================================================================================
AVALON CAPITAL, INC.
ANNUAL REPORT
August 31, 2000
================================================================================
<PAGE>
Avalon Capital, Inc. (the "Fund"), is a non-diversified closed-end investment
company whose primary investment objective is to provide investors with
long-term capital appreciation by investing in a portfolio of securities that
possess fundamental investment value and may be purchased at a reasonable cost.
To this end, the Fund applies the following investment principles:
-- View each investment as a business
-- Think independently
-- Emphasize high returns
-- Look for sustained business excellence
-- Focus on businesses that consider shareholder interests
-- Seek to pay a reasonable price
-- Invest for the long term
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Avalon Capital, Inc. features a Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), which allows shareholders to acquire additional shares directly
from the Fund by automatically reinvesting dividends or making additional
investments as often as each month. An Automatic Cash Investment feature allows
investors to set up direct investments from a bank account on a regular monthly
or quarterly basis. A more detailed description of the Plan appears on page 14
of this report and in the Fund's prospectus.
ADDITIONAL SALES OF SHARES
Avalon Capital, Inc. also has a unique interval feature which provides the
opportunity for non-shareholders to buy shares directly from the Fund. Unlike
most closed-end funds, which trade only over an exchange, Avalon Capital, Inc.
may periodically sell additional shares with no sales commission and no minimum
or maximum investment limit.
REPURCHASE OF SHARES
Avalon Capital, Inc. trades on the NASDAQ Bulletin Board, under the ticker
symbol "MIST." To provide additional shareholder liquidity, each February the
Fund offers to repurchase between 5 percent and 25 percent of its outstanding
shares at the then-current net asset value. Before each repurchase offer, the
Fund will establish a deadline for receiving repurchase requests no more than 14
days before the repurchase pricing date, which shall be the last business day of
February. No less than 21 days and no more than 42 days before the repurchase
request deadline, the Fund will give notice of the repurchase offer, including
the repurchase request deadline, to each shareholder of record.
The Fund has also been authorized by its Board of Directors, in accordance with
Section 23(c) of the Investment Company Act of 1940, to repurchase its shares in
the market from time to time as and when it is deemed advisable by the Fund.*
Such purchases will be made at a price not above the market value or the net
asset value, whichever is lower, at the time of such purchase. If such purchases
are made at prices below net asset value, they will increase the net asset value
of the remaining outstanding shares. Shares repurchased by the Fund are retired.
For additional information about Avalon Capital, Inc. or any of the above
programs, please call the Fund at (609) 683-3916.
* Meeting of the Board of Directors, October 18, 1996.
<PAGE>
AVALON CAPITAL, INC.
================================================================================
--------------------------------------------------------------------------------
ANNUAL REPORT October 23, 2000
--------------------------------------------------------------------------------
Dear Shareholders,
For the fiscal year ended August 31, 2000, Net Asset Value (NAV) fell slightly
to $17.21 from $17.52. For the calendar year to date through September 30, 2000,
NAV rose 5.19% compared to -1.39% for the S&P 500.
At the Fund's annual redemption on February 29, 2000, 43,162 shares were
redeemed. In addition, 19,531 shares were sold through the Dividend Reinvestment
and Cash Purchase Plan.
---------------------------------------
A friend of mine, George, decided early this year that he wanted to get in on
some of the stocks that took off in 1999. Tempted by stories he'd been hearing
from co-workers, clients, friends at cocktail parties, even a waiter at his
favorite restaurant, he decided in late February he was going to buy, too - just
as the NASDAQ was approaching its peak.
Not long after, the NASDAQ experienced its April crash, falling 37.2% from its
all-time high. George subsequently bailed out of some of the stocks he bought,
suffering large losses, and he's still losing ground on others that he held. He
exposed himself to the risk of such losses, because he violated four of the
Principles of Investing that I outline in my book, The Rational Investor, and
that we follow in our investment strategy:
THINK INDEPENDENTLY - George was acting on information he heard about from
other people, not on his own independent thinking or research.
BUY THE BUSINESS, NOT THE STOCK - George hadn't read an annual report or
analyst's report for the companies he was interested in, or spoken to
anyone at the companies, or consulted any reputable information
sources about the companies - he acted primarily on the recent
movement of the stock price.
PAY ONLY A REASONABLE PRICE - because George was buying stocks that were
popular at the time, the shares he purchased were extremely overvalued
(research would have shown this).
DON'T LOSE MONEY - George fell prey to the most likely cause of a permanent
loss of capital - paying a price well in excess of economic value.
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
SHAREHOLDER LETTER
================================================================================
BUYING FOR THE WRONG REASON
The biggest mistake many investors, including investment professionals such as
mutual fund advisers, have been making over the last year or so has been buying
shares of a company because its price has been going up, most often because the
company potentially has exciting growth prospects. Unfortunately, investing is
more complicated than that. You can't simply buy what sounds like a business
winner. The reason: if you think a company is likely to do well, chances are
other people think so, too - and that opinion may already be reflected in a high
price that leaves little, if any, room for you to profit.
Even worse, many companies that become popular with investors because they look
like business winners turn out to be business duds. Sometimes this
disappointment happens quickly - i.e. the many Internet stocks that were so
popular over the past year or so and now have lost 70%, 80%, even 90% of their
value.
Other times, it can take years for investors to realize that growth prospects
were exaggerated, that a hot company is actually vulnerable to new competitors,
or a cyclical fluctuation, or the like. So investors, like George, who buy
currently popular companies can get hit with a double whammy, much like a
shopper who pays a high price for what eventually turns out to be damaged goods.
THE MATHEMATICS OF INVESTING
The best way to see how price matters is to look at the math of investing, which
involves probabilities, much like the odds on horses at a racetrack. An investor
favorite will often have a high p/e, or "low odds," which basically means a low
potential payoff. On the other hand, an investment that is out of favor with
investors will often have a low p/e, or "high odds," which can mean a much
larger potential payoff.
To see how this works, consider the following example of two companies:
Cisco Systems is a leading supplier of networking products for the Internet, a
company that has experienced rapid earnings growth in recent years and has
become extremely popular with investors. The Value Line Investment Survey, a
highly-regarded securities research service, projects an astounding 3-5 year
growth rate of 39.5% for the company, which would have earnings growing from
$0.53 a share in 2000 to $2.80 in 2005. Using Value Line's projected p/e of 50
for 2003-2005, however, a share of Cisco would have a market value in 2005 of
$140 - giving a compounded annual return of just 11.3% from Cisco's recent high
price of $82 this year.
Jones Apparel, on the other hand, is in a far less exciting business for
investors these days - women's clothing and shoes. Jones Apparel brands include
Jones New York, Evan-Picone, Lauren by Ralph Lauren, Nine West, and Easy Spirit.
According to Value Line, Jones has projected earnings for 2000 of $2.50 and a
projected 3-5 year growth rate of 20.5%, which would result in earnings of $6.35
in 2005. Multiplying these earnings by Value Line's projected multiple (p/e) of
15 times earnings gives a 2005 estimated price of $95.27 - a return of 24% per
year from Jones Apparel's recent high price of $32.60.
--------------------------------------------------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
SHAREHOLDER LETTER
================================================================================
EXCITING COMPANIES MAY PRODUCE MEDIOCRE RETURNS
Even worse for the investor in Cisco, an awful lot has to go right for the
company just to meet the Value Line projections. A 39.5% rate of growth is
rarely achieved by any corporation over long periods of time. Risks to the Value
Line earnings forecast include a cyclical downturn in the economy, new
competition in the industry, and new technological developments. For the same
reasons, a p/e of 50 in 2005 could well prove optimistic and is historically
very high. As has occurred recently for other tech companies, any dip in the
business could lead to a sudden collapse in the p/e multiple investors are
willing to pay for Cisco - which would mean a sharp fall in its price.
Jones, by contrast, has a projected growth rate of 20.5% - substantially below
the 27.5% it achieved over the last 5 years. In addition, the projected p/e of
15 is modest for any stock (the S&P sells for an average p/e of 26.47, today),
and well below the high p/e paid for Jones in recent years of 20.1. Moreover,
Jones' broad array of strong brand names in clothing and shoes suggests far less
business risk than the average company, especially a tech company.
To sum up this comparison - Value Line's projection of a 24% return for "boring"
Jones Apparel is not only larger, but appears more achievable than its modest
11.3% projected return for the "exciting" Cisco.
MAINTAIN A LONG-TERM PERSPECTIVE
Yet, earlier this year, investors continued to flock to the Ciscos of the stock
market. Why? In many cases it was not because they'd done the math and found the
projected long-term returns were likely to be high (Value Line's projections
would have ruled out that conclusion). Rather, these investors - including
mutual funds, trust companies, etc. - were seeking short-term performance and
giving in to popular opinion. They were really just gambling, like my friend,
George, that recent price movements would continue in the near-term future,
instead of focusing on long-term business results and the price paid for a share
in them.
Roger Lowenstein describes the dangers of this sort of speculation in
his recent book, WHEN GENIUS FAILED: THE RISE AND FALL OF LONG-TERM CAPITAL
MANAGEMENT:
Long-Term's saga of riches to rags was replete with lessons for investors.
Its astonishing profits looked less impressive in the light of the losses
that followed. As with an insurer who collects heady premiums but gives
them back when a big storm hits, Long-Term's profits were not, in a sense,
all "earned"; in part, they were borrowed against the day when the cycle
would turn. No investment - Internet wunderkinds included - can be judged
on the basis of half a cycle alone.
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
SHAREHOLDER LETTER
================================================================================
As you know from our prior reports, we follow a strategy that is based on proven
business results over many years and many economic cycles - not short-term price
movements. We are looking for steady, high compound returns over 5, 10, or 20
years in companies with superior long-term prospects due to an economic
competitive advantage. We believe such an approach not only reduces risk, but is
more tax-efficient and cheaper regarding expenses such as commissions and
bid/ask spreads.
/S/ DANIEL E. HUTNER
--------------------
Daniel E. Hutner
Chairman and President
--------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2000
================================================================================
QUANTITY SECURITY DESCRIPTION VALUE
-------- -------------------- -----
COMMON STOCK (97.23%)
BANKS - REGIONAL (4.07%)
<C> <S> <C>
1,200 M & T Bank Corp. ............................... $ 581,625
----------
BEVERAGES (17.29%)
2,400 Anheuser- Busch Companies, Inc. ................ 189,150
37,900 Coca - Cola Company ............................ 1,994,487
6,700 Pepsico, Inc. .................................. 285,587
----------
2,469,224
----------
CONSUMER PRODUCTS (2.19%)
10,400 Gillette Company ............................... 312,000
----------
DIVERSIFIED COMPANIES (10.48%)
25 Berkshire Hathaway, Inc. Class A * ............. 1,442,500
28 Berkshire Hathaway, Inc. Class B * ............. 53,564
----------
1,496,064
----------
ENTERTAINMENT (7.05%)
25,841 The Walt Disney Company ........................ 1,006,184
----------
FINANCIAL SERVICES (20.42%)
44,850 American Express Company ....................... 2,651,756
8,000 Dun & Bradstreet Corp. ......................... 264,000
----------
2,915,756
----------
FOOD PRODUCTS (2.41%)
160 Earthgrains Company ............................ 2,820
4,600 Wrigley (Wm) Jr. Company ....................... 340,688
----------
343,508
----------
INSURANCE (16.07%)
25,752 American International Group, Inc. ............. 2,295,147
----------
LEISURE/AMUSEMENT (4.99%)
21,025 International Speedway Corp. ................... 712,222
----------
MINING (1.18%)
16,000 Franco Nevada Mining, Ltd. ..................... 168,177
----------
MORTGAGE FINANCE (6.49%)
17,250 Federal National Mortgage Association .......... 927,188
----------
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2000
================================================================================
QUANTITY SECURITY DESCRIPTION VALUE
-------- -------------------- -----
NEWSPAPER (2.54%)
6,400 Gannett Company, Inc. .......................... $ 362,400
----------
RESTAURANTS (2.05%)
9,800 McDonald's Corp. ............................... 292,775
----------
TOTAL COMMON STOCK (Cost $7,284,316) ........................... 13,882,270
----------
SHORT-TERM HOLDINGS (0.33%)
46,849 Firstar Treasury Fund (Cost $46,849) ........... 46,849
----------
TOTAL INVESTMENTS (Cost $7,331,165) ............................ $13,929,119
<FN>
-----------
* Denotes non-income producing security.
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
================================================================================
ASSETS:
<S> <C>
Investments, at value (cost $7,331,165) .............. $ 13,929,119
Receivable for securities sold ....................... 383,535
Interest and dividends receivable .................... 5,823
Organization costs, net .............................. 4,300
Other assets ......................................... 3,925
------------
Total Assets ................................................. 14,326,702
LIABILITIES:
Accrued advisory fees ................................ 12,363
Accrued directors fees ............................... 3,000
Other accrued expenses ............................... 33,307
------------
Total Liabilities ............................................ 48,670
------------
NET ASSETS ................................................... $ 14,278,032
============
COMPOSITION OF NET ASSETS:
Paid in capital ...................................... $ 7,618,517
Accumulated net investment loss ...................... (554,555)
Accumulated net realized gains on investments ........ 616,116
Net unrealized appreciation on investments ........... 6,597,954
------------
NET ASSETS ................................................... $ 14,278,032
============
SHARES OUTSTANDING ........................................... 829,471
============
NET ASSET VALUE PER SHARE (market value $15.50) .............. $ 17.21
============
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
================================================================================
INVESTMENT INCOME:
<S> <C>
Dividends ............................................ $ 141,400
Interest ............................................. 6,054
---------
Total investment income ...................................... 147,454
---------
EXPENSES:
Advisory ............................................. 143,712
Administration ....................................... 52,800
Transfer agency ...................................... 7,624
Directors ............................................ 3,000
Auditing ............................................. 19,700
Custody .............................................. 4,884
Legal ................................................ 10,278
Printing and postage ................................. 6,404
Amortization of organization costs ................... 19,659
Other ................................................ 8,999
---------
Total expenses ............................................... 277,060
---------
NET INVESTMENT LOSS .......................................... (129,606)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ..................... 503,787
Net change in unrealized appreciation ................ (299,030)
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .............. 204,757
---------
INCREASE IN NET ASSETS FROM OPERATIONS ....................... $ 75,151
=========
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
STATEMENT OF CHANGES IN NET ASSETS
AUGUST 31, 2000
================================================================================
For the years ended August 31,
2000 1999
------------------------------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C>
Net investment loss .............................. $ (129,606) $ (163,838)
Net realized gain on investments ................. 503,787 421,825
Net change in unrealized appreciation ............ (299,030) 2,168,820
------------ ------------
Net increase in net assets resulting from operations ..... 75,151 2,426,807
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains on investments
($0.50 and $0.16 per share, respectively) (426,602) (142,185)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ..................... 145,391 138,443
Dividends reinvested ............................. 172,704 35,726
Shares repurchased ............................... (639,224) (807,102)
------------ ------------
Net decrease in net assets from capital share transactions (321,129) (632,933)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS .................... (672,580) 1,651,689
NET ASSETS:
Beginning of year ........................................ 14,950,612 13,298,923
------------ ------------
End of year (includes accumulated net investment loss
of $554,555 and $424,949, respectively) .......... $ 14,278,032 $ 14,950,612
============ ============
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
FINANCIAL HIGHLIGHTS
================================================================================
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 20,
1995*
FOR THE YEARS ENDED AUGUST 31, THROUGH
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning net asset value per share ... $ 17.52 $ 14.98 $ 13.35 $ 10.51 $ 10.00
Net investment loss ................... (0.17) (0.19) (0.19) (0.09) --
Net realized and unrealized gain
on securities ................. 0.36 2.89 1.82 2.93 0.60
Distribution from net investment income -- -- -- -- (0.04)
Distribution from realized gains
on investments ................ (0.50) (0.16) -- -- --
Offering Cost ......................... -- -- -- -- (0.05)
------------- ------------- ------------- ------------- -------------
Ending net asset value per share ...... $ 17.21 $ 17.52 $ 14.98 $ 13.35 $ 10.51
============= ============= ============= ============= =============
Ending market value per share ......... $ 15.50 $ 16.25 $ 15.63 $ 13.75 $ 10.88
============= ============= ============= ============= =============
Ratios to average net assets:
Expenses ...................... 1.93% 1.84% 2.11% 2.22% 3.14%**
Total Return:
Based upon net asset value .... 1.01% 18.01% 12.21% 27.02% 5.48%
Based upon market value ....... (1.85)% 4.91% 13.67% 26.38% 9.18%
Portfolio turnover rate ............... 3.45% 4.05% 7.00% 8.89% 0.00%
Net assets at end of period
(000's omitted) ............... $ 14,278 $ 14,951 $ 13,299 $ 12,269 $ 10,180
<FN>
* Commencement of operations
** Annualized
</FN>
</TABLE>
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
NOTES TO FINANCIAL SATEMENTS
AUGUST 31, 2000
================================================================================
1. ORGANIZATION
Avalon Capital, Inc. (the "Fund") was incorporated in Maryland on March 14,
1995, as a non-diversified, closed-end management investment company. The Fund
had no operations until September 6, 1995, when it sold 10,000 shares of common
stock for $100,000 to Avalon Partners, L.P. Investment operations commenced on
November 20, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America which require
management to make certain estimates and assumptions at the date of the
financial statements and are based, in part, on the following information:
SECURITY VALUATION -- Securities held by the Fund for which market
quotations are readily available are valued using the last reported sales
price provided by independent pricing services. If no sales are reported,
the mean of the last bid and ask price is used. In the absence of readily
available market quotations, securities are valued at fair value as
determined by the Board of Directors. Short-term securities having a
maturity of 60 days or less are valued at amortized cost.
INTEREST AND DIVIDEND INCOME AND DIVIDENDS TO SHAREHOLDERS -- Interest
income is accrued as earned. Dividend income is recorded on ex-dividend
date. Dividends to shareholders from net investment income are declared and
paid annually. Net capital gains are distributed to shareholders at least
annually. Distributions from net investment income and realized capital
gains are based on amounts calculated in accordance with applicable income
tax regulations. Any differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations are primarily attributable to organizational cost and the
recognition of unrealized loss on options. Discounts on Treasury Bills
purchased are amortized over the life of the respective securities.
ORGANIZATIONAL COSTS -- The Fund incurred costs in connection with its
organization in the amount of $98,157. These costs have been capitalized
and are being amortized using the straight-line method over a five year
period beginning on the commencement of the Fund's investment operations.
FEDERAL INCOME TAX -- The Fund intends to qualify as a regulated investment
company and distributes all of its taxable income. Therefore, no Federal
income tax provision is required.
3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser to the Fund is Hutner Capital Management, Inc. (the
"Adviser"). The Adviser receives an advisory fee from the Fund at an annual rate
of 1% of the average weekly net assets of the Fund. The administrator of the
Fund is American Data Services, Inc. ("ADS"). Pursuant to an Administration
Agreement, ADS receives a fee equal to the greater of an annual rate of .10% of
the average weekly net assets of the Fund or $52,800 per year. ADS also provides
fund accounting services to the Fund pursuant to the administration agreement
under which it receives no fees.
American Stock Transfer & Trust Co. serves as the Fund's transfer agent and
dividend disbursing agent, for which it receives a fee of $6,000 per year plus
certain shareholder account fees.
--------------------------------------------------------------------------------
11
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
NOTES TO FINANCIAL SATEMENTS
AUGUST 31, 2000
================================================================================
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales (excluding short-term investments)
during the year ended August 31, 2000, amounted to $492,845 and $1,756,799,
respectively. The cost basis of securities for Federal income tax purposes is
the same as for financial accounting purposes. Gross unrealized appreciation and
depreciation as of August 31, 2000 was $6,749,617 and $151,663, respectively.
Realized gains and losses on investments sold are recorded on the basis of
specific identified cost.
5. CAPITAL SHARE TRANSACTIONS
The Fund has a Dividend Reinvestment and Cash Purchase Plan (the "Plan")
pursuant to which shareholders have dividend payments or other distributions
invested in additional shares of the Fund. Participants in the Plan may also
make additional cash investments in shares of the Fund on a monthly basis.
Pursuant to Rule 23c-3 under the Investment Company Act of 1940, the Fund offers
shareholders the option of redeeming shares in amounts of not less than 5% but
not more than 25% of the Fund's stock.
There are 100 million shares of $.001 par value common stock authorized. At
August 31, 2000, paid in capital amounted to $7,618,517.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 1999
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ....................... 9,746 $ 145,391 7,766 $ 138,443
Shares issued for reinvestment of
dividends and distributions
from realized gains ....... 9,785 172,704 2,023 35,726
Shares redeemed ................... (43,162) (639,224) (44,542) (807,102)
------- --------- ------- ---------
Net decrease ...................... (23,631) $(321,129) (34,753) $(632,933)
======= ========= ======= =========
</TABLE>
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12
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
INDEPENDENT AUDITORS' REPORT
================================================================================
BOARD OF DIRECTORS AND SHAREHOLDERS OF
AVALON CAPITAL, INC.
We have audited the accompanying statement of assets and liabilities of Avalon
Capital, Inc. (the "Fund"), including the schedule of investments, as of August
31, 2000, and the related statements of operations and of changes in net assets,
and financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and 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 August 31, 2000 by correspondence with the custodian. 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 Avalon
Capital, Inc. as of August 31, 2000, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods presented
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
New York, New York
October 6, 2000
--------------------------------------------------------------------------------
13
<PAGE>
--------------------------------------------------------------------------------
AVALON CAPITAL, INC.
OTHER INFORMATION
================================================================================
AUTOMATIC DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Dividend Reinvestment and Cash Purchase Plan ( the "Plan") is a convenient
way to acquire additional shares of Avalon Capital, Inc. (the "Fund") common
stock directly from the Fund by automatic reinvestment of cash distributions or
additional contributions of cash.
Shareholders wishing to make additional investments through the Plan should send
a check to American Data Services, Inc., The Hauppauge Corporate Center, 150
Motor Parkway, Suite 109, Hauppauge, NY 11788. Please make your check payable to
"Avalon Capital, Inc." and be sure to write your account number on the face of
the check. You may verify your account number by calling American Stock Transfer
& Trust Co., the Fund's transfer agent at (800) 937-5449. Funds received during
a month are invested in shares of the Fund on the last business day of the month
in accordance with the procedures set forth in the prospectus.
The Plan is available to all shareholders of Avalon Capital, Inc. whose shares
are held directly on the books of the Fund. If your shares are held by a bank,
broker or nominee and you wish to participate in the Plan, you should contact
the institution holding your shares to request that the shares be re-registered
in your name. This will enable you to participate in the Plan.
For more information about the Plan, please consult the prospectus.
SHARE INFORMATION
The Fund's net asset value is calculated as of the close of the New York Stock
Exchange (typically 4:00 p.m. Eastern Time) each Friday. You can obtain the
Fund's last calculated NAV by calling American Data Services, Inc. at (631)
951-0500.
Shares of Avalon Capital are listed for trading on the NASDAQ Bulletin Board.
Current quotes are available from quotation systems or through brokers using the
fund's ticker symbol, "MIST". The net asset value and market price of Avalon
Capital, Inc. shares are also reported weekly under the closed-end fund listings
in Barron's, the Sunday New York Times business section, and the Monday edition
of the Wall Street Journal.
ACCOUNT INFORMATION
If your Avalon Capital, Inc. shares are registered in the name of your bank or
broker, please contact that institution if you have changed your address, or if
you have any questions concerning your account. If your shares are registered in
your own name, you may write American Stock Transfer & Trust Co., 40 Wall
Street, New York, NY 10005, or call (800) 937-5449.
If you have other questions about Avalon Capital, Inc. you may write us at
Avalon Capital, Inc., 34 Chambers Street, Suite 200, Princeton, NJ 08542, or
call (609) 683-3916.
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AVALON CAPITAL, INC.
DIRECTORS
William Endicott
Daniel E. Hutner
Nancy Watson Hutner
Edward Rosen
Donald Smith
INVESTMENT ADVISER
Hutner Capital Management, Inc.
34 Chambers Street
Princeton, NJ 08542
ADMINISTRATOR
American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
CUSTODIAN
Firstar Bank, NA
425 Walnut Street
Cincinnati, OH 45201
LEGAL COUNSEL
Spitzer & Feldman P.C.
405 Park Avenue
New York, NY 10022
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1414
INVESTOR INFORMATION: (631) 951-0500
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO
OTHERS WHO HAVE RECEIVED A COPY OF THE AVALON CAPITAL, INC. FUND PROSPECTUS.
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AVALON CAPITAL, INC.
Avalon Capital, Inc.
34 Chambers Street
Princeton, NJ 08542
609-683-3916
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