<PAGE> 1
Z-SEVEN
FIRST QUARTER REPORT
Period Ending
March 31, 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 Shareholder:
We would like to express our gratitude for your confidence in our investment
philosophy. We are thankful for the love, strength, and wisdom given to us by
our heavenly creator and caring shepherd.
In the last annual report, we promised to give you more detail on the twelve
largest holdings. Please take a look in the "Golden Dozen" section for
information on these companies, which were our biggest investments entering
1998.
1998 THREE MONTH INVESTMENT RESULTS
Over the first three months, the investment portfolio increased 15%.
FIRST QUARTER NET ASSET VALUE
Our net asset value rose 14%, from $7.55 to $8.63. This is the fifth out of
the last six quarters in which our net asset value advanced, and the
thirteenth out of the last fifteen quarters.
GOOD NEWS
Investments with increases of 20% or more since the end of last year are
discussed under our "Good News" section. Last year at this time, we had three
companies in our portfolio that gained 20% or more. This year we have
seventeen. We discuss the companies in size order.
RATHBONE BROTHERS PLC, the British investment management company, had a
share-price advance of 50% in the first quarter. The company reported another
very successful year with pre-tax profit before exceptional items up 36%.
This is its eighteenth consecutive year of growth. Rathbone was our fourth
largest holding at the beginning of the year and is our largest at the end of
the first quarter.
Our largest U.S. holding, and second-largest overall, is NCI BUILDING SYSTEMS,
INC. Its price rose 37% during the opening quarter. NCI Building acquired
highly profitable Metal Building Components, Inc. from BTR Plc in March. The
merger creates additional earnings-growth potential for one of the world's
largest and most profitable integrated suppliers to the construction industry.
<PAGE> 3
BORDER TELEVISION PLC, one of the last independent regional broadcasters in
television and radio in the U.K., had a price increase of 33% in the first
quarter. Small-cap U.K. shares last year were depressed and have turned up in
1998 thus far. Border Television, our largest investment at year-end, is now
our third-largest holding. Last year the company's growth slowed down when it
incurred initial losses as are normally associated with new radio station
acquisitions. This was a particularly difficult year due to the acquisition
of Sunderland City Radio, the buy-out of its joint-venture partner Investors
in Radio, and its increased stake in A1-FM, a radio license serving the
Darlington region. In the long term, the expanded radio division should add
to existing radio profit performance.
CYBEX COMPUTER PRODUCTS CORPORATION was up 33% during the first three months.
Cybex develops, produces, and markets keyboard, video monitor, and mouse
switch and extension products for use in the computer industry. At the end of
the quarter, the company announced that fourth quarter earnings would be above
Wall Street estimates. The share price soared immediately after this news.
KAYDON CORPORATION gained 25% during the first quarter. The company is a
leading designer and manufacturer of custom-engineered products including
anti-friction bearings, filters, specialty retaining rings, and other
industrial components. These products are used in medical, instrumentation,
and material handling industries as well as in other industrial applications.
Earnings growth continues strong with pre-tax profits up 22%, for all of 1997,
as reported during the first quarter share-price surge.
AMERICAN HOMESTAR CORPORATION, one of the nation's leading vertically
integrated manufactured housing companies, had a 38% share-price advance in
the first quarter. Earnings per share rose 32% in its latest reported
quarter. The company designs, produces, and retails manufactured homes.
British diversified manufacturing group TOMKINS PLC was up 28% at the
three-month point. The share price was lifted by a pre-tax profit increase of
27%. We have enjoyed profitable investing in our (cont. on page 4)
<PAGE> 4
past holdings of Tomkins shares and welcomed them back into our portfolio last
year, when a dip in its price-earnings ratio presented a new opportunity to
invest in this fine company.
TECHNITROL, INC., the worldwide manufacturer of electronic components,
electrical contacts and assemblies, and other precision-engineered parts and
materials, advanced 31% in market price during the first quarter. The
company's products are used in the telecommunications, data networking, and
automobile industries. During the first quarter of 1998, Technitrol reported
that pre-tax profits rose 72% for the full year of 1997.
British DUDLEY JENKINS GROUP PLC is a supplier of mailing lists, databases,
computer processing, and polythene products to users of direct mail. Its
share price jumped 54% during the first quarter making it our largest gainer.
Dudley Jenkins had an excellent start to the year with earnings up 28% in
their first-half report.
L'OREAL, the world's largest cosmetics company, was up 22% in market price
during the first three months of the year. The French giant is enthusiastic
about its expansion in the Chinese market. The company currently generates
less than a fifth of its sales in Asia, Latin America, and Africa, but views
these emerging markets as an immense reservoir of growth.
AUTOPISTAS C.E. SA, our only Spanish holding, is involved in the construction,
maintenance, and operation of the Mediterranean and Ebro toll highways. The
company's share price climbed 27% in the first quarter while it continued to
achieve consistent profit growth.
LONE STAR STEAKHOUSE & SALOON, INC. was up 30% in the first quarter. Its
share price bounced off a depressed price entering the year. The price
recently dropped back after the company announced problems in maintaining
sales. Despite their amazingly strong balance sheet, if management is not
successful in turning earnings around, the stock might be a candidate for
selling later in the year.
SETON HEALTHCARE GROUP PLC had a share-price increase of 20% in the opening
quarter. Its pre-tax (cont. on page 5)
<PAGE> 5
profit before exceptional items grew 21%. Seton's share price surged even
higher in May when the company announced a merger with Scholl Plc, a developer
and licensor of Seton's main product line (flexible foot bandage), to create a
U.K.-based international healthcare products group with an even stronger foot
aid presence.
Denmark's biggest brewer, CARLSBERG AS, was up 25% during the first three
months. The company's steady progress of past years was continued in the
latest year. Pre-tax profit rose 12%. In coming years, the global
consumption of beer is expected to increase, especially in Asia and in Eastern
Europe. Carlsberg will, therefore, continue to increase its activities and
investments in the new growth markets.
WOLVERINE TUBE, INC., which was in the "Mistakes and Disappointments" section
for two quarters last year, had a price advance of 29% in the first quarter.
This increase was partly due to a depressed stock price at year-end. Market
downturns in the air conditioning industry impacted the company's results in
1997. Improved demand for their products this year resulted in earnings
growth of 19% in their first quarter.
WEETABIX LTD., one of Britain's largest breakfast cereal companies, had a 30%
share-price gain in the first three months, following the company's report of
another successful year with net income up 24%. Weetabix achieved its
excellent results in very competitive markets and despite the adverse effects
of a strong sterling on its overseas business.
Our smallest holding, WESTFAIR FOODS LTD., a Canadian retail grocery chain,
concludes our "Good News" section with a price advance of 28% in the first
quarter. The company reported record results with pre-tax profits up 26%.
MISTAKES AND DISAPPOINTMENTS
For purposes of objectivity, we also talk about the investments which fell 20%
or more since the end of last year. Only PORTMEIRION POTTERIES (HOLDINGS)
PLC, one of our tiniest holdings (less than one-half of a percent of the
Fund's net assets), belongs in this section. British Portmeirion had a
share-price decrease of 21%. The company reported (cont. on page 6)
<PAGE> 6
disappointing results with pre-tax profits down 14%. A saturated market and
the strong sterling are reported to be responsible for the decline,
particularly in regards to exports. The company manufactures and sells
pottery products. The continuing evolution of distinctive designs is a
hallmark of Portmeirion. Management believes that new design concepts and new
products should have a positive impact on future business.
"GOLDEN DOZEN"
In 1997, we continued to diversify our portfolio. The top dozen investments
represent 48% of our portfolio at December 31, 1997, compared with 70% as of
year-end 1996.
Fairway Group Plc, the largest investment at the end of the year, rose 62% in
December. We excluded Fairway Group from the "Golden Dozen" in the annual
report because it was in the process of being taken over. In February, the
takeover by Dudley Stationery Limited was completed.
The seven newest "Golden Dozen" holdings ended the first quarter of 1998 with
an average return of 33% since they were first purchased in 1997. Four of
these new investments are discussed in the "Good News" section of this report.
Three of the four have advanced 25%, 37%, and 38%. The fourth is currently
our largest investment and is up a whopping 50% in the first quarter. While
we don't expect every quarter this year to be this good, it is still a great
way to begin the year.
The following companies are listed from largest to smallest as of year-end:
British regional broadcaster BORDER TELEVISION PLC'S share price was down 13%
last year. The price recovered 100% of the decline and then shot up another
19% (see "Good News" section). Negative deferred taxes average over 10%,
demonstrating how conservatively Border Television reports income.
AMERICAN HOMESTAR CORPORATION was a new investment purchased in March 1997
(see "Good News" section). This company, which produces manufactured housing,
has increased profits over 300% since its July 1994 initial public offering.
<PAGE> 7
The share price of this investment increased over 88% in our first
twelve-month period of ownership. We are taking advantage of this opportunity
to reduce this holding significantly since the company no longer meets our
balance sheet and value requirements.
New portfolio investment RATHBONE BROTHERS PLC was purchased in May 1997 (see
"Good News" section). Strategic acquisitions made by this investment
management firm have enhanced profits, which have grown consistently since
information first was made available to the public. A sizeable cash position
differentiates Rathbone from other investment firms and most British companies
in any industry. Discovery of this superbly managed company by other
investors is beginning and has already contributed to the share price
rocketing over 91% in less than one year.
International insurance broker JARDINE LLOYD THOMPSON PLC has been in the
portfolio since December 1995. When Lloyd Thompson Group merged with JIB
Group in February 1997, the market took a wait-and-see position. While the
share-price performance has been flat, we focus on value. Jardine's balance
sheet shows that the cash per share is about the same as its share price. In
March 1998, management reported that the two businesses have been successfully
integrated, which was demonstrated by a double-digit operating income
improvement. Stronger growth is anticipated this year.
NCI BUILDING SYSTEMS, INC. was a new investment purchased in April 1997 (see
"Good News" section). The company makes and markets pre-engineered metal
building systems and components, primarily to the non-residential construction
market. An excellent balance sheet allowed NCI Building the aggressive
acquisition of a company just as large (in profits) as NCI itself. NCI's
share price gained over 55% during the first year of our investment. Earnings
growth fueled by the merger should lead to continued strength in these shares
over the next year.
SEATTLE FILMWORKS, INC. is a leading direct-to-consumer marketer and
provider of high-quality photofinishing services. The company has been a
<PAGE> 8
pioneer in providing digital-imaging technologies for customers. Despite
twenty-eight consecutive quarters of earnings growth and a completely
debt-free balance sheet, the share price declined about 20% since the original
purchase. Growth slowed after our initial investment, primarily due to
production problems, which have now been resolved. With the introduction of
new services, the company remains well positioned for ongoing growth. We
resumed buying the stock in March 1998, taking advantage of an even greater
value opportunity in the shares due to the market's disappointment over slower
earnings growth. We must credit management for achieving any earnings growth
at all, considering the challenge of decelerating revenues.
MOTORCAR PARTS AND ACCESSORIES, INC. (investment since August 1997) is the
leading remanufacturer and distributor in the $800 million market for
replacement alternators and starters for imported automobiles in the U.S.
Earnings have quadrupled since their initial public offering in March 1994.
The company sold more shares in a public offering in November 1997 to fund an
expansion of their product line to include the $2.4 billion domestic
automotive after-market. The seven largest retail automotive parts chain
stores in the U.S. make-up 94% of their customer base. Although share-price
performance has been flat to date, we expect their expanded product line to
positively impact earnings and share price, hopefully as early as its fiscal
year 1999, which has just begun.
Computer direct marketer INSIGHT ENTERPRISES, INC. (new investment purchased
March 1997) markets primarily to small and medium-sized enterprises often
overlooked by competitors. Growth in net income exceeds 40% and is
accelerating. The share-price increase has matched the growth rate.
Insight's recent purchase of a similar company and Internet Service Provider
based in the U.K. should ensure this growth pattern. Volatility in its share
price may, if we are fortunate, allow us the opportunity to add further to our
holding in this well-managed, rapidly growing company.
Swiss premium chocolates maker LINDT & SPRUNGLI AG had a 15% share-price
advance in 1997. Lindt (cont. on page 9)
<PAGE> 9
just missed the first quarter "Good News" section with a gain of over 19%. In
early 1998, the company acquired San Francisco-based Ghirardelli Chocolate
Company. This should enable Lindt, for the first time, to gain a meaningful
presence in the U.S. and present the company with a new name brand to market
in Europe, where Lindt is already dominant.
DAY RUNNER, INC., our best performer in 1997 with a 108% gain, added another
10% in the current quarter. The company recently developed products for
children and students, executive accessories, and laminated wall planners.
Day Runner has a strong balance sheet with no debt and has been aggressively
repurchasing its shares.
KAYDON CORPORATION (see "Good News" section) was a new investment purchased
October 1997. Kaydon has an exceptional balance sheet for a manufacturing
company with zero debt. The share price has already increased 30% in the
first five months after purchase.
NOVARTIS AG, formed in 1997 by the merger of Sandoz AG and Ciba-Geigy AG,
continues to achieve superior results from the merger synergies. Net income
soared 43% last year before one-time charges. New product launches should
provide a steady stream of earnings growth for years to come. Novartis, a
holding for about six years, is now more than five times the price we first
paid for the shares.
OUTLOOK
For the first time in a decade, we entered the year with most of our assets
invested in North America. Currently, the U.S. market is going through a
correction which offers good buying opportunities for us.
The outlook for the U.S. stock market is highly dependent upon the future
direction of the Federal Reserve's monetary policy. New highs by the Dow in
April and May are not being confirmed by the broad market. These conditions
alone would not warrant any significant selling of U.S. holdings which no
longer meet all our criteria. However, if the Fed raises the discount rate
and broad market conditions continue to be negative, we would begin to
liquidate only those domestic holdings which no (cont. on page 10)
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longer meet all of our buy criteria. This would prepare us for a bear market
which may begin as early as late 1998. Many of our current holdings in the
U.S. still meet all our buy criteria. These excellent investments will be
held, regardless of external market-related factors, for their superior,
low-risk, long-term potential. Ultimately, whenever the next bear market does
arrive, even greater bargain-priced opportunities to invest in some of today's
best managed growth companies will present themselves. Taking advantage of
these opportunities will make our already outstanding portfolio EVEN BETTER!
New broad market strength has begun to assert itself in the U.K., and we are
beginning to see more positive monetary conditions in other European markets.
With this improved background, we can again look to the immediate future of
our international investments with confidence.
Z-Seven's share price is currently slightly below the net asset value. We
believe this small discount position represents a good opportunity for the
Z-Seven Fund to repurchase our shares. Also, individual shareholders may wish
to take advantage of the current value in the marketplace.
Sincerely,
Barry Ziskin May 28, 1998
We are relocating our office. Effective July 1
our address will be:
1819 South Dobson Road
Suite 109
Mesa, Arizona 85202
You can still reach us at the same telephone
and fax number:
Tel (602) 897-6214
Fax (602) 345-9227
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<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at March 31, 1998 (Unaudited)
- -------------------------------------------------------------------------
Common Stocks (a) Shares Value
- -------------------------------------------------------------------------
<S> <C> <C>
APPAREL & ACCESSORIES - 0.7%
Abbeycrest Plc 10,000 $ 20,230
Fila Holding S.p.A. ADS (b) (c) 6,200 145,316
----------
165,546
----------
AUTOMOTIVE & TRANSPORTATION - 6.0%
Autopistas C.E. SA 20,991 348,073
Linamar Corporation 6,000 400,632
Motorcar Parts and Accessories, Inc. 35,000 623,455
----------
1,372,160
----------
BUILDING & MATERIALS - 7.7%
American Homestar Corporation 27,750 629,592
NCI Building Systems, Inc. 18,200 882,700
Wolverine Tube, Inc. 5,900 236,737
----------
1,749,029
----------
BUSINESS SERVICES & SUPPLIES - 5.1%
Day Runner, Inc. 27,800 618,550
Dudley Jenkins Group Plc 80,400 551,142
----------
1,169,692
----------
COMPUTER & RELATED - 11.2%
Cybex Computer Products
Corporation (c) 22,000 716,386
Hummingbird Communications Ltd. 16,200 555,870
Insight Enterprises, Inc. 15,850 643,906
Intel Corporation 2,200 171,739
Smart Modular Technologies, Inc. 20,800 474,510
----------
2,562,411
----------
ELECTRICAL & ELECTRONICS - 8.1%
Benchmark Electronics, Inc. (c) 20,600 490,548
Communications Systems, Inc. (c) 30,700 523,834
TT Group Plc 61,900 317,733
Valley Forge Corporation (c) 36,100 523,450
----------
1,855,565
----------
FINANCIAL SERVICES - 8.3%
Jardine Lloyd Thompson Group Plc 245,100 704,908
Rathbone Brothers Plc 118,500 1,188,792
----------
1,893,700
----------
FOOD & BEVERAGE - 5.9%
Carlsberg AS 4,100 268,046
Lindt & Sprungli AG 329 656,704
Lone Star Steakhouse
& Saloon, Inc. (c) 13,000 294,944
Weetabix Ltd. 2,050 133,676
----------
1,353,370
----------
HEALTH & PERSONAL CARE - 8.6%
Astra AB 19,386 384,928
Del Laboratories, Inc. 18,000 576,000
</TABLE>
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Common Stocks (a) Shares Value
- -------------------------------------------------------------------------
<S> <C> <C>
L'Oreal 879 409,049
Novartis AG 339 600,540
----------
1,970,517
----------
LEISURE & MEDIA - 6.4%
Anchor Gaming 8,700 645,975
Border Television Plc 137,000 813,232
----------
1,459,207
----------
MEDICAL SERVICES & SUPPLIES - 3.8%
National Dentex Corporation 23,000 580,750
Seton Healthcare Group Plc 26,300 276,387
----------
857,137
----------
MULTI-INDUSTRY - 8.3%
Kaydon Corporation (c) 17,000 694,875
Technitrol, Inc. 14,900 583,901
Tomkins Plc 100,666 613,056
----------
1,891,832
----------
PLASTICS - 3.3%
Northern Technologies
International Corporation 52,500 505,312
Polypipe Plc 88,200 245,549
----------
750,861
----------
RETAIL - 2.5%
Seattle FilmWorks, Inc. 61,400 560,275
Westfair Foods Ltd. 360 12,939
----------
573,214
----------
MISCELLANEOUS - 4.5% 100,700 1,023,125
----------
- -------------------------------------------------------------------------
TOTAL COMMON STOCKS - 90.4%
(Cost $16,263,348) 20,647,366
- -------------------------------------------------------------------------
TREASURY BILLS - 8.7%
(Cost $1,991,128) 1,991,683
- -------------------------------------------------------------------------
CASH, RECEIVABLES, AND OTHER ASSETS
LESS LIABILITIES - 0.9% 206,913
- -------------------------------------------------------------------------
NET ASSETS - 100.0%
(Equivalent to $8.63 per share based on
2,648,536 shares of capital stock outstanding) $22,845,962
=========================================================================
<FN>
(a) Percentages indicated are based on net assets of
$22,845,962.
(b) American Depository Shares.
(c) All or a portion of this stock was pledged as collateral for
a line of credit.
</TABLE>
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<TABLE>
<CAPTION>
Z-Seven Fund, Inc.
SCHEDULE OF INVESTMENTS
at March 31, 1998 (Unaudited) Continued
COMMON STOCKS BY COUNTRY
- -------------------------------------
Percent Country Value
- -------------------------------------
<C> <S> <C>
58.3% United States $12,043,481
24.0% United Kingdom 4,967,104
6.1% Switzerland 1,257,244
4.7% Canada 969,441
2.0% France 409,049
1.9% Sweden 384,928
1.7% Spain 348,073
1.3% Denmark 268,046
- -------------------------------------
100.0% $20,647,366
=====================================
</TABLE>
