SOLON SHORT DURATION GOVERNMENT FUNDS
1981 N. Broadway, Suite #325
Walnut Creek, CA 94596
510-988-7110
Annual Report
For the fiscal year ended February 28, 1997
Dear Fellow Shareholder:
We are pleased to report on the performance of the Solon
Short Duration Government Funds for their fiscal year ended
February 28, 1997. During the period the One Year Portfolio
achieved a cumulative return of 6.53% and the Three Year Portfolio
achieved a cumulative return of 5.73%. The Three Year Portfolio
continues to be ranked highly in its Lipper universe since its
inception. Details on Fund performance, indices and universes,
follows.
This superior performance is the result of a disciplined investment
approach which minimizes risk and volatility while maximizing
liquidity. We believe that excess returns in the long run will
come from superior product selection not from interest rate bets
or emphasizing yield over price performance. Our patient, long-term
approach to achieving excess returns has served us well over the
last three years and we are confident that it will continue to
serve our shareholders well in the future.
Over the twelve months ended February 28, 1997, interest rates
rose modestly while the curve flattened (interest rates on short
term securities with maturities from two years to five years rose
more than rates on securities with longer maturities). Target Fed
Funds remained at 5.25% for the entire period. Mortgage securities
performed exceedingly well, as would be expected in such a relatively
stable environment.
The next twelve months are not likely to be so calm. The Federal
Reserve began a tightening of short term rates during March, which
is likely to continue for the next two quarters in our view. The Fed s
goal is to reduce GDP to at or below its long term capacity and thus
remove the threat of reigniting inflation. This is likely to involve
.75% to 1.25% of total rate increases. This means higher interest
rates, a flatter yield curve and a likely underperformance from all
yield products (mortgage and corporate securities).
In such an environment, the Solon approach to portfolio management
should be successful. We have positioned both funds to maximize
liquidity and reduce interest rate risk. We will generally maintain
this posture until we believe that the Fed is near the end of its
tightening posture. Such caution is intended to protect our
investors capital during what we expect will be a difficult period
for the U.S. capital markets.
Sincerely,
/s/Deborah Hicks Midanek
- ------------------------
Chairman
April 22, 1997
<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 28, 1997, along with average annual returns since the
Funds' March 1, 1994 inception. Also provided is a graph showing each
Fund's performance over time, expressed in terms of the impact of the
Funds' performance on an investment of $10,000 at 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.
<TABLE>
<CAPTION>
Total Returns for the Period Ended February 28, 1997
<S> <C> <C>
Last Twelve Average Annual
Months Since Inception
Solon Short Duration
Government Funds:
One Year Portfolio 6.53% 6.24%
Three Year Portfolio 5.73% 6.17%
Lehman Government
1-3 Year Index 5.38% 5.65%
</TABLE>
<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 11319.71 11314.46 11181.07
Apr 11371.71 11324.64 11192.25
May 11430.90 11345.02 11216.87
June 11494.91 11444.86 11298.75
July 11563.88 11491.78 11342.82
Aug 11614.76 11523.96 11384.79
Sep 11687.94 11643.81 11488.39
Oct 11753.39 11775.39 11618.21
Nov 11838.01 11869.59 11704.18
Dec 11877.08 11869.59 11706.52
Jan 97 11932.90 11927.75 11762.71
Feb 11992.56 11968.30 11790.95
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.
</TABLE>
<PAGE>
ERNST & YOUNG LLP One Kansas City Place Phone: 816 474-5200
1200 Main Street
Kansas City
Missouri 64105-2143
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees
Solon Short Duration Government Funds
We 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 28, 1997, and the
related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the
three 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 28, 1997, 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 28, 1997, 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 accounting principles.
/s/ Ernst & Young LLP
----------------------
April 4, 1997
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS:
ONE YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
February 28, 1997
<S> <C> <C>
Principal Value
Amount (Note 1)
- --------- -------
U.S. GOVERNMENT AGENCY SECURITIES-78.1%
Federal Home Loan Mortgage Corporation-20.4%
$ 17,820 5.150% due 11/15/2006, REMIC $ 17,759
159,192 5.750% due 3/15/2015, REMIC 158,844
---------
176,603
---------
Federal National Mortgage Association-43.6%
125,000 5.500% due 11/25/2010,REMIC 124,063
27,405 5.500% due 4/25/2014, REMIC 27,182
69,084 5.750% due 2/25/2012, REMIC 68,846
70,842 5.875% due 2/25/2021, REMIC 71,085
25,099 6.750% due 8/25/2005, REMIC 25,099
57,506 8.090% due 11/1/2018 60,346
---------
376,621
---------
Farmer Mac Discount Notes - 13.0%
112,000 5.160% due 3/17/97 111,727
---------
Federal National Mortgage Association
Discount Notes -1.1%
10,000 5.230% due 3/17/97 9.975
---------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $673,522) $674,926
---------
U.S. TREASURY OBLIGATIONS-15.6%
U.S. Treasury Notes:
135,000 6.000% due 5/31/98 (Cost $135,704) 135,169
---------
COLLATERALIZED MORTGAGE OBLIGATIONS-5.7%
50,000 Residential Funding Mortgage Security-
5.065% due 10/25/2008 (cost $49,216) 49,234
---------
TOTAL INVESTMENTS (Cost $858,442) 99.4% 859,329
OTHER ASSETS AND LIABILITIES (Net) 0.6% 5,234
------ ---------
NET ASSETS 100.0% $864,563
====== =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOLON SHORT DURATION GOVERNMENT FUNDS:
THREE YEAR PORTFOLIO
SCHEDULE OF INVESTMENTS
February 28, 1997
<S> <C> <C>
Principal Value
Amount (Note 1)
- --------- --------
U.S. GOVERNMENT AGENCY SECURITIES-39.2%
Government National Mortgage Association-4.6%
$ 655,000 8.000% due 2/1/2011, TBA $ 667,691
142,002 7.125% due 8/20/2017 144,620
----------
812,311
Federal National Mortgage Association-27.4%
350,000 5.500% due 11/25/2010, REMIC 347,375
829,002 5.750% due 2/25/2012, REMIC 826,153
761,642 5.875% due 2/25/2021, REMIC 764,260
43,784 6.000% due 6/25/2003, REMIC 43,647
984,654 6.000% due 10/1/2008, REMIC 957,576
990,000 6.500% due 2/1/2011, TBA 969,581
209,409 7.543% due 12/1/2017 215,495
199,903 8.090% due 11/1/2018 209,774
508,895 9.000% due 4/1/2016 537,361
10,718 9.400% due 10/25/2017, REMIC 10,895
----------
4,882,117
Federal Home Loan Mortgage Corp-7.2%
64,309 5.000% due 2/15/2002, REMIC 64,008
213,841 5.150% due 11/15/2006, REMIC 213,106
265,000 5.400% due 4/15/2014, REMIC 261,273
250,000 6.100% due 4/15/2014, REMIC 249,766
151,388 6.250% due 4/15/2003, REMIC 151,435
321,718 10,000% due 6/15/2020, REMIC 340,519
---------
1,280,107
TOTAL U.S. GOVERNMENT AGENCY SECURITIES ---------
(Cost $6,933,657) 6,974,535
---------
COLLATERALIZED MORTGAGE OBLIGATIONS-7.2%
220,983 Countrywide Funding Corp-6.000% due 5/25/2009 220,016
906,200 Citicorp Mortgage Securities, Inc.-
6.250% due 6/25/2024 893,173
160,000 GE Capital Mortgage Services, Inc.-
7.000% due 5/25/2024 160,600
12,205 Capstead Securities-7.900% due 11/25/2019 12,193
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ---------
(Cost $1,287,193) 1,285,982
---------
U.S. TREASURY OBLIGATIONS-46.1%
U.S. Treasury Notes:46.1%
370,000 6.125% due 5/15/1998 371,156
1,805,000 6,375% due 5/15/1999 1,813,461
2,531,000 6.000% due 5/31/1998 2,534,164
320,000 6.125% due 12/31/2001 316,500
1,800,000 5.875% due 1/31/1999 1,793,250
1,395,000 5.875% due 2/15/2000 1,381,922
---------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,230,860) 8,210,453
---------
REPURCHASE AGREEMENTS-15.8%
Repurchase agreement with Paine Webber, 5.42%,
dated 2/28/97, due 3/3/97 (Collateralized by
FNMA Strip, par value of $3,670,000, 9.0125%,
due 9/25/23, value of $2,879,151)
2,822,000 (Cost $2,822,000) 2,822,000
TOTAL INVESTMENTS (Cost $19,273,710) 108.3% 19,292,970
OTHER ASSETS AND LIABILITIES (Net) (8.3%) (1,483,552)
------ -----------
NET ASSETS 100.0% $17,809,418
====== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997
Solon Short Duration
Government Funds:
<S> <C> <C>
One Year Three Year
-------- ----------
ASSETS
Investment in securities, at value
(Identified cost $858,442 and
$19,273,710, respectively) $859,329 $19,292,970
Cash 895 752
Receivables:
Fund Shares Sold - 57,718
Interest 4,339 126,271
-------- ----------
Total Assets 864,563 19,477,711
-------- ----------
LIABILITIES
Investment securities purchased - 1,654,261
Payable to manager (Note 2) - 14,032
-------- ----------
Total Liabilities 0 1,668,293
-------- ---------
NET ASSETS $864,563 $17,809,418
======== ===========
Net Assets consist of:
Capital shares $861,072 $17,831,215
Accumulated undistributed net
investment income 184 1,345
Accumulated net realized gain (loss)
on investment transactions 2,420 (42,402)
Net unrealized appreciation
of investments (Note 3) 887 19,260
-------- -----------
NET ASSETS $864,563 $17,809,418
======== ===========
Net Asset Value, per share $10.06 $10.00
Capital shares outstanding, par value
of $.01 per share, unlimited
number of shares authorized 85,941 1,780,976
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF OPERATIONS
For the Year Ended February 28, 1997
Solon Short Duration
Government Funds:
One Year Three Year
-------- ----------
<S> <C> <C>
INVESTMENT INCOME
Interest $39,595 $779,222
Expenses:
Adviosry fee (Note 2) 1,671 32,092
Custodian fee 26,099 39,254
Directors' fees & expenses (Note 2) 4,788 4,788
Shareholder Services 13,011 43,920
Interest expense (Note 4) - 1,950
Legal fee 8,015 8,015
Audit expense 11,125 11,126
Insurance expense 3,479 3,478
Administrative expense 497 8,986
Other - 2,507
------- --------
Total expenses 68,685 156,116
Expenses reimbursed by the (68,685) (123,357)
manager (Note 2) ------- --------
Total expenses - 32,759
------- --------
NET INVESTMENT INCOME 39,595 746,463
------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) 1,178 (37,298)
Net change in unrealized
appreciation (Note 3) 597 10,532
------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 1,775 (26,766)
------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $41,370 $719,697
======= ========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Solon Short Duration Gov't Funds:
One Year Three Year
----------------------------------
For the Year Ended For the Year Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment income $39,595 $17,194 $746,463 $547,784
Net realized gain (loss)
from investment transactions 1,178 872 (37,298) 158,024
Net unrealized appreciation
of investments (Note 3) 597 445 10,532 14,016
Net increase in net assets ------- ------- ------- -------
resulting from operations 41,370 18,511 719,697 719,824
------- ------- ------- -------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (39,383) (17,017) (750,223) (530,162)
Net realized gains (20,722)
------ ------- ------- -------
Total distributions to
Shareholders (39,383) (17,017) (770,945) (530,162)
------ ------- ------- -------
FROM CAPITAL SHARE
TRANSACTIONS:
Net increase in net assets
from capital share
transactions (Note 5) 464,510 251,905 6,834,101 3,772,091
------- ------- --------- ---------
NET INCREASE IN NET ASSETS 466,497 253,399 6,782,854 3,961,753
NET ASSETS:
Beginning of the year 398,066 144,667 11,026,565 7,064,812
------- ------- ---------- ---------
End of the year $864,563 $398,066 $17,809,419 $11,026,565
======== ======== =========== ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOLON FUNDS
FINANCIAL HIGHLIGHTS
Solon Short Duration Gov't Funds:
One Year
--------------------------------
For The Year Ended
February 28, February 29, February 28,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value,
beginning of year $10.03 $9.99 $10.00
Income from investment
operations:
Net investment income 0.60 0.64 0.53
Net realized and unrealized
gain (loss) on investments 0.03 0.05 (0.02)
------ ----- -----
Total from investment
operations 0.63 0.69 0.51
Distributions from:
Net investment income (0.60) (0.65) (0.52)
Realized gain on investments - - -
------ ------ ------
Net asset value,
end of year $10.06 $10.03 $9.99
====== ====== ======
Total Return 6.32% 7.09% 5.21%
Ratios/Supplemental Data:
Net assets, end of year ($000) $865 $398 $145
Ratio of expenses to average
net assets:
Before expense reimbusement
of operating expenses 10.25% 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 5.91% 6.46% 5.74%
Portfolio Turnover Rate 81.82% - -
Debt outstanding at end
of year - - -
Average Debt outstanding
during the year** ($000) - - -
Average share outstanding
during the year** (000) - - -
Average debt per share
during the year** - - -
** 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 Year Ended
February 28, February 29, February 28,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value,
beginning of year $10.04 $ 9.80 $10.00
Income from investment
operations:
Net investment income 0.58 0.60 0.61
Net realized and unrealized
gain (loss) on investments (0.01) 0.23 (0.22)
------ ----- ------
Total from investment
operations 0.57 0.83 0.39
Distributions from:
Net investment income (0.59) (0.59) (0.59)
Realized gain on investments (0.02) - -
------- ------ ------
Net asset value,
end of year $10.00 $10.04 $ 9.80
====== ====== ======
Total Return 5.45% 8.73% 4.08%
Ratios/Supplemental Data:
Net assets, end of year($000) $17,809 $11,027 $7,065
Ratio of expenses to average
net assets:
Before expense reimbusement
of operating expenses 1.21% 1.45% 1.18%
After expense reimbursement
of operating expenses 0.24% 0.24% 0.15%
Interest expense 0.02% 0.12% 0.04%
Ratio of net investment income
to average net assets 5.80% 6.18% 6.21%
Portfolio Turnover Rate 279% 251% 405%
Debt outstanding at end
of year - - -
Average Debt outstanding
during the year** ($000) $56 $256 $76
Average share outstanding
during the year** (000) 1,321 901 895
Average debt per share
during the year** $0.04 $0.28 $0.08
** Average based upon amounts outstanding at each month end.
</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 28, 1997, 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 resale price
of the 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 this 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. Market value is 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.
<PAGE>
THE SOLON FUNDS
NOTES TO FINANCIAL STATEMENTS -(Continued)
f. FEDERAL INCOME TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and will distribute taxable income and net
realized gains sufficient to relieve each Fund from federal income,
excise, and state income taxes.
At February 28, 1997, Solon Short Duration Government Three Year
Fund had an accumulated net realized capital loss carryover of
$42,402 expiring in the year 2005.
Solon Short Duration Government Three Year Fund designates $20,723
as capital gain dividends attributable to the year ended February
28, 1997 for the purpose of the dividends paid deduction on the
Fund's federal income tax return.
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 short-term
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. 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 its 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. The Management Agreement
between the Manager and The Funds provides that the total annual
expenses of each fund will not exceed .75% of average net assets.
b. The Manager voluntarily agreed to absorb all the expenses,
excluding interest expense, of the One Year Portfolio for the year
ended February 28, 1997. 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,
insofar as expenses do not exceed limits established by the Board
of Trustees. Any request for reimbursement by the Manager is
subject to review and approval by the Board.
<PAGE>
THE SOLON FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
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 fee for each meeting
attended of $500, as well as reimbursement for expenses.
3. SECURITIES TRANSACTIONS:
a. Securities transactions (excluding short term securities) for
the year ended February 28, 1997, for the Funds were as follows:
Purchases Sales
--------- -----
One Year Portfolio: $ 1,118,230 $ 474,155
Three Year Portfolio: $46,186,122 $36,059,428
b. On February 28,1997, 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 $ 1,521 $ (634) $ 887
Three Year Portfolio $53,728 $(34,468) $19,260
c. At February 28, 1997, 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 28, 1997 the maximum borrowings by
the Three Year Portfolio under reverse repurchase agreements
were $359,700. Interest rates ranged from 4.20% to 5.40% during
the period.
5. TRANSACTIONS IN CAPITAL SHARES:
<TABLE>
<CAPTION>
Transactions in capital shares were as follows:
For The Year Ended For The Year Ended
February 28, 1997 February 29, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
One Year Portfolio Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 46,027 $462,303 24,084 $240,596
Issued as reinvestment
of dividends 3,918 39,388 1,765 17,662
Shares redeemed (3,694) (37,181) (635) (6,353)
------ -------- ------ --------
Net increase 46,251 $464,510 25,214 $251,905
====== ======== ====== ========
Three Year Portfolio Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 730,310 $7,303,346 340,414 $3,405,825
Issued as reinvestment
of dividends 77,395 773,032 56,672 565,039
Shares redeemed (124,869) (1,242,277) (19,715) (198,773)
------- --------- ------ ---------
Net increase 682,836 $6,834,101 377,371 $3,772,091
======== ========== ======= ==========
</TABLE>
