<PAGE>
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
ADVISER
Milestone Capital Management, L.P.
------------------
SEMI-ANNUAL REPORT
MAY 31, 1998
<PAGE>
----------------
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..................... 13
2
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
LETTER TO OUR SHAREHOLDERS
MAY 31, 1998
Dear Shareholder:
The first half of the fiscal year has been a successful one for the Fund and our
investors. As of March 31, the Fund posted its 13th consecutive quarter of
stable asset growth--with average assets of $1.98 billion. We are very pleased
to report that more than 75 institutional investors became first-time
shareholders in the Fund during the last six months. To both our continuing and
new investors, we would like to express our gratitude for your business and our
commitment to providing you with the highest standard of investment management
and client relationship services.
The U.S. financial markets have held up impressively over the last six months.
The domestic economy continues to show strong growth with low inflation. With
the Federal Reserve currently on hold, the short-end of the yield curve will be
driven by future expectations of the strength of the domestic economy and the
eventual outcome of the Asian crisis. The Milestone Funds Treasury Obligations
Portfolio will maintain its conservative investment posture as global market
changes continue to influence Federal Reserve policy and the shape of the yield
curve.
Given the pace of change and transition in the financial markets, one of our top
priorities is to remain responsive to our shareholders' needs for timely
information and insight on market developments. Our INVESTMENT STRATEGY &
COMMENTARY report is distributed monthly to all shareholders, and Milestone
Capital's Portfolio Management & Research Team is available to investors on a
daily basis. More clients than ever before are taking advantage of our team's
resources, analytics, and technology to supplement their own investment
strategies and processes. We appreciate the very positive feedback we have
received from investors on these and other services we offer, and we encourage
you to call on us as often as needed.
Working in partnership with our shareholders will continue to be the key to our
success and our greatest source of professional fulfillment--throughout 1998 and
beyond.
/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
MAY 31, 1998 (Unaudited)
($ in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
VALUE
PRINCIPAL AMOUNT INTEREST RATE MATURITY DATE (NOTE 1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 11.6%
U.S. TREASURY NOTES - 11.1%
$ 50,000 6.00% 9/30/98 $ 50,063
15,000 5.625% 11/30/98 15,006
15,000 5.75% 12/31/98 15,028
15,000 6.375% 1/15/99 15,075
35,000 5.875% 3/31/99 35,102
75,000 6.50% 4/30/99 75,603
--------
205,877
--------
U.S. TREASURY BILL - 0.5%
10,000 5.35% 6/25/98 9,964
--------
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (AMORTIZED COST $215,841) 215,841
- --------------------------------------------------------------------------------------------------
</TABLE>
REPURCHASE AGREEMENTS - 88.7%
Barclays Capital, Inc., dated 5/29/98, repurchase price $426,232 (U.S. Treasury
Bonds: $15,276, 8.25%-15.75%, 5/15/01-5/15/05; U.S. Treasury Notes: $402,165,
3.625%-9.125%, 5/31/98-5/15/05; aggregate market value $434,555)
<TABLE>
<S> <C> <C> <C> <C>
426,034 5.57% 6/01/98 426,034
</TABLE>
Bear, Stearns & Co. Inc., dated 5/29/98, repurchase price $90,042 (U.S. Treasury
Bills: $550, 7/23/98-8/27/98; U.S. Treasury Notes: $88,673, 5.125%-8.75%,
12/31/98-5/15/05; aggregate market value $91,838)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.55% 6/01/98 90,000
</TABLE>
CIBC/Oppenheimer, dated 5/29/98, repurchase price $85,039 (U.S. Treasury Bills:
$358, 12/10/98-5/27/99; U.S. Treasury Notes: $83,458, 5.375%-7.75%,
1/31/00-9/30/02; aggregate market value $86,705)
<TABLE>
<S> <C> <C> <C> <C>
85,000 5.55% 6/01/98 85,000
</TABLE>
CS First Boston Corp., dated 5/29/98, repurchase price $90,042 (U.S. Treasury
Bills: $94,756, 10/22/98-3/04/99; aggregate market value $92,027)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.55% 6/01/98 90,000
</TABLE>
Deutsche Morgan Grenfell, Inc., dated 5/29/98, repurchase price $435,202 (U.S.
Treasury Bill: $108,590, 11/27/98; U.S. Treasury Notes: $335,055, 4.75%-7.00%,
10/31/98-10/31/00; aggregate market value $443,701)
<TABLE>
<S> <C> <C> <C> <C>
435,000 5.57% 6/01/98 435,000
</TABLE>
4
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----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS (CONT'D)
MAY 31, 1998 (Unaudited)
($ in Thousands)
REPURCHASE AGREEMENTS - 88.7% (CONT'D)
Donaldson, Lufkin & Jenrette Securities Corp., dated 5/29/98, repurchase price
$85,039 (U.S. Treasury Bills: $2,253, 7/09/98-4/01/99; U.S. Treasury Bond:
$50,000, 15.75%, 11/15/01; U.S. Treasury Notes: $82,412, 5.00%-8.00%,
12/31/98-8/15/03; aggregate market value $86,700)
<TABLE>
<S> <C> <C> <C> <C>
$85,000 5.55% 6/01/98 $85,000
</TABLE>
Greenwich Capital Markets, Inc., dated 5/29/98, repurchase price $60,028 (U.S.
Treasury Notes: $59,257, 5.75%-8.00%, 8/15/99-4/30/03; aggregate market value
$61,204)
<TABLE>
<S> <C> <C> <C> <C>
60,000 5.55% 6/01/98 60,000
</TABLE>
J.P. Morgan Securities, Inc., dated 5/29/98, repurchase price $85,039 (U.S.
Treasury Note: $86,526, 5.50%, 11/15/98; market value $86,700)
<TABLE>
<S> <C> <C> <C> <C>
85,000 5.56% 6/01/98 85,000
</TABLE>
Morgan Stanley & Co., dated 5/29/98, repurchase price $85,039 (U.S. Treasury
Note: $84,375, 5.75%, 11/30/02; market value $87,137)
<TABLE>
<S> <C> <C> <C> <C>
85,000 5.56% 6/01/98 85,000
</TABLE>
Nesbitt Burns Securities, Inc., dated 5/29/98, repurchase price $25,012 (U.S.
Treasury Bill: $26,894, 5/27/99; market value $25,500)
<TABLE>
<S> <C> <C> <C> <C>
25,000 5.75% 6/01/98 25,000
</TABLE>
SBC Warburg, Inc., dated 5/29/98, repurchase price $90,042 (U.S. Treasury Note:
$90,222, 5.875%, 8/15/98; market value $91,829)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.55% 6/01/98 90,000
</TABLE>
UBS Securities, L.L.C., dated 5/29/98, repurchase price $90,042 (U.S. Treasury
Notes: $90,959, 5.75%-7.75%, 4/30/99-11/15/00; aggregate market value $91,802)
<TABLE>
<S> <C> <C> <C> <C>
90,000 5.57% 6/01/98 90,000
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (AMORTIZED COST $1,646,034) 1,646,034
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (AMORTIZED COST $1,861,875) - 100.3% 1,861,875
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.3%) (5,135)
- --------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,856,740
- --------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value and cost (note 1) $ 215,840,777
Repurchase agreements, at value and cost (note 1) 1,646,034,000
Interest receivable 3,192,918
Deferred organization costs and prepaid expenses 298,466
--------------
Total assets 1,865,366,161
--------------
LIABILITIES:
Due to custodian 120,481
Advisory fee payable 156,597
Shareholder Service fee payable-Investor Shares 57,496
Shareholder Service fee payable-Institutional Shares 44,588
Shareholder Service fee payable-Service Shares 24,819
Shareholder Service fee payable-Premium Shares 16,555
Distribution fee payable-Service Shares 4,166
Distribution fee payable-Premium Shares 12,711
Dividends payable 8,124,471
Accrued expenses 64,749
--------------
Total liabilities 8,626,633
--------------
NET ASSETS $1,856,739,528
--------------
--------------
NET ASSETS BY CLASS OF SHARES:
Investor Shares $ 245,533,602
Institutional Shares 1,302,421,063
Financial Shares 113,261,483
Service Shares 116,228,816
Premium Shares 79,294,564
--------------
NET ASSETS $1,856,739,528
--------------
--------------
SHARES OUTSTANDING
Investor Shares 245,532,539
--------------
--------------
Institutional Shares 1,302,416,342
--------------
--------------
Financial Shares 113,261,037
--------------
--------------
Service Shares 116,228,014
--------------
--------------
Premium Shares 79,294,274
--------------
--------------
NET ASSET VALUE PER SHARE $1.00
--------------
--------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest $1,856,732,206
Accumulated net realized gain on investments 7,322
--------------
NET ASSETS $1,856,739,528
--------------
--------------
</TABLE>
See notes to financial statements.
6
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1998 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $54,136,643
-------------
EXPENSES (note 2):
Advisory fees 965,099
Administration fees 48,075
Shareholder Service fees
Investor Shares 323,248
Institutional Shares 344,127
Service Shares 150,160
Premium Shares 99,452
Distribution fees
Service Shares 26,685
Premium Shares 77,342
Registration and filing fees 163,254
Custodian fees and expenses 81,982
Transfer agent fees and expenses 72,382
Publication expenses and rating service fees 42,945
Accounting service fees 26,674
Legal fees 22,231
Insurance expense 19,743
Cash management fees 17,525
Amortization of organization costs 15,565
Reports to shareholders 12,043
Audit fees 11,216
Trustees' fees 6,944
Other expenses 4,914
-------------
Total expenses 2,531,606
Fees waived (note 2) (39,985)
-------------
Net expenses 2,491,621
-------------
NET INVESTMENT INCOME 51,645,022
NET REALIZED GAIN ON INVESTMENTS 9,486
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 51,654,508
-------------
-------------
</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 SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1998 ENDED
(UNAUDITED) NOVEMBER 30, 1997
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 51,645,022 $ 85,709,221
Net realized gain on investments 9,486 21,677
------------------ -----------------
Net increase in net assets
resulting from operations 51,654,508 85,730,898
------------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income-Investor
Shares (6,717,751) (9,992,295)
Net investment
income-Institutional Shares (37,233,357) (65,927,653)
Net investment income-Financial
Shares (2,600,363) (1,587,379)
Net investment income-Service
Shares (3,100,417) (5,468,793)
Net investment income-Premium
Shares (1,993,134) (2,733,101)
Net realized gain on
investments-Investor Shares (319) (2,355)
Net realized gain on
investments-Institutional
Shares (1,481) (16,989)
Net realized gain on
investments-Financial Shares (133) (501)
Net realized gain on
investments-Service Shares (140) (1,355)
Net realized gain on
investments-Premium Shares (91) (477)
------------------ -----------------
Total distributions to
shareholders (51,647,186) (85,730,898)
------------------ -----------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST*:
Sale of shares-Investor Shares 852,914,451 1,878,115,717
Sale of shares-Institutional
Shares 4,819,863,522 8,968,756,744
Sale of shares-Financial Shares 147,902,000 627,347,032
Sale of shares-Service Shares 162,141,836 432,735,113
Sale of shares-Premium Shares 39,460,571 373,782,058
Reinvested dividends-Investor
shares 2,196,028 4,214,206
Reinvested
dividends-Institutional Shares 23,455,657 44,014,929
Reinvested dividends-Financial
Shares 17,182 748,199
Reinvested dividends-Service
Shares 1,500 3,094,972
Reinvested dividends-Premium
Shares -- 111,927
Cost of shares
repurchased-Investor Shares (994,807,140) (1,580,015,817)
Cost of shares
repurchased-Institutional
Shares (4,724,808,143) (8,726,039,510)
Cost of shares
repurchased-Financial Shares (125,123,634) (537,629,742)
Cost of shares
repurchased-Service Shares (287,983,103) (193,762,304)
Cost of shares
repurchased-Premium Shares (44,404,938) (289,655,344)
------------------ -----------------
Net increase (decrease) in net
assets from shares of
beneficial interest (129,174,211) 1,005,818,180
------------------ -----------------
Total Increase (Decrease) (129,166,889) 1,005,818,180
NET ASSETS:
Beginning of year 1,985,906,417 980,088,237
------------------ -----------------
End of period $ 1,856,739,528 $ 1,985,906,417
------------------ -----------------
------------------ -----------------
</TABLE>
* Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
8
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MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
SHARES
----------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR FOR THE YEAR DECEMBER 30, 1994*
MAY 31, 1998 ENDED ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
------------------ ----------------- ----------------- ------------------
<S> <C> <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 $1.00
------------------ ----------------- ----------------- ------------------
Net investment income 0.026 0.051 0.050 0.051
Dividends from net
investment income (0.026) (0.051) (0.050) (0.051)
------------------ ----------------- ----------------- ------------------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
------------------ ----------------- ----------------- ------------------
------------------ ----------------- ----------------- ------------------
TOTAL RETURN 5.25%(a) 5.23% 5.11% 5.71%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses(b) 0.41%(a) 0.41% 0.45% 0.38%(a)
Net investment income 5.20%(a) 5.13% 4.99% 5.63%(a)
Net assets at the end of
period (000's omitted) $245,534 $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%, 0.00%, 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 SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR FOR THE YEAR JUNE 20, 1995*
MAY 31, 1998 ENDED ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
------------------ ----------------- ----------------- -----------------
<S> <C> <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 $1.00
------------------ ----------------- ----------------- -----------------
Net investment income 0.027 0.053 0.052 0.026
Dividends from net
investment income (0.027) (0.053) (0.052) (0.026)
------------------ ----------------- ----------------- -----------------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
------------------ ----------------- ----------------- -----------------
------------------ ----------------- ----------------- -----------------
TOTAL RETURN 5.47%(a) 5.46% 5.37% 5.76%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses(b) 0.20%(a) 0.20% 0.20% 0.20%(a)
Net investment income 5.41%(a) 5.32% 5.21% 5.69%(a)
Net assets at the end of
period (000's omitted) $1,302,421 $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%, 0.01%, 0.02% and 0.17%, respectively.
* Commencement of operations.
See notes to financial statements.
10
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
FINANCIAL SERVICE
SHARES SHARES
-------------------------------------- --------------------------------------
FOR THE SIX FOR THE SIX
MONTHS FOR THE PERIOD MONTHS FOR THE PERIOD
ENDED MARCH 13, 1997* ENDED MAY 2, 1997*
MAY 31, 1998 THROUGH MAY 31, 1998 THROUGH
(UNAUDITED) NOVEMBER 30, 1997 (UNAUDITED) NOVEMBER 30, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <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 $1.00
----------------- ----------------- ----------------- -----------------
Net investment income 0.027 0.038 0.026 0.030
Dividends from net investment
income (0.027) (0.038) (0.026) (0.030)
----------------- ----------------- ----------------- -----------------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
TOTAL RETURN 5.52%(a) 5.52%(a) 5.21%(a) 5.21%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.15%(a) 0.14%(a) 0.45%(a) 0.45%(a)
Net investment income 5.45%(a) 5.45%(a) 5.16%(a) 5.15%(a)
Net assets at the end of period
(000's omitted) $113,261 $90,465 $116,229 $242,068
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
11
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----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
PREMIUM
SHARES
--------------------------------------
FOR THE SIX
MONTHS FOR THE PERIOD
ENDED MAY 20, 1997*
MAY 31, 1998 THROUGH
(UNAUDITED) NOVEMBER 30, 1997
----------------- -----------------
<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 0.025 0.027
Dividends from net investment income (0.025) (0.027)
----------------- -----------------
Ending net asset value per share $1.00 $1.00
----------------- -----------------
----------------- -----------------
TOTAL RETURN 5.06%(a) 5.06%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.60%(a) 0.60%(a)
Net investment income 5.01%(a) 5.01%(a)
Net assets at the end of period (000's omitted) $79,295 $84,239
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
12
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THE
MILESTONE
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----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (Unaudited)
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 May 31, 1998 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.
13
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THE
MILESTONE
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----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
MAY 31, 1998 (Unaudited)
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 six months
ended May 31, 1998, the Adviser waived $39,985 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
14
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THE
MILESTONE
FUNDS
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
MAY 31, 1998 (Unaudited)
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 May 31, 1998,
there were no unreimbursed expenses payable by the Trust. For the six months
ended May 31, 1998, the Portfolio incurred .04% and 0.19% of these distribution
expenses for the Service and the Premium Shares, in the amounts of $26,685 and
$77,342, respectively.
Countrywide Fund Services, Inc. acts as the Trust's transfer agent and dividend
disbursing agent. CW Fund Distributors, 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.
15
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THE
MILESTONE
FUNDS
----------------
Adviser
- -------------------------------------------------------------------------------
Milestone Capital Management, L.P.
One Executive Boulevard
Yonkers, NY 10701
Underwriter / Transfer Agent
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CW Fund Distributors, Inc. / Countrywide Fund Services, Inc.
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
- -------------------------------------------------------------------------------
The Bank of New York
90 Washington Street
New York, NY 10286
Legal Counsel
- -------------------------------------------------------------------------------
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Independent Auditors
- -------------------------------------------------------------------------------
Deloitte & Touche, LLP
Two World Financial Center
New York, NY 10281-1434
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 Executive Boulevard, Yonkers, New York 10701
800-941-MILE
