<PAGE> 1
Z-SEVEN
FIRST QUARTER REPORT
Period Ending
March 31, 1997
1. Accounting Procedures
Reliability & Conservatism
2. Consistency of Operating
Earnings Growth
3. Strength of Internal
Earnings Growth
4. Balance Sheet:
Working Capital
5. Balance Sheet:
Corporate Liquidity
6. Recognition:
Owner Diversification
7. Value: P/E Under 10
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LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
We would like to express our gratitude for your confidence in our investment
philosophy. Most of all, we are thankful for the love, strength, and wisdom
given to us by our heavenly creator and caring shepherd.
1997 THREE MONTH INVESTMENT RESULTS
Over the first three months, our investment portfolio advanced 3%.
FIRST QUARTER NET ASSET VALUE
Our net asset value rose 3% from $16.40 to $16.86. This is the fifteenth
quarter out of the past eighteen in which our net asset value has posted a
gain.
GOOD NEWS
Investments with increases in share price of at least 20% since the end of
last year qualify to be discussed under our "Good News" section. This quarter
we had three stocks in our portfolio that achieved a gain of 20% or more. We
discuss each of these companies by order of size in the Fund.
Our largest position, DAY RUNNER, INC., was up 30%. The company is one of the
biggest manufacturers of paper-based organizers for the retail market. Day
Runner reported strong sales growth which was attributed to several factors
including renewed growth in sales to Wal-Mart and increased sales to other
large customers whose inventory tightening had adversely influenced sales in
the quarter ended December 31, 1996.
Our latest U.K. investment is BORDER TELEVISION PLC, a regional broadcaster
in television and radio. Border had a price increase of 20%. The
company continued its record growth with pre-tax profits up 37%. Border
has produced the highest-rated news magazine in Britain and also an
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acclaimed documentary series. Their staff has won important industry
awards. "Century Radio," a newly acquired station, achieved break-even status
within two years and is expected to make its own profit contribution in the
current year. Border still looks for opportunities to widen their sphere of
broadcasting and does so with the confidence that comes from its solid
achievements.
The share price of AIR LONDON INTERNATIONAL PLC, the world's largest corporate
air charter broker, rose 42%. In 1996, earnings were up 96% and the share
price increased 54%. The last interim report showed great results with
earnings growth continuing at 20%. All of Air London's divisions had
increased sales, but the highest contribution came from its French unit, Air
Partner International, with a sales increase of 35%. Profits benefited from
improved margins and good cost control.
This concludes the "Good News" section. However, we would like to mention one
more company that performed exceptionally well for our Fund, but was not part
of the portfolio at the end of the first quarter. The company, Getronics NV,
had been in our portfolio for over six years. Its share price rose 21% before
it was sold in the first quarter. Getronics was sold for more than eight
times its cost. The position was eliminated because it no longer met the
Accounting Procedures criterion.
MISTAKES AND DISAPPOINTMENTS
For purposes of objectivity, we also talk about the investments which lost 20%
or more in their market prices in the first quarter. At the end of 1996,
there were two companies in this category. One of these companies was Day
Runner, which rebounded and is included in the "Good News" section. The other
company was UDO Holding, our smallest position. UDO recovered 20% of its
share price and pulled out of the "Mistakes and Disappointments" section also.
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At the end of the first quarter we have only one company that needs to be
included in this section. It is WOLVERINE TUBE, INC., one of our new holdings,
whose price came down 31%. Wolverine Tube manufactures custom-engineered
copper tubular products primarily for the air conditioning industry. This
company has enjoyed excellent earnings growth over the last six years and
maintains a good balance sheet. Near the end of this quarter, Wolverine Tube
warned investors that earnings would be lower than expected.
Earnings were lower due to a decrease in demand for products in two divisions.
The technical tube division was impacted by lower replacement levels of large
commercial air conditioning units that use CFC. This is mainly due to the
fact that CFC refrigerants are still available, although banned in the U.S.
and many other countries. Commercial building owners will be motivated to
replace these units as the CFC supply dwindles and the cost effectiveness of
replacing old units increases. The industrial tube division that supplies the
residential and light commercial air conditioning industries experienced a
slowdown in demand due to their customers' high inventory levels. Spring
weather will play an important part in determining how fast the inventories
will be depleted. Wolverine is taking appropriate action to reduce production
levels and expenses until the inventory reversal occurs.
OUTLOOK
Late in the first quarter, the Federal funds interest rate was increased.
Despite the higher interest rates, the Dow hit a new high which was recently
confirmed by good broad stock market behavior. The combination of these
factors indicates that the long-running U.S. bull market still continues.
British interest rates were raised in the previous quarter and again,
since the end of the first quarter. Due to the bearish market
outlook in the U.K., we are selling companies that no longer
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qualify under all seven criteria. The current market conditions cause us to
reduce risk, but they don't prevent us from buying new stocks.
We are finding more U.S. stocks to acquire following the recent sharp
correction in the market. The Dow has bounced back to new highs, but many
individual stocks still offer some buying opportunities. We will take
advantage and buy value growth companies that meet all our criteria. As a
result of the new investments we are adding, we are reducing the position
sizes and diversifying our portfolio.
Subsequent to the end of the quarter, a decline in the share price of the
Z-Seven Fund has given us the opportunity, under Section 23(c) of the
Investment Company Act of 1940, to attempt to repurchase shares of our capital
stock in the open market. This practice tends to create a floor for the share
price just under the net asset value and can achieve maximum value for the
shareholders. The Fund's share price has not been below the net asset value
of the shares for quite some time. We believe this temporary discount
position represents an excellent opportunity for the Z-Seven Fund and
individual shareholders to take advantage of the current value in the
marketplace.
At this time, it appears the net asset value will be up in the second quarter
also. If so, it would be the third consecutive quarter, and the eleventh out
of the last twelve, that our net asset value has posted a gain.
Sincerely,
Barry Ziskin May 27, 1997
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<TABLE>
<CAPTION>
Z-Seven Fund, Inc
SCHEDULE OF INVESTMENTS
at March 31, 1997
(Unaudited)
Common Stocks (a) Shares Value
- --------------------------------------- --------- -----------
<S> <C> <C>
BUILDING & MATERIALS - 11%
American Homestar Corporation 59,000 $ 1,032,500
Polypipe PLC 88,200 349,537
UDO Holdings PLC 1,700 4,802
Wolverine Tube, Inc. (b) 44,200 1,149,200
-----------
2,536,039
-----------
FOOD & BEVERAGE - 5%
Carlsberg AS 4,100 255,684
Lindt & Sprungli AG 329 543,980
Weetabix Ltd. 5,850 256,294
-----------
1,055,958
-----------
HEALTH & PERSONAL CARE - 10%
Astra AB Class B 18,100 845,994
L'Oreal Ord. (b) 2,157 752,922
Novartis AG 659 812,547
-----------
2,411,463
-----------
LEISURE & MEDIA - 15%
Border Television PLC 375,500 2,278,534
Callaway Golf Co. (b) 26,200 749,975
LVMH Moet Hennessy
Louis Vuitton 2,145 519,699
-----------
3,548,208
-----------
MEDICAL SERVICES & SUPPLIES - 9%
National Dentex Corporation (b) 51,000 873,375
Protean PLC 266,300 687,054
Seton Healthcare Group PLC 55,800 445,507
-----------
2,005,936
-----------
MULTI-INDUSTRY - 15%
Tomkins PLC 290,166 1,295,011
TT Group PLC 83,900 487,795
Wassall PLC 309,100 1,766,816
-----------
3,549,622
-----------
PRINTING & BUSINESS SERVICES - 23%
Day Runner, Inc. 96,300 2,443,613
Fairway Group PLC 1,377,500 1,454,640
Jardine Lloyd Thompson
Group PLC 448,600 1,421,613
RCO Holdings PLC 33,300 129,271
-----------
5,449,137
-----------
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Common Stocks (a) Shares Value
- --------------------------------------- --------- -----------
RETAIL & WHOLESALE - 5%
Abbeycrest PLC 20,800 45,136
Essex Furniture PLC 155,100 209,540
Insight Enterprises, Inc. 36,000 891,000
Westfair Foods Ltd. 360 11,706
-----------
1,157,382
-----------
TRAVEL - 2%
Air London International PLC 92,000 354,108
Autopistas C.E. SA 19,992 229,488
-----------
583,596
- ---------------------------------------------------------------
TOTAL COMMON STOCKS - 95%
(Cost $20,726,505) 22,297,341
- ---------------------------------------------------------------
CASH, RECEIVABLES AND OTHER ASSETS,
LESS LIABILITIES - 5% 1,181,464
- ---------------------------------------------------------------
NET ASSETS - 100%
(Equivalent to $16.86 per share based
on 1,392,617 shares of capital stock
outstanding) $23,478,805
===============================================================
<FN>
(a) Percentages indicated are based on net assets of $23,478,805.
(b) All or a portion of this stock was pledged as collateral for a line of
credit.
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS BY COUNTRY
Percent Country Value
- -------- -------------- -----------
<C> <S> <C>
50% United Kingdom $11,185,658
32% United States 7,151,369
6% Switzerland 1,356,527
6% France 1,272,621
4% Sweden 845,994
1% Denmark 255,684
1% Spain 229,488
- -------- -------------- -----------
100% $22,297,341
======== ===========
</TABLE>
