SOLON SHORT DURATION GOVERNMENT FUNDS
1981 N. Broadway, Suite #325
Walnut Creek, CA 94596
510/988-7110
Semi-Annual Report
For the six month period ended August 31, 1996
Dear Shareholder:
We are pleased to report on the performance of the Solon Short Duration
Government Funds for the first half of The Solon Funds' fiscal year, the six
months ended August 31, 1996. Included, too, are performance figures showing
cumulative returns since inception March 1, 1994.
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.
Sincerely,
/s/Deborah Hicks Midanek
Chairman
The Solon Funds
October 25, 1996
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS
COMPARED TO LEHMAN GOV'T 1-3 YEAR INDEX
VALUE OF HYPOTHETICAL $10,000 ACCOUNT FOR:
1-YR 3-YR LEHMAN GOV'T
PORTFOLIO PORTFOLIO 1-3 YR INDEX
--------- --------- ------------
<S> <C> <C> <C>
FEB '94 10000 10000 10000
MAR 9937 10010 9949
APR 9919.11 10047.04 9911.19
MAY 9929.03 10078.18 9925.07
JUN 9965.77 10116.48 9949.88
JUL 10062.44 10153.91 10039.43
AUG 10107.72 10188.43 10072.56
SEP 10092.56 10229.19 10049.39
OCT 10113.75 10274.2 10072.51
NOV 10102.63 10309.13 10030.2
DEC 10143.04 10362.74 10049.26
JAN '95 10266.78 10437.35 10185.93
FEB 10411.54 10512.5 10324.46
MAR 10464.64 10559.8 10382.28
APR 10550.45 10627.39 10474.68
MAY 10735.09 10677.33 10653.8
JUN 10799.5 10744.6 10711.33
JUL 10835.13 10804.77 10754.17
AUG 10916.4 10877.16 10818.7
SEP 10978.62 10925.02 10871.71
OCT 11064.25 10991.67 10961.94
NOV 11169.37 11070.81 11055.12
DEC 11272.12 11148.3 11138.03
JAN '96 11373.57 11225.22 11232.71
FEB 11320.12 11257.78 11188.9
MAR 11314.46 11319.7 11181.07
APR 11324.64 11371.77 11192.25
MAY 11345.02 11430.9 11216.87
JUN 11444.86 11494.91 11298.75
JUL 11491.78 11563.88 11342.82
AUG 11523.96 11614.76 11384.79
</TABLE>
The above graph represents the value of a hypothetical $10,000.00 investment
in the Solon Short Duration 3 Year Fund, the Solon Short Duration 1 Year Fund
and the Lehman Government 1-3 year index*. Inception date is March 1, 1994 and
the ending date is August 31, 1996.
<TABLE>
<CAPTION>
TOTAL RETURNS FOR THE PERIOD ENDED AUGUST 31, 1996
SIX MONTHS ENDED INCEPTION 3/1/94
8-31-96 THROUGH 8-31-96
---------------- ----------------
<S> <C> <C>
1 YEAR PORTFOLIO 3.17% 16.15%
3 YEAR PORTFOLIO 1.80% 15.24%
LEHMAN 1-3 YEAR
GOV'T INDEX* 1.75% 13.85%
</TABLE>
*The Lehman Government 1-3 Year Index is an unmanaged index that assumes
the reinvestment of all dividends. Past performance is no guarantee of
future results.
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS:
ONE YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
August 31, 1996
(Unaudited)
<S> <C> <C>
Principal Value
Amount (Note 1)
- --------- -------
U.S. GOVERNMENT AGENCY SECURITIES-67.9%
Federal Home Loan Mortgage Corporation-13.8%
$31,874 5.150% due 11/15/2006, REMIC $31,685
75,000 5.750% due 3/15/2015, REMIC 74,648
-------
$106,333
-------
Federal National Mortgage Association-34.7%
100,000 5.750% due 2/25/2012,REMIC 99,438
102,529 5.960% due 2/25/2021, REMIC 102,881
61,572 7.89% due 11/01/2018 64,054
-------
266,373
-------
Government National Mortgage Association-1.7%
12,741 4.400% due 12/25/2003, REMIC 12,690
-------
Farmer Mac Discount Notes - 17.7%
136,000 5.170% due 9/16/96 135,668
-------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $520,502) $521,064
U.S. TREASURY OBLIGATIONS-30.6%
U.S. Treasury Notes:
235,000 6.000% due 8/31/1997 (Cost $234,840) 234,853
-------
TOTAL INVESTMENTS(Cost $755,342) 98.5% 755,917
OTHER ASSETS AND LIABILITIES (Net) 1.5% 11,309
------ --------
NET ASSETS 100.0% $767,226
====== ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS:
THREE YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
August 31, 1996
(Unaudited)
<S> <C> <C>
Principal Value
Amount (Note 1)
- --------- --------
U.S. GOVERNMENT AGENCY SECURITIES-64.3%
Government National Mortgage Association-1.3%
$151,498 7.250% due 8/20/2017 $153,770
Federal National Mortgage Association-52.3%
455,273 5.000% due 8/1/2010 421,128
1,062,291 6.000% due 10/1/2008 1,015,485
990,000 6.500% due 9/01/2010, TBA 949,472
235,476 7.470% due 12/1/2017 241,952
709,702 8.000% due 9/1/2010, TBA 709,480
555,230 9.000% due 4/1/1997 578,134
214,036 7.890% due 11/1/2918 222,664
1,200,000 5.750% due 2/25/2012, REMIC 1,193,250
957,644 5.970% due 2/25/2021, REMIC 960,937
202,013 6.000% due 6/25/2003, REMIC 201,381
13,655 9.400% due 10/25/2017, REMIC 13,890
---------
6,507,773
---------
Federal Home Loan Mortgage Corp-10.7%
108,691 5.000% due 2/15/2002, REMIC 107,843
382,495 5.150% due 11/15/2006, REMIC 380,224
265,000 5.400% due 4/15/2014, REMIC 258,706
125,000 5.750% due 3/15/2015, REMIC 124,414
20,319 6.750% due 7/15/2003, REMIC 20,275
41,845 9.000% due 5/15/2020, REMIC 41,767
376,629 10.000% due 6/15/2020, REMIC 397,579
---------
1,330,808
---------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $8,004,647) 7,992,351
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.3%
Capstead Securities - 1.3%
168,047 7.900% due 11/25/2019 (Cost $168,048) 168,048
U.S. TREASURY OBLIGATIONS-36.7%
U.S. Treasury Notes: 36.2%
370,000 6.125% due 5/15/1998 369,075
1,553,000 6.000% due 8/31/1997 1,552,029
360,000 6.250% due 4/30/2001 353,363
150,000 6.375% due 5/15/1999 149,484
2,078,000 6.000% due 5/31/1998 2,066,961
---------
4,490,912
---------
U.S Treasury Bills: .5%
70,000 5.390% due 5/29/1997 67,118
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $4,575,296) 4,558,030
---------
REPURCHASE AGREEMENTS-10.4%
Repurchase agreement with Paine Webber,
5.28%, dated 8/30/96, due 9/3/96
(Collateralized by FHLMC Strip, par
value of $1,300,000,due 7/1/26, value
1,300,000 of $1,328,899.43) (Cost $1,300,000) 1,300,000
TOTAL INVESTMENTS (Cost $14,047,991) 112.7% 14,018,429
OTHER ASSETS AND LIABILITIES (Net) (12.7%) (1,581,934)
-----------
NET ASSETS 100.0% $12,436,495
====== ===========
</TABLE>
See accompanying notes.
<PAGE>
THE SOLON FUNDS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Solon Short Duration
Government Funds:
<S> <C> <C>
One Year Three Year
-------- ----------
ASSETS
Investment in securities, at value
(Identified cost $755,342 and
$14,047,991 respectively) $755,917 $14,018,429
Cash 388 924
Receivables:
Interest 8,631 132,338
Paydown and other receivables 2,455 (5,468)
-------- ----------
Total Assets 767,391 14,146,223
======== ==========
LIABILITIES
Investment securities purchased - 1,691,296
Payable to manager (Note 2) - 16,083
Dividends payable 165 2,349
-------- ---------
Total Liabilities 165 1,709,728
-------- ---------
TOTAL ASSETS $767,226 $12,436,495
======== ===========
Net Assets consist of:
Capital shares at par $765 $1,253
Paid in capital in excess of par 764,400 12,537,524
Accumulated undistributed net
investment income 98 0
Accumulated net realized gain/loss
on investment transactions 1,387 (72,720)
Net unrealized appreciation (depreciation)
of investments (Note 3) 576 (29,562)
-------- -----------
NET ASSETS $767,226 $12,436,495
======== ===========
Net Asset Value, offering and redemption
price per share $10.04 $9.93
Number of shares outstanding with a par
value of $.01 per share, unlimited
number of shares authorized 76,409 1,252,667
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF OPERATIONS
For the Six Months Ended August 31, 1996
(unaudited)
Solon Short Duration
Government Funds:
One Year Three Year
-------- ----------
<S> <C> <C>
INVESTMENT INCOME
Interest $15,974 $368,960
Expenses
Adviosry fee (Note 2) 655 15,240
Custodian fee 7,430 13,772
Directors' fee & expenses (Note 2) 2,770 2,770
Shareholder Services 8,307 20,980
Interest expense (Note 4) - 713
Legal fee 3,048 9,846
Audit expense 7,363 4,364
Insurance expense 1,662 1,662
Other 808 4,892
------- --------
Total expenses 32,043 74,239
Expenses reimbursed by the manager (32,043) (58,895)
(Note 2) ------- --------
Total expenses - 15,344
------- --------
NET INVESTMENT INCOME 15,974 353,616
------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) (203) (93,493)
Net change in unrealized
appreciation (depreciation) Note 3) 286 (38,289)
------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 83 (131,782)
------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS: $16,057 $221,834
======= ========
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
FINANCIAL HIGHLIGHTS
Solon Short Duration Gov't Funds:
One Year
--------------------------------
For The For The For The
Six Months Year Year
Ended Ended Ended
August 31, February 29, February 28,
1996 1996 1995
(Unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.03 $9.99 $10.00
Income from investment
operations:
Net investment income 0.30 0.64 0.53
Net realized and unrealized
gain (loss) on investments 0.01 0.05 (0.02)
------ ------ ------
Total from investment
operations 0.31 0.69 0.51
Distributions:
Dividends from net
investment income (0.30) (0.65) (0.52)
------ ------ ------
Net asset value,
end of period $10.04 $10.03 $9.99
====== ====== ======
Total Return 7.20% 7.09% 5.21%
Ratios/Supplemental Data:
Net assets, end of period
($000) $767 $398 $145
Ratio of expenses to average
net assets:
Before expense reimbusement
of operating expenses 12.35%* 16.47% 27.89%
After expense reimbursement
of operating expenses 0.00%* 0.00% 0.00%
Interest expense - - -
Ratio of net investment income
to average net assets 6.16%* 6.46% 5.74%
Portfolio Turnover Rate - - -
Debt outstanding at end
of period - - -
Average Debt outstanding
during the period** ($000) - - -
Average share outstanding
during the period** (000) - - -
Average debt per share
during the period** - - -
*Annualized
** Average based upon amounts outstanding at each month end.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
FINANCIAL HIGHLIGHTS
Solon Short Duration Gov't Funds:
Three Year
--------------------------------
For The For The For The
Six Months Year Year
Ended Ended Ended
August 31, February 29, February 28,
1996 1996 1995
(Unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.04 $9.80 $10.00
Income from investment
operations:
Net investment income 0.29 0.60 0.61
Net realized and unrealized
gain (loss) on investments (0.11) 0.23 (0.22)
------ ------ ------
Total from investment
operations 0.18 0.83 0.39
Distributions:
Dividends from net
investment income (0.29) (0.59) (0.59)
------ ------ ------
Net asset value,
end of period $9.93 $10.04 $9.80
====== ====== ======
Total Return 6.15% 8.73% 4.08%
Ratios/Supplemental Data:
Net assets, end of period
($000) $12,436 $11,027 $7,065
Ratio of expenses to average
net assets:
Before expense reimbusement
of operating expenses 1.23% 1.45% 1.18%
After expense reimbursement
of operating expenses 0.24% 0.24% 0.15%
Interest expense 0.01% 0.12% 0.04%
Ratio of net investment income
to average net assets 5.88% 6.18% 6.21%
Portfolio Turnover Rate 369% 251% 405%
Debt outstanding at end
of period - - -
Average Debt outstanding
during the period** ($000) $60 $256 $76
Average share outstanding
during the period** (000) 1,207 901 895
Average debt per share
during the period** $0.05 $0.28 $0.08
*Annualized
** Average based upon amounts outstanding at each month end.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Solon Short Duration Gov't Funds:
One Year
----------------------------------
For The For The For The
Six Months Year Year
Ended Ended Ended
August 31, February 29, February 28,
1996 1996 1995
(Unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment income $15,974 $17,194 $6,402
Net realized gain (loss)
from investemt transations (203) 872 (44)
Net unrealized appreciation
(depreciation) of investments
(Note 3) 286 445 (155)
Net increase in net assets -------- ------- -------
resulting from operations 16,057 18,511 6,203
-------- ------- -------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (15,501) (17,017) (6,192)
-------- -------- -------
FROM CAPITAL SHARE
TRANSACTIONS:
Net increase in net assets
from capital share
transactions (Note 5) 368,604 251,905 144,656
------- ------- -------
NET INCREASE IN NET ASSETS 369,160 253,399 94,667
NET ASSETS:
Beginning of the period 398,066 144,667 50,000
------- ------- -------
End of the period $767,226 $398,066 $144,667
======== ======== ========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Solon Short Duration Gov't Funds:
Three Year
----------------------------------
For The For The For The
Six Months Year Year
Ended Ended Ended
August 31, February 29, February 28,
1996 1996 1995
(Unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment income $353,616 $547,784 $535,397
Net realized gain (loss)
from investemt transations (93,493) 158,024 (167,698)
Net unrealized appreciation
(depreciation) of investments
(Note 3) (38,289) 14,016 (5,288)
Net increase in net assets -------- ------- --------
resulting from operations 221,834 719,824 362,411
-------- ------- --------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (353,566) (530,162) (522,622)
-------- -------- --------
FROM CAPITAL SHARE
TRANSACTIONS:
Net increase in net assets
from capital share
transactions (Note 5) 1,541,662 3,772,091 7,225,023
--------- --------- ---------
NET INCREASE IN NET ASSETS 1,409,930 3,961,753 7,034,813
NET ASSETS:
Beginning of the period 11,026,565 7,064,812 50,000
----------- ----------- ----------
End of the period $12,436,495 $11,026,565 $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 August 31, 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 have been assumed by Solon Asset
Management, L.P. (the "Manager").
b. REPURCHASE AGREEMENTS. Securities pledged as collateral for 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.
c. REVERSE REPURCHASE AGREEMENTS. The Funds fully collateralize reverse
repurchase agreements by maintaining 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.
d. 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.
e. SECURITY VALUATION. It is the policy of The Funds to 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.
f. FEDERAL INCOME TAXES. The Funds intend to 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.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
a. Solon Asset Management, L.P. (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 six months ended August 31, 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
period ended August 31, 1996, for the Three Year Portfolio were
as follows:
Purchases: $26,642,195
Sales: $21,718,580
b. On August 31, 1996, the composition of unrealized appreciation and
depreciation for federal income tax purposes was as follows:
Net
Tax Basis Tax Basis Unrealized
Unrealized Unrealized Appreciation
Appreciation (Depreciation) (Depreciation)
------------ ------------- -------------
One Year Portfolio $713 ($137) $576
Three Year Portfolio $24,889 ($54,451) ($29,562)
c. At August 31, 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 six months ended August 31, 1996, the maximum borrowings by
the Three Year Portfolio under reverse repurchase agreements
amounted to $1,431,000. Interest rates ranged from 4.70% to 5.40%
during the period.
5. TRANSACTIONS IN CAPITAL SHARES:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
For the six months ended For the year ended
August 31, 1996 February 29, 1996
---------------- -----------------
<S> <C> <C> <C> <C>
One Year Portfolio Shares Amount Shares Amount
------ -------- ------ --------
Shares Sold 35,210 $353,459 24,084 $240,596
Issued as Reinvestment
of Dividends 1,544 15,500 1,765 17,662
Shares Redeemed (35) (356) (635) (6,353)
------ ------- ------ --------
Net increase 36,464 $366,041 25,214 $251,905
====== ======== ====== ========
Three Year Portfolio Shares Amount Shares Amount
------ -------- ------ --------
Shares sold 211,013 $2,102,030 340,414 $3,405,825
Issued as Reinvestment
of Dividends 35,544 353,626 56,672 565,039
Shares Redeemed (92,030) (913,994) (19,715) (198,773)
------- ---------- -------- ----------
Net increase 154,527 $1,541,662 377,371 $3,772,091
======= ========== ======== ==========
</TABLE>
