<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
ADVISER
Milestone Capital Management, L.P.
------------------
ANNUAL REPORT
NOVEMBER 30, 1997
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TABLE OF CONTENTS
Letter to Our Shareholders........................ 3
Statement of Investments.......................... 4
Statement of Assets and Liabilities............... 6
Statement of Operations........................... 7
Statements of Changes in Net Assets............... 8
Financial Highlights.............................. 9
Notes to Financial Statements..................... 12
Independent Auditors' Report...................... 15
2
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
LETTER TO OUR SHAREHOLDERS
NOVEMBER 30, 1997
Dear Shareholder:
1997 has been another very successful year for the Fund. We would like to
take this opportunity to thank you for your trust and confidence. Understanding
our clients and providing innovative services to meet your specific needs will
continue to be our highest priority in 1998.
Our conservative investment policies and disciplined relative value
investment strategy served the fund well in 1997. The fund's assets maintained
steady growth throughout 1997, increasing from $980,088,237 at the start of the
fiscal year to $1,985,906,417 as of the date of this letter. Since inception,
the Fund has posted 12 consecutive quarters of stable asset growth and continues
to carry the highest money market fund ratings from Standard & Poor's (AAAm),
Moody's (Aaa), and Fitch Investors Service (AAA).
The domestic economy has been robust for most of this past year. GDP growth
averaged over 3% during each of the first three quarters and has remained strong
in the fourth quarter. In March, the Federal Reserve raised the Federal Funds
rate by 25 basis points to 5.5%, in response to the expanding economy and the
risks of an upward trend in inflation. The average maturity of the fund was
shortened to take advantage of higher market rates. As 1997 progressed, world
equity markets--particularly in Asia--declined sharply and the U.S. bond market
was viewed increasingly as a relative safe haven. Throughout a challenging and
transitional 1997, the Treasury Obligations Portfolio achieved very competitive
returns versus its benchmarks. Heading into 1998, the Federal Reserve is likely
to hold monetary policy steady until the 'tug of war' between the fallout in
Asia and current strong domestic growth is resolved--which we believe will be
late in the second quarter.
As we look ahead to the coming year, we are excited about key additions to
our professional staff which will enable us to expand our client services and
meet the changing needs of all our investors. We look forward to introducing you
to our new professionals and working in partnership with you to meet the full
range of your liquidity management needs.
/s/ JANET TIEBOUT HANSON /s/ MARC H. PFEFFER
JANET TIEBOUT HANSON MARC H. PFEFFER
Chairman of the Board of Trustees Chief Investment Officer
The Milestone Funds Milestone Capital Management, L.P.
3
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1997
($ in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
VALUE
PRINCIPAL AMOUNT INTEREST RATE MATURITY DATE (NOTE 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 16.0%
U.S. TREASURY BILLS - 11.5%
$ 10,000 5.27% 1/08/98 $ 9,944
15,000 5.33%-5.57% 2/05/98 14,851
40,000 5.36%-5.52% 3/05/98 39,433
60,000 5.45%-5.66% 4/02/98 58,867
47,500 5.43%-5.54% 4/30/98 46,411
30,000 5.28%-5.35% 6/25/98 29,087
20,000 5.29% 7/23/98 19,313
10,000 5.22% 8/20/98 9,620
-------
227,526
-------
U.S TREASURY NOTES - 4.5%
10,000 6.00% 12/31/97 10,001
25,000 6.125% 5/15/98 25,056
55,000 6.00% 9/30/98 55,185
-------
90,242
-------
- ----------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (AMORTIZED COST $317,768) 317,768
- ----------------------------------------------------------------------------------------------------
</TABLE>
REPURCHASE AGREEMENTS - 84.1%
BZW Securities, Inc., dated 11/28/97, repurchase price $420,200 (U.S. Treasury
Bills: $186,039, 12/26/97-1/02/98; U.S. Treasury Bond: $26,730, 11.625%,
11/15/02; U.S. Treasury Notes: $206,606, 5.875%-6.25%, 4/30/98-1/31/02;
aggregate market value $428,401)
<TABLE>
<S> <C> <C> <C> <C>
420,000 5.72% 12/01/97 420,000
</TABLE>
Bear, Stearns & Co. Inc., dated 11/28/97, repurchase price $95,045 (U.S.
Treasury Bills: $21,580, 3/05/98-11/12/98; U.S. Treasury Notes: $74,344,
5.125%-7.75%, 1/31/98-9/30/01; aggregate market value: $97,402)
<TABLE>
<S> <C> <C> <C> <C>
95,000 5.72% 12/01/97 95,000
</TABLE>
CIBC/Oppenheimer, dated 11/28/97, repurchase price $95,045 (U.S. Treasury Notes:
$95,961, 5.625%-7.875%, 1/31/98-5/15/98; aggregate market value $96,904)
<TABLE>
<S> <C> <C> <C> <C>
95,000 5.70% 12/01/97 95,000
</TABLE>
Chase Securities, Inc., dated 11/28/97, repurchase price $95,045 (U.S. Treasury
Notes: $94,450, 5.50%-8.50%, 2/15/00-10/31/00; aggregate market value $96,901)
<TABLE>
<S> <C> <C> <C> <C>
95,000 5.68% 12/01/97 95,000
</TABLE>
4
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS (CONT'D)
NOVEMBER 30, 1997
($ in Thousands)
REPURCHASE AGREEMENTS - 84.1% (CONT'D)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., dated 11/28/97, repurchase price
$425,203 (U.S. Treasury Notes: $424,371, 4.75%-7.50%, 5/15/98-8/31/02; aggregate
market value $433,500)
<TABLE>
<S> <C> <C> <C> <C>
$425,000 5.73% 12/01/97 $425,000
</TABLE>
Donaldson, Lufkin & Jenrette Securities Corp., dated 11/28/97, repurchase price
$95,045 (U.S. Treasury Bill: $10,714, 8/20/98; U.S. Treasury Note: $85,019,
6.125%, 9/30/00; aggregate market value $96,901)
<TABLE>
<S> <C> <C> <C> <C>
95,000 5.70% 12/01/97 95,000
</TABLE>
J.P. Morgan Securities, Inc., dated 11/26/97, repurchase price $75,059 (U.S.
Treasury Bill: $26,757, 2/26/98; U.S. Treasury Note: $49,412, 6.375%, 4/30/99;
aggregate market value $76,501)
<TABLE>
<S> <C> <C> <C> <C>
75,000 5.65% 12/01/97 75,000
</TABLE>
Morgan Stanley & Co., dated 11/28/97, repurchase price $95,045 (U.S. Treasury
Note: $96,195, 6.125%, 3/31/98, market value $97,353)
<TABLE>
<S> <C> <C> <C> <C>
95,000 5.70% 12/01/97 95,000
</TABLE>
Nesbitt Burns Securities, Inc., dated 11/28/97, repurchase price $95,204 (U.S.
Treasury Notes: $95,302, 5.875%-6.375%, 4/30/99-2/15/04; aggregate market value
$97,063)
<TABLE>
<S> <C> <C> <C> <C>
95,159 5.72% 12/01/97 95,159
</TABLE>
SBC Warburg, Inc., dated 11/28/97, repurchase price $90,043 (U.S. Treasury
Notes: $90,474, 5.625%-5.875%, 11/30/98-9/30/02; aggregate market value $91,888)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.70% 12/01/97 90,000
</TABLE>
UBS Securities, L.L.C., dated 11/28/97, repurchase price $90,043 (U.S. Treasury
Notes: $87,581, 6.25%-7.875%, 8/15/01-8/31/02; aggregate market value $91,803)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.70% 12/01/97 90,000
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (AMORTIZED COST $1,670,159) 1,670,159
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (AMORTIZED COST $1,987,927) - 100.1% 1,987,927
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.1%) (2,021)
- ----------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,985,906
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value and cost (note 1) $ 317,767,627
Repurchase agreements, at value and cost (note 1) 1,670,159,000
Cash 1,014
Interest receivable 1,699,330
Deferred organization costs and prepaid expenses 120,114
--------------
Total assets 1,989,747,085
--------------
LIABILITIES:
Advisory fee payable 158,655
Shareholder Service fee payable-Investor Shares 62,599
Shareholder Service fee payable-Institutional Shares 42,833
Shareholder Service fee payable-Service Shares 49,268
Shareholder Service fee payable-Premium Shares 18,068
Distribution fee payable-Service Shares 11,859
Distribution fee payable-Premium Shares 15,683
Dividends payable 3,365,681
Accrued expenses 116,022
--------------
Total liabilities 3,840,668
--------------
NET ASSETS $1,985,906,417
--------------
--------------
NET ASSETS BY CLASS OF SHARES:
Investor Shares $ 385,229,200
Institutional Shares 1,183,905,306
Financial Shares 90,465,489
Service Shares 242,067,781
Premium Shares 84,238,641
--------------
NET ASSETS $1,985,906,417
--------------
--------------
SHARES OUTSTANDING
Investor Shares 385,229,200
--------------
--------------
Institutional Shares 1,183,905,306
--------------
--------------
Financial Shares 90,465,489
--------------
--------------
Service Shares 242,067,781
--------------
--------------
Premium Shares 84,238,641
--------------
--------------
NET ASSET VALUE PER SHARE $1.00
--------------
--------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest $1,985,906,417
--------------
--------------
NET ASSETS $1,985,906,417
--------------
--------------
</TABLE>
See notes to financial statements.
6
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $89,828,987
-------------
EXPENSES (note 2):
Advisory fees 1,624,259
Administration fees 92,520
Shareholder Service fees
Investor Shares 486,820
Institutional Shares 619,827
Service Shares 265,358
Premium Shares 136,486
Distribution fees
Service Shares 61,445
Premium Shares 113,545
Registration and filing fees 200,782
Custodian fees and expenses 157,240
Transfer agent fees and expenses 129,600
Cash management fees 66,215
Publication expenses and rating service fees 57,269
Accounting service fees 50,570
Legal fees 34,503
Insurance expense 31,459
Amortization of organization costs 31,215
Reports to shareholders 28,117
Audit fees 27,084
Trustees' fees 3,164
Other expenses 4,110
-------------
Total expenses 4,221,588
Fees waived (note 2) (101,822)
-------------
Net expenses 4,119,766
-------------
NET INVESTMENT INCOME 85,709,221
NET REALIZED GAIN ON INVESTMENTS 21,677
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 85,730,898
-------------
-------------
</TABLE>
See notes to financial statements.
7
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 85,709,221 $ 42,132,617
Net realized gain on investments 21,677 4,144
----------------- ------------------
Net increase in net assets
resulting from operations 85,730,898 42,136,761
----------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - Investor
Shares (9,992,295) (4,744,317)
Net investment income -
Institutional Shares (65,927,653) (37,388,300)
Net investment income - Financial
Shares (1,587,379) --
Net investment income - Service
Shares (5,468,793) --
Net investment income - Premium
Shares (2,733,101) --
Net realized gain on investments
- Investor Shares (2,355) (573)
Net realized gain on investments
- Institutional Shares (16,989) (3,571)
Net realized gain on investments
- Financial Shares (501) --
Net realized gain on investments
- Service Shares (1,355) --
Net realized gain on investments
- Premium Shares (477) --
----------------- ------------------
Total distributions to
shareholders (85,730,898) (42,136,761)
----------------- ------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST*:
Sale of shares - Investor Shares 1,878,115,717 1,119,656,967
Sale of shares - Institutional
Shares 8,968,756,744 6,057,708,590
Sale of shares - Financial Shares 627,347,032 --
Sale of shares - Service Shares 432,735,113 --
Sale of shares - Premium Shares 373,782,058 --
Reinvested dividends - Investor
shares 4,214,206 4,490,794
Reinvested dividends -
Institutional Shares 44,014,929 23,817,018
Reinvested dividends - Financial
Shares 748,199 --
Reinvested dividends - Service
Shares 3,094,972 --
Reinvested dividends - Premium
Shares 111,927 --
Cost of shares repurchased -
Investor Shares (1,580,015,817) (1,123,505,861)
Cost of shares repurchased -
Institutional Shares (8,726,039,510) (5,413,511,051)
Cost of shares repurchased -
Financial Shares (537,629,742) --
Cost of shares repurchased -
Service Shares (193,762,304) --
Cost of shares repurchased -
Premium Shares (289,655,344) --
----------------- ------------------
Net increase in net assets from
shares of beneficial interest 1,005,818,180 668,656,457
----------------- ------------------
Total Increase 1,005,818,180 668,656,457
NET ASSETS:
Beginning of year 980,088,237 311,431,780
----------------- ------------------
End of year $ 1,985,906,417 $ 980,088,237
----------------- ------------------
----------------- ------------------
</TABLE>
* Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
8
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----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
SHARES
--------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR DECEMBER 30, 1994*
ENDED ENDED THROUGH
NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD
Beginning net asset value
per share $1.00 $1.00 $1.00
----------------- ----------------- ------------------
Net investment income 0.051 0.050 0.051
Dividends from net (0.051) (0.050) (0.051)
investment income ----------------- ----------------- ------------------
Ending net asset value
per share $1.00 $1.00 $1.00
----------------- ----------------- ------------------
----------------- ----------------- ------------------
TOTAL RETURN 5.23% 5.11% 5.71%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net
assets:
Expenses(b) 0.41% 0.45% 0.38%(a)
Net investment income 5.13% 4.99% 5.63%(a)
Net assets at the end of
period (000's omitted) $385,229 $82,915 $82,273
</TABLE>
(a) Annualized
(b) Net of advisory, shareholder servicing, and administration fees waived and
expenses reimbursed of 0.00%, 0.01% and 0.14%, respectively.
* Commencement of operations.
See notes to financial statements.
9
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
-------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 20, 1995*
ENDED ENDED THROUGH
NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD
Beginning net asset value
per share $1.00 $1.00 $1.00
----------------- ----------------- -----------------
Net investment income (0.053) (0.052) (0.026)
Dividends from net (0.053) (0.052) (0.026)
investment income ----------------- ----------------- -----------------
Ending net asset value
per share $1.00 $1.00 $1.00
----------------- ----------------- -----------------
----------------- ----------------- -----------------
TOTAL RETURN 5.46% 5.37% 5.76%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net
assets:
Expenses(b) 0.20% 0.20% 0.20%(a)
Net investment income 5.32% 5.21% 5.69%(a)
Net assets at the end of
period (000's omitted) $1,183,905 $897,173 $229,159
</TABLE>
(a) Annualized
(b) Net of advisory, shareholder servicing, and administration fees waived and
expenses reimbursed of 0.01%, 0.02% and 0.17%, respectively.
* Commencement of operations.
See notes to financial statements.
10
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
FINANCIAL SERVICE PREMIUM
SHARES SHARES SHARES
----------------- ----------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
MARCH 13, 1997* MAY 2, 1997* MAY 20, 1997*
THROUGH THROUGH THROUGH
NOVEMBER 30, 1997 NOVEMBER 30, 1997 NOVEMBER 30, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD
Beginning net asset value
per share $1.00 $1.00 $1.00
----------------- ----------------- -----------------
Net investment income 0.038 0.030 0.027
Dividends from net
investment income (0.038) (0.030) (0.027)
----------------- ----------------- -----------------
Ending net asset value per
share $1.00 $1.00 $1.00
----------------- ----------------- -----------------
----------------- ----------------- -----------------
TOTAL RETURN 5.52%(a) 5.21%(a) 5.06%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.14%(a) 0.45%(a) 0.60%(a)
Net investment income 5.45%(a) 5.15%(a) 5.01%(a)
Net assets at the end of
period (000's omitted) $90,465 $242,068 $84,239
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
11
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1. SUMMARY OF ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
The Milestone Funds (the 'Trust') was formed as a Delaware business trust on
July 14, 1994. The Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940. It currently has one
diversified investment portfolio, the Treasury Obligations Portfolio (the
'Portfolio') which is authorized to issue an unlimited number of shares of
beneficial interest without par value. The Portfolio is currently authorized to
issue five classes of shares, Investor Shares, Institutional Shares, Financial
Shares, Service Shares and Premium Shares. The Trust commenced the offering of
Investor Shares of the Portfolio on December 30, 1994, Institutional Shares on
June 20, 1995, Financial Shares on March 13, 1997, Service Shares on May 2, 1997
and Premium Shares on May 20, 1997. The Trust's financial statements are
prepared in accordance with generally accepted accounting principles.
VALUATION OF SECURITIES - Securities in which the Portfolio invests are valued
at amortized cost. Under the amortized cost method, a portfolio instrument is
valued at cost and any premium or discount is amortized on a constant basis to
maturity. Amortization of premium and accretion of market discount is charged to
income.
REPURCHASE AGREEMENTS - The Portfolio may purchase securities from financial
institutions subject to the seller's agreement to repurchase and the Portfolio's
agreement to resell the securities at par. The investment adviser only enters
into repurchase agreements with financial institutions that are primary dealers
and deemed to be creditworthy by the investment adviser in accordance with
procedures adopted by the Board of Trustees. Securities purchased subject to
repurchase agreements are maintained with a custodian of the Portfolio and must
have, at all times, an aggregate market value greater than or equal to the
repurchase price plus accrued interest. If the value of the underlying
securities falls below 102% of the value of the repurchase price plus accrued
interest, the Portfolio will require the seller to deposit additional collateral
by the next Portfolio business day. In the event that the seller under the
agreement defaults on its repurchase obligation or fails to deposit sufficient
collateral, the Portfolio has the contractual right, subject to the requirements
of applicable bankruptcy and insolvency laws, to sell the underlying securities
and may claim any resulting loss from the seller.
SECURITY TRANSACTIONS - Security transactions are recorded on the trade date.
Realized gains and losses are recorded on the identified cost basis. The cost of
investments for federal income tax purposes at November 30, 1997 is the same as
shown on the accompanying statement of investments.
CLASS SPECIFIC EXPENSES - Each share of the classes represents an undivided,
proportionate interest in the Portfolio. The Portfolio's class specific expenses
include Shareholder Service fees, Distribution fees and certain registration
fees that are in accordance with procedures adopted by the Board of Trustees
regarding the offering of multiple classes of shares by open-end, management
investment companies. In addition, there are differences between the classes of
shares with respect to the minimum investment required and voting rights
affecting each class.
12
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THE
MILESTONE
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----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
NOVEMBER 30, 1997
INCOME TAXES - It is the Portfolio's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its investment company taxable income and net realized gains,
if applicable, to its shareholders. Therefore, no provision has been made for
federal income taxes.
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS - Interest income is accrued as
earned. Dividends to shareholders from each class of the Portfolio's net
investment income are declared daily and distributed monthly. Net realized
capital gains, unless offset by any available capital loss carryforwards, are
distributed at least annually.
ACCOUNTING ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
ORGANIZATION COSTS - Organization costs are being amortized on a straight line
basis over five years.
NOTE 2. INVESTMENT ADVISORY AND OTHER SERVICES
Milestone Capital Management, L.P. (the 'Adviser') serves as investment adviser
to the Portfolio pursuant to an investment advisory agreement with the Trust.
For its services, the Adviser receives a fee at an annual rate equal to 0.10% of
the average daily net assets of the Portfolio.
The Trust has adopted a Shareholder Service Plan providing that the Trust may
obtain the services of the Adviser and other qualified financial institutions to
act as shareholder servicing agents for their customers. Under this plan, the
Trust has authorized the Adviser to enter into agreements pursuant to which the
shareholder servicing agents perform certain shareholder services. For these
services, the Adviser receives from the Trust a fee of 0.25%, 0.05%, 0.25% and
0.25% of the average daily net assets of the Investor Shares, Institutional
Shares, Service Shares and Premium Shares, respectively. The Adviser pays the
shareholder servicing agents up to these amounts with respect to shares owned by
investors for which the shareholder servicing agents maintain a servicing
relationship pursuant to the Shareholder Servicing Agreement. For the year ended
November 30, 1997, the Adviser waived $101,822 of its shareholder servicing fee
for the Institutional Shares.
The Trust has adopted a Distribution Plan for the Service Shares and the Premium
Shares. The plan provides that the Portfolio may finance activities which are
primarily intended to result in the sale of the Service and Premium Shares,
including, but not limited to, advertising, printing of prospectuses and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature and payments to dealers who enter into
agreements with the Trust or Underwriter. Pursuant to this plan, the Portfolio
may
13
<PAGE>
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THE
MILESTONE
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----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
NOVEMBER 30, 1997
incur distribution expenses related to the sale of the Service and Premium
Shares of up to 0.25% and 0.35% of the average daily net assets of the Service
and Premium Shares, respectively. The plan will only make payment for expenses
actually incurred on a first-in, first-out basis. The plan may carry forward for
an unlimited number of years any unreimbursed expenses. As of November 30, 1997,
there were no unreimbursed expenses payable by the Trust. For the year ended
November 30, 1997, the Portfolio incurred 0.06% and 0.21% of these distribution
expenses for the Service and the Premium Shares, in the amounts of $61,445 and
$113,545, respectively.
MGF Service Corp. acts as the Trust's transfer agent and dividend disbursing
agent. Midwest Group Financial Services, Inc. (the 'Underwriter') serves as the
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. 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.
14
<PAGE>
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THE
MILESTONE
FUNDS
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TREASURY OBLIGATIONS PORTFOLIO
INDEPENDENT AUDITORS' REPORT
NOVEMBER 30, 1997
THE BOARD OF TRUSTEES AND SHAREHOLDERS
TREASURY OBLIGATIONS PORTFOLIO OF THE MILESTONE FUNDS
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Treasury Obligations Portfolio of The
Milestone Funds as of November 30, 1997, and the related statement of operations
and changes in net assets for the year then ended, and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial statements and the financial highlights of the fund for the
year ended November 30, 1996 and for the period December 30, 1994 (commencement
of operations) through November 30, 1995 were audited by other auditors whose
report, dated January 14, 1997, expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of November 30, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Treasury
Obligations Portfolio of The Milestone Funds, as of November 30, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
Deloitte & Touche, LLP
New York, New York
December 24, 1997
15
<PAGE>
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THE
MILESTONE
FUNDS
----------------
Adviser
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Milestone Capital Management, L.P.
One Odell Plaza
Yonkers, NY 10701
Underwriter / Transfer Agent
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Midwest Group Financial Services, Inc. / MGF Service Corp.
P.O. Box 5354
Cincinnati, OH 45201-5354
800-363-7660
Primary Dealer
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Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Administrator / Custodian
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The Bank of New York
90 Washington Street
New York, NY 10286
Legal Counsel
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Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, NY 10022
Independent Accountants
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Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
This report is authorized for distribution
only to current shareholders and to others
who have received a copy of The Milestone Funds prospectus.
The Milestone Funds
One Odell Plaza, Yonkers, New York 10701
800-941-MILE
