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The Milestone Funds
Treasury Obligations Portfolio
ADVISER
Milestone Capital Management, L.P.
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DISTRIBUTOR
Forum Financial Services, Inc.
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PRIMARY DEALER
Bear, Stearns & Co. Inc.
ANNUAL REPORT
NOVEMBER 30, 1995
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TABLE OF CONTENTS
Letter to Our Shareholders ....................................................3
Statement of Investments ......................................................4
Statement of Assets and Liabilities ...........................................5
Statement of Operations .......................................................6
Statement of Changes in Net Assets ...........................................7
Financial Highlights ..........................................................8
Notes to Financial Statements ..............................................9-10
Independent Auditor's Report .................................................11
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TREASURY OBLIGATIONS PORTFOLIO
Letter to Our Shareholders
NOVEMBER 30, 1995
Dear Shareholder:
The Milestone Funds are pleased to present you with the 1995 annual report for
the Treasury Obligations Portfolio. It has been a privilege to have you as a
client during this, our first full year of operation, and we look forward to
continuing to work in partnership with you to help meet your cash management and
liquidity needs during the coming year.
1995 was truly a year of significant "milestones" for the Fund. Beginning with
an initial investment of $25 million from Bear Stearns, our primary dealer, the
Fund's total assets grew to over $300 million as of November 30, 1995. The Fund
is one of the few money market mutual funds to be rated AAA by Standard &
Poor's, Fitch Investors Service, and Moody's Investors Service. Along with our
strong emphasis on investment safety, other important aspects of the service we
offer to institutional investors include enhanced daily liquidity and
transaction ease. In response to the needs which many of our shareholders have
for later day liquidity, as of June we extended our hours for same-day
settlement of purchases until 4:00 p.m. EST (with notification by 2:30) and
redemptions until 2:30 p.m. Plans are presently underway to further expand the
services and value we provide to shareholders (an overview of these new
initiatives will be sent to you shortly).
1995 was a transitional year for the financial markets. After consistently
raising rates for over a year, soft economic data and emerging signs of more
moderate inflation prompted the Federal Reserve to begin lowering short-term
interest rates. The Treasury Obligations Portfolio was structured and managed to
reflect these shifts, and as a result the Fund achieved very competitive
performance for our investors throughout the year. The average maturity of the
portfolio was extended in the second quarter as it became evident that
short-term rates were not likely to increase further. A more neutral position
was taken in the third quarter as some renewed signs of economic strength
appeared, enabling the Fund to purchase longer dated treasuries as yields moved
higher. While we believe that the Federal Reserve will remain vigilant in
identifying and responding to inflationary signals, we expect the Federal
Reserve to maintain its present policy of easing if the U.S. economy displays
further indications of weakness and if a credible budget package is received
from Washington. We encourage you to call our Portfolio Management & Research
Team for current information on the Fund's structure and performance, market
updates, investment strategies and opportunities, and any specialized analysis
which you require.
We are looking forward to a challenging and successful 1996. We are strongly
committed to putting the needs of our clients first in order to provide the
highest value and standard of service available to institutional fund investors.
Sincerely,
Janet Tiebout Hanson Marc H. Pfeffer
Chairman of the Board of Trustees Chief Investment Officer
The Milestone Funds Milestone Capital Management, L.P.
3
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TREASURY OBLIGATIONS PORTFOLIO
Statement Of Investments
NOVEMBER 30, 1995
($ in Thousands)
<TABLE>
<CAPTION>
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Principal Amount Interest Rate Maturity Date Value
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<S> <C> <C> <C> <C>
U.S. Treasury Obligations: 13.8%
United States Treasury Bills
$5,000 5.385% 5/2/96 $4,886
2,500 5.390% 5/2/96 2,443
5,000 5.380% 5/30/96 4,865
2,500 5.500% 5/30/96 2,431
5,000 5.575% 5/30/96 4,860
2,000 5.350% 7/25/96 1,929
2,500 5.425% 7/25/96 2,411
2,500 5.470% 7/25/96 2,410
2,500 5.500% 7/25/96 2,409
2,500 5.505% 7/25/96 2,409
2,500 5.535% 7/25/96 2,409
2,500 5.185% 8/22/96 2,404
2,500 5.220% 8/22/96 2,404
5,000 5.335% 8/22/96 4,804
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Total U.S. Treasury Obligations (cost $43,074) 43,074
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Repurchase Agreements: 86.2%
Aubrey G. Lanston, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Bills: $5,200, 5.440%, 1/11/96; $1,000, 5.520%, 2/8/96;
$8,615, 5.460%, 5/9/96; $2, 5.450%, 5/16/96; $66, 5.440%, 5/30/96; $95, 5.400%, 7/25/96; $610, 5.360%, 11/14/96)
$15,000 5.900% 12/1/95 15,000
BZW Securities LTD, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Notes: $8,731, 5.500%, 7/31/97; $6,233, 7.500%, 1/31/96)
$15,000 5.850% 12/1/95 15,000
Citicorp Securities Inc., dated 11/30/95, repurchase price $15,002 (U.S. Treasury Note: $14,220, 7.875%, 1/15/98)
$15,000 5.900% 12/1/95 15,000
Donaldson, Lufkin & Jenrette Securities Corporation, dated 11/30/95, repurchase price $9,777 (U.S. Treasury Note: $9,875,
5.750%, 10/31/00)
$9,775 5.900% 12/1/95 9,775
First Boston Corporation, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Bills: $13,680, 5.450%, 3/14/96; $1,860,
5.490%, 2/29/96)
$15,000 5.870% 12/1/95 15,000
HSBC Securities, dated 11/30/95, repurchase price $70,012, (U.S. Treasury Notes: $9,790, 6.250%, 8/31/00; $430, 6.125%, 9/30/00;
$1,559, 5.750%, 10/31/00; $596, 8.500%, 11/15/00; $58,385, 5.625%, 11/30/00)
$70,000 5.930% 12/1/95 70,000
Merrill Lynch & Co., Inc., dated 11/30/95, repurchase price $15,002 (U.S. Treasury Note: $15,365, 4.250%, 5/15/96)
$15,000 5.860% 12/1/95 15,000
Nomura Securities International, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Note: $14,544, 6.375%, 1/15/00)
$15,000 5.900% 12/1/95 15,000
SBC Capital Markets, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Note: $14,960, 6.000%, 10/15/99;
U.S. Treasury Bill: $25, 5.380%, 10/17/96)
$15,000 5.900% 12/1/95 15,000
Smith Barney, dated 11/30/95, repurchase price $15,002 (U.S. Treasury Note: $2,581, 6.375%, 8/15/02; U.S. Treasury Bill: $12,754,
5.490%, 2/29/96)
$15,000 5.890% 12/1/95 15,000
UBS Securities, Inc., dated 11/30/95, repurchase price $70,011 (U.S. Treasury Notes: $3,805, 6.250%, 1/31/97; $17,780, 7.500%,
1/31/97; $15,720, 4.750%, 2/15/97; $45, 6.750%, 2/28/97; $4,780, 6.875%, 2/28/97; $7,785, 6.625%, 3/31/97; $5,000, 6.875%,
3/31/97; $2,810, 8.500%, 4/15/97; $3,650, 6.500%, 4/30/97; $3,550, 6.875%, 4/30/97; $4,550, 6.500%, 5/15/97)
$70,000 5.910% 12/1/95 70,000
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Total Repurchase Agreements (cost $269,775) 269,775
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Total Investments: 100% (cost $312,849) $312,849
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</TABLE>
See notes to financial statements.
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TREASURY OBLIGATIONS PORTFOLIO
Statement Of Assets And Liabilities
NOVEMBER 30, 1995
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<S> <C>
ASSETS:
Investments, at value and cost (note 1) $312,848,969
Cash 2,565
Interest receivable 44,237
Due from Adviser 42,630
Organization costs, net of amortization 127,314
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Total assets 313,065,715
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LIABILITIES:
Dividends payable 1,520,641
Accrued expenses 113,294
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Total liabilities 1,633,935
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NET ASSETS $311,431,780
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NET ASSETS BY CLASS OF SHARES:
Investor shares $ 82,273,203
Institutional shares 229,158,577
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NET ASSETS $311,431,780
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SHARES OUTSTANDING
Investor shares 82,273,194
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Institutional shares 229,158,586
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NET ASSET VALUE PER SHARE
Investor shares $1.00
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Institutional shares $1.00
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</TABLE>
See notes to financial statements.
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TREASURY OBLIGATIONS PORTFOLIO
Statement Of Operations
PERIOD FROM DECEMBER 30, 1994 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1995
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<S> <C>
INVESTMENT INCOME:
Interest income $12,816,916
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EXPENSES (note 2):
Investment advisory 332,247
Administration 110,515
Shareholder services
Investor class 78,635
Institutional class 59,029
Transfer agency 25,285
Custody 27,821
Accounting 38,621
Professional 36,097
Auditing 21,055
Compliance 102,942
Trustees 7,107
Rating services 37,660
Amortization of organization costs 28,581
Other 28,977
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Total expenses 934,572
Fees waived and expenses reimbursed (note 3) (329,538)
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Net expenses 605,034
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NET INVESTMENT INCOME 12,211,882
NET REALIZED GAIN ON INVESTMENTS 3,391
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NET INCREASE IN NET ASSETS FROM OPERATIONS $12,215,273
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See notes to financial statements.
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TREASURY OBLIGATIONS PORTFOLIO
Statement Of Changes In Net Assets
PERIOD FROM DECEMBER 30, 1994 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1995
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 12,211,882
Net realized gain on investments 3,391
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12,215,273
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DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income-Investor shares (5,492,911)
Net investment income-Institutional shares (6,718,971)
Net realized gain on investments-Investor shares (677)
Net realized gain on investments-Institutional shares (2,714)
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(12,215,273)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST*:
Sale of shares-Investor shares 1,191,429,951
Sale of shares-Institutional shares 1,520,992,027
Reinvested dividends-Investor shares 4,238,692
Reinvested dividends-Institutional shares 4,032,896
Cost of shares repurchased-Investor shares (1,113,495,449)
Cost of shares repurchased-Institutional shares (1,295,866,337)
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311,331,780
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NET ASSETS:
Beginning of period 100,000
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End of period $311,431,780
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</TABLE>
*Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
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TREASURY OBLIGATIONS PORTFOLIO
Financial Highlights
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<CAPTION>
Institutional Investor
Class Class
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June 20, 1995 December 30, 1994
(commencement of offering of shares) (commencement of operations)
to November 30, 1995 to November 30, 1995
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<S> <C> <C>
Per share operating performance for a share
outstanding throughout the period
Beginning net asset value per share $1.00 $1.00
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Net investment income 0.03 0.05
Dividends from net investment income (0.03) (0.05)
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Ending net asset value per share $1.00 $1.00
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Total return (a) 5.76% 5.71%
Ratios/supplemental data
Ratios to average net assets (a):
Expenses(b) 0.20% 0.38%
Net investment income 5.69% 5.63%
Net assets at the end of period (000's omitted) $229,159 $82,273
</TABLE>
(a) Annualized
(b) Net of advisory, shareholder servicing, and administration fees waived and
expenses reimbursed of 0.17% and 0.14% for the Institutional and Investor
class, respectively.
See notes to financial statements.
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TREASURY OBLIGATIONS PORTFOLIO
Notes To Financial Statements
NOVEMBER 30, 1995
NOTE 1. SUMMARY OF ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
The Milestone Funds (the "Trust") was formed as a Delaware business trust on
July 14, 1994. The Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940. It currently has one
diversified investment portfolio, the Treasury Obligations Portfolio (the
"Portfolio") which is authorized under the Trust Instrument to issue an
unlimited number of shares of beneficial interest without par value. The
Portfolio is currently authorized to issue two classes of shares, Institutional
shares and Investor shares. The Trust commenced the offering of Investor shares
of the Portfolio on December 30, 1994 and the offering of Institutional shares
on June 20, 1995. The Trust's financial statements are prepared in accordance
with generally accepted accounting principles.
Valuation of Securities - Securities in which the Portfolio invests are valued
at amortized cost. Under the amortized cost method, a portfolio instrument is
valued at cost and any premium or discount is amortized on a constant basis to
maturity. Amortization of premium and accretion of market discount is charged to
income.
Repurchase Agreements - The Portfolio may purchase securities from financial
institutions subject to the seller's agreement to repurchase and the Portfolio's
agreement to resell the securities at par. The investment adviser only enters
into repurchase agreements with financial institutions that are primary dealers
and deemed to be creditworthy by the investment adviser in accordance with
procedures adopted by the Board of Trustees. Securities purchased subject to
repurchase agreements are maintained with a custodian of the Portfolio and must
have, at all times, an aggregate market value greater than or equal to the
repurchase price plus accrued interest. If the value of the underlying
securities falls below 102% of the value of the repurchase price plus accrued
interest, the Portfolio will require the seller to deposit additional collateral
by the next Portfolio business day. In the event that the seller under the
agreement defaults on its repurchase obligation or fails to deposit sufficient
collateral, the Portfolio has the contractual right, subject to the requirements
of applicable bankruptcy and insolvency laws, to sell the underlying securities
and may claim any resulting loss from the seller.
Security Transactions - Security transactions are recorded on the trade date.
Realized gains and losses are recorded on the identified cost basis. The cost of
investments for federal income tax purposes at November 30, 1995 is the same as
that shown on the accompanying statement of investments.
Class Specific Expenses - Each share of both classes represents an undivided,
proportionate interest in the Portfolio. The Portfolio's class specific expenses
include shareholder service fees, transfer agent fees and certain other expenses
in accordance with procedures adopted by the Board of Trustees regarding the
offering of multiple classes of shares by open-end, management investment
companies. In addition, there are differences between the classes of shares with
respect to the minimum investment required and voting rights affecting each
class.
Income Taxes - It is the Portfolio's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its investment company taxable income and net realized gains,
if applicable, to its shareholders. Therefore, no provision has been made for
federal income taxes.
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TREASURY OBLIGATIONS PORTFOLIO
Notes To Financial Statements (Cont'd)
NOVEMBER 30, 1995
Interest Income and Dividends to Shareholders - Interest income is accrued as
earned. Dividends to shareholders from each class of the Portfolio's net
investment income are declared daily and distributed monthly. Net realized
capital gains, unless offset by any available capital loss carryforwards, are
distributed at least annually.
Organization Costs - Organization costs are being amortized on a straight line
basis over five years.
NOTE 2. INVESTMENT ADVISORY AND OTHER SERVICES
Milestone Capital Management, L.P. (the "Adviser") serves as investment adviser
to the Portfolio pursuant to an investment advisory agreement with the Trust.
For its services, the Adviser receives a fee at an annual rate equal to 0.10% of
the average daily net assets of the Portfolio. Prior to June 20, 1995, the fee
payable to the Adviser under the investment advisory agreement was equal to
0.30% of the average daily net assets of the Portfolio.
As administrator of the Trust, Forum Financial Services, Inc. ("Forum") receives
a fee at an annual rate of 0.05% of the average daily net assets of the
Portfolio subject to an annual minimum of $50,000. Forum acts as the Trust's
distributor pursuant to a separate distribution agreement with the Trust under
which it receives no compensation.
The Trust has adopted a shareholder service plan providing that the Trust may
obtain the services of the Adviser and other qualified financial institutions to
act as shareholder servicing agents for their customers. Under this plan, the
Trust has authorized Forum to enter into agreements pursuant to which the
shareholder servicing agents perform certain shareholder services. For these
services, Forum receives from the Trust a fee of 0.05% and 0.20% of the average
daily net assets of the Institutional shares and Investor shares, respectively.
Forum pays the shareholder servicing agents up to these amounts with respect to
shares owned by investors for which the shareholder servicing agents maintain a
servicing relationship pursuant to the shareholder servicing agreement.
Forum Financial Corp. ("FFC") serves as the Trust's transfer agent, dividend
disbursing agent and fund accountant. FFC is paid a transfer agent fee of
$12,000 per year attributable to each class of the Portfolio plus certain
account charges. For its fund accounting services, FFC is paid $36,000 per year
for the Investor share class of the Portfolio and an additional $12,000 per year
for the Institutional share class of the Portfolio, subject to adjustments for
the size of the Portfolio and the number and type of Portfolio transactions.
NOTE 3. WAIVER OF FEES AND REIMBURSEMENT
OF EXPENSES
For the eleven months ended November 30, 1995, the Adviser waived $231,894 of
its advisory fee and $59,029 of its shareholder services fee. For the same
period, Forum waived $22,465 of its administration fee and voluntarily
reimbursed Portfolio expenses amounting to $16,150.
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TREASURY OBLIGATIONS PORTFOLIO
Independent Auditor's Report
NOVEMBER 30, 1995
The Board of Trustees and Shareholders
Treasury Obligations Portfolio of The Milestone Funds
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Treasury Obligations Portfolio of The
Milestone Funds as of November 30, 1995, and the related statement of
operations, the statement of changes in net assets, and the financial highlights
for the period from December 30, 1994 (commencement of operations) to November
30, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of November 30, 1995, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Treasury Obligations Portfolio of The Milestone Funds, as of November 30, 1995,
the results of its operations, the changes in its net assets and the financial
highlights for the period indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
December 22, 1995
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Adviser
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Milestone Capital Management, L.P.
One Odell Plaza
Yonkers, NY 10701
Administrator / Distributor / Transfer Agent
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Forum Financial Group
Two Portland Square, Portland, ME 04101
800-363-7660
Primary Dealer
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Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Custodian
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UMB Bank, N.A.
928 Grand Avenue
Kansas City, MO 64141
Legal Counsel
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Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, NY 10022
This report is authorized for distribution
only to current shareholders and to others
who have received a copy of The Milestone Funds prospectus.
The Milestone Funds
One Odell Plaza, Yonkers, New York 10701
800-941-MILE
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