<PAGE> 1
Z-SEVEN
SECOND QUARTER REPORT
Period Ended
JUNE 30, 1998
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
<PAGE> 2
LETTER TO OUR SHAREHOLDERS
Dear Fellow Shareholder:
We would like to express our appreciation for the confidence you have shown in
our investment philosophy. We are thankful for the love, strength, and wisdom
given to us by our heavenly creator and caring shepherd.
1998 FIRST-HALF INVESTMENT RESULTS
As 1998 reached its mid-year point, our investments have provided positive
returns. Small-cap shares here at home, and also in the U.K., had a
particularly difficult month of June, causing us to give up part of our 1998
gains. The second quarter, with a 3% set back in the investment portfolio,
followed a strong first quarter. Over the first six months, the investment
portfolio advanced 12%.
FIRST-HALF NET ASSET VALUE
Our net asset value rose 11% in the first half, from $7.55 to $8.38. During
the second quarter, net asset value slipped 3% from $8.63 to $8.38. This
small dip in the second quarter follows a period when our net asset value had
advanced four out of five quarters, and twelve out of fourteen quarters.
GOOD NEWS
The good news is a new format for our "Good News" and "Mistakes and
Disappointments" sections. The information is presented in a table that we
hope will make the report more interesting and easier for you to read. Please
let us know how you like the change.
Many of the seventeen "Good News" stocks are among our larger holdings. Seven
of them belong in our top twelve holdings ("Golden Dozen"). The seven
"Mistakes and Disappointments" are less significant within the portfolio,
since most of them are smaller positions.
<PAGE> 3 & 4
<TABLE>
<CAPTION>
GOOD NEWS: Investments with year-to-date stock
price increases of 20% or more:
COMPANY PRICE "GOOD NEWS" COMMENTS
(IN ORDER OF POSITION SIZE) INCREASE
- ----------------------------------------- --------- -----------------------------------------------------
<S> <C> <C>
Rathbone Brothers Plc 51% Largest holding. Reported eighteenth year of con-
British investment manager secutive growth with 36% pre-tax profit increase.
NCI Building Systems, Inc. 63% Second-largest position. Acquired highly profitable
Manufacturer of metal building and Metal Building Components, Inc. Merger creates
framing systems additional earnings-growth potential.
Technitrol, Inc. 33% Fourth-largest investment. Announced operating
Manufacturer of electronic components pre-tax profits up 27% in first half of 1998.
and metallurgical parts and materials
Border Television Plc 24% One of our largest holdings. U.K. small-cap shares
British television and radio broadcaster recovered from depressed prices in early 1998.
Day Runner, Inc. 24% Best performer in 1997. Another of our largest
Developer and manufacturer of paper- holdings. Company repurchased its shares last year.
based organizers and related products New line of personal organizers is performing well.
Dudley Jenkins Group Plc 71% Largest gainer year-to-date. A new company in our
Supplier of mailing lists, database "Golden Dozen" (largest twelve holdings). Finished
services, and envelopes fiscal 1998 strong with earnings up 45%.
Cybex Computer Products Corporation 41% Another "Golden Dozen" newcomer. Earnings up
Develops products for computer industry 57% in first quarter of fiscal 1999.
Lindt & Sprungli AG 53% In 1998, company acquired U.S. Ghirardelli
Swiss premium chocolates maker Chocolate Company.
L'Oreal 43% Acquired Soft Sheen Products, Inc., a U.S. hair care
French cosmetics company company with sales close to $80 million.
American Homestar Corporation 45% Growth strategy continued to produce very strong
Vertically integrated manufactured results for fiscal 1998 with earnings up 30% before
housing company exceptional charges.
Autopistas C.E. SA 22% Reported continued profit growth in 1997. Lower
Spanish constructor and operator of toll Spanish interest rates helping equity market.
highways
Seton Scholl Healthcare Plc 44% Fiscal 1998 pre-tax profit before exceptional items
British healthcare products manufacturer rose 21%. Stronger foot aid presence since merger
with Scholl.
Carlsberg AS 36% First-half profit before taxes soared 38%.
Danish brewery
Wolverine Tube, Inc. 23% Improved demand for products resulted in 16%
Maker of industrial tube products earnings growth in second quarter of 1998.
Weetabix Ltd. 23% Despite competitive markets and adverse currency
British breakfast cereal company effects, 1997 earnings were up 24%.
Abbeycrest Plc 40% Continued profit improvement. Company benefited
British jewelry manufacturer from rebound in U.K. small caps.
Westfair Foods Ltd. 28% 1997 pre-tax profits up 26%. Recently following
Canadian grocery retail chain trend of Canadian preferred shares.
</TABLE>
<PAGE> 5 & 6
<TABLE>
<CAPTION>
MISTAKES AND DISAPPOINTMENTS: Investments with year-to-date stock price
decreases of 20% or more:
COMPANY PRICE "MISTAKES AND DISAPPOINTMENTS" COMMENTS
(IN ORDER OF POSITION SIZE) DECREASE
- ------------------------------------------- --------- -----------------------------------------------------
<S> <C> <C>
Seattle FilmWorks, Inc. 31% Strong new business has not yet caught up with
Provider of photofinishing services business lost late in fiscal 1997.
Northern Technologies Int'l Corporation 22% Recent earnings flat. New packaging technology
Maker of corrosion-inhibiting plastic wrap offers potential for future earnings growth.
Smart Modular Technologies, Inc. 36% Company announced inventory glut pressuring cur-
Manufacturer of computer memory cards rent earnings. It expects better long-term results.
Lone Star Steakhouse & Saloon, Inc. 21% Training expenses and problems maintaining sales
Operator of steakhouse restaurants are pressuring earnings. Balance sheet still strong.
Portmeirion Potteries (Holdings) Plc 23% Revised near-term outlook downward. We hope for
British manufacturer of pottery products future earnings improvement under new management.
Fila Holding S.p.A. 25% Weakness in U.S. footwear sales. Growth in Euro-
Designer of footwear and sportswear pean apparel business a positive.
Del Laboratories 28% Company's restated 1997 earnings caused us to sell
Maker of nail and beauty care products most shares in first half. Remainder was sold in July.
</TABLE>
OUTLOOK
For the first time in a decade, we entered the year with most of our assets
invested in North America. U.S. small caps are going through a correction,
offering new buying opportunities for us.
The outlook for the U.S. stock market depends significantly on the future
direction of the Federal Reserve's monetary policy. New highs by the Dow
since April have not been confirmed by the broad market. These conditions
alone did not warrant total liquidation of U.S. holdings which no longer meet
all our criteria. However, based upon poor broad market behavior, we have
been taking some risk reduction measures in these stocks.
If the Fed raises the discount rate and broad market conditions continue to be
negative, we would begin to liquidate domestic holdings which no longer meet
all of our buy criteria. This would prepare us for a bear market which may
begin as early as second half 1998. Many of our current U.S. holdings still
meet all of our buy criteria. These excellent investments will be held,
regardless of external market-related factors, for their superior, low-risk,
long-term potential. Hopefully higher interest rates won't assert themselves
here in the U.S. for some time yet. Should the current market decline
accelerate and an oversold climax occur, a stronger broad market could result.
Under these conditions, we would take advantage of bargain prices and
selectively add to existing investments.
The U.K. stock market recently made new highs which the broad market did not
confirm. The interest rate increase in June and the strength of the sterling
are pressuring earnings and stock-price performance of smaller British
companies. As a result of the current market conditions, we resumed selling
U.K. companies that no longer meet all of our criteria.
Regardless of the short-term direction of markets, we remain confident that
most of our investments have the potential to generate substantial long-term
profits. This outlook is based upon the demonstrated ability of these
companies' managements to achieve consistent earnings growth. The combination
of earnings growth and outstanding value among our investments causes us to
look to the long-term future with enthusiasm.
Sincerely,
Barry Ziskin July 30, 1998
<PAGE> 7
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at June 30, 1998 (Unaudited)
- -----------------------------------------------------------
Common Stocks (a) Shares Value
- -----------------------------------------------------------
<S> <C> <C>
APPAREL & ACCESSORIES - 0.5%
Abbeycrest Plc 10,000 $ 26,680
Fila Holding S.p.A. ADS (b) (c) 6,200 93,000
----------
119,680
----------
AUTOMOTIVE & TRANSPORTATION - 7.8%
Autopistas C.E. SA 22,040 341,135
Linamar Corporation 18,000 321,642
Motorcar Parts and Accessories, Inc. 35,000 516,250
Strattec Security Corporation 17,500 527,188
----------
1,706,215
----------
BUILDING & MATERIALS - 7.7%
American Homestar Corporation 17,750 424,900
NCI Building Systems, Inc. 18,200 1,051,050
Wolverine Tube, Inc. (c) 5,900 224,200
----------
1,700,150
----------
BUSINESS SERVICES & SUPPLIES - 6.0%
Day Runner, Inc. 27,800 700,226
Dudley Jenkins Group Plc 80,400 609,914
----------
1,310,140
----------
COMMUNICATION - 7.9%
AVT Corporation (d) 30,700 706,100
Communications Systems, Inc. (c) 30,700 491,200
Vertex Communications
Corporation 22,500 528,750
----------
1,726,050
----------
COMPUTER & RELATED - 11.5%
Cybex Computer Products
Corporation (c) 24,900 572,700
Hummingbird Communications Ltd. 16,200 433,350
Insight Enterprises, Inc. 14,150 566,000
Intel Corporation (c) 2,200 163,075
Rainbow Technologies, Inc. 23,200 475,600
Smart Modular Technologies, Inc. 20,800 304,200
----------
2,514,925
----------
ELECTRICAL & ELECTRONICS - 5.7%
Benchmark Electronics, Inc. (c) 20,600 412,000
TT Group Plc 61,900 304,981
Valley Forge Corporation (c) 36,100 541,500
----------
1,258,481
----------
FINANCIAL SERVICES - 9.1%
Jardine Lloyd Thompson Group Plc 269,100 798,689
Rathbone Brothers Plc 118,500 1,195,310
----------
1,993,999
----------
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
- ------------------------------------------------------
Common Stocks (a) Shares Value
- ------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE - 5.0%
Carlsberg AS 4,100 297,763
Lindt & Sprungli AG 191 491,387
Lone Star Steakhouse
& Saloon, Inc. (c) 13,000 179,569
Weetabix Ltd. 2,050 126,456
---------
1,095,175
---------
HEALTH & PERSONAL CARE - 9.0%
Astra AB 19,386 385,937
Del Laboratories, Inc. 2,200 47,850
L'Oreal 799 443,332
Nature's Sunshine Products, Inc. 25,500 575,357
Novartis AG 320 531,438
----------
1,983,914
---------
LEISURE & MEDIA - 8.7%
Anchor Gaming 9,400 729,675
Border Television Plc 129,500 713,545
Seattle FilmWorks, Inc. 61,400 473,947
----------
1,917,167
---------
MEDICAL SERVICES & SUPPLIES - 4.0%
National Dentex Corporation 23,000 540,500
Seton Scholl Healthcare Plc (e) 26,300 329,960
----------
870,460
---------
MULTI-INDUSTRY - 8.1%
Kaydon Corporation (c) 13,000 459,069
Technitrol, Inc. 19,800 790,772
Tomkins Plc 95,166 516,847
----------
1,766,688
---------
PLASTICS - 2.6%
Northern Technologies
International Corporation 46,900 345,887
Polypipe Plc 88,200 213,973
----------
559,860
---------
RETAIL - 2.5%
Grow Biz International, Inc. 41,900 544,700
Westfair Foods Ltd. 360 12,522
----------
557,222
---------
MISCELLANEOUS - 3.2% 73,700 709,562
---------
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at June 30, 1998 (Unaudited) Continued
- -------------------------------------------------------
Value
- -------------------------------------------------------
<S> <C>
TOTAL COMMON STOCKS - 99.3%
(Cost $18,432,622) $21,789,688
- -------------------------------------------------------
CASH, RECEIVABLES, AND OTHER ASSETS
LESS LIABILITIES - 0.7% 155,011
- -------------------------------------------------------
NET ASSETS - 100.0%
(Equivalent to $8.38 per share based
on 2,619,536 shares of capital stock
outstanding) $21,944,699
=======================================================
<FN>
(a) Percentages indicated are based on net assets of
$21,944,699.
(b) American Depository Shares.
(c) Pledged as collateral for line of credit.
(d) Formerly, Applied Voice Technology, Inc.
(e) Formerly, Seton Healthcare Group Plc.
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS BY COUNTRY
- -------------------------------------
Percent Country Value
- -------------------------------------
<C> <S> <C>
62.4% United States $13,594,802
22.6% United Kingdom 4,936,380
4.7% Switzerland 1,022,825
3.5% Canada 767,514
2.0% France 443,332
1.8% Sweden 385,937
1.6% Spain 341,135
1.4% Denmark 297,763
- -------------------------------------
100.0% $21,789,688
=====================================
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
at June 30, 1998 (Unaudited)
<S> <C>
ASSETS
Investments in securities, at value
(identified cost $18,432,622) $21,789,688
Cash 34,623
Receivables
Dividends and interest 52,861
Securities sold 123,303
Due from investment advisor 18,116
Other 10,000
Other assets 43,953
------------
Total assets 22,072,544
------------
LIABILITIES
Payables
Securities purchased 77,112
Other 50,733
------------
Total liabilities 127,845
------------
NET ASSETS $21,944,699
============
NET ASSETS REPRESENTED BY
Capital stock, $1.00 par value:
7,700,000 shares authorized,
3,268,858 shares issued $ 3,268,858
Additional paid-in capital 20,458,478
Treasury stock, 649,322 shares, at cost (5,540,989)
------------
18,186,347
Net realized loss on investments
and currency transactions (79,694)
Net unrealized appreciation on
investments and currency translations 3,449,648
Undistributed net investment income 388,398
------------
NET ASSETS (EQUIVALENT TO $8.38 PER
SHARE BASED ON 2,619,536 SHARES
OF CAPITAL STOCK OUTSTANDING) $21,944,699
============
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
STATEMENT OF OPERATIONS
Period Ended June 30, 1998 (Unaudited)
<S> <C>
INVESTMENT INCOME
Dividends, net of nonreclaimable
foreign taxes of $19,111 $ 128,899
Interest 26,242
-----------
Total investment income 155,141
-----------
EXPENSES
Investment advisory base fee 137,847
Performance penalty (208,492)
Compensation and benefits 61,587
Transfer agent fees 11,076
Professional fees 32,893
Officer indemnity 87,662
Custodian fees 18,500
Printing and postage 13,298
Office and miscellaneous 21,420
Insurance expense 1,120
Directors' fees and expenses 5,201
Dues and filing fees 8,069
Shareholder relations and
communications 4,904
Interest expense 4,362
Rent expense 5,127
-----------
Total expenses 204,574
Less: expenses paid indirectly (4,200)
-----------
Net expenses 200,374
-----------
Net investment loss (45,233)
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments
and currency transactions 150,344
Change in unrealized appreciation
of investments and currency
translations for the period 2,105,251
-----------
Net gain on investments 2,255,595
-----------
Net increase in net assets
resulting from operations $2,210,362
===========
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
Period Ended June 30, 1998 (Unaudited)
and Year Ended December 31, 1997
1998 1997
------------ ------------
<S> <C> <C>
NET ASSETS,
BEGINNING OF PERIOD $20,161,112 $22,841,484
------------ ------------
OPERATIONS
Net investment
income (loss) (45,233) 273,005
Net realized gain on
investments and
currency transactions 150,344 3,694,931
Change in unrealized
appreciation (depreciation)
of investments and
currency translations 2,105,251 (1,941,475)
------------ ------------
Net increase in net assets
from operations 2,210,362 2,026,461
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
From net investment
income 0 (131,265)
From net realized gain
on investments and
currency transactions 0 (3,692,101)
------------ ------------
Decrease in net assets
from dividends and
distributions 0 (3,823,366)
------------ ------------
SHARE TRANSACTIONS
Treasury stock purchases (426,775) (1,007,031)
Reinvested dividends
and distributions 0 123,564
------------ ------------
Decrease in net assets
from share transactions (426,775) (883,467)
------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS 1,783,587 (2,680,372)
------------ ------------
NET ASSETS,
END OF PERIOD $21,944,699 $20,161,112
============ ============
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE> 13
Z-Seven Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Z-Seven Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company incorporated under the laws of Maryland on July 29, 1983, and became a
publicly traded company on December 29, 1983.
On December 8, 1997, the Board of Directors declared a two-for-one stock
split, effected in the form of a stock dividend, to shareholders of record on
December 19, 1997, and payable December 30, 1997. All share and per share
data have been adjusted to reflect the stock split. In order to maintain a
$1.00 par value, the Fund has reclassified $1,634,429 from additional
paid-in-capital to capital stock.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of financial statements.
SECURITY VALUATION - Securities traded on national securities exchanges,
except the London Stock Exchange, are valued at the last sale price or, in the
absence of any sale, at the closing bid price on such exchanges or over the
counter. Securities traded on the London Stock Exchange are valued at the
mid-close price. If no quotations are available, the fair value of securities
is determined in good faith by the Board of Directors. Temporary investments
in short-term money market securities are valued at market. Quotations of
foreign securities in foreign currency are converted to U.S. dollar
equivalents at the date of valuation.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies.
The Fund intends to distribute substantially all of its net investment taxable
income, if any, annually.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions of net capital
gains to shareholders are recorded on the ex-dividend date.
<PAGE> 14
Investment income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on foreign denominated assets and liabilities
held by the Fund, timing differences, and differing characterizations of
distributions made by the Fund. Due to the differing treatment for tax
purposes of certain income and capital gain items, as of December 31, 1997,
the Fund has reclassified as paid in capital, $173,137 from undistributed net
investment income and $2,075,245 from accumulated capital gains.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date and dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
transactions are determined on the basis of identified cost for book and tax
purposes.
FOREIGN CURRENCY TRANSLATION - The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, assets, and liabilities at the
closing daily rate of exchange, and
(ii) purchases and sales of investment securities and dividend income at the
rate of exchange prevailing on the respective dates of such transactions.
Investment companies generally do not isolate that portion of the results of
operations that arises as a result of changes in exchange rates from the
portion that arises from changes in market prices of investments during the
period. When foreign securities are purchased or sold, the Fund acquires
forward exchange contracts as of the trade date for the amount of purchase or
proceeds, and no exchange gains or losses are thus realized on these
transactions. Dividends are shown net of foreign exchange gains or losses
which represent currency gains or losses realized between the ex-dividend and
payment dates on dividends.
FORWARD CURRENCY CONTRACTS - As foreign securities are purchased, the Fund
enters into forward currency exchange contracts in order to hedge
<PAGE> 15
against foreign currency exchange rate risks. The market value of the
contract fluctuates with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the Fund
as an unrealized gain or loss. When the contract is closed, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Realized gains and losses from contract transactions are included as a
component of net realized gains on investments and currency transactions in
the Statement of Operations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Fund's management to
make estimates and assumptions that affect the reported amounts of 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 these estimates.
NOTE 2 - TREASURY STOCK TRANSACTIONS
From January 1, 1997, through June 30, 1998, the Board of Directors authorized
the following purchases of the Fund's capital shares on the open market:
<TABLE>
<CAPTION>
Year Number of Shares Cost
- ---- ---------------- ----------
<S> <C> <C>
1998 51,000 $ 426,775
1997 106,400 1,007,031
</TABLE>
In 1996, the Fund established a distribution reinvestment plan to allow
shareholders to reinvest their distributions in shares of the Fund. If the
Fund is selling at a premium, distributions will be reinvested at the greater
of net asset value or 95% of the market price. If the Fund is selling at a
discount, distributions will be reinvested at market price. On December 30,
1997, 15,302 shares of the Fund were distributed to plan participants at
$8.075 per share (95% of the market price). This distribution increased the
Fund's total net assets by $123,564.
In 1992, the Fund reissued all of its existing treasury stock in addition to
newly issued stock in a private placement of shares to Agape Co., S.A. in
exchange
<PAGE> 16
for securities which were generally the same as those contained in the Fund's
portfolio. A total of 698,210 unregistered Fund shares were issued to Agape
in the transaction at a slight premium to net asset value. The federal income
tax basis of the securities received by the Fund in this transaction was
equivalent to the market value of those securities on the date of the
transaction. The Fund is obligated to register these shares for sale in the
open market upon Agape's request. Agape has requested that the Fund
repurchase these shares as an alternative to registration. The Fund agreed,
subject to regulatory approval, to repurchase the Agape shares over an
18-month period, at a price of one-half of one percent below the net asset
value at the time of each repurchase, provided that the Fund's shares are
trading at or above net asset value. On July 31, 1997, the Fund filed an
application with the Securities and Exchange Commission seeking the necessary
regulatory approval.
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term money
market securities) during the period ended June 30, 1998, were:
<TABLE>
<CAPTION>
Common Stocks Treasury Bills
-------------- ---------------
<S> <C> <C>
Purchases $ 5,073,217 $ 3,478,837
Sales $ 5,103,114 $ 3,493,447
</TABLE>
NOTE 4 - FOREIGN CURRENCY CONTRACTS
At June 30, 1998, the Fund had contracts, maturing on August 26, 1998, and
November 24, 1998, to sell $8 million in foreign currency (4 million Swiss
francs, 3 million British pounds, and 1 million Canadian dollars). These
contracts were marked-to-market on June 30, 1998, resulting in a net
unrealized gain of $92,582. This unrealized gain is included as a component
of receivables from securities sold, in the Statement of Assets and
Liabilities.
NOTE 5 - INVESTMENT ADVISORY FEES AND PERFORMANCE BONUS/PENALTIES
TOP Fund Management is the Fund's investment advisor (the "Advisor"). Under
an agreement between
<PAGE> 17
the Fund and the Advisor, the latter supervises the investments of the Fund
and pays certain expenses related to employees principally engaged as
directors, officers, or employees of the Advisor. The agreement provides for
base management fees equal to .3125% per quarter (equivalent to 1.25% per
annum) of the average daily net assets of the Fund. For the period ended June
30, 1998, the base management fees aggregated $137,847.
In addition to the base management fees, the Advisor will receive a bonus for
extraordinary performance or pay a penalty for underperformance. The
bonus/penalty performance arrangement uses the S&P Index of 500 Composite
Stocks ("S&P 500 Index") as a measure of performance against which the
performance of the Advisor will be measured. The bonus/penalty is payable at
the end of each calendar quarter and will not exceed 2.5% of the average daily
net assets in the calendar quarter. The performance penalty can exceed the
base management fees. Furthermore, the bonus/penalty arrangement will not
become operative unless the performance of the Advisor exceeds, either
positively or negatively, the S&P 500 Index percentage change during the same
period of time by more than 10%. For the period ended June 30, 1998, the
performance penalty aggregated $208,492.
The agreement also provides that if the Fund's expenses on an annual basis
(including the base management fees, but excluding any bonus or penalty
payments, taxes, interest, brokerage commission, and certain litigation
expenses) exceed 3.5% of the average daily net assets up to $20,000,000 plus
1.5% of the average daily net assets in excess of $20,000,000, the Advisor
shall reimburse the Fund for any such excess up to the aggregate amount of the
basic advisory fee. For the year ended December 31, 1997, an expense
reimbursement was not required.
NOTE 6 - DISTRIBUTIONS TO SHAREHOLDERS
On September 15, 1997, the Board of Directors declared a distribution of 17.57
cents per share of short-term capital gains and 66.43 cents per share of
long-term capital gains, for a total distribution of 84 cents per share.
These amounts represented undistributed
<PAGE> 18
short-term and long-term capital gains for 1996. Additionally, on December 8,
1997, the Board of Directors declared a distribution of 58.72 cents per share
which represented estimated net investment income (4.9 cents) and short-term
capital gains (53.82 cents) for 1997. These distributions were paid on
December 30, 1997, to shareholders of record on December 19, 1997. The Fund
intends to distribute the balance of short-term capital gains and net
investment income for 1997 on or before December 31, 1998.
NOTE 7 - FEDERAL INCOME TAX INFORMATION
For federal income tax purposes, in 1997, the Fund realized net capital gains
of $3,459,066 and investment company taxable income of $2,020,104. The Board
of Directors elected to retain 1997 capital gains and provided federal income
taxes of $1,210,684 on these retained gains.
NOTE 8 - RELATED PARTIES
Directors of the Fund who are not officers or otherwise affiliated with the
Advisor are paid $500 per meeting plus out-of-pocket expenses.
On December 31, 1997, the Fund received a contribution of 23,600 shares of
Z-Seven Fund stock from Ziskin Asset Management, an affiliate of the Fund.
The shares are included in the Treasury Stock balance as of June 30, 1998.
At June 30, 1998, Barry Ziskin, an officer and director of the Fund, owned
601,992 shares of the Fund's capital stock. He is also an officer and
director of the Advisor.
In March 1998, the Board of Directors granted the request from Barry Ziskin,
an officer and director of the Fund, to indemnify certain costs incurred in
the defense of a legal action relating to the management of the Fund. The
total amount of the indemnity equaled $87,662 (3.3 cents per share) and is
included in the Statement of Operations.
NOTE 9 - LINE OF CREDIT
The Fund has a line of credit with its custodian bank which is secured by
certain investment securities
<PAGE> 19
with an aggregate market value of $3,136,313 at June 30, 1998. Borrowings
against the line are charged interest at a rate of prime plus 1/2%. The
maximum amount outstanding against the line during the six months ended June
30, 1998, was $500,000. The line of credit expires September 18, 1998.
The purpose of the line is to enable the Advisor flexibility in selling shares
of portfolio investments at such time and price as is consistent with the
investment discipline employed and is in the best interest of the
shareholders. If the full amount of the line of credit were utilized, it
would represent less than 10% of the net assets of the Fund at June 30, 1998.
NOTE 10 - EXPENSES PAID INDIRECTLY
Through an arrangement with Standard & Poor's Securities ("S&P"), commissions
paid to S&P earn soft dollar credits. The Advisor may direct S&P to use the
credits to pay certain Fund expenses. For the period ended June 30, 1998, the
Advisor applied $4,200 of these soft dollar credits towards the payment of
office and miscellaneous expenses of the Fund.
<PAGE> 20
GENERAL INFORMATION
THE FUND
Z-Seven Fund, Inc. is a nondiversified, closed-end management investment
company whose shares trade on the Nasdaq National Market System and on the
Pacific Exchange. Its investment objective is long-term capital appreciation
through investments in quality growth companies whose shares are undervalued.
SHARE REPURCHASES
Notice is hereby given, in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may purchase, at market prices,
from time to time, shares of its common stock in the open market.
<PAGE> 21
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
FINANCIAL HIGHLIGHTS
The following represents selected data for a share outstanding
throughout the periods. All share and per share data has been
adjusted to reflect the two-for-one stock split in December 1997.
- -------------------------------------------------------------------------------------------------------------------------------
June 30,
For the periods ended 1998 1997
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.55 $ 8.20
------------ ----------------
Net investment income (loss) (.01) .11
Net realized and unrealized gains (losses) on investments
and currency transactions before income taxes .84 1.05
------------ ----------------
Total increase (decrease) from investment operations .83 1.16
Distributions to shareholders from net investment income -0- (.05)
Distributions to shareholders from net capital gains -0- (1.38)
Income taxes on capital gains paid on behalf of shareholders -0- (.45)
Capital contribution -0- .07
Net increase (decrease) in net asset value .83 (.65)
Net asset value, end of period $ 8.38 $ 7.55
============ ================
Per share market value, end of period $ 8.25 $ 11.00
Total investment return (a) (25.00%) (b) 34.04%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before performance bonus/penalty to average net assets (c) 3.75% (d) 3.03%
Ratio of total expenses to average net assets (c) 1.86% (d) .99%
Ratio of net investment income (loss) to average net assets (c) (.45%) (d) 1.10%
Portfolio turnover rate 24.3% (b) 111.3%
Average commission rate paid $ .0888 $ .0477
- --------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period (in 000's) 2,620 2,671
Net assets, end of period (in 000's) 21,945 20,161
- --------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
For the periods ended 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.74 $ 8.32
--------------- -----------
Net investment income (loss) (.06) .06
Net realized and unrealized gains (losses) on investments
and currency transactions before income taxes 1.01 1.88
--------------- -----------
Total increase (decrease) from investment operations .95 1.94
Distributions to shareholders from net investment income (.03) (.44)
Distributions to shareholders from net capital gains (1.46) (1.08)
Income taxes on capital gains paid on behalf of shareholders -0- -0-
Capital contribution -0- -0-
--------------- -----------
Net increase (decrease) in net asset value (.54) .42
--------------- -----------
Net asset value, end of period $ 8.20 $ 8.74
=============== ===========
Per share market value, end of period $ 10.25 $ 11.13
Total investment return (a) 8.93% 58.34%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before performance bonus/penalty to average net assets (c) 3.23% 2.87%
Ratio of total expenses to average net assets (c) 2.98% 2.00%
Ratio of net investment income (loss) to average net assets (c) (.60%) .89%
Portfolio turnover rate 66.4% 36.1%
Average commission rate paid $ .0361 $ .0392
- ---------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period (in 000's) 2,785 2,771
Net assets, end of period (in 000's) 22,841 24,220
- ---------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
For the periods ended 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.50 $ 7.56
-------- --------
Net investment income (loss) (.08) .06
Net realized and unrealized gains (losses) on investments
and currency transactions before income taxes (.07) 1.11
-------- --------
Total increase (decrease) from investment operations (.15) 1.17
Distributions to shareholders from net investment income -0- -0-
Distributions to shareholders from net capital gains -0- -0-
Income taxes on capital gains paid on behalf of shareholders (.03) (.23)
Capital contribution -0- -0-
-------- --------
Net increase (decrease) in net asset value (.18) .94
-------- --------
Net asset value, end of period $ 8.32 $ 8.50
======== ========
Per share market value, end of period $ 8.25 $ 9.13
Total investment return (a) (9.30%) 10.17%
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses before performance bonus/penalty to average net assets (c) 2.74% 2.86%
Ratio of total expenses to average net assets (c) 2.99% 2.13%
Ratio of net investment income (loss) to average net assets (c) (.78%) .74%
Portfolio turnover rate 17.5% 42.1%
Average commission rate paid
- --------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period (in 000's) 3,032 3,188
Net assets, end of period (in 000's) 25,241 27,097
- --------------------------------------------------------------------------------------------------------------
<FN>
(a) Based on market price per share with dividends, distributions, and deemed distributions reinvested at
lower of net asset value or closing market price on the distribution date.
(b) Not annualized.
(c) Ratio reflects expenses gross of amounts paid indirectly for the periods ended December 31, 1995 through
June 30, 1998.
(d) Annualized.
</TABLE>
<PAGE> 22
BOARD OF DIRECTORS
Barry Ziskin
Thomas W. Lee
Dr. Jeffrey Shuster
Rochelle Ziskin
INVESTMENT ADVISOR
TOP Fund Management, Inc.
OFFICERS
Barry Ziskin
President
Laurie S. Doane
Secretary and Treasurer
CUSTODIAN
Chase Manhattan Bank
TRANSFER AGENT
ChaseMellon Shareholder Services
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
GENERAL COUNSEL
Kilpatrick Stockton LLP
STOCK LISTINGS
NASDAQ
Symbol: ZSEV
Pacific Exchange
Symbol: ZSE
CORPORATE OFFICE
1819 South Dobson Road
Suite 109
Mesa, AZ 85202
(602) 897-6214
Fax (602) 345-9227
* * * * * * * * * * * * * * * * * NOTICE * * * * * * * * * * * * * * * * *
We are pleased to announce that, as of August 3, 1998, Norwest Bank
Minnesota, N.A. will serve as Transfer Agent and Registrar for Z-Seven Fund,
Inc. For matters relating to Shareowner Services, please contact a Norwest
representative at 1-800-468-9716, or mail inquiries to the address listed
below:
Norwest Bank Minnesota, N.A.
Shareowner Services
Post Office Box 64854
St. Paul, MN 55164-0854
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
