<Page> UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-5022 ------------------------- 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) William M. Dutton Alan Goldberg Skyline Funds Bell, Boyd & Lloyd LLC 311 South Wacker Drive, Suite 4500 Three First National Plaza, #3300 Chicago, IL 60606 Chicago, IL 60602 - ------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (312) 913-0900 --------------------------- Date of fiscal year end: 12/31/04 ------------------------- Date of reporting period: 12/31/04 ------------------------- <Page> ITEM 1. REPORT TO SHAREHOLDERS. <Page> ANNUAL REPORT -- DECEMBER 31, 2004 SKYLINE SPECIAL EQUITIES PORTFOLIO [GRAPHIC] [SKYLINE FUNDS LOGO] <Page> COMMENTARY December 31, 2004 OVERVIEW The Fund generated a gain of 12.13% for the fourth quarter, compared to a 14.09% gain for the Russell 2000 Index and a gain of 13.20% for the Russell 2000 Value Index. For all of 2004, the Fund rose 16.61%, compared to an 18.32% increase for the Russell 2000 Index and a 22.25% increase for the Russell 2000 Value Index. The economic backdrop for equities was quite positive during 2004, with solid Gross Domestic Product (GDP) growth, moderate inflation, and long-term interest rates holding steady at relatively low levels. Despite the positive economic environment, stocks made only modest advances through the first nine months of the year due to fears of potentially destabilizing geopolitical events and concerns about higher energy prices. As those events failed to materialize and oil prices retreated from their peak levels, stocks rallied sharply in the fourth quarter. The strong return generated by the Fund during the fourth quarter was modestly below the performance of the Russell 2000 Value Index. Stocks rose across the board, with every economic sector posting positive gains for the quarter. For all of 2004, the double-digit returns posted by the Fund were not enough to keep pace with its small cap benchmarks. Weak price performance from a handful of stocks that reported disappointing news and an underweighting relative to the benchmarks in certain strong performing sectors (REITs and energy stocks in particular) negatively impacted the Fund relative to its benchmarks. MARKET REVIEW Stocks posted strong gains across the board in the fourth quarter, as indicated by a 14.09% increase for the Russell 2000 Index, a 13.20% rise for the Russell 2000 Value Index, and a 9.23% increase for the S&P 500 Index. During the early part of 2004, investors were faced with several factors that had the potential to negatively impact corporate earnings and/or put downward pressure on equity valuations. Among these were sharply increasing oil prices, higher short-term interest rates driven by Fed rate increases, potential terrorist activity surrounding the summer Olympics and the U.S. presidential election, and the uncertainty caused by the highly contentious U.S. presidential election. As the year progressed, investors witnessed positive developments on many of these fronts. Oil prices declined to $43.45 per barrel at year end after peaking early in the fourth quarter at over $55 per barrel. Long-term interest rates, as measured by the U.S. 10-Year Treasury Bond, ended the year essentially unchanged from their levels at the beginning of the year despite five increases in the federal funds rate to 2.25% from 1% over the same time period. The summer Olympics were conducted without incident, as was the U.S. presidential election, which was decided at the polls, not in the courts as many had feared. Investors were encouraged by these developments, leading to the strong gains for equities in the fourth quarter. 1 <Page> Overall, 2004 provided a constructive backdrop for equity price gains. Real U.S. GDP is estimated to have grown over 4% in 2004, the fastest pace since at least 1999. Thomson Financial's First Call estimates that S&P 500 Index earnings will increase 19.3% in 2004, the strongest earnings gain for the Index since 1993. Despite the strong economic environment and five federal fund rate increases, the U.S. 10-Year Treasury Bond ended the year at 4.22%, down from 4.26% at the beginning of the year. Inflation remains muted, with the core Consumer Price Index (CPI) expected to have risen about 2% in 2004. These positive factors more than offset potential negatives such as a declining dollar, a historically low U.S. savings rate and growing federal budget and trade deficits, and helped contribute to the strong equity gains posted in 2004. The Russell 2000 Index rose 18.32% in 2004. In addition, the S&P 500 Index increased 10.87%. This marks the sixth consecutive year that small cap stocks have outperformed large cap stocks. Among small cap stocks, the Russell 2000 Value Index's 22.25% gain outpaced the Russell 2000 Growth's 14.31% rise, marking the fourth time in the last five years (with 2003 being the exception) that small cap value stocks have outperformed small cap growth stocks. The outperformance of small stocks vs. large stocks and value stocks vs. growth stocks over the last several years is a result of the unwinding of the imbalances created by the stock market bubble of the late 1990s that saw wildly inflated valuations for large cap stocks and technology stocks. From a small cap value sector perspective, energy stocks were by far the best performing stocks for all of 2004, responding to the strength in oil and gas prices, although the sector did lag in the fourth quarter as energy prices retreated from their highs. Materials and processing and producer durables stocks were strong performers throughout 2004, driven by improving demand in the industrial sector of the economy and increasing prices for many basic commodities. The technology sector was the worst performing in 2004, as the sector's fundamentals could not support the strong run up in prices technology stocks experienced in 2003. Less economically sensitive sectors such as utilities, health care, and consumer staples also underperformed the Russell 2000 Value Index during 2004. PORTFOLIO REVIEW As previously noted, the Fund generated gains of 12.13% for the fourth quarter and 16.61% for all of 2004, compared to rises of 14.09% and 18.32% for the Russell 2000 Index and 13.20% and 22.25% gains for the Russell 2000 Value Index. Gains were broad based during the quarter and the year. Every economic sector in which the Fund had meaningful investments posted positive results. The financial services, producer durables, and materials and processing sectors made the largest positive contributions to the Fund during the quarter and year, due to their large absolute weightings and returns. When comparing the Fund's fourth quarter and annual returns to the Russell 2000 Value Index, the producer durables sector contributed most to the Fund's relative performance due to the decision to weight that strong performing sector more heavily than the Index. The financial services sector detracted the most from the Fund's relative performance during the quarter and year. Although the Fund's financial services stocks outperformed the corresponding sector of the 2 <Page> benchmark during the fourth quarter, they lagged for the entire year, and their relatively low weighting in the Fund for both periods led to a lower contribution to returns compared to the Index. With regard to sector weightings, the Fund benefited from our overweighting of the producer durables and materials and processing sectors. Entering 2004, our expectation that these areas would benefit from the incipient rebound in the industrial sector of the economy was borne out by the strong gains posted by these sectors during the year. Alternatively, our decision to underweight REITs (within the financial services sector) and energy stocks detracted from the Fund's performance. According to Lehman Brothers, oil and gas stocks rank first and REITs rank fourth out of 74 industry groups in terms of stock price performance among Russell 2000 Index stocks over the last five years. Our concerns about high valuations within these sectors didn't prevent the industry groups from posting better-than-index returns in 2004. The best performing stocks for both the fourth quarter and year came from a wide variety of economic sectors. Several stocks in the Fund benefited from increased merger and acquisition activity. One company, Provident Financial Group, received a takeover offer in 2004, while several others saw their stock prices benefit from announced acquisitions or announced divestitures that were viewed favorably by the markets. Among the former were Davita, a provider of dialysis services, which announced the acquisition of Gambro Healthcare, a transaction that will almost double the size of the company; Scottish Re, a life reinsurer that completed the acquisition of ING's life reinsurance operations in a deal that is expected to be highly accretive to earnings; and Investment Technology Group, a provider of equity trading services, announced the buyout of its partner's interest in the POSIT joint venture, a deal that is also expected to be quite accretive to earnings. Two companies in the Fund had their stock price benefit from announced divestitures that were expected to shore up their balance sheets and allow them to focus on their core business. Laidlaw International, a transportation services company, announced the sale of its healthcare companies and eFunds, a provider of transaction processing services, announced the sale of its ATM portfolio. Pentair, the best performing stock in the Fund for all of 2004 with a gain of over 96%, benefited from the simultaneous divestiture of its slower growing tools business and acquisition of a faster growing water filtration company in addition to reporting much stronger than expected results. The underlying fundamentals for the companies in the Fund remained, for the most part, solid during 2004. However, there were some exceptions. Among the stocks that disappointed during 2004 and were sold when we lost confidence in their fundamentals were KEMET, a manufacturer of capacitors, Furniture Brands, a furniture manufacturer, Pier 1 Imports, a retailer, and Netbank, a savings bank. Stocks that disappointed during 2004, but in which we remain optimistic about their prospects, include Electronics for Imaging, a company that dominates the market for software for color printers, Linens 'n Things, a retailer we believe is taking the necessary steps to improve operations despite a difficult retail environment, and Clark, Inc., a benefits broker selling at a significant discount to our estimation of its liquidation value. 3 <Page> OUTLOOK Entering 2004, it was our belief that small cap stocks were fairly valued, and that stock price gains would likely have to be a result of earnings gains rather than P/E multiple expansion. We were constructive on the outlook for earnings and therefore optimistic with regards to further stock price gains. And in fact, that is how 2004 played out. The stocks that made up the Fund at the end of the year are estimated to have grown their earnings approximately 17% in 2004. Therefore, despite a nearly 17% return for the Fund in 2004, its current P/E stands at 18.0x trailing twelve month earnings, only slightly above the 17.5x multiple it carried at the end of 2003. Our current expectation is that over the next twelve months the companies in the Fund will post robust earnings gains, although at a modestly slower rate than in 2004. If our earnings expectations are met, we would expect stocks to react positively. Whether stock price gains keep pace with earnings gains will depend in large part upon when investors begin to discount the end of the current economic cycle. Although we remain sanguine about the economy's prospects, we would become more concerned if faced with higher energy prices, an increase in interest rates, or a destabilizing event such as a major terrorist attack. We have not altered our sector focus appreciably over the last several quarters. We continue to find the technology sector attractive, drawn to stocks with solid business models and cash-rich balance sheets that sell at modest valuations. We still remain optimistic about the prospects for companies in the producer durables and materials and processing sectors, although higher valuations in the producer durables sector bear monitoring. Areas that we continue to find fully valued are banks/thrifts, REITs, and energy stocks. The Fund's strong absolute gains over the last two years have lagged those of the Russell 2000 Value Index, the benchmark we believe comes closest to reflecting our style of investing. We believe that our increased preference for higher quality companies within the small cap value universe may make it difficult to keep pace with the benchmark during periods when investor confidence runs high and preference for the most volatile stocks is at its peak, as has been the case for the last two years. However, we believe the Fund should be able to outperform its benchmark in most other market environments, the most difficult ones in particular (such as 2002), enough to generate positive returns over the entire small cap value investing cycle. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT skylinefunds.com. THE PERFORMANCE FOR THE ONE, THREE, FIVE AND TEN YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD APRIL 23, 1987 (INCEPTION) THROUGH DECEMBER 31, 2004, IS AN AVERAGE ANNUAL RETURN CALCULATION. 4 <Page> 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 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 average of the stock prices of 30 major corporations in the United States. All figures take into account reinvested dividends. You cannot invest directly in an index. Sources: Frank Russell Company and FactSet. 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 investment adviser, at the time of this report. The Fund's investments 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. Distributor: Funds Distributor, Inc. 5 <Page> LETTER FROM WILLIAM M. DUTTON -- PRESIDENT OF SKYLINE FUNDS Dear Fellow Shareholders: As many of you know, I recently stepped down as lead manager of the Fund after nearly 18 years in that role. As I step back from a day-to-day decision making role, I want to review for our shareholders the Fund's investment strategy, taking a look at how the strategy has evolved over time. As you will see, the key underpinnings of the strategy, a belief in the merits of value investing in small companies, remain the same today as 18 years ago. However, in recent years we have slightly altered the way in which we implement the strategy in an effort to achieve the very best results for our shareholders. HISTORY OF INVESTMENT STRATEGY At the Fund's inception in 1987, I believed that an investment strategy dedicated to small companies with a value orientation would produce superior returns. At that time, much of the academic literature indicated that small stocks outperform large stocks and that value-oriented stocks outperform growth stocks. Surprisingly, despite studies that promoted this investment approach, very few mutual funds implemented such an approach. Consequently, at its inception in 1987, Skyline Special Equities Portfolio was one of only a few small cap value-oriented funds. In fact, according to Lipper, a global provider of mutual fund research, only nine small cap value funds have been operating from our inception date through 2004. The key to our investment approach was to find companies that traded at lower than average valuations but that had better than average growth prospects. By investing in low P/E stocks, we believed the risk/reward outlook was on our side. If the company performed well fundamentally, the stock was likely to be successful from a combination of higher earnings and a higher P/E ratio. If the company did not perform well fundamentally, we believed the downside risk was limited because of the stock's already low valuation. Finally, it was an advantage to focus on small companies because they were more likely to be undervalued since they were generally not well researched. It is gratifying to note that this strategy has been very successful over this nearly 18 year period. From its inception in April 1987 through December 2004, the Fund has delivered a 14.39% annual return, making it one of the top performing funds over this time period. According to Lipper, the Fund ranks as the ninth best performing fund out of 337 U.S. diversified equity funds and ranks as the second best performing small cap fund out of 42 small cap funds. While the long-term return has been strong, it has not been a straight line up. There have been bumps in the road, including bear markets and periods of poor performance relative to peers. No investment style and no investment manager can perform successfully in all market environments. The most difficult periods for us were the 1995 and 1999 years when technology stocks boomed and value investing lagged growth stock investing by a wide margin. 6 <Page> EVOLUTION OF INVESTMENT STRATEGY Over the years, we have regularly re-assessed our investment approach in an effort to produce the best possible results for shareholders. Following the 1999 year, we concluded that our shareholders would benefit if we could modify the investment strategy in a way that would reduce volatility while maintaining or even enhancing performance. Based on many years of experience investing in small cap stocks, we believed that certain changes to our strategy could lead to such an outcome. Therefore, starting in 2000, we made two adjustments to the investment approach. First, we began investing in slightly larger companies within the small company universe. Second, we began investing in a broader range of industries than we previously had. In terms of company size, we believe that the very smallest public companies, while often possessing the best potential appreciation, are vulnerable to steep stock price declines because their financial results are quite volatile and can deteriorate rapidly and deeply. Investing in such companies runs the risk of incurring large investment losses on individual stocks that can have a significant negative impact on portfolio performance. As companies become larger, financial results become more stable and the risk of significant investment losses is reduced. By investing in slightly larger companies, we believe we have found a better place to invest because it reduces the risk of large investment losses on individual stocks while retaining the potential for substantial appreciation. Said another way, the potential appreciation we give up by not investing in the smallest companies is more than offset by avoiding stocks that show huge declines. Consequently, in our opinion, raising our average market capitalization both reduces volatility AND enhances the Fund's performance prospects. In terms of industry exposure, we believe that expanding the number of industries in which we invest can also both enhance the Fund's performance and reduce its volatility. Performance can be enhanced because the universe of investment opportunities expands to include many stocks not previously researched. Volatility can be reduced because the portfolio takes on stocks that perform on a different timetable than our traditional holdings. The portfolio then becomes more stable because when our traditional sectors are out of favor, there is an opportunity to see offsetting positive performance from stocks in which we have not previously invested. TEAM MANAGEMENT In addition to the changes noted above, we moved to a team managed approach in 2001 under which more people had decision-making authority over the Fund. By 2001, we had developed a very experienced team of investment professionals with certain industry expertise and who had worked together for many years. They were ready to take on portfolio management responsibility. I believed that having these individuals focus on and manage particular sectors would lead to better portfolio performance. 7 <Page> RECENT RESULTS I am pleased with the results achieved since the first of these changes were made five years ago. The Fund recorded a 16.57% annualized return over the past five years, ranking it in the 41st percentile of all small cap value funds according to Lipper. Also, the Fund held up reasonably well in the bear market of 2002, showing a decline of 7.29% compared to a decline of 10.19% for the average small cap value fund and a much larger decline for the average U.S. diversified equity fund. The performance results for the past five years indicate that our strategy adjustments have had the desired effect of lessening volatility while maintaining solid investment returns. Also, I believe our team managed process has been very effective. THE FUTURE In my opinion, the long-term outlook for the Fund is very bright. The investment strategy is based on time-tested investment principles and has been fine-tuned in a way that should be very positive for future results. We have an effective investment process run by a highly experienced and motivated group of investment professionals. In my new role, I will be an advisor to those managing the Fund, providing my opinions on new and existing stock holdings. I have great confidence that we have the right strategy, process, and people in place to produce strong investment results over the long run. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For the 1 year period ended 12/31/04, Special Equities Portfolio ranked 634 out of 1,304 funds within Lipper's Small Cap Funds category, 194 out of 231 funds within Lipper's Small Cap Value category and 1,272 out of 5,945 funds within Lipper's All US Diversified Equity Funds category. For the 5 year period ending 12/31/04, Special Equities Portfolio ranked 112 out of 757 funds within Lipper's Small Cap Funds category, 53 out of 129 funds within Lipper's Small Cap Value category and 147 out of 3,338 funds within Lipper's All US Diversified Equity Funds category. For the 10 year periods ending 12/31/04, Special Equities Portfolio ranked 80 out of 214 funds within Lipper's Small Cap Funds category, 23 out 37 funds within Lipper's Small Cap Value category and 227 out of 1,120 funds within Lipper's All US Diversified Equity Funds category. The Lipper ranking is based on total return and does not reflect a sales charge. 8 <Page> PERFORMANCE (%) <Table> <Caption> 4Q SINCE 2004* 2004 3 YRS 5 YRS 10 YRS INCEPTION SPECIAL EQUITIES 12.13 16.61 15.01 16.57 13.29 14.38** RUSSELL 2000 VALUE 13.20 22.25 16.50 17.23 15.17 12.64 RUSSELL 2000 14.09 18.32 11.48 6.60 11.53 9.90 S&P 500 9.23 10.87 3.58 -2.30 12.07 11.07 </Table> CHANGE IN VALUE OF A $10,000 INVESTMENT [CHART] COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT SINCE INCEPTION <Table> <Caption> SPECIAL EQUITIES RUSSELL 2000 RUSSELL 2000 VALUE S&P 500 Initial investment $ 10,000 $ 10,000 $ 10,000 $ 10,000 1987 $ 8,314 $ 7,567 $ 7,855 $ 8,794 1988 $ 10,787 $ 9,449 $ 10,170 $ 10,247 1989 $ 13,377 $ 10,986 $ 11,434 $ 13,469 1990 $ 12,135 $ 8,843 $ 8,945 $ 13,037 1991 $ 17,885 $ 12,914 $ 12,675 $ 17,018 1992 $ 25,470 $ 15,294 $ 16,368 $ 18,325 1993 $ 31,289 $ 18,184 $ 20,270 $ 20,158 1994 $ 30,929 $ 17,582 $ 19,956 $ 20,424 1995 $ 35,206 $ 22,932 $ 25,095 $ 28,087 1996 $ 45,897 $ 26,715 $ 30,458 $ 34,617 1997 $ 62,161 $ 32,663 $ 40,137 $ 46,172 1998 $ 57,703 $ 31,849 $ 37,548 $ 59,444 1999 $ 50,038 $ 38,620 $ 36,989 $ 72,011 2000 $ 62,154 $ 37,488 $ 45,433 $ 65,436 2001 $ 70,761 $ 38,422 $ 51,808 $ 57,669 2002 $ 65,648 $ 30,553 $ 45,886 $ 44,924 2003 $ 92,375 $ 44,989 $ 67,008 $ 57,822 2004 $ 107,720 $ 53,231 $ 81,917 $ 64,107 </Table> PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT skylinefunds.com. THE PERFORMANCE FOR THE ONE, THREE, FIVE AND TEN YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD APRIL 23, 1987 (INCEPTION) THROUGH DECEMBER 31, 2004, IS AN AVERAGE ANNUAL RETURN CALCULATION. 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. ** 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. 9 <Page> <Table> <Caption> HISTORICAL SPECIAL RUSSELL RUSSELL PERFORMANCE EQUITIES 2000 VALUE 2000 S&P 500 2004 16.6 22.3 18.3 10.9 2003 40.7 46.0 47.3 28.7 2002 -7.3 -11.4 -20.5 -22.1 2001 13.9 14.0 2.5 -11.9 2000 24.2 22.8 -3.0 -9.2 1999 -13.3 -1.5 21.3 21.1 1998 -7.2 -6.5 -2.6 28.8 1997 35.4 31.8 22.4 33.4 1996 30.4 21.4 16.5 23.3 1995 13.8 25.8 28.4 37.5 1994 -1.2 -1.6 -1.8 1.3 1993 22.9 23.8 18.9 10.0 1992 42.5 29.1 18.4 7.7 1991 47.4 41.7 46.1 30.6 1990 -9.3 -21.8 -19.5 -3.2 1989 24.0 12.4 16.2 31.4 1988 29.7 29.5 24.9 16.5 1987** -16.9 -21.5 -24.3 -12.0 </Table> PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT skylinefunds.com. THE PERFORMANCE FOR THE ONE, THREE, FIVE AND TEN YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD APRIL 23, 1987 (INCEPTION) THROUGH DECEMBER 31, 2004, IS AN AVERAGE ANNUAL RETURN CALCULATION. 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. ** 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. 10 <Page> PORTFOLIO CHARACTERISTICS <Table> <Caption> SPECIAL RUSSELL 2000 EQUITIES VALUE RUSSELL 2000 S&P 500 P/E RATIO (EXCLUDING NEGATIVE EARNINGS) 18.0 18.0 20.6 18.5 PRICE/BOOK 1.99 1.82 2.34 2.97 PRICE/SALES 0.79 0.86 1.11 1.57 - --------------------------------------------------------------------------------------------------------------------- EPS GROWTH--3 YRS (HISTORICAL) 20.6% 7.3% 10.6% 11.3% EPS GROWTH--1 YR (FORECASTED) 28.4% 24.0% 37.6% 25.7% - --------------------------------------------------------------------------------------------------------------------- MARKET CAP $ WEIGHTED MEDIAN $1.5 billion $997 million $986 million $52.8 billion ASSETS $ 566 million -- -- -- NUMBER OF HOLDINGS 72 -- -- -- TICKER SYMBOL: SKSEX CUSIP: 830833208 NET ASSET VALUE (PER SHARE): $ 28.64 MINIMUM INITIAL INVESTMENT: $ 1,000 MINIMUM SUBSEQUENT INVESTMENT: $ 100 </Table> TOP TEN HOLDINGS <Table> <Caption> % OF NET ASSETS - -------------------------------------------------------------------------------- AIRGAS, INC. Gas distributor 2.9% CBRL GROUP, INC. Family dining 2.6% DAVITA INC. Provider of dialysis services 2.1% SPARTECH CORPORATION Plastics producer 2.0% THE SHAW GROUP INC. Engineering and construction company 2.0% WESTCORP Auto finance 1.9% CYTEC INDUSTRIES, INC. Specialty chemicals 1.9% iSTAR FINANCIAL INC. Commercial real estate lender 1.9% LAIDLAW INTERNATIONAL, INC. Provider of transportation services 1.9% COMMERCE BANCSHARES, INC. Regional bank 1.9% TOP TEN HOLDINGS 21.1% </Table> Fund holdings are subject to change and should not be considered a recommendation to buy individual securities. 11 <Page> SECTOR PERFORMANCE (%) (as of December 31, 2004) 4Q 2004** <Table> <Caption> RUSSELL SPECIAL 2000 RUSSELL EQUITIES VALUE 2000 Autos & Transportation 22.0 21.8 20.0 Health Care 19.5 10.9 12.3 Producer Durables 16.2 16.3 17.2 Materials & Processing 14.8 14.7 13.6 Technology 12.9 16.7 17.7 Financial Services 12.4 11.2 12.0 Consumer Discretionary 9.1 13.0 14.3 Other Energy 0.4 9.1 10.0 Consumer Staples NA* 16.3 15.6 Integrated Oils NA* 9.1 6.8 Other NA* 22.8 20.0 Utilities NA* 11.1 12.4 </Table> YTD 2004 <Table> <Caption> RUSSELL SPECIAL 2000 RUSSELL EQUITIES VALUE 2000 Autos & Transportation 54.2 17.6 19.2 Producer Durables 40.3 28.7 17.2 Health Care 34.2 16.8 16.6 Materials & Processing 26.1 34.1 31.6 Other Energy 15.8 50.7 51.2 Financial Services 13.7 22.4 21.9 Consumer Discretionary 12.5 19.3 19.7 Technology 2.2 0.4 -1.8 Consumer Staples -1.0 13.4 15.0 Other NA* 36.5 35.5 Utilities NA* 14.7 17.7 Integrated Oils NA* 55.4 43.8 </Table> PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT skylinefunds.com. THE PERFORMANCE FOR THE ONE, THREE, FIVE AND TEN YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD APRIL 23, 1987 (INCEPTION) THROUGH DECEMBER 31, 2004, IS AN AVERAGE ANNUAL RETURN CALCULATION. * Not applicable ** Not annualized [CHART] SECTOR WEIGHTINGS (as of December 31, 2004) <Table> Autos & Transportation 7.0% Cash 3.8% Consumer Discretionary 18.1% Financial Services 23.5% Health Care 5.5% Materials & Processing 15.1% Other Energy 2.6% Producer Durables 12.7% Technology 11.7% </Table> Fund holdings are subject to change and should not be considered a recommendation to buy individual securities. 12 <Page> STOCK HIGHLIGHTS THE SPORTS AUTHORITY, INC. (TSA) The Sports Authority is the nation's largest full-line sporting goods retailer with approximately 390 stores offering a broad selection of high quality, brand name merchandise at competitive prices. TSA's August 2003 merger of equals with Gart Sports was a transforming event for the company, nearly doubling its size, and resulting in a new managerial direction, with Gart senior management (which had a track record of success with its prior acquisitions of Sportmart and Oshman's) taking the helm. Management initially addressed the substantial cost savings opportunity available through the elimination of duplicate functions and facilities. More recently, their attention has turned to store-level operations where the opportunities are vast. After years of neglect, many of TSA stores had a dilapidated warehouse feel to them. To remedy this, management has made meaningful upgrades to key merchandise areas, and embarked on a comprehensive store remodeling program designed to boost productivity in a more modern specialty retail format. Early results have been encouraging, and should become more meaningful in 2005. Despite the opportunity for substantially improved sales and earnings levels ahead, TSA continues to trade at a very attractive valuation on both a price-to-sales and price-to-earnings basis. SWIFT TRANSPORTATION CO., INC. (SWFT) Swift is the largest nonunion truckload carrier in the United States. SWFT operates 18,000 trucks out of 35 terminals across North America. SWFT has been undermanaged, generating poor results compared to its peers. To improve the operations, its Board of Directors has hired a new chief operating officer, Bob Cunningham. Mr. Cunningham's main focus is to improve profitability by increasing rates, which are currently six to ten percent below the industry average. Additionally, the company has been an active repurchaser of its shares, acquiring over 8% of its shares during the first nine months of 2004. The improved profitability, combined with the decreased share count, should drive double-digit EPS growth over the next few years. Currently, the shares are trading at under 18 times 2004 EPS with the prospect of strong earnings growth. Fund holdings are subject to change and should not be considered a recommendation to buy individual securities. 13 <Page> GLOSSARY OF INVESTMENT TERMS EARNINGS PER SHARE (EPS) A company's net income divided by its outstanding shares. EARNINGS PER SHARE GROWTH -- 3 YRS (HISTORICAL) The compounded annual growth rate of a company's EPS over the last 3 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 (P/E) 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. 14 <Page> PORTFOLIO HOLDINGS as of December 31, 2004 <Table> <Caption> COMPANY NUMBER MARKET DESCRIPTION SHARES VALUE ----------------------------- ----------- -------------- COMMON STOCKS AUTOS & TRANSPORTATION -- 7.0% OTHER TRANSPORTATION -- 4.6% Drew Industries Incorporated(a) Supplier to RVs and manufactured housing 5,100 $ 184,467 Interpool, Inc. Container leasing firm 300,800 7,219,200 Laidlaw International, Inc.(a) Provider of transportation services 500,600 10,712,840 Ryder System, Inc. Truck leasing company 163,100 7,791,287 -------------- 25,907,794 RAILROAD -- 1.0% Pacer International, Inc. Rail logistics firm 256,200 5,446,812 TRUCKING -- 1.4% Swift Transportation Co., Inc.(a) Truckload carrier 362,300 7,782,204 -------------- TOTAL AUTOS & TRANSPORTATION 39,136,810 CONSUMER DISCRETIONARY -- 18.1% COMMERCIAL SERVICES -- 4.8% ProQuest Company(a) Information content provider 273,300 8,117,010 Source Interlink Companies, Inc.(a) Distributor of magazines 339,000 4,501,920 United Stationers Inc.(a) Office products distributor 163,100 7,535,220 Watson Wyatt & Company Holdings Benefit consulting company 241,500 6,508,425 -------------- 26,662,575 CONSUMER PRODUCTS/SERVICES -- 5.8% Gildan Activewear Inc.(a) T-shirt manufacturer 188,500 6,407,115 School Specialty, Inc.(a) Non-textbook school supplies 253,503 9,775,076 Scotts Company(a) Turf & horticultural products 103,800 7,631,376 The Toro Company Turf maintenance products 114,400 9,306,440 -------------- 33,120,007 PRINTING/PUBLISHING -- 0.9% Journal Communications Incorporated Media communication company 283,900 5,130,073 RESTAURANTS -- 2.6% CBRL Group, Inc. Family dining 353,800 14,806,530 RETAIL -- 4.0% Borders Group, Inc. Book retailer 381,300 9,685,020 Linens 'n Things, Inc.(a) Home textiles and housewares retailer 217,400 5,391,520 The Sports Authority, Inc. Sporting goods retailer 287,300 7,397,975 -------------- 22,474,515 -------------- TOTAL CONSUMER DISCRETIONARY 102,193,700 </Table> 15 <Page> <Table> <Caption> COMPANY NUMBER MARKET DESCRIPTION SHARES VALUE ----------------------------- ----------- -------------- FINANCIAL SERVICES -- 23.5% BANKS/THRIFTS -- 3.4% Commerce Bancshares, Inc. Regional bank 209,593 $ 10,521,569 Provident Financial Group Inc. Regional bank 61,000 2,218,570 Sterling Financial Corporation(a) Savings and loan 170,230 6,683,230 -------------- 19,423,369 INSURANCE -- 12.4% Amerus Group Inc. Life insurer 197,000 8,924,100 Clark, Inc.(a) Insurance brokerage and consulting 282,200 4,379,744 Conseco, Inc.(a) Life insurer 340,000 6,783,000 Delphi Financial Group, Inc. Accident & health insurance 212,968 9,828,473 Direct General Corporation Personal auto insurance 182,200 5,848,620 Reinsurance Group of America Life reinsurer 173,300 8,396,385 Scottish Re Group Limited Life reinsurer 349,600 9,054,640 Selective Insurance Group, Inc. Property & casualty insurance 142,735 6,314,596 Triad Guaranty Inc.(a) Mortgage insurance 71,230 4,307,990 U.S.I. Holdings Corporation(a) Insurance brokerage 555,553 6,427,748 -------------- 70,265,296 OTHER FINANCIAL SERVICES -- 5.8% Asset Acceptance Capital(a) Collector of charged-off debt 345,300 7,354,890 Investment Technology Group, Inc.(a) Trade execution firm 337,200 6,744,000 MCG Capital Corporation Business development company 433,100 7,419,003 Westcorp Auto finance 240,600 11,050,758 -------------- 32,568,651 REAL ESTATE INVESTMENT TRUSTS -- 1.9% iStar Financial Inc. Commercial real estate lender 239,400 10,835,244 -------------- TOTAL FINANCIAL SERVICES 133,092,560 HEALTH CARE -- 5.5% HEALTH CARE SERVICES -- 5.5% Apria Healthcare Group Inc.(a) Home healthcare service provider 271,800 8,955,810 Davita Inc.(a) Provider of dialysis services 307,550 12,157,451 Triad Hospitals, Inc.(a) Hospital Operator 272,500 10,139,725 -------------- TOTAL HEALTH CARE 31,252,986 MATERIALS & PROCESSING -- 15.1% BUILDING/CONSTRUCTION PRODUCTS -- 1.9% Jacuzzi Brands, Inc.(a) Manufacturer of plumbing products 591,100 5,142,570 York International Corporation Manufacturer of HVAC products 162,900 5,626,566 -------------- 10,769,136 </Table> 16 <Page> <Table> <Caption> COMPANY NUMBER MARKET DESCRIPTION SHARES VALUE ----------------------------- ----------- -------------- ENGINEERING & CONSTRUCTION -- 2.0% The Shaw Group Inc.(a) Engineering and construction company 627,100 $ 11,193,735 PACKAGING & PAPER -- 1.4% Albany International Corp. Manufacturer of paper machine clothing 216,100 7,598,076 Greif, Inc. Industrial packaging products 3,600 201,600 -------------- 7,799,676 SPECIALTY CHEMICALS -- 9.8% Airgas, Inc. Gas distributor 612,300 16,232,073 Crompton Corporation Specialty chemicals 638,100 7,529,580 Cytec Industries Inc. Specialty chemicals 214,600 11,034,732 Minerals Technologies Inc. Specialty minerals 137,700 9,184,590 Spartech Corp. Plastics producer 421,600 11,421,144 -------------- 55,402,119 -------------- TOTAL MATERIALS & PROCESSING 85,164,666 OTHER ENERGY -- 2.6% EQUIPMENT & SERVICES -- 1.1% Key Energy Services, Inc.(a) Workover services provider 514,800 6,074,640 EXPLORATION & PRODUCTION -- 1.5% Newfield Exploration Company(a) Oil and gas producer 148,300 8,757,115 -------------- TOTAL OTHER ENERGY 14,831,755 PRODUCER DURABLES -- 12.7% AEROSPACE -- 1.2% Curtiss-Wright Corporation Aerospace & defense components manufacturer 122,800 7,049,948 DIVERSIFIED MANUFACTURING -- 5.8% Ametek, Inc. Manufacturer of instruments & specialty motors 252,100 8,992,407 Carlisle Companies Incorporated Industrial conglomerate 91,900 5,966,148 Crane Co. Industrial conglomerate 320,400 9,240,336 Pentair, Inc. Industrial conglomerate 199,700 8,698,932 -------------- 32,897,823 ELECTRICAL EQUIPMENT -- 2.5% Acuity Brands, Inc. Manufacturer of lighting fixtures 299,102 9,511,444 EnerSys Manufacturer of industrial batteries 320,800 4,892,200 -------------- 14,403,644 MACHINERY -- 3.2% Flowserve Corporation(a) Pump & valve manufacturer 357,300 9,840,042 IDEX Corporation Specialty pump products 43,800 1,773,900 Kennametal Inc. Metal-cutting tools 135,600 6,748,812 -------------- 18,362,754 -------------- TOTAL PRODUCER DURABLES 72,714,169 </Table> 17 <Page> <Table> <Caption> COMPANY NUMBER MARKET DESCRIPTION SHARES VALUE ----------------------------- ----------- -------------- TECHNOLOGY -- 11.7% DISTRIBUTION -- 2.6% Synnex Corporation(a) Distributor of PCs and peripherals 237,300 $ 5,709,438 Tech Data Corporation(a) Distributor of PCs and peripherals 201,300 9,139,020 -------------- 14,848,458 ELECTRONIC COMPONENTS -- 1.5% Fairchild Semiconductor Int'l., Inc.(a) Semiconductors 505,400 8,217,804 OTHER TECHNOLOGY -- 4.3% Applied Films Corporation(a) Manufacturer of equipment to coat glass 219,600 4,734,576 Benchmark Electronics, Inc.(a) Contract manufacturer 281,800 9,609,380 Electronics for Imaging, Inc.(a) Products that support color printing 308,900 5,377,949 Park Electrochemical Corporation Advanced electronic materials 211,900 4,593,992 -------------- 24,315,897 SERVICES -- 1.9% BearingPoint, Inc.(a) IT consulting 877,100 7,043,113 Ceridian Corporation(a) Payroll processing 211,900 3,873,532 -------------- 10,916,645 SOFTWARE -- 1.4% eFunds Corporation(a) Provider of EFT software 334,408 8,029,136 -------------- TOTAL TECHNOLOGY 66,327,940 -------------- TOTAL COMMON STOCKS -- 96.2% (Cost $400,622,271) 544,714,586 MONEY MARKET INSTRUMENTS US Bank Demand Note, 2.17%(b) 11,679,351 US Bank Commercial Paper, 1.75%, Due 1/3/2005 9,832,000 -------------- TOTAL MONEY MARKET INSTRUMENTS -- 3.8% (Cost $21,511,351) 21,511,351 -------------- TOTAL INVESTMENTS -- 100.0% (Cost $422,133,622) 566,225,937 OTHER ASSETS LESS LIABILITIES -- 0.0% 130,232 -------------- NET ASSETS -- 100% $ 566,356,169 ============== </Table> - ---------- (a) Non-income producing security. (b) Variable rate demand note. Interest rate is reset every seven days. Rate disclosed represents rate in effect on December 31, 2004. See accompanying notes to financial statements. 18 <Page> STATEMENT OF ASSETS AND LIABILITIES As of December 31, 2004 <Table> ASSETS Investments, at value (Cost: $422,133,622) $ 566,225,937 Receivable for: Securities sold $ 1,501,509 Fund shares sold 419,326 Dividends and interest 318,416 2,239,251 ----------- -------------- Other assets 158,145 -------------- Total assets 568,623,333 LIABILITIES & NET ASSETS Payable for: Securities purchased $ 576,318 Fund shares redeemed 836,353 Comprehensive management fee 683,810 Trustee compensation 12,538 Trustees deferred compensation 158,145 2,267,164 ----------- -------------- Net assets applicable to shares outstanding $ 566,356,169 ============== Shares outstanding--no par value (unlimited number of shares authorized) 19,773,107 ============== PRICING OF SHARES Net asset value, offering price and redemption price per share $ 28.64 ============== ANALYSIS OF NET ASSETS Paid-in capital $ 411,528,092 Undistributed net investment income 383,173 Accumulated net realized gain on sales of investments 10,352,589 Unrealized appreciation of investments 144,092,315 -------------- Net assets applicable to shares outstanding $ 566,356,169 ============== </Table> See accompanying notes to financial statements. 19 <Page> STATEMENT OF OPERATIONS For the Year Ended December 31, 2004 <Table> Investment income Dividends $ 5,119,188 Interest 276,736 ------------ Total investment income 5,395,924 Expenses: Comprehensive management fee 7,830,647 Fees to unaffilliated trustees 79,316 ------------ Total expenses 7,909,963 ------------ Net investment loss (2,514,039) Net realized and unrealized gain/loss on investments: Net realized gain on sales of investments 65,677,157 Change in unrealized appreciation 18,687,895 ------------ Net realized and unrealized gain on investments 84,365,052 ------------ Net increase in net assets resulting from operations $ 81,851,013 ============ </Table> See accompanying notes to financial statements. 20 <Page> STATEMENTS OF CHANGES IN NET ASSETS <Table> <Caption> YEAR ENDED YEAR ENDED 12/31/2004 12/31/2003 ------------- ------------- From operations: Net investment loss $ (2,514,039) $ (1,085,666) Net realized gain on sales of investments 65,677,157 41,784,701 Change in unrealized appreciation 18,687,895 109,634,105 ------------- ------------- Net increase in net assets resulting from operations 81,851,013 150,333,140 Distributions to shareholders from net realized gains (65,096,674) (27,937,092) From fund share transactions: Proceeds from fund shares sold 82,639,085 139,277,671 Reinvestment of dividends 63,850,736 27,404,752 Payments for fund shares redeemed (121,462,995) (143,342,383) ------------- ------------- Net increase in net assets resulting from share transactions 25,026,826 23,340,040 ------------- ------------- Total increase in net assets 41,781,165 145,736,088 Net assets at beginning of year 524,575,004 378,838,916 ------------- ------------- Net assets at end of year (including undistributed net investment income of $383,173 and $259,570 at December 31, 2004 and 2003, respectively.) $ 566,356,169 $ 524,575,004 ============= ============= </Table> See accompanying notes to financial statements. 21 <Page> FINANCIAL HIGHLIGHTS <Table> <Caption> YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 --------------------------------------------------------------------------- Net asset value at beginning of year $ 27.78 $ 20.86 $ 22.50 $ 19.75 $ 15.90 ----------- ----------- ----------- ----------- ----------- Income from Investment Operations Net investment loss (0.13)* (0.06)* (0.06)* (0.04)* (0.06)* Net realized and unrealized gain/(loss) on investments 4.68 8.54 (1.58) 2.79 3.91 ----------- ----------- ----------- ----------- ----------- Total from investment operations 4.55 8.48 (1.64) 2.75 3.85 ----------- ----------- ----------- ----------- ----------- Less distributions from net realized gains on investments (3.69) (1.56) -- -- -- ----------- ----------- ----------- ----------- ----------- Net asset value at end of year $ 28.64 $ 27.78 $ 20.86 $ 22.50 $ 19.75 =========== =========== =========== =========== =========== Total Return 16.61% 40.71% (7.29%) 13.92% 24.21% Ratios/Supplemental Data Ratio of expenses to average net assets 1.47% 1.48% 1.48% 1.49% 1.51% Ratio of net investment loss to average net assets (0.47%) (0.26%) (0.26%) (0.16%) (0.32%) Portfolio turnover rate 47% 52% 81% 93% 92% Net assets, end of year (in thousands) $ 566,356 $ 524,575 $ 378,839 $ 374,945 $ 286,951 =========== =========== =========== =========== =========== </Table> * Based on monthly average shares outstanding. 22 <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 Adviser considers to be undervalued. 1 SIGNIFICANT ACCOUNTING POLICIES - - SECURITY VALUATION - Investments are stated at value. Each equity security traded on a securities exchange shall be valued at the last current sale price as of the time of valuation on the exchange on which the security is principally traded (the "principal exchange"), or lacking any current reported sale on the principal exchange at the time of valuation, at the most recent bid quotation on the principal exchange. Each over-the-counter security traded in the Nasdaq Stock Market ("Nasdaq") shall be valued at the Nasdaq Official Closing Price ("NOCP"), as determined by Nasdaq, or lacking an NOCP, the last current reported sale price as of the time of valuation on Nasdaq, or lacking any current reported sale on Nasdaq at the time of valuation, at the most recent bid quotation on Nasdaq. 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 or a committee thereof. - - 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 23 <Page> with and, therefore, no federal income taxes have been accrued in the accompanying financial statements. 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 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. In addition, the Fund may periodically record reclassifications among certain capital accounts to reflect differences between financial reporting and income tax purposes. These reclassifications have no impact on the Fund's net asset value of the Fund. Accordingly, at December 31, 2004, the following reclassifications were recorded: <Table> <Caption> ACCUMULATED UNDISTRIBUTED NET NET REALIZED INVESTMENT INCOME/(LOSS) GAIN/(LOSS) ------------------------ -------------- $ 2,637,642 $ (2,637,642) </Table> On December 14, 2004, a distribution of $3.69068 per share was declared. The dividend was paid on December 16, 2004, to shareholders of record on December 15, 2004. The tax character of distributions paid during 2004 and 2003 is as follows: <Table> <Caption> 2004 2003 ------------- ------------ Distributions paid from: Ordinary income $ 20,956,859 $ 8,393,488 Long-term capital gain 44,139,815 19,543,604 ------------- ------------ 65,096,674 27,937,092 </Table> As of December 31, 2004, the cost of investments on a tax basis was $422,717,537. The components of accumulated earnings on a tax basis were as follows: <Table> Gross unrealized appreciation $ 147,014,872 Gross unrealized depreciation (3,506,472) -------------- Net unrealized appreciation $ 143,508,400 ============== Undistributed ordinary income $ 165,683 Undistributed long-term capital gains 11,272,744 -------------- Total distributable earnings $ 11,438,427 ============== Other accumulated losses $ (118,750) -------------- Total accumulated earnings $ 154,828,077 ============== </Table> The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the estimated tax deferral on wash sales and return of capital distributions received from investments in real estate investment trusts. 24 <Page> - - 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 committed line of credit not utilized. Under the terms of the credit agreement, interest on each loan would be fixed at the prime rate less 150 basis points. During 2004 there were no loans outstanding under the credit facility. - - 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. - - REDEMPTION FEE - The Fund will deduct a redemption fee (the "Redemption Fee") of 2% from the proceeds of any redemption (including a redemption by exchange) of shares if the redemption occurs within 30 days of the purchase of those shares. For the purpose of determining whether a redemption is subject to the Redemption Fee, redemptions of Fund shares are conducted in a first in/first out (FIFO) basis such that shares with the longest holding period will be redeemed first and shares with the shortest holding period will be redeemed last. The Redemption Fee is paid to the Fund and is intended to offset transaction and other expenses caused by short-term trading. The Redemption Fee does not apply to redemptions (including redemptions by exchange) of shares of the Fund purchased by automatic reinvestment of dividends or capital gains distributions. The Redemption Fee will not apply to (1) redemptions of shares purchased through reinvestment of dividend or capital gain distributions, and (2) redemptions under hardship circumstances (as determined by the Adviser and the Fund in their discretion, based on a case-by-case analysis). The Redemption Fee will apply only to the redemption of shares purchased through an authorized agent if the authorized agent has indicated that it will administer the Redemption Fee. For the year ended December 31, 2004, the Fund had $805 included in capital due to the collection of redemption fees. - - INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, the Trust may enter into contracts that provide for general indemnification. The Trust's maximum liability under those arrangements is unknown, as this would involve future claims that may be made against the Trust. However, based on experience, the Trust expects that risk of loss to be remote. 25 <Page> 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 incurs 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 incurred for the year ended December 31, 2004 was $7,830,647. 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, 2004, the Fund incurred fees of $79,316 to its independent 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 Investment Company Act of 1940, as amended, may be invested in the common shares of the Fund, as selected by the trustees. Investments in such funds are reflected as in "Other Assets" on the Statement of Assets and Liabilities at December 31, 2004. 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 Fund's net asset value. 3 FUND SHARE TRANSACTIONS As of December 31, 2004, 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 -------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/04 12/31/03 12/31/04 12/31/03 ------------------------------------------------------------- Shares sold 2,867,618 5,795,462 $ 82,639,085 $ 139,277,671 Shares issued for reinvestment of dividends 2,268,238 996,899 63,850,736 27,404,752 ----------- ----------- -------------- -------------- Total shares issued 5,135,856 6,792,361 146,489,821 166,682,423 Less shares redeemed (4,243,588) (6,070,255) (121,462,995) (143,342,383) ----------- ----------- -------------- -------------- Net increase 892,268 722,106 $ 25,026,826 $ 23,340,040 =========== =========== ============== ============== </Table> 26 <Page> 4 INVESTMENT TRANSACTIONS Investment transactions (exclusive of money market instruments) for the year ended December 31, 2004, were as follows: <Table> Cost of purchases $ 242,291,614 Proceeds from sales $ 273,721,898 </Table> 27 <Page> REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees and Shareholders of Skyline Special Equities Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Skyline Special Equities Portfolio (hereafter referred to as the "Fund") at December 31, 2004, the results of its operations, the changes in its net assets and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets and financial highlights of the Fund for the periods ended on or before December 31, 2003 were audited by other independent accountants whose report dated February 20, 2004 expressed an unqualified opinion on those changes in net assets and financial highlights. PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP February 23, 2005 28 <Page> FEDERAL TAX STATUS OF 2004 DIVIDENDS Capital gain dividends paid to you, whether received in cash or reinvested in shares, must be included in your federal income tax return and must be reported by the Fund to the Internal Revenue Service in accordance with U.S. Treasury Department regulations. Short-term capital gain dividends paid to you are taxable as ordinary income. Long-term capital gain dividends paid to you are taxable as long-term capital gain income regardless of how long you have held Fund shares. Distributions as a return of capital are not taxable, but reduce the cost basis of shares held. EXPENSE EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including a comprehensive management fee and trustee fees. You may incur a 2% redemption fee in the event shares are redeemed within 30 days. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (07/01/04 - 12/31/04). ACTUAL EXPENSES The first line of the table that follows provides information about actual account values (which includes the actual return of the Fund) and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. In addition to the expenses paid during the period that are noted in the table, you may be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund's transfer agent. If you request that a redemption be made by wire transfer, currently a $15.00 fee is charged by the Fund's transfer agent. IRA accounts will be charged a $15.00 annual maintenance fee. These additional fees have the effect of reducing investment returns. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table that follows provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and 29 <Page> other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as, redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transactional costs were included, your costs would have been higher. TABLE: EXPENSE EXAMPLE <Table> <Caption> BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD 07/01/04 12/31/04 07/01/04 - 12/31/04* ------------- ------------- -------------------- Actual $ 1,000.00 $ 1,110.20 $ 7.85 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,017.56 $ 7.51 </Table> * Expenses are equal to the Fund's annualized expense ratio of 1.48% multiplied by the average account value over the period multiplied by 184/366 (to reflect the one-half year period). 30 <Page> MANAGEMENT OF SKYLINE The Board of Trustees serve indefinite terms of unlimited duration so long as a majority of trustees have been elected by the Fund's shareholders. The trustees appoint their own successors, provided that at least two-thirds of the trustees, after such appointment, have been elected by the Fund'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. The names of the trustees and officers of the Fund's, the year each was first elected or appointed to office, their principal business occupations and other directorships they have held during at least the last five years, are shown below. <Table> <Caption> NAME, POSITION(S) WITH YEAR FIRST ELECTED SKYLINE AND AGE AT OR APPOINTED TO PRINCIPAL OCCUPATION(S) DURING FEBRUARY 1, 2005 OFFICE PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------------------------ ------------------- --------------------------------- ---------------------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF SKYLINE: William L. Achenbach, 62, 1995 President, W.L. Achenbach & None. Trustee Associates, Inc., a financial counseling firm. Paul J. Finnegan, 51, 1995 Co-President & Managing Director, Ru1ral Cellular Corporation, Trustee Madison Dearborn Partners, Inc., a Allegiance Telecom, Inc. private equity firm. David A. Martin, 53, 1995 Attorney and Principal, Righeimer, None. Trustee Martin & Cinquino, P.C., a law firm. Richard K. Pearson, 65, 1998 Director and President, First Director, First Trustee DuPage Bank (Westmont, IL) since Community Bank June 1999, Director and President, (Milton, WI). First DuPage Bancorp, Inc., (Westmont, Illinois) since November 1998. Previously, Director, Citizens Savings Bank (Anamosa, Iowa), from February 1998 to January 2001. TRUSTEE WHO IS AN INTERESTED PERSON OF SKYLINE: William M. Dutton,* 51, 1995 Adobe Acrobat Exchange 6.0 Partner None. President and Trustee and Senior Advisor, Skyline Asset Management, L.P. and registered representative, Funds Distributor, Inc. Previously, Managing Partner, Research and Portfolio Management until January 1, 2005. Prior, Portfolio Manager (Special Equities Portfolio) until 2001. </Table> 31 <Page> <Table> <Caption> NAME, POSITION(S) WITH YEAR FIRST ELECTED SKYLINE AND AGE AT OR APPOINTED TO PRINCIPAL OCCUPATION(S) DURING FEBRUARY 1, 2005 OFFICE PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------------------------ ------------------- ----------------------------------- ---------------------------- OFFICERS OF SKYLINE: Stephen F. Kendall, 50, 1998 Partner, Chief Administrative None. Executive Vice President Officer and Director of Marketing, Skyline Asset Management, L.P. since 2005. Previously, Partner and Chief Operating Officer. Benjamin J. Kim, 35 2004 Chief Financial Officer of Skyline None. Treasurer and Vice Asset Management, L.P. since 2004. President Securities Analyst of Skyline Asset Management, L.P. Deanna B. Marotz, 39 2004 Chief Compliance Officer of Fund None. Chief Compliance Officer since 2004, Chief Compliance Officer of Skyline Asset Management, L.P. since 2003. Manager of Marketing Communications of Skyline Asset Management. Christine Carsman, 52 2004 Vice President and Chief Regulatory None. Secretary Counsel, AMG. Previously, Vice President Senior Counsel and Director of Operational Risk Management, Wellington Management Company, LLP. Geoffrey P. Lutz, 54, 1995 Partner, Institutional Marketing, None. Executive Vice President Skyline Asset Management, L.P. and registered representative, Funds Distributor, Inc. Michael Maloney, 43, 1995 Partner and Portfolio Manager, None. Executive Vice President Skyline Asset Management, L.P. since 2005. Previously, Partner, Research and Portfolio Management. Michele M. Brennan, 33, 1998 Fund Marketing and Client Service, None. Vice President Skyline Asset Management, L.P. since 2005 and registered representative, Funds Distributor, Inc. Previously, Director of Fund Marketing. </Table> * Mr. Dutton is an "interested person" of Skyline, as defined in the Investment Company Act of 1940, because he is an officer of the Adviser. 32 <Page> The address of Messrs. Dutton, Kim, Kendall, Lutz, and Maloney and Ms. Marotz and Ms. Brennan is c/o Skyline Asset Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606. The address of Ms. Carsman is 600 Hale Street, Prides Crossing, MA09165. 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, 20 North Clark Street, Suite 1900, Chicago, Illinois 60602; and Richard K. Pearson, 520 North Cass Avenue, Westmont, Illinois 60559. Skyline's Statement of Additional Information includes additional information about Skyline's trustees and officers. You may obtain a free copy of the Statement of Additional Information, or request any other information and discuss your questions about us, by writing or calling toll-free: Skyline Funds c/o U.S. Bancorp Fund Services, LLC P.O. Box 701 Milwaukee, WI 53201-0701 800.828.2759 PROXY POLICY & Procedures A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800.828.2759, and on the Securities and Exchange Commission's website at www.sec.gov. The Fund's proxy voting record for the twelve month period ended June 30, 2004, is also available without charge, upon request, by calling 800.828.2759, by visiting the Fund's website at www.skylinefunds.com and by visiting the SEC website at www.sec.gov. FORM N-Q The Fund files a complete list of its portfolio holdings with the SEC for the first and third quarters each fiscal year on Form N-Q. The Form N-Q is available without charge, upon request, by calling 800.828.2759 or by visiting the SEC website. You may also review, for a fee, copy the form at the SEC's Public Reference Room in Washington, D.C. (800) SEC-0330. 33 <Page> REPORT for the Year Ended December 31, 2004 This report, including the audited financial statements contained herein, is submitted for the general information of the Fund's shareholders. Funds Distributor Inc. is the principal underwriter of Skyline Funds. 34 <Page> This page left blank intentionally. 35 <Page> This page left blank intentionally. 36 <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 <Page> ITEM 2. CODE OF ETHICS. (a) Registrant has adopted a code of ethics that applies to its principal executive and senior financial officers (the "Code"). (b) No disclosures are required by this Item 2(b). (c) During the period covered by the report, registrant did not make any amendments to the provisions of the Code. (d) During the period covered by the report, registrant did not grant any waivers, including implicit waivers, from the provisions of the Code. (e) Not applicable. (f) A copy of the Code is filed as Exhibit (a)(1) to this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Registrant's board of trustees has determined that Richard K. Pearson, a member of the registrant's Committee of the Independent Trustees, qualifies as an "audit committee financial expert," as such term is defined in Instruction 2(b) to Item 3 of Form N-CSR. Mr. Pearson is "independent" as such term is defined in paragraph (a)(2) of Item 3 of Form N-CSR. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of trustees in the absence of such designation or identification. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES $30,000 (2004) and $23,000 (2003) are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant to the registrant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. Please note the registrant does not actually pay those fees. Under the registrant's comprehensive management fees agreement, the registrant's investment adviser pays those fees. (b) AUDIT-RELATED FEES <Page> There were no fees billed in each of the last two fiscal years for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item 4. There were no fees billed in each of the last two fiscal years for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant (collectively, the "investment adviser") that are reasonably related to the performance of the audit of the registrant's financial statements, are not reported under paragraph (a) of this Item 4 and were required to be pre-approved by the audit committee as described in paragraph (e) (1) of this Item 4. (c) TAX FEES $5,000 (2004) and $15,440 (2003) are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning. Please note that the registrant does not actually pay for those fees. Under the registrant's comprehensive management fee agreement, the registrant's investment adviser pays those fees. The nature of those services was for qualified dividend income preparation and various tax consultations. There were no fees billed in each of the last two fiscal years for professional services rendered by the principal accountant to the investment adviser for tax compliance, tax advice and tax planning and were required to be pre-approved by the audit committee as described in paragraph (e)(1) of this Item 4. (d) ALL OTHER FEES There were no fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a)-(c) of this Item 4. There were no fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the investment adviser, other than the services reported in paragraphs (a)-(c) of this Item 4, that were required to be pre-approved by the audit committee as described in paragraph (e)(1) of this Item 4. (e) (1) Registrant's Committee of Independent Trustees meets with the principal accountants and management to review and pre-approve all audit services to be provided by the principal accountants. The Committee of Independent Trustees shall pre-approve all non-audit services to be provided by the principal accountants to the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total revenues paid to the principal accountants by the registrant during the fiscal year in which the services are <Page> provided, if the Committee of Independent Trustees approves the provision of such non-audit services prior to the completion of the audit. The Committee of Independent Trustees shall pre-approve all non-audit services to be provided by the principal accountants to the investment adviser where the nature of the services provided have a direct impact on the operations or financial reporting of the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total revenue paid to the principal accountants by the registrant for all services and by the registrant's investment adviser for services where the nature of the services provided have a direct impact on the operations or financial reporting of the registrant during the fiscal year in which those services are provided, if the Committee of Independent Trustees approves the provision of such non-audit services prior to the completion of the audit. (2) 100% of the services provided to the registrant described in paragraphs (b)-(d) of this Item 4 were pre-approved by the Committee of Independent Trustees pursuant to paragraph (e)(1) of this Item 4. There were no services provided to the investment adviser described in paragraphs (b)-(d) of this Item 4. (f) No disclosures are required by this Item 4(f). (g) $(2003) and $ (2003) are the aggregate non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the registrant. Please note that the registrant does not actually pay those fees. Due to the registrant's comprehensive management fee, the registrant's investment adviser pays those fees. There were no non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the investment adviser. (h) The Committee of Independent Trustees of the Registrant's board of trustees has considered whether the provision of non-audit services that were rendered by Registrant's principal accountant to Registrant's investment adviser, and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal account's independence. No such services were rendered. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form NCSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. <Page> ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on an evaluation of the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, the "Disclosure Controls") as of a date within 90 days prior to the filing date (the "Filing Date") of this Form N-CSR (the "Report"), the Disclosure Controls are effectively designed to ensure that information required to be disclosed by the registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the registrant's management, including the registrant's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a) (1) Code of Ethics for Principal Executive and Senior Financial Officers (as referenced in Item 2 above), attached hereto as Exhibit (a)(1) (2) Certifications of William M. Dutton, President and Trustee of Skyline Funds and Benjamin J. Kim, Vice President and Treasurer of Skyline Funds pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)), attached hereto as Exhibits (a)(2)(i) and (a)(2)(ii) (a) (3) Not applicable (b) Certification of William M. Dutton, President and Trustee of Skyline Funds and Benjamin J. Kim, Vice President and Treasurer of Skyline Funds pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibit (b) <Page> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Skyline Funds By: /s/ William M. Dutton --------------------------------------- William M. Dutton President and Trustee (Principal Executive Officer) Date: February 28, 2005 --------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Dutton --------------------------------------- William M. Dutton President and Trustee (Principal Executive Officer) Date: February 28, 2005 --------------------------------------- By: /s/ Benjamin J. Kim --------------------------------------- Benjamin J. Kim Vice President and Treasurer (Principal Financial Officer) Date: February 28, 2005 ---------------------------------------