<Page>
-----------------------------
OMB APPROVAL
-----------------------------
OMB Number: 3235-0570
Expires: November 30, 2005
Estimated average burden
hours per response....... 5.0
-----------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 033-11755
---------------------------------------------
Skyline Funds
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
311 South Wacker Drive, Suite 4500, Chicago, IL 60606
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 312-913-0900
----------------------------
Date of fiscal year end: 12/31/02
--------------------------
Date of reporting period: 06/30/03
-------------------------
<Page>
SEMI-ANNUAL REPORT -- JUNE 30, 2003
SKYLINE SPECIAL
EQUITIES PORTFOLIO
[GRAPHIC SKYLINE SPECIAL EQUITIES PORTFOLIO]
[LOGO SKYLINE FUNDS]
<Page>
COMMENTARY(1)
- ------------------------------------------------------------------------
June 30, 2003
OVERVIEW
The Fund generated strong results for the June quarter, showing an increase of
21.93%. The solid gains posted by the Fund in the quarter were in line with its
small cap stock benchmarks, the Russell 2000 Index, which rose 23.42%, and the
Russell 2000 Value Index, which was up 22.72%. The strong performance of small
cap stocks during the quarter compared favorably to the returns generated by
large cap stocks, which were up 15.39%, as measured by the S&P 500 Index. On a
year-to-date basis, the Fund was up 14.33% compared to a 17.88% return for the
Russell 2000 Index and a 16.49% return for the Russell 2000 Value Index. During
the same period, the S&P 500 Index was up 11.78%.
MARKET REVIEW
The second quarter of 2003 saw an extension of the broad rally in stocks that
began late in the preceding quarter. Prior to the onset of the rally, many
investors in equities were very pessimistic about the ability of companies to
sustain and grow earnings. In particular, these investors questioned the impact
that the bursting of the tech bubble, the war in Iraq, and potential terrorist
attacks would have on business and consumer spending. In addition, the steady
stream of corporate governance scandals called into question the reliability of
reported earnings. This led to concerns that investors were unlikely to place
high valuations on earnings that couldn't be trusted.
Although not all of these risks have been completely resolved, progress has been
made on several fronts. With regard to the war with Iraq and terrorism, the
direst scenarios failed to materialize. The economy remained less than robust,
but fears of an outright collapse proved to be unfounded. Despite lower than
optimal business activity, many companies delivered earnings results that were
not only up on a year-over-year basis, but also exceeded expectations. Corporate
scandals appear to be isolated incidents involving a very small percentage of
publicly traded companies.
The environment was ripe for a strong rebound in stock prices. Investors
received pieces of good news after a seemingly endless stream of bad news.
Valuations fell to extremely attractive levels, especially when compared to
alternative investments such as bonds and cash. The yield on the 10-Year
Treasury Bond declined to below 4% and money market yields fell to below 1%.
Concerns about the economy led government authorities to pursue aggressive
fiscal and monetary stimulus. On May 28, President Bush signed a $350 billion
tax cut bill and, in a speech on June 3, Alan Greenspan stated that the Federal
Reserve Board would "lean over backwards" to contain deflationary forces.
As enough evidence emerged to convince many investors that the economy was not
on the brink of a destructive deflationary spiral, stock prices rebounded
sharply. The
SEMI-ANNUAL REPORT - JUNE 30, 2003 1
<Page>
Russell 2000 Index's 23.42% return for the quarter was its best showing since
the first quarter of 1991. From an historical perspective, the first quarter of
1991 was the beginning of the 1991 to 1993 bull market in small cap stocks
during which the Russell 2000 Index doubled.
The increase in stock prices during the June quarter was broad based and the
strongest gains were posted in the lower quality sectors of the market. A recent
Lehman Brothers report indicates the nature of the current rally: small cap
companies that currently are generating losses rose 58% in the second quarter,
while stocks priced below $7.37 per share rose 69%. Strong outperformance by low
quality stocks is consistent with a "relief rally." Often, at the beginning of a
bull market, stocks whose survival was in question rally the sharpest as
investors become more optimistic and less risk averse.
Every economic sector of the Russell 2000 Index generated double-digit gains.
The best performing sectors with meaningful weights--technology, health care,
and producer durables--all had relatively high concentrations of low quality
names that benefited from the "relief rally." The poorest performers were the
more defensive sectors, including consumer staples and financial services,
including REITs. The factors driving the results for the first six months of the
year were similar to those for the second quarter, as the strong recent price
trends have overwhelmed the more modest price movements early in the year.
PORTFOLIO REVIEW
As with the market, strength in the Fund was broad-based. Approximately half of
the companies in the Fund were up over 20% during the quarter, and only a
handful of companies experienced price declines. All of the economic sectors of
the Fund posted positive returns for the quarter. The largest contributors to
the Fund's return for the quarter were the consumer discretionary, financial
services, and producer durables sectors, due to their heavy weightings and
strong performance. Compared to the Russell 2000 Value Index, the consumer
discretionary sector performed best, due to its relatively heavy weighting and
strong performance. For the most part, the underlying fundamentals of the
companies in the Fund were healthy during the quarter, with most companies
meeting or exceeding earnings expectations.
A large portion of the Fund's holdings are in companies with solid balance
sheets that can finance their growth from internally generated cash flows. The
Fund has a relatively small weighting in companies that are somewhat more
reliant on accommodative financial markets. Two companies that fall into the
latter category are Flowserve and MCG Capital. Flowserve is an example of a
company in the Fund that carries above-average financial leverage, which is the
result of several recent large acquisitions. Flowserve's valuation and growth
prospects were compelling enough for us to establish a position despite its
leveraged balance sheet. Flowserve's stock advanced 69% during the quarter as
investors became more comfortable with the company's ability to meet its
financial obligations. MCG Capital is an example of a company that relies on the
capital markets to finance its growth. As a registered
2 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
investment company, MCG Capital must pay out the bulk of its earnings in the
form of dividends and thus can't rely on retained earnings to finance growth. As
investors became less concerned that MCG Capital would be unable to access the
capital markets, its stock rose 45%.
OUTLOOK
We are optimistic about the outlook for stocks going forward. We believe that we
are in the early stages of a bull market. Many stocks in our investable universe
are selling at attractive valuations, particularly when one considers that
earnings remain depressed. Earnings are likely to be much higher over the next
several years as the economy returns to normal levels from its current cyclical
lows. Furthermore, given the limited return potential from bonds or cash
equivalents, we believe that stocks provide an exceptionally attractive
alternative.
Despite the recent increase in stock prices, we believe that stock valuations
remain attractive. According to FactSet, the stocks in the Fund are currently
trading at approximately 15x trailing EPS, up from about 12x in early March. A
P/E ratio of 15x translates into an earnings yield of about 6.7%, which is very
attractive compared to the 3.5% yield on the 10-Year Treasury Bond and the less
than 1% yield on money market funds.
The recent increase in stock prices was primarily a function of P/E multiple
expansion. However, price gains are also supported by improving fundamentals.
The Fund had a median increase of 9% in year-over-year earnings in the first
quarter and negative pre-announcements have been almost nonexistent so far for
the second quarter.
The companies in the Fund are reporting modest sales gains. Those gains are
primarily a function of company-specific factors, such as new store openings,
market share gains, or acquisitions. For the most part, companies are not seeing
an increase in end demand. We believe, as end demand picks up, our companies are
poised to generate very strong earnings gains. However, current valuations
reflect more modest growth expectations.
The environment for corporate earnings has been weak for so long that investors
may have forgotten how powerful the historical earnings recoveries have been
coming out of a recession. There is a chance that the U.S. economy will mirror
that of Japan and takes years to work off the excesses of the technology bubble.
However, we believe that risk is relatively low due to the aggressive monetary
and fiscal policies undertaken and the dynamism and resiliency of the U.S.
economy.
SEMI-ANNUAL REPORT - JUNE 30, 2003 3
<Page>
- - PERFORMANCE (%)(1)
- -------------------------------------------------
<Table>
<Caption>
2Q
2003* YTD* 1 yr 3 yrs
SPECIAL
EQUITIES 21.93 14.33 -3.91 11.68
RUSSELL 2000
VALUE 22.72 16.49 -3.80 10.94
RUSSELL 2000 23.42 17.88 -1.64 -3.30
S&P 500 15.39 11.78 0.26 -11.20
</Table>
<Table>
<Caption>
CALENDAR YEARS 2002 2001 2000 1999 1998 1997 1996
SPECIAL EQUITIES -7.3 13.9 24.2 -13.3 -7.2 35.4 30.4
RUSSELL 2000 VALUE -11.4 14.0 22.8 -1.5 -6.5 31.8 21.4
RUSSELL 2000 -20.5 2.5 -3.0 21.3 -2.6 22.4 16.5
S&P 500 -22.1 -11.9 -9.2 21.1 28.8 33.4 23.3
The table does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
* Not annualized.
</Table>
- - PORTFOLIO CHARACTERISTICS(1)
- ---------------------------------------------
<Table>
<Caption>
SPECIAL RUSSELL 2000
EQUITIES VALUE RUSSELL 2000 S&P 500
P/E RATIO (MEDIAN) 16.1 16.8 20.8 19.8
PRICE/BOOK 1.81 1.43 1.90 2.97
PRICE/SALES 0.90 0.80 1.10 1.60
- ----------------------------------------------------------------------------------------------------------------
EPS GROWTH--5 YRS (HISTORICAL) 4.7% 2.6% 5.5% 8.5%
EPS GROWTH--1 YR (FORECASTED) 9.8% 3.7% 12.5% 12.7%
- ----------------------------------------------------------------------------------------------------------------
MARKET CAP $ WGHTD. MED. $1.3 billion $627 million $639 million $50 billion
ASSETS $423 million $361 billion $713 billion $8,980 trillion
NUMBER OF HOLDINGS 69 1,314 2,000 500
- ----------------------------------------------------------------------------------------------------------------
TICKER SYMBOL: SKSEX
CUSIP: 830833208
NET ASSET VALUE (PER SHARE): $23.85
INITIAL INVESTMENT: $1,000
SUBSEQUENT INVESTMENT: $100
- ----------------------------------------------------------------------------------------------------------------
</Table>
4 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
5 yrs 10 yrs Inception(2)
SPECIAL
EQUITIES 2.79 10.50 13.26
RUSSELL 2000
VALUE 4.98 11.34 10.92
RUSSELL 2000 0.97 8.24 8.23
S&P 500 -1.59 10.08 10.47
</Table>
<Table>
<Caption>
CALENDAR YEARS 1995 1994 1993 1992 1991 1990 1989 1988 1987(2)
SPECIAL EQUITIES 13.8 -1.2 22.9 42.5 47.4 -9.3 24.0 29.7 -16.9
RUSSELL 2000 VALUE 25.8 -1.6 23.8 29.1 41.7 -21.8 12.4 29.5 -21.5
RUSSELL 2000 28.4 -1.8 18.9 18.4 46.1 -19.5 16.2 24.9 -24.3
S&P 500 37.5 1.3 10.0 7.7 30.6 -3.2 31.4 16.5 -12.0
The table does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
* Not annualized.
</Table>
- - SECTOR PERFORMANCE(%)(1) (AS OF JUNE 30, 2003)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2Q 2003** YTD 2003**
- --------------------------------------------------------- ---------------------------------------------------------
RUSSELL RUSSELL
SPECIAL 2000 RUSSELL SPECIAL 2000 RUSSELL
EQUITIES VALUE 2000 EQUITIES VALUE 2000
Producer Durables 33.2 28.7 26.9 Health Care 28.8 35.5 29.1
Consumer Discretionary 28.0 27.7 25.0 Consumer Discretionary 19.2 19.8 18.1
Health Care 27.2 39.4 31.1 Producer Durables 18.8 17.0 16.5
Technology 26.9 30.2 32.8 Technology 18.3 24.5 26.8
Autos & Transportation 23.3 17.6 21.0 Financial Services 16.0 15.5 15.1
Materials & Processing 20.9 20.6 18.5 Consumer Staples 14.8 5.9 6.2
Consumer Staples 18.5 13.8 15.8 Energy 12.2 16.7 15.1
Financial Services 17.9 16.9 16.7 Materials & Processing 8.7 7.8 8.7
Energy 10.0 21.7 19.1 Autos & Transportation 0.7 5.8 8.5
Other NA* 16.7 16.6 Other NA* -0.5 -1.7
Utilities NA* 18.2 19.1 Utilities NA* 14.9 15.4
</Table>
* not applicable
** not annualized
SEMI-ANNUAL REPORT - JUNE 30, 2003 5
<Page>
TOP TEN HOLDINGS(3)
<Table>
<Caption>
% OF NET ASSETS
- -------------------------------------------------
ISTAR FINANCIAL INC.
Commercial real estate lender 2.9%
HEALTH NET, INC.
Managed health care 2.7%
COMMERCE BANCSHARES, INC.
Regional bank 2.4%
FURNITURE BRANDS INT'L., INC.
Furniture manufacturer 2.4%
DELPHI FINANCIAL GROUP, INC.
Accident & health insurance 2.4%
RUBY TUESDAY, INC.
Casual dining 2.3%
SCHOOL SPECIALTY, INC.
Non-textbook school supplies 2.3%
AIRGAS, INC.
Gas distributor 2.2%
MINERALS TECHNOLOGIES INC.
Specialty minerals 2.0%
BEARINGPOINT, INC.
IT consulting 2.0%
TOP TEN HOLDINGS 23.6%
</Table>
- - SECTOR WEIGHTINGS(3) (AS OF JUNE 30, 2003)
- ------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
Autos & Transportation 5.1%
Cash 4.7%
Consumer Discretionary 23.7%
Consumer Staples 1.4%
Energy 3.2%
Financial Services 25.9%
Health Care 5.4%
Materials & Processing 10.7%
Producer Durables 9.2%
Technology 10.7%
</Table>
6 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
STOCK HIGHLIGHTS(3)
- ------------------------------------------------------------------------
DAVITA INC. (DVA)
DaVita Inc. is a leading provider of dialysis services for patients suffering
from chronic kidney failure through more than 500 outpatient dialysis centers.
Since new management was installed in 1999, the company has experienced
substantial operational improvement through the implementation of new systems
and processes. This has resulted in an improved balance sheet, sharply higher
earnings, and steadily improving clinical outcomes. DVA should enjoy solid
growth ahead, as the number of new dialysis patients continues to grow at
approximately a 5% annual rate. Accelerating new center growth, selective
acquisitions, the ability to re-price several unprofitable commercial contracts
at higher rates, and a potentially more favorable Medicare reimbursement
picture, should all bode well for double-digit earnings growth ahead. Despite
the encouraging outlook, DVA continues to trade at a very modest valuation.
PROQUEST COMPANY (PQE)
ProQuest Company is the leading provider of archived newspapers, books, and
periodicals to the library and education markets. Additionally, PQE sells
digital parts catalogs to automobile dealers. Both of these businesses generate
high recurring revenues and solid profitability. PQE should be able to generate
double-digit earnings growth over the next few years. This growth is driven by:
developing new products for teachers to customize PQE's content for specific
classes; utilizing offshore labor and digital technology to reduce costs; and
utilizing free cash flow to repay debt and buy-back stock. PQE's valuation is
attractive trading at a modest mid-teens multiple with a solid growth profile.
SEMI-ANNUAL REPORT - JUNE 30, 2003 7
<Page>
NOTES TO PERFORMANCE
- ------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE AND
RETURN ON YOUR INVESTMENT WILL FLUCTUATE AND ON REDEMPTION MAY BE WORTH MORE
OR LESS THAN YOUR ORIGINAL COST. The performance for the one, three, five,
and ten years ended June 30, 2003, and for the period April 23, 1987
(inception) through June 30, 2003, is an average annual return calculation
which is described in the Fund's Statement of Additional Information.
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 the United
States. The Russell 1000 Index is an unmanaged index comprised of the
largest 1,000 companies ranked by market capitalization. The Russell 2000
Growth Index is an unmanaged index measuring the performance of those
Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth rates. The Dow Jones Industrial Average is an index of the
stock prices of 30 major corporations in the United States. The NASDAQ
Composite Index is an unmanaged, market-value weighted index which measures
all domestic and non-U.S. based common stocks listed on the NASDAQ Stock
Market. The acronym stands for National Association of Securities Dealers
Automated Quotations system. All figures take into account reinvested
dividends. All indexes and portfolio characteristics are compiled by Frank
Russell Company. You cannot invest directly in an index.
Source: Frank Russell Company and FactSet.
(2) Return is calculated from the Fund's inception on April 23, 1987. The
Russell 2000 Value performance reflects an inception date of May 1, 1987.
(3) Fund holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This report is not authorized for distribution unless accompanied or preceded by
a current prospectus.
There are risks of investing in a fund that invests in stocks of small sized
companies, which tend to be more volatile and less liquid than stocks of large
cap companies. There are also risks in investing in value-oriented stocks
including the risk that value-oriented stocks will underperform growth-oriented
stocks during some periods.
THE DISCUSSION OF THE FUND'S INVESTMENTS AND INVESTMENT STRATEGY REPRESENT THE
VIEWS OF SKYLINE ASSET MANAGEMENT, L.P., THE FUND'S ADVISER, AT THE TIME OF THIS
REPORT. THE INVESTMENTS OF THE FUND ARE SUBJECT TO CHANGE AND SHOULD NOT BE
CONSIDERED A RECOMMENDATION TO BUY INDIVIDUAL SECURITIES.
DISTRIBUTOR: FUNDS DISTRIBUTOR, INC.
8 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
GLOSSARY OF INVESTMENT TERMS
- ------------------------------------------------------------------------
EARNINGS PER SHARE (EPS) A company's net income divided by its outstanding
shares.
EARNINGS PER SHARE GROWTH -- 5 YRS (HISTORICAL) The compounded annual growth
rate of a company's EPS over the last 5 years.
EARNINGS PER SHARE GROWTH -- 1 YR (FORECASTED) Analysts' consensus forecast for
a company's growth in operating EPS over the immediate future 12 months.
MEDIAN MARKET CAP An indicator of the size of companies in which a fund invests;
the mid-point of market capitalization (market price times shares outstanding)
of a fund's stocks, weighted by the proportion of the fund's assets invested in
each stock. Stocks representing half of the fund's assets have market
capitalizations above the median, and the rest below it.
PRICE/BOOK RATIO The share price of a stock divided by its net worth, or book
value, per share.
PRICE/EARNINGS RATIO The ratio of a stock's current price to its per-share
earnings over the past 12 months. For a fund, the price/earnings ratio is the
weighted average P/E of the stocks in that fund. P/E is an indicator of market
expectations about corporate prospects.
PRICE/SALES RATIO The ratio of a stock's current price to its per-share revenue
over the past 12 months.
SEMI-ANNUAL REPORT - JUNE 30, 2003 9
<Page>
PORTFOLIO HOLDINGS AS OF JUNE 30, 2003 (UNAUDITED)
- ------------------------------------------------------------------------
<Table>
<Caption>
Company Number Market
Description of Shares Value
----------------------------------- --------- -----------------
COMMON STOCKS
AUTOS & TRANSPORTATION -- 5.1%
OTHER TRANSPORTATION -- 2.4%
Interpool, Inc. Container leasing firm 306,700 $ 5,036,014
Monaco Coach Corp.(a) RV producer 350,650 5,375,465
------------
10,411,479
RAILROAD -- 0.9%
Genesee & Wyoming(a) Regional railroad 178,500 3,671,745
TRUCKING -- 1.8%
Landstar System, Inc.(a) Truckload carrier 43,536 2,736,238
Werner Enterprises Inc. Truckload carrier 236,446 5,010,291
------------
7,746,529
------------
TOTAL AUTOS & TRANSPORTATION 21,829,753
CONSUMER DISCRETIONARY -- 23.7%
COMMERCIAL SERVICES -- 3.9%
Moore Wallace Inc.(a) Business forms 435,800 6,397,544
ProQuest Company(a) Information content provider 151,300 3,903,540
United Stationers Inc.(a) Office products distributor 179,100 6,420,735
------------
16,721,819
CONSUMER PRODUCTS/SERVICES -- 10.0%
Furniture Brands Int'l., Inc.(a) Furniture manufacturer 385,800 10,069,380
Polaris Industries Inc. Snowmobiles, ATVs, motorcycles 132,500 8,135,500
School Specialty, Inc.(a) Non-textbook school supplies 338,203 9,567,763
Scotts Company(a) Turf & horticultural products 126,700 6,271,650
The Toro Company Turf maintenance products 208,100 8,271,975
------------
42,316,268
RESTAURANTS -- 3.5%
CEC Entertainment, Inc.(a) Children-oriented casual dining 132,000 4,874,760
Ruby Tuesday, Inc. Casual dining 396,400 9,802,972
------------
14,677,732
RETAIL -- 6.3%
Aaron Rents, Inc. Furniture rental chain 156,500 4,037,700
Borders Group, Inc.(a) Book retailer 253,800 4,469,418
Hancock Fabrics, Inc. Fabric and sewing retailer 261,800 4,228,070
Michaels Stores, Inc. Arts & crafts stores 162,700 6,192,362
Pier 1 Imports, Inc. Home furnishings retailer 212,400 4,332,960
Stage Stores, Inc.(a) Small town apparel retailer 142,595 3,350,983
------------
26,611,493
------------
TOTAL CONSUMER DISCRETIONARY 100,327,312
</Table>
10 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
- ------------------------------------------------------------------------
<Table>
<Caption>
Company Number Market
Description of Shares Value
----------------------------------- --------- -----------------
CONSUMER STAPLES -- 1.4%
Del Monte Foods Co.(a) Canned foods 660,100 $ 5,835,283
------------
TOTAL CONSUMER STAPLES 5,835,283
ENERGY -- 3.2%
EQUIPMENT & SERVICES -- 1.3%
Key Energy Services, Inc.(a) Workover services provider 516,100 5,532,592
EXPLORATION & PRODUCTION -- 1.9%
Newfield Exploration Co.(a) Oil & gas producer 105,700 3,969,035
Remington Oil and Gas Oil & gas explorer and producer 221,100 4,063,818
Corporation(a)
------------
8,032,853
------------
TOTAL ENERGY 13,565,445
FINANCIAL SERVICES -- 25.9%
BANKS/THRIFTS -- 6.8%
Bank of Hawaii Corporation Commercial bank 183,600 6,086,340
Commerce Bancshares, Inc. Regional bank 261,613 10,181,978
First Niagara Financial Savings & loan 446,865 6,220,360
Provident Financial Group Inc. Regional bank 245,410 6,319,307
------------
28,807,985
INSURANCE -- 11.5%
Delphi Financial Group, Inc. Accident & health insurance 213,679 10,000,177
HCC Insurance Holdings, Inc. Property & casualty insurance 213,200 6,304,324
Infinity Property & Casualty Personal auto insurance 348,328 7,959,295
IPC Holdings, Ltd. Property catastrophe reinsurer 180,800 6,056,800
Reinsurance Group of America Life reinsurer 150,200 4,821,420
Scottish Annuity & Life Life reinsurer 385,500 7,790,955
Holdings, Ltd.
Selective Insurance Group, Inc. Property & casualty insurance 204,135 5,113,582
Triad Guaranty(a) Mortgage insurance 11,463 435,135
------------
48,481,688
OTHER FINANCIAL SERVICES -- 2.3%
MCG Capital Corporation Business development company 359,700 5,219,247
Raymond James Financial, Inc. Investment services 138,100 4,564,205
------------
9,783,452
</Table>
SEMI-ANNUAL REPORT - JUNE 30, 2003 11
<Page>
PORTFOLIO HOLDINGS AS OF JUNE 30, 2003 (CONTINUED, UNAUDITED)
- ------------------------------------------------------------------------
<Table>
<Caption>
Company Number Market
Description of Shares Value
----------------------------------- --------- -----------------
REAL ESTATE INVESTMENT TRUSTS -- 5.3%
AMB Property Corporation Industrial REIT 177,000 $ 4,986,090
American Financial Realty Office REIT 28,400 423,444
Brandywine Realty Trust Office REIT 180,100 4,434,062
iStar Financial Inc. Commercial real estate lender 340,800 12,439,200
------------
22,282,796
------------
TOTAL FINANCIAL SERVICES 109,355,921
HEALTH CARE -- 5.4%
HEALTH CARE SERVICES -- 5.4%
Apria Healthcare Group Inc.(a) Home healthcare service provider 188,500 4,689,880
DaVita Inc.(a) Provider of dialysis services 242,300 6,488,794
Health Net, Inc.(a) Managed health care 347,500 11,450,125
------------
TOTAL HEALTH CARE 22,628,799
MATERIALS & PROCESSING -- 10.7%
BUILDING/CONSTRUCTION PRODUCTS -- 1.6%
Hughes Supply, Inc. Construction/industrial supplies 147,100 5,104,370
Martin Marietta Materials Aggregates producer 48,000 1,613,280
------------
6,717,650
PACKAGING/PAPER -- 1.6%
Albany International Corp. Paper machine clothing 241,600 6,619,840
SPECIALTY CHEMICALS -- 6.7%
Airgas, Inc.(a) Gas distributor 562,700 9,425,225
Minerals Technologies Inc. Specialty minerals 177,700 8,646,882
Sensient Technologies Corp. Colors, flavors and fragrances 210,400 4,837,096
Spartech Corp. Plastics producer 259,000 5,493,390
------------
28,402,593
STEEL/IRON -- 0.8%
Reliance Steel & Aluminum Metal service center 170,900 3,537,630
------------
TOTAL MATERIALS & PROCESSING 45,277,713
PRODUCER DURABLES -- 9.2%
DIVERSIFIED MANUFACTURING -- 2.1%
Crane Company Industrial conglomerate 238,800 5,404,044
Mettler-Toledo(a) Manufacturer of scales 98,100 3,595,365
------------
8,999,409
</Table>
12 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
- ------------------------------------------------------------------------
<Table>
<Caption>
Company Number Market
Description of Shares Value
----------------------------------- --------- -----------------
HOME BUILDING -- 1.0%
D.R. Horton, Inc. Homebuilder 143,950 $ 4,044,995
MACHINERY -- 6.1%
Flowserve Corporation(a) Pump & valve manufacturer 355,700 6,996,619
IDEX Corp. Specialty pump products 172,500 6,251,400
Kennametal Inc. Metal-cutting tools 207,800 7,031,952
MSC Industrial Direct Co. Inc. Marketer of industrial products 315,500 5,647,450
------------
25,927,421
------------
TOTAL PRODUCER DURABLES 38,971,825
TECHNOLOGY -- 10.7%
DISTRIBUTION -- 1.2%
Tech Data Corporation(a) Distributor of PCs and peripherals 188,300 5,037,025
ELECTRONIC COMPONENTS -- 3.6%
Fairchild Semiconductor Semiconductors 420,300 5,375,637
Int'l., Inc.(a)
International Rectifier Power semiconductors 204,600 5,487,372
Corporation(a)
KEMET Corp.(a) Capacitor manufacturer 423,800 4,280,380
------------
15,143,389
OTHER TECHNOLOGY -- 2.6%
Electronics for Imaging, Inc.(a) Products that support color
printing 344,100 6,950,820
Park Electrochemical Corporation Advanced electronic materials 211,900 4,227,405
------------
11,178,225
SERVICES -- 3.3%
BearingPoint, Inc.(a) IT Consulting 888,600 8,574,990
Ceridian Corporation(a) Payroll processing 317,900 5,394,763
------------
13,969,753
------------
TOTAL TECHNOLOGY 45,328,392
------------
TOTAL COMMON STOCKS -- 95.3%
(Cost $335,220,362) 403,120,443
</Table>
SEMI-ANNUAL REPORT - JUNE 30, 2003 13
<Page>
PORTFOLIO HOLDINGS AS OF JUNE 30, 2003 (CONTINUED, UNAUDITED)
- ------------------------------------------------------------------------
<Table>
<Caption>
Market
Value
-----------------
MONEY MARKET INSTRUMENTS
Yield 0.6975% to 1.2000%
due 07/01/03 to 10/14/03
American Family Financial Services $ 965,323
Galaxy Funding 19,800,000
USBank Demand Note 5,441,990
Wisconsin Corp. Credit Union 531,286
------------
TOTAL MONEY MARKET INSTRUMENTS -- 6.3%
(Cost $26,738,599) 26,738,599
------------
TOTAL INVESTMENTS -- 101.6%
(Cost $361,958,961) 429,859,042
OTHER ASSETS LESS LIABILITIES -- (1.6)% (7,068,171)
------------
NET ASSETS -- 100% $422,790,871
============
</Table>
(a) Non-income producing security.
Based on cost of investments for federal income tax purposes of $363,278,421 on
June 30, 2003, net unrealized appreciation was $66,580,621, consisting of gross
unrealized appreciation of $74,684,302 and gross unrealized depreciation of
$8,103,681.
See accompanying notes to financial statements.
14 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2003 (UNAUDITED)
- ------------------------------------------------------------------------
<Table>
ASSETS
Investments, at value (Cost: $361,958,961) $429,859,042
Receivable for:
Securities sold $2,771,709
Fund shares sold 556,338
Dividends and interest 275,724 3,603,771
---------- ------------
Other assets 49,224
------------
Total assets 433,512,037
LIABILITIES & NET ASSETS
Payable for:
Securities purchased $6,394,536
Fund shares redeemed 3,756,577
Comprehensive management fee 514,429
Trustees deferred compensation 49,224
Trustees' fees and expenses 6,400 10,721,166
---------- ------------
Net assets applicable to shares outstanding $422,790,871
============
Shares outstanding--no par value (unlimited number
of shares authorized) 17,726,502
============
PRICING OF SHARES
Net asset value, offering price and redemption
price per share $ 23.85
============
ANALYSIS OF NET ASSETS
Paid-in capital $354,313,604
Accumulated net realized gain on sales of
investments 577,186
Net unrealized appreciation of investments 67,900,081
------------
Net assets applicable to shares outstanding $422,790,871
============
</Table>
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 2003 15
<Page>
STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2003 (UNAUDITED)
- ------------------------------------------------------------------------
<Table>
Investment income:
Dividends $ 1,997,154
Interest 83,075
-----------
Total investment income 2,080,229
Expenses:
Comprehensive management fee 2,744,094
Trustees' fees and expenses 25,481
-----------
Total expenses 2,769,575
-----------
Net investment loss (689,346)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 660,194
Change in net unrealized appreciation 52,129,766
-----------
Net realized and unrealized gain on investments 52,789,960
-----------
Net increase in net assets resulting from operations $52,100,614
===========
</Table>
See accompanying notes to financial statements.
16 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<Table>
<Caption>
Period Ended
06/30/2003 Year Ended
(unaudited) 12/31/2002
------------- ------------
From operations:
Net investment loss $ (689,346) $ (1,155,225)
Net realized gain on sales of
investments 660,194 1,614,999
Change in net unrealized appreciation 52,129,766 (49,268,826)
------------ ------------
Net increase/decrease in net assets
resulting from operations 52,100,614 (48,809,052)
From fund share transactions:
Proceeds from fund shares sold 58,014,764 342,123,732
Payments for fund shares redeemed (66,163,423) (289,420,437)
------------ ------------
Net increase/decrease in net assets
resulting from share transactions (8,148,659) 52,703,295
------------ ------------
Total increase in net assets 43,951,955 3,894,243
Net assets at beginning of year 378,838,916 374,944,673
------------ ------------
Net assets at end of period $422,790,871 $378,838,916
============ ============
</Table>
See accompanying notes to financial statements.
SEMI-ANNUAL REPORT - JUNE 30, 2003 17
<Page>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
<Table>
<Caption>
Period
Ended Year Year Year Year Year
06/30/03 Ended Ended Ended Ended Ended
(unaudited) 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
----------------------------------------------------------------------------
Net asset value at
beginning of year $ 20.86 $ 22.50 $ 19.75 $ 15.90 $ 19.78 $ 21.66
-------- -------- -------- -------- -------- --------
Income from Investment
Operations
Net investment loss (0.04)* (0.06)* (0.04)* (0.06)* (0.14)* (0.11)
Net realized and
unrealized gain/ (loss)
on investments 3.03 (1.58) 2.79 3.91 (2.51) (1.45)
-------- -------- -------- -------- -------- --------
Total from investment
operations 2.99 (1.64) 2.75 3.85 (2.65) (1.56)
-------- -------- -------- -------- -------- --------
Less distributions from net
realized gains on
investments -- -- -- -- (1.23) (0.32)
-------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 23.85 $ 20.86 $ 22.50 $ 19.75 $ 15.90 $ 19.78
======== ======== ======== ======== ======== ========
Total Return 14.33%(a) (7.29%) 13.92% 24.21% (13.28%) (7.17%)
Ratios/Supplemental Data
Ratio of expenses to average
net assets 1.48%(b) 1.48% 1.49% 1.51% 1.48% 1.47%
Ratio of net investment loss
to average net assets (0.37%)(b) (0.26%) (0.16%) (0.32%) (0.32%) (0.50%)
Portfolio turnover rate 46%(b) 81% 93% 92% 81% 68%
Net assets, end
of period (in thousands) $422,791 $378,839 $374,945 $286,951 $220,346 $445,024
======== ======== ======== ======== ======== ========
</Table>
* Based on monthly average shares outstanding.
(a) Not annualized.
(b) Ratios have been determined on an annualized basis.
18 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
Skyline Funds is an open-end, diversified investment management company the sole
portfolio of which is Special Equities Portfolio (the "Fund"). The Fund
commenced public offering of its shares on April 23, 1987. Skyline Special
Equities Portfolio closed to new investors on January 30, 1997 and re-opened to
new investors on October 27, 1999. The Fund's investment adviser is Skyline
Asset Management, L.P. ("The Adviser"). The Fund seeks maximum capital
appreciation primarily through investment in common stocks that its investment
adviser considers to be undervalued.
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. Short-term instruments 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 premiums and discounts.
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 substantially all of its taxable income to shareholders. Such
provisions were complied with and, therefore, no federal income taxes have been
accrued.
As of June 30, 2003, the Fund had no capital loss carryforwards.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date. The timing and characterization of certain income and capital
gain distributions
SEMI-ANNUAL REPORT - JUNE 30, 2003 19
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------
are determined annually in accordance with Federal income tax regulations that
may differ from accounting principles generally accepted in the United States.
As a result, net investment income or loss and net realized gain or loss for a
reporting period may differ from the amount distributed during such period.
The differences between book-basis and tax-basis unrealized appreciation/
(depreciation) is attributable primarily to: the tax deferral on wash sales and
return of capital distributions received from investments in real estate
investment trusts.
/ / LINE OF CREDIT - The Fund has a $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 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.
/ / USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
those estimates.
2
TRANSACTIONS WITH AFFILIATES
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 period ended June 30, 2003 was $2,744,094.
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 period ended June 30, 2003, the Fund incurred fees of $25,481 to its
unaffiliated trustees.
The Fund provides a deferred compensation plan for its trustees who are not
officers, limited partners or shareholders of limited partners of the Adviser.
Under the deferred compensation plan, trustees may elect to defer all or a
portion of their compensation. Amounts deferred are retained by the Fund and, to
the extent permitted by the 1940 Act, as amended, may be invested in the common
shares of certain funds, including the Fund, as selected by the trustees.
Investments in such funds are included in "Other Assets" on the Statement of
Assets and Liabilities at June 30, 2003. Appreciation/ depreciation and
distributions received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Fund.
20 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
- ------------------------------------------------------------------------
3
FUND SHARE TRANSACTIONS
As of June 30, 2003, there were an unlimited number of shares of beneficial
interest, no par value, authorized. Transactions in the Fund's shares of
beneficial interest were as follows:
<Table>
<Caption>
Shares Dollar Amount
---------------------------- -----------------------------
Period Ended Year Ended Period Ended Year Ended
06/30/03 12/31/02 06/30/03 12/31/02
-------------------------------------------------------------
Shares sold 2,708,429 14,223,915 $58,014,764 $ 342,123,732
Shares redeemed (3,140,660) (12,728,080) (66,163,423) (289,420,437)
----------- ----------- ------------ -------------
Net increase/
decrease (432,231) 1,495,835 $(8,148,659) $ 52,703,295
=========== =========== ============ =============
</Table>
4
INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) for the period
ended June 30, 2003, were as follows:
<Table>
Cost of purchases $ 84,636,947
Proceeds from sales $104,197,846
</Table>
SEMI-ANNUAL REPORT - JUNE 30, 2003 21
<Page>
This page left blank intentionally.
22 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
This page left blank intentionally.
SEMI-ANNUAL REPORT - JUNE 30, 2003 23
<Page>
This page left blank intentionally.
24 SEMI-ANNUAL REPORT - JUNE 30, 2003
<Page>
FOR 24-HOUR ACCOUNT INFORMATION CALL: 1.800.828.2SKY
(1.800.828.2759)
TO SPEAK WITH A SKYLINE FUNDS REPRESENTATIVE DURING
NORMAL BUSINESS HOURS CALL: 1.800.828.2SKY AND PRESS 0 WHEN PROMPTED.
TO LEARN MORE ABOUT OUR EXPERTISE IN SMALL CAP VALUE, PLEASE VISIT OUR WEBSITE
AT www.skylinefunds.com
- ------------------------------------------------
[SKYLINE FUNDS LOGO]
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606