<PAGE> 1
Z-SEVEN
THIRD QUARTER REPORT
Period Ended
September 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:
Stop the roller coaster - I want to get off! What a year 1998 is turning out
to be. The first three months were very strong, but our first quarter report
warned that the persistence of poor broad stock market behavior could lead to
a bear market in the second half of the year. The lack of confirmation by the
broad market continued, even as the Dow kept reaching new highs until its peak
in July. Just weeks after, a bear market followed. Not a full-length
feature, but the "short" drop was still devastating, particularly to U.S. and
British small-cap shares. At the time stocks hit bottom (October 8), who
would have believed that just over six weeks later the Dow would reach an
all-time high?
Never in my wildest dreams could I have imagined all the bargain opportunities
that became available during the third quarter. My research department was
very productive in uncovering valuable opportunities and verifying earnings
outlooks with managements that were unusually accessible and talkative due to
the sharp declines in their companies' share prices. We reduced our target
position size to make room for twelve new small-cap investments; eleven in the
U.S. and one in the U.K.
In the case of two of our largest British holdings, Rathbone Brothers and
Jardine Lloyd Thompson, the prices became so undervalued that they were
selling for even less than their net cash per share. This means that these
businesses, which generated steady increases in earnings and cash, were being
given away in the market. We took advantage and now hold extra large
positions in these two stocks.
I really can't hide my excitement. We now have a better diversified, value
packed portfolio that is one of the strongest I have seen in almost 15 years
of managing Z-Seven's investments! In addition, the Federal Reserve Board and
the
<PAGE> 3
Bank of England have reversed tight money policies and are now beginning to
lower interest rates.
1998 THIRD QUARTER RESULTS
The sharp decline in small-cap share prices at home and in the U.K. gave us
some exceptional buying opportunities and also impacted the share prices of
our existing holdings. While our investment portfolio and net asset value
both decreased 18% during the third quarter, they fared better than the
comparable Russell 2000 Index (most commonly used index for U.S. small-cap
stock prices).
1998 NINE MONTH RESULTS
As 1998 reached its nine-month point, small-cap shares here at home, and also
in the U.K., had already suffered the anticipated declines and then some.
While our investments were up for the first half of the year, the substantial
market decline in the third quarter resulted in an 8% decrease for the first
nine months. In comparison, the Russell 2000 Index declined more than twice
as much.
After operating expenses, our net asset value decreased 9%, from $7.55 to
$6.85, in these nine months. As of today, December 1, we have rebounded
significantly. Even though the Russell 2000 Index is still down approximately
9% year-to-date, we are pleased to report our Fund has a positive return thus
far with a net asset value of $7.75.
GOOD NEWS/MISTAKES & DISAPPOINTMENTS
Many of our shareholders are used to seeing, in our reports, comments on the
portfolio's highest and lowest performing stocks. However, in our continuing
efforts to provide our shareholders with timely and pertinent information,
without overwhelming our readers, we feel the long-term objective of the Fund
is most consistent with
<PAGE> 4
long-term analysis of performance results, particularly when focusing on
individual holdings. We believe this idea is best served by multi-year
(complete stock market cycle) performance review rather than quarterly prices
which may only reflect short-term stock market conditions. This quarter, the
volatile market produced several poor returns for some otherwise strong
companies. For example, several of our best performers for the first half of
1998 were driven down in price, with the market, during the third quarter and
have since rebounded substantially. Therefore, we look forward to reviewing,
in detail, our most and least productive investments on an annual basis. We
hope this proves to be the most valuable approach for our shareholders. The
next annual report will be mailed shortly. Please let us know what you think.
MAXIMIZING YOUR RETURN
Z-Seven shares were recently selling at a small discount. Our Fund seized
this valuable opportunity to repurchase additional shares in the open market.
We congratulate those of you who joined us in taking advantage of the recent
bargain prices and invested in Z-Seven for what, I believe, will be an
exceptionally profitable period ahead. On September 15, 1998, the Fund
declared an estimated $.17 per share dividend representing the balance of 1997
short-term capital gains and net investment income.
We would like to remind our shareholders that the Fund does have a
distribution reinvestment plan. Shareholders of record may enroll by
contacting our transfer agent, Norwest Bank Minnesota (800-468-9716). If your
shares are held in street name, you may contact your broker or custodian.
Please consider that distributions paid since 1995, for every 100 pre-split
(200 post-split) shares owned prior to December 29, 1995, total $888.
Reinvestment of this amount on September 30, 1998, at a price of approximately
$7.00, would have allowed a shareholder to purchase 128 additional shares.
<PAGE> 5
OUTLOOK
Entering the final quarter of 1998, our portfolio directly reflects where we
are finding the outstanding values in today's market. We are now
predominantly (73.7%) invested in domestic small caps (less than $1 billion
market capitalization). At this writing, interest rate policy is clearly
positive with respect to U.S. equities. In addition, our British small-cap
investments, the portfolio's second largest (17.8%) investment area, enjoy
increasingly favorable prospects due to the same combination of factors:
exceptional value and a turn toward lower interest rates by the Bank of
England.
I look toward the future with considerable optimism for our near-term and,
more importantly, long-term potential as a greater diversified fund invested
in excellent companies.
Sincerely,
Barry Ziskin December 1, 1998
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.
<PAGE> 6
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at September 30, 1998 (Unaudited)
- ----------------------------------------------------------
Common Stocks (a) SHARES VALUE
- ----------------------------------------------------------
<S> <C> <C>
APPAREL & ACCESSORIES - 1.9%
Abbeycrest Plc 10,000 $ 19,450
Nautica Enterprises, Inc. 16,600 310,221
----------
329,671
----------
AUTOMOTIVE & TRANSPORTATION - 5.9%
Autopistas C.E. SA 12,840 196,568
Motorcar Parts and Accessories, Inc. 34,100 396,412
Strattec Security Corporation 17,500 455,000
----------
1,047,980
----------
BUILDING & MATERIALS - 4.1%
American Homestar Corporation 17,750 390,500
NCI Building Systems, Inc. (c) 10,600 210,018
Wolverine Tube, Inc. (c) 5,900 124,272
----------
724,790
----------
BUSINESS SERVICES & SUPPLIES - 3.7%
Day Runner, Inc. 24,700 481,650
Dudley Jenkins Group Plc 28,400 165,231
----------
646,881
----------
COMMUNICATION - 8.5%
AVT Corporation 22,000 497,750
Brightpoint, Inc. 36,000 276,768
Communications Systems, Inc. (c) 26,600 305,900
Vertex Communications
Corporation 22,500 413,438
----------
1,493,856
----------
COMPUTER & RELATED - 21.4%
Computer Horizons Corporation 13,000 324,194
Cybex Computer Products
Corporation (c) 13,200 331,650
Hummingbird Communications Ltd. 16,200 331,095
Insight Enterprises, Inc. 11,925 336,881
Integrated Systems Consulting
Group, Inc. 40,000 430,000
Kronos Inc. 10,000 370,000
Pomeroy Computer Resources, Inc. 25,000 415,625
Rainbow Technologies, Inc. 34,800 474,150
Smart Modular Technologies, Inc. 17,200 353,684
Zebra Technologies Corporation 12,600 422,100
----------
3,789,379
----------
ELECTRICAL & ELECTRONICS - 11.7%
AFC Cable Systems, Inc. 15,000 356,250
Benchmark Electronics, Inc. (c) 19,500 444,853
LSI Industries Inc. 18,000 324,000
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at September 30, 1998 (Unaudited), Continued
- --------------------------------------------------------
Common Stocks (a) SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
Roxboro Group Plc 100,500 301,299
TT Group Plc 61,900 210,274
Valley Forge Corporation (c) 35,900 439,775
---------
2,076,451
---------
FINANCIAL SERVICES - 8.1%
Jardine Lloyd Thompson Group Plc 269,100 877,535
Rathbone Brothers Plc 75,000 554,175
---------
1,431,710
---------
FOOD & BEVERAGE - 2.0%
Carlsberg AS 2,700 166,037
Lindt & Sprungli AG 86 193,952
---------
359,989
---------
HEALTH & PERSONAL CARE - 5.4%
Astra AB 10,586 173,864
L'Oreal 362 168,557
Nature's Sunshine Products, Inc. 25,500 408,000
Novartis AG 129 207,579
---------
958,000
---------
LEISURE & MEDIA - 8.4%
Anchor Gaming 6,000 343,500
Border Television Plc 119,500 642,432
Dave and Buster's Inc. 21,200 315,350
Seattle FilmWorks, Inc. 61,400 184,200
---------
1,485,482
---------
MEDICAL SERVICES & SUPPLIES - 4.4%
Laboratory Specialists
of America, Inc. 92,500 364,265
National Dentex Corporation 23,000 414,000
---------
778,265
---------
MULTI-INDUSTRY - 4.6%
Kaydon Corporation (c) 11,500 302,600
Technitrol, Inc. (c) 15,900 318,000
Tomkins Plc 42,666 199,848
---------
820,448
---------
PLASTICS - 2.5%
Northern Technologies
International Corporation 46,900 281,400
Polypipe Plc 88,200 155,850
---------
437,250
---------
</TABLE>
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<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at September 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------
Common Stocks (a) SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
RETAIL - 2.0%
Grow Biz International, Inc. 25,200 346,500
Westfair Foods Ltd. 360 11,765
-----------
358,265
-----------
MISCELLANEOUS - 3.7% 66,200 662,274
- ---------------------------------------------------------------
TOTAL COMMON STOCKS - 98.3%
(Cost $19,201,498) $17,400,691
- ---------------------------------------------------------------
CASH, RECEIVABLES, AND OTHER ASSETS
LESS LIABILITIES - 1.7% 292,056
- ---------------------------------------------------------------
NET ASSETS - 100.0%
(Equivalent to $6.85 per share based
on 2,583,036 shares of capital stock
outstanding) $17,692,747
===============================================================
<FN>
(a) Percentages indicated are based on net assets of
$17,692,747.
(b) American Depository Shares.
(c) Pledged as collateral for line of credit.
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS BY COUNTRY
- -------------------------------------
Percent Country Value
- -------------------------------------
<C> <S> <C>
73.7% United States $12,825,180
17.9% United Kingdom 3,126,094
2.3% Switzerland 401,531
2.0% Canada 342,860
1.1% Spain 196,568
1.0% Sweden 173,864
1.0% France 168,557
1.0% Denmark 166,037
- -------------------------------------
100.0% $17,400,691
=====================================
</TABLE>
<PAGE> 9
BOARD OF DIRECTORS
Barry Ziskin
Albert Feldman
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
Norwest Bank Minnesota, N.A.
Shareowner 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
