MERIDIAN VALUE FUND
July 24, 1997
To Our Shareholders:
The Meridian Value Fund's net asset value per share at June 30 1997, was $17.40.
This represents a total return of 20.6% for the fiscal year ended June 30, 1997
and 17.2% for the calendar year to date. The Fund's total return and average
annual compounded rate of return for the two years ended June 30, 1997, were
79.8% and 34.1%, respectively. Prior to June 30, 1995, the Fund's cash position
was approximately 50%, as it was in the start-up process of becoming fully
invested. The total return and average annual compounded rate of return for the
S.&P 500, with dividends reinvested, for the two years ended June 30, 1997, were
69.6% and 30.2%, respectively. The Fund's net assets at the close of the quarter
were invested 1.6% in cash and other assets less liabilities and 98.4% in
stocks. Total net assets were $7,340,110 and there were 198 shareholders.
Stocks posted a major gain during the quarter ending June 30, reflecting
favorable economic conditions. The S&P 500 with dividends reinvested, gained
17.4 percent; the NASDAQ 18.0 percent and the Russell 2000 15.7 percent. Large
capitalization companies continue to outperform their smaller counterparts. Year
to date the S&P 500 with dividends reinvested is ahead 20.6 percent, the NASDAQ
11.7 percent and the Russell 2000 9.3 percent. This is the tenth consecutive
quarterly advance for the S&P 500. The last decline took place during the fourth
quarter of 1994 and was less than one percent. The Dow Jones Bond Index advanced
modestly as interest rates declined. The five-year government bond yield dropped
from 6.8 percent to 6.4 percent during the quarter.
It is hard to imagine a more favorable economic backdrop for stocks. Economic
growth moderated to approximately two percent during the second quarter while
interest rates declined and inflation slowed to an annual rate of about two
percent. The economic cycle is in its seventh year, but consumer confidence
remains high, unemployment is low, corporate profits are growing, stock prices
are at record levels and leading economic indicators portend more growth ahead.
Labor markets are tight, but otherwise, there are no major storm clouds on the
economic horizon. Things can change quickly, but we expect continued growth
through the first half of 1998.
We believe that stock prices reflect the favorable economic conditions described
above. The price earnings ratio, price to book and dividend yield for the S&P
500, the primary measures of valuation, are all near or at the high end of their
historical range. The stock prices of such excellent companies as Microsoft,
Coca Cola, General Electric, Gillette, etc., in our opinion, more than
adequately reflect their respective growth prospects. The valuations on small
companies are relatively better if we compare their expected growth rates to
those of the large S&P 500 type of company. However, they are not cheap by
historical measures. We continue to research companies with improving prospects
and reasonable valuations, and will strive to remain fully invested.
<PAGE>
During the quarter we purchased shares in Cooker Restaurants, Coventry
Corporation, General Instruments, IMCO Recycling, InFocus Systems, Information
Resources, Marisa Christina, Mazel Stores, Mylan Laboratories, Network Equipment
Technologies, Optical Coating Labs, Sunrise Medical, Telxon, Valley National
Gases, VLSI Technology, and Wonderware. We also increased our position in
EZCorp. We sold our positions in Aldila, Apache, Ashworth, Broadway & Seymour,
Burlington Coat Factory, Cornerstone Imaging, General Housewares, Griffon,
Insituform Technologies, Paragon Trade Brands, Value City Department Stores, and
Vintage Petroleum. Additionally, Seda Specialty Packaging was acquired,
resulting in a substantial profit.
Valley National Gases (VNG) recently conducted a public offering. The company is
a super-regional packager and distributor of industrial and specialty gases,
welding equipment and supplies, and propane in the Mid-Atlantic and midwestern
regions of the U.S. The domestic packaged gas distribution market is large, less
cyclical than average, mature and consolidating; with low capital expenditure
requirements and relatively price-insensitive customers. The favorable economics
of the business could enable VNG to internally finance 15-20% annual revenue
growth for the foreseeable future, mainly through acquisitions. Operational
efficiencies derived from economies of scale could result in even higher annual
earnings growth. Moreover, VNG itself represents an attractive acquisition
candidate. The stock currently trades at less than 13X projected FY'98 after-tax
free cash flow, a relatively inexpensive valuation in this environment.
We welcome those new shareholders who joined the Meridian Value Fund during the
quarter and appreciate the continued confidence of our existing shareholders.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
/s/ Kevin O'Boyle
Kevin O'Boyle
2
<PAGE>
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK - 98.4%
AGRICULTURE - 2.0%
IMC Global, Inc..*...................................... 4,200 $147,000
APPAREL/SHOE - 10.6%
Fossil, Inc.. .......................................... 11,600 205,900
Marisa Christina, Incorporated.......................... 19,200 180,000
Maxwell Shoe Company, Inc. - Class A.................... 17,700 216,825
Norton McNaughton, Inc. ................................ 36,000 175,500
CONSUMER FINANCE - 10.2%
EZCORP, Inc. ........................................... 56,700 567,000
Fingerhut Companies, Inc. .............................. 10,400 181,350
CONSUMER PRODUCTS - 4.8%
Perrigo Company......................................... 15,100 188,750
The Scotts Company...................................... 5,700 165,300
HEALTH SERVICES - 16.4%
Coventry Corporation.................................... 12,400 187,550
Marquette Medical Systems, Inc. - Class A............... 7,200 158,400
Mylan Laboratories Inc.*................................ 11,000 162,250
NovaCare, Inc. ......................................... 11,400 158,175
Staff Builders, Inc. - Class A.......................... 68,900 159,331
Sullivan Dental Products, Inc.*......................... 10,700 195,275
Sunrise Medical Inc. ................................... 12,300 186,037
INDUSTRIAL PRODUCTS - 14.7%
IMCO Recycling Inc. .................................... 10,100 190,637
In Focus Systems, Inc. ................................. 7,400 189,625
Optical Coating Laboratory, Inc. ....................... 16,100 217,350
Sensormatic Electronics Corporation*.................... 9,300 119,737
Telxon Corporation...................................... 9,400 169,200
Valley National Gases Incorporated...................... 18,100 190,050
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ ----------
COMMON STOCK (continued)
<S> <C> <C>
INDUSTRIAL SERVICES - 2.1%
Information Resources, Inc. ............................ 10,700 $151,138
RESTAURANTS - 2.2%
Cooker Restaurant Corporation........................... 15,100 161,381
RETAIL - 16.6%
Fabri-Centers of America, Inc. - Class B................ 27,500 642,813
Mazel Stores, Inc. ..................................... 11,600 203,000
Shoe Carnival, Inc. .................................... 18,400 184,000
Toys "R" Us, Inc. ...................................... 5,300 185,500
TECHNOLOGY - 11.6%
MicroAge, Inc. ......................................... 8,300 152,513
Quantum Corporation*.................................... 8,800 179,300
Systems & Computer Technology Corporation............... 6,300 168,525
VLSI Technology, Inc. .................................. 7,600 179,550
Wonderware Corporation.................................. 12,100 170,913
TELECOMMUNICATIONS/CABLE EQUIPMENT - 7.2%
General Instrument Corporation.......................... 6,500 162,500
Network Equipment Technologies, Inc. ................... 11,000 198,000
Scientific-Atlanta, Inc.*............................... 7,800 170,625
---------
TOTAL COMMON STOCK
(Identified cost $5,941,854)....................................... 7,221,000
---------
CASH AND OTHER ASSETS LESS LIABILITIES - 1.6%........................ 119,110
---------
NET ASSETS - 100%.................................................... $7,340,110
=========
Shares of capital stock outstanding.................................. 421,841
=========
Net asset value per share............................................ $17.40
=========
</TABLE>
* income producing
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $5,941,854)........................................ $7,221,000
Cash and cash equivalents............................................ 252,940
Receivables for:
Securities sold................................................... 61,140
Sales of capital stock............................................ 0
Dividends......................................................... 566
Reimbursement from Investment Advisor............................. 360
Interest.......................................................... 1,126
Prepaid expenses..................................................... 132
----------
TOTAL ASSETS...................................................... 7,537,264
----------
LIABILITIES
Payables For:
Securities purchased.............................................. 174,681
Capital stock repurchased......................................... 1,920
Accrued expenses.................................................. 20,553
----------
TOTAL LIABILITIES................................................. 197,154
----------
NET ASSETS............................................................. $7,340,110
==========
Shares of capital stock outstanding, par value $.01 (25,000,000 shares
authorized).......................................................... 421,841
==========
Net asset value per share (offering and redemption price).............. $17.40
==========
Net assets consist of:
Paid in capital...................................................... $5,638,580
Accumulated net realized gain........................................ 422,384
Net unrealized appreciation on investments........................... 1,279,146
----------
$7,340,110
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................ $16,020
Interest................................................. 14,434
--------
Total investment income............................. $30,454
EXPENSES
Investment advisory fees................................. 55,055
Transfer agent fees...................................... 26,390
Pricing fees............................................. 24,090
Registration and filing fees............................. 14,730
Professional fees........................................ 11,433
Custodian fees........................................... 9,830
Reports to shareholders.................................. 8,815
Directors' fees and expenses............................. 2,004
Miscellaneous expenses................................... 1,984
--------
Total expenses...................................... 154,331
Less: Reimbursement by Investment Advisor........... (15,883)
--------
Net expenses................................... 138,448
--------
Net investment loss...................................... (107,994)
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments......................... 508,543
Net increase in unrealized appreciation on investments... 805,771
--------
Net realized and unrealized gains on investments......... 1,314,314
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,206,320
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
OPERATIONS
Net investment loss...................................... ($107,994) ($22,062)
Net realized gain on investments......................... 508,543 295,152
Net increase in unrealized appreciation of investments... 805,771 421,643
---------- ---------
Net increase from operations........................... 1,206,320 694,733
---------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income..................... 0 0
Distributions from net realized capital gains............ (249,400) 0
---------- ---------
Total distributions.................................... (249,400) 0
---------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock.............................. 3,893,443 2,262,308
Reinvestment of distributions............................ 244,328 0
Less: redemptions........................................ (1,226,088) (200,555)
---------- ---------
Increase resulting from capital share transactions..... 2,911,683 2,061,753
---------- ---------
Total increase in net assets............................. 3,868,603 2,756,486
NET ASSETS
Beginning of year........................................ 3,471,507 715,021
---------- ---------
End of year.............................................. $7,340,110 $3,471,507
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
---------------------------------------------------
1997 1996 1995 1994
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of year.................. $15.32 $10.27 $9.87 $10.00
---------- ---------- -------- --------
Income from Investment Operations
- -----------------------------------
Net Investment (Loss) Income......................... (0.26) (0.10) (0.04) 0.00
Net Gains or Losses on Securities (both realized and
unrealized)........................................ 3.20 5.15 0.44 (0.13)
---------- ---------- -------- --------
Total From Investment Operations..................... 2.94 5.05 0.40 (0.13)
---------- ---------- -------- --------
Less Dividends and Distributions
- -------------------------------
Dividends from net investment income................. 0.00 0.00 0.00 0.00
Distribution from net realized capital gains......... (0.86) 0.00 0.00 0.00
---------- ---------- -------- --------
Total Dividends and Distributions.................... (0.86) 0.00 0.00 0.00
---------- ---------- -------- --------
Net Asset Value - End of Period...................... $17.40 $15.32 $10.27 $9.87
========== ========== ======== ========
Total Return......................................... 20.55%+ 49.17%+ 4.05%+ (1.30%)+
========== ========== ======== ========
Ratios/Supplemental Data
- -------------------------
Net Assets, End of Period............................ $7,340,110 $3,471,507 $715,021 $391,538
Ratio of Expenses to Average Net Assets.............. 2.51%* 2.55%* 2.78%* 1.28%*
Ratio of Net Investment Loss to Average Net Assets... (1.96%)* (1.36%)* (.58%)* (.07%)*
Portfolio Turnover Rate.............................. 144% 125% 77% 194%
Average Commission Paid Per Share.................... $0.0572** $0.0559** -- --
(+) From commencement of operations on February 10, 1994.
+ The total returns would have been lower had certain expenses not been reduced during the periods
shown.
* Not representative of expenses incurred by the Fund as the Adviser waived its fee and/or paid
certain expenses of the Fund. As indicated in Note 3, the Investment Manager reduced a portion of
its fee and absorbed certain expenses of the Fund. Had these fees and expenses not been reduced
and absorbed, the ratio of expenses to average net assets would have been 2.80%, 6.47%, 14.64% and
11.22%, and the ratio of net investment income to average net assets would have been a loss of
2.25%, 5.28%, 12.44% and 10.02%, respectively.
** A fund is required to disclose its average commission rate per share for security trades on which
commission is charged. This amount may vary from fund to fund and period to period depending on
the mix of trades executed in various markets where trading practices and commission rate
structures may differ. This rate generally does not reflect markups, markdowns, or spreads on
shares traded on a principle basis, if any. This disclosure is required by the SEC and was
effective beginning in 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES: Meridian Value Fund (the "Fund") a series
of Meridian Fund, Inc., (the "Company"), began operations on February 10,
1994. The Fund was registered on February 7, 1994, under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company. The primary investment objective of the fund
is to seek long-term growth of capital. In addition to the Meridian Value
Fund, the Company also offers the Meridian Fund. The following is a summary
of significant accounting policies:
a. INVESTMENT VALUATIONS: Marketable securities are valued at the last sales
price on the principal exchange or market on which they traded; or, if
there were no sales that day, at the last reported bid price. Short-term
investments that will mature in 60 days or less are stated at amortized
costs, which approximates market value.
b. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders; therefore, no federal income tax provision is required. The
aggregate cost of investments for federal income tax purposes is
$5,941,854 the aggregate gross unrealized appreciation is $1,473,611 and
the aggregate gross unrealized depreciation is $194,465 resulting in net
unrealized appreciation of $1,279,146.
c. SECURITY TRANSACTIONS: Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Realized gains
and losses on security transactions are determined on the basis of
specific identification for both financial statement and federal income
tax purposes. Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily.
d. CASH AND CASH EQUIVALENTS: All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
e. EXPENSES: Expenses arising in connection with the Fund are charged
directly to the Fund. Expenses common to both series of Meridian Fund,
Inc. are allocated to each series in proportion to their relative net
assets.
f. USE OF ESTIMATES: The preparation of financial statements requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements.
Actual amounts could differ from the estimates.
g. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends
and distributions to its shareholders on the ex-date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting
principles. The "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based
on their federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains are reported as
dividends in excess of net investment income or distributions in excess
of net realized capital gains for financial reporting purposes but not
for tax purposes. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
2. RELATED PARTIES AND ADVISORY FEE AND EXPENSE LIMITATION: The Fund has
entered into a management agreement (the Investment Advisory Fee) with Aster
Capital Management, Inc. ("Aster Capital") for the 12 month period beginning
November 1, 1996 through October 31, 1997. Certain Officers and/or Directors
of the Fund are also Officers and/or Directors of Aster Capital. Beneficial
ownership in the Fund by Richard F. Aster, Jr., President, as of June 30,
1997, was 19.38%.
The Investment Adviser receives from the Fund as compensation for its
services an annual fee of 1% of the Fund's net assets. The fee is paid
monthly and calculated based on that month's average net assets. The
Investment Adviser has agreed to reimburse the Fund for any fiscal year's
expenses, including advisory fees, which exceed the most stringent limits
prescribed by any state in which the Fund's shares are offered for sale.
During the fiscal year the federal government pre-empted the state's right
to impose expense limitations as a result of the National Securities Markets
Improvement Act of 1996. However, the Fund continues to use the most
stringent expense limitation of 2 1/2% and will do so in the future as the
Adviser has agreed to continue this practice. Reimbursements were $15,883
and advisory fee payable was $5,973 for the year ended June 30, 1997.
3. CAPITAL STOCK TRANSACTIONS: The Fund has authorized 25,000,000 shares of
common stock at a par value of $.01 per share. Transactions in capital stock
for the year ended June 30, 1997 and June 30, 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Shares sold 262,204 173,212
Shares issued on reinvestment of distributions 17,540 0
------- ------
279,744 173,212
Shares redeemed (84,575) (16,140)
------- ------
Net increase 195,169 157,072
======= ======
</TABLE>
4. COMPENSATION OF DIRECTORS AND OFFICERS: Directors and officers of the
Company who are directors and/or officers of Aster Capital Management, Inc.
receive no compensation from the Fund. Directors of the Company who are not
interested persons as defined in the Investment Company Act of 1940 receive
compensation in the amount of $1,000 per annum and a $1,000 purchase of
Meridian Fund or Meridian Value Fund stock, plus expenses for each Board of
Directors meeting attended. The aggregate compensation due the unaffiliated
Directors of the Fund as of June 30, 1997 was $1,000.
5. COST OF INVESTMENTS: The cost of investments purchased and the proceeds from
sales of investments, excluding short-term obligations, for the year ended
June 30, 1997 were $10,126,988 and $7,494,002 respectively.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Board of Directors and Shareholders
of Meridian Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Meridian Value Fund (one of the
portfolios constituting Meridian Fund, Inc., hereafter referred to as the
"Fund") at June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the three years then ended, and for the
period February 10, 1994 (commencement of operations) through June 30, 1994 in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as the "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
July 25, 1997
11
<PAGE>
MERIDIAN VALUE FUND
================================================================================
This report is submitted for
the information of shareholders of
Meridian Fund, Inc. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FPS SERVICES, INC.
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER
San Francisco, California
Auditors
PRICE WATERHOUSE
San Francisco, California
ANNUAL REPORT
[MERIDIAN FUND INCORPORATED(R) LOGO]
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
(415) 461-6237
Telephone (800) 446-6662
JUNE 30, 1997
<PAGE>
