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THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
ADVISER
Milestone Capital Management, L.P.
------------------
ANNUAL REPORT
NOVEMBER 30, 1998
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TABLE OF CONTENTS
Letter to Our Shareholders........................ 3
Statement of Investments.......................... 5
Statement of Assets and Liabilities............... 8
Statement of Operations........................... 9
Statements of Changes in Net Assets............... 10
Financial Highlights.............................. 11
Notes to Financial Statements..................... 15
Independent Auditors' Report...................... 18
2
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TREASURY OBLIGATIONS PORTFOLIO
LETTER TO OUR SHAREHOLDERS
NOVEMBER 30, 1998
Dear Investors:
While 1998 was marked by significant volatility throughout the global financial
markets, we are very pleased to report that the Treasury Obligations Portfolio
posted its FOURTH CONSECUTIVE YEAR of stable asset growth, competitive
performance, and outstanding liquidity management services for our investors.
Our team appreciates the opportunity to address your cash management needs
during favorable as well as difficult market cycles, and we reaffirm our
commitment to provide you with the highest standard of client service during
1999 and into the next millennium.
Rather than summarize the past year's accomplishments--which are presented in
detail in the accompanying annual report--we thought it would be appropriate to
review some of the foward-looking steps that Milestone Capital has already taken
to protect our investors' interests and further enhance the services which are
of greatest value to you. These include:
o Y2K PREPAREDNESS--THE FUTURE IS NOW
As the Fund's investment adviser, Milestone Capital Management is Y2K
COMPLIANT at this time. In addition, all of the mission critical functions of
the Fund's service providers--most notably custody, fund accounting, and
transfer agency--are Y2K compliant as well. We have prepared a document
confirming our Y2K preparedness status, which we are providing to all of our
investors. Please let us know if our team can be of assistance in any way as
you address your own Y2K issues and plans over the coming year.
o STATE-OF-THE-ART SHAREHOLDER SERVICING SYSTEMS
The Fund has converted to a sequel server, PC-based transfer agency system
which we have extensively customized to meet the growing transactional and
documentational needs of institutional investors. Unified Financial Services
has been retained as the most qualified transfer agent to operate the new
system and insure that it is fully integrated with the technology platforms of
our clients. This conversion was smoothly and fully completed without any
disruption in service to investors.
o CLIENT-FOCUSED TECHNOLOGY SOLUTIONS
Instead of using technology to "standardize" service processes and produce
"scale efficiencies," Milestone Capital is absolutely committed to harnessing
technology in ways that further individualize the set of services we are able
to create for each of the Fund's investors. From proprietary e-mail trading
systems to internet-based programs for retrieving real-time account
information--our team has worked hand-in-hand with investors throughout this
year to develop technology solutions that generate both immediate benefits and
future value for each client's operations.
3
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We end the year and look ahead to 2000 from the same vantage point where we
began when the Fund was launched four years ago--putting the interests of our
investors FIRST. We appreciate your business, and we hope you will let us know
how we can be of even greater service to you in 1999.
/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.
4
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1998
($ in Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
VALUE
PRINCIPAL AMOUNT INTEREST RATE MATURITY DATE (NOTE 1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 13.9%
U.S. TREASURY NOTES - 12.6%
$ 15,000 6.375% 1/15/99 $ 15,015
35,000 5.875% 3/31/99 35,040
110,000 6.50% 4/30/99 110,405
20,000 6.00% 6/30/99 20,053
75,000 6.875% 8/31/99 76,170
57,000 5.875% 8/31/99 57,467
15,000 5.75% 9/30/99 15,135
329,285
U.S. TREASURY BILLS - 1.3%
30,000 4.33% 10/14/99 28,856
5,000 3.82% 10/14/99 4,832
33,688
- ------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (AMORTIZED COST $362,973) 362,973
- ------------------------------------------------------------------------------------------------------
</TABLE>
REPURCHASE AGREEMENTS - 86.0%
Barclays Capital Inc., dated 11/30/98, repurchase price $102,780 (U.S. Treasury
Note: $101,480, 5.625%, 12/31/99; market value $104,820)
102,765 5.30% 12/1/98 102,765
Bear, Stearns & Co. Inc., dated 11/30/98, repurchase price $120,018 (U.S.
Treasury Bills: $4,931, 12/10/98-11/12/99; U.S. Treasury Bonds: $10,890,
11.125%-11.875%, 11/15/02-11/15/03; U.S. Treasury Notes: $99,602, 5.375%-8.75%,
1/15/99-8/15/05; aggregate market value $122,518)
120,000 5.35% 12/1/98 120,000
Credit Suisse First Boston Corp., dated 11/13/98, repurchase price $91,464 (U.S.
Treasury Bill: $94,095, 5/27/99; market value $91,990)
90,000 4.80% 3/15/99 90,000
Deutsche Bank Securities Inc., dated 11/19/98, repurchase price $101,600 (U.S.
Treasury Note: $99,771, 5.375%, 6/30/00, market value $103,000)
100,000 4.80% 3/19/99 100,000
5
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS (CONT'D)
NOVEMBER 30, 1998
($ in Thousands)
REPURCHASE AGREEMENTS - 86.0% (CONT'D)
Deutsche Bank Securities Inc., dated 11/30/98, repurchase price $205,030 (U.S.
Treasury Bond: $78,497, 13.75%, 8/15/04; U.S. Treasury Notes: $88,865,
5.375%-6.125%, 6/30/00-10/31/02; aggregate market value $208,100)
205,000 5.30% 12/1/98 205,000
Donaldson, Lufkin & Jenrette Securities Corp., dated 11/30/98, repurchase price
$120,018 (U.S. Treasury Notes: $112,139, 3.625%-6.50%, 8/31/99-5/15/05;
aggregate market value 122,401)
120,000 5.30% 12/1/98 120,000
Dresdner Kleinwort Benson, N.A. LLC, dated 11/30/98, repurchase price $125,018
(U.S. Treasury Notes: $125,389, 5.00%-7.50%, 1/31/99-11/30/99; aggregate market
value $127,502)
125,000 5.30% 12/1/98 125,000
First Chicago Capital Markets, Inc., dated 11/30/98, repurchase price $120,018
(U.S. Treasury Bills: $54,327, 12/10/98-11/12/99; U.S. Treasury Notes: $61,513,
4.00%-7.875%, 1/15/99-5/15/05; aggregate market value $122,400)
120,000 5.30% 12/1/98 120,000
Greenwich Capital Markets, Inc., dated 11/30/98, repurchase price $125,018 (U.S
Treasury Bonds: $11,006, 10.75%-12.375%, 2/15/03-8/15/05; U.S. Treasury Notes:
$107,891, 3.625%-8.75%, 12/31/98-8/15/05; aggregate market value $127,502)
125,000 5.30% 12/1/98 125,000
Merrill Lynch Government Securities Inc., dated 11/30/98, repurchase price
$320,047 (U.S. Treasury Notes: $312,211, 4.50%-8.875%, 12/31/99-8/15/05;
aggregate market value $329,786)
320,000 5.33% 12/1/98 320,000
Merrill Lynch Government Securities Inc., dated 11/30/98, repurchase price
$295,043 (U.S. Treasury Bonds: $122,907, 8.25%-15.75%, 2/15/01-8/15/05; U.S.
Treasury Notes: $138,090, 5.00%-9.125%, 12/31/98-11/30/99; aggregate market
value $297,517)
295,000 5.28% 12/1/98 295,000
Morgan Stanley & Co. Inc., dated 9/1/98, repurchase price $92,036 (U.S. Treasury
Note: $88,990, 6.875%, 7/31/99, market value $92,244)
90,000 5.43% 1/29/99 90,000
Morgan Stanley & Co. Inc., dated 10/9/98, repurchase price $100,845 (U.S.
Treasury Notes: $100,504, 5.50%-6.875%, 8/31/99-3/31/00, aggregate market value
$102,464)
100,000 5.07% 12/8/98 100,000
Nesbitt Burns Securities, Inc., dated 11/30/98, repurchase price $120,018 (U.S.
Treasury Bills: $11,208, 1/14/99-11/12/99; U.S. Treasury Notes: $106,817,
5.125%-8.00%, 1/15/99-2/15/04; aggregate market value $122,400)
120,000 5.35% 12/1/98 120,000
6
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS (CONT'D)
NOVEMBER 30, 1998
($ in Thousands)
REPURCHASE AGREEMENTS - 86.0% (CONT'D)
Salomon Smith Barney Inc., dated 11/30/98, repurchase price $120,018 (U.S.
Treasury Note: $123,525, 4.00%, 10/31/00; market value $122,401)
120,000 5.30% 12/1/98 120,000
Warburg Dillon Read LLC, dated 11/12/98, repurchase price $101,232 (U.S.
Treasury Bill: $2,694, 2/18/99; U.S. Treasury Notes: $95,179, 5.50%-8.00%,
4/30/99-2/28/03; aggregate market value $102,001)
100,000 4.82% 2/12/99 100,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (AMORTIZED COST $2,252,765) 2,252,765
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (AMORTIZED COST $2,615,738) - 99.9% 2,615,738
ASSETS IN EXCESS OF OTHER LIABILITIES - 0.1% 2,671
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $2,618,409
================================================================================
See notes to financial statements.
7
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
ASSETS:
Investments, at value and cost (note 1) $ 362,972,945
Repurchase agreements, at value and cost (note 1) 2,252,765,000
Cash 327
Interest receivable 7,007,857
Deferred organization costs and prepaid expenses 72,672
--------------
Total assets 2,622,818,801
--------------
LIABILITIES:
Advisory fee payable 228,584
Shareholder Service fee payable-Investor Shares 80,394
Shareholder Service fee payable-Institutional Shares 84,675
Shareholder Service fee payable-Service Shares 22,807
Shareholder Service fee payable-Premium Shares 18,084
Distribution fee payable-Service Shares 5,348
Distribution fee payable-Premium Shares 15,095
Dividends payable 3,829,520
Accrued expenses 125,136
--------------
Total liabilities 4,409,643
--------------
NET ASSETS $2,618,409,158
==============
NET ASSETS BY CLASS OF SHARES:
Investor Shares $ 421,087,842
Institutional Shares 1,686,835,141
Financial Shares 314,556,028
Service Shares 109,992,667
Premium Shares 85,937,480
--------------
NET ASSETS $2,618,409,158
==============
SHARES OUTSTANDING
Investor Shares 421,087,842
==============
Institutional Shares 1,686,835,141
==============
Financial Shares 314,556,028
==============
Service Shares 109,992,667
==============
Premium Shares 85,937,480
==============
NET ASSET VALUE PER SHARE $1.00
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest $2,618,409,158
==============
NET ASSETS $2,618,409,158
==============
See notes to financial statements.
8
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
INVESTMENT INCOME:
Interest $121,014,428
--------------
EXPENSES (note 2):
Advisory fees 2,203,792
Administration fees 99,999
Shareholder Service fees
Investor Shares 751,154
Institutional Shares 725,486
Service Shares 301,133
Premium Shares 219,055
Distribution fees
Service Shares 59,148
Premium Shares 174,782
Registration and filing fees 328,886
Transfer agent fees and expenses 165,286
Custodian fees and expenses 162,497
Publication expenses and rating service fees 88,695
Accounting service fees 64,782
Legal fees 48,400
Cash management fees 34,070
Amortization of organization costs 31,215
Insurance expense 28,253
Audit fees 24,575
Reports to shareholders 16,814
Trustees' fees 15,545
Other expenses 7,827
--------------
Total expenses 5,551,394
Fees waived (note 2) (13,324)
--------------
Net expenses 5,538,070
--------------
NET INVESTMENT INCOME 115,476,358
NET REALIZED GAIN ON INVESTMENTS 13,517
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 115,489,875
==============
See notes to financial statements.
9
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TREASURY OBLIGATIONS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -----------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 115,476,358 $ 85,709,221
Net realized gain on investments 13,517 21,677
--------------- ---------------
Net increase in net assets
resulting from operations 115,489,875 85,730,898
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income-Investor
Shares (15,266,103) (9,992,295)
Net investment
income-Institutional Shares (76,898,628) (65,927,653)
Net investment income-Financial
Shares (12,891,937) (1,587,379)
Net investment income-Service
Shares (6,109,949) (5,468,793)
Net investment income-Premium
Shares (4,309,741) (2,733,101)
Net realized gain on
investments-Investor Shares (2,431) (2,355)
Net realized gain on
investments-Institutional
Shares (7,083) (16,989)
Net realized gain on
investments-Financial Shares (1,428) (501)
Net realized gain on
investments-Service Shares (1,850) (1,355)
Net realized gain on
investments-Premium Shares (725) (477)
--------------- ---------------
Total distributions to
shareholders (115,489,875) (85,730,898)
--------------- ---------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST*:
Sale of shares-Investor Shares 1,943,037,601 1,878,115,717
Sale of shares-Institutional
Shares 11,020,380,539 8,968,756,744
Sale of shares-Financial Shares 1,099,712,000 627,347,032
Sale of shares-Service Shares 288,570,874 432,735,113
Sale of shares-Premium Shares 191,389,622 373,782,058
Reinvested dividends-Investor
shares 5,666,907 4,214,206
Reinvested
dividends-Institutional Shares 54,977,458 44,014,929
Reinvested dividends-Financial
Shares 5,026,423 748,199
Reinvested dividends-Service
Shares 37,555 3,094,972
Reinvested dividends-Premium
Shares -- 111,927
Cost of shares
repurchased-Investor Shares (1,912,845,866) (1,580,015,817)
Cost of shares
repurchased-Institutional
Shares (10,572,428,163) (8,726,039,510)
Cost of shares
repurchased-Financial Shares (880,647,883) (537,629,742)
Cost of shares
repurchased-Service Shares (420,683,543) (193,762,304)
Cost of shares
repurchased-Premium Shares (189,690,783) (289,655,344)
--------------- ---------------
Net increase in net assets from
shares of beneficial interest 632,502,741 1,005,818,180
--------------- ---------------
Total Increase 632,502,741 1,005,818,180
NET ASSETS:
Beginning of year 1,985,906,417 980,088,237
--------------- ---------------
End of year $ 2,618,409,158 $ 1,985,906,417
=============== ===============
* Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
10
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TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
SHARES
---------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR DECEMBER 30, 1994*
ENDED ENDED ENDED THROUGH
NOVEMBER 30, 1998 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 0.051 0.051 0.050 0.051
Dividends from net (0.051) (0.051) (0.050) (0.051)
investment income ----- ----- ----- ------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======
TOTAL RETURN 5.23% 5.23% 5.11% 5.71%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses(b) 0.40% 0.41% 0.45% 0.38%(a)
Net investment income 5.08% 5.13% 4.99% 5.63%(a)
Net assets at the end of
period (000's omitted) $421,088 $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%, for each of the
respective periods presented.
* Commencement of operations.
See notes to financial statements.
11
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FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
--------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR JUNE 20, 1995*
ENDED ENDED ENDED THROUGH
NOVEMBER 30, 1998 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 0.053 0.053 0.052 0.026
Dividends from net
investment income (0.053) (0.053) (0.052) (0.026)
--------- --------- ------- -------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
========= ========= ======= =======
TOTAL RETURN 5.45% 5.46% 5.37% 5.76%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses(b) 0.20% 0.20% 0.20% 0.20%(a)
Net investment income 5.30% 5.32% 5.21% 5.69%(a)
Net assets at the end of
period (000's omitted) $1,686,835 $1,183,905 $897,173 $229,159
</TABLE>
(a) Annualized
(b) Net of advisory, shareholder servicing, and administration fees waived and
expenses reimbursed of less than 0.01%, 0.01%, 0.02% and 0.17%, for each of
the respective periods presented.
* Commencement of operations.
See notes to financial statements.
12
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FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
FINANCIAL SERVICE
SHARES SHARES
-------------------------------------- --------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR MARCH 13, 1997* FOR THE YEAR MAY 2, 1997*
ENDED THROUGH ENDED THROUGH
NOVEMBER 30, 1998 NOVEMBER 30, 1997 NOVEMBER 30, 1998 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 0.054 0.038 0.051 0.030
Dividends from net investment
income (0.054) (0.038) (0.051) (0.030)
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00
======= ========= ======= =========
TOTAL RETURN 5.50% 5.52%(a) 5.19% 5.21%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.15% 0.14%(a) 0.45% 0.45%(a)
Net investment income 5.28% 5.45%(a) 5.07% 5.15%(a)
Net assets at the end of period
(000's omitted) $314,556 $90,465 $109,993 $242,068
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
13
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FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
PREMIUM
SHARES
--------------------------------------
FOR THE PERIOD
FOR THE YEAR MAY 20, 1997*
ENDED THROUGH
NOVEMBER 30, 1998 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 0.049 0.027
Dividends from net investment income (0.049) (0.027)
Ending net asset value per share $1.00 $1.00
TOTAL RETURN 5.03% 5.06%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.60% 0.60%(a)
Net investment income 4.92% 5.01%(a)
Net assets at the end of period (000's omitted) $85,937 $84,239
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
14
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
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, 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.
15
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
NOVEMBER 30, 1998
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, 1998, the Adviser waived $13,324 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
16
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
NOVEMBER 30, 1998
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, 1998,
there were no unreimbursed expenses. For the year ended November 30, 1998, the
Portfolio incurred 0.05% and 0.20% of these distribution expenses for the
Service and the Premium Shares.
Countrywide Fund Services, Inc., formerly MGF Service Corp., acted as the
Trust's transfer agent and dividend disbursing agent for the year ended
November 30, 1998. Effective December 7, 1998, Unified Fund Services, Inc.
became the Trust's transfer agent. CW Fund Distributors, Inc. (the
"Underwriter") served as the statutory underwriter of the Portfolio's shares
pursuant to an Underwriting Agreement with the Trust for the year ended
November 30, 1998. Effective December 7, 1998, Unified Management Corporation
became the Trust's Underwriter and will serve under the same terms and
conditions. 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.
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THE
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TREASURY OBLIGATIONS PORTFOLIO
INDEPENDENT AUDITORS' REPORT
NOVEMBER 30, 1998
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, 1998, and the related statement of operations
for the year then ended, and the statement of changes in net assets and
financial highlights for the year ended November 30, 1998 and the periods ended
November 30, 1997. 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
audits. The financial highlights of the fund for the year ended November 30,
1996 and for the periods ended November 30, 1995 were audited by other auditors
whose report, dated January 14, 1997, expressed an unqualified opinion on those
financial highlights.
We conducted our audits 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, 1998, by correspondence with the Fund's 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 audits provide 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, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the respective above-stated periods, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 30, 1998
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Adviser
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Milestone Capital Management, L.P.
One Executive Boulevard
Yonkers, NY 10701
Underwriter / Transfer Agent
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Unified Management Corp. / Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204-1806
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 & Frankel
919 Third Avenue
New York, NY 10022
Independent Auditors
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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
