The Avalon Capital
Appreciation Fund
A Series of The Avalon Fund
of Ann Arbor, Inc.
1350 Highland Drive
Suite A
Ann Arbor, MI 48108
1-877-228-2566
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SEMI-ANNUAL REPORT
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March 31, 2000
Dear Fellow Shareholder,
Thank you for your confidence and investment in the AVALON CAPITAL
APPRECIATION FUND. We are proud to announce the investment results.
For the six months ended March 31, 2000, the Fund's total return increased
65.16%, versus an increase of 26.16% for the Russell 2000 Index.* Interest
in the Fund and its sub-advisor, Navellier Management Company, continues to
grow. Asset flow into the Fund has been very positive. The asset base has
grown to $5,136,783 as the number of shareholders has increased to 307. The
Distributor, Questar Capital Corporation, has established a sales force of
over 200 registered representatives to offer shares in the Fund to
investors. The Fund is registered in 19 states.
The AVALON CAPITAL APPRECIATION FUND seeks long-term capital appreciation
by focusing on small to mid-size, fast-growing companies that offer
innovative products, services, or technologies to a rapidly expanding
marketplace. These companies are often in the early stages of their growth,
so their stocks tend to fluctuate in value more than most securities.
However, investing in small to mid-size, rapidly growing companies offers
the potential for greater long-term rewards.
We are grateful to be able to serve you and hope the AVALON CAPITAL
APPRECIATION FUND will meet your investment objectives. We are happy to
have you as an investor, as we work hard to produce confidence in our fund
and its performance over the long term.
For those of you who would like to invest, there is no time like the
present to get involved. If you have any questions, or would like more
information, please call your investment representative or call us at
877-228-2566. In the meantime, as always, thank you for your support of the
AVALON CAPITAL APPRECIATION FUND.
Sincerely,
/S/ ROBERT BOONE /S/ JOHN H. GAKENHEIMER
Robert Boone, President John H. Gakenheimer, Secretary
* Russell 2000 returns are calculated with reinvested dividends and assume
no transaction costs.
Past performance is no guarantee of future results. An investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. This report
is intended for the fund's shareholders. It may not be distributed to
prospective investors unless it is preceded or accompanied by the current
fund prospectus.
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THE AVALON CAPITAL APPRECIATION FUND
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SCHEDULE OF INVESTMENTS
March 31, 2000 (Unaudited)
Shares Value
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<S> <C> <C>
COMMON STOCK -- 81.28%
Business Equipment and Services -- 4.31%
Adaptec, Inc.* 1,580 $ 61,028
CuraGen Corp.* 1,600 74,800
Diamond Technology Partners, Inc.* 1,300 85,475
------------
221,303
------------
Computer Services and Software -- 16.17%
Adobe Systems, Inc. 1,375 153,055
Advanced Digital Information Corp.* 2,000 68,500
Best Buy Co.* 25 2,150
BroadVision, Inc.* 3,750 168,281
Emulex Corp.* 1,100 120,037
Mercury Interactive Corp.* 1,700 134,725
Sandisk Corp.* 1,500 183,750
------------
830,498
------------
Electronics and Electrical Equipment -- 37.54%
Alpha Industries, Inc. 820 77,900
Applied Micro Circuits Corp.* 2,090 313,631
Conexant Systems, Inc.* 1,400 99,400
DII Group, Inc.* 1,000 113,062
Gemstar International Group Ltd.* 2,200 189,200
Kemet Corp.* 1,400 88,550
Power Integrations, Inc.* 1,500 37,500
Powerwave Technologies, Inc.* 1,450 181,250
QLogic Corp.* 2,300 311,650
RF Micro Devices, Inc.* 1,625 218,359
TriQuint Semiconductor, Inc.* 2,300 169,050
Harmonic, Inc.* 1,550 129,038
------------
1,928,590
------------
Health Care -- 4.62%
Arthrocare Corp.* 800 73,600
Medimmune, Inc.* 940 163,677
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237,277
------------
Miscellaneous Manufacturing -- 1.75%
Helix Technology Corp. 1,500 90,094
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Oil & Gas -- 5.50%
Apache Corp. 2,260 112,435
BJ Services Co. * 2,300 169,913
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282,348
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Pharmaceutical -- 2.89%
Biovail Corp.* 1,500 66,469
Jones Pharma, Inc. 2,700 82,012
------------
148,481
------------
Retail -- 1.30%
Gap, Inc. (The) 1 25
Tiffany & Co. 800 66,900
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66,925
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Telecommunications -- 7.20%
Powertel, Inc.* 970 67,112
Scientific-Atlanta, Inc. 1,960 124,337
Adtran, Inc.* 1,100 65,381
Advanced Fibre Communications, Inc.* 1,800 112,838
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369,668
------------
Total Common Stock (Cost $2,809,034) 4,175,184
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MISCELLANEOUS ASSETS -- 9.77%
Evergreen Money Market Trust CL Y (Cost $502,105) 502,105 502,105
------------
Total Investments (Cost $3,311,139) 4,677,289
Other Assets and Liabilities, Net -- 8.95% 459,494
------------
NET ASSETS -- 100.00% $ 5,136,783
============
* Non-income producing investment.
ADR -- American Depository Receipt
See notes to financial statements.
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THE AVALON CAPITAL APPRECIATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (Unaudited)
<S> <C>
ASSETS:
Investments, at market (identified cost $3,311,139) $ 4,677,289
Cash 376,403
Receivables:
Dividends and interest 2,462
Fund shares sold 111,243
------------
Total assets 5,167,397
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LIABILITIES:
Payables:
Accrued distribution fees 4,228
Due to advisor 8,605
Other liabilities 17,781
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Total liabilities 30,614
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NET ASSETS $ 5,136,783
============
NET ASSETS CONSIST OF:
Common stock $ 24
Paid-in capital 3,789,442
Net investment loss (35,235)
Accumulated realized gain on investments 16,402
Net unrealized gain on investments 1,366,150
------------
Net Assets (Unlimited shares of $0.0001 par beneficial interest authorized;
246,194 shares outstanding) $ 5,136,783
============
Net Asset Value and redemption price per share $ 20.86
============
Offering price per share ($20.86 (divided by) 0.9525) $ 21.90
============
See notes to financial statements.
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THE AVALON CAPITAL APPRECIATION FUND
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STATEMENT OF OPERATIONS
For the Period Ended March 31, 2000 (Unaudited)
<S> <C>
INVESTMENT INCOME:
Interest $ 7,168
Dividends 629
------------
Total investment income 7,797
------------
EXPENSES:
Investment advisory fees 7,294
Distribution fees 14,587
Service fee 21,151
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Total expenses 43,032
------------
Net investment loss (35,235)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 16,402
Net change in unrealized depreciation on investments 1,236,317
------------
1,252,719
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,217,484
============
See notes to financial statements.
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THE AVALON CAPITAL APPRECIATION FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For the Period For the Year
Ended Ended
March 31, 2000 September 30,
(Unaudited) 1999*
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (35,235) $ (7,917)
Net realized gain on investments 16,402 1,636
Net change in unrealized appreciation on investments 1,236,317 129,833
------------ ------------
Net increase in net assets resulting from operations 1,217,484 123,552
------------ ------------
Increase in net assets from Fund share transactions 2,793,698 1,002,049
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Increase in net assets 4,011,182 1,125,601
NET ASSETS:
Beginning of period 1,125,601 0
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End of period (including accumulated undistributed
net investment income (loss) of $(35,235) and $0,
respectively. $ 5,136,783 $ 1,125,601
============ ============
* The Avalon Capital Appreciation Fund commenced operations on October 2, 1998.
See notes to financial statements.
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THE AVALON CAPITAL APPRECIATION FUND
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FINANCIAL HIGHLIGHTS
Per Share Data (For a Share Outstanding Throughout the Period)
For the Period For the Year
Ended Ended
March 31, 2000 September 30,
(Unaudited) 1999*
----------------- ---------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.03 $ 10.00
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Investment Operations:
Net investment loss (0.22) (0.17)
Net realized and unrealized gain on investments 9.05 2.20
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Total from investment operations 8.83 2.03
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Net Asset Value, End of Period $ 20.86 $ 12.03
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Total Return 73.40% 20.30%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $ 5,137 $ 1,126
Ratio of expenses to average net assets:
Before expense reimbursement 2.95%(1) 2.95%(1)
After expense reimbursement 2.95%(1) 2.54%(1)
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (2.40)%(1) (1.94)%(1)
After expense reimbursement (2.40)%(1) (1.53)%(1)
Portfolio turnover rate 36.43% 183.71%
(1) Annualized
* The Avalon Capital Appreciation Fund commenced operations on October 2, 1998.
Per share data has been calculated based on the average daily number of shares outstanding throughout the period.
See notes to financial statements.
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THE AVALON CAPITAL APPRECIATION FUND
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NOTES TO THE FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Avalon Fund of Ann Arbor, Inc. (the "Company") was incorporated under
the laws of the state of Maryland on March 17, 1998, and consists solely of
The Avalon Capital Appreciation Fund (the "Fund"). The Company is
registered as an open-end diversified management investment company of the
series type under the Investment Company Act of 1940 (the "1940 Act"). The
Fund's investment strategy is long-term growth through capital appreciation.
The Fund became effective with the SEC on October 1, 1998 and
commenced operations on October 2, 1998.
The costs incurred in connection with the organization, initial
registration and public offering of shares have been paid by Questar
Capital Corporation (the "Advisor"). Accordingly, no organization costs
have been recorded by the Fund.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation -- Common stocks and other equity-type securities
listed on a securities exchange are valued at the last quoted sales price
on the day of the valuation. Price information on listed stocks is taken
from the exchange where the security is primarily traded. Securities that
are listed on an exchange but which are not rated on the valuation date are
valued at the most recent bid prices. Other assets and securities for which
no quotations are readily available are valued at fair value as determined
in good faith by the Investment manager under the supervision of the Board
of Directors. Short-term instruments (those with remaining maturities of 60
days or less) are valued at amortized cost, which approximates market
value.
b) Federal Income Taxes -- No provision for federal income taxes has been
made since the Fund has complied to date with the provision of the Internal
Revenue Code applicable to regulated investment companies and intends to so
comply in the future and to distribute substantially all of its net
investment income and realized capital gains in order to relieve the Fund
from all federal income taxes.
c) Distributions to Shareholders -- Dividends from net investment income
and distributions of net realized capital gains, if any, will be declared
and paid at least annually. Income and capital gain distributions are
determined in accordance with income tax regulations that may differ from
generally accepted accounting principles.
d) 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 reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
e) Other -- Investment and shareholder transactions are recorded on trade
date. The Fund determines the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with
the net sales proceeds. Dividend income is recognized on the ex-dividend
date or as soon as information is available to the Fund, and interest
income is recognized on an accrual basis.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended March 31, 2000 were
as follows:
Shares Amount
-------------- --------------
Sold 156,776 $ 2,867,062
Redeemed (4,113) (73,364)
-------------- --------------
Net Increase 152,663 $ 2,793,698
============== ==============
Transactions in shares of the Fund for the year ended September 30, 1999
were as follows:
Shares Amount
-------------- --------------
Sold 94,838 $ 1,015,836
Redeemed (1,307) (13,787)
-------------- --------------
Net Increase 93,531 $ 1,002,049
============== ==============
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the period ended March 31, 2000, were as
follows:
Purchases $ 2,817,702
Sales 856,274
At March 31, 2000, gross unrealized appreciation of investments for tax
purposes were as follows:
Appreciation $ 1,566,196
Depreciation (200,046)
--------------
Net appreciation on investments $ 1,366,150
==============
At March 31, 2000, the cost of investments for federal income tax purposes
was $3,311,139.
4. ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS
The Fund has entered into a Management Agreement with Questar Capital
Corporation (the "Advisor") to provide investment management services to
the Fund. Under the terms of the Advisory Agreement, the Advisor is
entitled to receive a fee, calculated daily and payable monthly, equal to
0.50% of average net asset value of the Fund. For the period ended March
31, 2000, the Advisor received advisory fees of $7,294.
The Fund has entered into an Operating Services Agreement (the "Servicing
Agreement") with the Advisor to provide or arrange for day-to-day
operational services to the Fund. Pursuant to the Servicing Agreement, the
Advisor is entitled to receive a fee, calculated daily and payable monthly
at the annual rate of 1.45% as applied to the Fund's daily net assets. For
the period ended March 31, 2000, the Advisor received Servicing Agreement
fees of $21,151.
The Fund and the Advisor have entered into an Investment Company Services
Agreement (the "ICSA") with Declaration Service Company to provide
day-to-day operational services to the Fund including, but no limited to,
accounting, administrative, transfer agent, dividend disbursement,
registrar and recordkeeping services.
The Fund has entered into a Distribution Agreement with the Advisor to
provide distribution services as underwriter/distributor of the Fund. For
the period ended March 31, 2000, Questar Capital Corporation, the Fund's
underwriter, received $90,945 from commissions earned on sales of shares of
the Fund. The total amount was retained by the underwriter.
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940 for the Fund. The plan provides that the
Fund may pay a servicing or Rule 12b-1 fee of up to 0.75% of the Funds
average daily net assets (1/12 of 0.75% monthly) to pay or reimburse
expenditures in connection with sales and promotional services related to
distribution of the Funds shares. The distribution plan also allows for a
fee of up to 0.25% of average daily net assets, to be paid to persons or
institutions for providing certain servicing functions to prospective and
existing shareholders. For the period ended March 31, 2000, Questar Capital
Corporation received 12b-1 fees of $14,587.
Certain directors and officers of the Fund are directors and officers of
the Advisor.
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The Avalon Capital Appreciation Fund
INVESTMENT ADVISOR
Questar Capital Corporation
1350 Highland Drive
Suite A
Ann Arbor, MI 48108
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428
DISTRIBUTOR
Questar Capital Corporation
1350 Highland Drive
Suite A
Ann Arbor, MI 48108
CUSTODIAN BANK
First Union National Bank
1339 Chestnut Street
Philadelphia, PA 19107
INDEPENDENT ACCOUNTANTS
McCurdy & Associates CPA's Inc.
27955 Clemens Road
Westlake, OH 44145
