MILESTONE FUNDS, 497, 1997-02-21

MILESTONE FUNDS
497, 1997-02-21

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Rule 497(c)
Registration No. 33-81574

THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
INSTITUTIONAL CLASS

Supplement Dated February 21, 1997
to
Prospectus Dated February 23, 1996 and Revised May 1, 1996

o The following information supplements the dates found on the cover page
and inside page of the Prospectus:

The Prospectus and Statement of Additional Information are hereafter
dated September 6, 1996.

o The following information supplements the material found on page 2 and
14 of the Prospectus:

All references to "Service Shares" should read "Financial Shares."

o The following information supplements the material found on page 14 and
the back cover of the Prospectus:

The references to "McGladrey & Pullen, LLP" should read "Deloitte &
Touche, LLP."

o The following information supplements the material found on page 3 of
the Prospectus under the heading "Expenses of Investing in the
Portfolio":

ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):

Advisory Fees (after fee waivers)............................ 0.10%
12b-1 Fees.................................................... None
Shareholder Servicing Fees (after fee waivers)............... 0.03%/1/
Other Expenses............................................... 0.07%
----

Total Operating Expenses (after fee waivers)................. 0.20%/1/
- -----------

/1/ The Adviser has agreed to limit expenses of the Institutional Shares to
.20% of its average daily net assets. Had such expenses not been
limited, the Shareholder Service Fee would have been .05% and total
operating expenses would have been .22%. The Adviser will notify
shareholders of Institutional Shares in writing at least 30 days prior
to any adjustments to the limitation on Total Operating Expenses.

o The following information supplements the material found on page 4 of
the Prospectus under the heading "Expenses of Investing in the
Portfolio":

You would pay the following
expenses on a $1,000 investment
in Financial Shares of the
Portfolio, assuming a 5% annual
return and redemption at the end
of each period: . . . . . . 1 Year 3 Years 5 Years 10 Years
$2 $6 $11 $26

<PAGE>

o The following information supplements the material found on page 4 of
the Prospectus under the heading "Financial Highlights":

<TABLE>
<CAPTION>
Institutional Shares
--------------------

SIX MONTHS ENDED JUNE 20, 1995*
MAY 31, 1996 THROUGH
(UNAUDITED) NOVEMBER 30, 1995

<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE FOR
A SHARE
OUTSTANDING
THROUGHOUT THE
PERIOD

Beginning net asset value per
share $1.00 $1.00
----------------------- -----------------------

Net Investment Income 0.03 0.03

Dividends from net investment
income (0.03) (0.03)

Ending net asset value per share $1.00 $1.00
======================= =======================

TOTAL RETURN (a) 5.35% 5.76%

RATIOS/SUPPLEMENTAL
DATA

Ratios to average net assets(a):
Expenses(b) 0.20% 0.20%

Net Investment income 5.25% 5.69%

Net assets at the end of period
(000's omitted) $1,026,494 $229,159
</TABLE>

(a) Annualized
(b) Net of advisory, shareholder servicing and administration fees waived
and expenses reimbursed of 0.02%, 0.01% and 0.14%, respectively.
* Commencement of investment operations.

<PAGE>
Rule 497(c)
Registration No. 33-81574

THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO

ADVISER
MILESTONE CAPITAL MANAGEMENT, L.P.

PROSPECTUS
FEBRUARY 23, 1996

AS REVISED
MAY 1, 1996

INSTITUTIONAL CLASS

<PAGE>

THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
INSTITUTIONAL SHARES
One Odell Plaza Yonkers, New York 10701
(800) 941-MILE

This Prospectus offers Institutional Shares of the Treasury Obligations
Portfolio (the "Portfolio"), a diversified, no-load money market portfolio of
The Milestone Funds (the "Trust"), an open-end investment management company.
The Portfolio seeks to provide its shareholders with the maximum current income
that is consistent with the preservation of capital and the maintenance of
liquidity. Milestone Capital Management, L.P. serves as the Portfolio's
investment adviser.

TREASURY OBLIGATIONS PORTFOLIO invests only in short-term obligations
of the U.S. Treasury and repurchase agreements fully collateralized by
obligations of the U.S.
Treasury.

This Prospectus provides you with information about the Trust and the Portfolio
which you should know before investing in shares of the Portfolio. A Statement
of Additional Information, dated February 23, 1996, has been filed with the
Securities and Exchange Commission ("SEC") and is available free of charge by
contacting The Milestone Funds, One Odell Plaza, Yonkers, New York 10701, or by
calling (800) 941-MILE (6453). This information contained in the Statement of
Additional Information, as amended from time to time, is incorporated by
reference into this prospectus.

INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR
FUTURE REFERENCE.

AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

Page
Prospectus Summary............................................ 2
Expenses of Investing in the Portfolio........................ 3
Financial Highlights.......................................... 4
Investment Objective and Policies............................. 5
Risk Considerations........................................... 6
Additional Investment Policies and Practices.................. 7
Management of the Trust....................................... 8
How to Invest in the Portfolio................................ 11
How to Redeem Shares of the Portfolio......................... 13
Dividends and Tax Matters..................................... 14
Other Information............................................. 15

PROSPECTUS SUMMARY

PORTFOLIO HIGHLIGHTS

INSTITUTIONAL SHARES. This prospectus offers Institutional Shares of the
Treasury Obligations Portfolio. The Treasury Obligations Portfolio (the
"Portfolio") is a money market fund that invests only in U.S. Treasury
obligations and repurchase agreements fully collateralized by U.S. Treasury
obligations. Institutional Shares are designed for institutional investors as a
convenient investment vehicle for short-term funds. The Portfolio also offers
Investor Shares and Service Shares by separate prospectuses. Investor Shares and
Service Shares are subject to different expenses that affect their performance.
For information about Investor Shares or Service Shares, speak to your sales
representative or call (800) 941-MILE. See "Other Information".

MANAGEMENT. The Portfolio's investment adviser is Milestone Capital Management,
L.P. (the "Adviser"), One Odell Plaza, Yonkers, New York 10701. See "Management
of the Trust".

ADMINISTRATION, UNDERWRITING AND SHAREHOLDER SERVICING. The administrator of the
Trust is The Bank of New York, 90 Washington Street, New York, New York 10286.
Bear, Stearns & Co. Inc. ("Bear Stearns"), 245 Park Avenue, New York, New York
10167, is the primary dealer of the Trust's shares and, under a separate
agreement with the Adviser, services the accounts of those shareholders of the
Trust who purchase their shares through Bear Stearns. Midwest Group Financial
Services, Inc., P. O. Box 5354, Cincinnati, Ohio 45201-5354, serves as statutory
underwriter of the Trust's shares. See "Management of the Trust".

<PAGE>

Portfolio most effectively, investors are encouraged to execute as many trades
as possible before 2:30 p.m. If MGF Service Corp. (the "Transfer Agent")
receives a firm indication of the approximate size of a purchase by 2:30 p.m.
(Eastern Time) and the completed purchase order by 4:15 P.M., the shares
purchased will earn dividends on the same day. If the Transfer Agent receives a
firm indication of the approximate size of a redemption by 2:30 p.m. (Eastern
Time), and the completed redemption order by 4:00 P.M., redemption proceeds will
ordinarily be wired that day, and the investor will not receive that day's
dividends. The minimum initial investment is $10,000,000. The Trust and Transfer
Agent each reserves the right to waive this minimum initial investment
limitation. There is no minimum subsequent investment. See "How To Invest In The
Portfolio" and "How To Redeem Shares Of The Portfolio".

DIVIDENDS. Dividends of net investment income are declared daily and paid
monthly by the Portfolio and are reinvested in Portfolio shares unless the
shareholder has elected cash distributions. See "Dividends and Tax Matters".

EXPENSES OF INVESTING IN THE PORTFOLIO

The purpose of the following table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly.

SHAREHOLDER TRANSACTION EXPENSES:

Maximum Sales Load Imposed on Purchases.........................None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load.............................................None
Redemption Fees.................................................None
Exchange Fees...................................................None

ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average annual net
assets):

Advisory Fees...................................................0.10%
12b-1 Fees......................................................None
Shareholder Servicing Fees......................................0.05%
Other Expenses..................................................0.10%
-----
Total Operating Expenses........................................0.25%

The Adviser has voluntarily agreed to waive up to 100% of the shareholder
servicing fee for the Institutional Shares and may waive up to 100% of the
advisory fee of the Portfolio. This voluntary limitation may be terminated at
any time. For a further description of the various expenses incurred in the
operation of the Portfolio, see "Management of the Trust".

<PAGE>

EXAMPLE

<TABLE>
<CAPTION>
You would pay the following expenses
on
<S> <C> <C> <C> <C> <C>
a $1,000 investment in Institutional
Shares of the Portfolio, assuming a
5% annual return and redemption at the 1 Year 3 Years 5 Years 10 Years
end of each period: . . . . . . $3 $8 $14 $32
</TABLE>

This example is based on the fees listed in the table and assumes the
reinvestment of dividends. The example should not be considered a representation
of past or future expenses or performance. Actual expenses may be greater or
less than those shown.

FINANCIAL HIGHLIGHTS

The following financial highlights of the Portfolio's Institutional Shares have
been audited by McGladrey & Pullen, LLP, independent certified public
accountants. The financial statements and independent accountant's report
thereon of the Portfolio are incorporated by reference into the Statement of
Additional Information.

June 20, 1995
(commencement of offering
of shares)
to November 30, 1995
--------------------
Per share operating performance for a share
outstanding throughout the period
Beginning net asset value per share $ 1.00
---------

Net investment income 0.03

Dividends from net investment income (0.03)
---------
Ending net asset value per share 1.00
=========

Total return (a) 5.76%

Ratios/supplemental data Ratios to average net assets (a):
Expenses(b) 0.20%
Net investment income 5.69%

Net assets at the end of period (000's Omitted) $229,159

(a) Annualized.

<PAGE>

(b) Net of advisory, shareholder servicing, and administration fees waived and
expenses reimbursed of 0.17%.

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The Portfolio seeks to provide investors with maximum current income consistent
with the preservation of capital and the maintenance of liquidity. As with any
mutual fund, there is no assurance that the Portfolio will achieve this goal.

INVESTMENT POLICIES

The Portfolio invests ONLY in U.S. Treasury obligations and repurchase
agreements fully collateralized by U.S. Treasury obligations. The Portfolio may
purchase U.S. Treasury obligations on a when-issued or forward commitment basis.
The Portfolio will maintain an average maturity, computed on a dollar-weighted
basis, of 90 days or less.

The following permissible investments and investment restrictions are
fundamental investment policies of the Portfolio that may not be changed without
shareholder approval:

PERMISSIBLE INVESTMENTS.

The Portfolio seeks to achieve its investment objective by investing ONLY in:

U.S. Treasury obligations maturing in 397 days or less. U.S. Treasury
obligations are securities issued by the United States Treasury, such
as Treasury bills, notes and bonds, that are fully guaranteed as to
payment of principal and interest by the United States Government.

Repurchase agreements fully collateralized by U.S. Treasury
obligations. Repurchase agreements are transactions in which the
Portfolio purchases a security and simultaneously commits to resell
that security to the seller at an agreed-upon price on an agreed-upon
future date, normally one-to-seven days later. The resale price
reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The Portfolio enters into
repurchase agreements ONLY WITH PRIMARY DEALERS designated by the
Federal Reserve Bank of New York which the Adviser believes present
minimal credit risks in accordance with guidelines established by the
Board of Trustees of the Trust (the "Board"). The Adviser monitors the
credit-worthiness of sellers under the Board's general supervision. If
a seller defaults on its repurchase obligation, however, the Portfolio
might suffer a loss.

The Portfolio may invest in U.S. Treasury obligations or repurchase agreements
without limit. Although the Portfolio intends to be fully invested in these
instruments, it may hold a de minimis amount of cash for a short period prior to
investment or payment of the proceeds of redemption.

<PAGE>

In the future, the Portfolio may attempt to achieve its investment objectives by
holding, as its only investment securities, the securities of another investment
company having identical investment objectives and policies as the Portfolio in
accordance with the provisions of the Investment Company Act of 1940 or any
orders, rules or regulations thereunder adopted by the Securities and Exchange
Commission.

INVESTMENT RESTRICTIONS.

The Portfolio WILL NOT:

1. Invest in structured notes or instruments commonly known as
derivatives;

2. Invest in variable, adjustable or floating rate instruments of
any kind;

3. Enter into reverse repurchase agreements;

4. Invest in securities issued by agencies or instrumentalities
of the United States Government, such as the Federal National
Mortgage Association ("FNMA"), Government National Mortgage
Association ("GNMA"), Federal Home Loan Mortgage Corp.
("Freddie Mac"), or the Small Business Administration ("SBA");
or,

5. Invest in zero coupon bonds.

The Portfolio will make no investment unless the Adviser first determines that
it is eligible for purchase and presents minimal credit risks, pursuant to
procedures adopted by the Board. The Portfolio's investments are subject to the
restrictions imposed by Rule 2a-7 under the Investment Company Act of 1940.

RISK CONSIDERATIONS

Although the Portfolio invests in short-term Treasury obligations, an investment
in the Portfolio is subject to risk even if all securities in the Portfolio's
portfolio are paid in full at maturity. All money market instruments, including
U.S. Treasury obligations, can change in value in response to changes in
interest rates, and a major change in rates could cause the share price to
change. While U.S. Treasury obligations are backed by the full faith and credit
of the U.S. Government, an investment in the Portfolio is neither insured nor
guaranteed by the U.S. Government or any other party. Thus, while the Portfolio
seeks to maintain a stable net asset value of $1.00 per share, there is no
assurance that it will do so. For a discussion of the risks associated with
particular investment practices of the Portfolio, see "Additional Investment
Policies and Practices".

<PAGE>

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

THE PORTFOLIO MAY NOT CHANGE ITS INVESTMENT OBJECTIVE OR ANY INVESTMENT POLICY
DESIGNATED AS FUNDAMENTAL WITHOUT SHAREHOLDER APPROVAL. Investment policies or
practices of the Portfolio that are not designated as fundamental may be changed
by the Board without shareholder approval, following notice to shareholders. The
Portfolio's additional fundamental and nonfundamental investment policies are
described further below and in the Statement of Additional Information.

BORROWING. As a fundamental investment policy, the Portfolio may only borrow
money for temporary or emergency purposes (not for leveraging or investment),
including the meeting of redemption requests, in amounts up to 33 1/3% of the
Portfolio's total assets. Interest costs on borrowings may fluctuate with
changing market rates of interest and may partially offset or exceed the return
earned on borrowed funds (or on the assets that were retained rather than sold
to meet the needs for which funds were borrowed). Under adverse market
conditions, the Portfolio might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. As a nonfundamental investment policy, the Portfolio may
not purchase securities for investment while any borrowing equaling 5% or more
of the Portfolio's total assets is outstanding.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio may purchase new
issues of U.S. Treasury Obligations on a "when-issued" basis or existing issues
of U.S. Treasury obligations on a "delayed delivery" basis. The Portfolio would
enter into these forward commitments to obtain securities at prices that might
not be available in the future. The price is fixed when the commitment is made,
but the securities are delivered on a future date beyond the customary
settlement time and paid for upon delivery. The Portfolio assumes the risk that
the value of the securities on the delivery date may be more or less than the
purchase price. Failure by the other party to deliver a security purchased by
the Portfolio may result in a loss or a missed opportunity to make an
alternative investment. Commitments for when-issued or delayed delivery
transactions will be entered into only when the Portfolio intends to acquire the
securities. Although there is no limit on the amount of these commitments that
the Portfolio may make, under normal circumstances it will not commit more than
30% of its total assets to such purchases.

ILLIQUID SECURITIES. The Portfolio may invest no more than 10% of its net assets
in securities that at the time of purchase are illiquid, including repurchase
agreements having a maturity of more than seven days and not entitling the
holder to payment of principal within seven days. In addition, the Portfolio
will not invest in repurchase agreements having a maturity in excess of one
year. Under the supervision of, and pursuant to guidelines established by, the
Board, the Adviser determines and monitors the liquidity of portfolio
securities. The Portfolio will not purchase a security if, as a result, more
than 10% of its net assets would be invested in illiquid securities. If a
security becomes illiquid and, as a result, more than 10% of the Portfolio's net
assets are invested in illiquid securities, the Adviser will take reasonable
steps to reduce the Portfolio's holdings of illiquid securities to 10% or less
of its net assets.

<PAGE>

TEMPORARY DEFENSIVE POSITIONS. Under abnormal market or economic conditions, the
Portfolio temporarily may hold up to 100% of its investable assets in cash.

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

The business of the Trust and the Portfolio is managed under the direction of
the Board of Trustees. The Board formulates the general policies of the
Portfolio and meets regularly to review the Portfolio's performance, monitor its
investment activities and practices, and review other matters affecting the
Portfolio and the Trust. Additional information regarding the Trustees, as well
as the Company's executive officers, may be found in the Statement of Additional
Information under the heading "Management - Trustees and Officers".

THE ADVISER

Milestone Capital Management, L.P. (the "Adviser") serves as investment adviser
to the Portfolio pursuant to an investment advisory agreement with the Trust.
Subject to the general control of the Board, the Adviser continually manages the
Portfolio, including the purchase, retention and disposition of its securities
and other assets. The Adviser is a limited partnership organized under the laws
of the State of New York on August 1, 1994, and is a registered investment
adviser under the Investment Advisers Act of 1940. The General Partner of the
Adviser is Milestone Capital Management Corp., a New York corporation.

Janet Tiebout Hanson is President and Chief Executive Officer of the Adviser.
Ms. Hanson is also President and Chief Executive Officer of Milestone Capital
Management Corp., in which she holds the controlling interest. She is a former
vice-president of Goldman, Sachs & Co., a leading investment banking firm.
During her fourteen year tenure with Goldman Sachs, Ms. Hanson held significant
sales, marketing, and management positions in both the Fixed Income and Asset
Management Divisions, including co-manager of Money Market Sales in New York in
1986 and 1987. Ms. Hanson was responsible for developing many of the firm's key
relationships with major institutional investors. In addition, she was
instrumental in raising assets for Goldman Sachs Asset Management's money market
and bond mutual funds. Ms. Hanson holds a BA in government from Wheaton College
in Massachusetts and an MBA in finance from Columbia University.

Marc H. Pfeffer is Chief Investment Officer of the Adviser. He is primarily
responsible for the day-to-day management of the Treasury Obligations Portfolio
and heads the Adviser's portfolio management and research team. Before joining
the Adviser, Mr. Pfeffer was with Goldman, Sachs & Co. for eight years. In 1989,
he joined Goldman Sachs' Asset Management Division ("GSAM") in portfolio
management, and became a vice-president of the firm in 1993. At GSAM, he was
responsible for managing six institutional money market portfolios which grew to
over $3 billion in total assets as of November 1994. Mr. Pfeffer holds a BS in
finance from the State University of New York at Buffalo and an MBA in finance
from Fordham University.

<PAGE>

For its services, the Adviser receives a fee at an annual rate equal to 0.10% of
the Portfolio's average daily net assets. The Adviser is responsible for payment
of salaries of its portfolio manager and staff as well as other expenses
necessary to the performance of its duties under the investment advisory
agreement. The Adviser may, at its own expense and from its own resources,
compensate certain persons who provide services in connection with the sale or
expected sale of shares of the Portfolio without reimbursement from the Trust.
The Trust, on behalf of the Portfolio, is responsible for all expenses other
than those expressly borne by the Adviser under the investment advisory
agreement. The expenses borne by the Trust include, but are not limited to, the
investment advisory fee, administration fee, transfer agent fee, and custodian
fee, costs of preparing, printing and delivering to shareholders the Trust's
prospectuses, statements of additional information, and shareholder reports,
legal fees, auditing and tax fees, taxes, blue sky fees, SEC fees, compliance
expenses, insurance expenses, and compensation of certain of the Trust's
Trustees, officers and employees and other personnel performing services for the
Trust. Should the expenses of the Portfolio (including the fees of the Adviser
but excluding interest, taxes, brokerage commissions, litigation and
indemnification expenses and other extraordinary expenses) for any fiscal year
exceed the limits prescribed by any state in which the Portfolio's shares are
qualified for sale, the Adviser will reduce its fee or reimburse expenses by the
amount of such excess.

ADMINISTRATOR

The Bank of New York, 90 Washington Street, New York, New York 10286 serves as
the administrator of the Trust , pursuant to an Administration Agreement with
the Trust.

The services The Bank of New York provides to the Trust include: coordinating
the activities of any third parties furnishing services to the Trust; providing
the necessary office space, equipment and personnel to perform administrative
and clerical functions for the Trust and preparing, filing and distributing
proxy materials, periodic reports to shareholders, registration statements and
other documents.

As compensation for services performed under the Administration Agreement, The
Bank of New York receives a monthly fee calculated at the annual rate of .04% of
the assets of the Portfolio as determined at each month end, with a maximum fee
of $100,000 per annum.

UNDERWRITER

Midwest Group Financial Services, Inc. (the "Underwriter") serves as statutory
underwriter of the Portfolio's shares pursuant to an Underwriting Agreement with
the Trust, and as the agent of the Trust in connection with the offering of
shares of the Portfolio. The Underwriter is an affiliate of the Trust's transfer
agent. See "Transfer Agent".

<PAGE>

compensate certain persons who provide services in connection with the sale or
expected sale of shares of the Portfolio. Investors purchasing shares of the
Portfolio through another financial institution should read any materials and
information provided by the financial institution to acquaint themselves with
its procedures and any fees that it may charge.

PRIMARY DEALER

Bear, Stearns & Co. Inc. ("Bear Stearns") serves as primary dealer of the
Trust's shares. Bear Stearns is a full-service securities broker-dealer and
investment banking firm with global distribution capability. It is a member of
all major national securities exchanges with its headquarters at 245 Park
Avenue, New York, New York 10167.

Under its Primary Dealer Agreement with the Underwriter, Bear Stearns promotes
and arranges for the sale of shares of the Trust. Orders for the purchase or
redemption of shares of each series of the Trust are directed by Bear Stearns to
the Underwriter for execution. Bear Stearns receives no compensation for its
services under the Primary Dealer Agreement.

SHAREHOLDER SERVICES

The Trust has adopted a shareholder service plan under which it pays the Adviser
.05% of the average daily net assets of the Institutional Shares such 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 the Adviser to enter into agreements
pursuant to which the shareholder servicing agent performs certain shareholder
services. For these services, the Adviser pays the shareholder servicing agent a
fee based upon the average daily net assets of the Institutional Shares owned by
investors for which the shareholder servicing agent maintains a servicing
relationship.

Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Fund
shares held beneficially; and providing such other services as the Trust or a
shareholder may request.

The Adviser has entered into a separate Client Services Agreement with Bear
Stearns under which it provides distribution assistance and various services to
those shareholders of the Trust who purchase shares of the Portfolio through
Bear Stearns (the "Bear Stearns Accounts"). Under the Client Services Agreement,
Bear Stearns furnishes such facilities and personnel as are necessary to provide
the Trust and the Bear Stearns Accounts with any information either may need
about the other and to facilitate the processing of orders for the purchase or
redemption of shares. For these services, the Adviser, at its own expense and
from its own resources, pays Bear Stearns a fee. The Adviser may enter into
similar client service agreements with other persons who provide

<PAGE>

certain shareholder services. These fees do not increase the amount of any
advisory or shareholder services fees paid to the Adviser.

TRANSFER AGENT

MGF Service Corp., a registered transfer agent, acts as the Trust's transfer
agent and dividend disbursing agent. The Transfer Agent maintains an account for
each shareholder of the Portfolio (unless such accounts are maintained by
sub-transfer agents or processing agents) and performs other transfer agency and
related functions.

The Transfer Agent is authorized to subcontract any or all of its functions to
one or more qualified sub-transfer agents, shareholder servicing agents, or
processing agents, who may be affiliates of the Transfer Agent, and who agree to
comply with the terms of the Transfer Agent's agreement with the Trust. Among
the services provided by such agents are answering customer inquiries regarding
account matters; assisting shareholders in designating and changing various
account options; aggregating and processing purchase and redemption orders and
transmitting and receiving funds for shareholder orders; transmitting, on behalf
of the Trust, proxy statements, prospectuses and shareholder reports to
shareholders and tabulating proxies; processing dividend payments and providing
subaccounting services for Portfolio shares held beneficially; and providing
such other services as the Trust or a shareholder may request. The Transfer
Agent may pay these agents for their services, but no such payment will increase
the Transfer Agent's compensation from the Trust.

HOW TO INVEST IN THE PORTFOLIO

Shares of the Portfolio may be purchased by wire only. Shares are sold at the
net asset value next determined after receipt of a purchase order in the manner
described below. Purchase orders are accepted on any day on which the New York
Stock Exchange and the Federal Reserve Bank of New York are open ("Fund Business
Day") between the hours of 9:00 a.m. and 6:00 p.m. (Eastern Time). The Trust
does not determine net asset value, and purchase orders are not accepted, on the
days those institutions observe the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas.

To purchase shares of the Portfolio by Federal Reserve wire, call the Transfer
Agent, MGF Service Corp., at (800) 363-7660 or call your sales representative.
If the Transfer Agent receives a firm indication of the approximate size of the
intended investment before 2:30 p.m. (Eastern Time) and the completed purchase
order before 4:15 p.m. (Eastern Time), and the Custodian receives Federal Funds
the same day, purchases of shares of the Portfolio begin to earn dividends that
day. Completed orders received after 4:15 p.m. begin the earn dividends the next
Fund Business Day upon receipt of Federal Funds.

<PAGE>

fluctuations. The Portfolio reserves the right to refuse any investment that, in
its sole discretion, would disrupt the Portfolio's management.

If the Public Securities Association recommends that the government securities
markets close early, the Trust may advance the time at which the Transfer Agent
must receive notification of orders for purposes of determining eligibility for
dividends on that day. Investors who notify the Transfer Agent after the
advanced time become entitled to dividends on the following Fund Business Day.
If the Transfer Agent receives notification of a redemption request after the
advanced time, it ordinarily will wire redemption proceeds on the next Fund
Business Day.

If an investor does not remit Federal Funds, such payment must be converted into
Federal Funds. This usually occurs within one Fund Business Day of receipt of a
bank wire. Prior to receipt of Federal Funds, the investor's monies will not be
invested.

The following procedure will help assure prompt receipt of your Federal Funds
wire:

A. Telephone the Transfer Agent, MGF Service Corp., toll free at
(800) 363-7660 and provide the following information:

Your name
Address
Telephone number
Taxpayer ID number
The amount being wired The identity of the bank
wiring funds.

You will then be provided with a Portfolio account number. (Investors with
existing accounts must also notify the Trust before wiring funds.)

B. Instruct your bank to wire the specified amount to the Trust
as follows:

The Bank of New York, ABA # 021000018
A/C # 8900276541
FBO Milestone Funds Treasury Obligations
Portfolio Operating Account
Ref: Shareholder Name and Account Number

An investor may open an account when placing an initial order by telephone,
provided the investor thereafter submits an Account Registration Form by mail.
An Account Registration Form is included with this Prospectus.

The Trust and the Transfer Agent each reserves the right to reject any purchase
order for any reason.

SHARE CERTIFICATES. The Transfer Agent maintains a share account for each
shareholder. The Trust does not issue share certificates.

<PAGE>

ACCOUNT STATEMENTS. Monthly account statements are sent to investors to report
transactions such as purchases and redemptions as well as dividends paid during
the month.

MINIMUM INVESTMENT REQUIRED. The minimum initial investment in the Portfolio is
$10,000,000. There is no minimum subsequent investment. The Trust reserves the
right to waive the minimum investment requirement.

HOW TO REDEEM SHARES OF THE PORTFOLIO

Holders of shares of the Portfolio may redeem their shares without charge at the
net asset value next determined after the Portfolio receives the redemption
request. Redemption requests must be received in proper form and can be made by
telephone request or wire request on any Fund Business Day between the hours of
9:00 a.m. and 6:00 p.m. (Eastern Time).

BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent,
MGF Service Corp., at (800) 363-7660. Shareholders must provide the Transfer
Agent with the shareholder's account number, the exact name in which the shares
are registered and some additional form of identification such as a password. A
redemption by telephone may be made only if the telephone redemption
authorization has been completed on the Account Registration Form included with
this Prospectus. In an effort to prevent unauthorized or fraudulent redemption
requests by telephone, the Transfer Agent will follow reasonable procedures to
confirm that such instructions are genuine. If such procedures are followed,
neither the Transfer Agent nor the Trust will be liable for any losses due to
unauthorized or fraudulent redemption requests.

In times of drastic economic or market changes, it may be difficult to make
redemptions by telephone. If a shareholder cannot reach the Transfer Agent by
telephone, redemption requests may be mailed or hand-delivered to the Transfer
Agent.

WRITTEN REQUESTS. Redemption requests may be made by writing to The Milestone
Funds, c/o MGF Service Corp., P. O. Box 5354, Cincinnati, Ohio 45201-5354.
Written requests must be in proper form. The shareholder will need to provide
the exact name in which the shares are registered, the Portfolio name, account
number, and the share or dollar amount requested.

A signature guarantee is required for any written redemption request and for any
instruction to change the shareholder's record name or address, a designated
bank account, the dividend election, or the telephone redemption or other option
elected on an account. Signature guarantees may be provided by any eligible
institution acceptable to the Transfer Agent, including a bank, a broker, a
dealer, national securities exchange, a credit union, or a savings association
which is authorized to guarantee signatures. Other procedures may be implemented
from time to time.

<PAGE>

The Transfer Agent may request additional documentation to establish that a
redemption request has been authorized properly. A redemption request will not
be considered to have been received in proper form until such additional
documentation has been submitted to the Transfer Agent.

<TABLE>
<CAPTION>
FIRM INDICATION OF REDEMPTION COMPLETED REDEMPTION
REQUEST AND APPROXIMATE SIZE OF REDEMPTION PROCEEDS
REDEMPTION RECEIVED ORDER RECEIVED ORDINARILY DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
By 2:30 p.m. Eastern Time By 4:00 p.m. Wired same Not earned on
Eastern Time Business Day the day request
received

After 2:30 p.m. Eastern Time After 4:00 p.m. Wired next Earned on day
Eastern Time Business Day request received

</TABLE>

Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon 60 days written notice, all shares in an account with
an aggregate net asset value of less than $1,000,000 unless an investment is
made to restore the minimum value. The Trust will not redeem accounts that fall
below this amount solely as a result of a reduction in the net asset value of
the Portfolio's shares.

DIVIDENDS AND TAX MATTERS

DIVIDENDS AND DISTRIBUTIONS

DIVIDENDS. Dividends are declared daily and paid monthly, following the close of
the last Fund Business Day of the month. Shares purchased by wire before 4:15
p.m. (Eastern Time) begin earning dividends that day. Dividends are
automatically reinvested on payment dates in additional shares of the Portfolio
unless cash payments are requested by contacting the Trust. The election to
reinvest dividends and distributions or receive them in cash may be changed at
any time upon written notice to the Transfer Agent. All dividends and other
distributions are treated in the same manner for Federal income tax purposes
whether received in cash or reinvested in shares of the Portfolio. If no
election is made, all dividends and distributions will be reinvested.

CAPITAL GAINS DISTRIBUTIONS. Net realized short-term capital gains, if any, will
be distributed whenever the Trustees determine that such distributions would be
in the best interest of the shareholders, which would be at least once per year.
The Trust does not anticipate that the Portfolio would realize any long-term
capital gains, but should they occur, they also will be distributed at least
once every 12 months.

TAX MATTERS

<PAGE>

the net investment income and capital gains distributed to its shareholders.
Because the Portfolio intends to distribute all of its net investment income and
net capital gains each year in accordance with the timing requirements of the
Code, the Portfolio should also avoid Federal excise taxes.

DISTRIBUTIONS. Dividends paid by the Portfolio out of its net investment income
(including realized net short-term capital gains) are taxable to the
shareholders of the Portfolio as ordinary income. Distributions of net long-term
capital gains, if any, realized by the Portfolio are taxable to the shareholders
as long-term capital gains, regardless of the length of time the shareholder may
have held shares in the Portfolio at the time of distribution. Distributions are
subject to Federal income tax when they are paid, whether received in cash or
reinvested in shares of the Portfolio. Distributions declared in December and
paid in January, however, are taxable as if paid on December 31st.

The Portfolio is required by Federal law to withhold 31% of reportable payments
(which may include dividends and capital gain distributions) paid to a
non-corporate shareholder unless that shareholder certifies in writing that the
social security or other tax identification number provided is correct and that
the shareholder is not subject to backup withholding for prior underreporting to
the Internal Revenue Service.

Some states and localities do not tax dividends paid on shares of the Portfolio
that are attributable to interest from U.S. Treasury obligations (but not
necessarily interest earned on repurchase agreements).

Reports containing appropriate information with respect to the Federal income
tax status of dividends, distributions and redemptions, including the
proportions attributable to capital gains and interest on U.S. Treasury
obligations, paid during the year by the Portfolio will be mailed to
shareholders shortly after the close of each calendar year.

The foregoing is only a summary of some of the tax considerations generally
affecting the Portfolio and its shareholders. The Statement of Additional
Information contains a further discussion. Because other Federal, state or local
tax considerations may apply, investors are urged to consult their tax advisors.

OTHER INFORMATION

PORTFOLIO PERFORMANCE. The Portfolio may advertise its yield, which is based on
historical results and is not intended to indicate future performance. Yield
shows the rate of income the Portfolio has earned on its investments as a
percentage of the Portfolio's share price. To calculate yield, the Portfolio
takes the interest income it earned from its portfolio of investments for a
seven-day period (net of expenses), divides it by the average number of shares
entitled to receive dividends, and expresses the result as an annualized
percentage rate based on the Portfolio's share price at the end of the seven-day
period. The Portfolio's compounded annualized yield assumes the reinvestment of
dividends paid by the Portfolio, and therefore will be somewhat higher than the
annualized yield for the same period.

<PAGE>

The Portfolio's advertisements may refer to ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Portfolio may be
compared to recognized indices of market performance. The comparative material
found in the Portfolio's advertisements, sales literature, or reports to
shareholders may contain performance ratings. This material is not to be
considered representative or indicative of future performance.

DETERMINATION OF NET ASSET VALUE. The net asset value per share of the Portfolio
is determined at 4:15 p.m. (Eastern Time) on each Fund Business Day. The net
asset value is determined by subtracting total liabilities from total assets and
dividing the remainder by the number of shares outstanding. The Portfolio's
securities are valued at their amortized cost which does not take into account
unrealized gains or losses on securities. This method involves initially valuing
an instrument at its cost and thereafter assuming a constant amortization to
maturity of any premium paid or accreting discount received. The amortized cost
method minimizes changes in the market value of the securities held by the
Portfolio and helps it maintain a stable price of $1.00 per share.

CUSTODIAN AND ACCOUNTING AGENT. The Bank of New York, New York, New York, is
custodian for the securities and cash of the Trust. The Bank of New York is also
the accounting agent for the Portfolio, with responsibility for calculating the
net asset value of the Institutional Class and for maintaining its books and
records.

LEGAL COUNSEL. Legal counsel to the Trust is provided by Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, New York, New York.

INDEPENDENT PUBLIC ACCOUNTANT. The independent public accountant for the Trust
is McGladrey & Pullen, LLP, New York, New York.

THE TRUST, ITS SHARES AND CLASSES. The Trust is registered with the SEC as an
open-end management investment company and was organized as a business trust
under the laws of the State of Delaware on July 14, 1994. The Board has the
authority to issue an unlimited number of shares of beneficial interest of
separate series with no par value per share and to create classes of shares
within each series. If shares of separate series are issued, each share of each
series would be entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation of that series. Voting rights
would not be cumulative and the shares of each series of the Trust would be
voted separately except when an aggregate vote is required by law.

In addition to Institutional Shares, the Portfolio offers Investor Shares and
Service Shares (individually, a "Class") by separate prospectuses. Each Class of
shares has a different distribution arrangement. Also, to the extent one Class
bears expenses different from the other Classes, the amount of dividends and
other distributions it receives, and its performance, will differ. Shareholders
of one Class have the same voting rights as shareholders of the other Classes,
except that separate votes are taken by each Class of the Portfolio if the
interests of one Class differ from the interests of the others. For information
about Investor Shares or Service Shares,

<PAGE>

please call (800) 941-MILE, or ask your sales representative which Class would
be a suitable investment.

Delaware law does not require a registered investment company to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available procedures for requiring the Trustees to call a meeting and for
removing Trustees. Shares issued by the Trust have no conversion, subscription
or preemptive rights. See "OTHER INFORMATION - The Trust and its Shareholders"
in the Statement of Additional Information.

As of November 30, 1995, the Trustees and officers of the Portfolio in the
aggregate owned less than one percent of the outstanding shares of the
Portfolio.

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement of
Additional Information and the Portfolio's official sales literature in
connection with the offering of the Portfolio's shares, and if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.

<PAGE>

THE MILESTONE FUNDS

ADVISER
MILESTONE CAPITAL MANAGEMENT, L.P.
One Odell Plaza
Yonkers, NY 10701

ADMINISTRATOR / CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286

UNDERWRITER / TRANSFER AGENT
Midwest Group Financial Services, Inc. / MGF Service Corp.
P. O. Box 5354
Cincinnati, OH 45201-5354

PRIMARY DEALER
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167

LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, NY 10022

INDEPENDENT PUBLIC ACCOUNTANT
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017

THE MILESTONE FUNDS
800-941-MILE

<PAGE>
Rule 497(c)
Registration No. 33-81574

THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO

ADVISER
MILESTONE CAPITAL MANAGEMENT, L.P.

PROSPECTUS

SEPTEMBER 6, 1996

AS REVISED
FEBRUARY 21, 1997

FINANCIAL SHARES

<PAGE>

THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO

FINANCIAL SHARES
One Odell Plaza Yonkers, New York 10701

(800) 941-MILE

This Prospectus offers Financial Shares of the Treasury Obligations Portfolio
(the "Portfolio"), a diversified, no-load money market portfolio of The
Milestone Funds (the "Trust"), an open-end investment management company. The
Portfolio seeks to provide its shareholders with the maximum current income that
is consistent with the preservation of capital and the maintenance of liquidity.
Milestone Capital Management, L.P. serves as the Portfolio's investment adviser.

TREASURY OBLIGATIONS PORTFOLIO invests only in short-term obligations
of the U.S. Treasury and repurchase agreements fully collateralized by
obligations of the U.S.
Treasury.

This Prospectus provides you with information about the Trust and the Portfolio
which you should know before investing in shares of the Portfolio. A Statement
of Additional Information, dated September 6, 1996, has been filed with the
Securities and Exchange Commission ("SEC") and is available free of charge by
contacting The Milestone Funds, One Odell Plaza, Yonkers, New York 10701, or by
calling (800) 941-MILE (6453). This information contained in the Statement of
Additional Information, as amended from time to time, is incorporated by
reference into this prospectus.

INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.

AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

<PAGE>

TABLE OF CONTENTS

Page
----
Prospectus Summary...................................... 2
Expenses of Investing in the Portfolio.................. 3
Investment Objective and Policies....................... 4
Risk Considerations..................................... 5
Additional Investment Policies and Practices............ 5
Management of the Trust................................. 6
How to Invest in the Portfolio.......................... 9
How to Redeem Shares of the Portfolio................... 11
Dividends and Tax Matters............................... 12
Other Information....................................... 13

PROSPECTUS SUMMARY

PORTFOLIO HIGHLIGHTS

FINANCIAL SHARES. This prospectus offers Financial Shares of the Treasury
Obligations Portfolio. The Treasury Obligations Portfolio (the "Portfolio") is a
money market fund that invests only in U.S. Treasury obligations and repurchase
agreements fully collateralized by U.S. Treasury obligations. Financial Shares
are designed primarily for use by large institutional investors, including banks
acting for themselves or in an advisory, agency, custodial, fiduciary or other
similar capacity. The Portfolio also offers Institutional Shares and Investor
Shares by separate prospectus. Institutional Shares and Investor Shares are
subject to different expenses that affect their performance. For further
information about Institutional Shares and Investor Shares call (800) 941-MILE.
See "Other Information".

MANAGEMENT. The Portfolio's investment adviser is Milestone Capital Management,
L.P. (the "Adviser"), One Odell Plaza, Yonkers, New York 10701. See "Management
of the Trust".

ADMINISTRATION AND UNDERWRITING . The administrator of the Trust is The Bank of
New York, 90 Washington Street, New York, New York 10286. Midwest Group
Financial Services, Inc., P. O. Box 5354, Cincinnati, Ohio 45201-5354, serves as
statutory underwriter of the Trust's shares. See "Management of the Trust".

PURCHASES AND REDEMPTIONS. Investors may purchase and redeem shares of
beneficial interest in the Portfolio without any sales loads or other charges
any day the New York Stock Exchange and the Federal Reserve Bank of New York are
open ("Fund Business Day") between the hours of 9:00 a.m. and 6:00 p.m. (Eastern
Time). To allow the Adviser to manage the Portfolio most effectively, investors
are encouraged to execute as many trades as possible before 2:30 p.m. If MGF
Service Corp. (the "Transfer Agent") receives a firm indication of the
approximate size of a purchase by 2:30 p.m. (Eastern Time), and the completed
purchase order by 4:15 p.m., the shares purchased will earn dividends on the
same day. If the Transfer Agent receives a firm indication of the approximate
size of a redemption by 2:30 p.m. (Eastern Time), and the completed redemption
order by 4:00 p.m.,

<PAGE>

redemption proceeds will ordinarily be wired that day, and the investor will not
receive that day's dividends. The minimum initial investment is $50,000,000. The
Trust and the Transfer Agent each reserves the right to waive this minimum
initial investment limitation. There is no minimum subsequent investment. See
"How To Invest In The Portfolio" and "How To Redeem Shares Of The Portfolio".

EXPENSES OF INVESTING IN THE PORTFOLIO

The purpose of the following table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly.

SHAREHOLDER TRANSACTION EXPENSES:

Maximum Sales Load Imposed on Purchases...........................None
Maximum Sales Load Imposed on Reinvested Dividends................None
Deferred Sales Load...............................................None
Redemption Fees...................................................None
Exchange Fees.....................................................None

ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of annual average net
assets):

Advisory Fees (after fee waivers).............................0.10%
Other Expenses....................................................0.05%
-----
Total Operating Expenses (after fee waivers)......................0.15%

EXAMPLE

You would pay the following expenses on
a $1,000 investment in Financial Shares
of the Portfolio, assuming a 5%
annual return and redemption at the end 1 Year 3 Years 5 Years 10 Years
of each period: . . . . . . . . $2 $5 N/A N/A

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

The following permissible investments and investment restrictions are
fundamental investment policies of the Portfolio that may not be changed without
shareholder approval:

PERMISSIBLE INVESTMENTS. The Portfolio seeks to achieve its investment objective
by investing ONLY in:

<PAGE>

INVESTMENT RESTRICTIONS. The Portfolio WILL NOT:

1. Invest in structured notes or instruments commonly known as
derivatives;

2. Invest in variable, adjustable or floating rate instruments of any
kind;

3. Enter into reverse repurchase agreements;

4. Invest in securities issued by agencies or instrumentalities of the
United States Government, such as the Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association
("GNMA"), Federal Home Loan Mortgage Corp. ("Freddie Mac"), or the
Small Business Administration ("SBA"); or,

5. Invest in zero coupon bonds.

RISK CONSIDERATIONS

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

<PAGE>

borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, the Portfolio might have to sell
portfolio securities to meet interest or principal payments at a time when
investment considerations would not favor such sales. As a nonfundamental
investment policy, the Portfolio may not purchase securities for investment
while any borrowing equaling 5% or more of the Portfolio's total assets is
outstanding.

TEMPORARY DEFENSIVE POSITIONS. Under abnormal market or economic conditions, the
Portfolio temporarily may hold up to 100% of its investable assets in cash.

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

<PAGE>

THE ADVISER

For its services, the Adviser may receive a fee at an annual rate equal to 0.10%
of the Portfolio's average daily net assets. The Adviser is responsible for
payment of salaries of its portfolio manager and staff as well as other expenses
necessary to the performance of its duties under the investment advisory
agreement. The Adviser may, at its own expense and from its own resources,
compensate certain persons who provide services in connection with the sale or
expected sale of shares of the Portfolio without reimbursement from the Trust.
The Trust, on behalf of the Portfolio, is responsible for all expenses other
than those expressly borne by the Adviser under the investment advisory
agreement. The expenses borne by the Trust include, but are not limited to, the
investment advisory fee, administration fee, transfer agent fee, and custodian
fee, costs of preparing, printing and delivering to shareholders the Trust's
prospectuses, statements of additional information, and shareholder reports,
legal fees, auditing and tax fees, taxes, blue sky fees, SEC fees, compliance
expenses, insurance expenses, and compensation of certain of the Trust's
Trustees, officers and employees and other personnel performing services for the
Trust. Should the expenses of the Portfolio (including the fees of the Adviser
but excluding interest, taxes, brokerage commissions, litigation and
indemnification expenses and other extraordinary expenses) for any fiscal year
exceed the limits prescribed by any state

<PAGE>

in which the Portfolio's shares are qualified for sale, the Adviser will reduce
its fee or reimburse expenses by the amount of such excess.

The Adviser may enter into separate agreements with third parties that provide
various services to those shareholders of the Trust who purchase shares of the
Portfolio. For these services, the Adviser, at its own expense and from its own
resources, may pay a fee which would not increase the amount of any advisory
fees paid to the Adviser by the Portfolio.

ADMINISTRATOR

The Bank of New York, 90 Washington Street, New York, New York 10286 serves as
the administrator of the Trust, pursuant to an Administration Agreement with the
Trust.

UNDERWRITER

Midwest Group Financial Services, Inc. (the "Underwriter") serves as statutory
underwriter of the Portfolio's shares pursuant to an Underwriting Agreement with
the Trust. The Underwriter is an affiliate of the Trust's transfer agent. See
"Transfer Agent".

The Underwriter is reimbursed for all costs and expenses incurred in this
capacity but receives no further compensation for its services under the
Underwriting Agreement. The Underwriter may enter into arrangements with banks,
broker-dealers or other financial institutions ("Selected Dealers") through
which investors may purchase or redeem shares. The Underwriter may compensate
certain persons who provide services in connection with the sale or expected
sale of shares of the Portfolio. Investors purchasing shares of the Portfolio
through another financial institution should read any materials and information
provided by the financial institution to acquaint themselves with its procedures
and any fees that it may charge.

<PAGE>

TRANSFER AGENT

HOW TO INVEST IN THE PORTFOLIO

PURCHASING SHARES. Shares of the Portfolio may be purchased by wire only. Shares
are sold at the net asset value next determined after receipt of a purchase
order in the manner described below. Purchase orders are accepted on any day on
which the New York Stock Exchange and the Federal Reserve Bank of New York are
open ("Fund Business Day") between the hours of 9:00 a.m. and 6:00 p.m. (Eastern
Time). The Trust does not determine net asset value, and purchase orders are not
accepted, on the days those institutions observe the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.

To purchase shares of the Portfolio by Federal Reserve wire, call the Transfer
Agent, MGF Service Corp., at (800) 363-7660 or call your sales representative.
If the Transfer Agent receives a firm indication of the approximate size of the
intended investment before 2:30 p.m. (Eastern Time) and the completed purchase
order before 4:15 p.m. (Eastern Time), and the Custodian receives Federal Funds
the same day, purchases of shares of the Portfolio begin to earn dividends that
day. Completed orders received after 4:15 p.m. begin to earn dividends the next
Fund Business Day upon receipt of Federal Funds.

To allow the Adviser to manage the Portfolio most effectively, investors are
encouraged to execute as many trades as possible before 2:30 p.m. To protect the
Portfolio's performance and shareholders, the Adviser discourages frequent
trading in response to short-term market fluctuations. The Portfolio reserves
the right to refuse any investment that, in its sole discretion, would disrupt
the Portfolio's management.

<PAGE>

The following procedure will help assure prompt receipt of your Federal Funds
wire:

A. Telephone the Transfer Agent, MGF Service Corp., toll free at (800)
363-7660 and provide the following information:

Your name
Address
Telephone number
Taxpayer ID number
The amount being wired The identity of the bank wiring funds.

You will then be provided with a Portfolio account number. (Investors with
existing accounts must also notify the Trust before wiring funds.)

B. Instruct your bank to wire the specified amount to the Trust as
follows:

The Bank of New York, ABA # 021000018
A/C # 8900276541
FBO Milestone Funds Treasury Obligations Portfolio Operating
Account
Ref: Shareholder Name and Account Number

The Trust and the Transfer Agent each reserves the right to reject any purchase
order for any reason.

SHARE CERTIFICATES. The Transfer Agent maintains a share account for each
shareholder. The Trust does not issue share certificates.

ACCOUNT STATEMENTS. Monthly account statements are sent to investors to report
transactions such as purchases and redemptions as well as dividends paid during
the month.

<PAGE>

MINIMUM INVESTMENT REQUIRED. The minimum initial investment in the Portfolio is
$50,000,000. There is no minimum subsequent investment. The Trust reserves the
right to waive the minimum investment requirement.

HOW TO REDEEM SHARES OF THE PORTFOLIO

REDEEMING SHARES. Holders of shares of the Portfolio may redeem their shares
without charge at the net asset value next determined after the Portfolio
receives the redemption request. Redemption requests must be received in proper
form and can be made by telephone request or wire request on any Fund Business
Day between the hours of 9:00 a.m. and 6:00 p.m. (Eastern Time).

<PAGE>

<TABLE>
<CAPTION>
Completed
FIRM INDICATION OF REDEMPTION Redemption Redemption
REQUEST AND APPROXIMATE SIZE OF Order Received Proceeds
REDEMPTION RECEIVED Ordinarily Dividends
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
By 2:30 p.m. Eastern Time By 4:00 p.m. Wired same Not earned on
Eastern Time Business Day the day request
received
</TABLE>

<TABLE>
<S> <C> <C> <C>
After 2:30 p.m. Eastern Time After 4:00 p.m. Wired next Earned on day
Eastern Time Business Day request received
</TABLE>

Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon 60 days written notice, all shares in an account with
an aggregate net asset value of less than $10,000,000 unless an investment is
made to restore the minimum value. The Trust will not redeem accounts that fall
below this amount solely as a result of a reduction in the net asset value of
the Portfolio's shares.

DIVIDENDS AND TAX MATTERS

DIVIDENDS AND DISTRIBUTIONS

TAX MATTERS

TAX STATUS OF THE PORTFOLIO. The Portfolio intends to qualify and continue to
qualify to be taxed as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, the Portfolio will
not be liable for Federal income taxes on the net investment income and capital
gains distributed to its shareholders. Because the Portfolio intends to
distribute all of its net investment income and net capital gains each year in
accordance with the timing requirements of the Code, the Portfolio should also
avoid Federal excise taxes.

<PAGE>

OTHER INFORMATION

<PAGE>

CUSTODIAN AND ACCOUNTING AGENT. The Bank of New York, New York, New York, is
custodian for the securities and cash of the Trust. The Bank of New York is also
the accounting agent for the Portfolio, with responsibility for calculating the
net asset value of the Financial Shares and for maintaining its books and
records.

LEGAL COUNSEL. Legal counsel to the Trust is provided by Kramer, Levin, Naftalis
& Frankel, New York, New York.

INDEPENDENT PUBLIC ACCOUNTANT. The independent public accountant for the Trust
is Deloitte & Touche, LLP, New York, New York.

In addition to Financial Shares, the Portfolio offers Institutional Shares and
Investor Shares by separate prospectus. Each class of shares has a different
distribution arrangement. Also, to the extent one class bears expenses different
from the other classes, the amount of dividends and other distributions it
receives, and its performance, will differ. Shareholders of one class have the
same voting rights as shareholders of the other classes, except that separate
votes are taken by each class of the Portfolio if the interests of one class
differ from the interests of the other. For information about Institutional
Shares and Investor Shares, please call (800) 941-MILE.

<PAGE>

As of November 30, 1995, the Trustees and officers of the Portfolio in the
aggregate owned less than one percent of the outstanding shares of the
Portfolio.

<PAGE>

THE MILESTONE FUNDS

ADVISER
MILESTONE CAPITAL MANAGEMENT, L.P.
One Odell Plaza
Yonkers, NY 10701

ADMINISTRATOR / CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286

UNDERWRITER / TRANSFER AGENT
Midwest Group Financial Services, Inc. / MGF Service Corp.
P. O. Box 5354
Cincinnati, OH 45201-5354

LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022

INDEPENDENT PUBLIC ACCOUNTANT
Deloitte & Touche, LLP
Two World Financial Center
New York, NY 10281-1434

THE MILESTONE FUNDS
800-941-MILE

<PAGE>
Rule 497(c)
Registration No. 33-81574

THE MILESTONE FUNDS

TREASURY OBLIGATIONS PORTFOLIO-INSTITUTIONAL AND INVESTOR SHARES

ONE ODELL PLAZA
YONKERS, NEW YORK 10701
TEL. (800) 941-MILE

- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 6, 1996

The Milestone Funds (the "Trust") is an open-end investment management company.
This Statement of Additional Information supplements the Prospectuses which
offer shares of the Institutional class and Investor class of the Treasury
Obligations Portfolio (the "Portfolio"), a diversified, no-load money market
portfolio of the Trust, and should be read only in conjunction with those
Prospectuses, copies of which may be obtained without charge by writing to The
Milestone Funds, One Odell Plaza, Yonkers, New York 10701, or by calling (800)
941-MILE (941-6453).

TABLE OF CONTENTS

Page

1. Investment Policies................................ 2
2. Investment Limitations............................. 3
3. Advertising........................................ 5
4. Management......................................... 7
5. Determination of Net Asset Value...................14
6. Portfolio Transactions.............................14
7. Additional Purchase and
Redemption Information...........................15
8. Taxation...........................................16
9. Other Information..................................21

This Statement of Additional Information is not a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by a
current prospectus.

<PAGE>

1. INVESTMENT POLICIES

The following discussion is intended to supplement the disclosure in the
Prospectuses of both the Institutional and Investor classes of shares concerning
the Portfolio's investments and investment techniques and the risks associated
therewith.

DEFINITIONS

As used in this Statement of Additional Information, the following terms shall
have the meanings listed:

"Board" shall mean the Board of Trustees of the Trust.

"U.S. Treasury obligations" shall mean securities issued by the United
States Treasury, such as Treasury bills, notes and bonds, that are
fully guaranteed as to payment of principal and interest by the United
States.

"1940 Act" shall mean the Investment Company Act of 1940, as amended.

"Fully Collateralized" shall mean that the value of the underlying
securities used to collateralize a repurchase agreement is at least
102% of the maturity value.

REPURCHASE AGREEMENTS. The Portfolio may purchase repurchase agreements fully
collateralized by U.S. Treasury obligations. In a repurchase agreement, the
Portfolio purchases a security and simultaneously commits to resell that
security to the seller at an agreed-upon price on an agreed-upon future date,
normally one-to-seven days later. The repurchase price reflects a market rate of
interest unrelated to the coupon rate or maturity of the purchased security. The
obligation of the seller to pay the repurchase price is in effect secured by the
value of the underlying security (as determined daily by the Adviser). This
value must be equal to, or greater than, the repurchase price plus the
transaction costs (including loss of interest) that the Portfolio could expect
to incur upon liquidation of the collateral if the counterparty defaults. If a
counterparty defaults on its repurchase obligation, the Portfolio might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. In the event of a counterparty's bankruptcy, the
Portfolio might be delayed in, or prevented from, selling the collateral for the
Portfolio's benefit.

<PAGE>

a purchase and thereafter reflect the value each day of such securities in
determining its net asset value. During the period between a commitment and
settlement, no payment is made for the securities purchased and no interest on
the security accrues to the purchaser. At the time the Portfolio makes a
commitment to purchase securities in this manner, the Portfolio immediately
assumes the risk of ownership, including price fluctuation. Accordingly, the
value of the securities on the delivery date may be more or less than the
purchase price. Although the Portfolio will only enter into a forward commitment
if it intends to actually acquire the securities, if the Portfolio later chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. When the Portfolio
agrees to purchase a security on a when-issued or delayed delivery basis, the
Trust's custodian will set aside and maintain a segregated account of sufficient
liquid assets (such as cash or U.S. Treasury obligations) which will be
available to make payment for the securities purchased. Failure by the other
party to deliver a security purchased by the Portfolio may result in a loss or a
missed opportunity to make an alternative investment. Although there is no limit
on the amount of these commitments that the Portfolio may make, under normal
circumstances it will not commit more than 30% of its total assets to such
purchases.

ILLIQUID SECURITIES. The Portfolio may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
repurchase agreements having a maturity of more than seven days and not
entitling the holder to payment of principal within seven days. In addition, the
Fund will not invest in repurchase agreements having a maturity in excess of one
year. Certain repurchase agreements which provide for settlement in more than
seven days can be liquidated before the nominal fixed term on seven days or less
notice. Such repurchase agreements will be regarded as liquid instruments. The
Board has ultimate responsibility for determining whether specific securities
are liquid or illiquid. The Adviser monitors the liquidity of securities held by
the Portfolio and reports periodically to the Board.

CASH POSITION. Although the Portfolio intends to be invested fully in U.S.
Treasury obligations or repurchase agreements, it may hold a de minimus amount
of cash for a short period prior to investment or payment of the proceeds of
redemption. The amount of this cash should not exceed 5% of the Portfolio's
assets, and in most cases will be significantly less.

2. INVESTMENT LIMITATIONS

The Portfolio has adopted the following fundamental investment limitations that
cannot be changed without the affirmative vote of the lesser of (i) more than
50% of the outstanding shares of the Portfolio or (ii) 67% of the shares of the
Portfolio present or represented at a shareholders meeting at which the holders
of more than 50% of the outstanding shares of the Portfolio are present or
represented. The Portfolio may not:

(1) Invest in variable, adjustable or floating rate instruments of any
kind;

(2) Invest in securities issued by agencies or instrumentalities of the
United States

<PAGE>

Government, such as the Federal National Mortgage Association ("FNMA"),
Government National Mortgage Association ("GNMA"), Federal Home Loan Mortgage
Corp. ("Freddie Mac"), or the Small Business Administration ("SBA"); or,

(3) Invest in zero coupon bonds.

(4) Invest in structured notes or instruments commonly known as
derivatives.

(5) Enter into reverse repurchase agreements.

(6) With respect to 100% of its assets, purchase a security other than
a U.S. Treasury obligation if, as a result, more than 5% of the Fund's total
assets would be invested in the securities of a single issuer.

(7) Purchase securities if, immediately after the purchase, 25% or more
of the value of the Portfolio's total assets would be invested in the securities
of issuers having their principal business activities in the same industry;
except that there is no limit on investments in U.S. Treasury obligations and
repurchase agreements fully collateralized by U.S. Treasury obligations.

(8) Purchase restricted securities, or underwrite securities of other
issuers, except to the extent that the Portfolio may be considered to be acting
as an underwriter in connection with the disposition of portfolio securities.

(9) Purchase or sell real estate or any other interest therein, or real
estate limited partnerships or invest in securities issued by companies that
invest in real estate or interests therein.

(10) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.

(11) Borrow money, except for temporary or emergency purposes (not for
leveraging or investment), provided that borrowings do not exceed 33 1/3% of the
value of the Portfolio's total assets.

(12) Issue senior securities except as appropriate to evidence
indebtedness that the Portfolio is permitted to incur, and provided that the
Portfolio may issue shares of additional series or classes that the Trustees may
establish.

(13) Make loans (except through the use of repurchase agreements, and
through the purchase of debt securities that are otherwise permitted
investments).

(14) Purchase securities on margin, or make short sales of securities,
except for the

<PAGE>

use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities.

(15) Write options or acquire instruments with put or demand features,
except that the Portfolio may enter into repurchase agreements terminable upon
demand.

(16) Invest in oil, gas or other mineral exploration or development
programs.

The Portfolio has adopted the following nonfundamental investment limitations
that may be changed by the Board without shareholder approval. The Portfolio may
not:

(a) Purchase securities for investment while any borrowing equaling 5%
or more of the Portfolio's total assets is outstanding; and if at any time the
Portfolio's borrowings exceed the Portfolio's investment limitations due to a
decline in net assets, such borrowings will be promptly (within three days)
reduced to the extent necessary to comply with the limitations.

(b) Invest in or hold securities of any issuer other than the Portfolio
if those Trustees and officers of the Trust or the Portfolio's investment
adviser, individually owning beneficially more than 1/2 of 1% of the securities
of the issuer, in the aggregate own more than 5% of the issuer's securities.

(c) Acquire securities or invest in repurchase agreements with respect
to any securities if, as a result, more than 10% of the Portfolio's net assets
(taken at current value) would be invested in repurchase agreements having a
maturity of more than seven days and not entitling the holder to payment of
principal within seven days and in securities that are illiquid by virtue of
legal or contractual restrictions on resale or the absence of a readily
available market.

Except as required by the 1940 Act, if a percentage restriction on investment or
utilization of assets is adhered to at the time an investment is made a later
change in percentage resulting from a change in the market values of the
Portfolio's assets, the change in status of a security or purchases and
redemptions of shares will not be considered a violation of the limitation.

3. ADVERTISING

PERFORMANCE DATA

The Portfolio may provide current annualized and effective annualized yield
quotations for each class based on its daily dividends. These quotations may
from time to time be used in advertisements, shareholder reports or other
communications to shareholders. All performance information supplied by the
Portfolio is historical and is not intended to indicate future returns.

In performance advertising the Portfolio may compare any of its performance
information with data published by independent evaluators including Morningstar,
Lipper Analytical Services,

<PAGE>

Inc., IBC/Donoghue, Inc., CDA/Wiesenberger and other companies that track the
investment performance of investment companies ("Fund Tracking Companies"). The
Portfolio may also compare any of its performance information with the
performance of recognized stock, bond and other indices. The Portfolio may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Portfolio and comparative mutual fund data and ratings
reported in independent periodicals, such as newspapers and financial magazines.

Any current yield quotation of a class of the Portfolio which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the Securities
Act of 1933, as amended, shall consist of an annualized historical yield,
carried at least to the nearest hundredth of one percent, based on a specific
seven-calendar-day period and shall be calculated by dividing the net change
during the seven-day period in the value of an account having a balance of one
share at the beginning of the period by the value of the account at the
beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any effective annualized yield quotation used by the Portfolio shall be
calculated by compounding the current yield quotation for such period by adding
1 to the product, raising the sum to a power equal to 365/7, and subtracting 1
from the result.

The current and effective seven day yields at November 30, 1995 were 5.76% and
5.93% for the Institutional Class and 5.56% and 5.72% for the Investor Class,
respectively.

Although published yield information is useful to investors in reviewing a
class's performance, investors should be aware that the Portfolio's yield
fluctuates from day to day and that its yield for any given period is not an
indication or representation by the Portfolio of future yields or rates of
return on its shares. The yields of a class are neither fixed nor guaranteed,
and an investment in the Portfolio is not insured or guaranteed. Accordingly,
yield information may not necessarily be used to compare shares of the Portfolio
with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. Also, it may not be appropriate
to compare directly the Portfolio's yield information to similar information of
investment alternatives which are insured or guaranteed.

Income calculated for the purpose of determining the yield of a class differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a class may differ from the rate of
distribution the class paid over the same period or the rate of income reported
in the Portfolio's financial statements.

The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over

<PAGE>

a stated period. Average annual and cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions over any time period.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to total return. Any
performance information may be presented numerically or in a table, graph or
similar illustration.

OTHER INFORMATION

The Funds may include other information in their advertisements including, but
not limited to (i) portfolio holdings and portfolio allocation as of certain
dates, such as portfolio diversification by instrument type, by instrument, by
location of issuer or by maturity; (ii) statements or illustrations relating to
the appropriateness of types of securities and/or mutual funds that may be
employed by an investor to meet specific financial goals; (iii) descriptions of
the Funds' portfolio managers and the portfolio management staff of the Adviser
or summaries of the views of the portfolio managers with respect to the
financial markets; (iv) information regarding the background, experience or
areas of expertise of the Funds' trustees; (v) ratings assigned the Fund by
ratings organizations such as Standard & Poor's Ratings Group, Moody's Investors
Service, or Fitch Investors Service, Inc.; (vi) the results of a hypothetical
investment in a Fund over a given number of years, including the amount that the
investment would be at the end of the period; and, (ix) the net asset value, net
assets or number of shareholders of a Fund as of one or more dates. The Fund may
also compare the Fund's operations to the operations of other funds or similar
investment products. Such comparisons may refer to such aspects of operations as
the nature and scope of regulation of the products and the products' weighted
average maturity, liquidity, investment policies, and the manner of calculating
and reporting performance.

In connection with its advertisements each Fund may provide "shareholders'
letters" to provide shareholders or investors an introduction to the Fund's, the
Trust's or any of the Trust's service provider's policies or business practices.
The Fund may also include in sales materials information regarding the Adviser
including the nature of its management techniques and its status as an entity
wholly owned by women.

4. MANAGEMENT

TRUSTEES AND OFFICERS

The Trustees and Officers of the Trust and their principal occupations during
the past five years are set forth below. Trustee deemed to be "interested
person" of the Trust as defined in the 1940 Act are marked with an asterisk.

*Janet Tiebout Hanson, Chairman and President.

<PAGE>

President and Chief Executive Officer of Milestone Capital Management,
L.P., the Adviser to the Portfolio and President and Chief Executive
Officer of Milestone Capital Management Corp., the general partner of
the Adviser. Ms. Hanson was Managing Director of the Hanson Consulting
Group, Inc., a management consulting firm, from September 1993 to May
1994. From October 1991 to August 1993, she was Vice- President of the
Asset Management Division of Goldman, Sachs & Co., an investment
banking firm. Ms. Hanson was also with Goldman, Sachs & Co. from 1977
to 1987. During that period, she became Vice-President of Fixed Income
Sales and served as co- manager of money market sales in New York. Her
address is 38 Forest Lane, Bronxville, New York 10708.

*Dort A. Cameron III, Trustee.

Chairman of the Board of Milestone Capital Management Corp. Since 1984,
he has been the General Partner of BMA L.P., which is the General
Partner of Investment Limited Partnership, an investment partnership.
Since 1988, Mr. Cameron has been a General Partner of EBD L.P., which
is the General Partner of The Airlie Group, L.P., an investment
partnership. He has been Chairman of Entex Information Services, a
computer resale and service corporation, since August 1993. Mr. Cameron
is a Trustee and Chairman of the Finance Committee of Middlebury
College. His address is Airlie Farm, Old Post Road, Bedford, New York
10506.

*John D. Gilliam, Trustee.

Chief Financial Officer, Robert Wood Johnson Foundation, Princeton, New
Jersey. Former Limited Partner, Goldman, Sachs & Co. from 1987 to 1991.
From 1991 to 1994, Mr. Gilliam was Deputy Comptroller, Bureau of Asset
Management, in the Office of the Comptroller for the City of New York.
He was a Partner at Goldman, Sachs & Co. from 1973 to 1987. His address
is 700 Park Avenue, New York, New York 10021. Mr. Gilliam is currently
a Limited Partner at Goldman, Sachs & Co.

Karen S. Cook, Trustee.

Director of Client Services, Steinhardt Management Co., an investment
partnership. Trustee and Chair of the Investment Committee of Wheaton
College. Ms. Cook is also Vice-President of the Board of Trustees and
Chair of the Development Committee of the Episcopal School in New York
City. From 1989 until 1992, she was Managing Director of Alterna-Track,
a professional placement and consulting firm specializing in the
financial services industry. From 1975 until 1987, Ms. Cook was with
the Equity Division of Goldman, Sachs & Co., where she became a
Vice-President and senior block trader. Her address is 125 East 72nd
Street, New York, New York 10021.

Anne Brown Farrell, Trustee.

<PAGE>

Former Vice-President, Fixed Income Division, Goldman, Sachs & Co. From
1973 through November 1994, Ms. Farrell was associated with Goldman
Sachs in various capacities including Money Market Sales and Trading,
and Fixed Income Administration. Her address is 34 Midwood Road,
Greenwich, Connecticut 06830.

Magna L. Dodge, Trustee.

Financial Consultant, Magna Dodge & Company, Inc. Ms. Dodge is also
Vice Chairman of the Board of Trustees of Middlebury College, and Vice
Chairman of the Budget and Finance Committee. She is also a member of
the Board of Directors of Planned Parenthood of Westchester and
Rockland, Inc. From June 1975 until June 1994, she was with Chemical
Bank and Manufacturers Hanover Trust Company, New York, prior to its
merger with Chemical. Ms. Dodge was a Managing Director in charge of
the Media and Entertainment Group. Her address is 20 Wood End Lane,
Bronxville, New York 10708.

*Michael Minikes, Trustee.

Senior Managing Director and Treasurer of The Bear Stearns Companies,
Inc. Mr. Minikes is also a member of the Board of Directors of the
Depository Trust Company, past chairman of the Securities Industry
Association Capital Committee, a former member of the NASD District 12
Business Conduct Committee, and a former director of the Securities
Industry Automation Corp.

Mr. Minikes joined Bear Stearns in 1978. Mr. Minikes became a general
partner and then a senior managing director when Bear Stearns
incorporated and went public in 1986. He is a member of the Firm's
Board of Directors, and Operations Committee. His address is 245 Park
Avenue, New York, New York, 10167.

Philip F. Strassler, Treasurer.

Chief Financial Officer of Milestone Capital Management, L.P., and
Partner of Marcum & Kliegman LLP. Mr. Strassler was formally President
of Philip F. Strassler CPA, P.C., an accounting firm. Before that, Mr.
Strassler was a Limited Partner of EBD L.P., an investment partnership
that is the General Partner of The Airlie Group, L.P., an investment
partnership. His address is 485 Underhill Boulevard, Syosset, New York
11791.

Jeffrey R. Hanson, Secretary.

Chief Operating Officer, Milestone Capital Management, L.P., and
Managing Director of the Hanson Consulting Group, Inc. Mr. Hanson's
address is 38 Forest Lane, Bronxville, New York 10708.

<PAGE>

Janet Tiebout Hanson, Dort A. Cameron III, John D. Gilliam and Michael Minikes
are interested persons of the Trust as that term is defined in the 1940 Act.
Janet Tiebout Hanson and Jeffrey R. Hanson are married.

The following table sets forth the fees paid to each Trustee of the Company for
the period from November 30, 1994 to November 30, 1995.

<TABLE>
<CAPTION>
Name of Person, Position Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
From Company Benefits Accrued Retirement From Company
As Part of Fund And Fund
Expenses Complex Paid To
Directors
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janet T. Hanson $0 $0 $0 $0

Dort A. Cameron III $0 $0 $0 $0

John D. Gilliam $1,000 $0 $0 $1,000

Karen S. Cook $1,000 $0 $0 $1,000

Anne Brown Farrell $1,000 $0 $0 $1,000

Magna L. Dodge $1,000 $0 $0 $1,000

Michael Minikes $0 $0 $0 $0

</TABLE>

INVESTMENT ADVISER

The Portfolio's investment adviser, Milestone Capital Management, L.P. (the
"Adviser") furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and effecting
portfolio transactions for the Portfolio. The Investment Advisory Agreement
between the Trust and the Adviser will remain in effect with respect to the
Portfolio for a period of 24 months and will continue in effect thereafter only
if its continuance is specifically approved at least annually by the Board or by
vote of the shareholders, and in either case, by a majority of the Trustees who
are not parties to the Investment Advisory Agreement or interested persons of
any such party at a meeting called for the purpose of voting on the Investment
Advisory Agreement.

<PAGE>

any error of judgment or mistake of law or for any act or omission in the
performance of its duties to the Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of the Adviser's duties or by
reason of reckless disregard of the Adviser's obligations and duties under the
Investment Advisory Agreement.

For the services provided by the Adviser, the Trust pays the Adviser, with
respect to the Portfolio, an annual fee of 0.10% of the total average daily net
assets of the Portfolio. This fee is accrued by the Trust daily. The Adviser may
waive up to 100% of the advisory fee of the Portfolio. In addition, the Adviser
may waive up to 100% of the shareholder servicing fee of each class. At any
time, however, the Adviser may rescind a voluntary fee waiver.

Under the Investment Advisory Agreement, the Adviser has agreed to reimburse the
Trust for certain of the Portfolio's operating expenses (exclusive of interest,
taxes, brokerage fees, distribution fees and organization and extraordinary
expenses, all to the extent such exclusions are permitted by applicable state
law) which in any year exceed the limits prescribed by any state in which the
Portfolio's shares are qualified for sale. The Adviser believes that currently
the most restrictive expense limitation imposed by any state is 2-1/2% of the
first $30 million of the Portfolio's average net assets, 2% of the next $70
million of its average net assets and 1-1/2% of its average net assets in excess
of $100 million. For the purpose of this obligation to reimburse expenses, the
Portfolio's annual expenses are estimated and accrued daily, and any appropriate
estimated payments will be made by the Adviser monthly.

For the period December 30, 1994 (commencement of operations) to November 30,
1995, the Adviser received advisory fees of $100,353, reflecting waivers of
$231,894.

Subject to the obligations of the Adviser to reimburse the Trust for its excess
expenses, the Trust has confirmed its obligation to pay all of its expenses,
including: interest charges, taxes, brokerage fees and commissions; expenses of
issue, repurchase and redemption of shares; premiums of insurance for the Trust,
its Trustees and officers and fidelity bond premiums; applicable fees, interest
charges and expenses of third parties, including the Trust's manager, investment
adviser, investment subadviser, custodian, transfer agent and fund accountant;
fees of pricing, interest, dividend, credit and other reporting services; costs
of membership in trade associations; telecommunications expenses; funds
transmission expenses, auditing, legal and compliance expenses; cost of forming
the Trust and maintaining its existence; costs of preparing and printing the
Trust's prospectuses, statements of additional information and shareholder
reports and delivering them to existing shareholders; expenses of meetings of
shareholders and proxy solicitations therefor; costs of maintaining books and
accounts and preparing tax returns; costs of reproduction, stationery and
supplies; fees and expenses of the Trustees; compensation of the Trust's
officers and employees who are not employees of the Adviser, and costs of other
personnel (who may be employees of the Adviser) performing services for the
Trust; costs of Trustee meetings; Securities and Exchange Commission
registration fees and related expenses; and state or foreign securities laws
registration fees and related expenses.

<PAGE>

The Adviser may carry out any of its obligations under the Investment Advisory
Agreement by employing, subject to the Board's supervision, one or more persons
who are registered as investment advisers or who are exempt from registration.
The Investment Advisory Agreement provides that the Adviser shall not be liable
for any act or omission of any subadviser except with respect to matters as to
which the Adviser specifically assumes responsibility in writing.

ADMINISTRATOR

The Bank of New York acts as administrator to the Trust pursuant to an
Administration Agreement with the Trust. As administrator, The Bank of New York
provides management and administrative services necessary to the operation of
the Trust (which include, among other responsibilities, negotiation of contracts
and fees with, and monitoring of performance and billing of, the transfer agent
and custodian and arranging for maintenance of books and records of the Trust),
and provides the Trust with general office facilities. The Administration
Agreement will remain in effect for a period of eighteen months with respect to
the Portfolio and thereafter is automatically renewed each year for an
additional term of one year.

The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Portfolio by vote of the
Portfolio's shareholders or by either party on not more than 60 days' written
notice. The Administration Agreement also provides that The Bank of New York
shall not be liable for any error of judgment or mistake of law or for any act
or omission in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of The Bank of New
York's duties or by reason of reckless disregard of its obligations and duties
under the Administration Agreement.

UNDERWRITER

Midwest Group Financial Services, Inc. (the "Underwriter") serves as the Trust's
statutory underwriter and acts as the agent of the Trust in connection with the
offering of shares of the Portfolio pursuant to an Underwriting Agreement. The
Underwriting Agreement will continue in effect for two years and will continue
in effect thereafter only if its continuance is specifically approved at least
annually by the Board or by vote of the shareholders entitled to vote thereon,
and in either case, by a majority of the Trustees who (i) are not parties to the
Underwriting Agreement, (ii) are not interested persons of any such party or of
the Trust and (iii) with respect to any class for which the Trust has adopted an
underwriting plan, have no direct or indirect financial interest in the
operation of that underwriting plan or in the Underwriting Agreement, at a
meeting called for the purpose of voting on the Underwriting Agreement. All
subscriptions for shares obtained by the Underwriter are directed to the Trust
for acceptance and are not binding on the Trust until accepted by it. The
Underwriter is reimbursed for all costs and expenses incurred in this capacity
but receives no further compensation under the Underwriting Agreement and is
under no obligation to sell any specific amount of Portfolio shares. The
Underwriter is an affiliate of MGF Service Corp., the Trust's transfer agent.
See "Transfer

<PAGE>

Agent".

The Underwriting Agreement provides that the Underwriter shall not be liable for
any error of judgment or mistake of law or in any event whatsoever, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of its obligations and duties under
the Underwriting Agreement.

The Underwriting Agreement is terminable with respect to the Portfolio without
penalty by the Trust on 60 days' written notice when authorized either by vote
of the Portfolio's shareholders or by a vote of a majority of the Board, or by
the Underwriter on 60 days' written notice. The Underwriting Agreement will
automatically terminate in the event of its assignment.

The Underwriter may enter into agreements with selected broker-dealers, banks,
or other financial institutions for distribution of shares of the Portfolio.
These financial institutions may charge a fee for their services and may receive
shareholders service fees even though shares of the Portfolio are sold without
sales charges or underwriting fees. These financial institutions may otherwise
act as processing agents, and will be responsible for promptly transmitting
purchase, redemption and other requests to the Portfolio.

Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Portfolio in this manner should acquaint themselves
with their institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.

TRANSFER AGENT

MGF Service Corp. (the "Transfer Agent") acts as transfer agent and dividend
disbursing agent for the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will remain in effect for a period of two years with
respect to the Portfolio and thereafter is automatically renewed each year for
an additional term of one year.

Among the responsibilities of the Transfer Agent for the Trust are, with respect
to shareholders of record: (1) answering shareholder inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Portfolio may be effected and certain other matters pertaining to the
Portfolio; (2) assisting shareholders in initiating and changing account
designations and addresses; (3) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records, assisting in processing
purchase and redemption transactions and receiving wired funds; (4) transmitting
and receiving funds in connection with customer orders to purchase or redeem
shares; (5) verifying shareholder signatures in connection

<PAGE>

with changes in the registration of shareholder accounts; (6) furnishing
periodic statements and confirmations of purchases and redemptions; (7)
arranging for the transmission of proxy statements, annual reports, prospectuses
and other communications from the Trust to its shareholders; (8) arranging for
the receipt, tabulation and transmission to the Trust of proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (9)
providing such other related services as the Trust or a shareholder may
reasonably request.

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation for acting as custodian, investment manager, nominee,
agent or fiduciary for its customers or clients who are shareholders of the
Portfolio with respect to assets invested in the Portfolio. The Transfer Agent
or any sub-transfer agent or other processing agent may elect to credit against
the fees payable to it by its clients or customers all or a portion of any fee
received from the Trust or from the Transfer Agent with respect to assets of
those customers or clients invested in the Portfolio. The sub-transfer agents or
processing agents retained by the Transfer Agent may be affiliated persons of
the Transfer Agent.

5. DETERMINATION OF NET ASSET VALUE

Pursuant to the rules of the Securities and Exchange Commission, the Board has
established procedures to stabilize the Portfolio's net asset value at $1.00 per
share. These procedures include a review of the extent of any deviation of net
asset value per share as a result of fluctuating interest rates, based on
available market rates, from the Portfolio's $1.00 amortized cost price per
share. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling Portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Trust has also established procedures to ensure
that portfolio securities meet the Portfolio's quality criteria.

In determining the approximate market value of Portfolio investments, the
Portfolio may employ outside organizations which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value.

6. PORTFOLIO TRANSACTIONS

<PAGE>

no brokerage commissions paid for any purchases. While the Trust does not
anticipate that the Portfolio will pay any amounts of commission, in the event
the Portfolio pays brokerage commissions or other transaction-related
compensation, the payments may be made to broker-dealers who pay expenses of the
Portfolio that it would otherwise be obligated to pay itself. Any transaction
for which the Portfolio pays commissions or transaction-related compensation
will be effected at the best price and execution available, taking into account
the value of any research services provided, or the amount of any payments for
other services made on behalf of the Portfolio, by the broker-dealer effecting
the transaction.

Allocations of transactions to dealers and the frequency of transactions are
determined for the Portfolio by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Portfolio rather than
by any formula. The primary consideration is prompt execution of orders in an
effective manner and at the most favorable price available to the Portfolio.

Investment decisions for the Portfolio will be made independently from those for
any other portfolio, account or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Portfolio and
other portfolios, accounts, or investment companies managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each entity.
In some cases, this policy might adversely affect the price paid or received by
the Portfolio or the size of the position obtainable for the Portfolio. In
addition, when purchases or sales of the same security for the Portfolio and for
other investment companies managed by the Adviser occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Portfolio are sold on a continuous basis by the underwriter
without any sales charge. Shareholders may effect purchases or redemptions or
request any shareholder privilege in person at MGF Service Corp.'s offices
located at P. O. Box 5354, 312 Walnut Street, Cincinnati, Ohio 45202.

The Trust accepts orders for the purchase or redemption of shares on any day
that the New York Stock Exchange and the Federal Reserve Bank of New York are
open ("Fund Business Day") between the hours of 9:00 a.m. and 6:00 p.m. (Eastern
Time). The Trust does not determine net asset value, and does not accept orders,
on the days those institutions observe the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.

<PAGE>

value next determined after receipt. Investors who place purchase orders after
the advanced time become entitled to dividends on the following Fund Business
Day. If a redemption request is received after the advanced time, MGF Service
Corp. ordinarily will wire redemption proceeds on the next Fund Business Day. In
addition, the Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same day credit as otherwise permitted by
the Securities and Exchange Commission.

ADDITIONAL REDEMPTION MATTERS

The Trust may redeem shares involuntarily to reimburse the Portfolio for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to
the Portfolio's shares as provided in the Prospectus from time to time.

Redemptions may be made wholly or partially in portfolio securities if the Board
determines that payment in cash would be detrimental to the best interests of
the Portfolio. The Trust has filed an election with the Securities and Exchange
Commission pursuant to which the Portfolio will only consider effecting a
redemption in portfolio securities if the particular shareholder is redeeming
more than $250,000 or 1% of the Portfolio's net asset value, whichever is less,
during any 90-day period.

8. TAXATION

The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its shareholders, and the discussions here and in
the Prospectus are not intended as substitutes for careful tax planning.

QUALIFICATION AS A REGULATED INVESTMENT COMPANY

The Portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Portfolio is not subject to federal income tax
on the portion of its net investment income (i.e., taxable interest, dividends
and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Portfolio made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year, will be considered distributions of income and
gains of the taxable year and can therefore satisfy the Distribution
Requirement.

<PAGE>

In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less that 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, the Portfolio may have to limit
the sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent the Portfolio from disposing
of investments at a loss, since the recognition of a loss before the expiration
of the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by the Portfolio at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.

In general, gain or loss recognized by the Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Portfolio at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Portfolio held the debt obligation.

Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.

<PAGE>

voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Portfolio controls and which are
engaged in the same or similar trades or businesses.

If for any taxable year the Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.

EXCISE TAX ON REGULATED INVESTMENT COMPANIES

A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (a "taxable year election")). The balance of
such income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.

For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).

The Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.

PORTFOLIO DISTRIBUTIONS

The Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.

<PAGE>

The Portfolio may either retain or distribute to shareholders its net capital
gain for each taxable year. The Portfolio currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Portfolio prior to the date on which the
shareholder acquired his shares.

Conversely, if the Portfolio elects to retain its net capital gain, the
Portfolio will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Portfolio elects to
retain its net capital gain, it is expected that the Portfolio also will elect
to have shareholders of record on the last day of its taxable year treated as if
each received a distribution of his pro rata share of such gain, with the result
that each shareholder will be required to report his pro rata share of such gain
on his tax return as long-term capital gain, will receive a refundable tax
credit for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.

Distributions by the Portfolio that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.

Distributions by the Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Portfolio reflects undistributed
net investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Portfolio, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.

Ordinarily, shareholders are required to take distributions by the Portfolio
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.

<PAGE>

number or no number at all, (2) who is subject to backup withholding by the IRS
for failure to report the receipt of interest or dividend income properly, or
(3) who has failed to certify to the Portfolio that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient".

SALE OR REDEMPTION OF SHARES

The Portfolio seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Portfolio will do this. In such a
case, a shareholder will recognize gain or loss on the sale or redemption of
shares of the Portfolio in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis in
the shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Portfolio within 30 days before or
after the sale or redemption. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of the Portfolio will
be considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss arising
from the sale or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding period
rules of Code Section 246(c)(3) and (4) generally will apply in determining the
holding period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.

FOREIGN SHAREHOLDERS

Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from the Portfolio is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.

If the income from the Portfolio is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Portfolio, capital gain dividends and
amounts retained by the Portfolio that are designated as undistributed capital
gains.

If the income from the Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.

<PAGE>

In the case of foreign noncorporate shareholders, the Portfolio may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Portfolio with proper notification of its
foreign status.

The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Portfolio, including
the applicability of foreign taxes.

EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS

The foregoing general discussion of U.S. Federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. Federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Portfolio.

9. OTHER INFORMATION

CUSTODIAN AND ACCOUNTING AGENT

Pursuant to a Custodian Contract with the Trust, The Bank of New York, New York,
New York, acts as the custodian of the Portfolio's assets. The custodian's
responsibilities include safeguarding and controlling the Portfolio's cash and
securities and determining income payable on and collecting interest on
Portfolio investments.

The Bank of New York also serves as the accounting agent for the Trust. As the
accounting agent, The Bank of New York is responsible for calculating the net
asset value of each class of shares of the Portfolio and for maintaining the
Trust's books and records.

AUDITORS

Deloitte & Touche, LLP, New York, New York, independent auditors, acts as
auditors for the Trust.

THE TRUST AND ITS SHAREHOLDERS

<PAGE>

The Trust was originally organized as a Delaware business trust on July 14,
1994, under the name Learning Assets(TM). By Certificate of Amendment filed with
the Secretary of State in Delaware on December 1, 1994, and amendment to its
Trust Instrument and Bylaws, the Trust changed its name to The Milestone Funds.

Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. The securities regulators of some states, however, have
indicated that they and the courts in their state may decline to apply Delaware
law on this point. The Trust Instrument contains an express disclaimer of
shareholder liability for the debts, liabilities, obligations, and expenses of
the Trust and requires that a disclaimer be given in each contract entered into
or executed by the Trust or the Trustees. The Trust Instrument provides for
indemnification out of each series' property of any shareholder or former
shareholder held personally liable for the obligations of the series. The Trust
Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect and the portfolio is unable to meet its obligations.

The Trust Instrument further provides that the Trustees shall not be liable to
any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Portfolio capital consists of shares of beneficial interest. Shares are fully
paid and nonassessable, except as set forth above with respect to Trustee and
shareholder liability. Shareholders representing 10% or more of the Trust or a
series may, as set forth in the Trust Instrument, call meetings of the Trust or
series for any purpose related to the Trust or series, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of voting
on removal of one or more Trustees. The Trust or any series may be terminated
upon the sale of its assets to, or merger with, another open-end management
investment company or series thereof, or upon liquidation and distribution of
its assets. Generally such terminations must be approved by the vote of the
holders of a majority of the outstanding shares of the Trust or the series;
however, the Trustees may, without prior shareholder approval, change the form
of organization of the Trust by merger, consolidation or incorporation. If not
so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the Trust's registration
statement.

OWNERSHIP OF SHARES OF THE PORTFOLIO

<PAGE>

As of August 30, 1996, the Trustees and officers of the Portfolio in the
aggregate owned less than one percent of the outstanding shares of the
Portfolio. Also, as of that date, the shareholders listed below owned of record
more than five percent of the Portfolio:

INSTITUTIONAL SHARES:

<TABLE>
<CAPTION>
Shares of % of
Shareholder Portfolio Owned Portfolio Owned

<S> <C> <C>
Custodial Trust Company 145,000,000.000 16.38
Custodial Louisiana Teachers Retire Plan
Attn: Kevin Darmody
101 Carnegie Center
Princeton, NJ 08540

Custodial Trust Co. as Escrow Agent 108,603,527.000 12.27
Meridian/Final Four
101 Carnegie Center
Princeton, NJ 08540

CNA Insurance 51,061,027.030 5.77
Trst Continental Short Term Invest
CNA Plaza 41 South

</TABLE>

INVESTOR SHARES:

Shares of % of
Shareholder Portfolio Owned Portfolio Owned

<S> <C> <C>
Bear Stearns Securities Corp. 17,630,674.800 23.45
A/C 2202249518
Attn: Ed Jeklinski
One Metrotech Center North
Brooklyn, NY 11201-3859

Bear Stearns Securities Corp. 7,205,258.190 9.59
FBO 1020329429-055
One Metrotech Center North
Brooklyn, NY 11201-3859

Bear Stearns Securities Corp. 6,178,532.120 8.22
FBO 0437514519
One Metrotech Center North
Brooklyn, NY 11201-3859

<PAGE>

Bear Stearns & Co. Inc. 4,421,233.770 5.88
A/C 92024812-15
Attn: Ed Jeklinski
One Metrotech Center North
Brooklyn, NY 11201-3859
</TABLE>

FINANCIAL STATEMENTS

The audited financial statements and the reports thereon of the Trust for the
fiscal year ended November 30, 1995 and the unaudited financial statements of
the Trust for the six month period ended May 31, 1996 are incorporated herein by
reference. Shareholders will receive a copy of the audited and unaudited
financial statements at no additional charge when requesting a copy of the
Statement of Additional Information.

<PAGE>
Rule 497(c)
Registration No. 33-81574

THE MILESTONE FUNDS

TREASURY OBLIGATIONS PORTFOLIO - FINANCIAL SHARES

ONE ODELL PLAZA
YONKERS, NEW YORK 10701
TEL. (800) 941-MILE

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 6, 1996

The Milestone Funds (the "Trust") is an open-end investment management company.
This Statement of Additional Information supplements the Prospectus that offers
the Financial Shares of the Treasury Obligations Portfolio (the "Portfolio"), a
diversified, no-load money market portfolio of the Trust, and should be read
only in conjunction with the Prospectus, copies of which may be obtained without
charge by writing to The Milestone Funds, One Odell Plaza, Yonkers, New York
10701, or by calling (800) 941-MILE (941-6453).

TABLE OF CONTENTS

Page
1. Investment Policies.............................. 2
2. Investment Limitations........................... 3
3. Advertising...................................... 5
4. Management....................................... 7
5. Determination of Net Asset Value................. 14
6. Portfolio Transactions........................... 14
7. Additional Purchase and
Redemption Information......................... 15
8. Taxation......................................... 16
9 . Other Information................................ 21

This Statement of Additional Information is not a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by a
current prospectus.

<PAGE>

1. INVESTMENT POLICIES

The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Portfolio's investments and investment techniques and
the risks associated therewith.

DEFINITIONS

As used in this Statement of Additional Information, the following terms shall
have the meanings listed:

"Board" shall mean the Board of Trustees of the Trust.

"1940 Act" shall mean the Investment Company Act of 1940, as amended.

"Fully Collateralized" shall mean that the value of the underlying
securities used to collateralize a repurchase agreement is at least
102% of the maturity date.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. In order to assure itself of
being able to obtain securities at prices which the Adviser believes might not
be available at a future time, the Portfolio may purchase securities on a
when-issued or delayed delivery basis (forward commitments). When these
transactions are negotiated, the price (generally expressed in terms of yield)
and the interest rate payable on the securities are fixed on the transaction
date. Delivery and payment may take place a month or more after the date of the
transaction is fixed, however. When the Portfolio makes the forward commitment,
it will record the transactions as a purchase and thereafter reflect the value
each day of such securities in determining its net asset value. During the
period between a commitment and settlement, no payment is made for the
securities purchased and no interest on the security accrues to the purchaser.
At the time the

<PAGE>

Portfolio makes a commitment to purchase securities in this manner, the
Portfolio immediately assumes the risk of ownership, including price
fluctuation. Accordingly, the value of the securities on the delivery date may
be more or less than the purchase price. Although the Portfolio will only enter
into a forward commitment if it intends to actually acquire the securities, if
the Portfolio later chooses to dispose of the right to acquire a when-issued
security prior to its acquisition, it could, as with the disposition of any
other portfolio obligation, incur a gain or loss due to market fluctuation. When
the Portfolio agrees to purchase a security on a when-issued or delayed delivery
basis, the Trust's custodian will set aside and maintain a segregated account of
sufficient liquid assets (such as cash or U.S. Treasury obligations) which will
be available to make payment for the securities purchased. Failure by the other
party to deliver a security purchased by the Portfolio may result in a loss or a
missed opportunity to make an alternative investment. Although there is no limit
on the amount of these commitments that the Portfolio may make, under normal
circumstances it will not commit more than 30% of its total assets to such
purchases.

ILLIQUID SECURITIES. The Portfolio may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
repurchase agreements having a maturity of more than seven days and not
entitling the holder to payment of principal within seven days. In addition, the
Portfolio will not invest in repurchase agreements having a maturity in excess
of one year. Certain repurchase agreements which provide for settlement in more
than seven days can be liquidated before the nominal fixed term on seven days or
less notice. Such repurchase agreements will be regarded as liquid instruments.
The Board has ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Adviser monitors the liquidity of
securities held by the Portfolio and reports periodically to the Board.

2. INVESTMENT LIMITATIONS

(1) Invest in variable, adjustable or floating rate instruments of any
kind;

(2) Invest in securities issued by agencies or instrumentalities of the
United States Government, such as the Federal National Mortgage Association
("FNMA"), Government National Mortgage Association ("GNMA"), Federal Home Loan
Mortgage Corp. ("Freddie Mac"), or the Small Business Administration ("SBA");
or,

<PAGE>

(3) Invest in zero coupon bonds.

(4) Invest in structured notes or instruments commonly known as
derivatives.

(5) Enter into reverse repurchase agreements.

(9) Purchase or sell real estate or any other interest therein, or real
estate limited partnerships or invest in securities issued by companies that
invest in real estate or interests therein.

(10) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.

(11) Borrow money, except for temporary or emergency purposes (not for
leveraging or investment), including the meeting of redemption requests,
provided that borrowings do not exceed 33 1/3% of the value of the Portfolio's
total assets.

(13) Make loans (except through the use of repurchase agreements, and
through the purchase of debt securities that are otherwise permitted
investments).

(14) Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of purchases
and sales of portfolio securities.

(15) Write options or acquire instruments with put or demand features,
except that the Portfolio may enter into repurchase agreements terminable upon
demand.

(16) Invest in oil, gas or other mineral exploration or development
programs.

<PAGE>

The Portfolio has adopted the following nonfundamental investment limitations
that may be changed by the Board without shareholder approval. The Portfolio may
not:

3. ADVERTISING

PERFORMANCE DATA

In performance advertising the Portfolio may compare any of its performance
information with data published by independent evaluators including Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger and other
companies that track the investment performance of investment companies ("Fund
Tracking Companies"). The Portfolio may also compare any of its performance
information with the performance of recognized stock, bond and other indices.
The Portfolio may also refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of the Portfolio and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.

Any current yield quotation of a class of the Portfolio which is used in such a
manner as to be

<PAGE>

subject to the provisions of Rule 482(d) under the Securities Act of 1933, as
amended, shall consist of an annualized historical yield, carried at least to
the nearest hundredth of one percent, based on a specific seven-calendar-day
period and shall be calculated by dividing the net change during the seven-day
period in the value of an account having a balance of one share at the beginning
of the period by the value of the account at the beginning of the period, and
multiplying the quotient by 365/7. For this purpose, the net change in account
value would reflect the value of additional shares purchased with dividends
declared on the original share and dividends declared on both the original share
and any such additional shares, but would not reflect any realized gains or
losses from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. In addition, any effective annualized
yield quotation used by the Portfolio shall be calculated by compounding the
current yield quotation for such period by adding 1 to the product, raising the
sum to a power equal to 365/7, and subtracting 1 from the result.

The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Any performance information may be presented
numerically or in a table, graph or similar illustration.

<PAGE>

OTHER INFORMATION

4. MANAGEMENT

TRUSTEES AND OFFICERS

*Janet Tiebout Hanson, Chairman and President.

<PAGE>

Bronxville, New York 10708.

*Dort A. Cameron III, Trustee.

*John D. Gilliam, Trustee.

Karen S. Cook, Trustee.

Anne Brown Farrell, Trustee.

Magna L. Dodge, Trustee.

<PAGE>

she was with Chemical Bank and Manufacturers Hanover Trust Company, New
York, prior to its merger with Chemical. Ms. Dodge was a Managing
Director in charge of the Media and Entertainment Group. Her address is
20 Wood End Lane, Bronxville, New York 10708.

*Michael Minikes, Trustee.

Philip F. Strassler, Treasurer.

Jeffrey R. Hanson, Secretary.

Chief Operating Officer, Milestone Capital Management, L.P., and
Managing Director of the Hanson Consulting Group, Inc. Mr. Hanson's
address is 38 Forest Lane, Bronxville, New York 10708.

The following table sets forth the fees paid to each Trustee of the Company for
the period from November 30, 1994 to November 30, 1995.

<PAGE>

Dort A. Cameron III $0 $0 $0 $0

John D. Gilliam $1,000 $0 $0 $1,000

Karen S. Cook $1,000 $0 $0 $1,000

Anne Brown Farrell $1,000 $0 $0 $1,000

Magna L. Dodge $1,000 $0 $0 $1,000

Michael Minikes $0 $0 $0 $0

</TABLE>

INVESTMENT ADVISER

The Investment Advisory Agreement is terminable without penalty by the Trust
with respect to the Portfolio on 60 days' written notice when authorized either
by vote of the Portfolio's shareholders or by a vote of a majority of the Board,
or by the Adviser on 60 days' written notice, and will automatically terminate
in the event of its assignment. The Investment Advisory Agreement also provides
that, with respect to the Portfolio, the Adviser shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties to the Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of the Adviser's duties or by
reason of reckless disregard of the Adviser's obligations and duties under the
Investment Advisory Agreement.

<PAGE>

Portfolio. At any time, however, the Adviser may rescind a voluntary fee waiver.

For the period December 30, 1994 (commencement of operations) to November 30,
1995, the Adviser received advisory fees of $100,353, reflecting waivers of
$231,894.

<PAGE>

ADMINISTRATOR

UNDERWRITER

The Underwriting Agreement is terminable with respect to the Portfolio without
penalty by the

<PAGE>

Trust on 60 days' written notice when authorized either by vote of the
Portfolio's shareholders or by a vote of a majority of the Board, or by the
Underwriter on 60 days' written notice. The Underwriting Agreement will
automatically terminate in the event of its assignment.

TRANSFER AGENT

MGF Service Corp. (the "Transfer Agent") acts as transfer agent and dividend
disbursing agent for the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will remain in effect for a period of eighteen months
with respect to the Portfolio and thereafter is automatically renewed each year
for an additional term of one year.

Among the responsibilities of the Transfer Agent are, with respect to
shareholders of record: (1) answering shareholder inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Portfolio may be effected and certain other matters pertaining to the
Portfolio; (2) assisting shareholders in initiating and changing account
designations and addresses; (3) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records, assisting in processing
purchase and redemption transactions and receiving wired funds; (4) transmitting
and receiving funds in connection with customer orders to purchase or redeem
shares; (5) verifying shareholder signatures in connection with changes in the
registration of shareholder accounts; (6) furnishing periodic statements and
confirmations of purchases and redemptions; (7) arranging for the transmission
of proxy statements, annual reports, prospectuses and other communications from
the Trust to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Trust of proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (9) providing such other related
services as the Trust or a shareholder may reasonably request.

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation for acting as custodian, investment manager, nominee,
agent or fiduciary for its

<PAGE>

customers or clients who are shareholders of the Portfolio with respect to
assets invested in the Portfolio. The Transfer Agent or any sub-transfer agent
or other processing agent may elect to credit against the fees payable to it by
its clients or customers all or a portion of any fee received from the Trust or
from the Transfer Agent with respect to assets of those customers or clients
invested in the Portfolio. The sub-transfer agents or processing agents retained
by the Transfer Agent may be affiliated persons of the Transfer Agent.

5. DETERMINATION OF NET ASSET VALUE

6. PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities for the Portfolio usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price.
There usually are no brokerage commissions paid for any purchases. While the
Trust does not anticipate that the Portfolio will pay any amounts of commission,
in the event the Portfolio pays brokerage commissions or other
transaction-related compensation, the payments may be made to broker-dealers who
pay expenses of the Portfolio that it would otherwise be obligated to pay
itself. Any transaction for which the Portfolio pays commissions or
transaction-related compensation will be effected at the best price and
execution available, taking into account the value of any research services
provided, or the amount of any payments for other services made on behalf of the
Portfolio, by the broker-dealer effecting the transaction.

Allocations of transactions to dealers and the frequency of transactions are
determined for the Portfolio by the Adviser in its best judgment and in a manner
deemed to be in the best interest

<PAGE>

of shareholders of the Portfolio rather than by any formula. The primary
consideration is prompt execution of orders in an effective manner and at the
most favorable price available to the Portfolio.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Portfolio are sold on a continuous basis by the underwriter
without any sales charge. Shareholders may effect purchases or redemptions or
request any shareholder privilege in person at the Transfer Agent's offices
located at P. O. Box 5354, 312 Walnut Street, Cincinnati, Ohio 45202.

If the Public Securities Association recommends that the government securities
markets close early, the Trust reserves the right to advance the time at which
purchase and redemption offers must be received. In this event, a purchase or
redemption order will be executed at the net asset value next determined after
receipt. Investors who place purchase orders after the advanced time become
entitled to dividends on the following Fund Business Day. If a redemption
request is received after the advanced time, the Transfer Agent ordinarily will
wire redemption proceeds on the next Fund Business Day. In addition, the Trust
reserves the right to advance the time by which purchase and redemption orders
must be received for same day credit as otherwise permitted by the Securities
and Exchange Commission.

ADDITIONAL REDEMPTION MATTERS

The Trust may redeem shares involuntarily to reimburse the Portfolio for any
loss sustained byreason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a

<PAGE>

shareholder which is applicable to the Portfolio's shares as provided in the
Prospectus from time to time.

8. TAXATION

QUALIFICATION AS A REGULATED INVESTMENT COMPANY

<PAGE>

to the regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the Portfolio
may have to limit the sale of appreciated securities that it has held for less
than three months. However, the Short-Short Gain Test will not prevent the
Portfolio from disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period is disregarded for
this purpose. Interest (including original issue discount) received by the
Portfolio at maturity or upon the disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of the Short-Short Gain Test.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.

In addition to satisfying the requirements described above, the Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses.

<PAGE>

EXCISE TAX ON REGULATED INVESTMENT COMPANIES

PORTFOLIO DISTRIBUTIONS

<PAGE>

receive a refundable tax credit for his pro rata share of tax paid by the
Portfolio on the gain, and will increase the tax basis for his shares by an
amount equal to the deemed distribution less the tax credit.

The Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Portfolio that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient".

SALE OR REDEMPTION OF SHARES

<PAGE>

shares of the Portfolio will be considered capital gain or loss and will be
long-term capital gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Long-term capital gains
of noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.

FOREIGN SHAREHOLDERS

EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS

<PAGE>

have a retroactive effect with respect to the transactions contemplated herein.

9. OTHER INFORMATION

CUSTODIAN AND ACCOUNTING AGENT

AUDITORS

Deloitte & Touche, LLP, New York, New York, independent auditors, acts as
auditors for the Trust.

THE TRUST AND ITS SHAREHOLDERS

21
<PAGE>

limitation of liability was in effect and the portfolio is unable to meet its
obligations.

OWNERSHIP OF SHARES OF THE PORTFOLIO

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES:

Shares of % of
Shareholder Portfolio Owned Portfolio Owned

<S> <C> <C>
Custodial Trust Company 145,000,000.000 16.38
Custodial Louisiana Teachers Retire Plan
Attn: Kevin Darmody
101 Carnegie Center
Princeton, NJ 08540

Custodial Trust Co. as Escrow Agent 108,603,527.000 12.27
Meridian/Final Four
101 Carnegie Center
Princeton, NJ 08540

<PAGE>

CNA Insurance 51,061,027.030 5.77
Trst Continental Short Term Invest
CNA Plaza 41 South

INVESTOR SHARES:

Shares of % of
Shareholder Portfolio Owned Portfolio Owned

Bear Stearns Securities Corp. 17,630,674.800 23.45

A/C 2202249518
Attn: Ed Jeklinski
One Metrotech Center North
Brooklyn, NY 11201-3859

Bear Stearns Securities Corp. 7,205,258.190 9.59
FBO 1020329429-055

One Metrotech Center North
Brooklyn, NY 11201-3859

Bear Stearns Securities Corp. 6,178,532.120 8.22
FBO 0437514519
One Metrotech Center North
Brooklyn, NY 11201-3859

Bear Stearns & Co. Inc. 4,421,233.770 5.88
A/C 92024812-15
Attn: Ed Jeklinski
One Metrotech Center North
Brooklyn, NY 11201-3859

</TABLE>

FINANCIAL STATEMENTS