Securities
any such nonpublic material information. Any Access Person or
Independent Trustee inadvertently receiving nonpublic information
regarding Securities held by an Investment Advisory Client of the
Adviser should notify immediately the Designated Officer of, if
the Designated Officer receives such nonpublic information, the
Alternate Designated Officer.
K. TRANSACTIONS WITH INVESTMENT ADVISORY CLIENTS.
----------------------------------------------
No Access Person shall knowingly sell to or purchase from any
Investment Advisory Client any Security or other property of
which he or she has, or by reason of such transaction acquires,
direct or indirect beneficial ownership, except Securities of
which such Investment Advisory Client is the issuer and no
Independent Trustee shall knowingly
7
<PAGE>
sell to or purchase from a portfolio of Skyline Funds any
Security or other property of which he or she has, or by reason
of such transaction acquires, direct or indirect beneficial
ownership, except Securities of which Skyline Funds is the
issuer.
IV. EXEMPTIONS
----------
The restrictions of Article III (a)-(d) of this Code shall not apply to
the following:
a. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
b. Purchases or sales of Securities which are not eligible for
purchase or sale by Investment Advisory Clients of the Adviser;
c. Purchases or sales which are non-volitional on the part of either
the Access Person or Independent Trustee or the Investment
Advisory Clients of the Adviser;
d. Purchases which are part of an automatic dividend reinvestment
plan;
e. Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its Securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired;
f. Purchases or sales of instruments that are not within the
definition of a "Security" as set forth in Article I of this
Code; and
g. Purchases or sales other than those exempted in (a) through (f)
of this Article IV that have been authorized in writing by the
Designated Officer or, if such purchase or sale is made by the
Designated Officer, the Alternate Designated Officer following a
specific determination that the transaction is consistent with
the statement of General Principles embodied in Article I of this
Code.
V. COMPLIANCE PROCEDURES
---------------------
A. PRECLEARANCE
------------
(i) An Access Person may not, directly or indirectly,
acquire or dispose of beneficial ownership of a
Security except as provided herein unless:
(a) such purchase or sale has been approved by
the Designated Officer, or if the Designated
Officer seeks to acquire or dispose of
beneficial ownership of a Security, such
8
<PAGE>
purchase or sale has been approved by the
Alternate Designated Officer;
(b) the approved transaction is completed within
five business days of the time approval is
received; and
(c) the Designated Officer or the Alternate
Designated Officer has not rescinded such
approval prior to execution of the
transaction.
(ii) All requests for preclearance must be set forth in
writing on the standard Personal Trading Request and
Authorization form.
(iii) The Adviser shall cause to be maintained such
"restricted lists" or other documents or devices as
shall be necessary and appropriate to facilitate the
preclearance process.
(iv) In reviewing transactions, the Designated Officer and
the Alternate Designated Officer shall take into
account the exemptions allowed under Article IV.
B. DISCLOSURE REQUIREMENTS
-----------------------
(i) All Access Persons shall disclose all personal
Securities holdings upon the adoption of this Code,
no later than ten days after commencement of
employment, and thereafter on an annual basis. Annual
reports shall be delivered to the Designated Officer
no later than January 30 of the following year. The
initial holdings and annual holdings reports shall
contain the following information:
- title, interest rate and maturity date (if
applicable), number of shares and the principal
amount of each Security held beneficially;
- the name of any broker, dealer or bank with or
through which the investment person maintains an
account; and
- the date the report is submitted.
(ii) All Access Persons shall direct their brokers to
supply the Designated Officer on a timely basis,
duplicate copies of confirmations of all transactions
in any Security in which such Access Person has, or
by reason of such transaction acquires, any direct or
indirect beneficial ownership of such Security, and
of periodic statements for all Securities accounts.
9
<PAGE>
C. QUARTERLY REPORTING
-------------------
(i) (a) Every Access Person shall make a report in
writing to the Designated Officer not later than
10 days after the end of each calendar quarter.
This report shall set forth the information
described in Paragraph V.b(ii) hereof with
respect to transactions in any Security in which
such Access Person has, or by reason of such
transaction acquires, any direct or indirect
beneficial ownership in the Security. When no
transactions have been effected, such report
shall represent that no transactions subject to
reporting requirements were effected. After
receipt of such quarterly reports, the
Designated Officer shall give a report to the
Chief Executive Officer certifying that he has
received the quarterly reports from all Access
Persons.
(b) Every Independent Trustee shall make a report in
writing to the Designated Officer not later than
15 days after effecting a purchase or sale of a
security as described herein. This report shall
set forth the information described in Paragraph
V.b(ii) hereof with respect to transactions in
any Security that the Independent Trustee at the
time of the transaction knew, or in the ordinary
course of fulfilling his or her duties as a
trustee should have known, was as of the date of
the transaction (or within 15 days before or
after such date) purchased or sold or considered
for purchase or sale on behalf of any Investment
Advisory Client.
(ii) Every report by an Access Person or Independent
Trustee required by Paragraph (i) above shall contain
the following information:
(a) The date of each transaction, the title,
interest rate and maturity date, the
number of shares and the principal
amount of each Security involved, as
applicable;
(b) The nature of each transaction (i.e.,
purchase, sale, gift, or any other type
of acquisition or disposition);
(c) The price at which each transaction was
effected;
(d) The name of the broker, dealer or bank
with or through whom each transaction
was effected; and
(e) The date the report is submitted.
10
<PAGE>
Any such report may contain a statement that the
report shall not be construed as an admission by the
Access Person or Independent Trustee making such
report that he or she has any direct or indirect
beneficial ownership in the Security to which the
report relates.
In addition, for each account established during the
month in which Securities are held for the benefit of
an Access Person, the quarterly report shall include:
(a) the name of the broker, dealer or bank
with whom the account was established;
(b) the date the account was established;
and
(c) the date the report is submitted.
An Access Person will be deemed to have satisfied the
quarterly reporting requirement, and is not required
to file a quarterly report of any transactions:
(1) executed through the Adviser's trading
desk, for which the trading department
will provide to the Adviser's compliance
department information about
transactions; or
(2) executed through brokerage or other
accounts identified to the Adviser and
for which duplicate monthly account
statements showing all transactions are
delivered to the Adviser.
Any personal Securities transaction of an Access
Person or Independent Trustee which for any
reason does not appear in the trading or
brokerage records described above shall be
reported as required by Section V.b(ii) of this
Code. Reports of personal Securities
transactions may be in any form (including
copies of confirmations or monthly statements)
but must include the information required by
this section.
(iii) The Designated Officer shall review or supervise
the review of the personal Securities
transactions reported pursuant to this Article
V, except the personal Securities transactions
reported by the Designated Officer, which shall
be reviewed by the Alternate Designated Officer.
As part of that review, each such reported
Securities transaction shall be compared against
completed and contemplated portfolio
transactions of Investment Advisory Clients.
Before making any determination that a violation
has been committed by any person, such person
shall be given an
11
<PAGE>
opportunity to supply additional explanatory
material. If the Designated Officer or the
Alternate Designated Officer determines that a
material violation of this Code has or may have
occurred, he shall submit his written
determination, together with the transaction
report and any additional explanatory material
provided by the individual, to the Chief
Executive Officer (or, if the purported
violation occurred with respect to the Chief
Executive Officer, then to another Principal of
the Adviser), who shall make an independent
determination of whether a material violation
has occurred. The Principal-Portfolio Manager
shall conduct pre-clearance of transactions by
the Chief Executive Officer or in the absence of
the Chief Executive Officer.
D. REVIEW BY SKYLINE FUNDS BOARD
-----------------------------
The officers of Skyline Funds shall prepare an Annual Issues
and Certification Report to the board of trustees of Skyline
Funds that:
(i) summarizes existing procedures under the Code
concerning personal investing and any changes in
those procedures during the past year;
(ii) describes issues that arose during the previous year
under the Code or procedures concerning personal
investing, including but not limited to information
about material violations of the Code (including the
Code's reporting requirements) and sanctions imposed;
(iii) certifies to the board of trustees that the Adviser
has adopted procedures reasonably necessary to
prevent its Access Persons and Independent Trustees
from violating the Code; and
(iv) identifies any recommended changes in existing
restrictions or procedures based upon experience
under the Code, evolving industry practices, or
developments in applicable laws or regulations.
E. CERTIFICATE OF COMPLIANCE
-------------------------
Each Access Person and Independent Trustee is required to
certify annually that he or she has read and understood this
Code and recognizes that he or she is subject to such Code.
Further, each Access Person is required to certify annually
that he or she has complied with all the requirements of the
Code and that he or she has disclosed or reported all personal
Securities transactions pursuant to the requirements of the
Code. Each Access Person who has not engaged in any personal
Securities
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transactions during the preceding year for which a
report was required to be filed pursuant to the Code shall
include a certification to that effect in his or her annual
certification.
VI. SANCTIONS
---------
A. FORMS OF SANCTION.
------------------
Any Access Person who is determined to have violated any
provision of this Code shall be subject to sanctions, which
may include any one or more of the following: censure,
suspension without pay, termination of employment or
disgorgement of any profits realized on transactions in
violation of this Code.
B. PROCEDURES.
-----------
If the Designated Officer finds that a material violation has
occurred, he or she shall report the violation and the
suggested corrective action and sanctions to the Chief
Executive Officer of the Adviser, who may at the request of
the individual involved review the matter, and shall impose
such sanction as he deems appropriate. If a Securities
transaction of the Designated Officer is under consideration,
the Chief Executive Officer shall act in all respects in the
manner prescribed herein for the Designated Officer. If a
Securities transaction of the Chief Executive Officer is under
consideration, an officer of the Adviser, other than the Chief
Executive Officer, shall act in all respects in the manner
prescribed herein for the Chief Executive Officer.
VII. MISCELLANEOUS PROVISIONS
------------------------
A. RECORDS.
--------
The Adviser shall maintain records in the manner and to the
extent set forth below, which records may be maintained on
microfilm under the conditions described in Rule 31a-2(f)(1)
under the Investment Company Act of 1940 and shall be
available for examination by representatives of the Securities
and Exchange Commission:
(i) A copy of this Code and any other code which is, or
at any time within the past five years has been, in
effect shall be preserved in an easily accessible
place;
(ii) A record of any violation of this Code and of any
action taken as a result of such violation shall be
preserved in an easily accessible place for a period
of not less than five years following the end of the
fiscal year in which the violation occurs;
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(iii) A copy of each report made pursuant to this Code
shall be preserved for a period of not less than five
years from the end of the fiscal year in which it is
made, the first two years in an easily accessible
place;
(iv) A list of all persons who are, or within the past
five years have been, required to make reports
pursuant to this Code shall be maintained in a easily
accessible place; and
(v) Records evidencing prior approval of, and the
rationale supporting, an acquisition by an Access
Person of Securities in a private placement.
B. CONFIDENTIALITY.
----------------
All reports of Securities transactions and any other
information filed with the Adviser or its Investment Advisory
Clients or furnished to any person pursuant to this Code shall
be treated as confidential, but are subject to review as
provided herein and by representatives of the Securities and
Exchange Commission.
C. ADVERTISING MATERIAL.
---------------------
(i) For the purposes of this section, the term
"advertisement" shall include any notice, circular,
letter or other written or taped or electronic
communication addressed to more than one person, or
any notice or other announcement in any publication
or by radio or television, sent by the Adviser to any
person, other than an employee of the Adviser, in any
way relating to the sales, marketing or promotion of
the investment advisory services offered by the
Adviser.
(ii) The Designated Officer shall review any advertisement
prior to the time it is provided to any person, other
than an employee of the Adviser.
(iii) Each advertisement shall include the date on which
it is first used.
(iv) The Designated Officer shall keep a log of when each
advertisement is used and to whom each advertisement
is sent.
(v) Any advertisement that includes performance data for
any program offered by the Adviser shall include the
actual performance data of all appropriate client's
composite, together with appropriate disclosure as to
the make-up of the composite in that program as of
the most recently available calendar quarter.
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<PAGE>
(vi) The payment of any cash or non-cash compensation to
any person, other than an employee of the Adviser,
shall comply with Rule 206(4)-3, promulgated under
the Investment Advisers Act of 1940, as amended, and
with the provisions of the rule proposed by the
National Association of Securities Dealers, Inc. in
its notice to Members 94-67 (August 22, 1994), as the
same may be adopted and amended from time to time.
D. INTERPRETATION OF PROVISIONS.
-----------------------------
A Committee consisting of each Principal of the Adviser and
the Chief Administrative Officer of the Adviser may from time
to time adopt such interpretation of this Code as it may deem
appropriate.
E. EFFECT OF VIOLATION OF THIS CODE.
---------------------------------
In adopting Rule 17j-1, the Commission specifically noted in
Investment Company Act Release No. IC-11421 that a violation
of any provision of a particular code of ethics, such as this
Code, would not be considered a PER SE unlawful act prohibited
by the general anti-fraud provisions of the Rule. In adopting
this Code of Ethics, it is not intended that a violation of
this Code is or should be considered to be a violation of Rule
17j-1.
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Appendix A to
Code of Ethics
--------------
SKYLINE ASSET MANAGEMENT, L.P.
AND
SKYLINE FUNDS
CODE OF ETHICS
EXAMPLES OF BENEFICIAL OWNERSHIP
The Code of Ethics relates to the purchase or sale of securities of which
an officer or trustee has a direct or indirect "beneficial ownership" except for
purchases or sales over which such individual has no direct or indirect
influence or control.
EXAMPLES OF BENEFICIAL OWNERSHIP
- --------------------------------
What constitutes "beneficial ownership" has been dealt with in a number of
SEC releases and has grown to encompass many diverse situations. These include
securities held:
(a) by you for your own benefit, whether bearer, registered in your own
name, or otherwise;
(b) by others for your benefit (regardless of whether or how registered),
such as securities held for you by custodians, brokers, relatives,
executors or administrators;
(c) for your account by pledgees;
(d) by a trust in which you have an income or remainder interest.
Exceptions: where your only interest is to get principal if (1) some
other remainderman dies before distribution, or (2) if some other
person can direct by will a distribution of trust property or income
to you;
(e) by you as trustee or co-trustee, where either of you or members of
your immediate family, i.e., spouse, children and their descendants,
step-children, parents and their ancestors, and step-parents (treating
a legal adoption as blood relationship), have an income or remainder
interest in the trust;
(f) by a trust of which you are the settlor, if you have the power to
revoke the trust without obtaining the consent of all the
beneficiaries;
(g) by any partnership in which you are a partner;
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(h) by a personal holding company controlled by you alone or jointly with
others;
(i) in the name of your spouse unless legally separated;
(j) in the name of minor children or in the name of any relative of yours
or of your spouse (including an adult child) who is presently sharing
your home. This applies even if the securities were not received from
you and the dividends are not actually used for the maintenance of
your home;
(k) in the name of another person (other than those listed in (i) and (j)
just above), if by reason of any contract, understanding,
relationship, agreement, or other arrangement, you obtain benefits
substantially equivalent to those of ownership;
(l) in the name of any person other than yourself, even though you do not
obtain benefits substantially equivalent to those of ownership as
described in (k) just above), if you can vest or revest title in
yourself.
A-2
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Appendix B to
Code of Ethics
--------------
Section. 270.17J-1 PERSONAL INVESTMENT ACTIVITIES OF INVESTMENT COMPANY
PERSONNEL.
(a) DEFINITIONS. For purposes of this section:
(1) ACCESS PERSON means:
(i) Any director, officer, general partner or Advisory
Person of a Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily engaged in
a business or businesses other than advising
Funds or other advisory clients, the term ACCESS
PERSON means any director, officer, general
partner or Advisory Person of the investment
adviser who, with respect to any Fund, makes any
recommendation, participates in the
determination of which recommendation will be
made, or whose principal function or duties
relate to the determination of which
recommendation will be made, or who, in
connection with his or her duties, obtains any
information concerning recommendations on
Covered Securities being made by the investment
adviser to any Fund.
(B) An investment adviser is "primarily engaged in a
business or businesses other than advising Funds
or other advisory clients" if, for each of its
most recent three fiscal years or for the period
of time since its organization, whichever is
less, the investment adviser derived, on an
unconsolidated basis, more than 50 percent of
its total sales and revenues and more than 50
percent of its income (or loss), before income
taxes and extraordinary items, from the other
business or businesses.
(ii) Any director, officer or general partner of a
principal underwriter who, in the ordinary course of
business, makes, participates in or obtains
information regarding, the purchase or sale of
Covered Securities by the Fund for which the
principal underwriter acts, or whose functions or
duties in the ordinary course of business relate to
the making of any recommendation to the Fund
regarding the purchase or sale of Covered Securities.
(2) ADVISORY PERSON of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the Fund or investment adviser (or of
any company in a control relationship to the Fund or
investment adviser) who, in connection with his or
her regular functions or duties, makes, participates
in, or obtains information regarding the purchase or
sale of Covered Securities by a Fund, or whose
functions relate to the making of any recommendations
with respect to the purchases or sales; and
(ii) Any natural person in a control relationship to the
Fund or investment adviser who obtains information
concerning recommendations made to the Fund with
regard to the purchase or sale of Covered Securities
by the Fund.
(3) CONTROL has the same meaning as in section 2(a)(9) of the Act
[15 U.S.C. 80a-2(a)(9)].
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(4) COVERED SECURITY means a security as defined in section
2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], except that it
does not include:
(i) Direct obligations of the Government of the
United States;
(ii) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt
instruments, including repurchase agreements; and
(iii) Shares issued by open-end Funds.
(5) FUND means an investment company registered under the
Investment Company Act.
(6) An INITIAL PUBLIC OFFERING means an offering of
securities registered under the Securities Act of
1933 [15 U.S.C. 77a], the issuer of which,
immediately before the registration, was not subject
to the reporting requirements of sections 13 or 15(d)
of the Securities Exchange Act of 1934 [15 U.S.C. 78m
or 78o(d)].
(7) INVESTMENT PERSONNEL of a Fund or of a Fund's
investment adviser means:
(i) Any employee of the Fund or investment
adviser (or of any company in a control
relationship to the Fund or investment
adviser) who, in connection with his or her
regular functions or duties, makes or
participates in making recommendations
regarding the purchase or sale of securities
by the Fund.
(ii) Any natural person who controls the Fund or
investment adviser and who obtains
information concerning recommendations made
to the Fund regarding the purchase or sale
of securities by the Fund.
(8) A LIMITED OFFERING means an offering that is exempt
from registration under the Securities Act of 1933
pursuant to section 4(2) or section 4(6) [15 U.S.C.
77d(2) or 77d(6)] or pursuant to rule 504, rule 505,
or rule 506 [17 CFR 230.504, 230.505, or 230.506]
under the Securities Act of 1933.
(9) PURCHASE OR SALE OF A COVERED SECURITY includes,
among other things, the writing of an option to
purchase or sell a Covered Security.
(10) SECURITY HELD OR TO BE ACQUIRED by a Fund means:
(i) Any Covered Security which, within the most
recent 15 days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered
by the Fund or its investment
adviser for purchase by the Fund;
and
(ii) Any option to purchase or sell, and any
security convertible into or exchangeable
for, a Covered Security described in
paragraph (a)(10)(i) of this section.
(b) UNLAWFUL ACTIONS. It is unlawful for any affiliated person of or
principal underwriter for a Fund, or any affiliated person of an
investment adviser of or principal underwriter for a Fund, in
connection with the purchase or sale, directly or indirectly, by the
person of a Security Held or to be Acquired by the Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
B-2
<PAGE>
(2) To make any untrue statement of a material fact to the Fund or
omit to state a material fact necessary in order to make the
statements made to the Fund, in light of the circumstances
under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the
Fund.
(c) CODE OF ETHICS.
(1) ADOPTION AND APPROVAL OF CODE OF ETHICS.
(i) Every Fund (other than a money market fund or a Fund
that does not invest in Covered Securities) and each
investment adviser of and principal underwriter for
the Fund, must adopt a written code of ethics
containing provisions reasonably necessary to prevent
its Access Persons from engaging in any conduct
prohibited by paragraph (b) of this section.
(ii) The board of directors of a Fund, including a
majority of directors who are not interested
persons, must approve the code of ethics of the
Fund, the code of ethics of each investment adviser
and principal underwriter of the Fund, and any
material changes to these codes. The board must base
its approval of a code and any material changes to
the code on a determination that the code contains
provisions reasonably necessary to prevent Access
Persons from engaging in any conduct prohibited by
paragraph (b) of this section. Before approving a
code of a Fund, investment adviser or principal
underwriter or any amendment to the code, the board
of directors must receive a certification from the
Fund, investment adviser or principal underwriter
that it has adopted procedures reasonably necessary
to prevent Access Persons from violating the
investment adviser's or principal underwriter's code
of ethics. The Fund's board must approve the code of
an investment adviser or principal underwriter
before initially retaining the services of the
investment adviser or principal underwriter. The
Fund's board must approve a material change to a
code no later than six months after adoption of the
material change.
(iii) If a Fund is a unit investment trust, the Fund's
principal underwriter or depositor must approve the
Fund's code of ethics, as required by paragraph
(c)(1)(ii) of this section. If the Fund has more than
one principal underwriter or depositor, the principal
underwriters and depositors may designate, in
writing, which principal underwriter or depositor
must conduct the approval required by paragraph
(c)(1)(ii) of this section, if they obtain written
consent from the designated principal underwriter or
depositor.
(2) ADMINISTRATION OF CODE OF ETHICS.
(i) The Fund, investment adviser and principal
underwriter must use reasonable diligence and
institute procedures reasonably necessary to prevent
violations of its code of ethics.
(ii) No less frequently than annually, every Fund (other
than a unit investment trust) and its investment
advisers and principal underwriters must furnish to
the Fund's board of directors, and the board of
directors must consider, a written report that:
(A) Describes any issues arising under the code
of ethics or procedures since the last
report to the board of directors, including,
but not limited to, information about
material violations of the code or
procedures and sanctions imposed in response
to the material violations; and
B-3
<PAGE>
(B) Certifies that the Fund, investment adviser
or principal underwriter, as applicable, has
adopted procedures reasonably necessary to
prevent Access Persons from violating the
code.
(3) EXCEPTION FOR PRINCIPAL UNDERWRITERS. The requirements of
paragraphs (c)(1) and (c)(2) of this section do not apply to
any principal underwriter unless:
(i) The principal underwriter is an affiliated
person of the Fund or of the Fund's investment
adviser; or
(ii) An officer, director or general partner of the
principal underwriter serves as an officer, director
or general partner of the Fund or of the Fund's
investment adviser.
(d) REPORTING REQUIREMENTS OF ACCESS PERSONS.
(1) REPORTS REQUIRED. Unless excepted by paragraph (d)(2) of this
section, every Access Person of a Fund (other than a money
market fund or a Fund that does not invest in Covered
Securities) and every Access Person of an investment adviser
of or principal underwriter for the Fund, must report to that
Fund, investment adviser or principal underwriter:
(i) INITIAL HOLDINGS REPORTS. No later than 10 days
after the person becomes an Access Person,
the following information:
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership when the person became
an Access Person;
(B) The name of any broker, dealer or bank with
whom the Access Person maintained an account
in which any securities were held for the
direct or indirect benefit of the Access
Person as of the date the person became an
Access Person; and
(C) The date that the report is submitted by the
Access Person.
(ii) QUARTERLY TRANSACTION REPORTS. No later than 10
days after the end of a calendar quarter, the
following information:
(A) With respect to any transaction during the
quarter in a Covered Security in which the
Access Person had any direct or indirect
beneficial ownership:
(1) The date of the transaction, the
title, the interest rate and
maturity date (if applicable), the
number of shares and the principal
amount of each Covered Security
involved;
(2) The nature of the transaction (I.E.,
purchase, sale or any other type of
acquisition or disposition);
(3) The price of the Covered Security
at which the transaction was
effected;
(4) The name of the broker, dealer or
bank with or through which the
transaction was effected; and
(5) The date that the report is
submitted by the Access Person.
B-4
<PAGE>
(B) With respect to any account established by
the Access Person in which any securities
were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or
bank with whom the Access Person
established the account;
(2) The date the account was
established; and
(3) The date that the report is
submitted by the Access Person.
(iii) ANNUAL HOLDINGS REPORTS. Annually, the following
information (which information must be current as of
a date no more than 30 days before the report is
submitted):
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership;
(B) The name of any broker, dealer or bank with
whom the Access Person maintains an account
in which any securities are held for the
direct or indirect benefit of the Access
Person; and
(C) The date that the report is submitted by the
Access Person.
(2) EXCEPTIONS FROM REPORTING REQUIREMENTS.
(i) A person need not make a report under paragraph
(d)(1) of this section with respect to transactions
effected for, and Covered Securities held in, any
account over which the person has no direct or
indirect influence or control.
(ii) A director of a Fund who is not an "interested
person" of the Fund within the meaning of section
2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who
would be required to make a report solely by reason
of being a Fund director, need not make:
(A) An initial holdings report under paragraph
(d)(1)(i) of this section and an annual
holdings report under paragraph (d)(1)(iii)
of this section; and
(B) A quarterly transaction report under
paragraph (d)(1)(ii) of this section, unless
the director knew or, in the ordinary course
of fulfilling his or her official duties as
a Fund director, should have known that
during the 15-day period immediately before
or after the director's transaction in a
Covered Security, the Fund purchased or sold
the Covered Security, or the Fund or its
investment adviser considered purchasing or
selling the Covered Security.
(iii) An Access Person to a Fund's principal underwriter
need not make a report to the principal underwriter
under paragraph (d)(1) of this section if:
(A) The principal underwriter is not an
affiliated person of the Fund (unless the
Fund is a unit investment trust) or any
investment adviser of the Fund; and
(B) The principal underwriter has no officer,
director or general partner who serves as an
officer, director or general partner of the
Fund or of any investment adviser of the
Fund.
B-5
<PAGE>
(iv) An Access Person to an investment adviser need not
make a quarterly transaction report to the investment
adviser under paragraph (d)(1)(ii) of this section if
all the information in the report would duplicate
information required to be recorded under Sections
275.204-2(a)(12) or 275.204-2(a)(13) of this chapter.
(v) An Access Person need not make a quarterly
transaction report under paragraph (d)(1)(ii) of this
section if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, investment adviser
or principal underwriter with respect to the Access
Person in the time period required by paragraph
(d)(1)(ii), if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the
records of the Fund, investment adviser or principal
underwriter.
(3) REVIEW OF REPORTS. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by
paragraph (d)(1) of this section must institute procedures by
which appropriate management or compliance personnel review
these reports.
(4) NOTIFICATION OF REPORTING OBLIGATION. Each Fund, investment
adviser and principal underwriter to which reports are
required to be made by paragraph (d)(1) of this section must
identify all Access Persons who are required to make these
reports and must inform those Access Persons of their
reporting obligation.
(5) BENEFICIAL OWNERSHIP. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be
under Section 240.16a-1(a)(2) of this chapter in determining
whether a person is the beneficial owner of a security for
purposes of section 16 of the Securities Exchange Act of 1934
[15 U.S.C. 78p] and the rules and regulations thereunder. Any
report required by paragraph (d) of this section may contain a
statement that the report will not be construed as an
admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which
the report relates.
(e) PRE-APPROVAL OF INVESTMENTS IN IPOS AND LIMITED OFFERINGS. Investment
Personnel of a Fund or its investment adviser must obtain approval from
the Fund or the Fund's investment adviser before directly or indirectly
acquiring beneficial ownership in any securities in an Initial Public
Offering or in a Limited Offering.
(f) RECORDKEEPING REQUIREMENTS.
(1) Each Fund, investment adviser and principal underwriter that
is required to adopt a code of ethics or to which reports are
required to be made by Access Persons must, at its principal
place of business, maintain records in the manner and to the
extent set out in this paragraph (f), and must make these
records available to the Commission or any representative of
the Commission at any time and from time to time for
reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization
that is in effect, or at any time within the past
five years was in effect, must be maintained in an
easily accessible place;
(B) A record of any violation of the code of ethics, and
of any action taken as a result of the violation,
must be maintained in an easily accessible place for
at least five years after the end of the fiscal year
in which the violation occurs;
(C) A copy of each report made by an Access Person as
required by this section, including any information
provided in lieu of the reports under paragraph
(d)(2)(v) of this section, must be maintained for at
least five years after the end of the fiscal year in
which the
B-6
<PAGE>
report is made or the information is
provided, the first two years in an easily accessible
place;
(D) A record of all persons, currently or within the past
five years, who are or were required to make reports
under paragraph (d) of this section, or who are or
were responsible for reviewing these reports, must be
maintained in an easily accessible place; and
(E) A copy of each report required by paragraph
(c)(2)(ii) of this section must be maintained for at
least five years after the end of the fiscal year in
which it is made, the first two years in an easily
accessible place.
(2) A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve
the acquisition by investment personnel of securities under
paragraph (e), for at least five years after the end of the
fiscal year in which the approval is granted.
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<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR EMPLOYEES AND OFFICERS OF THE ADVISER AND SKYLINE FUNDS
CODE OF ETHICS. Skyline Asset Management, L.P. ("Skyline") and Skyline
Funds have adopted a written Code of Ethics (the "Code") to avoid potential
conflicts of interest by Skyline personnel. A copy of the Code is attached to
this letter. As a condition of your continued employment with Skyline and the
retention of your position, if any, as an officer of Skyline, you are required
to read, understand and abide by the Code.
COMPLIANCE PROGRAM. The Code and Policy require that all personnel furnish
to Skyline's Designated Officer the names and addresses of any firm with which
you have any investment account. You are also required to furnish to Skyline's
Designated Officer copies of your monthly or quarterly account statements, or
other documents, showing all purchases or sales of Securities in any such
account, or which are effected by you or for your benefit, or the benefit of any
member of your household. Additionally, you are required to furnish a report of
your personal Securities holdings within 10 days of commencement of your
employment with Skyline and annually thereafter. These requirements apply to any
investment account, such as an account at a brokerage house, trust account at a
bank, custodial account or similar types of accounts.
Skyline's compliance program also requires that you report any contact with
any Securities issuer, government or its personnel, or others, that, in the
usual course of business, might involve material non-public financial
information. The Policy requires that you bring to the attention of the
Designated Officer any information you receive from any source which might be
material non-public information.
Any questions concerning the Code should be directed to Skyline's
Designated Officer.
- -------------------------------------------------------------------------------
I affirm that I have read and understand the Code of Ethics ("Code"). I
agree to the terms and conditions set forth in the Code.
- ------------------------- ------------------
Signature Date
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR INDEPENDENT TRUSTEES OF SKYLINE FUNDS
CODE OF ETHICS. Skyline Asset Management, L.P. ("Skyline") and Skyline
Funds have adopted a written Code of Ethics (the "Code") to avoid potential
conflicts of interest by Skyline personnel. A copy of the Code is attached to
this letter. As a condition of the retention of your position, if any, as a
trustee of Skyline, you are required to read, understand and abide by the Code.
Any questions concerning the Code should be directed to Skyline's
Designated Officer.
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I affirm that I have read and understand the Code of Ethics ("Code"). I
agree to the terms and conditions set forth in the Code.
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Signature Date
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ANNUAL AFFIRMATION OF COMPLIANCE
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics ("Code").
2. I have provided to the firm's Designated Officer the names and
addresses of each investment account that I have with any firm,
including, but not limited to, broker-dealers, banks and others. (List
of known accounts attached.)
3. I have provided to the Designated Officer of the firm copies of
account statements showing each and every transaction in any Security
in which I have a beneficial interest, as defined in the Code during
the most recently-ended calendar year
or
During the most recent calendar year there were no
transactions in any Security in which I had a beneficial interest
required to be reported pursuant to the Code.
4. I have provided to the Designated Officer a report of my personal
Securities holdings as of the end of the most recent calendar year,
including the title, number of shares and principal amount of each
Security in which I have any direct or indirect beneficial ownership.
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Signature Date
