<PAGE>
As filed with the Securities and Exchange Commission on June 29, 1995.
File Nos. 33-70958
811-8104
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
THE SOLON FUNDS
(Exact Name of Registrant as Specified in its Charter)
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
(Address of Principal Executive Office)
510-988-7110
(Registrant's Telephone Number, Including Area Code)
Deborah Hicks Midanek
Solon Asset Management, L.P.
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
(Name and Address of Agent for Service)
_________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date hereof.
It is proposed that this filing will become effective:
x immediately upon filing pursuant to Rule 485(b)
on _______________, pursuant to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)
___ on _______________, pursuant to Rule 485(a)
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant is registering an indefinite number of securities under the
Securities Act of 1933. The Registrant filed a Rule 24f-2 Notice for its
fiscal year ended February 29, 1996 on April 25, 1996.
__________
Please Send Copy of Communications to:
AVIVA L. GROSSMAN
Kramer, Levin, Naftalis, & Frankel
919 Third Avenue
New York, NY 10022
<PAGE>
<PAGE>
FORM N-1A
THE SOLON FUNDS
CROSS REFERENCE SHEET
PART A of
Form N-1A
Item
Number Item Prospectus Heading
- ------ ----- ------------------
1. Cover Page Cover Page
2. Synopsis "Fees and Expenses of the Funds"
3. Condensed Financial "Financial Highlights"
Information
4. General Description Cover Page,
of Registrant "Investment Objective and Policies,"
"Portfolio Securities,"
"Other Investment Practices,"
"Risk Considerations" and
"General Information"
5. Management of "Investment Objective and Policies,"
the Fund "Management of the Fund" and
"How to Invest in the Fund"
5A. Management's Discussion Annual Report for fiscal year ended
of Fund Performance February 29, 1996, incorporated by
reference into Statement of Additional
Information
6. Capital Stock and "Dividends and Distributions,"
Other Securities "Taxation" and "General Information"
7. Purchase of Securities "How to Invest,"
Being Offered "How Net Asset Value is Determined,"
"General Information" and
"Backup Withholding Instructions"
8. Redemption or "How to Redeem" and
Repurchase "General Information"
9. Pending Legal Not Applicable
Proceedings
PART B of
Form N-1A
Item
Number Item SAI Heading
- ------ ----- ------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information "The Trust," and
and History "General Information"
13. Investment Objectives "Investment Objective and Policies,"
"Risk Considerations" and
"Investment Restrictions"
14. Management of the "Trustees and Officers"
Registrant
15. Control Persons and "Trustees and Officers" and
Principal Holders of "General Information"
Securities
16. Investment Advisory "Investment Management and Other
and Other Services Services"
17. Brokerage Allocation "Execution of Portfolio Transactions"
18. Capital Stock and "The Trust" and "General Information"
Other Securities
19. Purchase, Redemption "Additional Purchase and Redemption
and Pricing of Information" and
Securities Being "Determination of Net Asset Value"
Offered
20. Tax Status "Distributions and Tax Information"
21. Underwriters "Principal Underwriter"
22. Calculation of "Performance Information"
Performance Data
23. Financial Statements "Financial Statements"
<PAGE>
_____________________________________________________________________
PART A
PROSPECTUS
SOLON SHORT DURATION GOVERNMENT FUNDS
_____________________________________________________________________
<PAGE>
SOLON SHORT DURATION GOVERNMENT FUNDS
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
510-988-7110
PROSPECTUS
July 1, 1996
(LOGO: Member of 100% NO-LOAD MUTUAL FUND COUNCIL)
The Solon Funds offer the following two 100% no-load portfolios:
One Year Portfolio
Three Year Portfolio
Each Fund seeks maximum total return consistent with preservation of
capital and prudent investment management. Each Fund seeks to achieve its
objective by investing primarily in attractively priced obligations either
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and seeking to limit fluctuations in principal and reduce
interest rate risk by maintaining average portfolio effective durations no
greater than those of one-year U.S. Treasury Bills and three-year U.S.
Treasury Notes, respectively. Effective duration is an indicator of a
security's "volatility" or "risk" associated with changes in interest
rates. As is the case for all mutual funds, attainment of each Fund's
investment objective cannot be assured.
Each Fund is managed by Solon Asset Management, L.P. (the "Manager"), a
registered investment adviser, who has retained Solon Asset Management
Corporation, a registered investment adviser (the "Subadviser"), to manage
the Funds' portfolios on a day-to-day basis.
The minimum initial investment in each Fund is $5,000 and subsequent
investments must be at least $100. In certain circumstances, these
minimums may be waived, and in certain circumstances purchases and
redemptions may be made with the payment of securities. The Funds'
distributor is Solon Financial Services, L.P. (the "Distributor"). See
"How to Invest."
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information, dated July 1, 1996, and
filed with the Securities and Exchange Commission, is incorporated by
reference and is available free by calling or writing the Fund or the
Distributor, Solon Financial Services, L.P., at the number and address
above.
TABLE OF CONTENTS
Fees and Expenses of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 2
The Funds' Investment Objectives and Policies . . . . . . . . . . . . . . . . 3
Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
How To Invest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
How To Redeem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
How Net Asset Value is Determined. . . . . . . . . . . . . . . . . . . . . . .10
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . .10
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Other Investment Practices . . . . . . . . . . . . . . . . . . . . . . . . . .12
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Backup Withholding Instructions. . . . . . . . . . . . . . . . . . . . . . . .15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
Shareholder Transaction Expenses
An investor would pay the following charges when buying or
redeeming shares of either Solon Short Duration Government Funds:
One Year Portfolio (the "One Year Portfolio") or Solon Short
Duration Government Funds: Three Year Portfolio (the "Three Year
Portfolio"):
Sales Load on Purchases None
Sales Load on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees* None
Exchange Fees None
* Redemptions effected via wire transfer may be required to
pay a third party service provider charge that will be
directly deducted from redemption proceeds. See "How to
Redeem - General."
Annual Fund Operating Expenses
Operating expenses are paid out of each Fund's assets and are
factored into its share price. Each Fund estimates that it will
have the following expenses (expressed as a percentage of average
net assets) for the current fiscal year:
Management Fee .25%
12b-1 Fee None
Other Expenses .25%
____
Total Fund Operating Expenses* .50%
* The Funds' Manager will reduce its fees to the extent
necessary to limit total annual fund operating expenses to
the amount indicated for each Fund, subject to possible
reimbursement by the Fund within the following three years
if such reimbursement can be achieved within the foregoing
expense limits. See "Management of the Funds."
Example of Fund Expenses
Assuming, hypothetically, that each Fund's annual return is 5%
and that its operating expenses are as set forth above, an
investor buying $1,000 of a Fund's shares would have paid the
following total expenses upon redeeming such shares:
After 1 Year $5
After 3 Years $16
After 5 Years $32
After 10 Years $81
This example is to help potential investors understand the effect
of expenses, and investors should understand that actual expenses
and returns may vary.
Financial Highlights
The following financial information for Solon Short Duration
Government Funds: One Year Portfolio and Solon Short Duration
Government Funds: Three Year Portfolio (collectively the "Funds")
for the fiscal year ended February 29, 1996, has been derived
from audited financial statements of The Solon Funds. Such
information should be read in conjunction with the financial
statements of the Trust and the report of Ernst & Young LLP,
independent auditors, appearing in the annual report to
shareholders which is incorporated by reference in this
prospectus and is available to shareholders at no charge.
<TABLE>
<CAPTION>
One Year Three Year
Portfolio Portfolio
Feb. 29 Feb. 28 Feb. 29 Feb.28
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net asset value
beginning of year $9.99 $10.00 $9.80 $10.00
Income from investment
operations
Net investment income 0.64 0.53 0.60 0.61
Net realized and unrealized
gain (loss) on investments 0.05 (0.02) 0.23 (0.22)
Total from investment
operations 0.69 0.51 0.83 0.39
Distributions
Dividends from net
investment income (0.65) (0.52) (0.59) (0.59)
Net asset value,
end of period $10.03 $9.99 $10.04 $9.80
Total Return 7.09% 5.21% 8.73% 4.08%
Ratios/Supplemental Data
Net assets end of period
($000) 398 145 11,027 7,065
Ratio of expenses to average
net assets
Before expense reimbusement
of operating expenses 16.47% 27.89% 1.45% 1.18%
After expense reimbursement
of operating expenses 0.00% 0.00% 0.24% 0.15%
Interest expense 0.12% 0.04%
Ratio of net investment income
to average net assets 6.46% 5.74% 6.18% 6.21%
Portfolio Turnover Rate - - 251% 405%
Average debt outstanding
during the period *($) - - 256,115 75,604
Average shares outstanding
during the period * - - 901,238 985,472
Average debt per share
during the period * ($) - - 0.28 0.08
</TABLE>
*Average based upon amounts outstanding at each month end.
<TABLE>
<CAPTION>
The value of a hypothetical $10,000.00 investment in the Solon
Short Duration Government Funds: One Year Portfolio and Three Year
Portfolio versus the Lehman Government 1-3 Year Index.
One Year Three Year Lehman 1-3 Year
<S> <C> <C> <C>
Feb 10000 10000 10000
Mar 10010 99.7 9949
Apr 10047.04 9919.11 9911.19
May 10078.18 9929.03 9925.07
Jun 10116.48 9965.77 9949.88
Jul 10153.91 10062.44 10039.43
Aug 10188.43 10107.72 10072.56
Sep 10229.19 10092.56 10049.39
Oct 10274.20 10113.75 10072.51
Nov 10309.13 10102.63 10030.2
Dec 10362.74 10143.04 10049.26
Jan 95 10437.35 10266.78 10185.93
Feb 10512.50 10411.54 10324.46
Mar 10559.80 10464.64 10382.28
Apr 10627.39 10550.45 10474.68
May 10677.33 10735.09 10653.80
Jun 10744.60 10799.5 10711.33
Jul 10804.77 10835.13 10754.17
Aug 10877.16 10916.4 10818.7
Sep 10925.02 10978.62 10871.71
Oct 10991.67 11064.25 10961.94
Nov 11070.81 11169.37 11055.12
Dec 11148.30 11272.12 11138.03
Jan 96 11225.22 11373.57 11232.71
Feb 11257.78 11320.12 11188.9
Mar 11319.7 11314.46 11181.07
Apr 11371.77 11324.64 11192.25
May 11430.90 11345.02 11216.87
</TABLE>
Past performance is no guarantee of future results. Principal value
will vary; shares may be worth more or less than their original
cost when redeemed. The Lehman Government 1-3 Year Index in
unmanaged and assumes reinvestment of all dividends.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objectives and general investment policies of each
Fund are described below. Specific portfolio securities that may
be purchased by the Funds are described in "Portfolio Securities,"
beginning on page 10. Specific investment practices that may be
employed by the Funds are described in "Other Investment
Practices," beginning on page 12. Certain risks associated with
investments in the Funds are described there and in "Risk
Considerations."
The investment objective of each Fund is to provide maximum total
return consistent with preservation of capital and prudent
investment management. Under normal circumstances, the One Year
Portfolio seeks to maintain an average portfolio effective duration
comparable to or less than that of one-year U.S. Treasury Bills.
The Three Year Portfolio seeks to maintain an average portfolio
effective duration comparable to or less than that of three-year
U.S. Treasury Notes.
Effective duration is an indicator of a security's price
"volatility" or "risk" associated with changes in interest rates.
See "Effective Duration." Because the Manager seeks to manage
interest rate risk by limiting effective duration, each Fund may
invest in securities of any maturity. Total return consists of
interest and dividends from underlying securities, capital
appreciation realized from the purchase and sale of securities, and
income from futures and options.
Each Fund is designed for investors that seek higher yields than
money market funds or other shorter term investment products
generally offer and are willing to accept nominal principal
fluctuation but are not willing to accept the greater fluctuations
that longer term bonds or bond funds might entail. The Funds are
not an appropriate investment for investors whose primary
investment objective is absolute principal stability. Unlike a
money market fund, which seeks to maintain a stable net asset value
of $1.00, the values of the securities in which each Fund invests
generally change inversely with interest rates, and the value of
the Funds' shares will fluctuate even though the Manager seeks to
reduce such fluctuations by managing the effective duration, and
thus interest rate risk, of each Fund's portfolio.
The investment objective of each Fund is fundamental and may not be
changed without shareholder approval. Like all mutual funds,
attainment of either Fund's investment objective cannot be assured.
Government Securities
Under normal market conditions, the Manager seeks to achieve each
Fund's objective by investing at least 65% of the value of each
Fund's total assets in obligations either issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"). Certain of the obligations, including
U.S. Treasury Bills, Notes and Bonds and mortgage-related
securities of the Government National Mortgage Association
("GNMA"), are issued or guaranteed by the U.S. Government. Other
securities issued by U.S. Government agencies or instrumentalities
are supported only by the credit of the agency or instrumentality,
for example, those issued by the Federal Home Loan Bank, while
others, such as those issued by the Federal National Mortgage
Association ("FNMA") and Student Loan Marketing Association, have
an additional line of credit with the U.S. Treasury.
The U.S. Government does not guarantee the net asset value of
either Fund's shares. Also, with respect to U.S. Government
securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S.
Treasury, there is no guarantee that the U.S. Government will
provide support to such agencies or instrumentalities.
Accordingly, such U.S. Government securities may involve risk of
loss of principal and interest.
The balance of each Fund's assets, up to 35% of the value of its
total assets, may be invested in cash and high grade debt
securities, including privately issued mortgage-related securities
and general obligation bonds and notes of various states and their
political subdivisions, rated within the three highest grades
assigned by Standard & Poor's Corporation ("S&P") (AAA, AA or A),
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa or A), or
Fitch Investor Services, Inc. ("Fitch") (AAA, AA or A), or, if
unrated by S&P, Moody's, or Fitch, judged by the Manager to be of
comparable quality. A further description of S&P's, Moody's and
Fitch's ratings is included in the Appendix to the Statement of
Additional Information. Investments also may be made in certain
other investment companies. See "Portfolio Securities - Investment
Company Securities."
Eligible Securities
Each Fund invests only in Type I securities ("Eligible Securities")
in which national banks ("National Banks") and federal savings
associations ("Federal Associations") supervised by the Office of
the Comptroller of the Currency (the "OCC") and the Office of
Thrift Supervision (the "OTS"), respectively, of the U.S.
Department of the Treasury, may invest without limitation under
applicable federal law and the regulations and supervisory policies
of the OCC, OTS, the Federal Deposit Insurance Corporation (the
"FDIC") and the Board of Governors of the Federal Reserve System
(the "FRB"). Each Fund limits its purchases to Eligible Securities
having risk-based weighting of 20% or less under the current risk-
based capital regulations of the OTS and having risk-based
weighting of 50% or less under the current risk-based capital
regulations of the OCC. The risk-based capital weightings were
developed by the federal banking regulatory authorities to evaluate
the adequacy of capital maintained by financial institutions.
Financial institutions use the four categories of weightings (0%,
20%, 50% and 100%) to calculate their risk-weighted assets for
which the institution must maintain specified levels of capital
reserves. For example, cash has a 0% risk-based capital weighting
while collateralized mortgage obligations backed solely by GNMA,
FNMA and FHLMC mortgage related securities have a 20% risk-based
capital weighting.
Furthermore, each Fund invests in "securities backed by or
representing an interest in mortgages on domestic residential
housing" within the meaning of the OTS regulations pertaining to
qualified thrift lender ("QTL") status. Each Fund invests a
substantial portion of its total assets in qualified thrift
investments ("QTI") under applicable OTS regulations.
In addition to customary shareholder reports, each Fund provides
detailed monthly reports of portfolio holdings.
Effective Duration
Traditionally, a debt security's "term to maturity" has been used
to represent the sensitivity of the debt security's price to
changes in interest rates (which is the "interest rate risk" or
"volatility" of the security). However, "term to maturity"
measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's
payments prior to maturity. Most debt securities provide interest
("coupon") payments in addition to a final ("par") payment at
maturity. Some debt securities also have call provisions allowing
the issuer to repay the instrument in full before the stated
maturity date. Depending on the relative magnitude of these
payments, the market values of debt securities respond differently
to changes in the level and structure of interest rates.
Effective duration has its origins in standard duration, which was
developed as a more precise alternative to the concept of "term to
maturity." Standard duration, which is expressed in years, takes
the length of the time intervals between the present time and the
time that the interest and principal payments are scheduled, or in
the case of a callable bond, expected to be received, and weighs
them by the present values of the cash to be received at each
future point in time.
Effective duration is a measure of the expected change in value of
a fixed income security for a given change in interest rates. For
example, if interest rates rose by one percent, the value of a
security having an effective duration of two generally would
decrease by two percent.
Effective duration was developed because the standard duration
calculation does not always properly reflect the interest rate risk
of a security. For example, floating and variable rate debt
securities often have final maturities of 10 or more years;
however, their interest rate risk corresponds to the frequency of
the coupon reset. Another type of security whose interest rate
risk is not properly captured by standard duration is a mortgage
"pass-through" security. The stated final maturity of such a
security is generally 30 years, but current prepayment rates
generally are more critical in determining such security's interest
rate risk.
Consequently, the Manager uses more sophisticated analytical
techniques to arrive at an "effective" duration that incorporates
the economic life of a security into the determination of its
interest rate risk. These techniques may involve the Manager's
estimates of future economic parameters that may vary from actual
future values. Each Fund expects that, under normal circumstances,
the dollar weighted stated maximum average maturity (or period
until the next interest rate reset date) of the Fund's portfolio
securities may be longer than its average portfolio effective
duration and, although unlikely, in some cases could be as long as
30 years.
Because the Three Year Portfolio's average portfolio effective
duration can be comparable to that of a three-year U.S. Treasury
Note, whose value is more sensitive to changes in interest rates
than is the one-year U.S. Treasury Bill, the Manager seeks to
preserve the Three Year Portfolio's capital through careful
management of interest rate risk using effective duration
measurements and investment techniques. The Trust believes that
effective duration provides the Manager a more precise definition
and means of managing interest rate risk and preserving the Three
Year Portfolio's capital than do traditional average weighted
maturity measures. In addition, while the Three Year Portfolio's
average portfolio effective duration is permitted to be comparable
to a three-year U.S. Treasury Note, the Trust expects that under
many normal market conditions the Portfolio's average portfolio
effective duration will be comparable to that of a two-year U.S.
Treasury Note and thus less sensitive to interest rate risk than a
three-year U.S. Treasury Note.
Financial Institutions Accounting Principles
Pursuant to the recently adopted Statement of Financial Accounting
Standards No. 115, enterprises such as financial institutions that
prepare their financial statements in accordance with generally
accepted accounting principles for fiscal years commencing after
December 15, 1993 generally must classify investments in mutual
funds either as "trading securities" or "available-for-sale
securities" and must measure such investments at fair value in
their statements of financial position. For these purposes, the
fair value of an investment in a Fund generally would be the Fund's
net asset value per share.
Unrealized holding gains and losses for Fund shares classified as
trading securities generally must be included in earnings on the
financial institutions's profit and loss statement. Unrealized
holding gains and losses for Fund shares classified as available-
for-sale securities generally must be excluded from earnings and
reported until realized as a net amount in a separate component of
the financial institution's shareholders' equity on the financial
institution's balance sheet. Realized gains and losses for mutual
fund shares must be reported in earnings. Financial institutions
are advised to consult their own accounting advisers regarding the
particular accounting consequences to them of an investment in a
Fund. Different principles apply with respect to the federal
income tax treatment of a financial institution's investment in a
mutual fund, and the classification of a security under financial
accounting principles is not dispositive of the treatment of the
security for federal income tax purposes. See "Financial
Institutions Taxation Principles".
RISK CONSIDERATIONS
The market value of securities sensitive to prevailing interest
rates is inversely related to actual changes in interest rates;
i.e., a decline in interest rates produces an increase in market
value, while an increase in interest rates produces a decrease in
market value. Moreover, the longer the remaining maturity of a
security, the greater is the effect of interest rate changes on the
market value of such a security. In addition, changes in the
ability of an issuer to make payments of interest and principal and
in the market's perception of an issuer's creditworthiness also
affect the market value of the debt securities of that issuer.
Prepayments of principal by mortgagors or mortgage foreclosures
will affect the average life of the mortgage-related securities
remaining in a Fund's portfolio. Mortgage prepayments are affected
by the level of interest rates other social and demographic
conditions. In periods of rising interest rates, the rate of
prepayments tends to decrease, thereby lengthening the average life
of a pool of mortgage-related securities. Conversely, in periods
of falling interest rates, the rate of prepayments tends to
increase, thereby shortening the average life of a pool.
Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of a
Fund. Because prepayments of principal generally occur when
interest rates are declining, it is likely that a Fund will have to
reinvest the proceeds of prepayments at lower interest rates than
those at which the assets were previously invested. If this
occurs, the Fund's yield will correspondingly decline. Thus,
mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-
income securities of comparable duration, although these securities
may have a comparable risk of decline in market value in periods of
rising interest rates. To the extent that a Fund purchases
mortgage-related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any
unamortized premium.
Effective duration is one of the fundamental tools used by the
Manager in managing interest rate risks, including prepayment
risks. For further discussion of duration, see "INVESTMENT
OBJECTIVE AND POLICIES; Effective Duration."
For further discussion of additional risk considerations, see
"Other Investment Practices."
MANAGEMENT OF THE FUNDS
The Solon Funds (the "Trust") has a Board of Trustees that
establishes each Fund's policies and supervises and reviews the
management of each Fund. The day-to-day operations of each Fund
are administered by the officers of the Trust and by the Manager
pursuant to the terms of an Investment Management Agreement with
each Fund.
Solon Asset Management, L.P. is each Fund's investment manager.
The Manager, a Delaware partnership, was formed and registered with
the SEC as an investment adviser under the Investment Advisers Act
of 1940, as amended (the "Advisers Act") in 1994. The Manager's
sole general partner, Solon Asset Management Corporation, a New
York corporation ("Solon"), was formed in 1989 emphasizing
expertise in the complex mortgage-related securities market and was
registered with the SEC as an investment adviser under the Advisers
Act in 1990. Solon has managed fixed income portfolios for taxable
and tax exempt investors and served as Loan Sales Advisor to
Resolution Trust Corporation, completing over $1 billion in
transactions. The Manager has retained Solon as an investment
subadviser to manage each Fund's portfolio on a day-to-day basis.
James I. Midanek, the Funds' Portfolio Manager, is Chief Investment
Officer of Solon, which he cofounded in 1989. From 1992 to 1994,
Mr. Midanek was Chief Investment Officer of the Fixed Income Group
of Montgomery Asset Management, L.P. At Montgomery, Mr. Midanek
was responsible for the management of four fixed income mutual
funds as well as institutional fixed income accounts. From 1987 to
1989, he established a successful mortgage-related securities
department, including trading, sales and research functions, at
J.P. Morgan Securities. At E.F. Hutton from 1985 to 1987, Mr.
Midanek was senior vice president in charge of mortgage-related
trading and sales. From 1984 to 1985, Mr. Midanek was the senior
mortgage-related securities trader at Drexel Burnham Lambert, in
charge of the contract trading function, and traded a wide variety
of collateral types, including residential fixed and floating rate
whole loans, recreational vehicle paper, mobile home loans, project
loans and branch sale notes. Mr. Midanek began his Wall Street
career as the controller of PaineWebber Real Estate Securities. He
also is a Certified Public Accountant. He graduated Summa Cum
Laude from Queens College with a degree in accounting.
Deborah Hicks Midanek is Chief Executive Officer of Solon, which
she co-founded in 1989, and Chairman and Chief Executive Officer of
The Solon Funds. From July 1992 through September 1993, Ms.
Midanek was a Managing Director of Montgomery Asset Management,
L.P. and its Director of Mutual Funds. Her responsibilities
included marketing, new product development, operations and
compliance for Montgomery's mutual funds, a rapidly growing
complex of no-load direct marketed funds. During her tenure,
Montgomery's mutual fund assets grew from approximately $250
million in two funds to approximately $1 billion in ten funds.
Until February 1990, Ms. Midanek was responsible for new
business/new product development for Drexel Burnham Lambert's
Mortgage Backed Securities Department, where she worked with
various financial institution clients originating a broad variety
of transactions, including CMO/REMICs, private label pass through,
senior/ subordinated, whole loan and consumer receivables backed
transactions. She came to Drexel as a founder of the Interest Rate
Products Group, which grew to over $40 billion in outstanding
contracts. Previously Ms. Midanek was a member of Bankers Trust
Company's Capital Markets Group, where she originated interest rate
and currency swap transactions and structured and placed corporate
debt securities with institutional investors. She joined Bankers
Trust as a member of the Strategic Planning Department, reporting
to the Office of the Chairman, where she participated in the sale
of the bank's retail branch system and in other aspects of the
bank's conversion from a retail to a wholesale institution.
Ms. Midanek holds an MBA from the Wharton School and an
undergraduate degree in history from Bryn Mawr College. She also
serves as a director and as chairman of the Compensation Committee
for Standard Brands Paint Company, a New Stock Exchange listed
company; as a Trustee of Warren Wilson College and of the
Committee for Economic Development.
Management Fees and Other Expenses
The Manager provides each Fund with advice on buying and selling
securities, manages the investments of each Fund, including the
placement of orders for portfolio transactions, furnishes each Fund
with office space and certain limited support services, and
provides the personnel needed by each Fund with respect to the
Manager's responsibilities under the Manager's Investment
Management Agreement with each Fund. The Manager also compensates
the members of the Trust's Board of Trustees who are interested
persons of the Manager, and assumes the cost of printing
prospectuses and shareholder reports for dissemination to
prospective investors. As compensation, each Fund pays the Manager
a monthly management fee (accrued daily) based upon the value of
the average daily net assets of the Fund, at the annual rate of
twenty five one-hundredths of one percent (0.25%). The Subadviser
provides the Manager with advice on buying and selling securities
and manages the investments of each Fund, including the placement
of orders for portfolio transactions, pursuant to its Subadvisory
Agreement with the Manager. The Subadviser provides its services
to the Manager on a cost-reimbursement basis, payable monthly.
Solon Asset Management, L.P. also serves as each Fund's
Administrator (the "Administrator"). The Administrator performs
services with regard to various aspects of the Funds'
administrative operations, including performance measurement and
analytics, tax and treasury services, management of printing of
prospectuses and shareholder reports, financial reporting and
assistance in preparation of financial statements, preparation of
Board of Trustee and shareholder meeting materials, development and
monitoring compliance procedures, Blue Sky monitoring, assistance
in maintaining shareholder accounts and management of legal
services. As compensation, each Fund pays the Administrator a fee
at an annual rate of seven one-hundredths of one percent (0.07%) of
average daily net assets, accrued daily and paid monthly.
Each Fund is responsible for its own operating expenses including,
but not limited to: the Manager's fee; the Administrator's fee;
taxes, if any; brokerage and commission expenses, if any; interest
charges on any borrowings; transfer agent, custodian,
administrator, legal and auditing fees; fees and expenses of
Trustees who are not interested persons of the Manager; salaries of
certain personnel; costs and expenses of performing the transfer
agency function and calculating its daily net asset value; costs
and expenses of accounting, bookkeeping and recordkeeping required
under the Investment Company Act; insurance premiums; trade
association dues; fees and expenses of registering and maintaining
registrations of its shares for sale under federal and applicable
state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials,
except for meetings called solely for the benefit of the Manager or
its affiliates; information and reports to shareholders; and other
expenses relating to each Fund's operations, plus any extraordinary
and nonrecurring expenses that are not expressly assumed by the
Manager. Each Fund also is responsible for fees of up to twenty-
five one hundredths percent (0.25%) per annum of average daily net
assets paid to dealers and others, including the Manager, who
provide individualized shareholder reporting or administrative
services.
The Manager has agreed to reduce some or all of its management fees
if necessary to keep total annual operating expenses at 50 one
hundredths of one percent (0.50%) of each Fund's average net
assets. The Manager also may voluntarily reduce such fees in
additional amounts to increase the return to the Fund's investors.
Any reductions made by the Manager in its fees are subject to
reimbursement by the appropriate Fund within the following three
years provided the Fund is able to effect such reimbursement and
remain in compliance with applicable expense limitations.
To the extent the Manager performs a service or assumes an
operating expense for which a Fund is obligated to pay and the
performance of such service or payment of such expense is not an
obligation of the Manager under the Investment Management Agreement
or the Administrator under the Administration Agreement, the
Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such
expense. The Manager, out of its own funds, also may compensate
broker-dealers who have signed dealer agreements with the
Distributor for the distribution of the Fund's shares as well as
other service providers who provide shareholder or administrative
services.
The Manager considers a number of factors in determining which
brokers or dealers to use for a Fund's portfolio transactions.
While these are more fully discussed in the Statement of Additional
Information, the factors include, but are not limited to, the
reasonableness of commissions, the quality of services and
execution and the availability of research that the Manager may
lawfully and appropriately use in its investment management and
advisory capacities. Provided a Fund receives prompt execution at
competitive prices, the Manager also may consider the sale of the
Fund's shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
Investors Fiduciary Trust Company, located at 127 West 10th Street,
Kansas City, Missouri 64105, serves as the Funds' custodian (the
"Custodian"). The Trust acts as the transfer agent for each Fund.
HOW TO INVEST
Each Fund's shares are offered directly to the public at their
current net asset value, with no sales load, commissions or Rule
12b-1 fees. The Funds' shares are offered for sale by the Funds
and the Distributor and through selected securities brokers and
dealers.
The minimum initial investment for each Fund is $5,000. Subsequent
investments for each Fund must be at least $100. The Manager or
the Distributor, in its discretion, may waive these minimums.
Purchases may also be made in certain circumstances by payment of
securities. See "In Kind Purchases" below and the Statement of
Additional Information for further details.
Investing Directly By Wire
Investors who desire to purchase shares directly from the Funds by
wire should follow the instructions indicated below.
Initial Investment
Before wiring funds, call a Fund service representative at The
Solon Funds at 510-988-7110 to advise that you intend to make
an initial investment by wire and to receive an account number.
Provide the Fund service representative with the name of the
applicable Fund, the name of the investor and the dollar
amount to be invested.
Complete the Account Application. Be sure to include the
date and the account number.
Mail or deliver the completed Account Application to:
The Solon Funds
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
Request the investor's bank to transmit immediately available
funds by wire for purchase of shares in the investor's name to the
Custodian, as follows:
Investors Fiduciary Trust Company
ABA # 011000028
State Street Bank & Trust Co.
DDA #3794-4089
Solon Clearing Account
Attention: Solon One Year or
Solon Three Year, as applicable
For credit to:
Name of Shareholder:
Subsequent Investments
Instruct the bank to wire funds as indicated above. Please
contact a Fund service representative at 510-988-7110 prior
to making subsequent investments by wire.
It is essential that complete information regarding your account be
included in all wire instructions in order to facilitate prompt and
accurate handling of investments. Investors may obtain further
information about remitting funds in this manner and any fees that
may be imposed from their own banks.
Investing Directly By Check
Investors who desire to purchase shares directly from the Funds by
check should follow the instructions indicated below.
Initial Investment
Complete the Account Application.
Make your check(s) payable to Solon Short Duration
Government Fund: One Year Portfolio or Solon Short Duration
Government Fund: Three Year Portfolio, as applicable.
Mail or deliver the check and the completed Account
Application to:
The Solon Funds
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
Subsequent Investments
Detach and complete the Investment Voucher stub attached to
your account statement.
Make your check(s) payable to Solon Short Duration
Government Fund: One Year Portfolio or Solon Short Duration
Government Fund: Three Year Portfolio, as applicable. Write
your shareholder account number on the check.
Mail or deliver the check and the Investment Voucher stub
to:
The Solon Funds
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
All investments must be made in U.S. dollars, and, to avoid fees
and delays, checks must be drawn only on banks located in the U.S.
A charge may be imposed if any check used for investment does not
clear. Each of the Funds and the Distributor reserves the right to
reject any purchase order in whole or in part.
If an order, including a completed and executed Account
Application, is received by The Solon Funds and the Custodian by
4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading and is not a National Bank
holiday, a Fund's shares will be purchased at the Fund's next-
determined net asset value. Orders for a Fund's shares that are
received after 4:00 p.m., New York time will be purchased at the
next-determined net asset value after receipt.
The Exchange and National Banks will not be open for business on
New Year's Day, Martin Luther King's Birthday, President's Day,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's
Day, Thanksgiving Day, and Christmas Day.
Telephone Purchases
Unless a shareholder has affirmatively elected on the Account
Application to decline the telephone purchase privilege, a
shareholder may call a Fund service representative at The Solon
Funds at 510-988-7110 by 4:00 p.m., New York time, on any day the
NYSE is open for business and is not a National Bank holiday to
request same-day purchase of shares. The maximum telephone
purchase is an amount up to five times the preceding day's market
value of shares paid for and held in the shareholder's account.
Payments in federal funds for shares purchased by telephone must be
received by the Custodian by 10:00 a.m. New York time on the next
day following the purchase request that the New York Stock Exchange
is open for business and is not a National Bank Holiday. Telephone
purchase payments should be sent to the Custodian at 127 West 10th
Street, Kansas City, Missouri 64105. Should payment not be
received when required, The Solon Funds will cancel the telephone
purchase request. The Funds will employ reasonable procedures in
an effort to confirm the authenticity of telephone instructions,
such as requiring the caller to give a special authorization
number. Provided these procedures are followed, The Solon Funds
and the Custodian will not be responsible for any loss, expense or
cost arising out of any telephone instruction. See discussion of
limitation of liability under "Telephone Redemptions."
Investing through Securities Brokers and Dealers
Investors may purchase shares of each Fund from other selected
securities brokers or dealers. Investors should contact their
securities broker or dealer directly for appropriate instructions,
as well as information pertaining to accounts and any service or
transaction fees that may be charged by the broker or dealer.
Purchase orders through securities brokers and dealers are effected
at the next-determined net asset value after receipt of the order
by such broker-dealer, provided the broker-dealer transmits such
order to The Solon Funds on a timely basis so that it is received
by 4:00 p.m., New York time on days that the applicable Fund issues
shares. Orders received after that time will be purchased at the
next-determined net asset value after both the order and payment in
federal funds are received.
Exchange Privileges
Shares of each Fund may be exchanged for shares of the other funds
of the Trust (only in states where shares of those funds are exempt
from registration or qualified for sale and provided the respective
Fund is open to new shareholders or the requesting shareholder has
an existing account with the respective Fund), on the basis of
their relative net asset values (with no sales charge or exchange
fee) at the time of the exchange. Shareholders must have received
a prospectus for the Fund into which they want to exchange. Shares
of a Fund may not be exchanged for shares of another Fund unless
the amount exchanged satisfies the minimum applicable investment
requirement. Unless an investor affirmatively elects to decline
telephone exchange privileges in the Account Application, a
shareholder may make exchanges by telephone. Each Fund will employ
reasonable procedures in an effort to confirm the authenticity of
telephone instructions, such as requiring the caller to give a
special authorization number. Provided these procedures are
followed, The Solon Funds will not be responsible for any loss,
expense or cost arising out of any telephone instruction.
Shareholders should note that an exchange may result in recognition
of a gain or loss for income tax purposes. See further discussion
of limitations of liability under "Telephone Redemption." Exchange
privileges may be modified or suspended by each Fund upon 60 days'
prior notice to shareholders.
In Kind Purchases
An investor may purchase shares of each Fund by tendering payment
in kind in the form of securities, provided that any such tendered
securities are readily marketable, their acquisition is consistent
with the Fund's investment objective and policies, the tendered
securities are otherwise acceptable to the Manager and the investor
is not an affiliate or an affiliate of an affiliate of The Solon
Funds. For these purposes, a shareholder who owns 5% or more of
The Solon Funds outstanding shares would be considered an
affiliate. For the purposes of sales of shares of a Fund for such
securities, the tendered securities shall be valued at the
identical time and in the identical manner that the portfolio
securities of the Fund are valued for the purpose of calculating
the net asset value of the Fund's shares.
General
Federal tax law requires that, unless exempt, an investor provide
The Solon Funds a certified Taxpayer Identification Number and
certain other required certifications upon opening or reopening an
account in order to avoid back-up withholding on taxable
distributions and proceeds of redemptions. See "Back-up Withholding
Instructions" in this Prospectus and the Account Application for
further information. A financial institution subject to Section
23A of the Federal Reserve Act is subject to limitations upon
purchases of additional shares of a Fund if such institution owns
more than 25% of the outstanding shares of The Solon Funds. Share
certificates will not be issued by either Fund. All shares are
held in non-certificated form registered on the books of a Fund for
the account of the shareholder.
HOW TO REDEEM
Each Fund will redeem all or any portion of an investor's
outstanding shares upon request. Redemptions can be made on any
day that the NYSE is open for trading and is not a National Bank
holiday. The redemption price is the net asset value per share
next determined after the shares are validly tendered for
redemption and such request is received by The Solon Funds or, in
the case of repurchase orders, the Distributor or other securities
dealers. The procedures for requesting a redemption are set forth
below.
Direct Redemption
Redemptions can be requested in writing by letter directed to The
Solon Funds. The Solon Funds require that the signature(s) on any
written request from an investor other than a national bank or
savings association be guaranteed by an eligible guarantor
institution, such as a commercial bank, a member firm of a domestic
stock exchange or the National Association of Securities Dealers,
Inc., an authorized credit union, a national securities exchange, a
registered securities association, a clearing agency or a savings
association. Please contact The Solon Funds for more information.
Telephone Redemption
Unless a shareholder affirmatively elects to decline telephone
redemption privileges in the Account Application, a shareholder may
redeem shares by calling a Fund service representative at 510-988-
7110 before 4:00 p.m., New York time, on any business day that the
NYSE is open for trading and is not a National Bank holiday.
By not declining telephone redemption privileges, a shareholder
authorizes The Solon Funds to act upon the instruction of the
shareholder or the shareholder's designee by telephone to redeem
from the account for which such service has been authorized and
transfer the proceeds to the bank or other account designated in
the Account Application. The Solon Funds will employ reasonable
procedures in an effort to confirm the authenticity of telephone
instructions, such as requiring the caller to give a special
authorization number. Provided these procedures are followed, The
Solon Funds will not be responsible for any loss, expense or cost
arising out of any telephone instruction. The Solon Funds may
change, modify or terminate these privileges at any time upon at
least 60 days' notice to shareholders.
Shareholders may decline telephone exchange or redemption
privileges after an account is opened by so instructing The Solon
Funds in writing at least seven business days prior to the date the
instruction is to be effective.
Shareholders may experience delays in exercising telephone
redemption privileges during periods of abnormal market activity.
Accordingly, during periods of volatile economic or market
conditions, shareholders may wish to consider transmitting
redemption orders by telegram or overnight courier.
Repurchase Orders
Shareholders also may sell shares back to a Fund by wire or
telephone through the Distributor or selected securities brokers or
dealers. Shareholders should contact their securities broker or
dealer for appropriate instructions and for information concerning
any transaction or service fee that may be imposed by the broker or
dealer. Shareholders are entitled to the net asset value, less the
redemption expense reimbursement fee, next determined after receipt
of a repurchase order by such broker-dealer, provided the broker-
dealer transmits such order on a timely basis to The Solon Funds so
that it is received by 4:00 p.m., New York time on a day that the
Fund redeems shares. Orders received after that time are entitled
to the net asset value next determined after receipt.
In Kind Redemptions
When in the judgment of the Manager it is consistent with the best
interests of a Fund, an investor may redeem shares of the Fund and
receive securities from the Fund's portfolio selected by the
Manager in its sole discretion, provided that such redemption is
not expected to affect the Fund's ability to attain its investment
objective or otherwise materially affect its operations and the
shareholder is not affiliate or an affiliate of an affiliate of The
Solon Funds. For these purposes, a shareholder who owns more than
5% of outstanding shares of The Solon Funds would be considered an
affiliate. For the purposes of redemptions in kind, the redeemed
securities shall be valued at the identical time and in the
identical manner that the other portfolio securities are valued for
purposes of calculating the net asset value of the Fund's shares.
General
Payment of redemption proceeds is made promptly regardless of when
redemption occurs, but not later than seven days after the receipt
of all documents in proper form, including a written redemption
order with any required signature guarantee in cases where
telephone redemption privileges are not being used. Redemption
proceeds will be mailed or wired in accordance with the
shareholder's instruction on the Account Application to a
predesignated account. The minimum amount that may be wired is
$1,000 (third party wire charges, if any, will be deducted from
redemption proceeds). Each Fund reserves the right to permit
lesser wire amounts or fees in the Manager's discretion. Each Fund
may suspend the right of redemption under certain extraordinary
circumstances in accordance with the rules of the SEC. For shares
purchased by check and redeemed shortly after the purchase, The
Solon Funds will not mail redemption proceeds until it has been
notified that the monies used for the purchase have been collected,
which may take up to 15 days from the purchase date. Shares
tendered for redemptions through brokers or dealers (other than the
Distributor) may be subject to a service charge by such brokers or
dealers.
Each Fund reserves the right to redeem shares in any account if at
any time, due to redemptions by the shareholder, the total value of
a shareholder's account is less than $1,000. If a Fund determines
to make such an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less
than $1,000 and will be allowed 30 days to make an additional
investment to bring the value of that account to at least $1,000
before the Fund takes any action.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily as of
4:00 p.m., New York time, on each day that the NYSE is open for
trading and is not a National Bank holiday. Net asset value is
calculated by dividing the value of the Fund's total net assets by
the total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations:
either the last reported sale price or, in the case of securities
for which there is no last reported sale, the mean between the
closing bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are
valued at their fair values as determined in good faith under the
supervision of the Trust's officers and by the Manager,
respectively, in accordance with methods which are specifically
authorized by the Board of Trustees. Short term obligations with
maturities of 60 days or less are valued at amortized cost as
reflecting fair value.
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. Each
Fund's current policy is to declare income dividends daily and pay
them monthly on or about the last business day of the month. Each
Fund currently intends to make one or, if necessary to avoid the
imposition of tax on the Fund, more distributions during each
calendar year. A distribution may be made on or about December 31
of each year with respect to any undistributed capital gains earned
during the one year period ended October 31 of such calendar year.
Another distribution of any undistributed capital gains will be
made following each Fund's fiscal year end (last day in February).
The amount and frequency of dividends and distributions by either
Fund are not guaranteed and are at the discretion of the Trust's
Board of Trustees.
Unless investors request dividends and cash distributions in
writing at least seven business days prior to the dividend or
distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional
shares of the Fund and credited to the shareholder's account at the
closing net asset value on the reinvestment date.
TAXATION
Each Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by distributing substantially all
of its net investment income and net capital gains to its
shareholders and meeting other requirements of the Code relating to
the sources of its income and diversification of its assets.
Accordingly, each Fund generally will not be liable for federal
income tax except to the extent its earnings are not distributed or
are distributed in a manner that does not satisfy the requirements
of the Code pertaining to the timing of distributions.
For federal income tax purposes, any dividends derived from net
investment income and any excess of net short term capital gain
over net long term capital loss that investors (other than certain
tax-exempt organizations that have not borrowed to purchase Fund
shares) receive from either Fund are considered ordinary income.
It is not anticipated that any of the distributions paid by a Fund
will be eligible for the dividends-received deduction allowed to
corporate shareholders under the Code. Distributions of the excess
of net long term capital gain over net short term capital loss are
treated by shareholders as long term capital gains regardless of
the length of time they have held the Fund's shares. Distributions
of income and capital gains are taxed in the manner described
above, whether they are taken in cash or are reinvested in
additional shares of a Fund.
Shareholders that are not exempt recipients are required by law to
provide a Fund with their correct Social Security or other Taxpayer
Identification Number ("TIN"), regardless of whether they file tax
returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN, to check the appropriate boxes in
the Account Application and to sign the shareholder's name could
result in backup withholding by the Fund of 31% of the amount of
any distributions or other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a
shareholder's federal income tax return.
Each Fund will inform its investors of the source of their
dividends and distributions at the time they are paid, and will
promptly, after the close of each calendar year, advise investors
of the tax status of those distributions and dividends. Investors
(including tax-exempt investors and non-U.S. investors) are advised
to consult their own tax advisers regarding the particular tax
consequences to them of an investment in shares of a Fund.
Additional information on tax matters relating to each Fund and its
shareholders is included in the Statement of Additional
Information.
Financial Institutions Taxation Principles
Recent amendments to the Code will require many financial
institutions that invest in a mutual fund to make an election as to
the classification of the fund's shares for federal income tax
purposes. Section 475 of the Code requires that a "dealer" in
securities generally must "mark to market" at the end of its
taxable year all securities which it owns. With certain important
exceptions, the dealer must treat the resulting gain or loss as
ordinary (and not capital) gain or loss.
These tax "mark to market" rules do not apply, however, to a
security "held for investment" that the dealer clearly identifies
in its records as being held for investment before the end of the
day on which the dealer acquired the security.
Financial institutions, including insurance companies that make or
sell policy loans, are advised to consult their own tax advisers
regarding the application of the above rules to them in connection
with an investment in a Fund. See also "Financial Institutions
Accounting Principles."
PORTFOLIO SECURITIES
Each Fund purchases securities only to the extent National Banks
and Federal Associations may do so under applicable federal laws
and the regulations and supervisory policies of the OCC, OTS, FDIC
and FRB.
Mortgage-Related Securities
A mortgage-related security is an interest in a pool of mortgage
loans. Most mortgage-related securities are pass-through
securities, which means that investors receive payments consisting
of a pro rata share of both principal and interest (less servicing
and other fees), as well as unscheduled prepayments, as mortgages
in the underlying mortgages pool are paid off by the borrowers.
Agency Mortgage-Related Securities. The dominant issuers or
guarantors of mortgage-related securities today are GNMA, FNMA and
the Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA creates
pass-through securities from pools of U. S. government guaranteed
or insured (Federal Housing Authority or Veterans Administration)
mortgages originated by mortgage bankers, commercial banks and
savings associations. FNMA and FHLMC issue pass-through securities
from pools of conventional and federally insured and/or guaranteed
residential mortgages obtained from various entities, including
savings associations, savings banks, commercial banks, credit
unions and mortgage bankers.
The principal and interest on GNMA pass-through securities are
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. FNMA guarantees full and timely payment of all
interest and principal, while FHLMC guarantees timely payment of
interest and ultimate collection of principal, of its pass-through
securities. FNMA and FHLMC securities are not backed by the full
faith and credit of the United States; however, they are generally
considered to offer minimal credit risks. The yields provided by
these mortgage-related securities historically have exceeded the
yields on other types of U.S. government securities with comparable
maturities in large measure due to the risks associated with
prepayment. See "Risk Considerations."
Adjustable rate mortgage securities ("ARMs") are a form of pass-
through security representing interests in pools of mortgage loans,
the interest rates of which are adjusted from time to time. The
adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain
limits. The adjustment feature of ARMs tends to make their values
less sensitive to interest rate changes.
Collateralized mortgage obligations ("CMOs") are mortgage-related
securities that separate the cash flows of mortgage pools into
different components called classes or "tranches." Each class of a
CMO is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments
on the collateral pool may cause the various classes of a CMO to be
retired substantially earlier than their stated maturities or final
distribution dates. The principal of, and interest on, the
collateral pool may be allocated among the several classes of a CMO
in a number of different ways. Generally, the purpose of the
allocation of the cash flow of a CMO to the various classes is to
obtain a more predictable cash flow to some of the individual
tranches than exists with the underlying collateral of the CMO. As
a general rule, the more predictable the cash flow is on a CMO
tranche, the lower the anticipated yield will be on that tranche at
the time of issuance relative to prevailing market yields on
mortgage-related securities. Certain classes of CMOs may have
priority over others with respect to the receipt of prepayments on
the mortgages.
Each Fund considers GNMA, FNMA and FHLMC-issued pass-through
certificates, CMOs, and other mortgage-related securities to be
U.S. Government securities for purposes of each Fund's investment
policies. Further, each Fund invests only in mortgage-related
securities that are either (i) not considered "high risk" under
applicable OCC, OTS, FDIC and FRB supervisory policies, or (ii) if
considered high risk under such policies, purchased solely to
reduce interest rate risk in accordance with such policies.
Privately Issued Mortgage-Related Securities.
Mortgage-related securities offered by private issuers include
pass-through securities for pools of conventional residential
mortgage loans; mortgage pay-through obligations and mortgage-
backed bonds, which are considered to be obligations of the
institution issuing the bonds and are collateralized by mortgage
loans; and bonds and CMOs which are collateralized by mortgage-
related securities issued by GNMA, FNMA, FHLMC or by pools of
conventional mortgages. Each Fund limits its investments in
privately issued mortgage-related securities to "mortgage related
securities" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984, as amended.
Mortgage-related securities created by private issuers generally
offer a higher rate of interest (and greater credit and interest
rate risk) than U.S. Government and U.S. Government mortgage-
related securities because they offer no direct or indirect
government guarantees of payments. However, many issuers or
servicers of mortgage-related securities guarantee, or provide
insurance for, timely payment of interest and principal on such
securities.
Other Portfolio Securities
Other portfolio securities that each Fund may purchase include:
Variable Rate Demand Notes. Each Fund may invest in variable rate
demand notes which are instruments which have rates of interest
that are adjusted periodically or which "float" continuously
according to specific formulae and often have a demand feature
entitling the purchaser to resell the securities at an amount
approximately equal to amortized cost or the principal amount
thereof plus accrued interest.
Zero Coupon Bonds.
Zero coupon bonds are debt obligations which do not pay current
interest and consequently are issued at a significant discount from
face value. The discount approximates the total amount of interest
the bonds will accrue and compound over the period until maturity
or the first interest payment date at a rate of interest reflecting
the market rate of interest at the time of issuance. Zero coupon
bonds prices can be very volatile when market interest rates
change.
The original issue discount on the zero coupon bonds must be
included in each Fund's income ratably as it accrues even though
the Fund has not received payment of that currently accrued
original issue discount. In general, each Fund distributes an
amount of cash equal to the currently accrued original issue
discount, and this may require a Fund to liquidate securities at
times when the Fund might not otherwise choose to sell and may
cause the Fund to incur capital losses on these sales.
Accordingly, each Fund will not be able to purchase additional
income-producing securities with cash used to make such
distributions and its current income ultimately may be reduced as a
result. See "Tax Information" in the Statement of Additional
Information.
General Obligation Bonds and Notes.
General obligation bonds and notes of states and their subdivisions
are debt obligations secured by the pledge of the issuer's full
faith, credit and taxing power for the payment of principal and
interest. Bond anticipation notes, tax anticipation notes and
revenue anticipation notes are short-term securities against which
the proceeds of a planned permanent financing, future real estate
levies and issuer revenues other than general tax receipts,
respectively, are pledged.
Investment Company Securities.
Each Fund may invest up to 10% of its total assets in investment
companies in which National Banks and Federal Associations may
invest under applicable Federal law and the regulations and
supervisory policies of the OCC and OTS. Each Fund will invest in
shares of such investment companies if the Manager determines that
the benefit of increased yield for the Fund exceeds the costs
associated with each such investment relative to the available
yields and costs associated with direct investments in Eligible
Securities. In accordance with applicable state regulatory
provisions, the Manager has agreed to waive its management fee with
respect to the assets of a Fund that are invested in other open-end
investment companies.
Each Fund's investment in other investment companies will be
subject to applicable provisions of the Investment Company Act that
require, among other things, that the Fund and affiliated persons
of the Fund not own together more than 3% of the total outstanding
shares of any one investment company. Each Fund's investment in
shares of any one investment company may not exceed 1% of such
company's total outstanding securities at the time of purchase.
See the Statement of Additional Information for further information
concerning each Fund's investment in other investment companies.
OTHER INVESTMENT PRACTICES
Each Fund engages in the following investment practices only to the
extent to which National Banks and Federal Associations may engage
in such practices under applicable federal laws and the regulations
and supervisory policies of the OCC, OTS, FDIC and FRB.
Repurchase Agreements and Reverse Dollar Roll Transactions.
Each Fund may enter into repurchase agreements in which the Fund
acquires an Eligible Security from a bank, a broker-dealer or other
financial institution that simultaneously agrees to repurchase the
security at a specified time and price. The repurchase price is in
excess of the purchase price by an amount which reflects an agreed-
upon rate of return, which is not determined by the coupon rate on
the underlying security. A reverse dollar roll transaction involves
a purchase by a Fund of an Eligible Security from a financial
institution concurrently with an agreement by the Fund to resell a
similar security to the institution at a later date at an agreed-
upon price. Repurchase agreements and reverse dollar roll
transactions are fully collateralized in a manner similar to loans
of the Fund's portfolio securities. See the Statement of
Additional Information for further information. However, if the
seller should default on its obligation to repurchase the
underlying Eligible Security, a Fund may experience delay or
difficulty in exercising its rights to realize upon its Eligible
Security and might incur a loss if the value of the Eligible
Security declines, as well as disposition costs in liquidating the
Eligible Security.
Reverse Repurchase Agreements and Dollar Roll Transactions.
A reverse repurchase agreement involves a sale by a Fund of
securities that it holds to a bank, broker-dealer or other
financial institution concurrently with an agreement by the Fund to
repurchase the same securities at an agreed-upon price and date. A
dollar roll transaction involves a sale by a Fund of an Eligible
Security to a financial institution concurrently with an agreement
by the Fund to repurchase a similar Eligible Security from the
institution at a later date at an agreed-upon price. Each Fund
will fully collateralize its reverse repurchase agreements and
dollar roll transactions in an amount at least equal to the Fund's
obligations under the reverse repurchase agreement or dollar roll
transaction by cash, U.S. Government securities or other high grade
liquid debt securities that the Fund's custodian, or a designated
subcustodian, segregates from other Fund assets. In segregating
such assets, the Funds' custodian places such assets in a
segregated account. See the Statement of Additional Information
for further information.
Borrowing.
Each Fund may borrow money from banks in an aggregate amount not to
exceed one-third of the value of the Fund's total assets, and the
Fund may pledge its assets in connection with such borrowings. In
addition, each Fund considers reverse repurchase agreements and
dollar roll transactions to be borrowings and accordingly, limits
its borrowings from all sources to no more than one-half of the
value of the Fund's total assets. Under most normal market
conditions, however, each Fund expects that borrowings from all
sources only occasionally will exceed one third of the value of its
total assets.
Leverage.
Leveraging a Fund creates an opportunity for increased net income
but, at the same time, creates special risk considerations. For
example, leveraging may exaggerate changes in the net asset value
of a Fund's shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, a Fund's
assets may change in value during the time the borrowing is
outstanding. Leveraging creates interest expenses for a Fund which
could exceed the income from the assets retained. To the extent
the income derived from securities purchased with borrowed funds
exceeds the interest that a Fund will have to pay, the Fund's net
income will be greater than if leveraging were not used.
Conversely, if the income from the assets retained with borrowed
funds is not sufficient to cover the cost of leveraging, the net
income of the Fund will be less than if leveraging were not used,
and therefore the amount available for distribution to stockholders
as dividends will be reduced. Because the SEC staff believes both
reverse repurchase agreements and dollar roll transactions are
collateralized borrowings, the SEC staff believes that they create
leverage, which is a speculative factor. The requirement that such
transactions be fully collateralized by assets segregated by the
Fund's Custodian does impose a practical limit on the leverage
created by such transactions. The Manager will not use leverage if
as a result the effective duration of the portfolios of the One
Year Portfolio and the Three Year Portfolio would not be comparable
or less than that of a one-year U.S. Treasury Note and a three-year
U.S. Treasury Note, respectively.
Securities Lending.
Each Fund may lend securities to brokers, dealers and other
financial organizations. These loans, if and when made, may not
exceed 30% of the value of the loaning Fund's total assets. Each
Fund's loans of securities are collateralized in an amount at least
equal to the current market value of the loaned securities, plus
any accrued interest, by cash, letters of credit, U.S. Government
securities or other high grade liquid debt securities that the
Funds' custodian, or a designated sub-custodian, segregates from
other Fund assets. If the seller should default on its obligation
to repurchase the underlying security, a Fund may experience delay
or difficulty in exercising its rights to realize upon the security
and might incur a loss if the value of the security declines as
well as disposition costs in liquidating the security. See the
Statement of Additional Information for further instructions.
When-Issued and Forward Commitment Securities.
Each Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" or "delayed
delivery" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed
in yield terms, is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date,
normally seven to 15 days later, or in the case of certain CMO
issues, 45 to 60 days later. When-issued securities and forward
commitments may be sold prior to the settlement date, but each Fund
will enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be.
No income accrues on securities that have been purchased pursuant
to a forward commitment or on a when-issued basis prior to delivery
to the Fund. If a Fund disposes of the right to acquire a when-
issued security prior to its acquisition or disposes of its right
to deliver or receive against a forward commitment, it may incur a
gain or loss. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, it causes its custodian to
segregate cash, U.S. Government securities or other high grade
liquid debt securities equal to the value of the when-issued or
forward commitment securities and causes the segregated assets to
be marked to market daily. There is a risk that the securities may
not be delivered and that the Fund may incur a loss.
Each Fund will not purchase (but may sell) securities on a when-
issued or forward commitment basis involving delivery of the
security more than 30 days following the trade date if such
purchase, when combined with the Fund's covered put options, would
exceed 5% of the Fund's total assets. In no event will the Fund
enter into when-issued or delayed delivery purchases providing for
delivery more than 60 days following the trade date unless it
obtains a no-action letter or similar relief from the OTS
permitting delivery in excess of 60 days, but in no event more than
120 days.
Options and Futures Transactions.
Each Fund may seek to hedge against a decrease in value of its
portfolio by writing (i.e., selling) covered call options. When a
Fund writes a call option, it receives a premium and gives the
purchaser the right to buy the underlying security at a fixed
price. A call option is "covered" if (i) the Fund owns the
optioned securities or has the right to acquire such securities
without additional consideration, (ii) the Fund causes its
custodian to segregate cash, U.S. Government securities or other
high grade liquid debt obligations having a value sufficient to
meet the Fund's obligations under the call option, or (iii) the
Fund owns an offsetting call option.
Each Fund also may write covered put options in an attempt to
realize enhanced income when it is willing to purchase the
underlying debt security for its portfolio at the exercise price.
When a Fund writes a put option, it receives a premium and gives
the purchaser of the put the right to cause the Fund to buy the
underlying security at a fixed exercise price. A put option is
"covered" if the Fund causes its custodian to segregate cash, U.S.
Government securities or other high grade liquid debt instruments
with a value not less than the exercise price of the option or
holds a put option on the same underlying security. Each Fund also
may purchase call options for the purpose of acquiring the
underlying securities for its portfolio and may purchase put
options for hedging purposes. Each Fund will not enter into
covered put options which, when combined with outstanding purchases
of securities on a when-issued or forward commitment basis, would
exceed 5% of the Fund's total assets.
To reduce its net interest rate risk exposure with respect to its
portfolio, each Fund may sell and, in certain circumstances,
purchase, interest rate futures contracts. An interest rate
futures contract is an agreement by a Fund to purchase or sell debt
securities, usually U.S. Government securities, at a specified date
and price. When a Fund sells an interest rate futures contract, it
enters into a futures contract to sell an underlying security.
Each Fund may purchase interest rate futures contracts (i.e., enter
into a futures contract to purchase the underlying debt security)
only to close out an interest rate futures contract it has
previously sold.
Each Fund will not enter into any futures contracts if the sum of
the initial margin deposits on futures contracts purchased by the
Fund would exceed 5% of the value of the Fund's total assets. Each
Fund will not purchase futures contracts if, as a result, the
underlying contract amounts would exceed one-third of the value of
the Fund's total assets.
Each Fund will not engage in transactions involving interest rate
futures contracts for speculation but only as a hedge against
changes in the market values of debt securities held or intended to
be purchased by the Fund and where the transactions are appropriate
to reduce the Fund's interest rate risks. There can be no
assurance that hedging transactions will be successful. A Fund
also could be exposed to risks if it could not close out its
futures or options positions because of an illiquid secondary
market.
Futures and options have effective durations which, in general, are
closely related to the effective duration of the securities which
underlie them. Holding purchased futures or call option positions
(backed by segregated cash, U.S. Government securities or other
high grade liquid debt obligations) will lengthen the duration of a
Fund's portfolio.
While utilization of options and futures contracts and similar
instruments may be advantageous to a Fund, the Fund's performance
will be worse than if the Fund did not make such investments if the
Manager is not successful in employing such instruments in managing
the Fund's investments or in predicting interest rate changes. In
addition, a Fund will pay commissions and other costs in connection
with such investments, which may increase the Fund's expenses and
reduce its return. A further discussion of the possible risks
involved in transactions in options and futures contracts is
contained in the Statement of Additional Information.
Illiquid Securities.
Each Fund may not invest more than 10% of its net assets in
illiquid securities, i.e., securities that cannot be disposed of
within seven days in the normal course of business at approximately
the amount at which the Fund has valued such securities.
Defensive Investments and Portfolio Turnover. Notwithstanding its
investment objective, each Fund may adopt up to a 100% cash or cash
equivalent position for temporary defensive purposes to protect
against the erosion of its capital base. Portfolio securities are
sold whenever the Manager believes it is appropriate, regardless of
how long the securities have been held by the Fund. The Manager
therefore will change a Fund's investments whenever it believes
doing so will further the Fund's investment objective. Under
certain market conditions the Fund's portfolio turnover rate may be
higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including dealer mark-
ups and other transaction costs attributable to the sale of
securities and reinvestment in other securities. Portfolio
turnover also may result in the recognition of capital gains which
may be distributed to shareholders. Tax considerations may limit
the Fund's portfolio turnover. Each Fund's annual portfolio
turnover rate is anticipated to be between 100% and 400% but may
vary from, and is not necessarily limited to, that range. For the
fiscal year ended February 29, 1996, portfolio turnover was 0% for
the One Year Portfolio and 215% for the Three Year Portfolio.
Higher portfolio turnover may result in higher Fund expenses.
Each Fund has adopted certain investment limitations which, like
the Fund's investment objective, may not be changed without the
approval of the Fund's shareholders. A further description of
these and other investment policies and limitations is included in
the Statement of Additional Information.
GENERAL INFORMATION
The Trust
Each Fund is a series of The Solon Funds, a Delaware business trust
that was organized on October 27, 1993. The Agreement and
Declaration of Trust permits the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial
interest, $.01 par value, in any number of series. Each Fund is
one of several series of the Trust, the assets and liabilities of
which are separate and distinct from each other.
Shareholder Rights
Shares issued by each Fund have no preemptive, conversion, or
subscription rights. Each whole share shall be entitled to one
vote as to any matter on which it is entitled to vote and each
fractional share shall be entitled to a proportionate fractional
vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by a Fund and to the net assets of
the Fund upon liquidation or dissolution. Each Fund, as a separate
series of the Trust, votes separately on matters affecting only
that Fund (e.g., approval of its Investment Management Agreement);
all series of the Trust will vote as a single class on matters
affecting all series jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not
cumulative, so that the holders of more than 50% of the shares
voting in any election of Trustees can, if they so choose, elect
all of the Trustees. While the Trust is not required to and does
not intend to hold annual meetings of shareholders, such meetings
may be called by the Trustees at their discretion, or upon demand
by the holders of 10% or more of the outstanding shares of the
Trust for the purpose of electing or removing Trustees.
Shareholders may receive assistance in communicating with other
shareholders in connection with the election or removal of Trustees
pursuant to the provisions contained in Section 16(c) of the
Investment Company Act.
Performance Information
From time to time, each Fund may publish its total return in
advertisements and communications to investors. Total return
information generally will include the Fund's average annual
compounded rate of return over the most recent four calendar
quarters and over the period from the Fund's inception of
operations. Each Fund also may advertise aggregate and average
total return information over different periods of time. Each
Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital
appreciation and depreciation for the stated period according to a
specific formula. Aggregate total return is calculated in a
similar manner, except that the results are not annualized. Total
return figures will reflect all recurring charges against a Fund's
income. See "Performance Information" in the Statement of
Additional Information.
The investment results of each Fund will fluctuate over time, and
any presentation of each Fund's total return for any prior period
should not be considered as a representation of what an investor's
total return may be in any future period.
Legal Counsel
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New
York 10022 serves as the Trust's legal counsel.
Independent Auditors
Ernst & Young, LLP, One Kansas City Place, 1200 Main Street, Kansas
City, MO 64105 are the Trust's independent auditors.
Shareholder Inquiries
Shareholder inquiries generally should be directed to 510-988-7110
or 800-GO-SOLON.
BACKUP WITHHOLDING INSTRUCTIONS
If a shareholder does not have a Taxpayer Identification Number
(TIN), the shareholder should apply for one immediately by
contacting the local office of the Social Security Administration
or the IRS. Backup withholding could apply to payments made to a
shareholder's account while awaiting receipt of a TIN.
If a shareholder has been notified by the IRS that he is subject to
backup withholding because he failed to report all interest and
dividend income on its tax return (and such notice has not been
reveresed by the IRS), the shareholder should cross out the backup
withholding certification in the signature portion of the Account
Application.
If a shareholder of a Fund is a nonresident alien or foreign
entity, a completed Form W-8 should be provided to the Fund in
order to avoid backup withholding on redemptions and certain other
payments. Dividends paid to a foreign shareholder would generally
be subject to up to 30% withholding. Foreign investors should
consult their tax advisers regarding the suitability for them of an
investment in a Fund.
For further information regarding backup withholding, see Section
3406 of the Code and consult with a tax adviser.
_________________________________
This Prospectus is not an offering of the securities herein
described in any state in which the offering is unauthorized. No
salesman, dealer or other person is authorized to give any
information or make any representation other than those contained
in this Prospectus, the Statement of Additional Information, or in
the Funds' official sales literature.
<PAGE>
<PAGE>
THE TRUST
The Solon Funds
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
510/988-7110
800 "GO SOLON"
INVESTMENT MANAGER
Solon Asset Management, L.P.
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
510/988-7110
DISTRIBUTOR
Solon Financial Services, L.P.
1981 N. Broadway
Walnut Creek, California 94596
510/988-7110
800 "GO SOLON"
CUSTODIAN
Investors Fiduciary Trust Company
127 West 10 Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
Ernst & Young, LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
<PAGE>
____________________________________________________________
PART B
STATEMENT OF ADDITIONAL INFORMATION
SOLON SHORT DURATION GOVERNMENT FUNDS
____________________________________________________________
<PAGE>
SOLON SHORT DURATION GOVERNMENT FUNDS
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
510-988-7110
Statement Of Additional Information
July 1, 1996
Solon Short Duration Government Funds: One Year Portfolio (the "One
Year Portfolio") and Solon Short Duration Government Funds: Three
Year Portfolio (the "Three Year Portfolio") (each a "Fund" and
collectively the "Funds") are two diversified series of The Solon
Funds, an open-end management investment company (the "Trust").
Each Fund's investment objectives are to provide maximum total
return consistent with preservation of capital and prudent
investment management. Each Fund seeks to achieve its objective by
investing at least 65% of the Funds' total assets in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The One Year Portfolio maintains an average
portfolio duration comparable to or less than one year U.S.
Treasury Bills. The Three Year Portfolio maintains an average
portfolio duration comparable to or less than three year Treasury
Notes. Like all mutual funds, attainment of the Funds' investment
objectives cannot be assured.
A Prospectus for the Funds, dated July 1, 1996, as may be revised
from time to time, provides the basic information a prospective
investor should know before purchasing shares of the Funds. A copy
of the Funds' Prospectus may be obtained without charge at the
address or telephone number provided above. This Statement of
Additional Information is not a prospectus. It contains
information in addition to, and more detailed than, that set forth
in the Funds' Prospectus. It is intended to provide you with
additional information regarding the activities and operations of
the Funds and should be read in conjunction with the Prospectus.
Table of Contents
The Trust B-1
Investment Objective and Policies B-2
Portfolio Securities B-2
Other Investment Practices B-4
Investment Restrictions B-8
Distributions and Tax Information B-10
Trustees and Officers B-11
Investment Management and Other Services B-12
Execution of Portfolio Transactions B-13
Additional Purchase and Redemption Information B-15
Determination of Net Asset Value B-15
Principal Underwriter B-16
Performance Information B-17
General Information B-18
Financial Statements B-20
Appendix - Description of Bond Ratings B-21
The Trust
The Solon Funds (the "Trust") is an open-end management investment
company organized as a Delaware business trust on October 27, 1993,
and registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Trust currently offers shares
of beneficial interest, $0.01 par value per share, in various
series. Each Fund is a diversified series of the Trust. The Funds
are managed by Solon Asset Management, L.P. (the "Manager"), who
has retained Solon Asset Management Corporation (the "Subadviser")
to manage the Funds' portfolios on a day-to-day basis. The Funds'
shares are distributed by Solon Financial Services, L.P. (the
"Distributor").
Investment Objectives and Policies
The investment objectives and policies of the Funds are described
in detail in the Funds' Prospectus. The following discussion
supplements the discussion in the Funds' Prospectus.
The achievement of the Funds' objectives will depend on market
conditions generally and on the Manager's analytical and portfolio
management skills. Generally, the value of the U.S. government
securities held by the Funds will fluctuate inversely with interest
rates.
Portfolio Securities
U.S. Government Securities
U.S. Government securities in which the Funds may invest include
debt obligations of varying maturities issued by the U.S. Treasury
or issued or guaranteed by certain agencies or instrumentalities of
the U.S. Government, including Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association
("FNMA"), Federal Home Mortgage Corporation ("FHLMC"), Federal Farm
Credit Bank, Farm Credit System Financial Assistance Corporation,
Federal Home Loan Banks, Financing Corporation, Federal Financing
Bank, Maritime Administration, Resolution Funding Corporation,
Small Business Administration (SBA loan pools and the guaranteed
portions of single loan sales), Student Loan Marketing Association
and Washington Metropolitan Area Transit Authority. Direct
obligations of the U.S. Treasury include a variety of securities
that differ primarily in their interest rates, maturities and dates
of issuance. Because the U.S. Government is not obligated by law
to provide support to an instrumentality that it sponsors, the
Funds will not invest in obligations issued by an instrumentality
of the U.S. Government unless the Manager determines that the
instrumentality's credit risk makes its securities suitable for
investment by the Funds.
Mortgage-Related Securities: Government National Mortgage
Association
GNMA is a wholly owned corporate instrumentality of the U.S.
Government within the Department of Housing and Urban Development.
The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes GNMA to guarantee the timely payment of the principal of
and interest on securities that are based on and backed by a pool
of specified mortgage loans. For these types of securities to
qualify for a GNMA guarantee, the underlying mortgages must be
insured by the FHA under the Housing Act, or Title V of the Housing
Act of 1949, as amended ("VA Loans"), or be pools of other eligible
mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. Government is pledged to the payment of all
amounts that may be required to be paid under any guarantee. In
order to meet its obligations under a guarantee, GNMA is authorized
to borrow from the U.S. Treasury with no limitations as to amount.
GNMA pass-through securities may represent a proportionate interest
in one or more pools of the following types of mortgage loans: (1)
fixed-rate level payment mortgage loans; (2) fixed rate graduated
payment mortgage loans; (3) fixed-rate growing equity mortgage
loans; (4) fixed-rate mortgage loans secured by manufactured
(mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed
multifamily projects; (7) fixed-rate mortgage loans as to which
escrowed funds are used to reduce the borrower's monthly payments
during the early years of the mortgage loans ("buydown" mortgage
loans); (8) mortgage loans that provide for adjustments on payments
based on periodic changes in interest rates or in other payment
terms of the mortgage loans; and (9) mortgage-backed serial notes.
Mortgage-Related Securities: Federal National Mortgage Association
FNMA is a federally chartered and privately owned corporation
established under the Federal National Mortgage Association Charter
Act. FNMA was originally organized in 1938 as a U.S. Government
agency to add greater liquidity to the mortgage market. FNMA was
transformed into a private sector corporation by legislation
enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders,
thereby providing them with funds for additional lending. FNMA
acquires funds to purchase loans from investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the
total amount of funds available for housing.
Each FNMA pass-through security represents a proportionate interest
in one or more pools of FHA Loans, VA Loans or conventional
mortgage loans (that is, mortgage loans that are not insured or
guaranteed by any U.S. Government agency). The loans contained in
those pools consist of one or more of the following: (1) fixed-rate
level payment mortgage loans; (2) fixed-rate growing equity
mortgage loans; (3) fixed-rate graduated payment mortgage loans;
(4) variable rate mortgage loans; (5) other adjustable rate
mortgage loans; and (6) fixed-rate mortgage loans secured by
multifamily projects.
Mortgage-Related Securities: Federal Home Loan Mortgage
Corporation
FHLMC is a corporate instrumentality of the United States
established by the Emergency Home Finance Act of 1970, as amended.
FHLMC was organized primarily for the purpose of increasing the
availability of mortgage credit to finance needed housing. The
operations of FHLMC currently consist primarily of the purchase of
first lien, conventional, residential mortgage loans and
participation interests in mortgage loans and the resale of the
mortgage loans in the form of mortgage-backed securities.
The mortgage loans underlying FHLMC securities typically consist of
fixed rate or adjustable rate mortgage loans with original terms to
maturity of between 10 and 30 years, substantially all of which are
secured by first liens on one-to- four-family residential
properties or multifamily projects. Each mortgage loan must
include whole loans, participation interests in whole loans and
undivided interests in whole loans and participation in another
FHLMC security.
Privately Issued Mortgage-Related Securities
As set forth in the Prospectus, the Funds may invest in mortgage-
related securities offered by private issuers including pass-
through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are considered to be
obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized
mortgage obligations ("CMOs"), provided such securities are
"mortgage related securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984, as amended.
The Funds may invest in, among other things, "parallel pay" CMOs
and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay
CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments
are taken into account in calculating the stated maturity date or
final distribution date of each class, which like the other CMO
structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds are
parallel pay CMOs that generally require payments of a specified
amount of principal on each payment date; the required principal
payment on PAC Bonds have the highest priority after interest has
been paid to all classes.
Adjustable Rate Mortgage-Related Securities
As the interest rate on the mortgages underlying adjustable rate
mortgage-related securities ("ARMS") are reset periodically, yields
of such portfolio securities will gradually align themselves to
reflect changes in market rates. Unlike fixed rate mortgages,
which generally decline in value during periods of rising interest
rates, ARMS allow the Fund to participate in increases in interest
rates through periodic adjustments in the coupons of the underlying
mortgages, resulting in both higher current yields and low price
fluctuations. Furthermore, if prepayments of principal are made on
the underlying mortgages during periods of rising interest rates,
the Fund may be able to reinvest such amounts in securities with a
higher current rate of return. During periods of declining
interest rates, of course, the coupon rates may readjust downward,
resulting in lower yields to the Funds. Further, because of this
feature, the value of ARMS are unlikely to rise during periods of
declining interest rates to the same extent as fixed rate
instruments. For further discussion of the risks associated with
mortgage-related securities generally, see "Risk Considerations" in
the Funds' Prospectus.
Zero Coupon Bonds
Like other debt securities, the price of zero coupon bonds also can
reflect a premium or discount to the original issue discount
indicative of the market's judgment as to the issuer's
creditworthiness, the interest rate and other factors.
Other Investment Companies
Each Fund may invest up to 10% of its total assets in securities
issued by other investment companies investing solely in securities
in which the Fund may invest provided that such investment
companies invest in portfolio securities in a manner consistent
with the Funds' investment objectives and policies. Applicable
provisions of the Investment Company Act require that each Fund
limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 10% of the value of
such Fund's total assets will be invested in the aggregate in
securities of investment companies as a group; and (b) not more
than 3% of the outstanding stock of any one investment company will
be owned by the Funds and affiliated parties of the Funds. As a
shareholder of another investment company, the Funds would bear,
along with other shareholders, their pro rata portion of the other
investment company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses
that the Funds bear directly in connection with its own operations.
Applicable provisions of the Investment Company Act also provide
that the Funds either seek instructions from their shareholders
with regard to the voting of all proxies with respect to its
investment in the securities of other investment companies and vote
such proxies in accordance with such instructions, or vote the
shares held by them in the same proportion as the vote of all other
holders of such securities. The Funds intend to vote the shares of
any other investment company securities held by it in the same
proportion as the vote of all other holders of such fund's
securities. The effect of such "mirror" voting is to neutralize
the Funds' influence on corporate governance matters regarding
other investment companies in which the Funds invest.
In accordance with applicable regulatory provisions of the State of
California, the Manager has agreed to waive its management fee with
respect to assets of the Funds that are invested in other
investment companies.
General Obligation Bonds
Issuers of general obligation bonds include states, counties,
cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects,
including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind
general obligation bonds is the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest.
The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special
assessments.
Other Investment Practices
Repurchase Agreements
As noted in the Prospectus, the Funds may enter into repurchase
agreements. The Funds' repurchase agreements generally will
involve a short-term investment in a U.S. Government security or
other high grade liquid debt security, with the seller of the
underlying security agreeing to repurchase it from the Funds at a
mutually agreed-upon time and price. The repurchase price
generally is higher than the purchase price, the difference being
interest income to the Funds. Alternatively, the purchase and
repurchase prices may be the same, with interest at a stated rate
due to the Funds together with the repurchase price on the date of
repurchase. In either case, the income to the Funds is unrelated
to the interest rate on the underlying security itself.
Under each repurchase agreement, the selling institution is
required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. The
Manager, acting under the supervision of the Board of Trustees,
reviews on a periodic basis the suitability and creditworthiness,
and the value of the collateral, of those banks and dealers with
whom the Funds enter into repurchase agreements to evaluate
potential risk. All repurchase agreements will be made pursuant to
procedures adopted and regularly reviewed by the Trust's Board of
Trustees.
The Funds generally will enter into repurchase agreements of short
maturities, from overnight to one week, although the underlying
securities will generally have longer maturities. The Funds regard
repurchase agreements with maturities in excess of seven days as
illiquid. The Funds may not invest more than 10% of the value of
its net assets in illiquid securities, including repurchase
agreements with maturities greater than seven days.
For purposes of the Investment Company Act, a repurchase agreement
is deemed to be a collateralized loan from one of the Funds to the
seller of the security subject to the repurchase agreement. It is
not clear whether a court would consider the security acquired by
the Fund subject to a repurchase agreement as being owned by the
Fund or as being collateral for a loan by the Fund to the seller.
If bankruptcy or insolvency proceedings are commenced with respect
to the seller of the security before its repurchase under a
repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of
interest or a decline in price of the security. If a court
characterizes such a transaction as a loan and the Fund has not
perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at risk of losing some or all of the
principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Funds, the Manager
seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the
seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, a Fund
also runs the risk that the seller may fail to repurchase the
security. However, each Fund always require collateral for any
repurchase agreement to which it is a party in the form of
securities acceptable to it, the market value of which is equal to
at least 100% of the amount invested by the Fund plus accrued
interest, and the Fund makes payment against such securities only
upon physical delivery or evidence of book entry transfer to the
account of their custodian bank. If the market value of the
security subject to the repurchase agreement becomes less than the
repurchase price (including interest), the particular Fund,
pursuant to its repurchase agreement, may require the seller of the
security to deliver additional securities so that the market value
of all securities subject to the repurchase agreement at all times
equals or exceeds the repurchase price.
Provided that the Funds obtain an exemptive order from the
Securities and Exchange Commission (the "SEC") permitting such
transactions, each Fund may participate in one or more joint
accounts with other funds of the Trust that may invest in
repurchase agreements collateralized either by (i) obligations
issued or guaranteed as to principal and interest by the U.S.
government or by one of its agencies or instrumentalities, or (ii)
privately issued mortgage-related securities that are in turn
collateralized by securities issued by the Government National
Mortgage Association, Federal National Mortgage Association or
Federal Home Loan Mortgage Corporation, and are rated in the
highest rating category by a nationally recognized statistical
rating organization, or, if unrated, are deemed by the Manager to
be of comparable quality using objective criteria. Any such
repurchase agreement will have, with rare exceptions, an overnight,
over-the-weekend or over-the-holiday duration, and in no event will
it have a duration of more than seven days.
Reverse Dollar Roll Transactions
The Funds may enter into reverse dollar roll transactions as
discussed in the Funds' Prospectus. A reverse dollar roll
transaction involves a purchase by the Funds of a security from a
financial institution concurrently with an agreement by the Funds
to resell a similar security to the institution at a later date at
an agreed-upon price. The securities that are resold will bear the
same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different
prepayment histories than those sold. During the period between
the sale and repurchase, the Funds will be entitled to receive
interest and principal payments on the securities purchased. For
purposes of the Investment Company Act of 1940, as amended, the SEC
deems a reverse dollar roll transaction, like a repurchase
agreement, to be a loan by the Funds to the selling institution
subject to the same collateral, suitability and creditworthiness
requirements and procedures.
Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements as set forth
in the Prospectus. The Funds typically will invest the proceeds of
a reverse repurchase agreement in money market instruments or
repurchase agreements maturing not later than the expiration of the
reverse repurchase agreement. This use of proceeds involves
leverage. The Funds will enter into a reverse repurchase agreement
for leverage purposes only when the Manager believes that the
interest income to be earned from the investment of the proceeds or
the gain for the security to be obtained by effecting the
transaction would be greater than the interest expense of the
transaction. The Funds also may use the proceeds of reverse
repurchase agreements to provide liquidity to meet redemption
requests when the sale of the Funds' securities is considered to be
disadvantageous.
The Funds cause their custodian to segregate liquid assets, such as
cash, U.S. Government securities or other high grade liquid debt
securities equal in value to their obligations (including accrued
interest) with respect to reverse repurchase agreements. In
segregating such assets, the Funds' custodian places such
securities in a segregated account. Such assets are marked to
market daily to ensure that full collateralization is maintained.
Dollar Roll Transactions
The Funds may enter into dollar roll transactions as discussed in
the Funds' Prospectus. A dollar roll transaction involves a sale
by the Fund of a security to a financial institution concurrently
with an agreement by the Funds to repurchase a similar security
from the institution at a later date at an agreed-upon price. The
securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools
of mortgages with different prepayment histories than those sold.
During the period between the sale and repurchase, the Funds will
not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in
additional portfolio securities of the particular Fund, and the
income from these investments, together with any additional fee
income received on the sale, may or may not generate income for the
Fund exceeding the yield on the securities sold.
At the time that either Fund enters into a dollar roll transaction,
it causes the Fund's custodian to segregate liquid assets such as
cash, U.S. Government securities or other high grade liquid debt
securities having a value equal to the repurchase price (including
accrued interest) and will subsequently mark the assets to market
daily to ensure that full collateralization is maintained.
Lending of Portfolio Securities
The Funds may lend their portfolio securities having a value of up
to 30% of its total assets in order to generate additional income.
Such loans may be made to broker-dealers or other financial
institutions whose creditworthiness is acceptable to the Manager
and subject to the following terms and conditions. These loans are
required to be secured continuously by collateral, including cash,
cash equivalents, irrevocable letters of credit, U.S. Government
securities, or other high grade liquid debt securities, maintained
on a current basis (i.e., marked to market daily) at an amount at
least equal to 100% of the market value of the securities loaned
plus accrued interest. The Funds may pay reasonable administrative
and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower
or placing broker. Loans are subject to termination at the option
of the Funds or the borrower at any time. Upon such termination,
the Funds are entitled to obtain the return of the securities
loaned within five business days.
For the term of the loan, the particular Fund continues to receive
the equivalent of the interest paid by the issuer on the securities
loaned, receives proceeds from the investment of the collateral and
continues to retain any voting rights with respect to the
securities. As with other extensions of credit, there are risks of
delay in recovery or even losses of rights in the securities loaned
should the borrower of the securities fail financially. However,
the loans are made only to borrowers deemed by the Manager to be
creditworthy, and only when, in the judgment of the Manager, the
income which can be earned currently from such loans justifies the
attendant risk.
When-Issued and Forward Commitment Securities
The Funds may purchase securities on a "when-issued" basis and may
purchase and sell securities on a "forward-commitment" or "delayed
delivery" basis. The price of such securities is fixed at the time
the commitment to purchase or sell is made, but delivery and
payment for such securities take place at a later date. Normally,
the settlement date occurs within one month of the purchase; during
the period between purchase and settlement, no payment is made by
the particular Fund to the issuer. While the Funds reserve the
right to sell when-issued or delayed delivery securities prior to
the settlement date, the Funds intend to purchase such securities
with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time either Fund makes a
commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the
value of the security in determining the Fund's net asset value.
The market value of such securities may be more or less than the
settlement price. The Funds do not believe that their net asset
value will be adversely affected by its purchase of securities on a
when-issued or delayed delivery basis. The Funds cause their
custodian to segregate cash, U.S. Government securities or other
high grade liquid debt securities equal in value to commitments for
when-issued and delayed delivery securities. The segregated
securities either will mature or, if necessary, be sold on or
before the settlement date. To the extent that assets of the Funds
are held in cash pending the settlement of a purchase of
securities, the Funds earn no income on these assets.
Options and Futures Contracts
The Funds may write (i.e., sell) covered put and call options on
debt securities. A covered call option is an option for which the
Funds, in return for a premium, gives another party the right to
buy specified debt securities owned by the Funds at a specified
future date and price set at the time of the contract. A covered
call option serves as a partial hedge against the price decline of
the underlying security. However, by writing a covered call
option, the Funds give up the opportunity, while the option is in
effect, to realize gain from any price increase in the underlying
debt security above the option exercise price. In addition, the
Funds' ability to sell the underlying debt security will be limited
while the option is in effect unless the Funds effect a closing
purchase transaction.
There can be no assurance that higher than anticipated trading
activity or other unforeseen events might not at times, render
certain of the facilities of the Options Clearing Corporation
inadequate and thereby result in the institution by an exchange of
special procedures which may interfere with the execution of the
Funds' orders.
The Funds may purchase put and call options on securities in which
it has invested. The Funds may purchase and sell options that are
traded on U.S. exchanges. The Funds also may enter into closing
sale transactions in order to realize gains or minimize losses on
options it has purchased.
The Funds normally will purchase call options in anticipation of an
increase in the market value of securities of the type in which
they may invest. The purchase of a call option would entitle the
Funds, in return for the premium paid, to purchase specified
securities at a specified price during the option period. The
Funds may purchase and sell options that are traded on U.S.
exchanges.
There can be no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular
time. For some options, the secondary market on an exchange may
exist. In such event, it might not be possible to effect closing
transactions in particular options, with the result that the Funds
would have to exercise its options in order to realize any profit
and would incur transaction costs upon the purchase or sale of
underlying securities.
Secondary markets on an exchange may not exist or may not be liquid
for a variety of reasons including: (i) insufficient trading
interest in certain options; (ii) restrictions on opening
transactions or closing transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal
operations on an exchange; (v) inadequate facilities of an exchange
or the Options Clearing Corporation to handle current trading
volume at all times; or (vi) discontinuance in the future by one or
more exchanges, for economic or other reasons, of trading of
options (or of a particular class or series of options), in which
event the secondary market on that exchange (or in that class or
series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options
Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Funds may enter into standardized contracts for the purchase
or, in certain circumstances, sale for future delivery of debt
securities. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through a
futures commission merchant or brokerage firm that is a member of
the relevant contract market. Futures contracts trade on a number
of exchange markets, and through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange. The Funds may enter into futures
contracts that are based on U.S. government securities such as
long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified pass-
through mortgage-related securities and three-month U.S. Treasury
Bills.
The Funds filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity
Futures Trading Commission ("CFTC") and the National Futures
Association, which regulate trading in the futures markets, before
engaging in any purchases or sales of futures contracts or options
on futures contracts. Pursuant to Section 4.5 of the regulations
under the Commodity Exchange Act, the notice of eligibility
included the representation that the Funds will use futures
contracts and related options for bona fide hedging purposes within
the meaning of CFTC regulations, provided that the Funds may hold
positions in futures contracts and related options that do not fall
within the definition of bona fide hedging transactions if the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of each Fund's net assets (after
taking into account unrealized profits and unrealized losses on any
such positions) and that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded from such 5%.
At the same time that a futures contract is purchased or sold, the
Funds must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial deposit would
be approximately 1-1/2% to 3% of a contract's face value. Daily
thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, since each day the Funds would
provide or receive cash that reflects any decline or increase in
the contracts value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from
the delivery of securities with a different interest rate from that
specified in the contract. In some (but not many) cases,
securities called for by a futures contract may not have been
issued when the contract was written.
Although futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the contract
without having to make or take delivery of the securities. The
offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on an exchange market an identical
futures contract calling for delivery in the same month. Such a
transaction, which is effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities.
Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Funds will incur brokerage fees
when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract in the
case of the Funds, which may hold or acquire fixed-income
securities, is to attempt to protect the Funds from fluctuations in
interest rates without actually buying or selling fixed-income
securities.
For example, when it is expected that interest rates may decline,
futures contracts may be purchased to attempt to hedge against
anticipated purchases of debt securities at higher prices. Since
the fluctuations in the value of futures contracts should be
similar to those of debt securities, the Funds could take advantage
of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that
time, the futures contracts would be liquidated and the Funds could
then buy debt securities on the cash market. To the extent the
Funds enter into futures contracts for this purpose, the Funds
cause their custodian to segregate assets to cover the Funds'
obligations with respect to such futures contracts will consist of
liquid assets such as cash, U.S. government securities or other
high grade liquid debt obligations from its portfolio in an amount
equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and
variation margin payments made by the Funds with respect to such
futures contracts.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial and variation margin requirements.
Rather than meeting additional variation margin requirements,
investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the
futures market could be reduced, thus producing distortion. Third,
from the point of view of speculators, the initial margin
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause
temporary price distortions. Due to the possibility of distortion,
a correct forecast of general interest rate trends by the Manager
may still not result in a successful transaction in the futures
market.
In addition, futures contracts entail risks. Although the Funds
believe that use of such contracts will benefit the Funds, if the
Manager's investment judgment about the general direction of
interest rates is incorrect, the Funds' overall performance would
be poorer than if the Funds had not entered into any such
contracts. For example, if the Funds have hedged against the
possibility of a decrease in interest rates which would adversely
affect the price of debt securities they wish to purchase for their
portfolios and interest rates increase instead, the Funds would
lose part or all of the benefit of the decreased purchase price of
the debt securities which it has hedged because it would have
offsetting losses in its future positions. In addition, in such
situations, if either Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of debt securities may, but will
not necessarily, be at increased prices that reflect the rising
market. The Funds may have to sell securities at a time when it
may be disadvantageous to do so. Loss from investing in futures
transactions by the Funds is potentially unlimited.
Under certain circumstances, the Funds also may write covered put
options which give the holder of the option the right to sell the
underlying debt security to the Funds at the stated exercise price.
The Funds will receive a premium for writing a put option but will
be obligated to purchase the underlying debt security at a price
that may be higher than the market value of that debt security at
the time of exercise for as long as the option is outstanding. In
order to "cover" the put options that it has written, the Funds
cause their custodian or a designated subcustodian, to segregate
cash, cash equivalents, U.S. government securities or other high
grade liquid debt securities with a value equal to or greater than
the exercise price of the underlying securities. Neither Fund will
write put options if the aggregate value of the obligations
underlying the put, together with outstanding purchases of
securities on a when-issued or delayed delivery basis, shall exceed
5% of such Fund's total assets.
There can be no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain of the facilities of the Options Clearing Corporation
inadequate, and thereby result in the institution of special
procedures by an exchange which may interfere with the timely
execution of the Funds' orders.
Investment Restrictions
The following policies and investment restrictions have been
adopted by the Funds and (unless otherwise noted) are fundamental
and cannot be changed without the affirmative vote of a majority of
the Funds' outstanding voting securities as defined in the
Investment Company Act. The Funds may not:
1. Purchase any common stocks or other equity securities, except
that the Funds may invest in securities of other investment
companies as described above and consistent with restriction number
7 below.
2. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and
policies, (b) through the lending of up to 30% of its portfolio
securities as described above, or (c) to the extent the entry into
a repurchase agreement or reverse dollar roll transaction is deemed
to be a loan.
3. (a) Borrow money, except for temporary or emergency purposes
from a bank, or pursuant to permissible reverse repurchase
agreements or dollar roll transactions as described in the
Prospectus or this Statement of Additional Information. Except for
reverse repurchase agreements or dollar roll transactions for which
the Funds' custodian has segregated assets, any such borrowing will
be made only if immediately thereafter there is an asset coverage
of at least 300% of all borrowings, and borrowings from all
sources, including reverse repurchase agreements and dollars for
which the Fund's custodian has segregated assets, will not exceed
50% of the Fund's total assets. No additional investments may be
made while any borrowings (excluding reverse repurchase agreements
and dollar roll transactions against which assets have been
segregated) are in excess of 5% of the Funds' total assets.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with permissible borrowings, reverse repurchase
agreements and dollar roll transactions.
4. Except in connection with permissible forward commitment or
futures or options activities as described in the Prospectus or
this Statement of Additional Information, purchase securities on
margin or underwrite securities; however, the Funds may obtain such
short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities.
5. Buy or sell real estate or commodities or, except in connection
with permissible futures or options activities as described in the
Prospectus or the Statement of Additional Information, commodity
contracts; however, the Funds may invest in marketable securities
secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
6. Buy or sell interests in oil, gas or mineral exploration or
development leases and programs; however, the Funds may invest in
marketable securities of issuers engaged in such activities.
7. Invest in securities of other investment companies, except to
the extent permitted by the Investment Company Act or discussed in
the Funds' Prospectus or this Statement of Additional Information,
or as such securities may be acquired as part of a merger,
consolidation or acquisition of assets.
8. Issue senior securities, as defined in the Investment Company
Act, except that this restriction shall not be deemed to prohibit
the Funds from (a) making any permissible borrowings, mortgages or
pledges, or (b) entering into permissible reverse repurchase or
dollar roll transactions, in each case as described in the
Prospectus or the Statement of Additional Information.
9. Concentrate 25% or more of the value of its assets in any one
industry; provided, however, that each Fund may invest up to 100%
of its assets in securities of the U.S. Government, its agencies or
instrumentalities in accordance with its investment objective and
policies.
The Funds have adopted the following restrictions as operating
policies, which are not fundamental policies, and which may be
changed without shareholder approval in accordance with applicable
regulations. The Funds may not:
10. Invest, in the aggregate, more than 10% of its net assets in
illiquid securities, including (under current SEC interpretations)
securities which are not readily marketable and repurchase
agreements that mature in more than seven days.
11. Invest in any issuer for purposes of exercising control or
management of the issuer.
12. Except in connection with permissible forward commitment or
futures or options activities as described in the Funds' Prospectus
or this Statement of Additional Information, write, purchase or
sell straddles, spreads or combinations thereof.
13. Except in connection with permissible forward commitment or
options or futures transactions, as described in the Funds'
Prospectus or this Statement of Additional Information, engage in
short sales of securities.
14. Enter into a futures contract or an option on a futures
contract if, as a result thereof, more than 5% of the particular
Fund's total assets (taken at market value at the time of entering
into the contract and excluding the in-the-money amount of an
option that was in-the-money at the time of purchase) would be
committed to initial deposits and premiums on open futures
contracts and options on such contracts.
15. Invest in real estate limited partnerships or issuers that
qualify as real estate investment trusts under Federal tax laws.
To the extent these restrictions reflect matters of operating
policy which may be changed without shareholder vote, these
restrictions may be amended upon approval by the Board of Trustees
and notice to shareholders.
If a percentage restriction is adhered to at the time of
investment, a subsequent increase or decrease in a percentage
resulting from a change in the values of assets will not constitute
a violation of that restriction, except as otherwise noted.
Distributions and Tax Information
Distributions
The Funds intend to declare and pay dividends and other
distributions, as stated in their Prospectus. In order to avoid
the payment of any federal excise tax based on net income, the
Funds must (and intend to) declare on or before February 28 of each
year, and pay on or before March 31 of the same year, distributions
at least equal to 98% of its ordinary income for that calendar year
and at least 98% of the excess of any capital gains over any
capital losses realized in the one-year period ending October 31 of
that year, together with any undistributed amounts of ordinary
income and capital gains (in excess of capital loss) from the
previous calendar year on which Federal income tax was not paid.
Tax Information
Each Fund is to qualified and has elected to be treated as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), for each taxable
year by complying with all applicable requirements regarding the
source of its income, the diversification of its assets and the
timing of its distributions. Each Fund's policy is to distribute
to its shareholders all of its investment company taxable income
and any realized net capital gains for each fiscal year in a manner
which complies with the distribution requirements of the Code, so
that the Fund will not be subject to any federal income or excise
taxes based on net income. (However, the Board of Trustees may
elect to pay such excise taxes if it determines that payment is,
under the circumstances, in the best interests of a Fund.)
In order to qualify as a regulated investment company, a fund such
as each of the Funds must, among other things, (a) derive at least
90% of its gross income each year from dividends, interest,
payments with respect to loans of stock and securities, gains from
the sale or other disposition of stock or securities or foreign
currency gains, or other income (generally including gains from
options, futures or forward contracts), derived with respect to its
business of investing in stock, securities or currency; (b) derive
less than 30% of its gross income each year from the sale or other
disposition of stock or securities (or options thereon) held for
less than three months (excluding some amounts otherwise included
in income as a result of certain hedging transactions); and (c)
diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of its assets are represented
by cash, cash items, U.S. Government securities, securities of
other regulated investment companies and other securities limited,
for purposes of this calculation, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets or 10% of the
voting securities of the issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities). As noted above, by
complying with the applicable provisions of the Code, the Funds
will not be subject to federal income tax on taxable income
(including realized capital gains) which is distributed to
shareholders in accordance with the timing requirements of the
Code.
Distributions of net investment income and realized net capital
gains will be taxable to shareholders whether made in cash or
reinvested in shares. In determining amounts of realized net
capital gains to be distributed, any capital loss carryovers from
prior years will be applied against capital gains. Shareholders
receiving distributions in the form of additional shares will have
a cost basis for federal income tax purposes in each share so
received equal to its net asset value on the date of distribution.
The use of hedging strategies, such as entering into futures
contracts and forward contracts and purchasing options, involves
complex rules that will determine the character and timing of
recognition of the income received in connection therewith by the
Funds. Income from transactions in options, futures contracts and
forward contracts derived by the Funds with respect to their
business of investing in securities, will qualify as permissible
income under Subchapter M of the Code.
For accounting purposes, when the Funds purchase an option, the
premium paid is recorded as an asset and is subsequently adjusted
to the current market value of the option. Any gain or loss
realized upon the expiration or sale of such an option held by the
Funds generally will be a capital gain or loss.
Any security, option, or other position entered into or held by the
Funds that substantially diminishes the Funds' risk of loss from
any other position held by the Funds may constitute a "straddle"
for federal income tax purposes. In general, straddles are subject
to certain complex rules that may affect the amount, character and
timing of the particular Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the
recognition of loss realized on disposition of one position of a
straddle be deferred to the extent of any unrealized gain position
until such offsetting position is disposed of; that the particular
Fund's holding period of the straddle in certain straddle positions
not begin until the straddle is terminated (possibly resulting in
the gain being treated as short-term capital gain rather than long-
term capital gain); and that losses recognized with respect to
certain straddle positions, which would otherwise constitute short-
term capital losses, be treated as long-term capital losses.
Different elections are available to the Funds that may mitigate
the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and
that are held by the Funds at the end of its taxable year generally
will be required to be "marked to market" for Federal income tax
purposes, that is, deemed to have been sold at market value as of
the close of the year. Sixty percent of any net gain or loss
recognized on these deemed sales and 60% of any net gain or loss
realized from any actual sales of Section 1256 Contracts, will be
treated as long-term capital gain or loss, and the balance will be
treated as short-term capital gain or loss.
Redemptions of shares of the Funds will result in gains or losses
for tax purposes to the extent of the difference between the
proceeds from the shares redeemed and the shareholder's adjusted
tax basis for such shares. Generally, any loss realized upon the
redemption of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of
distributions of long-term capital gain dividends during such six-
month period. All or a portion of a loss realized upon the
redemption of shares may be deferred to the extent shares are
purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local
income taxes, and the treatment thereof may differ from the federal
income tax treatment. The above discussion is not intended to be a
complete discussion of all applicable federal tax consequences of
an investment in the Funds. Nonresident aliens and foreign persons
are subject to different tax rules, and may be subject to
withholding of up to 30% on dividends received from the Funds.
Shareholders are advised to consult with their own tax advisers
concerning the application of foreign, federal, state and local
taxes to them regarding an investment in the Funds.
Trustees and Officers
The Trust has a Board of Trustees that is responsible for the
overall management of the Fund, including general supervision and
review of its investment activities. In addition, the officers who
administer the Funds' daily operations are appointed by the Board
of Trustees. The current Trustees and officers of the Trust
performing a policy making function and their affiliations and
principal occupations for the past five years are set forth below:
Deborah Hicks Midanek*, Chairman of the Board, Chief Executive
Officer, President and Trustee
Solon Asset Management, L.P.
1981 N. Broadway, Suite 325
Walnut Creek, California 94596
Ms. Midanek has been Chief Executive Officer of Solon Asset
Management Corporation, a registered investment adviser, since
1990. In addition she served as a Managing Director and Director
of Mutual Funds for Montgomery Asset Management, L.P. from July of
1992 through September of 1993. Prior to joining Solon Asset
Management Corporation, Ms. Midanek was a Corporate Vice President
in the Mortgage Backed Securities Department of Drexel Burnham
Lambert, Inc. from 1986 to 1990. She also serves as a director of
Standard Brands Paint Company, and as a trustee of Warren Wilson
College and of the Committee for Economic Development.
Ronald W. Filante, Trustee
Pace University
Choate Hall
Bedford Road
Pleasantville, NY 10570
Mr. Filante has been an Associate Professor of Finance at Pace
University since 1987. From 1981 until 1987 he was a member of the
faculty of Manhattan College. He is also an independent financial
planning professional and registered investment adviser and has
been a registered representative of VSR Financial Services, Inc., a
registered broker-dealer, since 1986. Mr. Filante holds an M.S.
(1968) and a Ph.D. (1969) in Economics from Purdue University.
Katherine R. Griswold, Trustee
Southern New England Telephone Company
227 Church Street
New Haven, CT 06510
Ms. Griswold has served as Director - Benefit Trusts at Southern
New England Telephone Company since April, 1993, and from March,
1989 until April, 1993, acted as its Director - Pension Fund. She
has a bachelors degree in Finance from Cornell University (1978)
and is a Chartered Financial Analyst.
*Trustee deemed an "interested person" of the Trust as defined in
the Investment Company Act.
The Trustees of the Trust who are not affiliated with the Manager
or the Distributor receive an annual retainer of $1,000 and fees of
$500 per meeting and reimbursement of expenses incurred for each
regular Board meeting attended. The officers of the Trust receive
no compensation directly from it for performing the duties of their
offices. However, those officers and Trustees of the Trust who are
officers or partners of the Manager or the Distributor may receive
remuneration indirectly because the Manager will receive a
management fee from the Funds and, although not anticipated, the
Distributor may receive commissions for executing portfolio
transactions for the Fund.
Investment Management and Other Services
As stated in the Prospectus, the Manager provides investment
management services to the Funds pursuant to an Investment
Management Agreement, dated as of February 28, 1994 (the
"Management Agreement") between the Manager and the Trust on behalf
of each Fund. The Subadviser provides portfolio management
services to the Manager pursuant to a Subadvisory Agreement dated
as of February 28, 1994 (the "Subadvisory Agreement", together with
the Management Agreement, the "Agreements"). Each Agreement
remained in effect with respect to each Fund for two years, and
thereafter continues for periods not exceeding one year so long as
such continuation is approved at least annually by (1) the Board of
Trustees of the Trust or the vote of a majority of the outstanding
shares of the particular Fund, and (2) a majority of the Trustees
who are not interested persons of any party to the Agreement, in
each case by a vote cast in person at a meeting called for the
purpose of voting on such approval. Each Agreement may be
terminated at any time, without penalty, by either Fund or the
Manager, and with respect to the Subadvisory Agreement, by the
Subadviser, upon 60 days' written notice, and is automatically
terminated in the event of its assignment as defined in the
Investment Company Act.
For services performed under the Management Agreement, each Fund
pays the Manager a monthly management fee (accrued daily) based
upon the average daily net assets of the Fund at the following
annual rates: twenty five one hundredths of one percent (0.25%) of
net assets. As noted in the Prospectus, the Manager has agreed to
reduce its fee to the Funds for the amount, if any, by which either
Fund's annual operating expenses, expressed as a percentage of
average daily net assets, exceed the lesser of seventy five one
hundredths of one percent (0.75%) or the most restrictive
limitation imposed by any state in which the particular Fund's
shares are then qualified for sale. Operating expenses for
purposes of the Management Agreement include the Manager's
management fee, the Administrator's fee and the fees of shareholder
service providers under the Services Agreements but do not include
any taxes, interest, brokerage commissions, if any, expenses
incurred in connection with any merger or reorganization, any
extraordinary expenses such as litigation, and such other expenses
as may be deemed excludable with the prior written approval of any
state securities commission imposing an expense limitation. The
Manager also may at its discretion from time to time pay for other
Fund expenses from its own funds or reduce the management fee of
the Funds in excess of that required. The Manager reimburses the
Subadviser monthly for any costs and expenses incurred by the
Subadviser in connection with rendering the portfolio management
services under the Subadvisory Agreement.
Each Agreement was reapproved with respect to the Funds by the
Board of Trustees of the Trust at a duly called meeting on January
24, 1996. In considering each Agreement, the Trustees specifically
considered and approved the provision which permits the Manager to
seek reimbursement of any reductions made to its management fee and
any expenses paid voluntarily within the three-year period
following such reduction or payment subject to the Funds' ability
to effect such reimbursement and remain in compliance with
applicable expense limitations. At such time as it appears
probable that the Fund is able to effect such reimbursement, the
amount of reimbursement that the Fund is able to effect will be
accrued as an expense of such Fund for that current period.
The Manager also may act as an investment adviser or administrator
to other persons, entities and corporations, including other
investment companies. Please refer to the table above which
indicates officers and trustees who are affiliated persons of the
Trust and who are also affiliated persons of the Manager.
The use of the name "Solon" by the Trust and by the Funds is
pursuant to the consent of the Manager, which may be withdrawn if
the Manager ceases to be the Manager of the Fund(s).
The Distributor may provide certain administrative services to the
Funds on behalf of the Manager. The Distributor may also perform
investment banking, investment advisory and brokerage services for
persons other than the Funds. These activities from time to time
may result in a conflict of interest between the Distributor and
the Funds and may restrict the ability of the Distributor to
provide services to the Funds.
Investors Fiduciary Trust Company (the "Custodian") serves as
custodian of the Funds' assets, which are maintained at the
Custodian's principal office. The Custodian generally holds
securities in its custody by book records, but may, in certain
cases, hold certificates for the securities in its custody.
Compensation for the services of the Custodian is based on a
schedule of charges agreed upon from time to time.
Execution of Portfolio Transactions
In all purchases and sales of securities for the Funds, the primary
consideration is to obtain the most favorable price and execution
available. Pursuant to the Agreements, the Subadviser determines
which securities are to be purchased and sold by each Fund and
which broker-dealers are eligible to execute the Funds' portfolio
transactions, subject to the instructions of and review by the
Funds and the Trust's Board of Trustees.
Purchases of portfolio securities for the Funds may be made
directly from issuers or from underwriters. Where possible,
purchase and sale transactions will be effected through dealers
(including banks) which specialize in the types of securities which
the Funds will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principals for
their own accounts. Purchases from underwriters will include a
commission paid by the issuer to the underwriter and purchases from
dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer
or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services
as discussed below.
In placing portfolio transactions, the Manager will use its best
efforts to choose a broker-dealer capable of providing the services
necessary to obtain the most favorable price and execution
available. The full range and quality of services available will
be considered in making these determinations, such as the size of
the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of
securities, and other factors.
In those instances where it is reasonably determined that more than
one broker-dealer can offer the services needed to obtain the most
favorable price and execution available and the transaction
involves a brokerage commission, consideration may be given to
those broker-dealers which furnish or supply research and
statistical information to the Subadviser or its affiliates that
they may lawfully and appropriately use in their investment
advisory capacity for the Funds and for other accounts, as well as
provide other services in addition to execution services. The
Subadviser considers such information, which is in addition to, and
not in lieu of, the services required to be performed by it under
the Agreement, to be useful in varying degrees, but of
indeterminable value. The Subadviser anticipates that these
opportunities will arise infrequently if at all.
The placement of portfolio transactions with broker-dealers who
sell shares of the Funds is subject to rules adopted by the
National Association of Securities Dealers, Inc. ("NASD").
Provided the Trust's officers are satisfied that the Funds are
receiving the most favorable price and execution available, the
Manager may also consider the sale of the Funds' shares as a factor
in the selection of broker-dealers to execute their portfolio
transactions.
While the Funds' general policy is to seek first to obtain the most
favorable price and execution available, in selecting a broker-
dealer to execute portfolio transactions, weight may also be given
to the ability of a broker-dealer to furnish brokerage, research
and statistical services to the Funds or to the Subadviser, even if
the specific services were not imputed just to the Funds and may be
lawfully and appropriately used by the Subadviser in advising other
clients. The Subadviser considers such information, which is in
addition to, and not in lieu of, the services required to be
performed by it under the Agreements, to be useful in varying
degrees, but of indeterminable value. In negotiating any
commissions with a broker, the Funds may therefore pay a higher
commission than would be the case if no weight were given to the
furnishing of these supplemental services, provided that the amount
of such commission has been determined in good faith by the Funds
and the Subadviser to be reasonable in relation to the value of the
brokerage and/or research services provided by such broker-dealer,
which services either produce a direct benefit to the Funds or
assist the Subadviser in carrying out its responsibilities to the
Funds. The standard of reasonableness is to be measured in light
of the Subadviser's and Manager's overall responsibilities to the
Funds.
Investment decisions for the Funds are made independently from
those of other client accounts of the Subadviser or its affiliates.
Nevertheless, it is possible that at times the same securities will
be acceptable for the Funds and for one or more of such client
accounts. To the extent any of these client accounts and one or
both of the Funds seeks to acquire the same security at the same
time, the individual Fund may not be able to acquire as large a
portion of such security as it desires, or it may have to pay a
higher price or obtain a lower yield for such security. Similarly,
the Funds may not be able to obtain as high a price for, or as
large an execution of, an order to sell any particular security at
the same time. If one or more of such client accounts
simultaneously purchases or sells the same security one or both of
the Funds is purchasing or selling, each day's transactions in such
security will be allocated between the particular Funds and all
such client accounts in a manner deemed equitable by the
Subadviser, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors
deemed relevant by the Manager. It is recognized that in some
cases this system could have a detrimental effect on the price or
value of the security insofar as the Funds are concerned. In other
cases, however, it is believed that the ability of the Funds to
participate in volume transactions may produce better executions
for the Funds.
In addition, on occasion, situations may arise in which legal and
regulatory considerations will preclude trading for the Funds'
account by reason of activities of the Distributor or its
affiliates. It is the judgment of the Board of Trustees that the
Funds will not be materially disadvantaged by any such trading
preclusion and that the desirability of continuing its advisory
arrangements with the Manager (and through the Manager, the
Subadviser) and the Manager's affiliation with the Distributor and
its affiliates outweigh any disadvantages that may result from the
foregoing.
Subject to the foregoing policies, the Funds may use the
Distributor as a broker to execute portfolio transactions. In
accordance with the provisions of Section 17(e) of the Investment
Company Act and Rule 17e-1 promulgated thereunder, the Trust has
adopted certain procedures which are designed to provide that
commissions payable to the Distributor are reasonable and fair as
compared to the commissions received by other brokers in connection
with comparable transactions involving similar securities being
purchased or sold on securities or options exchanges during a
comparable period of time. In determining the commissions to be
paid to the Distributor, it is the policy of the Funds that such
commissions will be, in the judgment of the Manager, (i) at least
as favorable as those which would be charged by other qualified
brokers having comparable execution capability, and (ii) at least
as favorable as commissions contemporaneously charged by the
Distributor on comparable transactions for its most favored
unaffiliated customers, except for (a) accounts for which the
Distributor acts as a clearing broker for another brokerage firm,
and (b) any customers of the Distributor considered by a majority
of the Trustees who are not interested persons to be not comparable
to the Funds. The Funds do not deem it practicable and in their
best interest to solicit competitive bids for commission rates on
each transaction. However, consideration is regularly given to
information concerning the prevailing level of commissions charged
on comparable transactions by other qualified brokers. The Board
of Trustees reviews the procedures adopted by the Trust with
respect to the payment of brokerage commissions at least annually
to ensure their continuing appropriateness, and determines, on at
least a quarterly basis, that all such transactions during the
preceding quarter were effected in compliance with such procedures.
The Funds do not effect securities transactions through brokers in
accordance with any formula, nor do they effect securities
transactions through such brokers solely for selling shares of the
Fund. However, as stated above, the Distributor may act as one of
the Funds' brokers in the purchase and sale of portfolio
securities, and other brokers who execute brokerage transactions as
described above may from time to time effect purchases of shares of
the Funds for their customers.
Depending on the Subadviser's view of market conditions, the Funds
may or may not purchase securities with the expectation of holding
them to maturity. The Funds may, however, sell securities prior to
maturity to meet redemptions or as a result of a revised evaluation
of market conditions or of the issuer.
Additional Purchase and Redemption Information
The Trust reserves the right in its sole discretion to (i) suspend
the continued offering of the Funds' shares, and (ii) reject
purchase orders in whole or in part when in the judgment of the
Funds' Manager or the Distributor such rejection is in the best
interest of the Funds.
When in the judgment of the Manager, it is the best interests of
the Funds, an investor may purchase shares of the Funds by
tendering payment in kind in the form of securities, provided that
any such tendered securities are readily marketable, their
acquisition is consistent with the particular Fund's investment
objective and policies, the tendered securities are otherwise
acceptable to the Funds' Subadviser, and the investor is not an
affiliate or affiliate of an affiliate of The Solon Funds. A
shareholder who owns 5% or more of the outstanding shares of The
Solon Funds would be considered to be an affiliate for such
purposes. Except for municipal debt securities issued by state
political subdivisions or their agencies or instrumentalities,
securities accepted as payment in kind by the Funds also must be
acquired for investment and not for resale, and have a value that
is readily ascertainable. For purposes of sales of shares of the
Funds for such securities, the tendered securities shall be valued
at the identical time and in the identical manner that the
portfolio securities of the Funds are valued for the purpose of
calculating the net asset value of the Funds' shares.
Payments to shareholders for shares of the Funds redeemed directly
from the Funds will be made as promptly as possible but in any
event no later than seven days after receipt by the Funds' transfer
agent of a written request in proper form, with the appropriate
documentation as stated in the Funds' Prospectus, except that the
Funds may suspend the right of redemption or postpone the date of
payment during any period when (a) an emergency exists as
determined by the SEC (upon application by the Fund pursuant to
Section 22(e) of the Investment Company Act) making disposal of
portfolio securities or valuation of net assets of the Fund not
reasonably practicable; or (b) for such other period as the SEC may
permit for the protection of the Funds' shareholders.
The Funds intend to pay cash (U.S. dollars) for all shares
redeemed, but, as described below or under abnormal conditions that
make payment in cash unwise, the Funds may make payment partly in
its portfolio securities with a current amortized cost value equal
to the redemption price. Although the Funds do not anticipate that
it will make any part of a redemption payment in securities, if
such payment were made, an investor could incur transaction costs
in converting such securities to cash. The Trust has elected to be
governed by the provisions of Rule 18f-1 under the Investment
Company Act, which require that the Funds pay in cash all requests
for redemption by any shareholder of record limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1%
of the value of the Trust's net assets at the beginning of such
period.
When in the judgment of the Manager it is in the best interests of
the Funds, an investor may redeem shares of the Funds and receive
securities from the Funds' portfolio selected by the Manager, as
advised by the Subadviser, in its sole discretion, provided that
such redemption is not expected to affect the Funds' ability to
attain its investment objective or otherwise materially affect its
operations. For the purposes of redemptions in kind, the redeemed
securities shall be valued at the identical time and in the
identical manner that the other portfolio securities are valued for
purposes of calculating the net asset value of the Funds' shares.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the
Funds' portfolio securities at the time of redemption or
repurchase.
Determination of Net Asset Value
The net asset value per share of the Funds is calculated as
follows: all liabilities incurred or accrued are deducted from the
valuation of total assets which includes accrued but undistributed
income; the resulting net assets are divided by the number of
shares of each Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value
per share.
Generally, the Funds' investments are valued at market value or, in
the absence of a market value, at fair value as determined by the
Manager pursuant to procedures approved by the Board of Trustees.
Short-term investments that mature in 60 days or less are valued on
the basis of amortized cost (which involves valuing an investment
at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the instrument)
when the Board of Trustees has determined that amortized cost is
fair value. Corporate debt securities and mortgage-related
securities held by the Funds are valued on the basis of valuations
provided by dealers in those instruments or by an independent
pricing service, approved by the Board of Trustees. Any such
pricing service, in determining value, will use information with
respect to transactions in the securities being valued, quotations
from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between
securities and yield to maturity information.
An option that is written by the Funds is generally valued at the
last sale price or, in the absence of the last sale price, the last
offer price. An option that is purchased by the Funds is generally
valued at the last sale price or, in the absence of the last sale
price, the last bid price. The value of a futures contract equals
the unrealized gain or loss on the contract that is determined by
marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. When a
settlement price cannot be used, futures contracts will be valued
at their fair market value as determined by or under the direction
of the Trust's Board of Trustees.
If any securities held by the Funds are restricted as to resale or
do not have readily available market quotations, the Manager
determines their fair value for purposes of determining market-
based value, following procedures approved by the Board of
Trustees. The Trustees periodically review such procedures. The
fair value of such securities is generally determined as the amount
which the Funds could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are
likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other
fundamental analytical data relating to the investment and to the
nature of the restrictions on disposition of the securities
(including any registration expenses that might be borne by the
Funds in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the
same class (both at the time of purchase and at the time of
valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
All other assets of the Funds are valued in such manner as the
Board of Trustees in good faith deems appropriate to reflect their
fair value.
The Fund will determine net asset value on each day that the New
York Stock Exchange is open for business and is not a National Bank
holiday. The Exchange and National Banks will not be open for
business on New Year's Day, Martin Luther King's Birthday,
President's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day.
Principal Underwriter
The Distributor acts as the Funds' principal underwriter in a
continuous public offering of the Funds' shares. The Distributor
is currently registered as a broker-dealer with the SEC and is
completing the process of becoming a member of the NASD. The
Underwriting Agreement between the Fund and the Distributor is in
effect until February 28, 1996, and shall continue in effect
thereafter for periods not exceeding one year if approved at least
annually by (i) the Board of Trustees of the Trust or the vote of a
majority of the outstanding shares of the particular Fund (as
defined in the Investment Company Act), and (ii) a majority of the
Trustees who are not interested persons of any such party, in each
case by a vote cast in person at a meeting called for the purpose
of voting on such approval. The Underwriting Agreement may be
terminated without penalty by the parties thereto upon 60 days'
written notice and is automatically terminated in the event of its
assignment as defined in the Investment Company Act. There are no
underwriting commissions paid with respect to sales of the Funds'
shares.
Performance Information
As noted in the Prospectus, the Funds may, from time to time, quote
various performance figures to illustrate the Funds' past
performance.
Yield
The Funds' 30-day yield figure described in the Prospectus is
calculated according to a formula prescribed by the SEC, expressed
as follows:
a-b
----
YIELD = 2[(cd+1)*-1]
* = to the sixth power
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursement)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last day
of the period
For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations that were purchased by the Funds
at a discount or premium, the formula generally calls for
amortization of the discount or premium; the amortization schedule
will be adjusted monthly to reflect changes in the market values of
the debt obligations.
Investors should recognize that, in periods of declining interest
rates, the Funds' yields will tend to be somewhat higher than
prevailing market rates and, in periods of rising interest rates,
will tend to be somewhat lower. In addition, when interest rates
are falling, monies received by the Funds from the continuous sale
of its shares will likely be invested in instruments producing
lower yields than the balance of its portfolio of securities,
thereby reducing the current yield of the Funds. In periods of
rising interest rates the opposite result can be expected to occur.
Average Annual Total Return
The Funds' "average annual total return" figures are computed
according to a formula prescribed by the SEC, expressed as follows:
(ERV) 1/n
(---) -1 = T
( p )
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-
year period at the end of each respective period (or
fractional portion thereof), assuming reinvestment
of all dividends and distributions and complete
redemption of the hypothetical investment at the end
of the measuring period.
Aggregate Total Return
The Funds' "aggregate total return" figures represent the
cumulative change in the value of an investment in the Funds for
the specified period and are computed by the following formula:
ERV - P
- --------
P
Where:
P = a hypothetical initial payment of $10,000
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5- or 10-
year period at the end of a 1-, 5- or 10-year period
(or fractional portion thereof), assuming
reinvestment of all dividends and distributions and
complete redemption of the hypothetical investment
at the end of the measuring period
The Funds' performance will vary from time to time depending upon
market conditions, the composition of its portfolio and its
operating expenses. Consequently, any given performance quotation
should not be considered representative of the particular Fund's
performance for any specified period in the future. In addition,
because performance will fluctuate, it may not provide a basis for
comparing an investment in the Funds with certain other investments
that pay a fixed yield for a stated period of time. Investors
comparing the Funds' performance with that of other investment
companies should give consideration to the quality and maturity of
the respective investment companies' portfolio securities.
For the period since the inception of the Funds on March 1, 1994,
the Funds' respective average annual and aggregate total returns
for the period ended February 29, 1996 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Aggregate Total
One Year 7.09 7.09
Three Year 8.73 8.73
</TABLE>
The Funds' respective 30 day yields at that date were 6.41% and
5.77%.
Comparisons
To help investors better evaluate how an investment in the Funds
might satisfy their investment objective, advertisements and other
materials regarding the Funds may appear in various financial
publications. Materials may also compare performance (as
calculated above) to performance as reported by other investments,
indices, and averages. The following publications, indices and
averages may be used:
a)Bank Rate Monitor -- A weekly publication which reports various
bank investments such as certificate of deposit rates, average
savings account rates and average loan rates.
b)Lipper - Mutual Fund Performance Analysis and Lipper Fixed Income
Fund Performance Analysis -- A ranking service that measures total
return and average current yield for the mutual fund industry and
ranks individual mutual fund performance over specified time
periods assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
c)Salomon Brothers Bond Market Roundup -- A weekly publication
which reviews yield spread changes in the major sectors of the
money, government agency, futures, options, mortgage, corporate,
Yankee, Eurodollar, municipal, and preferred stock markets. This
publication also summarizes change in banking statistics and
reserve aggregates.
In addition, one or more portfolio managers or other employees of
the Manager may be interviewed by print media, such as by the Wall
Street Journal or Business Week, or electronic news media, and such
interviews may be reprinted or excerpted for the purpose of
advertising regarding the Fund.
In assessing such comparisons of performance an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to the Funds'
portfolios, that the averages are generally unmanaged, and that the
items included in the calculations of such averages may not be
identical to the formula used by the Funds to calculate their
figures.
General Information
Investors in the Funds will be informed of the Funds' progress
through periodic reports. Financial statements will be submitted
to shareholders semi-annually, at least one of which will be
audited by independent auditors. All expenses incurred in
connection with the Trust's organization and the registration of
shares of the Funds as two initial series of the Trust have been
assumed pro rata by each series; expenses incurred in connection
with the establishment and registration of any other funds
constituting separate series of the Trust will be assumed by each
respective fund. The expenses incurred in connection with the
establishment and registration of shares of each Fund as a separate
series of the Trust have been assumed by such Fund and are to be
amortized over a period of five years. The Manager has agreed, to
the extent necessary, to advance the organizational expenses
incurred by the Funds and will be reimbursed for such expenses
after commencement of the Funds' operations. Investors purchasing
shares of the Funds bear such expenses only as they are amortized
daily against the Funds' investment income.
As noted above, Investors Fiduciary Trust Company (the "Custodian")
acts as custodian of the securities and other assets of the Funds,
and provides administrative, accounting and pricing services to the
Funds. The Custodian does not participate in decisions relating to
the purchase and sale of securities by the Funds.
The Trust's legal counsel is Kramer, Levin, Naftalis & Frankel and
the independent auditor is Ernst & Young LLP.
Among the Trustees' powers enumerated in the Declaration of Trust
is the authority to terminate the Trust or any series of the Trust,
or to merge or consolidate the Trust or one or more of its series
with another trust or company without the need to seek shareholder
approval of any such action.
The Trust is registered with the SEC as a diversified management
investment company, and the Funds are diversified series of the
Trust. Such a registration does not involve supervision of the
management or policies of the Funds. The Prospectus of the Funds
and this Statement of Additional Information omit certain
information contained in the Registration Statement filed with the
SEC. Copies of the Registration Statement may be obtained from the
SEC upon payment of the prescribed fee.
As of May 31,1996 and to the knowledge of the Trust, the persons
holding of record five percent of the Trust's outstanding voting
equity securities were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder One Year Three Year Trust
Bryn Mawr College - 54.50% 52.60%
Officers as a Group 12.47% - -
Solon Asset
Management, L.P. 24.00% - -
Solon Financial
Services, L.P. 9.85% - -
Charles Schwab
& Company 53.67% 39.16% 39.66%
</TABLE>
<PAGE>
Financial Statements
Set forth on the following pages are the Trust's audited financial
statements, comprised of the Statement of Assets and Liabilities
(including Schedules of Investments)at February 29, 1996 and
Statements of Operations for the year ended February 29, 1996 and
Changes in Net Assets for each of the two years in the period ended
February 29, 1996. The Annual Report of The Solon Funds,
incorporated herein by reference, is available without charge upon
request to The Solon Funds or the Distributor at the address and
phone number shown on the cover of this statement.
<PAGE>
<PAGE>
Annual Report
For the fiscal year ended February 29, 1996
Dear Fellow Shareholder:
We are pleased to report on the performance of the Solon Short
Duration Government Funds for The Solon Funds' fiscal year ended
February 29, 1996. During the period the One Year Portfolio
achieved a cumulative return of 7.09 % and the Three Year
Portfolio achieved a cumulative return of 8.73%. The Three Year
Portfolio is ranked first in its Lipper universe for the two year
period since its inception. Detail on Fund performance, indices
and universes, follows.
The portfolio management team achieved this superior performance by
pursuing Solon's disciplined, consistent method which emphasizes
liquidity, high credit quality, and full analysis of all aspects of
investment risk, especially:
Interest rate risk, or the portfolio's exposure to changes in
interest rates, is controlled using portfolio effective duration,
which gives the most precise measure available of the amount by
which a bond's price is expected to change if interest rates rise
or fall one percent.
Credit risk, or the risk that obligations will not be repaid, is
controlled through investing only in very high quality bonds,
mostly issued by agencies or instrumentalities of the US
government. Regardless of the issuer, however, we do not buy a
bond without a full analysis of its creditworthiness.
Liquidity risk, the risk that it will be difficult to sell a bond
at an expected price, is controlled through purchasing only highly
liquid, actively traded bonds, and then carefully watching price
movement to be sure that we can sell everything in Solon portfolios
rapidly at the carrying price. We must report to our board of
Trustees any difference of greater that 1% between a carrying price
and the price at which we were able to sell a bond. To date, we
have not had such a variance.
Derivative risk, the risk of changes in price and/or interest rate
risk due to changes in the allocation of cash flows, is
controlled first and foremost through the consistent, disciplined
application of rigorous analysis combined with market experience.
Because we believe, however, in the value of the objectivity an
independent standard provides for our shareholders' peace of mind,
we also strictly adhere to the investment guidelines established by
federal banking regulators (the Federal Financial Institutions
Examination Council) which define "high risk" derivatives. The
Solon Funds are precluded by definition from investing in any
instrument that fails to satisfy these guidelines at purchase and
throughout the holding period.
At Solon, we control risk in other important ways. Specifically,
we provide detailed monthly reports including full portfolio
composition, yield curve and interest rate risk position, and
related security level stress tests to all shareholders and to
anyone else who would like to see them. Please let us know what we
can do to serve you better. We appreciate your confidence in The
Solon Funds and Solon Asset Management, L.P. and look forward to
another interesting year.
Sincerely,
/s/Deborah Hicks Midanek
Chairman
April 11, 1996
PAGE>
An interview with
James I. Midanek,
lead portfolio manager
of The Solon Funds.
How did the Funds perform?
We are very pleased with the performance of both the One Year and
the Three Year Portfolio's for this year. The Three Year
Portfolio's total return for the twelve months ended February 29,
1996 was 8.73% and the One Year Portfolio's total return was 7.09%.
The Lehman Government 1-3 Year Index had a return of 8.37% for the
same time period.
The Solon Three Year Portfolio was ranked number one in its Lipper
Universe for its inception to date return. (the Lipper Short US
Government Bond Fund Universe is comprised of 90 funds).
What challenges did the funds face during the past year?
Although most pundits were bearish as the year began, interest
rates fell throughout the year with two year Treasury notes rates
falling 1.43% and yields on longer maturity Treasuries falling only
slightly less. This steepening of the yield curve coupled with the
poor performance of mortgage backed securities presented us with
our greatest challenge. Nevertheless, The Solon Funds, which focus
on high quality, highly liquid securities, maintained superior
performance over the course of the year.
So in the face of a challenging year, how did you manage the Funds
investments?
As rates fell, we increased the defensive nature of our holdings by
increasing our exposure to Treasuries, Adjustable Rate Mortgages
("ARM's") and cash while reducing our exposure to Collateralized
Mortgage Obligations ("CMO's"). This prepared us for the turn in
the market which began in February of 1996 when rates began to
rise. The increase in ARM, Treasury and cash exposures helped
protect us from the underperformance of the mortgage backed
securities market during 1995.
What do you see in the next year for both the fixed income market
and the Funds?
Since February 1996, interest rates have risen nearly 100 basis
points. While we anticipated the possibility of rising rates, we
believe that the severity of the move is not justified by economic
conditions. We do not believe that inflation is a significant
threat in the new year or that the rate of economic growth will
increase beyond current levels.
While at the end of 1995 the short end of the yield curve
reflected an overly enthusiastic view regarding the likelihood of a
Federal Reserve rate cut in the immediate future, current rates
(almost 6% for the two year note) are overly pessimistic. For the
remainder of 1996, we expect rates to stabilize and then fall.
How are the Funds positioned for the coming months?
As mentioned above, we have increased the Funds position in ARM's,
Treasuries and cash to defend against what was a hostile
environment. Our outlook for the rest of the year is quite
optimistic, therefore we expect to extend the duration and increase
the mortgage backed securities holdings of the Funds while lowering
our cash position to take advantage of falling to stable rates and
expected excellent MBS performance.
<PAGE>
FUND PERFORMANCE
Once again we offer our thanks to the portfolio management team for
extraordinary performance in challenging conditions. Presented
below are a table showing the Funds' cumulative total return for
the year ended February 29, 1996 along with average annual returns
since the Funds' March 1, 1994 inception.
The Funds' performance shows the total return earned by each Fund:
changes in Fund share price, plus reinvestment of dividends (or
income) and capital gains or losses, earned by the Funds when they
sell securities that have grown or declined in value. Performance
is shown in comparison to the Lehman Government 1-3 Year Index.
The index is unmanaged and assumes reinvestment of all coupon
income.
Total Returns for the Period Ended February 29, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Last Twelve Average Annual
Months Since Inception
Solon Short Duration
Government Funds:
One Year
Portfolio 7.09% 6.10%
Three Year
Portfolio 8.73% 6.40%
Lehman Government
1-3 Year Index 8.37% 5.78%
</TABLE>
<PAGE>
(Ernst & Young Letterhead)
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees
Solon Short Duration Government FundsWe have audited the
accompanying statement of assets and liabilities
of Solon Short Duration Government Funds (comprised of the One Year
Portfolio and Three Year Portfolio) (the Funds), including the
schedules of investments, as of February 29, 1996, and the
related statements of operations for the year then ended, and the
statements of changes in net assets and financial highlights for
each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our
audits.
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 the 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 February 29, 1996, by
correspondence with the custodian and brokers. 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the respective portfolios comprising
the Solon Short Duration Government Funds at February 29, 1996 and
the results of their operations, changes in their net assets and
their financial highlights for the periods indicated above in
conformity with generally accepted principles.
/s/ Ernst & Young
March 29, 1996
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS: ONE
YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
February 29, 1996
<S> <C> <C>
Principal Value
Amount (Note 1)
- ---------
-------
U.S. GOVERNMENT AGENCY SECURITIES-83.1%
Federal Home Loan Mortgage Corporation-20.6%
$10,000 5.300% due 3/5/96 $9,993
5,000 5.520% due 3/8/96 4,994
46,407 5.150% due 11/15/2006, REMIC 46,175
20,944 9.500% due 10/15/2019, REMIC 20,977
-------
$82,139
-------
Federal National Mortgage Association-42.0%
90,571 7.59% due 6/1/2018 93,260
71,384 7.89% due 11/1/2018 73,950
-------
167,210
-------
Government National Mortgage Association-10.0%
38,916 6.500% due 7/20/2025 39,598
-------
Federal Agriculture Mortgage Corporation
Discount Notes-10.5%
42,000 5.130% due 3/15/96 41,910
-------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $330,750) $330,857
U.S. TREASURY OBLIGATIONS-15.0%
U.S. Treasury Notes:
59,000 7.250% due 11/30/1996 (Cost $59,628) 59,811
-------
TOTAL INVESTMENTS(Cost $390,378) 98.1% 390,668
OTHER ASSETS AND LIABILITIES (Net)1.9% 7,398
------ -------
NET ASSETS 100.0% $398,066
====== ======
</TABLE>
See accompanying notes.
The accompanying notes are an integral part of
these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS:
THREE YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
February 29, 1996
<S> <C> <C>
Principal Value
Amount (Note 1)
- --------- --------
U.S. GOVERNMENT AGENCY SECURITIES-65.2%
Government National Mortgage Association-23.1%
$1,144,728 6.500% due 7/20/2025 $1,164,761
Federal National Mortgage Association-23.1%
516,000 6.750% due 11/25/2020 520,193
248,147 7.892% due 11/1/2018 257,065
206,652 7.500% due 1/25/1997, REMIC 205,942
612,218 9.000% due 4/1/1997, REMIC 650,864
257,475 5.000% due 9/25/2011, REMIC 256,349
358,348 7.595% due 6/1/2018 368,987
17,797 9.400% due 10/25/2017, REMIC 18,282
265,072 8.034% due 12/01/2017, REMIC
271,284
---------
2,548,966
---------
Federal Home Loan Mortgage Corp-31.5%
151,806 8.000% due 1/1/2026 155,696
880,000 6.500% due 3/1/2010, TBA 849,475
500,000 6.500% due 3/1/2010, TBA 495,469
565,000 8.000% due 3/1/2010, TBA 579,478
195,259 9.500% due 10/15/2019, REMIC 195,564
556,886 5.150% due 11/15/2006, REMIC 554,102
265,000 5.400% due 4/15/2014, REMIC 261,853
154,313 6.750% due 7/15/2003, REMIC 154,361
231,362 9.000% due 5/15/2020, REMIC 232,302
---------
3,478,300
---------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $7,190,763) 7,192,027
U.S. TREASURY OBLIGATIONS-24.3%
U.S. Treasury Notes:
200,000 5.000% due 1/31/1998 198,437
1,355,000 7.750% due 12/31/1999 1,451,120
820,000 6.124% due 5/15/1998 830,762
200,000 5.000% due 2/15/1999 197,000
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,669,855) 2,677,319
REPURCHASE AGREEMENTS-27.3%
Repurchase agreement with Barclays de
Zoette Wedd, 5.45%, dated 2/29/96, due
3/1/96 (Collateralized by FNMA Strip,
par value of $1,569,009,
1,000,000 due 1/1/24, value of $1,020,000) 1,000,000
Repurchase agreement with Paine Webber,
5.45%, dated 2/29/96, due 3/1/96
(Collateralized by FNMA, par value
of $2,170,000,
2,009,000 due 2/1/96, value of $2,043,185 2,009,000
TOTAL REPURCHASE AGREEMENTS (Cost $3,009,000) 3,009,000
TOTAL INVESTMENTS (Cost $12,869,618)116.8% 12,878,346
OTHER ASSETS AND LIABILITIES (Net) (16.8%) (1,851,781)
-----------
NET ASSETS 100.0% $11,026,565
====== ===========
</TABLE>
See accompanying notes.
<PAGE>
THE SOLON FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Solon Short Duration Gov't Funds:
One Year Three Year
----------------- -------------
For The Year Ended For The Year Ended
Feb. 29 Feb. 28 Feb. 29 Feb.28
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net asset value
beginning of year $9.99 $10.00 $9.80 $10.00
Income from investment
operations
Net investment income 0.64 0.53 0.60 0.61
Net realized and unrealized
gain (loss) on investments 0.05 (0.02) 0.23 (0.22)
Total from investment
operations 0.69 0.51 0.83 0.39
Distributions
Dividends from net
investment income (0.65) (0.52) (0.59) (0.59)
Net asset value,
end of period $10.03 $9.99 $10.04 $9.80
Total Return 7.09% 5.21% 8.73% 4.08%
Ratios/Supplemental Data
Net assets end of period
($000) 398 145 11,027 7,065
Ratio of expenses to average
net assets:
Before expense reimbusement
of operating expenses 16.47% 27.89% 1.45% 1.18%
After expense reimbursement
of operating expenses 0.00% 0.00% 0.24% 0.15%
Interest expense - - 0.12% 0.04%
Ratio of net investment income
to average net assets 6.46% 5.74% 6.18% 6.21%
Portfolio Turnover Rate - - 251% 405%
Average Debt outstanding
during the period* - - 256115 75604
Average share outstanding
during the period* - - 901238 895472
Average debt per share
during the period* - - 0.28 0.08
* Average based upon amounts outstanding at each month end
</TABLE>
<PAGE>
THE SOLON FUNDS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
<TABLE>
<CAPTION>
Solon Short Duration
Government Funds:
<S> <C> <C>
One Year Three Year
-------- ----------
ASSETS
Investment in securities, at value
(Identified cost $390,378 and
$12,869,618 respectively) $390,668 $12,878,346
Cash 460 896
Receivables:
Interest 2,816 70,781
Paydown and other receivables 4,288 529,920
Prepaid expenses 1,662 1,662
-------- ----------
Total Assets 399,893 13,481,605
======= ==========
LIABILITIES
Investment securities purchased - 2,449,516
Payable to manager (Note 2) 1,662 3,114
Dividends payable 165 2,410
-------- ---------
Total Liabilities 1,827 2,455,040
-------- ---------
TOTAL ASSETS $398,066 $11,026,565
======== ===========
Net Assets consist of:
Capital shares $396,562 $10,997,114
Accumulated undistributed net
investment income 98 0
Accumulated net realized gain
on investment transactions 1,116 20,723
Net unrealized appreaciation of
investments (Note 3) 290 8,728
-------- ----------
NET ASSETS $398,066 $11,026,565
======== ===========
Net Asset Value,
per share $10.03 $10.04
Capital shares outstanding $.01 per
Unlimited number os shares authorized 39,690 1,098,140
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF OPERATIONS
For the Year Ended February 29, 1996
Solon Short Duration
Government Funds
<S> <C> <C>
One Year Three Year
INVESTMENT INCOME
Interest $17,194 $580,067
Expenses
Adviosry fee (Note 2) 663 22,213
Custodian fee 15,041 31,016
Directors fee & expenses (note 2) 4,500 4,500
Shareholder Services 3,657 30,810
Interest expense (note 4) 11,053
Legal fee 8,238 8,238
Audit expense 6,775 9,775
Insurance expense 3,699 3,699
Other 1,277 7,286
Total expenses 43,850 128,500
Expenses reimbursed by the manager (43,850) (96,217)
(note 2)
Total expenses 32,283
NET INVESTMENT INCOME 17,194 547,784
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain 872 158,024
Unrealized appreciation (Note 3) 445 14,016
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1,317 172,040
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS: $18,511 $719,824
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF OPERATIONS
For the Year Ended February 29, 1996
<S> <C> <C>
Solon Short Duration
Government Funds:
OneYear Three Year
INVESTMENT INCOME:
Interest $17,194 $580,067
Expenses:
Advisory fee (Note 2) 663 22,123
Custodian fee 15,041 31,016
Directors' fees & expenses (Note 2) 4,500 4,500
Shareholder Services 3,657 30,810
Interest expense (Note 4) - 11,053
Legal fee 8,238 8,238
Audit expense 6,775 9,775
Insurance expense 3,699 3,699
Other 1,277 7,286
------ ------
Total expenses 43,850 128,500
Expenses reimbursed by the manager
(Note 2) (43,850) (96,217)
-------- --------
Total expenses - 32,283
-------- --------
NET INVESTMENT INCOME 17,194 547,784
-------- --------
NET REALIZED AND UNREALIZED
GAIN ONINVESTMENTS:
Net realized gain 872 158,024
Unrealized appreciation (Note 3) 445 14,016
--------- ---------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS: 1,317 172,040
--------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS: $18,511 $719,824
========= ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Solon Short Duration Government Funds:
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income $17,194 $6,402 $547,784 $535,397
Net realized gain (loss) from
investemt transations 872 (44) 158,024 (167,698)
Net unrealized appreciation
(depriciation of investments
(note 3) 445 (155) 14,016 (5,288)
Net increase in net assets resulting
from operations 18,511 6,203 719,824 362,411
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (17,017) (6,192) (530,162) (522,622)
FROM CAPITAL SHARE TRANSACTIONS
Net increase in net assets from
captial share transaction (note 5) 251,905 144,656 3,772,091 7,225,023
NET INCREASE IN NET ASSETS 253,399 94,667 3,961,753 7,034,813
NET ASSETS
Beginning of the year 144,667 50,000 7,064,812 50,000
End of the year 398,066 144,667 11026,565 7,064,812
See accompanying notes
</TABLE>
<PAGE>
THE SOLON FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES:
a.ORGANIZATION. The Solon Funds are registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. As of February 29, 1996, The Solon Funds had two
series: Solon Short Duration Government Funds: One Year Portfolio (the
"One Year Portfolio") and Solon Short Duration Government Funds: Three
Year Portfolio (the "Three Year Portfolio") (each a "Fund" and
collectively the "Funds"). The Funds commenced operations on March 1,
1994. The costs of organization for the One Year Portfolio and the
Three Year Portfolio were assumed by Solon Asset Management, L.P. (the
"Manager").
b.SECURITY VALUATION. The Funds value portfolio securities at market
value, determined on the basis of last reported sales price, or if no
sales are reported, as is the case with most securities traded over the
counter, the mean between representative bid and asked quotations.
Short-term securities with maturities of 60 days or less are carried at
amortized cost, which approximates market value. Certain fixed income
securities for which market quotations are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees,
with reference to fixed income securities whose prices are more readily
obtainable and whose durations are comparable to the securities being
valued. Subject to the foregoing, other securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
c.REPURCHASE AGREEMENTS. Securities which collateralize repurchase
agreements are held on the Funds' behalf by the Funds' custodian. The
Manager is responsible for determining that the value of the collateral
remains at least equal to the carrying amount of the repurchase
agreement.
d. REVERSE REPURCHASE AGREEMENTS. The Funds maintain cash, U.S.
Government Securities, or other liquid high grade debt instruments
equal in value to the Funds' obligations in a segregated account with
the Funds' custodian.
e.SECURITIES TRANSACTIONS AND INVESTMENT INCOME.Security transactions
are accounted for as of trade date. Realized gains and losses are
determined on the specific identified cost basis. Interest income
includes amortization of discounts and premiums. Securities purchased
on a when-issued or delayed delivery basis may be settled a month or
more after the trade date. Such securities are included in the
portfolio and are subject to market fluctuations during the period. On
the date of the commitment to purchase or sell, the Funds designate
specific assets with a current value at least equal to the amount of
the commitment to be used for settling the commitment.
f.FEDERAL INCOME TAXES. The Funds comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distribute taxable income and net realized gains sufficient to relieve
each Fund from federal income, excise, and state income taxes.
g.DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are
recorded on the ex-dividend date. The Funds declare dividends daily and
pay them monthly. Distributions of any capital gains earned by a Fund are
distributed no less frequently than annually. Income and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
h.USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from such estimates.
2.MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
a.The Manager receives management fees at the annual rate of 0.25% of the
Fund's average net assets. The Manager performs administrative services
for the Funds for which the Manager receives compensation based upon an
annual rate of 0.07% of The Funds' average net assets. The Manager also
provides shareholder services to the Funds for annual fees of 0.25% of the
Fund's average net assets.
b.The Manager voluntarily agreed to absorb all the expenses of the One
Year Portfolio for the year ended February 29, 1996. The Manager
voluntarily agreed to limit the Three Year Portfolio's expenses, excluding
interest expense, to .24% of average net assets on an annual basis.
Reductions in fees are subject to recovery within the following three
years provided the Fund is able to effect such reimbursement and remain
in compliance with applicable expense limitations. Any of the Manager's
voluntary absorptions are also subject to recovery.
c.The Trust's Chairman and Chief Executive Officer is the sole "affiliated
person" as defined in the Investment Company Act. Each Trustee who is not
an "affiliated person" of the Trust receives an annual retainer of $1,000
and a $500 fee for each meeting attended, as well as reimbursement for
expenses.
3.SECURITIES TRANSACTIONS:
a.Securities transactions (excluding short term securities) for the year
ended February 29, 1996, for the Three Year Portfolio were as follows:
Purchases: $25,872,953
Sales: $20,758,573
THE SOLON FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
b.On February 29, 1996, the composition of unrealized appreciation and
depreciation for federal income tax purposes was as follows:
Tax Basis Tax Basis Net Unrealized
Unrealized Unrealized Appreciation
Appreciation Depreciation Depreciation
One Year Portfolio $669 ($379) $290
Three Year Portfolio $56,348 ($47,620) $8728
c.At February 29,1996, the cost of investments for Federal income tax
purposes was the same as the cost for financial reporting purposes.
4.SHORT TERM BORROWINGS
For the year ended February 29, 1996, the maximum borrowings by the Three
Year Portfolio under reverse repurchase agreements amounted to $1,327,625.
Interest rates ranged from 2.50% to 6.00% during the period.
5.TRANSACTIONS IN CAPITAL SHARES:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C
For The Year Ended
February 29,1996 February 28, 1995
One Year Portfolio Shares Amount Shares Amount
Shares Sold 24,084 $240,596 14,418 $144,079
Issued as Reinvestment
of Dividends 1,765 17,662 538 5,382
Shares Redeemed (635) (6,353) (481) (4,805)
Net increase 25,214 $251,90 14,476 $144,656
Three Year Portfolio Shares Amount Shares Amount
Shares sold 340,414 3,405,825 1,011126 10,054,133
Issued as Reinvestment
of Dividends 56,672 565,039 46,935 458,322
Shares Redeemed (19,715) (198,773) (337,292) (3,287,432)
Net increase 377,371 $3,772,091 720,769 $7,225,023
</TABLE>
THE SOLON FUNDS
<PAGE>
Appendix A - Description of Bond Ratings
Moody's Investors Service
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
a "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are unlikely to impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
Nonrated - where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonably up-to-date data to permit a judgment to be formed; if
a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa 1, A 1, Baa 1, Ba 1 and B 1.
Standard & Poor's Corporation
AAA. This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this capacity than for bonds in the A category.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-) - The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR. indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
Fitch Investor's Service
AAA. Bonds and notes rated AAA are regarded as being of the highest quality,
with the obligor having an extraordinary ability to pay interest and repay
principal which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds and notes rated AA are regarded as high quality obligations. The
obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA-rated securities, and more subject to possible
change over the term of the issue.
A. Bonds and notes rated A are regarded as being of good quality. The
obligor's ability to pay interest and repay principal is strong but may be
more vulnerable to adverse changes in economic conditions and circumstances
than bonds and notes with higher ratings.
BBB. Bonds and notes rated BBB are regarded as being of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds
with higher ratings.
Note: Fitch ratings may be modified by the addition of a plus (+) or a
minus (-) sign to show relative standing within the major rating categories.
These are refinements more closely reflecting strengths and weaknesses, and
are not to be used as trend indicators.
<PAGE>
____________________________________________________
PART C
OTHER INFORMATION
___________________________________________________
<PAGE>
THE SOLON FUNDS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Audited Statement of Net Assets at February 29, 1996 of
Solon Short Duration Government Funds: One Year Portfolio
and Solon Short Duration Government Funds: Three Year
Portfolio, together with the report of the independent
auditors, is contained in the Statement of Additional
Information.
(2) Audited Portfolios of Investments, Statement of Assets and
Liabilities, Statement of Operations, and Statement of
Changes in Net Assets at and for the fiscal year ended
February 29, 1996 are contained in the Statement of
Additional Information.
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust: incorporated by
reference to Registrant's Registration Statement as filed
with the Securities and Commission on October 27, 1993.
(1)(b) Certificate of Amendment of Agreement and Declaration of
Trust: incorporated by reference to Registrant's Registration
Statement as filed with the Securities and Commission on
January 25, 1994.
(1)(c) Certificates of Amendment of Agreement and Declaration of
Trust and Certificate of Trust: incorporated by reference to
Registrant's Registration Statement as filed with the
Securities and Commission on September 1, 1994.
(2) By-Laws: incorporated by reference to Registrant's
Registration Statement as filed with the
Securities and Exchange Commission on
October 27, 1993.
(3) Voting Trust Agreement - Not applicable
(4) Specimen Share Certificate - Not applicable
(5)(a) Investment Management Agreement
(5)(b) Subadvisory Agreement
(6) Underwriting Agreement
(7) Benefit Plan(s) - Not applicable
(8) Custodian Agreements: incorporated by reference to
Registrant's Registration Statement as filed with the
Securities and Commission on June 29, 1995.
(9)(a) Administrative Services Agreement
(9)(b) Services Agreement
(10) Consent of Counsel
(11) Consent of Independent Auditor
(12) Financial Statements omitted from Item 23 - see Item 24(a)
(13) Letter of Understanding re: Initial Shares: incorporated by
reference to Registrant's Registration Statement as filed
with the Securities and Commission on January 25, 1994.
(14) Model Retirement Plan Documents: incorporated by reference
to Registrant's Registration Statement as filed with the
Securities and Commission on June 29, 1995.
(15) Rule 12b-1 Plan - Not Applicable
(16) Performance Computation: incorporated by reference to
Registrant's Registration Statement as filed with the
Securities and Commission on September 1, 1994.
(17) Financial Data Schedules
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
Deborah Hicks Midanek, Chairman and Principal Executive Officer of the
Registrant, is also Chief Executive Officer of Solon Asset Management
Corporation, general partner of Solon Asset Management, L.P., and of Solon
Financial Services, Inc., general partner of Solon Financial Services, L.P.
Solon Asset Management, L.P., the investment manager for Solon Short
Duration Government Funds, is a Delaware limited partnership, the sole
general partner of which is Solon Asset Management Corporation, a
corporation owned and managed by Deborah Hicks Midanek, and James I.
Midanek. Roy W. Adams, Jr. also owns shares. Solon Asset Management
Corporation also is the Subadviser to Solon Short Duration Government Funds.
Solon Financial Services, L.P., which is in the process of registering as
a broker dealer and applying to become a member of the National Association
of Securities Dealers and is proposed to be the underwriter of the Solon
Short Duration Government Funds, is a Delaware limited partnership, the sole
general partner of which is Solon Financial Services, Inc., a corporation
owned and managed by Deborah Hicks Midanek and James I. Midanek. The sole
limited partner of Solon Financial Services, L.P. is Solon Asset Management,
L.P.
Item 26. Number of Holders of Securities
As of the date of this Post-Effective Amendment, shares of Solon
Short Duration Government Funds: One Year Portfolio and Solon Short Duration
Government Funds: Three Year Portfolio were held of record by four and
twelve persons, respectively.
Item 27. Indemnification
Article VII of the Agreement and Declaration of Trust empowers the
Trustees of the Trust, to the full extent permitted by law, to purchase with
Trust assets insurance for indemnification from liability and to pay for all
expenses reasonably incurred or paid or expected to be paid by a Trustee or
officer in connection with any claim, action, suit or proceeding in which
he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust
shall indemnify any person who was or is a party or is threatened to be made
a party to any proceeding by reason of the fact that such person is and
other amounts or was an agent of the Trust, against expenses, judgments,
fines, settlement and other amounts actually and reasonable incurred in
connection with such proceeding if that person acted in good faith and
reasonably believed his or her conduct to be in the best interests of the
Trust. Indemnification will not be provided in certain circumstances,
however, including instances of willful misfeasance, bad faith, gross
negligence, and reckless disregard of the duties involved in the conduct of
the particular office involved.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable in the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
Solon Asset Management, L.P., the investment manager for Solon Short
Duration Government Funds, is a Delaware limited partnership, the sole
general partner of which is Solon Asset Management Corporation, a
corporation owned and managed by Deborah Hicks Midanek, and James I.
Midanek. Roy W. Adams, Jr. also owns shares. Solon Asset Management
Corporation also is the Subadviser to Solon Short Duration Government Funds.
Solon Financial Services, L.P., which is in the process of registering as
a broker dealer and applying to become a member of the National Association
of Securities Dealers and is proposed to be the underwriter of the Solon
Short Duration Government Funds, is a Delaware limited partnership, the sole
general partner of which is Solon Financial Services, Inc., a corporation
owned and managed by Deborah Hicks Midanek and James I. Midanek. The sole
limited partner of Solon Financial Services, L.P. is Solon Asset Management,
L.P.
Item 29. Principal Underwriter.
(a) Although it has entered into an Underwriting Agreement with the
Trust, Solon Financial Services, L.P., as of the date of this
Post-Effective Amendment, does not yet act as a principal
underwriter, depositor, or investment adviser to the Trust or any
other investment companies.
(b) The following information is furnished with respect to the
officers and general officers/directors of Solon Financial
Services, Inc.:
Name and Principal Position and Offices Position and Offices
Business Address* with SFSI with Registrant
------------------ -------------------- -------------------
Deborah Hicks Midanek Chief Executive Officer Chairman of the
Director Board, Principal
Executive Officer
James I. Midanek Chief Investment Officer Principal Financial
Director Officer
* The principal business address of persons and entities listed is
c/o Solon Asset Management, L.P. 1981 N. Broadway, Suite 325,
Walnut Creek, California, 94596.
Item 30. Location of Accounts and Records.
The accounts, books, or other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 are kept by the
Registrant at 1981 N. Broadway, Suite 325, Walnut Creek, California 94596.
Item 31. Management Services.
There are no management-related service contracts not discussed
in Parts A and B.
Item 32. Undertakings.
(a) Registrant has undertaken to comply with Section 16(a) of the
Investment Company Act of 1940, as amended, which requires
the prompt convening of a meeting of shareholders to elect
trustees to fill existing vacancies in the Registrant's Board
of Trustees in the event that less than a majority of the
trustees have been elected to such position by shareholders.
Registrant has also undertaken promptly to call a meeting of
shareholders for the purpose of voting upon the question of
removal of any Trustee or Trustees when requested in writing
to do so by the record holders of not less than 10 percent
of the Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders in
accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940, as amended.
(b) All other undertakings of Registrant have been satisfied with
the filing of this Post-Effective Amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, and
State of California on the 28th day of June, 1996.
THE SOLON FUNDS
By: /s/Deborah Hicks Midanek*
________________________
Chairman & Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
/s/Deborah Hicks Midanek Principal Executive June 28, 1996
________________________ Officer, Principal Financial
Officer and Trustee
/s/Ronald W. Filante* Trustee June 28, 1996
________________________
/s/Katherine R. Griswold* Trustee June 28, 1996
________________________
* By: /s/Deborah Hicks Midanek
________________________
Attorney-in-Fact pursuant to Power of Attorney previously filed
<PAGE>
THE SOLON FUNDS
EXHIBIT(S)INDEX
Exhibit No. Document
- ----------- -------------------------------
(5)(a) Investment Management Agreement
(5)(b) Subadvisoty Agreement
(6) Underwriting Agreement
(9)(a) Administrative Services Agreement
(9) (b) Services Agreement
(10) Consent of Counsel
(11) Consent of Independent Auditor
(17) Financial Data Schedule
EXHIBIT (5)(a)
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the
28 day of February, 1996, by and between The Solon Funds, a Delaware
business trust (hereinafter called the "Trust"), on behalf of each series
of the Trust listed in Appendix A hereto, as such may be amended from time
to time (hereinafter referred to individually as a "Fund" and collectively
as the "Funds") and Solon Asset Management, L.P., a limited partnership
organized and existing under the laws of the State of Delaware (hereinafter
called the "Manager").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such under the Investment Company Act of 1940, as amended
(the "1940 Act");
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the
business of supplying investment advice, investment management and
administrative services, as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render advice and
services to the Funds pursuant to the terms and provisions of this
Agreement, and the Manager is interested in furnishing said advice and
services;
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be
legally bound hereby, mutually agree as follows:
1. Appointment of Manager. The Trust hereby employs the Manager
and the Manager hereby accepts such employment, to render investment advice
and management services with respect to the assets of the Funds for the
period and on the terms set forth in this Agreement, subject to the
supervision and direction of the Trust's Board of Trustees.
2. Duties of Manager.
(a) General Duties. The Manager shall act as investment
manager to the Funds and shall supervise investments of the Funds on behalf
of the Funds in accordance with the investment objectives, programs and
restrictions of the Funds as provided in the Trust's governing documents,
including, without limitation, the Trust's Agreement and Declaration of
Trust and By-Laws, or otherwise and such other limitations as the Trustees
may impose from time to time in writing to the Manager. Without limiting
the generality of the foregoing, the Manager shall: (i) furnish the Funds
with advice and recommendations with respect to the investment of each
Fund's assets and the purchase and sale of portfolio securities for the
Funds, including the taking of such other steps as may be necessary to
implement such advice and recommendations; (ii) furnish the Funds with
reports, statements and other data on securities, economic conditions and
other pertinent subjects which the Trust's Board of Trustees may reasonably
request; (iii) manage the investments of the Funds, subject to the ultimate
supervision and direction of the Trust's Board of Trustees; (iv) provide
persons satisfactory to the Trust's Board of Trustees to act as officers and
employees of the Trust and the Funds (such officers and employees, as well
as certain trustees, may be trustees, directors, officers, partners, or
employees of the Manager or its affiliates) but not including personnel to
provide administrative services to the Fund; and (v) render to the Trust's
Board of Trustees such periodic and special reports with respect to each
Fund's investment activities as the Board may reasonably request.
(b) Brokerage. The Manager shall place orders for the
purchase and sale of securities either directly with the issuer or with a
broker or dealer selected by the Manager. In placing each Fund's securities
trades, it is recognized that the Manager will give primary consideration
to securing the most favorable price and efficient execution, so that each
Fund's total cost or proceeds in each transaction will be the most favorable
under all the circumstances. Within the framework of this policy, the
Manager may consider the financial responsibility, research and investment
information, and other services provided by brokers or dealers who may
effect or be a party to any such transaction or other transactions to which
other clients of the Manager may be a party. It is understood that Solon
Securities, an affiliate of the Manager, may act as one of the Fund's
brokers in the purchase and sale of portfolio securities for the Funds,
consistent with the requirements of the 1940 Act.
It is also understood that it is desirable for the Funds that the
Manager have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood
that brokers providing such services may execute brokerage transactions at
a higher cost to the Funds than might result from the allocation of
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, the purchase and sale of securities for
the Funds may be made with brokers who provide such research and analysis,
subject to review by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of this practice to determine whether
each Fund benefits, directly or indirectly, from such practice. It is
understood by both parties that the Manager may select broker-dealers for
the execution of the Funds' portfolio transactions who provide research and
analysis as the Manager may lawfully and appropriately use in its investment
management and advisory capacities, whether or not such research and
analysis may also be useful to the Manager in connection with its services
to other clients.
On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of one or more of the Funds as well as
of other clients, the Manager, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage commissions and
the most efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and to
such other clients.
(c) Administrative Services. The Manager shall oversee the
administration of the Funds' business and affairs although the provision of
administrative services, to the extent not covered by subparagraphs (a) or
(b) above, is not the obligation of the Manager under this Agreement.
Notwithstanding any other provisions of this Agreement, the Manager shall
be entitled to reimbursement from the Funds for all or a portion of the
reasonable costs and expenses, including salary, associated with the
provision by Manager of personnel to render administrative services to the
Funds.
3. Best Efforts and Judgment. The Manager shall use its best
judgment and efforts in rendering the advice and services to the Funds as
contemplated by this Agreement.
4. Independent Contractor. The Manager shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized to do so, have no authority to
act for or represent the Trust or the Funds in any way, or in any way be
deemed an agent for the Trust or for the Funds. It is expressly understood
and agreed that the services to be rendered by the Manager to the Funds
under the provisions of this Agreement are not to be deemed exclusive, and
the Manager shall be free to render similar or different services to others
so long as its ability to render the services provided for in this Agreement
shall not be impaired thereby.
5. Manager's Personnel. The Manager shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with
such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without
limiting the generality of the foregoing, the staff and personnel of the
Manager shall be deemed to include persons employed or retained by the
Manager to furnish statistical information, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other
information, advice and assistance as the Manager or the Trust's Board of
Trustees may desire and reasonably request.
6. Reports by Funds to Manager. Each Fund will from time to
time furnish to the Manager detailed statements of its investments and
assets, and information as to its investment objective and needs, and will
make available to the Manager such financial reports, proxy statements,
legal and other information relating to each Fund's investments as may be
in its possession or available to it, together with such other information
as the Manager may reasonably request.
Expenses.
(a) With respect to the operation of each Fund, the Manager
is responsible for (i) the compensation of any of the Trust's trustees,
officers, and employees who are affiliates of the Manager (but not the
compensation of employees performing services in connection with expenses
which are the Fund's responsibility under Subparagraph 7(b) below), (ii) the
expenses of printing and distributing the Funds' prospectuses, statements
of additional information, and sales and advertising materials (but not the
legal, auditing or accounting fees attendant thereto) to prospective
investors (but not to existing shareholders), and (iii) providing office
space and equipment reasonably necessary for the operation of the Funds.
(b) Each Fund is responsible for and has assumed the
obligation for payment of all of its expenses, other than as stated in
Subparagraph 7(a) above, including but not limited to: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer,
receipt, safekeeping, servicing and accounting for the cash, securities and
other property of the Trust for the benefit of the Funds including all fees
and expenses of its custodian, shareholder services agent and accounting
services agent; interest charges on any borrowings; costs and expenses of
pricing and calculating its daily net asset value and of maintaining its
books of account required under the 1940 Act; taxes, if any; expenditures
in connection with meetings of each Fund's Shareholders and Board of
Trustees that are properly payable by the Fund; salaries and expenses of
officers and fees and expenses of members of the Trust's Board of Trustees
or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Manager; insurance premiums on
property or personnel of each Fund which inure to its benefit, including
liability and fidelity bond insurance; the cost of preparing and printing
reports, proxy statements, prospectuses and statements of additional
information of the Fund or other communications for distribution to existing
shareholders; legal, auditing and accounting fees; trade association dues;
fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining and servicing
shareholder accounts, including all charges for transfer, shareholder
recordkeeping, dividend disbursing, redemption, and other agents for the
benefit of the Funds, if any; and all other charges and costs of its
operation plus any extraordinary and non-recurring expenses, except as
herein otherwise prescribed.
(c) To the extent the Manager incurs any costs by assuming
expenses which are an obligation of a Fund as set forth herein, such Fund
shall promptly reimburse the Manager for such costs and expenses, except to
the extent the Manager has otherwise agreed to bear such expenses. To the
extent the services for which a Fund is obligated to pay are performed by
the Manager, the Manager shall be entitled to recover from such Fund to the
extent of the Manager's actual costs for providing such services.
8. Investment Advisory and Management Fee.
(a) Each Fund shall pay to the Manager, and the Manager
agrees to accept, as full compensation for all administrative and investment
management and advisory services furnished or provided to such Fund pursuant
to this Agreement, a management fee as set forth in the Fee Schedule
attached hereto as Appendix B, as may be amended in writing from time to
time by the Trust and the Manager.
(b) The management fee shall be accrued daily by each Fund
and paid to the Manager on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable
on the first business day of the first month following the effective date
of this Agreement and shall be prorated as set forth below. If this
Agreement is terminated prior to the end of any month, the fee to the
Manager shall be prorated for the portion of any month in which this
Agreement is in effect which is not a complete month according to the
proportion which the number of calendar days in the month during which the
Agreement is in effect bears to the number of calendar days in the month,
and shall be payable within ten (10) days after the date of termination.
(d) The fees payable to the Manager under this Agreement
will be reduced to the extent required under the most stringent expense
limitation applicable to a Fund imposed by any state in which shares of the
Funds are qualified for sale. The Manager may reduce any portion of the
compensation or reimbursement of expenses due to it pursuant to this
Agreement and may agree to make payments to limit the expenses which are the
responsibility of a Fund under this Agreement. Any such reduction or
payment shall be applicable only to such specific reduction or payment and
shall not constitute an agreement to reduce any future compensation or
reimbursement due to the Manager hereunder or to continue future payments.
Any such reduction will be agreed to prior to accrual of the related expense
or fee and will be estimated daily and reconciled and paid on a monthly
basis. Any fee withheld pursuant to this paragraph from the Manager shall
be reimbursed by the appropriate Fund to the Manager in the first, second
or third (or any combination thereof) fiscal year next succeeding the fiscal
year of the withholding to the extent permitted by the applicable state law
if the aggregate expenses for the next succeeding fiscal year, second
succeeding fiscal year or third succeeding fiscal year do not exceed the
applicable state limitation or any more restrictive limitation to which the
Manager has agreed.
(e) The Manager may agree not to require payment of any
portion of the compensation or reimbursement of expenses otherwise due to
it pursuant to this Agreement prior to the time such compensation or
reimbursement has accrued as a liability of the Fund. Any such agreement
shall be applicable only with respect to the specific items covered thereby
and shall not constitute an agreement not to require payment of any future
compensation or reimbursement due to the Manager hereunder.
9. Fund Share Activities of Managers, Partners, Officers, and
Employees. The Manager agrees that neither it nor any of its partners,
officers or employees shall take any short position in the shares of the
Funds. This prohibition shall not prevent the purchase of such shares by
any of the officers and partners or bona fide employees of the Manager or
any trust, pension, profit-sharing or other benefit plan for such persons
or affiliates thereof, at a price not less than the net asset value thereof
at the time of purchase, as allowed pursuant to rules promulgated under the
1940 Act.
10. Conflicts with Trust's Governing Documents and Applicable
Laws. Nothing herein contained shall be deemed to require the Trust or the
Funds to take any action contrary to the Trust's Agreement and Declaration
of Trust, By-Laws, or any applicable statute or regulation, or to relieve
or deprive the Board of Trustees of the Trust of its responsibility for and
control of the conduct of the affairs of the Trust and Funds.
11. Manager's Liabilities.
(a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on
the part of the Manager, the Manager shall not be subject to liability to
the Trust or the Funds or to any shareholder of the Funds for any act or
omission in the course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase, holding or sale of
any security by the Funds.
(b) The Funds shall indemnify and hold harmless the Manager,
its general partner and the shareholders, directors, officers and employees
of each of them (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith)
arising out of the Indemnified Party's performance or non-performance of any
duties under this Agreement provided, however, that nothing herein shall be
deemed to protect any Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder
or by reason of reckless disregard of obligations and duties under this
Agreement.
(b) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or partner or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940
Act.
12. Non-Exclusivity. The Trust's employment of the Manager is
not an exclusive arrangement, and the Trust may from time to time employ
other individuals or entities to furnish it with the services provided for
herein. In the event this Agreement is terminated with respect to any Fund,
this Agreement shall remain in full force and effect with respect to all
other Funds listed on Appendix A hereto, as the same may be amended.
13. Term. This Agreement shall become effective at the time the
Trust's initial Registration Statement under the Securities Act of 1933 with
respect to the shares of the Trust is declared effective by the Securities
and Exchange Commission and shall remain in effect for a period of two (2)
years, unless sooner terminated as hereinafter provided. This Agreement
shall continue in effect thereafter for additional periods not exceeding one
(l) year so long as such continuation is approved for each Fund at least
annually by (i) the Board of Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of each Fund and (ii) the vote
of a majority of the Trustees of the Trust who are not parties to this
Agreement nor interested persons thereof, cast in person at a meeting called
for the purpose of voting on such approval.
14. Termination. This Agreement may be terminated by the Trust
on behalf of any one or more of the Funds at any time without payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of a Fund, upon sixty (60) days' written
notice to the Manager, and by the Manager upon sixty (60) days' written
notice to a Fund.
15. Termination by Assignment. This Agreement shall terminate
automatically in the event of any transfer or assignment thereof, as defined
in the 1940 Act.
16. Transfer, Assignment. This Agreement may not be transferred,
assigned, sold or in any manner hypothecated or pledged without the
affirmative vote or written consent of the holders of a majority of the
outstanding voting securities of each Fund.
17. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute or rule, or shall be
otherwise rendered invalid, the remainder of this Agreement shall not be
affected thereby.
18. Definitions. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth
in the 1940 Act.
19. Notice of Declaration of Trust. The Manager agrees that the
Trust's obligations under this Agreement shall be limited to the Funds and
to their assets, and that the Manager shall not seek satisfaction of any
such obligation from the shareholders of the Funds nor from any trustee,
officer, employee or agent of the Trust or the Funds.
20. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
21. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without
giving effect to the conflict of laws principles thereof; provided that
nothing herein shall be construed to preempt, or to be inconsistent with,
any federal law, regulation or rule, including the 1940 Act and the
Investment Advisors Act of 1940 and any rules and regulations promulgated
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, all on the day
and year first above written.
The Solon Funds
By: /S/Laura Manning Shoaf
______________________
Secretary
Solon Asset Management, L.P.
By: /s/Deborah Hicks Midanek
________________________
Chief Executive Officer
EXHIBIT (5)(b)
SUBADVISORY AGREEMENT
(The Solon Funds)
THIS SUBADVISORY AGREEMENT made as of the 28th day of February, 1996,
by and between Solon Asset Management, L.P., a limited partnership organized
and existing under the laws of the State of Delaware (hereinafter called the
"Manager") and Solon Asset Management Corporation, a New York corporation
(hereinafter called the "Subadviser").
WITNESSETH:
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is
engaged in the business of supplying investment advice, investment
management and administrative services, as an independent contractor; and
WHEREAS, the Subadviser is registered as an investment adviser under the
Advisers Act and is engaged in the business of supplying investment advice
and investment management, as an independent contractor; and
WHEREAS, The Solon Funds, a Delaware business trust (hereinafter called
the "Trust"), is an open-end management investment company, registered as
such under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Manager desires to retain the Subadviser to render advice
and services to the Manager with respect to each series of the Trust, as
listed in Appendix A hereto, as such may be amended from time to time
(hereinafter referred to individually as a "Fund" and collectively as the
"Funds") pursuant to the terms and provisions of this Agreement, and the
Subadviser is interested in furnishing said advice and services;
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. Appointment of Subadviser. The Manager hereby employs the
Subadviser and the Subadviser hereby accepts such employment, to render
investment advice to the Manager with respect to the assets of the Funds for
the period and on the terms set forth in this Agreement, subject to the
overall supervision and direction of the Trust's Board of Trustees.
2. Duties of Subadviser.
(a) General Duties. The Subadviser shall act as investment
adviser to the Manager and shall supervise investments of the Funds in
accordance with the investment objectives, programs and restrictions of the
Funds as provided in the Trust's governing documents, including without
limitation the Trust's Agreement and Declaration of Trust and By-Laws, or
otherwise and such other limitations as the Trustees may impose from time
to time in writing to the Manager and the Subadviser. Without limiting the
generality of the foregoing, the Subadviser shall: (i) furnish the Funds
with advice and recommendations with respect to the investment of each
Fund's assets and the purchase and sale of portfolio securities for the
Funds, including without limitation taking such other steps as may be
necessary to implement such advice and recommendations; (ii) furnish the
Funds with reports, statements and other data on securities, economic
conditions and other pertinent subjects which the Trust's Board of Trustees
may reasonably request; (iii) manage the investments of the Funds, subject
to the ultimate supervision and direction of the Trust's Board of Trustees;
and (iv) render to the Trust's Board of Trustees such periodic and special
reports with respect to each Fund's investment activities as the Board may
reasonably request.
(b) Brokerage. The Subadviser shall place orders for the
purchase and sale of securities either directly with the issuer or with a
broker or dealer selected by the Subadviser. In placing each Fund's
securities trades, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient execution,
so that each Fund's total cost or proceeds in each transaction will be the
most favorable under all the circumstances. Within the framework of this
policy, the Subadviser may consider the financial responsibility, research
and investment information, and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which other clients of the Subadviser may be a party. It
is understood that Solon Financial Services, L.P., an affiliate of the
Subadviser and of the Manager, may act as one of the Fund's brokers in the
purchase and sale of portfolio securities for the Funds, consistent with the
requirements of the 1940 Act.
It is also understood that it is desirable for the Funds that the
Subadviser have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood
that brokers providing such services may execute brokerage transactions at
a higher cost to the Funds than might result from the allocation of
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, the purchase and sale of securities for
the Funds may be made with brokers who provide such research and analysis,
subject to review by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of this practice to determine whether
each Fund benefits, directly or indirectly, from such practice. It is
understood by both parties that the Subadviser may select broker-dealers for
the execution of the Funds' portfolio transactions who provide research and
analysis as the Subadviser may lawfully and appropriately use in its
investment management and advisory capacities, whether or not such research
and analysis may also be useful to the Subadviser in connection with its
services to other clients.
On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of one or more of the Funds as well as
of other clients, the Subadviser, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage commissions and
the most efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and to
such other clients.
3. Best Efforts and Judgment. The Subadviser shall use its best
judgment and efforts in rendering the advice and services to the Funds as
contemplated by this Agreement.
4. Independent Contractor. The Subadviser shall, for all
purposes herein, be deemed to be an independent contractor, and shall,
unless otherwise expressly provided and authorized to do so, have no
authority to act for or represent the Trust, the Funds or the Manager in any
way, or in any way be deemed an agent for the Trust, the Funds or the
Manager. It is expressly understood and agreed that the services to be
rendered by the Subadviser to the Manager and the Funds under the provisions
of this Agreement are not to be deemed exclusive, and the Subadviser shall
be free to render similar or different services to others so long as its
ability to render the services provided for in this Agreement shall not be
impaired thereby.
5. Subadviser's Personnel. The Subadviser shall, at its own
expense, maintain such staff and employ or retain such personnel and consult
with such other persons as it shall from time to time determine to be
necessary to the performance of its obligations under this Agreement.
Without limiting the generality of the foregoing, the staff and personnel
of the Subadviser shall be deemed to include persons employed or retained
by the Subadviser to furnish statistical information, research, and other
factual information, advice regarding economic factors and trends,
information with respect to technical and scientific developments, and such
other information, advice and assistance as the Manager or the Trust's Board
of Trustees may desire and reasonably request.
6. Reports by Funds to Manager. Each Fund will from time to
time furnish to the Manager and the Manager will furnish to the Subadviser
detailed statements of its investments and assets, and information as to its
investment objective and needs, and will make available to the Manager and
the Subadviser such financial reports, proxy statements, legal and other
information relating to each Fund's investments as may be in its possession
or available to it, together with such other information as the Subadviser
may reasonably request.
7. Expenses. The Subadvisor shall receive no compensation for
its investment management and advisory services other than reimbursement for
its costs and expenses, including without limitation costs of personnel and
overhead. To the extent the Subadviser incurs any costs by assuming
expenses that are an obligation of a Fund or the Manager as set forth in the
Investment Management Agreement dated as of February 28, 1994, between the
Trust and the Manager, such Fund or the Manager shall promptly reimburse the
Subadviser for such costs and expenses, except to the extent the Subadviser
has otherwise agreed to bear such expenses. To the extent the services for
which a Fund is obligated to pay are performed by the Subadviser (other than
pursuant to a written agreement approved by the Board of Trustees, including
without limitation a majority of the Trustees who are neither parties to the
agreement nor interested person of th Trust), the Subadviser shall be
entitled to recover from such Fund to the extent of the Subadviser's actual
costs for providing such services.
8. Fund Share Activities of Managers, Partners, Officers, and
Employees. The Subadviser agrees that neither it nor any of its partners,
officers or employees shall take any short position in the shares of the
Funds. This prohibition shall not prevent the purchase of such shares by
any of the officers and partners or bona fide employees of the Subadviser
or any trust, pension, profit-sharing or other benefit plan for such persons
or affiliates thereof, at a price not less than the net asset value thereof
at the time of purchase, as allowed pursuant to rules promulgated under the
1940 Act.
9. Conflicts with Trust's Governing Documents and Applicable
Laws. Nothing herein contained shall be deemed to require the Trust or the
Funds to take any action contrary to the Trust's Agreement and Declaration
of Trust, By-Laws, or any applicable statute or regulation, or to relieve
or deprive the Board of Trustees of the Trust of its responsibility for and
control of the conduct of the affairs of the Trust and Funds.
10. Subadviser's Liabilities.
(a) In the absence of willful misconduct, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on
the part of the Subadviser, the Subadviser shall not be subject to liability
to the Manager or to the Trust or the Funds or to any shareholder of the
Funds for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security by the Funds.
(b) Each of the Funds and the Manager shall indemnify and
hold harmless the Subadviser, its shareholders, directors, officers and
employees (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including without limitation the
reasonable cost of investigating and defending any alleged loss, liability,
claim, damage or expenses and reasonable counsel fees incurred in connection
therewith) arising out of the Indemnified Party's performance or
non-performance of any duties under this Agreement provided, however, that
nothing herein shall be deemed to protect any Indemnified Party against any
liability to which such Indemnified Party would otherwise be subject by
reason of willful misconduct, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and
duties under this Agreement.
(c) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or partner or officer of the
Subadviser, from liability in violation of Sections 17(h) and (i) of the
1940 Act.
11. Non-Exclusivity. The Manager's employment of the Subadviser
is not an exclusive arrangement, and each Fund and the Manager may from time
to time employ other individuals or entities to furnish it with the services
provided for herein. If this Agreement is terminated with respect to any
Fund, this Agreement shall remain in full force and effect with respect to
all other Funds listed on Appendix A hereto, as the same may be amended.
12. Term. This Agreement shall become effective at the time the
Trust's initial Registration Statement under the Securities Act of 1933 with
respect to the shares of the Trust is declared effective by the Securities
and Exchange Commission and shall remain in effect for a period of two (2)
years, unless sooner terminated as hereinafter provided. This Agreement
shall continue in effect thereafter for additional periods not exceeding one
(l) year so long as such continuation is approved for each Fund at least
annually by the Manager and (i) the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of each Fund and
(ii) the vote of a majority of the Trustees of the Trust who are not parties
to this Agreement nor interested persons thereof, cast in person at a
meeting called for the purpose of voting on such approval.
13. Termination. This Agreement may be terminated by the Trust
or the Manager on behalf of any one or more of the Funds at any time without
payment of any penalty, by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of a Fund or by the Manager,
upon sixty (60) days' written notice to the Subadviser, and by the
Subadviser upon sixty (60) days' written notice to the Manager.
14. Termination by Assignment. This Agreement shall terminate
automatically in the event of any transfer or assignment thereof, as defined
in the 1940 Act.
15. Transfer, Assignment. This Agreement may not be transferred,
assigned, sold or in any manner hypothecated or pledged without the written
consent of the Manager and the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of each Fund.
16. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute or rule, or shall be
otherwise rendered invalid, the remainder of this Agreement shall not be
affected thereby.
17. Definitions. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth
in the 1940 Act.
18. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
19. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without
giving effect to the conflict of laws principles thereof; provided that
nothing herein shall be construed to preempt, or to be inconsistent with,
any federal law, regulation or rule, including without limitation the 1940
Act and the Investment Advisors Act of 1940 and any rules and regulations
promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers, all on the
day and year first above written.
SOLON ASSET MANAGEMENT, L.P.
By Solon Asset Management Corporation,
General Partner
By: /s/Deborah Hicks Midanek
________________________
Chief Executive Officer
SOLON ASSET MANAGEMENT CORPORATION
By: /s/Deborah Hicks Midanek
Chief Executive Officer
<PAGE>
SOLON ASSET MANAGEMENT, L.P.
SUBADVISORY AGREEMENT - EXHIBIT A
The Solon Funds - Schedule of Funds
As of January 24, 1996
FUND
____
Solon Short Duration Government Funds: One Year Portfolio
Solon Short Duration Government Funds: Three Year Portfolio
EXHIBIT 6
UNDERWRITING AGREEMENT
THE SOLON FUNDS
1981 North Broadway, Suite 325
Walnut Creek, California 94596
February 28, 1996
Solon Financial Services, L.P.
1981 N. Broadway, Suite 325
Walnut Creek, CA 94596
Re: Underwriting Agreement
Ladies and Gentlemen:
We are a Delaware business trust operating as an open-end management
investment company (hereinafter referred to as the "Trust"). As such,
the Trust is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and its shares are or will be registered under
the Securities Act of 1933, as amended (the "1933 Act"). Each series of
shares of beneficial interest (individually a "Fund" and collectively the
"Funds") authorized for issuance by the Trust and for sale pursuant to
this Agreement is listed in Appendix "A" hereto, as such Appendix may be
amended from time to time. Each series constitutes a distinct and
separate investment portfolio for shareholders of such shares. We desire
to offer and sell Shares of the Funds (the "Shares") to the public in
accordance with the applicable federal and state securities laws.
A registration statement on Form N-1A (as amended from time to time,
the "Registration Statement") has been filed with the Securities and
Exchange Commission ("SEC") with respect to the shares we currently
desire to be offered and sold, and such Registration Statement with
respect to such Shares has been, or shortly will be, declared effective
under the 1933 Act and 1940 Act by the SEC. The Registration Statement
contains a form of prospectus and statement of additional information
which, in the form such documents have been or will be filed with the SEC
pursuant to Rule 497 under the 1933 Act, are referred to herein as (the
"Prospectus") and (the "Statement of Additional Information"). The
Prospectus and Statement of Additional Information for each Fund are
intended to be the primary documents used in the offer and sale of Shares
of such Fund.
You have indicated your desire to act as the exclusive selling agent
and principal distributor for Shares of each Fund. You have informed us
that your company is in the process of becoming registered as a
broker-dealer under the provisions of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is in the process of becoming a
member of the National Association of Securities Dealers, Inc. (the
"NASD") We have been authorized to execute and deliver this Agreement to
you on behalf of each Fund by consent of our Trustees, given at a meeting
at which a majority of our Trustees, including a majority of our Trustees
who are not otherwise interested persons of the Trust and who are not
interested persons of your company, were present and voted in favor of
the consent approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. In consideration of the agreements
on your part herein expressed and upon the terms and conditions set forth
herein and in our Registration Statement, as it will be amended from time
to time, we hereby appoint you, effective upon both your registration as
a broker-dealer under the provisions of the 1934 Act and your becoming a
member of the NASD (the "Effective Time"), as the exclusive sales agent
for the Shares of the Funds and agree that we will deliver such Shares as
you may sell. You agree to use your best efforts to promote the sale of
Shares of the Funds, but are not obligated to sell any specific number of
Shares. Until the Effective Time, we will sell the Shares of the Funds.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind us by your actions, conduct or
contracts except that you are authorized to accept orders for the
purchase or repurchase of the Shares as our agent. You may appoint
sub-agents or distribute through dealers (pursuant to an agreement
approved by us), your own sales representatives or otherwise as you may
determine from time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase of Shares of the Funds on our behalf or otherwise act as our
agent for any purpose.
3. PUBLIC OFFERING. The Shares of each Fund shall be offered for
sale to the public at (i) a price equal to their respective net asset
value per Share (without a sales load), or (ii) at a public offering
price that includes the applicable sales load, if any, as set forth in
the then current Prospectus of such Fund. On each business day that the
New York Stock Exchange is open for business (except for Funds that do
not determine net asset values on national bank holidays), we will
furnish you with the net asset value of the Shares, which shall be
determined and become effective on that day as set forth in the then
current effective Prospectus of each Fund. The net asset value so
determined shall apply to all orders for the purchase of our Shares
received by dealers and you prior to such determination, and you are
authorized as our agent to accept orders and confirm sales at such net
asset value plus your sales commission as may be applicable, provided
that such dealers notify you of the time when they received the
particular order and that the order is placed with you prior to 4:00 p.m.
on the day that the applicable net asset value is determined. To the
extent that we (or our transfer agent, if we appoint one or more such
agents in the future) or the custodian for the Funds receives payments on
behalf of investors, we (or such agent) shall be required to record the
time of such receipt with respect to each payment, and the applicable net
asset value and public offering price shall be that which is next
determined and effective after the time of receipt by them. In all
events, you shall forthwith notify all of the dealers comprising your
selling group (and any such agent) of the effective net asset value as
received from us. Should we at any time calculate the net asset value
more frequently than once each business day, you and we will follow
procedures with respect to such additional price or prices comparable to
those set forth above in this Section 3.
4. SALES LOAD OR COMMISSION. You shall be entitled to charge a
sales commission on the sale of the Shares of each Fund in the amount set
forth in the then current effective Prospectus for such Fund. Such
commission (subject to any quantity or other discounts or eliminations of
commission as set forth in the Fund's then current effective Prospectus)
shall be an amount mutually agreed upon between us and equal to the
difference between the net asset value and the public offering price of
the Shares. You may allow such sub-agents or dealers such commissions or
discounts, including payments exceeding the total sales commission, as
you shall deem advisable so long as any such commissions or discounts are
set forth in the then current effective Prospectus of such Fund to the
extent required by all applicable securities laws. Unless otherwise
agreed to as provided herein, Shares will be offered at net asset value
without any sales load.
5. PAYMENT FOR SHARES. At or prior to the time of delivery of any
of the Shares, you will pay or cause to be paid to the Fund's custodian,
for the applicable Fund's account, an amount in cash equal to the net
asset value of such Shares. In the event that you pay for Shares sold by
you prior to your receipt of payment from purchasers, you are authorized
to reimburse yourself for the net asset value of such Shares when
received by you.
6. TRANSFER AGENT REGISTRATION OF SHARES. No Shares of any Fund
shall be registered on the books of such Fund until (i) receipt by us of
your written request therefor; (ii) receipt by us (or the Fund's transfer
agent) of a certificate signed by an officer of the Trust stating the
amount to be received therefor; and (iii) receipt of payment of that
amount by the Fund's custodian. We will provide for the recording of all
Shares purchased in uncertificated form in "book accounts." Share
certificates will not be issued.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase the
Shares for your own account for purposes of resale to the public, but you
may purchase shares for your own investment account upon written
assurance that the purchase is for investment purposes only and that the
Shares will not be resold except through redemption by us.
8. FURNISHING AND USE OF INFORMATION. We will furnish to you such
information with respect to each Fund and its Shares, in such form and
signed by such of our officers as you may reasonably request, and we
warrant that the statements therein contained when so signed will be true
and correct. We will also furnish you with such information and will
take such action as you may reasonably request in order to qualify the
Shares for sale to the public under the securities laws of jurisdictions
in which you may wish to offer them. We will furnish you at least
annually with audited financial statements of our books and accounts
certified by independent public accountants, and, from time to time, with
such additional information regarding our financial condition as you may
reasonably request. We or each Fund's investment manager will furnish
you with as many copies of each Fund's current Prospectus, Statement of
Additional Information and Annual and Semi-Annual Reports to Shareholders
as you shall reasonably request; we hereby undertake that each such
Prospectus, Statement of Additional Information and Annual and
Semi-Annual Report to Shareholders will be current, accurate and complete
in all material respects and that any supplements to or revised versions
of a Prospectus or Statement of Additional Information will be promptly
furnished to you. You agree that, in distributing a Fund's Shares, you
will only use the most current versions of the Prospectus and Statement
of Additional Information, and the most current Annual and Semi-Annual
Reports to Shareholders, each as supplied, supplemented or revised by us.
9. MARKETING MATERIALS. Other than each Fund's current Prospectus,
Statement of Additional Information, and Annual and Semi-Annual Report to
Shareholders, you will not disseminate to the public any information
about a Fund without prior approval. You agree that all advertising,
sales, and marketing materials or other statements about a Fund that are
disseminated to the public will conform to the requirements of all
applicable securities laws and regulations and will be or will have been
filed, where necessary, with the appropriate regulatory authorities. We
must approve all such marketing materials prior to use and no such
materials shall be published or distributed if we shall reasonably and
promptly object.
10. CONDUCT OF BUSINESS. You shall comply with the applicable
securities laws and regulations of the jurisdiction where the Shares are
offered for sale and conduct your affairs with us and with dealers,
brokers or investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
11. ALLOCATION OF EXPENSES.
(a) We or each Fund's investment manager will pay all
expenses which are typically associated with the operation of our
business and the business of the Fund including, without limitation, (i)
all costs associated with the preparation, printing and distribution of
current Prospectuses, Statements of Additional Information, Annual and
Semi-Annual Reports to Shareholders and any marketing materials relating
to the Funds (except such materials as you shall separately request and
agree to pay for) and (ii) the filing and other fees to federal, state
and other securities regulatory authorities necessary to register and
maintain registration of the Shares.
(b) You will be responsible for (i) the costs of
preparing, printing, filing and distributing marketing materials which
you specifically request and wish to use in distributing a Fund's Shares,
which materials are in addition to any advertising, sales and marketing
materials made available to you by each Fund's investment manager, (ii)
the costs and fees associated with filing of copies of all advertising,
sales and marketing material used by you with respect to a Fund with the
appropriate federal, state and securities regulatory authorities and
obtain the approval of the appropriate regulatory authorities of such
marketing materials if any such approval is required, and (iii) all costs
incurred by you in carrying out your responsibilities under this
Agreement.
12. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services
and act as an underwriter, distributor or dealer for other investment
companies in the offering of their shares.
13. TERM OF AGREEMENT. This Agreement shall become effective on
the date of its execution written below and shall remain in effect for a
period of one (1) year from the date of its execution. This Agreement
shall continue thereafter for periods not exceeding one (1) year if
approved at least annually (i) by a vote of a majority of the outstanding
voting securities of each Fund or by a vote of the Trustees of the Trust,
and (ii) by a vote of a majority of the Trustees of the Trust who are not
interested persons or parties to this Agreement (other than as Trustees
of the Trust), cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement: (i) may at any time be terminated without the
payment of any penalty, either by vote of the Trustees of the Trust or by
a vote of a majority of the outstanding voting securities of each Fund
with respect to such Fund, on sixty (60) days' written notice to you;
(ii) shall immediately terminate in the event of its assignment; and
(iii) may be terminated by you on sixty (60) days' written notice to us
with respect to any Fund.
14. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of the Shares upon written notice to
you and to reject any order for the purchase of the Shares in whole or in
part.
15. LIABILITY. Nothing herein shall be deemed to protect you
against any liability to us or to our securities holders to which you
would otherwise be subject by reason of your willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or
by reason of your reckless disregard of your obligations and duties
hereunder.
16. INDEMNIFICATION. We agree to indemnify and hold you harmless
from and against any and all losses, claims, damages or liabilities to
which you may become subject under the 1933 Act, the 1940 Act or any
state securities statute, and to reimburse you for any legal or other
expenses reasonably incurred by you in connection with any claim or
litigation, whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities, or litigation arise out of or are
based upon any untrue statement or omission or alleged untrue statement
or omission of a material fact contained in the Registration Statement of
the Trust; provided, however, that this indemnity shall not apply to any
such losses, claims, damages, liabilities, or litigation arising out of
or based upon any untrue statement or omission or alleged untrue
statement or omission of a material fact contained in the Registration
Statement, which statement or omission was made in reliance upon
information furnished to us by you for inclusion in the Registration
Statement.
You agree to indemnify and hold us harmless from and against any and
all losses, claims, damage or liabilities to which we may become subject
under the 1933 Act, the 1940 Act or any state securities statute, and
reimburse us for any legal or other expenses reasonably incurred by us in
connection with any claim or litigation, whether or not resulting in any
liability, insofar as such losses, claims, damages, liabilities, or
litigation arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission of a material fact
contained in the Registration Statement; provided, however, that this
indemnity shall not apply to any such losses, claims, damages,
liabilities, or litigation arising out of or based upon any untrue
statement or omission or alleged untrue statement or omission or a
material fact contained in the Registration Statement, where such
statement or omission was not made in reliance upon information furnished
to us by you for inclusion in the Registration Statement.
17. DISCLAIMER OF LIABILITY. You acknowledge that you have
received notice of and accept the limitations on the Trust's liability
set forth in its Agreement and Declaration of Trust, as amended from
time to time. In accordance therewith, you agree that the Trust's
obligations hereunder shall be limited to each Fund and the assets of
each Fund, and no party shall seek satisfaction of any such obligation
from any shareholders of the Trust, nor from any Trustee, officer,
employee or agent of the Trust.
18. MISCELLANEOUS. This Agreement shall be subject to the laws of
the State of California and shall be interpreted and construed to further
and promote the operation of the Trust as an open-end investment company.
As used herein the terms "net asset value," "offering price," "investment
company," "open-end investment company," "assignment," "principal
underwriter," "interested person," "parents," and "majority of the
outstanding voting securities," shall have the meanings set forth in the
1933 Act and the 1940 Act and the Rules and Regulations thereunder.
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed counterparts hereof and
returning two such counterparts to us, whereupon this shall constitute a
binding agreement as of the date first above written.
Very truly yours,
THE SOLON FUNDS on behalf of the Funds
set forth in Appendix A (as may be amended)
By: /s/Laura Manning Shoaf
______________________
Secretary
Agreed to and accepted:
SOLON FINANCIAL SERVICES, L.P.
By: /s/Deborah Hicks Midanek
________________________
Chief Executive Officer
<PAGE>
APPENDIX A
SERIES SUBJECT TO UNDERWRITING AGREEMENT
(The Solon Funds)
As of January 24, 1996
1. Solon Short Duration Government Funds: One Year Portfolio
2. Solon Short Duration Government Funds: Three Year Portfolio
EXHIBIT 9(a)
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as of
February 28, 1996, by and between Solon Asset Management, L.P., a
Delaware limited partnership (the "Administrator") and The Solon Funds, a
Delaware business trust (the "Trust").
W I T N E S S E T H:
WHEREAS, the Trust wishes to retain the Administrator to provide certain
administrative services with respect to each portfolio managed by the
Administrator for a series of the Trust (each a "Fund" and collectively,
the "Funds"), and the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Administrator to
provide certain administrative services required by the Trust for each
Fund for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to furnish the services
herein set forth in return for the compensation as provided in Paragraph
3 of this Agreement. If the Trust decides to modify the Administrator's
duties hereunder with respect to one or more Fund, the Trust shall notify
the Administrator in writing.
2. Services and Duties. Subject to the control of the Trust and
the oversight of the Trust's Board of Trustees, the Administrator
undertakes to perform the following types of services:
(a) Performance measurement and analytics, including
without limitation furnishing performance data, statistical data and
research data;
(b) Tax and treasury services, including without
limitation preparing and filing various reports (including without
limitation tax returns) or other documents required by federal, state and
other applicable laws and regulations other than those required to be
filed by the Trust's custodian or investment manager;
(c) Management of printing, including without limitation
assisting in the preparation and printing of all documents, prospectuses
and reports sent to shareholders;
(d) Financial reporting and assisting in the preparation
of financial statements;
(e) At the request of the Trust, assisting in the
preparation of all agendas, notices and minutes for meetings of the
Trust's Board of Trustees or shareholders; assisting in the preparation
of all resolutions to be voted upon by the Board of Trustees; assisting
in the preparation of supporting information for such meetings with
regard to the duties of the Administrator under this Agreement, and
collection and distribution of supporting information for such meetings
with respect to the duties performed by other persons who provide
services to the Trust;
(f) At the request of the Trust, developing and
monitoring compliance procedures for each Fund concerning, among other
matters, adherence of each Fund to its investment objectives, policies,
restrictions, tax matters and applicable laws and regulations;
(g) Blue sky monitoring;
(h) operating the Trust's transfer agency software;
and
(h) management of legal services.
The Administrator's duties hereunder shall not include acting
as Trust accountant, pricing any Fund's portfolio, or acting as
shareholder servicing agent.
In performing its duties under this Agreement, the
Administrator will (i) act in accordance with the Trust's Agreement and
Declaration of Trust and all amendments thereto (the "Declaration of
Trust"), the Trust's By-Laws, the effective prospectuses and statements
of additional information of the Trust and with the instructions and
directions of the Trust, (ii) conform to and comply with the requirements
of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and all other applicable federal or state laws and
regulations, and (iii) consult with legal counsel to the Trust, as
necessary and appropriate. The Trust will furnish the Administrator from
time to time with copies of any documents that the Administrator may
reasonably request and that are necessary for it to perform its
obligations and duties under this Agreement and will notify the
Administrator as soon as possible of any matter materially affecting the
performance by the Administrator of its services under this Agreement.
3. Compensation and Allocation of Expenses.
(a) The Trust shall compensate the Administrator for its
services rendered pursuant to this Agreement in accordance with the fees
set forth in Schedule A hereto. Such fees do not include out-of-pocket
disbursements of the Administrator, for which the Administrator shall be
entitled to bill separately. Out-of-pocket disbursements shall include,
but shall not be limited to, the items specified in Schedule A hereto.
Fees shall be payable monthly in arrears on the first business day of
each month.
(b) The Administrator shall not be required to pay any
Trust/Fund expenses except those which it has agreed to pay in connection
with performing the duties described herein or which it has agreed to pay
in another written agreement between the parties hereto.
(c) Upon any termination of this Agreement before the end
of any month, the fee for such period shall be prorated according to the
proportion that such period bears to the full month period. For purposes
of determining fees payable to the Administrator, the value of the net
assets of each Fund shall be computed at the time and in the manner
specified in the then-current prospectus and statement of additional
information for the Fund.
(d) The Administrator will, from time to time, employ or
associate itself with such person or persons as the Administrator may
believe to be particularly suited to assist it in performing services
under this Agreement. Such person or persons may be officers and
employees who are employed by both the Administrator and the Trust. The
compensation of such person or persons shall be paid by the
Administrator, and no obligation shall be incurred on behalf of the Trust
in such respect.
4. Administrator's Liability.
(a) In the absence of willful misconduct, bad faith,
reckless disregard or negligence of the obligations or duties hereunder
on the part of the Administrator, the Administrator shall not be subject
to liability to the Trust or any Fund or to any shareholder of any Fund
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by a Fund.
(b) The Trust shall indemnify and hold harmless the
Administrator, its general partner and the shareholders, partners,
directors, officers and employees of each of them (any such person, an
"Indemnified Party") against any loss, liability, claim, damage or expense
(including without limitation the reasonable cost of investigating and
defending any alleged loss, liability, claim, damage or expense, and
reasonable counsel fees incurred in connection therewith) arising out of the
Indemnified Party's performance or non-performance of any duties under this
Agreement; provided, however, that nothing herein shall be deemed to protect
any Indemnified Party against any liability to which such Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
(c) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or partner or officer of the
Administrator, from liability in violation of Sections 17(h) and (i) of the
Investment Company Act.
5. Termination of Agreement.
(a) This Agreement shall become effective on the date first
set forth above and shall remain in force unless terminated pursuant to the
provisions of subparagraph (b) of this Paragraph.
(b) This Agreement may be terminated at any time without
payment of any penalty, upon thirty (30) days' written notice by the Trust
or by the Administrator.
6. Amendment to this Agreement. No provision of this Agreement
may be changed, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
discharge or termination is sought.
7. Assignment. This Agreement shall extend to, and shall be
binding upon, the parties hereto and their respective successors and
assigns. This Agreement may be assigned by the Administrator; provided,
however, that the Trust has consented in writing to such assignment. The
Administrator may delegate any duty hereunder, and no consent by the Trust
shall be needed therefore; provided, however, that any such delegation does
not effect a release of the Administrator from guaranty of the fulfillment
of any duty delegated by the Administrator.
8. Notice. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Trust or the
Administrator shall be sufficiently given if addressed to that party and
received by it at its office set forth below or at such other place as it
may from time to time designate in writing.
To the Trust:
The Solon Funds
1981 N. Broadway, Suite 325
Walnut Creek, California 94956
Attention: Laura Manning Shoaf
Secretary
To the Administrator:
Solon Asset Management, L.P.
1981 N. Broadway, Suite 325
Walnut Creek, California 94956
Attention: Deborah Hicks Midanek,
Chief Executive Officer
9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof; provided that nothing
herein shall be construed to preempt, or to be inconsistent with, any
federal law, regulation or rule, including without limitation the Investment
Company Act and the Investment Advisers Act of 1940, as amended, and any
rules and regulations promulgated thereunder.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
11. Captions. The captions of this Agreement are included for
convenience only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
12. Non-Exclusivity. The Trust's employment of the Administrator is
not an exclusive arrangement, and the Trust may, from time to time, employ
other individuals or entities to furnish it with the services provided for
herein. In the event this Agreement is terminated or modified with respect
to any Fund, this Agreement shall remain in full force and effect with
respect to all other Fund.
13. Independent Contractor. The Administrator shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized to do so, have no authority to
act for or represent the Trust or the Fund in any way, or in any way be
deemed an agent for the Trust or for the Fund. It is expressly understood
and agreed that the services to be rendered by the Administrator to the Fund
under the provisions of this Agreement are not to be deemed exclusive, and
the Administrator shall be free to render similar or different services to
others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
14. Administrator's Office Facilities and Personnel. The
Administrator shall, at its own expense, maintain adequate office facilities
and staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Administrator
shall be deemed to include persons employed or retained by the Administrator
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice
and assistance as the Administrator or the Trust's Board of Trustees may
desire and reasonably request.
15. Notice of Declaration of Trust. The Administrator acknowledges
that it has received notice of and accepts the limitations of the Trust's
liability as set forth in its Declaration of Trust. The Administrator
agrees that the Trust's obligations under this Agreement shall be limited
to its Fund and to their assets, and that the Administrator shall not seek
satisfaction of any such obligation from the shareholders of another Fund
nor from any Trustee, officer, employee or agent of the Trust or a Fund.
16. Conflicts with the Trust's Governing Documents and Applicable
Laws. Nothing herein shall be deemed to require the Trust or the Fund to
take any action contrary to the Trust's Declaration of Trust, By-Laws or any
applicable statute or regulation, or to relieve or deprive the Board of
Trustees of the Trust of its responsibility for and control of the conduct
of the affairs of the Trust and its Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the
date, first written above.
THE SOLON FUNDS
By: /s/Laura Manning Shoaf
______________________
Secretary
SOLON ASSET MANAGEMENT, L.P.
By: /s/Deborah Hicks Midanek
________________________
Chief Executive Officer
<PAGE>
SCHEDULE A
ADMINISTRATIVE SER VICES AGREEMENT
(The Solon Funds)
ADMINSTRATION FEES
Each of the following Fund shall pay seven basis points (.07%)
per annum on its average daily net assets (in aggregate):
Solon Short Duration Government Funds:
One Year Portfolio
Solon Short Duration Government Funds:
Three Year Portfolio
OUT-OF-POCKET EXPE NSES
- - overnight delivery and courier services; postage
- - telephone and telecommunication charges
- - pricing services
- - terminals, transmitting lines and expenses in connection
therewith
- - travel outside of San Francisco area on Fund business
- - costs of preparing Board books, presentations and other
materials for the Board of Trustees
- - printing and related costs
- - extraordinary expenses
EXHIBIT 9(B)
SERVICES AGREEMENT
This Services Agreement is made this 28 day of February,
1996 by and between The Solon Funds, a Delaware business
trust (the "Trust"), and Solon Asset Management, L.P.
("Service Provider"), with respect to each Series or Fund of
the Trust set forth in Appendix A hereto, as may be amended
from time to time (the "Funds").
WITNESSETH
WHEREAS, the Trust is registered as an open-end,
diversified management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"),
and
WHEREAS, the Trust wishes to retain the Service Provider to
provide services to clients of the Service Provider
who are shareholders of the Funds, and the Service Provider is
willing to furnish such services:
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Service Provider to provide
to the Funds the shareholder services specified in Section 2 of this
Agreement to all clients of the Service Provider that are shareholders
of the Funds. The Service Provider accepts such appointment and agrees
to furnish such shareholder services in return for compensation as
provided in Section 6 of this Agreement. The Service Provider agrees
to comply with all relevant provisions of the 1940 Act and applicable
rules and regulations thereunder.
2. Services and Responsibilities on a Continuing Basis. The Service
Provider will provide for the following shareholder services on a
regular basis which shall be daily, weekly, or as otherwise
appropriate, unless otherwise specified by the Trust:
(a) responding to shareholder inquiries,
(b) processing redemptions of Fund shares,
(c) assisting shareholders in changing dividend options, account
designations and addresses;
(d) transmitting proxy statements, annual reports, prospectuses
and other correspondence from the Funds to shareholders
(including, upon request, copies, but not originals, of
regular correspondence, confirmations or regular statements
of account) where such shareholders hold shares of the Funds
registered in the name of the Service Provider or its
nominee, and
(e) providing such other information and assistance to
shareholders as may be reasonably requested by such
Shareholders.
The Service Provider is under no obligation to, and shall not, provide
pursuant to this Agreement any services with respect to the sale or
distribution of shares of any Fund.
3. Standard of Care. The Service Provider shall be under no duty to take
any action on behalf of the Funds except as specifically set forth
herein or as may be specifically agreed to by the Service Provider in
writing. In the performance of its duties hereunder, the Service
Provider shall be obligated to exercise due care and diligence and to
act in good faith and to use its best efforts. Without limiting the
generality of the foregoing or of any other provision of this
Agreement, the Service Provider shall not be liable for delays or
errors or loss of data occurring by reason of circumstances beyond the
Service Provider's control.
4. Confidentiality. The Service Provider agrees on behalf of itself and
its employees to treat confidentially all records and other information
relative to the Funds and the Trust, and all prior, present, or
potential Shareholders of the Funds, except after prior notification
to, and approval of release of information in writing by the Trust,
which approval shall not be unreasonably withheld, and may not be
withheld where the Service Provider may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested
by the Trust.
5. Independent Contractor. The Service Provider shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized to do so, have no authority
to act for or represent the Trust or the Funds in any way, or in any
way be deemed an agent for the Trust or for the Funds. It is expressly
understood and agreed that the services to be rendered by the Service
Provider under the provisions of this Agreement are not to be deemed
exclusive, and the Service Provider shall be free to render similar or
different services to others so long as its ability to render the
services provided for in this Agreement shall not be impaired thereby.
6. Compensation. As compensation for the services rendered by, and
responsibilities assumed by, the Service Provider during the term of
this Agreement, the Funds will pay to the Service Provider a service
fee as set forth in Appendix A. Compensation shall be calculated on
the basis of the average daily net asset value of each Fund's shares
held by clients of the Service Provider. The service fee shall be
accrued daily by each of the Funds and paid to the Service Provider on
a calendar quarterly basis in arrears.
7. Indemnification.
(a) The Trust agrees to indemnify and hold harmless the Service
Provider from all taxes, charges, expenses, payments, claims, and
liabilities (including, without limitation, liabilities arising
under the Securities Act of 1933, the Securities Exchange Act of
1934, the 1940 Act, and any state and foreign securities laws, all
as amended from time to time (the "Acts") and expenses, including
(without limitation) reasonable attorneys fees and disbursements,
arising directly or indirectly from any action or thing which the
Service Provider takes or does or omits to take or do (i) at the
request or on the direction of or in reliance on the advice of the
Trust or (ii) upon oral or written instructions from an officer
of the Trust provided, that the Service Provider shall not be
indemnified against any liability to the Trust or to shareholders
(or any expenses incident to such liability) arising out of the
Service Provider's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties and obligations under this
Agreement. The Service Provider agrees to indemnify and hold
harmless the Trust and its officers and Trustees from all claims
and liabilities (including, without limitation, liabilities
arising under the Acts) and expenses, including (without
limitation) reasonable attorneys fees and disbursements, arising
directly or indirectly from any action or thing which the Service
Provider takes or does or omits to take or do which is in
violation of this Agreement or not in accordance with instructions
properly given by an officer of the Trust or arising out of the
Service Provider's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties and obligations under this
Agreement.
(b) The Service Provider shall provide such security as is necessary
to prevent unauthorized use of any on-line computer facilities.
The Service Provider agrees to release, indemnify and hold
harmless the Trust and each Fund from any and all direct or
indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by the Service Provider,
its officers, employees or agents regarding the redemption,
transfer or registration of Fund shares for accounts of the
Service Provider, its clients and other shareholders. Principals
of the Service Provider will be available to consult from time to
time officers of the Trust concerning performance of the services
contemplated by this Agreement.
8. Fund Information. No person is authorized to make any representations
concerning any Fund, or shares of any Fund or shareholder services
except in accordance with the terms of this Agreement. Neither the
Service Provider nor its agents will use or distribute, or authorize
the use or distribution of, any statements other than those contained
in the Fund's current Prospectus or Statement of Additional Information
or in such supplemental literature as may be authorized by a Fund or
the Trust.
9. Duration and Termination. This Agreement shall continue until
termination by the Trust or the Service Provider on 30 days' written
notice to the other. This Agreement may be terminated as to one or
more of the Funds without affecting its validity to any other fund as
to which it is not terminated. All notices and other communications
hereunder shall be in writing.
10. Amendments. This Agreement or any part hereof may be changed or waived
only by an instrument signed by the party against which enforcement of
such change or waiver is sought, except that the Trust may amend
Appendix A hereto by giving written notice thereof to the Service
Provider.
11. Miscellaneous
(a) This Agreement embodies the entire agreement and understanding
between the parties thereto, and supersedes all prior agreements
and understandings, relating to the subject matter hereof.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions
hereof or otherwise; affect their construction or effect.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of California as applicable to
contracts between California residents entered into and to be
performed entirely within California.
(d) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
(e) The Service Provider acknowledges that it has received notice of
and accepts the limitations of the Trust's liability set forth in
Article VIII of its Agreement and Declaration of Trust. The
Service Provider agrees that the Trust's obligations under this
Agreement shall be limited to the Funds and to their assets, and
that the Service Provider shall not seek satisfaction of any such
obligation from the shareholders of the Funds nor from any
trustee, officer, employee or agent of the Trust or the Funds.
(f) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
g) This Agreement may not be assigned, without the mutual consent of
the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on the day and year first
above written.
THE SOLON FUNDS SOLON ASSET MANAGEMENT, L.P.
By: /s/Laura Manning Shoaf By: /s/Deborah Hicks Midanek
______________________ ________________________
Its: Secretary Its: CEO of its General Partner
Solon Asset Management Corporation
APPENDIX A
List of Funds subject to Services Agreement:
1. Solon Short Duration Government Funds: One Year Portfolio
2. Solon Short Duration Government Funds: Three Year Portfolio
Compensation: 25 basis points per annum calculated on the basis
on daily net assets and payable monthly.
Kramer, Levin, Naftal is & Frankel
919 Third Avenue
New York, NY 10022-3 852
(212) 715-9100
June 28, 1996
The Solon Funds
1981 North Broadway
Suite #325
Walnut Creek, CA 94596
RE: The Solon Funds
File No. 33-70958; 811-8104
Post-Effective Amendment to Registration
Statement on Form N-1A
________________________________________
Gentlemen:
We hereby consent to the reference of our firm as Counsel in the Post-
Effective Amendment No. 3 to the Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights," "Independent Auditors" and "General Information" in the
Registration Statement (Form N-1A) and related prospectus of Solon Short
Duration Government Funds (comprised of the One-Year Portfolio and Three-
Year Portfolio) (the Funds) and the inclusion of our report dated March 29,
1996, with respect to the financial statements of the Funds included in its
Annual Report to Shareholders for the year ended February 29, 1996.
/s/Ernst & Young LLP
Kansas City, Missouri
June 28, 1996
[ARTICLE] 6
[CIK] 0000914243
[NAME] THE SOLON FUNDS
[SERIES]
[NUMBER] 1
[NAME] ONE YEAR PORTFOLIO
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-START] MAR-01-1995
[PERIOD-END] FEB-29-1996
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[DISTRIBUTIONS-OF-INCOME] (17,017)
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[EXPENSE-RATIO] 000000000001.647
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<NAME> THE SOLON FUNDS
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<NAME> THREE YEAR PORTFOLIO
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