<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
THE MILESTONE FUNDS
TREASURY OBLIGATIONS PORTFOLIO
ADVISER
Milestone Capital Management, L.P.
------------------
SEMI-ANNUAL REPORT
MAY 31, 1999
<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..................... 14
2
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
LETTER TO OUR SHAREHOLDERS
MAY 31, 1999
Dear Investors:
During the first half of the Fund's 1999 fiscal year, total assets increased 18%
over the comparable 6-month period in 1998. Continuing stability in the Fund's
asset base reflects our on-going partnership with both longstanding and new
investors who used the Fund during this period to meet their cash management and
liquidity needs. We want to thank all of our investors for your confidence and
support as we look ahead to the second half of 1999.
Because institutional liquidity management is our exclusive business focus,
integrating state-of-the-art technology solutions with the expertise and
experience of our team of specialists will continue to be our highest priority.
As we complete our fifth full year of operation, we are continually looking for
new ways to employ our technological capabilities and professional resources to
the benefit of our investors.
Y2K UPDATE--ANTICIPATING OPPORTUNITIES AND REMAINING VIGILANT ON BEHALF OF OUR
INVESTORS
As we mentioned in our Annual Report last November, MILESTONE CAPITAL MANAGEMENT
IS FULLY Y2K COMPLIANT, AND THE FUND'S SERVICE PROVIDERS ARE COMPLIANT IN ALL
MISSION CRITICAL FUNCTIONS. We continue to closely monitor the continuing
progress of all service providers and counterparties--developing and testing
comprehensive plans to address a broad range of contingencies.
But this is just the beginning of Y2K preparedness for Milestone. Amid a myriad
of views regarding the potential impact of Y2K on the markets, financial
institutions, and investors' needs/preferences for liquidity at year end, our
team is already working in partnership with investors and intermediaries to
anticipate Y2K-related needs at the end of the year. Whether it is advice on Y2K
contingency planning, evaluating year-end liquidity needs and alternative
investment strategies, or assessing shifts in the money market supply/demand
factors--we are prepared to be of service to our clients through the end of 1999
and into 2000 on these and all other related issues.
The Year 2000 promises to be a historic year of opportunities and new
challenges. We, in turn, promise to serve the best interests of our investors by
remaining committed to our conservative investment philosophy, our exclusive
focus on liquidity management, and our dedication to client service.
/s/ JANET TIEBOUT HANSON /s/ MARC H. PFEFFER
Chairman of the Board of Trustees Chief Investment Officer
The Milestone Funds Milestone Capital Management, L.P.
3
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS
MAY 31, 1999 (Unaudited)
($ in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL AMOUNT INTEREST RATE MATURITY DATE (NOTE 1)
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 13.8%
U.S. TREASURY NOTES - 13.6%
<S> <C> <C> <C> <C>
$ 10,000 6.00% 6/30/99 $ 10,004
15,000 5.375% 1/31/00 15,033
10,000 5.875% 2/15/00 10,062
15,000 5.50% 2/29/00 15,055
65,000 5.50% 3/31/00 65,310
130,000 6.375% 5/15/00 131,695
60,000 5.50% 5/31/00 60,303
307,462
U.S. TREASURY BILL - 0.2%
5,000 3.82% 10/14/99 4,928
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL U.S. GOVERNMENT OBLIGATIONS (AMORTIZED COST $312,390) 312,390
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 86.4%
</TABLE>
<TABLE>
<CAPTION>
Barclays Capital Inc., dated 6/1/99, repurchase price $90,885 (U.S. Treasury Note: $90,965, 7.125%, 9/30/99;
market value $92,691)
<S> <C> <C> <C> <C>
90,873 4.80% 6/1/99 90,873
<CAPTION>
Bear, Stearns & Co. Inc., dated 6/1/99, repurchase price $540,072 (U.S. Treasury Bills: $20,900,
8/12/99-8/26/99; U.S. Treasury Bonds: $8,123, 11.875%-12.375%, 11/15/03-5/15/04; U.S. Treasury Notes:
$259,554, 4.625%-7.875%, 9/30/99-5/15/05; U.S. Treasury Strips: $324,115, 8/15/99-2/15/06; aggregate market
value $552,446)
<S> <C> <C> <C> <C>
540,000 4.83% 6/1/99 540,000
<CAPTION>
Chase Securities Inc., dated 6/1/99, repurchase price $110,015 (U.S. Treasury Notes: $112,443, 4.00%-5.75%,
10/31/00-12/31/00; aggregate market value $112,201)
<S> <C> <C> <C> <C>
110,000 4.80% 6/1/99 110,000
<CAPTION>
CIBC World Markets Corp., dated 6/1/99, repurchase price $100,013 (U.S. Treasury Notes: $99,354, 5.50%- 6.25%,
12/31/00-8/31/02; aggregate market value $102,003)
<S> <C> <C> <C> <C>
100,000 4.80% 6/1/99 100,000
<CAPTION>
Credit Suisse First Boston Corp., dated 6/1/99, repurchase price $108,014 (U.S. Treasury Notes: $100,710,
7.50%-7.75%, 1/31/00-2/15/05; aggregate market value $110,635)
<S> <C> <C> <C> <C>
108,000 4.80% 6/1/99 108,000
</TABLE>
See notes to financial statements.
4
<PAGE>
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THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF INVESTMENTS (CONT'D)
MAY 31, 1999 (Unaudited)
($ in Thousands)
REPURCHASE AGREEMENTS - 86.4% (CONT'D)
<TABLE>
<CAPTION>
Deutsche Bank Securities Inc., dated 6/1/99, repurchase price $520,070 (U.S. Treasury Bill: $82,192, 4.71%,
11/4/99; U.S. Treasury Notes: $386,332, 12/31/99-8/31/00, 5.125%-5.875%; U.S. Treasury Bond: $49,087, 2/15/01,
11.75%; aggregate market value $530,400)
<S> <C> <C> <C> <C>
520,000 4.83% 6/1/99 520,000
<CAPTION>
Greenwich Capital Markets, Inc., dated 6/1/99, repurchase price $108,014 (U.S. Treasury Bonds: $14,391,
10.75%-14.25%, 2/15/02-8/15/05; U.S. Treasury Notes: $90,356, 4.00%-8.875%, 6/30/99-2/15/06; aggregate market
value $110,163)
<S> <C> <C> <C> <C>
108,000 4.82% 6/1/99 108,000
<CAPTION>
Morgan Stanley & Co. Inc., dated 6/1/99, repurchase price $105,014 (U.S. Treasury Note: $105,655, 5.375%,
7/31/00, market value $107,631)
<S> <C> <C> <C> <C>
105,000 4.81% 6/1/99 105,000
<CAPTION>
Nesbitt Burns Securities, Inc., dated 6/1/99, repurchase price $100,013 (U.S. Treasury Bills: $103,944,
9/23/99-11/26/99; aggregate market value $102,001)
<S> <C> <C> <C> <C>
100,000 4.83% 6/1/99 100,000
<CAPTION>
Salomon Smith Barney Inc., dated 6/1/99, repurchase price $75,010 (U.S. Treasury Note: $77,500, 5.25%,
5/15/04; market value $76,508)
<S> <C> <C> <C> <C>
75,000 4.81% 6/1/99 75,000
<CAPTION>
Warburg Dillon Read LLC, dated 6/1/99, repurchase price $100,013 (U.S. Treasury Bonds: $27,518,
10.75%-11.875%, 2/15/03-11/15/04; U.S. Treasury Notes: $66,271, 5.50%-8.50%, 8/31/99-2/15/06; aggregate market
value $102,002)
<S> <C> <C> <C> <C>
100,000 4.81% 6/1/99 100,000
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL REPURCHASE AGREEMENTS (AMORTIZED COST $1,956,873) 1,956,873
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL INVESTMENTS (AMORTIZED COST $2,269,263) - 100.2% 2,269,263
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.2)% (4,332)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET ASSETS - 100.0% $2,264,931
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value and cost (note 1) $ 312,390,070
Repurchase agreements, at value and cost (note 1) 1,956,873,000
Cash 774
Interest receivable 4,597,496
Deferred organization costs and prepaid expenses 300,077
--------------
Total assets 2,274,161,417
LIABILITIES:
Dividends payable 8,703,195
Advisory fee payable 191,332
Shareholder Service fee payable-Investor Shares 56,847
Shareholder Service fee payable-Institutional Shares 62,951
Shareholder Service fee payable-Service Shares 5,953
Shareholder Service fee payable-Premium Shares 13,866
Distribution fee payable-Service Shares 1,297
Distribution fee payable-Premium Shares 11,339
Accrued expenses 183,315
--------------
Total liabilities 9,230,095
--------------
NET ASSETS $2,264,931,322
--------------
--------------
NET ASSETS BY CLASS OF SHARES:
Investor Shares $ 252,444,092
Institutional Shares 1,426,499,285
Financial Shares 485,125,452
Service Shares 37,008,342
Premium Shares 63,854,151
--------------
NET ASSETS $2,264,931,322
--------------
--------------
SHARES OUTSTANDING
Investor Shares 252,443,550
--------------
--------------
Institutional Shares 1,426,497,679
--------------
--------------
Financial Shares 485,125,477
--------------
--------------
Service Shares 37,008,425
--------------
--------------
Premium Shares 63,854,138
--------------
--------------
NET ASSET VALUE PER SHARE $1.00
--------------
--------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest $2,264,931,322
--------------
--------------
NET ASSETS $2,264,931,322
--------------
--------------
</TABLE>
See notes to financial statements.
6
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $55,694,131
-------------
EXPENSES (note 2):
Advisory fees 1,140,926
Administration fees 49,893
Shareholder Service fees
Investor Shares 394,096
Institutional Shares 398,649
Service Shares 93,368
Premium Shares 93,771
Distribution fees
Service Shares 20,519
Premium Shares 76,839
Registration and filing fees 105,050
Custodian fees and expenses 86,210
Transfer agent fees and expenses 85,569
Publication expenses and rating service fees 39,164
Accounting service fees 31,708
Legal fees 20,218
Insurance expense 13,834
Cash management fees 36,650
Amortization of organization costs 15,565
Reports to shareholders 21,798
Audit fees 10,646
Trustees' fees 6,090
Other expenses 3,032
-------------
Net expenses 2,743,595
-------------
NET INVESTMENT INCOME 52,950,536
NET REALIZED GAIN ON INVESTMENTS 24,674
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 52,975,210
-------------
-------------
</TABLE>
See notes to financial statements.
7
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31,1999 ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 52,950,536 $ 115,476,358
Net realized gain on investments 24,674 13,517
---------------- ---------------
Net increase in net assets
resulting from operations 52,975,210 115,489,875
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income-Investor
Shares (7,070,661) (15,266,103)
Net investment income-Institutional
Shares (34,416,836) (76,898,628)
Net investment income-Financial
Shares (8,201,703) (12,891,937)
Net investment income-Service
Shares (1,655,257) (6,109,949)
Net investment income-Premium
Shares (1,606,079) (4,309,741)
Net realized gain on
investments-Investor Shares (3,046) (2,431)
Net realized gain on
investments-Institutional
Shares (14,171) (7,083)
Net realized gain on
investments-Financial Shares (4,262) (1,428)
Net realized gain on
investments-Service Shares (436) (1,850)
Net realized gain on
investments-Premium Shares (706) (725)
---------------- ---------------
Total distributions to
shareholders (52,973,157) (115,489,875)
---------------- ---------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST*:
Sale of shares-Investor Shares 872,793,209 1,943,037,601
Sale of shares-Institutional
Shares 4,619,398,558 11,020,380,539
Sale of shares-Financial Shares 1,201,829,250 1,099,712,000
Sale of shares-Service Shares 131,642,352 288,570,874
Sale of shares-Premium Shares 17,494,731 191,389,622
Reinvested dividends-Investor
shares 2,675,276 5,666,907
Reinvested
dividends-Institutional Shares 20,043,255 54,977,458
Reinvested dividends-Financial
Shares 2,906,157 5,026,423
Reinvested dividends-Service
Shares 38,666 37,555
Reinvested dividends-Premium
Shares -- --
Cost of shares
repurchased-Investor Shares (1,044,112,777) (1,912,845,866)
Cost of shares
repurchased-Institutional
Shares (4,899,779,274) (10,572,428,163)
Cost of shares
repurchased-Financial Shares (1,034,165,958) (880,647,883)
Cost of shares
repurchased-Service Shares (204,665,261) (420,683,543)
Cost of shares
repurchased-Premium Shares (39,578,073) (189,690,783)
---------------- ---------------
Net increase (decrease) in net
assets from shares of
beneficial interest (353,479,889) 632,502,741
---------------- ---------------
Total increase (decrease) (353,477,836) 632,502,741
NET ASSETS:
Beginning of period 2,618,409,158 1,985,906,417
---------------- ---------------
End of period $ 2,264,931,322 $ 2,618,409,158
---------------- ---------------
---------------- ---------------
</TABLE>
* Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
8
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTOR
SHARES
---------------------------------------------------------------------------
FOR THE
FOR THE PERIOD
SIX MONTHS DECEMBER 30,
ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR 1994*
MAY 31, ENDED ENDED ENDED THROUGH
1999 NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
----------- ------------ ------------ ------------ ------------
<S> <C> <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 $1.00
------- ------ ------ ------ ------
Net investment income 0.022 0.051 0.051 0.050 0.051
Dividends from net
investment income (0.022) (0.051) (0.051) (0.050) (0.051)
------- ------ ------ ------ ------
Ending net asset value per share $1.00 $1.00 $1.00 $1.00 $1.00
------- ------ ------ ------ ------
------- ------ ------ ------ ------
TOTAL RETURN 4.52%(a) 5.23% 5.23% 5.11% 5.71%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses(b) 0.40%(a) 0.40% 0.41% 0.45% 0.38%(a)
Net investment income 4.48%(a) 5.08% 5.13% 4.99% 5.63%(a)
Net assets at the end of period
(000's omitted) $252,444 $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%, 0.00%, 0.01% and 0.14%, for each of the
respective periods presented.
* Commencement of operations.
See notes to financial statements.
9
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
---------------------------------------------------------------------------
FOR THE
FOR THE PERIOD
SIX MONTHS JUNE 20,
ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR 1995*
MAY 31, ENDED ENDED ENDED THROUGH
1999 NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
----------- ------------ ------------ ------------ ------------
<S> <C> <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 $1.00
--------- -------- -------- ------ ------
Net investment income 0.023 0.053 0.053 0.052 0.026
Dividends from net
investment income (0.023) (0.053) (0.053) (0.052) (0.026)
--------- -------- -------- ------ ------
Ending net asset value per
share $1.00 $1.00 $1.00 $1.00 $1.00
--------- -------- -------- ------ ------
--------- -------- -------- ------ ------
TOTAL RETURN 4.73%(a) 5.45% 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% 0.20%(a)
Net investment income 4.68%(a) 5.30% 5.32% 5.21% 5.69%(a)
Net assets at the end of period
(000's omitted) $1,426,498 $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 0.00%, 0.01%, 0.01%, 0.02% and 0.17%, for each
of the respective periods presented.
* Commencement of operations.
See notes to financial statements.
10
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
FINANCIAL
SHARES
------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR MARCH 13, 1997*
MAY 31, 1999 ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1998 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 0.024 0.054 0.038
Dividends from net investment income (0.024) (0.054) (0.038)
-------- --------- -------
Ending net asset value per share $1.00 $1.00 $1.00
-------- --------- -------
-------- --------- -------
TOTAL RETURN 4.78%(a) 5.50% 5.52%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.15%(a) 0.15% 0.14%(a)
Net investment income 4.73%(a) 5.28% 5.45%(a)
Net assets at the end of period (000's omitted) $485,125 $314,556 $90,465
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
11
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
SERVICE
SHARES
------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR MAY 2, 1997*
MAY 31, 1999 ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1998 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 0.022 0.051 0.030
Dividends from net investment income (0.022) (0.051) (0.030)
-------- --------- -------
Ending net asset value per share $1.00 $1.00 $1.00
-------- --------- -------
-------- --------- -------
TOTAL RETURN 4.47%(a) 5.19% 5.21%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.45%(a) 0.45% 0.45%(a)
Net investment income 4.43%(a) 5.07% 5.15%(a)
Net assets at the end of period (000's omitted) $37,008 $109,993 $242,068
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
12
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
PREMIUM
SHARES
------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR MAY 20, 1997*
MAY 31, 1999 ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1998 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 0.021 0.049 0.027
Dividends from net investment income (0.021) (0.049) (0.027)
-------- --------- -------
Ending net asset value per share $1.00 $1.00 $1.00
-------- --------- -------
-------- --------- -------
TOTAL RETURN 4.32%(a) 5.03% 5.06%(a)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.60%(a) 0.60% 0.60%(a)
Net investment income 4.28%(a) 4.92% 5.01%(a)
Net assets at the end of period (000's omitted) $63,854 $85,937 $84,239
</TABLE>
(a) Annualized
* Commencement of investment operations.
See notes to financial statements.
13
<PAGE>
----------------
THE
MILESTONE
FUNDS
----------------
TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 (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, 1999 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.
14
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
MAY 31, 1999 (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.
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 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
15
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THE
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TREASURY OBLIGATIONS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
MAY 31, 1999 (Unaudited)
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, 1999, there were no unreimbursed expenses. For the six months ended
May 31, 1999, 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 period December 1,
1998 through December 6, 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 period
December 1, 1998 through December 6, 1998. Effective December 7, 1998, Unified
Management Corporation became the Trust's Underwriter. 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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Adviser
- --------------------------------------------------------------------------------
Milestone Capital Management, L.P.
One Executive Boulevard
Yonkers, NY 10701
Underwriter / Transfer Agent
- --------------------------------------------------------------------------------
Unified Management Corp. / Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204-1806
800-363-7660
Primary Dealer
- --------------------------------------------------------------------------------
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
