Z-SEVEN FUND, INC.
1819 S. DOBSON ROAD
SUITE 109
MESA, AZ 85202
(480) 897-6214
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 20, 1999
------------------
To the Shareholders of the Z-Seven Fund, Inc.:
Notice is hereby given that the Annual Meeting of the Shareholders of the
Z-SEVEN FUND, INC. (the "Fund"), a Maryland corporation, will be held at the
offices of KPMG LLP, One Arizona Center, Suite 1100, 400 E. Van Buren, Phoenix,
Arizona on December 20, 1999, at 11:00 A.M. (Mountain Standard Time) for the
following purposes:
1) To consider and to act upon the election of five Directors for a term
of one year until the next Annual Meeting or until their successors have been
duly elected and qualified;
2) To approve the selection by the Board of Directors of KPMG LLP as
independent public auditors for the Fund for the fiscal year ending December 31,
1999; and,
3) To consider and act upon a proposal to approve the Investment Advisory
Agreement between the Fund and TOP Fund Management, Inc.
4) To transact such business as may properly come before the meeting or at
any adjournment thereof.
Shareholders of record at the close of business on October 29, 1999, are
entitled to notice of, and to vote at, the meeting, including any adjournment
thereof. Shareholders are urged to mark, date, sign and return the enclosed
form of proxy at their earliest convenience so that a quorum will be present and
a maximum number of shares may be voted.
By Order of the Board of Directors,
Barbara D. Perleberg
Secretary
Dated: November 19, 1999
<PAGE>
Z-SEVEN FUND, INC.
1819 S. DOBSON ROAD
SUITE 109
MESA, AZ 85202
(480) 897-6214
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PROXY STATEMENT
------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 20, 1999
This statement is furnished in connection with the solicitation of the
accompanying proxy by the Z-Seven Fund, Inc. (the "Fund"), a Maryland
corporation, for use at the Annual Meeting of Shareholders of the Fund to be
held December 20, 1999, and at any adjournment thereof. It is anticipated that
this Proxy Statement and the accompanying form of Proxy will be given or mailed
to shareholders on or about November 19, 1999.
If the enclosed proxy form is executed properly and returned in time to be
voted at the meeting, the shares represented will be voted according to the
instructions contained therein. Executed proxies that are unmarked will be
voted: (i) for the nominees of the Board of Directors of the Fund in the
election of directors; (ii) in favor of the selection of the independent
auditors for the Fund; and (iii) to approve the Investment Advisory Agreement
between the Fund and TOP Fund Management, Inc. Any proxy may be revoked at any
time prior to its exercise by filing with the Fund a written notice of
revocation, by delivering a duly executed proxy bearing a later date, or by
attending the meeting and voting in person.
The Board of Directors has fixed the close of business on October 29, 1999,
as the record date for the determination of shareholders entitled to notice of,
and vote at, the meeting or any adjournment thereof, and only shareholders of
record at the close of business on that day will be entitled to vote.
As of October 8, 1999, there were issued and outstanding 2,394,531 shares
of Common Stock. Each share of Common Stock is entitled to one vote. There is
no provision for cumulative voting. Shares held by shareholders present in
person or represented by proxy at the Meeting will be counted both for the
purpose of determining the presence of a quorum and for calculating the votes
cast on the issues before the Meeting. An abstention by a shareholder, either by
proxy or by vote in person at the Meeting, has the same effect as a negative
vote. Shares held by a broker or other fiduciary as record owner for the
account of the beneficial owner are counted toward the required quorum if the
beneficial owner has executed and timely delivered the necessary instructions
for the broker to vote the shares or if the broker has and exercises
discretionary voting power. Where the broker or fiduciary does not receive
instructions from the beneficial owner and does not have discretionary voting
power as to one or more issues before the Meeting, but grants a proxy for or
votes such shares, they will be counted toward the required quorum but will have
the effect of a negative vote on any proposals on which it does not vote. In
accordance with Maryland law, shares held by two or more persons (whether as
joint tenants, cofiduciaries or otherwise) will be voted as follows: unless a
written instrument or court order providing to the contrary has been filed with
the Secretary of the Fund: (1) if only one votes, the vote will bind all; (2)
if more than one vote, the vote of the majority will bind all; and (3) if more
than one vote and the vote is evenly divided, the shares will be voted in
accordance with the determination of a majority of such persons and any person
appointed to act by a court of competent jurisdiction, or, in the absence of
such appointment, the vote will be cast proportionately.
If, by the time scheduled for the meeting, a quorum is not present, or if a
quorum is present but sufficient votes in favor of any of the proposals
described in the Proxy Statement are not received, the persons named as proxies
may propose one of more adjournments of the meeting to permit further
solicitation of proxies. If a quorum is present, votes will be taken for the
election of directors and on any proposal or proposals as to which there are
sufficient votes for approval; and the remaining proposal or proposals may be
considered at an adjourned meeting or meetings. No adjournment will be for a
period exceeding 120 days after the record date. Any such adjournment will
<PAGE>
require the affirmative vote of a majority of shares present in person or by
proxy at the session of the meeting to be adjourned. The persons named as
proxies will vote in favor of any such adjournment those proxies which instruct
them to vote in favor of the proposals to be considered at the adjourned
meeting, and will vote against any such adjournment those proxies which instruct
them to vote against or to abstain from voting on all proposals to be considered
at the adjourned meeting.
The Annual Report of the Fund for the fiscal year ended December 31, 1998,
including audited financial statements and the Semi-Annual Report for the period
ended June 30, 1999, were mailed to stockholders of record at the close of
business on March 1, 1999, and August 27, 1999, respectively. The Fund will
furnish, without charge, a copy of the Annual Report and the Semi-Annual Report
to a shareholder upon request to the address or phone number listed above.
The cost of solicitation of proxies will be paid by the Fund. Persons
holding stock as nominees will be reimbursed, upon request, for their reasonable
expenses in sending or forwarding solicitation material to the principals of the
accounts. In addition to the solicitation of proxies by mail, directors and
officers of the Fund may solicit proxies in person or by telephone.
As of October 8, 1999, the following persons owned of record, or
beneficially, 5% or more of the outstanding shares of the Fund:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ ---------------- -----------------
<S> <C> <C>
Sir John M. Templeton 644,728 26.93 (1)
P.O. Box 7759
Lyford Cay, Nassau, Bahamas
Barry Ziskin 599,628 25.04 (2)
2302 W. Monterey Circle
Mesa, AZ 85202
Thomas W. Lee 163,664 6.92 (3)
130 - 10th Street
San Francisco, CA 94103
William Wood 136,000 5.68 (4)
P.O Box 143
Bedford, VA 24523-0143
<FN>
(1) Agape Co., S.A. owns 644,728 shares. Agape Co., S.A. is indirectly
controlled by Sir John Templeton. The shares were issued to Agape in a private
placement in December, 1992. The Fund is obligated to register these shares for
sale in the open market upon Agape's request. Previous negotiations for the
repurchase of these shares by the Fund have been discontinued.
(2 ) The shares shown include 368,002 shares owned by Ziskin Asset
Management, Inc., of which Mr. Ziskin is sole shareholder; 53,200 shares owned
by TOP Fund Management, Inc., of which Mr. Ziskin is sole shareholder; 600
shares owned by The Opportunity Prospector, Ltd., of which Mr. Ziskin is sole
shareholder; and 93,863 shares owned by Ziskin Asset Management, Inc. Profit
Sharing Plan, of which Mr. Ziskin is Trustee.
(3) The shares held by Mr. Lee, who is an Officer and Director of Red Cart
Market, Inc. and President of The San Francisco Advertiser, include: 50,050
shares owned by The San Francisco Advertiser; 43,500 shares owned by Red Cart
Market, Inc. Profit Sharing Plan; 28,714 shares owned by The Lee Investment
Partnership; 31,000 shares owned by The San Francisco Advertiser Profit Sharing
Plan, of which Mr. Lee is a Trustee; and 3,200 shares owned by Red Cart Market ,
Inc. D.B.A. Pet Club Profit Sharing Plan.
(4) The shares held by Mr. Wood are registered at Norwest Bank Minnesota
Shareowner Services in record name.
</TABLE>
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws of the Fund provide that the Board of Directors shall consist of
not less than three nor more than fifteen directors, with the exact number being
set from time to time by the Board. The Board currently consists of five
directors, each of whom serves until the next annual meeting of stockholders and
until his or her successor, if there is to be one, is elected and qualified.
The individuals named in the following table have been nominated by the Fund's
Board of Directors for election as directors, each to hold office until the next
Annual Meeting of Shareholders and until his or her successor is duly elected
and qualified. All five of the nominees are currently members of the Board of
Directors. Each of the nominees has consented to his or her nomination and has
agreed to serve if elected.
IF THE PROXY CARD IS PROPERLY EXECUTED BUT UNMARKED, IT WILL BE VOTED FOR ALL
THE NOMINEES. If for any reason, any nominee should not be available for
election or able to serve as a director, the proxies will exercise their voting
power in favor of such substitute nominees, if any, as the Board of Directors of
the Fund may designate. The Fund has no reason to believe that it will be
necessary to designate a substitute nominee. The Directors will be elected by a
plurality of all votes cast at the meeting.
<TABLE>
<CAPTION>
Shares of
Common Stock
Positions Held Principal Occupation Director Beneficially
Name (age) With Fund During Past 5 Years Since Owned % of Class
- ------------------------- -------------- ----------------------------------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Maria De Los Santos (37) Director Controller, DDC-I, Inc. (1994-present); 12/11/98 N/A **
809 Baylor Lane Secretary/ Treasurer, Z-Seven Fund,
Chandler, AZ 85225 Inc., TOP Fund Management, Inc., and
Ziskin Asset Management, Inc.
(1988-1994)
Albert I. Feldman (72) Director Retired, CFO, The San Francisco 11/6/98 81,050 3.38 (1)
184 Amber Dr. Advertiser (1970-1998)
San Francisco, CA 94131
Dr. Jeffrey Shuster (47) Director President & CEO, 3/16/86 600 **
32 East Ridge Court Jeffrey Shuster, DDS, PC
Cheshire, CT 06410 A Professional Corporation
(1981-present)
Barry Ziskin* (47) (2) Director, President, Ziskin Asset 9/16/83 599,628 25.04 (3)
2302 W. Monterey Circle President Management, Inc. (1975-present);
Mesa, AZ 85202 President, TOP Fund Management,
Inc. (1983-present)
Rochelle Ziskin* (45) (4) Director Asst. Professor, Univ. of Missouri- 4/08/85 17,600 **
5119 Wyandotte, #3 South Kansas City (1994-present); J.P.
Kansas City, MO 64112 Getty Fellow, (1993-94); Visiting
Asst. Professor, Univ. of Oregon (1993);
Ph.D., Harvard Univ. (1985-1992)
<FN>
** Less than 1%
* Nominees considered "Interested Persons" of the Fund
(1) These shares include 50,050 shares owned by the San Francisco Advertiser, of which Mr. Feldman was CFO until 1998,
and 31,000 owned by the San Francisco Advertiser Profit Sharing Plan, of which Mr. Feldman is Trustee with shared
voting power.
(2) Mr. Ziskin is the principal executive officer and only director of the Fund's Investment Advisor.
(3) Please see table of 5% or more Beneficial Owners, Footnote 2.
(4) Ms. Ziskin is the sister of Barry Ziskin.
</TABLE>
<PAGE>
Directors of the Fund as a group own beneficially 698,878 shares (29.19%)
of the outstanding shares. Mr. Ziskin beneficially owns 25.04% of the
outstanding shares, as follows: Mr. Ziskin is the sole shareholder of Ziskin
Asset Management, Inc. which owns approximately 15.4% of the outstanding shares;
Mr. Ziskin is the sole shareholder of TOP Fund Management, Inc., the Fund's
investment Advisor, which owns 2.2% of the outstanding shares; Mr. Ziskin is the
sole shareholder of The Opportunity Prospector, Ltd. which owns less than 1% of
the outstanding shares; Mr. Ziskin is Trustee for Ziskin Asset Management, Inc.
Profit Sharing Plan which owns approximately 3.9% of the outstanding shares; and
Mr. Ziskin personally owns approximately 3.3% of the outstanding shares. Mr.
Feldman shares beneficial ownership of the following percentages of outstanding
shares: the San Francisco Advertiser owns 2.1%; The San Francisco Advertiser
Profit Sharing Plan, of which Mr. Feldman is a Trustee and shares voting power
in, owns 1.3%. Other directors each own less than 1% of the total shares
outstanding.
Under an agreement dated December 29, 1983, between the Fund and Ziskin
Asset Management, Inc., Mr. Ziskin must vote all shares of the Fund's Common
Stock, which Ziskin Asset Management owns directly or indirectly, on each matter
presented to the shareholders for their vote, in the same proportion for and
against such matters as all outstanding shares owned by other shareholders of
the Fund are voted on such matters.
The Board of Directors of the Fund has a standing Audit Committee which was
established on August 4, 1988. Members of the Audit Committee are currently
Jeffrey Shuster, Albert Feldman, and Maria De Los Santos. None of the current
members of the Audit Committee are interested persons of the Fund. The Audit
Committee has responsibility for overseeing the independent auditors, approving
annual financial statements and assisting the Board of Directors with respect to
the review of the adequacy and effectiveness of the Fund's accounting and
operating controls. The Board does not have nominating or compensation
committees.
During the fiscal year ended December 31, 1998, directors' fees, at a rate
of $500 per Board and Committee meeting, and expenses aggregating $18,653 were
paid to directors by the Fund. Barry Ziskin, as director of the Fund, receives
no remuneration from the Fund, and is also an officer of the Fund's investment
Advisor. Since the last Annual Meeting of Shareholders, the Board of Directors
have held five meetings. All members of the Board of Directors attended 75% or
more of all Board and Committee meetings combined.
PROPOSAL 2
APPROVAL
OF
INDEPENDENT AUDITORS
The Board of Directors has directed that there be submitted to the
shareholders for approval the selection of KPMG LLP as independent auditors to
report on the Financial Statements of the Fund for the fiscal year ending
December 31, 1999. No member of KPMG LLP has any direct or indirect financial
interest in the Fund.
A representative of KPMG LLP is expected to attend the Annual Meeting of
Shareholders, and such representative will be given the opportunity to make a
statement, and is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the outstanding stock is required to
approve the selection of independent auditors.
PROPOSAL 3
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
Investment management services are furnished to the Fund by TOP Fund
Management, Inc. (the "Advisor") pursuant to an Investment Advisory Agreement
dated February 17, 1987 (the "Agreement"). TOP Fund
Management, Inc. has its principal place of business at 1819 S. Dobson Road,
Suite 109, Mesa, AZ 85202. The Board of Directors of the Fund last submitted
the Agreement to the shareholders for approval on January 11, 1988, as a new
Investment Advisory Agreement (on terms substantially similar to the existing
advisory agreement at that time, except for initial and renewal terms). A
majority of the outstanding shares of the Fund approved the Agreement at that
meeting. The Board of Directors has, in accordance with the terms of the
Agreement, approved the continuance of the Agreement on an annual basis each
year since, most recently on December 11, 1998 when the Board, including all the
directors who are not interested persons of the Fund or the Advisor, voted
unanimously to approve the continuance of the Agreement through December 31,
1999.
<PAGE>
On August 23, 1999, the Fund's Board of Directors, including all of the
directors who are not interested persons of the Fund or the Advisor, unanimously
resolved to submit to the shareholders of the Fund for their approval the
Investment Advisory Agreement. In making its determination, the Board
considered several factors, including in particular (i) that it has been over 10
years since the shareholders last approved the Investment Advisory Agreement;
and (ii) the desire of some shareholders that the Investment Advisory Agreement
be submitted to the shareholders for approval at this time.
CURRENT AGREEMENT
Under the Current Agreement, the Advisor furnishes advice to the Fund with
respect to investing in, purchasing and selling securities, stock index futures
contracts and options thereon.
The Current Agreement expressly provides that the Advisor is not
responsible for providing the Fund with office space, equipment or supplies, or
persons to perform administrative, clerical or bookkeeping functions on behalf
of the Fund. All expenses not assumed by the Advisor are paid by the Fund.
Although the Advisor is responsible for compensation of officers and directors,
the Current Agreement provides that the Fund is responsible for compensation of
such persons who are not regular members of the Advisor's staff. The Board
reviews on an annual basis any expenses the Fund shares with the Advisor and its
affiliates. The Board of Directors has approved allocating such expenses based
generally upon the ratio of assets-under-management between the Fund and the
Advisor's affiliates, subject to annual review by the Board and a maximum
allocation of any particular shared expense to the Fund of 75%. Based on this
formula, for the fiscal year ended December 31, 1998, the Fund paid $52,088 in
office expenses (including rent, office equipment, and miscellaneous office
expenses), which was approximately 75% of the total incurred by the Fund, the
Advisor and its affiliates, and $138,194 in employee compensation and benefits,
which was approximately 54% of the total incurred for employees performing
services for the Fund, the Advisor, and the Advisor's affiliates.
-
The Current Agreement provides that the Advisor, at its own expense, shall
maintain Key Man Insurance covering Barry Ziskin, in an amount not less than
$2,000,000. The policy designates the Fund as beneficiary. The Current
Agreement further provides that the Advisor will not pay or declare dividends on
its stock, redeem, purchase or acquire any share of its stock or make
distribution or disposition of its assets if its tangible net worth plus that of
Ziskin Asset Management, Inc., which guarantees the obligations of the Advisor
under the Current Agreement, would be less than the greater of (i) $1,500,000 or
(ii) 10% of the net assets of the Fund as of the last day of the last calendar
quarter, but not more than $2,700,000.
The Current Agreement provides that the Advisor will receive a base
advisory fee at the rate of .3125% of the Fund's average daily net assets during
each calendar quarter (equivalent to 1.25% per annum). The Current Agreement
also provides that the Advisor will receive a bonus or pay the Fund a penalty,
depending upon performance relative to the Standard & Poor's Composite Index of
500 Stocks (the "S&P 500"). In general, when the Fund outperforms the S&P 500
by 10% or more, then the Fund pays the Advisor a bonus based on a formula
described in the Agreement. Similarly, when the Fund underperforms the S&P 500
by 10% or more, then the Advisor pays the Fund a penalty based on the same
formula. The bonus or penalty is payable at the end of each calendar quarter and
will not exceed 2.5% of the Fund's average daily net assets in any calendar
quarter. Additional details regarding this bonus/penalty performance
arrangement may be found in the Investment Advisory Agreement attached as
Exhibit A on pages A2-A4.
During the fiscal years ended December 31, 1998, 1997 and 1996, the base
advisory fees paid to the Advisor were $258,381, $306,656, and $326,831,
respectively. During the fiscal years ended December 31, 1998, 1997, and 1996
the Advisor paid the Fund a penalty equal to $476,146, $500,990 and $65,366,
respectively. Therefore, the Advisor's payment of penalties under the Agreement
offset the Fund's payment of fees to the Advisor so that the net effect was a
net payment by the Advisor to the Fund of $217,765 and $194,334 during the
fiscal years ended December 31, 1998 and 1997, respectively. For the fiscal
year ended December 31, 1996, the net effect of the penalty paid by the Advisor
to the Fund was to reduce the Fund's net payment to the Advisor to $261,465.
Under an Agreement dated December 29, 1983, the Advisor also reimburses the
Fund to the extent that the Fund's aggregate annual expenses (including the
advisory fee but excluding bonus or penalty payments, interest, taxes, brokerage
commissions and expenses related to litigation or indemnification of officers
and directors) exceeds
<PAGE>
3 1/2% of the Fund's average daily net assets up to $20,000,000 plus 1 1/2% of
average daily net assets in excess of $20,000,000.
The Current Agreement runs for a term ending on December 31, 1999. The
Current Agreement may be continued in effect from year to year, in accordance
with its terms, so long as such continuance is approved at least annually by the
Board of Directors of the Fund, including a majority of the directors who are
not parties to the Current Agreement or "Interested Parties" (as defined in the
Investment Company Act of 1940) of the Advisor or the Fund, or by a vote of a
majority of the outstanding voting shares of the Fund.
The Advisory Agreement may be terminated at any time, without payment of
any penalty, by the Board of Directors of the Fund or by vote of a majority of
the outstanding voting shares of the Fund.
A copy of the Financial Statements of TOP Fund Management, Inc. and of
Ziskin Asset Management, Inc. are included as exhibits to this Proxy Statement.
PROPOSED AGREEMENT
The terms of the Proposed Agreement are identical to the Current Agreement,
except for its initial and termination dates. If approved by the shareholders,
the Proposed Agreement would be effective on the date of approval and would be
continued in effect from year to year thereafter, in accordance with its terms,
so long as such continuance is approved at least annually by the Board of
Directors of the Fund, including a majority of the directors who are not parties
to the Current Agreement or "Interested Parties" (as defined in the Investment
Company Act of 1940) of the Advisor or the Fund, or by a vote of a majority of
the outstanding voting shares of the Fund. A copy of the Proposed Agreement is
attached hereto as Exhibit A.
BOARD RECOMMENDATION AND VOTE REQUIRED FOR APPROVAL OF THE PROPOSED AGREEMENT
The Board reviewed various material factors in its evaluation of the
Advisor and the Advisory Agreement, including, without limitation, the
performance, services and costs of the Advisor in comparison to other closed-end
funds of similar size and nature. The Board of Directors has also considered
that the Fund's investment philosophy centers on the seven criteria developed by
the Advisor and its affiliates, and that the Advisor's years of experience and
research with respect to the seven criteria make the Advisor the investment
manager most capable of applying these principles to manage the Fund. The Board
has also reviewed the Advisor's commitment to the Fund, as evidenced by the
substantial significant portion of the Advisor's and its affiliates' net worth
invested in the Fund.
THEREFORE, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
INVESTMENT ADVISORY AGREEMENT.
Approval of the Proposed Agreement requires the affirmative vote of a
majority of the outstanding voting shares of the Fund. Under the Investment
Company Act of 1940, the vote of a majority of the outstanding shares means the
lesser of (a) more than 50% of the outstanding shares; or (b) if more than 50%
of the outstanding shares are present at the meeting in person or by proxy, then
67% or more of the shares present. In the event that a quorum is present at the
meeting but sufficient votes in favor of the Proposed Agreement have not been
received, the persons named as proxies may propose one or more adjournments of
the meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote by a majority of the shares present in person
or by proxy at the meeting. The persons named as proxies will vote in favor of
such adjournment those proxies which are required to be voted in favor of the
Proposed Agreement. They will vote against such adjournment those proxies
required to be voted against the Proposed Agreement.
If the shareholders approve the Proposed Agreement, the Current Agreement
will be terminated at the same time as the Proposed Agreement becomes effective.
If the Proposed Agreement is not approved by the shareholders at the Meeting,
the Current Agreement will continue in effect and the Board of Directors will
consider such alternative management arrangements as it deems appropriate and
will submit its recommendations to the Fund's shareholders.
<PAGE>
FURTHER INFORMATION
The sole director of the Advisor is Barry Ziskin. Mr. Ziskin's principal
occupation is President of TOP Fund Management, Inc. and Ziskin Asset
Management, Inc. The officers of the Advisor are: Barry Ziskin, President and
Treasurer; and Barbara D. Perleberg, Secretary. An affiliate of the Advisor is
Ziskin Asset Management, Inc., which owns 14.2% of the Fund's voting securities.
Mr. Ziskin is the sole stockholder of Ziskin Asset Management, Inc.
PORTFOLIO INFORMATION
The Advisor is responsible for making recommendations to the Fund to buy
and sell portfolio securities, to hold assets in cash, to invest in all types of
securities and to enter into options on stock indexes, stock index futures
contracts and options thereon, and foreign exchange contracts in whatever
amounts or proportions the Advisor believes best suited to current and
anticipated economic and market conditions consistent with the investment
policies and restrictions of the Fund. The Advisor is also responsible for
placing orders.
There is no set formula for allocation of brokerage. The Fund's primary
objective in selecting broker-dealers through which the Advisor will effect
securities transactions is to obtain the most favorable net results, taking into
account various factors, including size and difficulty of the order, the
reliability, integrity, financial condition, general execution and operational
capabilities of competing broker-dealers, the best net price available, and the
brokerage and research services they are expected to provide the Fund.
The Fund may allocate orders to the broker-dealers who provide brokerage or
research services to the Fund (as such services are defined in section 28(e) of
the Securities and Exchange Act of 1934), and may pay such broker-dealers a
commission that is in excess of the commission another qualified broker-dealer
would have received if it is determined that the commission is reasonable in
relation to the value of the services provided.
The Fund pays for investment advisory publications or other research, other
than advisory fees paid to the Advisor under the terms of the Agreement, with
"soft" (i.e. commission ) dollars. The research obtained through the Fund's
brokerage allocations, whether or not directly useful to the Fund, may be useful
to the Advisor in connection with services rendered to the Fund and/or to other
accounts managed by the Advisor or by Ziskin Asset Management, Inc. Similarly,
research obtained by the Advisor may be useful to the Fund. The Board of
Directors, in considering the reasonableness of the brokerage commissions paid
by the Fund, will not attempt to allocate, or require the Advisor to allocate
the relative cost or benefits to the Fund.
Futures transactions generally will be effected through those futures
commissions merchants ("FCMs") the Fund believes will obtain the most favorable
net results. The Fund may allocate futures contract orders to FCMs who provide
commodity brokerage research services. The normal operation of the commodities
marketplace will require that the FCM have a beneficial interest in any
Sub-Custodial account created for the benefit of the Fund.
For the years 1998, 1997, and 1996, the aggregate amount of commissions
paid by the Fund were $76,814, $172,425, and $238,062, respectively.
Commissions expressed as a percentage of average daily net assets are as
follows: 1998: 0.372%; 1997: 0.703%; and 1996: 0.910%.
The portfolio turnover rate of the Fund in each of the last three years has
been as follows: 1998: 73.1%; 1997: 111.3%; and 1996: 66.4%.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
If a shareholder wishes to present a proposal to be included in the Proxy
Statement for the 2000 Annual Meeting of Shareholders, which the Board of
Directors anticipates will be held on or about December 8, 2000, such proposal
must be submitted in writing and received at the Fund's principal executive
office not less than 120 days in advance of November 10, 2000.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Fund's
directors and officers and persons who beneficially own more than 10% of a
registered class of the Fund's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Copies of all Section 16(a) forms filed by directors, officers and
10% shareholders are required to be provided to the Fund. To the Fund's
<PAGE>
knowledge, based solely on review of the copies of such reports furnished to the
Fund and written representations that no other reports were required, during the
most recently completed fiscal year ended December 31, 1998, all directors,
officers, and 10% stockholders complied with Section 16(a) filing requirements
with the following exception: Ms. Barbara Perleberg, Secretary, inadvertently
filed Form 3 late and reported no holdings in the Fund.
OTHER MATTERS
The Board of Directors knows of no matters as of this date to be presented
at the meeting other than those specified in the Proxy Statement. However, if
any other matters come before the meeting it is intended that the proxies will
vote thereon in their discretion.
All shareholders are urged to execute, date and return promptly the
enclosed Form of Proxy in the enclosed return envelope, regardless of whether
they intend to be present in person at the Annual Meeting.
By Order of the Board of Directors,
Barbara D. Perleberg
Secretary
Dated: November 19, 1999
Mesa, Arizona
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
TOP Fund Management, Inc.
Mesa, Arizona
We have audited the accompanying balance sheet of TOP Fund Management, Inc. (a
New York corporation) as of December 31, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of TOP Fund Management, Inc. as of
December 31, 1998, in conformity with generally accepted accounting principles.
March 15, 1999
<PAGE>
<TABLE>
<CAPTION>
TOP FUND MANAGEMENT, INC.
Balance Sheet
December 31, 1998
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents (Note A). . . . . . . . . . . $ 74,162
Dividend receivable (Notes A and C) . . . . . . . . . . 6,524
----------
Total current assets . . . . . . . . . . . . . . . 80,686
Investments (Notes A and C) . . . . . . . . . . . . . . . . 425,600
----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 506,286
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Due to affiliates (Note B). . . . . . . . . . . . . . . $ 70,800
Accrued expenses. . . . . . . . . . . . . . . . . . . . 7,200
----------
Total current liabilities. . . . . . . . . . . . . 78,000
Note payable to affiliate (Note B). . . . . . . . . . . . . 36,974
----------
Total liabilities. . . . . . . . . . . . . . . . . 114,974
----------
Shareholder's equity:
Common shares, no par value; 200 shares authorized, 10
shares issued and outstanding (Note D). . . . . . . . 809,100
Retained deficit (Note D) . . . . . . . . . . . . . . . (282,203)
Accumulated other comprehensive loss (Notes A, C and D) (135,585)
----------
Total shareholder's equity . . . . . . . . . . . . 391,312
----------
Total liabilities and shareholder's equity. . . . . . . . . $ 506,286
==========
Commitments and contingencies (Note B)
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
TOP FUND MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATUREOFBUSINESS
- ----------------
TOP Fund Management, Inc. (TFM), organized under the laws of the state of New
York, is a registered investment advisor which manages the portfolio of the
Z-Seven Fund, Inc. (the Fund), a registered investment company. The objective
of the Fund is long-term capital appreciation through investment, primarily in
common stocks and securities immediately convertible into common stock, believed
by TFM to have significant growth potential. TFM at no time has custody or
possession of the Fund's portfolio, but rather is authorized by the Fund to make
trades on its behalf in the Fund's account.
USE OF ESTIMATES
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
INVESTMENTS
- -----------
The Company classifies its marketable equity securities as available for sale.
These securities are carried in the financial statements at fair value.
Realized gains and losses are included in earnings, and unrealized gains and
losses are reported as a separate component of shareholder's equity, see Note D.
Dividend income is recorded on the ex-dividend date.
INCOME TAXES
- -------------
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the shareholder is liable for
individual federal and state income taxes on the Company's taxable income. As a
result, no provision or liability for federal or state income taxes has been
included in the financial statements.
CONCENTRATIONS OF CREDIT RISK
- --------------------------------
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 identifies these
items as a concentration of credit risk requiring disclosure, regardless of the
degree of risk. The risk is managed by maintaining all deposits in high quality
financial institutions.
IMPLEMENTATION OF NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) 130. Statement 130 requires that unrealized gains and losses
on the Company's available-for-sale securities, which prior to adoption were
reported separately in shareholder's equity, now be included in other
comprehensive income. As a consequence of this change, unrealized income (loss)
on available-for-sale investments is now classified in the equity section under
accumulated other comprehensive income.
<PAGE>
TOP FUND MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
(Continued)
NOTE B - RELATED PARTY TRANSACTIONS
INVESTMENT ADVISORY AGREEMENT
- -------------------------------
TFM has entered into an Investment Advisory Agreement (the Agreement) with the
Fund. The Agreement provides for a base management fee equal to .3125% per
quarter (equivalent to 1.25% per annum) of the average daily net assets of the
Fund.
In addition to such base management fee, TFM will receive a bonus for
extraordinary performance (change in net asset value) or pay a penalty for under
performance. 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 Fund will be measured. The bonus or 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 fee can exceed
the base management fee. Furthermore, the bonus/penalty arrangement will not
become operative unless the performance of the Fund exceeds, either positively
or negatively, the S&P 500 Index percentage change during the same period of
time by more than 10.0%. At December 31, 1998, TFM owes the Fund a net $70,800
comprised of $129,190 owed to the Fund in penalties as determined by the
bonus/penalty arrangement and $58,390 due to TFM in base management fees.
The Agreement also provides that if the Fund's expenses on an annual basis
(including the base management fee, but excluding any bonus or penalty payments,
taxes, interest, brokerage commission and certain litigation expenses) exceed
3.5% of the average daily net assets of the Fund up to $20 million plus 1.5% of
the average daily net assets in excess of $20 million, TFM shall reimburse the
Fund annually for any such excess expenses up to the aggregate amount of the
basic advisory fee. For the year ended December 31, 1998, there were no excess
expenses required to be reimbursed.
Ziskin Asset Management, Inc. (ZAM), an affiliated company has guaranteed and
pledged stock to the Fund to cover any penalty or expenses incurred by TFM under
the Agreement with the Fund. In addition, the Agreement has several covenants,
among them, that ZAM and TFM agree not to declare or pay any dividends or make
any other distribution of their common stock unless the combined tangible net
worth of the companies is not less than the greater of (i) $1,500,000 or (ii)
10% of the net assets of the Fund, as of the last day of the most recently ended
fiscal quarter, but not more than $2,700,000. At December 31, 1998, the net
assets of the Fund were approximately $19,855,000. TFM and ZAM were in
compliance with all covenants at December 31, 1998.
AFFILIATES
- ----------
At December 31, 1998, TFM has an 8% note payable totaling $36,974 to ZAM.
The sole shareholder of TFM is also a Director and the President of the Fund,
and sole shareholder of ZAM. The Company and ZAM have co-guaranteed a $400,000
personal loan on behalf of their sole shareholder. The note is further
collateralized by 367,202 shares of the Fund, of which 29,200 shares are owned
by TFM and 338,002 shares are owned by ZAM.
<PAGE>
TOP FUND MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
(Continued)
NOTE C - INVESTMENTS
The Company owns 53,200 shares of Z-Seven Fund, Inc. These shares have an
original cost of $561,185 and a fair market value of $425,600 at December 31,
1998. The unrealized loss for these equity securities at December 31, 1998, was
$135,585. In December 1998, the Fund declared dividends payable totaling $0.1744
per share to the shareholders of record at December 21, 1998, to be paid on
December 30, 1998, of which $6,524 was received in 1999. The Company has
pledged 29,200 shares as collateral for a personal loan of the sole shareholder
of the Company as described in Note B.
NOTE D - COMMON STOCK, RETAINED DEFICIT AND ACCUMULATED OTHER COMPREHENSIVE
INCOME
Changes in common stock for 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ 1,100
Capital contributions. . . 808,000
---------
Balance, end of year . . . $ 809,100
=========
</TABLE>
Changes in retained deficit for 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ (17,391)
Net loss . . . . . . . . . (264,812)
----------
Balance, end of year . . . $(282,203)
==========
</TABLE>
Changes in accumulated other comprehensive income (loss) resulting from
unrealized gain (loss) on investments for 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ 24,015
Unrealized loss incurred . (159,600)
----------
Balance, end of year . . . $(135,585)
==========
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Ziskin Asset Management, Inc.
Mesa, Arizona
We have audited the accompanying balance sheet of Ziskin Asset Management, Inc.
(a New York corporation) as of December 31, 1998. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Ziskin Asset Management, Inc. as of
December 31, 1998, in conformity with generally accepted accounting principles.
March 15, 1999
<PAGE>
<TABLE>
<CAPTION>
ZISKIN ASSET MANAGEMENT, INC.
Balance Sheet
December 31, 1998
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents (Note A). . . . . . . . . . . . $ 41,379
Accounts receivable (Note A). . . . . . . . . . . . . . . 17,645
Dividend receivable (Notes A and C) . . . . . . . . . . . 63,976
Prepaid income taxes (Note A) . . . . . . . . . . . . . . 266,112
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,976
----------
Total current assets . . . . . . . . . . . . . . . . 391,088
Deferred income tax assets (Notes A and D). . . . . . . . . . 497,000
Note receivable from affiliate (Note B) . . . . . . . . . . . 36,974
Investments (Notes A, B and C). . . . . . . . . . . . . . . . 2,944,016
----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $3,869,078
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses. . . . . . . . . . $ 122,721
Unearned portfolio fees (Note A). . . . . . . . . . . . . 39,036
----------
Total current liabilities. . . . . . . . . . . . . . 161,757
Unearned subscription revenues (Note A) . . . . . . . . . . . 62,000
----------
Total liabilities. . . . . . . . . . . . . . . . . . 223,757
----------
Shareholder's equity:
Common shares, no par value; 200 shares authorized,
100 shares issued and outstanding . . . . . . . . . . 1,500
Additional paid in capital. . . . . . . . . . . . . . . . 6,191
Retained earnings (Note E). . . . . . . . . . . . . . . . 3,309,527
Accumulated other comprehensive income (Notes A, C and E) 328,103
----------
Total shareholder's equity . . . . . . . . . . . . . 3,645,321
----------
Total liabilities and shareholder's equity. . . . . . . . . . $3,869,078
==========
Commitments and contingencies (Note B)
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
ZISKIN ASSET MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATUREOFBUSINESS
- ----------------
Ziskin Asset Management, Inc. (ZAM), organized under the laws of the state of
New York, is a registered investment advisor which manages accounts for various
individuals and institutions on a discretionary basis for a fee. The objective
of such accounts is long-term capital appreciation through investment, primarily
in common stocks and securities immediately convertible into common stock,
believed by ZAM to have significant growth potential. ZAM at no time has
custody or possession of the clients' funds or securities, except for prepaid
investment management fees, but rather is authorized by the clients to make
investments on their behalf in their accounts.
USE OF ESTIMATES
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
- --------------------
The Company uses the allowance method to provide a reserve for uncollectible
accounts receivable. Uncollectible accounts are charged to the allowance
account when incurred. Management believes the allowance is sufficient for any
uncollectible amounts. The allowance for doubtful accounts at December 31, 1998
was $0.
REVENUE RECOGNITION
- --------------------
Investment management fees are recognized as the related services are performed.
INVESTMENTS
- -----------
The Company classifies its marketable equity securities as available for sale.
These securities are carried in the financial statements at fair value.
Realized gains and losses are included in earnings, and unrealized gains and
losses, net of income taxes, are reported as a separate component of
shareholder's equity, see Note E. Dividend income is recorded on the
ex-dividend date.
UNEARNED PORTFOLIO FEES
- -------------------------
Unearned portfolio fees represents annual advance fees paid by clients. These
fees are recognized as revenue based on the annual account performance when the
clients' investment portfolios increase in value. If the investment portfolios
decrease in value, the unearned advance fees are carried forward to future
periods or are refunded.
<PAGE>
ZISKIN ASSET MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
(Continued)
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNEARNED SUBSCRIPTION REVENUES
- --------------------------------
In prior years, the Company published and distributed, for a fee, an investment
newsletter. The newsletter was discontinued and the amounts shown represent
unearned revenues. The Company is currently negotiating with these subscribers,
with the possibility of offering other services in satisfaction of the revenues
collected.
INCOME TAXES
- -------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to unrealized gains on investments (not recognized for income
tax purposes until the investments are disposed) and certain accrued expenses
(not deductible for income tax purposes until paid). The deferred tax assets and
liabilities represent the future tax consequences of these differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
PROFIT SHARING PLAN
- ---------------------
The Company maintains a profit sharing plan covering all eligible full time
employees. Contributions to the plan are at the discretion of the Board of
Directors. As of December 31, 1998 all contributions to the plan have been fully
funded.
CONCENTRATION OF CREDIT RISK
- -------------------------------
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 identifies these
items as a concentration of credit risk requiring disclosure, regardless of the
degree of risk. The risk is managed by maintaining all deposits in high quality
financial institutions.
IMPLEMENTATION OF NEW FINANCIAL ACCOUNT PRONOUNCEMENTS
- -----------------------------------------------------------
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) 130. Statement 130 requires that unrealized gains and losses
on the Company's available-for-sale securities, which prior to adoption were
reported separately in shareholder's equity, now be included in other
comprehensive income. As a consequence of this change, unrealized income (loss)
on available-for-sale investments is now classified in the equity section under
accumulated other comprehensive income.
NOTE B - RELATED PARTY TRANSACTIONS
Under the Guarantee and Pledge Agreement (the Guarantee) that the Company has
with the Z-Seven Fund, Inc. (the Fund), ZAM has guaranteed to pay any penalties
and expenses incurred by TOP Fund Management, Inc. (TFM), an affiliated company,
which could be created under TFM's advisory agreement with the Fund.
Additionally, the Company has pledged marketable equity securities (Note C) as
collateral under the Guarantee.
<PAGE>
ZISKIN ASSET MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
(Continued)
NOTE B - RELATED PARTY TRANSACTIONS (CONTNUED)
The Guarantee has several covenants, among them, that ZAM and TFM agree not to
declare or pay any dividends or make any other distribution of their common
stock unless the combined tangible net worth of the companies is not less than
the greater of (i) $1,500,000 or (ii) 10% of the net assets of the Fund, as of
the last day of the most recently ended fiscal quarter, but not more than
$2,700,000. At December 31, 1998, the net assets of the Fund were approximately
$19,855,000. ZAM and TFM were in compliance with all covenants at December 31,
1998.
At December 31, 1998, the Company has an 8% note receivable from TFM totaling
$36,974.
The Company subleases office space from the Fund on a month to month basis.
The sole shareholder of ZAM is also a Director and the President of the Fund,
and sole shareholder of TFM. The Company and TFM have co-guaranteed a $400,000
personal bank loan on behalf of their sole shareholder. The note is further
collateralized by 367,202 shares of the Fund, of which 338,002 shares are owned
by ZAM and 29,200 shares are owned by TFM.
NOTE C - INVESTMENTS
The Company owns 368,002 shares of Z-Seven Fund, Inc. These shares have an
original cost of $3,064,358 and a fair market value of $2,944,016 at December
31, 1998. The unrealized gain, net of deferred income taxes, for these equity
securities at December 31, 1998, was $328,103. ZAM has pledged 21,900 shares as
collateral under a guarantee agreement with the Fund, as described in Note B.
In December 1998, the Fund declared dividends payable totaling $0.1744 per share
to the shareholders of record at December 21, 1998, to be paid on December 30,
1998, of which $63,976 was received in 1999.
NOTE D - INCOME TAXES
The Company's total deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
<S> <C>
Total deferred tax assets, long-term $ 497,000
Less valuation allowance . . . . . . -
Total deferred tax liabilities . . . -
-----------
Net deferred tax assets. . . . . . . $ 497,000
===========
</TABLE>
As of December 31, 1998, loss carrybacks of approximately $300,000 are available
to offset prior years' federal income taxes. The tax benefit of the loss
carryback is approximately $91,000. In addition, $300,000 of loss carryforwards
are available to offset future state income taxes. If not used, the
carryforwards expire in 2003. The tax benefit of the loss carryforward is
approximately $24,000.
<PAGE>
ZISKIN ASSET MANAGEMENT, INC.
Notes to Balance Sheet
December 31, 1998
(Continued)
NOTE E - RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in retained earnings for 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $3,473,483
Net loss . . . . . . . . . (163,956)
-----------
Balance, end of year . . . $3,309,527
===========
</TABLE>
Changes in accumulated other comprehensive income, net are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year . . . . . . . . . . . . . . $ 957,109
Unrealized loss incurred, net of deferred income taxes (629,006)
------------
Balance, end of year . . . . . . . . . . . . . . . . . $ 328,103
============
</TABLE>
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated_____________, made and __________
entered into by and between Z-Seven Fund, Inc., a Maryland corporation
(hereinafter called the Investment Company") and TOP Fund Management, Inc., a
New York Corporation (hereinafter called "The Advisor").
WITNESSETH:
The parties agree as follows:
1. INVESTMENT SERVICES. The Advisor shall furnish advice to the
Investment Company with respect to investing in and purchasing and selling
securities and stock index futures contracts and related options thereon, and,
subject to the control of the Board of Directors of the Investment Company,
shall determine what securities and stock index futures contracts and related
options thereon shall be purchased or sold by the Investment Company and shall
effect such purchases and sales. The Advisor shall attempt to effect the
purchase and sale of such securities and stock index futures contracts and
related options thereon with and through such broker-dealers or futures
commissions merchants, as the case may be, as the Invest-ment Company directs.
In the case of any transactions where the Investment Company determines that
more than one broker-dealer would provide the best price and execution, the
Advisor may in its discretion, effect such transaction with or through any of
such broker-dealers or futures commission merchants, as the case may be, on the
basis of the furnishing of research, statistical or other services by such
broker-dealers or futures commissions merchants, as the case may be, to the
Advisor or Investment Company, or on such other reasonable basis as the Advisor
or the Investment Company determines. Any such sales, statistical, research or
other services rendered by broker-dealers or futures commissions merchants shall
not in any way offset or reduce the compensation to be paid to the Advisor
hereunder.
2. ADDITIONAL SERVICES. The Advisor shall furnish at the request of the
Board of Directors of the Investment Company, without expense to the Investment
Company, the services of all persons, including all directors, officers and
employees of the Advisor (such persons to be satisfactory to the Investment
Com-pany's Board of Directors), to serve as directors and officers of the
Investment Company, if any of such persons are elected or appointed to such
capacities The Advisor shall pay the compensation and travel expenses of all
persons acting as directors or officers of the Investment Company, and they
shall serve without additional compensation of any kind from the Investment
Company. No other employee of the Investment Company shall receive from the
Investment Company any salary or other compensation there-fore while such person
is at the same time a director, officer or employee of the Advisor or any of its
affili-ates. The foregoing prohibitions on the payment of compensation by the
Investment Company shall not apply to consultants and other persons who are not
regular members of the Advisor's staff and who are directors, officers or
employees of the Investment Company. The Advisor shall have no responsibility to
provide the Investment Company with office space or any office equipment or
supplies, or persons to per-form administrative, clerical or bookkeeping
functions on behalf of the Investment Company.
The Advisor shall supply the Board of Directors and officers of the
Investment Company with all statistical information reasonably required by them
and reasonably available to the Advisor.
A-1
<PAGE>
3. INFORMATION TO BE SUPPLIED BY THE INVESTMENT COMPANY. The Investment
Company shall at all times keep the Advisor fully informed with regard to the
securities owned by it, its funds available or to become available for
investment, and generally as to the condition of its affairs. It shall furnish
the Advisor with a copy of all financial statements certified by its financial
officer, and a signed copy of each report prepared by certified public
accountants with respect to it, and with such other information with regard to
its affairs, as the Advisor may from time to time reasonably request.
4. EXPENSES OF THE INVESTMENT COMPANY. The Investment Company shall
pay all its expenses not assumed by the Advisor as provided herein. Such
expenses shall include, but shall not be limited to, custodian, depository,
registrar, stock transfer and dividend disbursing fees and expenses; costs of
the designing, printing and mailing of reports, proxy statements and notices to
its shareholders; expenses and fees of listing the Investment Company's
securities on an exchange; interest; taxes; expenses of the issu-ance or sale of
shares of the Investment Company (including registration and qualification
expenses and the cost of stock certificates); legal and auditing expenses;
telephone and telegraph expenses; the expenses of office space, equipment and
supplies; compensation, fees and expenses paid to the directors, officers or
employees of the Advisor or any of its affiliates; association dues; costs of
stationery and forms prepared exclusively for the Investment Company; and costs
of data transmissions. In the event that any employee of the Investment Company
performs services for the Advisor, there shall be charged to the Advisor a pro
rata share of the costs (allocated on the basis of working hours devoted to the
Advisor's affairs) associated with the employment of such employee incurred by
the Investment Company including, without limita-tion, salary expense, social
security and other employee taxes and health insurance and other fringe
benefits.
5. COMPENSATION OF THE ADVISOR. The Investment Company shall pay to
the Advisor on or before the tenth (10th) day following the end of each calendar
quarter, as compensation for the services rendered by the Advisor under this
Agreement during such calendar quarter, a base advisory fee (hereinafter called
the "Base Advisory Fee") in an amount equal to .3125% of the average daily net
asset value of the Invest-ment Company during such calendar quarter, determined
on the last day of such calendar quarter; provided, however, that the Base
Advisory Fee for the period from the effective date hereof to the last day of
the calendar quarter in which such effective date occurs shall be prorated
according to the proportion which such period bears to the full calendar
quarter, and provided, further, that upon any termination of this Agreement on a
day other than the last day of a calendar quarter, the Base Advisory Fee for the
period from the beginning of the calendar quarter in which termination occurs to
the date of termination shall be prorated according to the proportion which such
period bears to the full calendar quarter.
In addition to the Base Advisory Fee, the Investment Company shall pay to
the Advisor a bonus or the Advisor shall pay to the Investment Company a
penalty, in each case on a quarterly basis, depending upon the performance
relative to the Standard & Poor's Index of 500 Composite Stocks (hereinafter
called the "Index"). The quarterly bonus or penalty, if any, shall be calculated
and paid as follows:
(a) The net asset value of the Investment Company at the beginning of
the fourth full calendar quarter preceding the date of determination (the
"Beginning NAV") shall be subtracted from the sum of the net asset value of the
Investment Company at the end of the calendar quarter immediately preceding the
date of determination plus the value of any distributions made by the Investment
Com-pany to its shareholders during any of the four calendar quarters that are
the subject of the determina-tion. The difference shall be divided by the
Beginning NAV and the quotient shall be expressed as a percentage (hereinafter
called the "Net Asset Value Percentage Change").
A-2
<PAGE>
(b) The level of the Index at the beginning of the fourth full calendar
quarter preceding the date of determination (the "Beginning Index") shall be
subtracted from the level of the Index at the end of the calendar quarter
immediately preceding the date of determination. Adjustments for each
distribu-tions, if any, paid on the stocks included in the Index shall be made
in the same manner as provided in subparagraph (a) for adjusting net asset value
of the Investment Company. The difference shall be divided by the Beginning
Index and the quotient shall be expressed as a percentage (hereinafter called
the "Index Percentage Change").
(c) The Index Percentage Change shall then be subtracted from the Net
Asset Value Percentage Change, and the difference is hereinafter called the
"Performance Differential". It is understood that at any time the Net Asset
Value Percentage Change, the Index Percentage Change and the Perfor-mance
Differential, or any of them, could be a negative figure. To the extent that the
Performance Differential, whether positive or negative, exceeds nine and
nine-tenths (9.9) percentage points, there shall be payable, subject to the
second proviso of subparagraph (e) below, a bonus or penalty, depending on
whether the performance was positive or negative, equal to the product of (x)
the average daily net asset of the Investment Company for the four calendar
quarters that are utilized in the determina-tion times (y) 25% of the annual
bonus/penalty rate computed in accordance with the following table:
<TABLE>
<CAPTION>
BONUS OR PENALTY
(ANNUAL PERCENTAGE
RATE APPLIED TO
AVERAGE DAILY
PERFORMANCE DIFFERENTIAL NET ASSETS)
- ----------------------------- --------------
<S> <C>
10 to 14.9 percentage points. 1.0%
15 to 19.9 percentage points. 1.5%
20 to 24.9 percentage points. 2.0%
25 to 29.9 percentage points. 2.5%
30 to 34.9 percentage points. 3.0%
35 to 39.9 percentage points. 3.5%
40 to 44.9 percentage points. 4.0%
45 to 49.9 percentage points. 4.5%
50 to 54.9 percentage points. 5.0%
55 to 59.9 percentage points. 5.5%
60 to 64.9 percentage points. 6.0%
65 to 69.9 percentage points. 6.5%
70 to 74.9 percentage points. 7.0%
75 to 79.9 percentage points. 7.5%
80 to 84.9 percentage points. 8.0%
85 to 89.9 percentage points. 8.5%
90 to 94.9 percentage points. 9.0%
95 to 99.9 percentage points. 9.5%
100 or more percentage points 10.0%
</TABLE>
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(d) The bonus or penalty payable in respect of any calendar quarter
shall not exceed 2.5% of the average daily net asset value of the Investment
Company for the four calendar quarters that are utilized in the determination of
the bonus or penalty.
(e) The bonus or penalty earned or payable by the Advisor shall be
determined and paid within 10 days following the close of each calendar quarter;
provided, however, that no bonus or penalty was paid in respect of the calendar
quarter in which the Investment Company commenced doing business; and provided
further that the bonus or penalty that would have been paid at the end of each
of the first four full calendar quarters during the first year of business was
computed at the end of the fourth such quarter and the bonus or penalty, as the
case may be, was computed for such four calendar quarter periods on the basis of
the full annual rate set forth in the table included as part of subparagraph
(c), and the bonus and penalty so computed was paid within ten days following
the close of the fourth such quarter. Any such payment made within ten days
after the close of a calendar quarter shall be considered for all purposes
hereunder as having been paid within said calendar quarter but no such payment,
whether to or by the Advisor, shall be deemed to increase or decrease Net Asset
Value for purposes of com-puting the Base Advisory Fee or the bonus or penalty
payment for such period.
(f) If this agreement terminates on a date other than at the end of a
calendar quarter, or if there is any other short fiscal period resulting from a
change of the Investment Company's fiscal year or otherwise, the incentive
adjustment for such period shall be computed as follows: (1) the effective date
or other commencement of the short fiscal period shall be deemed the beginning
of a calendar quarter, and the termination date or other end of a short fiscal
period shall be deemed the end of a calendar quarter; (2) in determining the
annual rate of the bonus or penalty applicable to any Perfor-mance Differential
for any four calendar quarters including such short fiscal period, each of the
per-centage figures set forth in the column labeled "Performance Differential"
in the table included as part of subparagraph (c) shall be changed to the
fraction of such percentage point which 270 plus the number of days in such
short fiscal period bears to 360; and (3) the maximum limitation of 2.5% which
the number of days in such short fiscal period bears to 90.
(g) Payments described herein shall be accompanied by a report of the
Investment Company prepared either by the Investment Company or by a reputable
firm of independent accountants which shall show the amount properly payable to
the Advisor under this agreement and the detail or com-putation thereof. If the
Advisor does not dispute such report within 30 days from the receipt thereof, it
shall be deemed binding and conclusive on the parties hereto.
6. ADVISOR'S RESPONSIBILITY. The Advisor assumes no responsibility
other than to render the ser-vices called for hereunder and to make the penalty
payments, if any, prescribed in paragraph 5 above. The Advisor shall have no
liability to the Investment Company, or to its shareholders or creditors, for
any error in judgment, mistake of law, or for any loss arising out of any
investment, or for any other act of omission in the performance of its
obligations to the Investment Company, except for liability to which it would be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations hereunder.
7. NO LIMITATIONS ON OTHER EMPLOYMENT. Nothing in this Agreement shall
limit or restrict the right of any director, officer or employee of the Advisor
who may also be a director, officer or employee of the Investment Company to
engage in any other business, whether of a similar nature or a dissimilar
nature, however, the Advisor shall not act as an investment advisor to anyone
but the Investment Company.
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8. COVENANTS OF THE ADVISOR. (a) Key Man Insurance. The Advisor shall at
its expense cause to be maintained Key Man Insurance covering Barry Ziskin in an
amount not less than $2 million (and, to the extent any such insurance consists
of a whole life or similar type policy, not make any borrowings in connection
therewith which would cause the benefits payable thereunder to be less than $2
million). The Advisor shall further cause the Investment Company to be duly
designated, by means in form and substance satisfactory to the Investment
Company, a beneficiary on policies of Key Man Insurance covering Barry Ziskin
owned by the Advisor. Upon request of the Investment Company, the Advisor shall
fur-nish the Investment Company, with copies of all such insurance policies and
such other evidence as to com-pliance with the foregoing, and as the Investment
Company may reasonably request.
(b) Dividend Restriction. The Advisor covenants and agrees that, so
long as this Agreement is in effect, the Advisor, unless the Advisor receives
written consent of the Investment Company allowing ac-tions or omissions to the
contrary, will not pay or decree any dividend on its stock or make any other
distribu-tion on account of its stock or redeem, purchase or otherwise acquire,
directly or indirectly, any share of its stock, or otherwise make any
distribution or other disposition of any of its assets whether in the or-dinary
course of business or otherwise, if after and giving effect to such action the
sum of the tangible net worth (being the excess of total assets over total
liabilities, excluding from total assets all assets classified as intangible
assets under generally accepted accounting principles) of the Advisor plus the
tangible net worth of Ziskin Asset Management, Inc., which has guaranteed the
obligations of the Advisor hereunder, would be less than the greater of (i)
$1,500,000 or (ii) 10% of the net assets of the Investment Company as of the
last day of the most recently ended fiscal quarter of the Investment Company but
not more than $2,700,000.
9. TERMINATION. Subject to the next sentence of this paragraph, this
Agreement shall be in effect until the close of business on December 31, 2000
and shall continue in effect from year to year thereafter, but only so long as
such continuance shall be specifically approved at least annually by the Board
of Direc-tors of the Investment Company, including a majority of the directors
who are not parties to this Agreement or interested persons (within the meaning
of the Investment Company Act of 1940) of the Advisor or of the Investment
Company, cast in person at a meeting called for the purpose of voting on such
approval, or by vote of a majority (within the meaning of the Investment Company
Act of 1940) of the outstanding voting shares of the Investment Company.
Notwithstanding anything herein to the contrary, this Agree-ment may be
terminated at any time, without payment of any penalty, by the Board of
Directors of the Investment Company or by vote of a majority (within the meaning
of the Investment Company Act of 1940) of the outstanding voting shares of the
Investment Company, on sixty (60) days' written notice to the Advisor.
10. NON-ASSIGNABILITY. This agreement shall not be assignable by
either party hereto, and in the event of assignment (within the meaning of the
Investment Company Act of 1940) by the Advisor, this agreement shall
automatically be terminated forthwith.
11. APPROVAL OF THIS AGREEMENT AND AMENDMENTS. This Agreement and any
amendments made hereto shall be approved by vote of the holders of a majority of
the outstanding shares of the Investment Company. Thereafter; no amendment to
this Agreement shall become effective until approved by vote of the holders of a
majority of the outstanding shares of the Investment Company. In the event that
this agreement is not ratified by shareholders of the Investment Company at the
Annual Meeting in 1999, the Investment Company and the Advisor shall continue to
be bound by the Investment Advisory Agreement in effect immediately prior to
said Annual Meeting.
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12. NOTICES. Any notices required hereunder shall be in writing and
shall be deemed given when delivered in person or when sent by first-class
registered or certified mail to the parties at the following address or at such
addresses as either party may from time to time specify by notice to the other:
If to the Investment Company at:
Z-Seven Fund, Inc.
1819 S. Dobson Road
Suite #109
Mesa, AZ 85202
If to the Advisor at:
TOP Fund Management, Inc.
1819 S. Dobson Road
Suite #109
Mesa, AZ 85202
13. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of New York.
IN WITNESS WHEREOF the parties hereto have executed these presents on the
date first above mentioned.
Z-SEVEN FUND, INC.
By
-----------------------------------
President
TOP FUND MANAGEMENT, INC.
By
-----------------------------------
President
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