As filed with the Securities and Exchange Commission on October 28, 1997
Registration Nos. 2-90949
811-4014
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 X
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 X
---------------
MERIDIAN FUND, INC.(R)
(Exact name of registrant as specified in charter)
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (415) 461-6237
Richard F. Aster, Jr.
Wood Island, Suite 306
60 E. Sir Francis Drake Blvd.
Larkspur, CA 94939
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X on October 28, 1997 pursuant to paragraph (b) of Rule 485
<PAGE>
MERIDIAN FUND, INC.(R)
Part A: Prospectus
Cross Reference Sheet
<TABLE>
<CAPTION>
Item Number of Part A of Form N-1A Captions in Prospectus
- ---------------------------------- ----------------------
<S> <C>
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Fee Table
3. Condensed Financial Information................ Financial Highlights
4. General Description of Registrant.............. General Information -- Description of
Common Stock; Investment Policies and
Portfolio Techniques
5. Management of the Fund......................... Investment Management
6. Capital Stock and Other Securities............. Dividends, Distributions and Federal Taxes;
Investment Management -- Investment
Advisor; General Information -- Description
of Common Stock
7. Purchase of Securities Being Offered........... How to Purchase Shares; Dividends,
Distributions and Federal
Taxes -- Dividends and Distributions
8. Redemption or Repurchase....................... Redemption and Transfer of Shares
9. Pending Legal Proceedings...................... Not Applicable
</TABLE>
<PAGE>
MERIDIAN FUND, INC.(R)
Meridian Fund, Inc. ("Meridian") is a no-load, open-end, diversified
management investment company (a "mutual fund") consisting of two separate
portfolios (each individually a "Fund" or collectively the "Funds").
Meridian Fund will make investments that include common stock of small and
medium-sized companies considered by the Investment Adviser to be experiencing
above-average growth in revenue and earnings.
Meridian Value Fund(R) will emphasize investment in equity securities of
issuers which, in the opinion of the Investment Adviser, are undervalued in
relation to the issuer's long-term earning power or asset value and/or the stock
market in general at the time of purchase. The Fund may be invested in
lower-rated long-term and intermediate-term corporate bonds (or unrated
corporate bonds of equivalent credit quality), commonly known as "junk bonds."
Each Fund's investment objective is long-term growth of capital.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. Each Fund
intends to invest the majority of its assets in equity and equity-related
securities, primarily common stocks. The Fund's investment policies include
investing in small to medium-sized companies and seeking to preserve capital
during difficult market conditions by shifting temporarily a portion of its
assets to cash or cash equivalents. These policies will involve considerable
risk and there can be no assurance that a Fund, in fact, will achieve its
investment objective, and gains cannot be assured.
This Prospectus sets forth concisely the information about the Funds that
prospective investors should know before investing. Investors should read the
Prospectus and retain it for future use. A "Statement of Additional Information"
for the Funds, dated the same date as this Prospectus, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference
thereto. This Statement is available without charge by writing or calling
Meridian at the address or telephone number printed on the back cover.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer contained in this Prospectus, and, if given or made, such information
or representations must not be relied upon as having been authorized by
Meridian. This Prospectus is not an offer to sell or a solicitation of an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
----------
The date of this Prospectus is October 28, 1997.
<PAGE>
HIGHLIGHTS
Meridian Fund and Meridian Value Fund are series of Meridian Fund, Inc.
There are no sales charges for either fund.
The minimum initial investment for each Fund is $1,000; the minimum
subsequent investment is $50.
Exchanges may be made between the two funds. Please see page 17 for
details.
The Funds are qualified for Tax-Deffered Plans. Please see page 16 for
details.
Meridian Fund -- The Fund's investment objective is long-term growth of
capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest the majority of its assets in equity and
equity-related securities, primarily common stocks. Common stock investments
will include small and medium-sized companies considered by the Investment
Adviser to be experiencing above-average growth in revenue and earnings. The
Fund may significantly reduce its exposure to equities in an attempt to preserve
capital when the Investment Adviser believes it to be appropriate.
Meridian Value Fund -- The Fund's investment objective is long-term growth
of capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest the majority of its assets in equity and
equity-related securities, primarily common stocks. The Fund will emphasize
investment in equity securities of issuers which, in the opinion of the
Investment Adviser, are undervalued in relation to the issuer's long-term
earning power or asset value and/or the stock market in general at the time of
purchase.
Meridian Value Fund may be invested in lower-rated long-term and
intermediate-term corporate bonds (or unrated corporate bonds of equivalent
credit quality), commonly known as "junk bonds." In addition to other risks,
these bonds are subject to greater fluctuations in value and risk of loss of
income and principal due to default by the issuer than are lower yielding,
higher rated bonds; therefore, these investments may not be suitable for all
investors.
Each Fund's investment policies include investing in small to medium-sized
companies and seeking to preserve capital during difficult market conditions by
shifting temporarily a portion of its assets to cash or cash equivalents. These
policies will involve considerable risk and there can be no assurance that a
Fund, in fact, will achieve its investment objective, and gains cannot be
assured.
1
<PAGE>
TABLE OF CONTENTS
Page
----
Fee Table .............................................................. 3
Financial Highlights ................................................... 4
Performance ............................................................ 6
Investment Policies and Portfolio Techniques ........................... 8
Meridian Fund ........................................................ 8
Meridian Value Fund .................................................. 8
Policies Relating to Each Fund ....................................... 8
Investment Management .................................................. 11
The Investment Adviser ............................................... 11
Advisory Fee for Meridian Fund ....................................... 12
Advisory Fee for Meridian Value Fund ................................. 12
Expenses ............................................................. 12
Execution of Portfolio Transactions .................................. 12
Dividends, Distributions and Federal Taxes ............................. 14
How to Purchase Shares ................................................. 15
Initial Purchase ..................................................... 15
Tax-Deferred Plans ................................................... 16
Additional Purchases ................................................. 16
Purchases by Wire .................................................... 16
Purchases by Telephone ............................................... 16
Price of Shares ...................................................... 16
Exchanges between Funds .............................................. 17
Redemptions and Transfer of Shares ..................................... 17
By Mail .............................................................. 17
By Telephone or Telegram ............................................. 17
Transfer of Redemption Proceeds by Wire .............................. 18
General .............................................................. 18
Mandatory Redemption ................................................. 19
Signature Guarantee .................................................. 19
Share Transfers ...................................................... 19
General Information .................................................... 20
Description of Common Stock .......................................... 20
Transfer, Redemption and Dividend Disbursing Agent .................... 20
Custodian ............................................................ 20
Experts .............................................................. 20
Appendix-- Description of Bond Ratings ................................. 20
2
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
Meridian Meridian
Shareholder Transaction Expenses Fund Value Fund
---- ----------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases....................... NONE NONE
Maximum Sales Load Imposed on Reinvested Dividends NONE NONE
Deferred Sales Load........................................... NONE NONE
Redemption Fees............................................... NONE NONE
Exchange Fee.................................................. NONE NONE
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after fee waivers)........................... 0.78%* 1.00% ^
12b-1 Fees.................................................... NONE NONE
Other Expenses................................................ 0.18% 1.51%
----- -----
Total Fund Operating Expenses (after fee waivers)............. 0.96% 2.51%**
===== =====
</TABLE>
* Management fees for the Meridian Fund for the period July 1, 1996 through June
30, 1997 were $2,897,147.
^ Management fees for the Meridian Value Fund for the period July 1, 1996
through June 30, 1997 were $55,055.
Absent fee waivers Management Fees and Total Fund Operating Expenses for
the Meridian Value Fund would have been 1.0% and 2.8% respectively.
Example: You would pay the following expenses on a $1,000 investment
assuming a 5% annual return and redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Meridian Fund ...................................... $10 $31 $53 $118
Meridian Value Fund ................................ $25 $78 $134 $285
</TABLE>
THE PRECEDING EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed amount. In accordance with applicable S.E.C. regulations, the
example assumes that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in each year of the one, three, five and ten year
periods; that the amount of the Fund's assets remains constant at the level at
the end of its most recently completed fiscal year; and assumes the reinvestment
of all dividends and distributions by a shareholder.
The purpose of the preceding table is to assist the investor in
understanding the various costs and expenses that an investor in the Funds will
bear directly or indirectly. For more information concerning expenses of the
Funds see "Investment Management."
3
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
================================================================================
The following ratios and per share data for each share of common stock
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants, whose report is included in the Statement of Additional
Information. The financial highlights should be read in conjunction with the
financial statements and accompanying notes which also are included in the
Statement of Additional Information.
Meridian Fund
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of
year .............................. 32.21 27.29 24.27 23.87 18.97
----------- ----------- ----------- ----------- -----------
Income from Investment
Operations
Net Investment Income (loss) ..... .40 .30 .27 .09 (.01)
Net Gains (Losses) on Securities
(both realized and unrealized) ... 3.71 5.47 3.63 .76 5.51
------------ ----------- ----------- ----------- -----------
Total From Investment Operations .. 4.11 5.77 3.90 .85 5.50
----------- ----------- ----------- ----------- -----------
Less Dividends and Distributions
Dividends from net investment income (0.36) (.31) (.18) (.02) (.04)
Distributions from net realized
capital gains...................... (2.76) (.54) (.70) (.43) (.56)
----------- ----------- ----------- ----------- -----------
Total Dividends and Distributions . (3.12) (.85) (.88) (.45) (.60)
----------- ----------- ----------- ----------- -----------
Net Asset Value--End of Period .... $33.20 $32.21 $27.29 $24.27 $23.87
=========== =========== =========== =========== ===========
Total Return ...................... 13.92% 21.40% 16.44% 3.48% 29.50%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
Net Assets, End of Period (in
thousands) ....................... $353,029 $384,087 $328,153 $199,191 $78,581
Ratio of Expenses to Average Net
Assets ............................ 0.96% 0.96% 1.06% 1.22% 1.47%
Ratio of Net Investment Income
(Loss) to Average Net Assets ...... 1.23% 0.99% 1.18% .38% (.01%)
Portfolio Turnover Rate ........... 37% 34% 29% 43% 61%
Average Commission Paid per
Share ............................. $0.0595^ $0.0588^ -- -- --
<CAPTION>
For the Fiscal year ended June 30,
---------------------------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of
year .............................. 17.94 17.71 15.93 13.65 15.29
----------- ----------- ----------- ----------- -----------
Income from Investment
Operations
Net Investment Income (loss) ..... .07 .20 .06 .41 (.11)
Net Gains (Losses) on Securities
(both realized and unrealized) ... 3.45 .49 2.84 1.87 (.29)
----------- ----------- ----------- ----------- -----------
Total Investment Operations ....... 3.52 .69 2.90 2.28 (.40)
----------- ----------- ----------- ----------- -----------
Less Dividends and Distributions
Dividends from Investment income .. (.09) (.12) (.48) .00 (.02)
Distributions from net realized
income ............................ (1.70) (1.04) (.64) .00 (1.22)
----------- ----------- ----------- ----------- -----------
Total Dividends and Distributions . (1.79) (1.16) (1.12) .00 (1.24)
----------- ----------- ----------- ----------- -----------
Net Asset Value--End of Period .... $18.97 $17.24 $17.71 $15.93 $13.65
=========== =========== =========== =========== ===========
Total Return ...................... 21.00% 5.62% 19.71% 16.70%* (2.99%)*
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
Net Assets, End of Period (in
thousands) ....................... $18,363 $12,350 $11,058 $9,598 $10,706
Ratio of Expenses to Average Net
Assets ............................ 1.75% 1.68% 2.08% 2.01%+ 1.85%+
Ratio of Net Investment Income
(Loss) to average Net Assets ...... .24% .98% 14% 2.83%+ (.59%)+
Portfolio Turnover Rate ........... 61% 85% 66% 62% 58%
Average Commission Paid per
Share ............................. -- -- -- -- --
</TABLE>
* 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. If the fund had paid all
of its expenses and there had been no reimbursement by the Adviser, the
ratio of expenses to average net assets for the year ended June 30, 1988
and 1989 would have been 1.86% and 2.19% respectively, and the ratio of net
investment income (loss) to average net assets would have been (.60%) and
2.63% 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 securities
may differ. This rate generally does not reflect markups, markdowns, or
spreads on shares traded on principle basis, if any. This disclosure is
required by the SEC and was effective beginning in 1996.
4
<PAGE>
Meridian Value Fund
<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 .40 (0.13)
------------ --------------- --------------- ---------------
Less Dividends and Distributions
Dividends from net investment income ................... 0.00 0.00 0.00 0.00
Distributions 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% 49.77% 4.05%+ (1.30%)+
============ =============== =============== ===============
Ratio/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** -- --
====================================================================================================================================
</TABLE>
^ 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.
5
<PAGE>
PERFORMANCE
Meridian Fund
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL].
Value of $10,000 invested in Meridain Fund & the S&P 500
S&P 500 Value of
Index $10,000
Including Invested Value of
Date Dividends S&P 500 Meridian Fund Meridian Fund
---- --------- ------- ------------- -------------
7/31/84 303.05 $10,000 $10,000 $10,000
6/30/85 402.19 $10,000 $11,840 $10,000
6/30/86 547.03 $10,000 $17,178 $10,000
6/30/87 684.93 $10,000 $16,737 $10,000
6/30/88 637.66 $ 9,310 $16,236 $ 9,701
6/30/89 768.37 $11,218 $18,948 $11,321
6/30/90 897.00 $13,096 $22,683 $13,553
6/30/91 961.82 $14,043 $23,959 $14,315
6/30/92 1091.24 $15,932 $28,990 $17,321
6/30/93 1240.02 $18,104 $37,542 $22,431
6/30/94 1258.06 $18,368 $38,850 $23,212
6/30/95 1585.90 $23,154 $45,237 $27,029
6/30/96 1997.90 $29,169 $54,918 $32,813
6/30/97 2691.09 $39,290 $62,561 $37,380
- --------------------------------------------------------------------------------
Meridian Fund
Average Annual Total Return
One Year 13.92%
Five Years 16.63%
Ten Years 14.09%
- --------------------------------------------------------------------------------
The Meridian Fund's investment performance of 13.9% during the fiscal year
ended June 30, 1997, was primarily due to a rise in the price of small to
medium-sized growth stocks. The NASDAQ (over-the-counter) Index and the S&P 500
index, with dividends, was up 21.7%, and 34.7% respectively, during this period.
This was the result of strong earnings growth. The Fund's best performing areas
included consumer services, energy, industrial services, media, real estate,
retail, and technology. The worst performing groups were cellular
communications, consumer products, restaurants, and transportation. Of a total
of 71 investments, 51 advanced and 20 declined. The Fund's investments benefited
in large part from the underlying companies reporting good operating results.
The Fund's large cash position of between 21% and 29% also influenced the Fund's
investment performance.
6
<PAGE>
Meridian Value Fund
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL].
<TABLE>
<CAPTION>
Value of $10,000 invested in Meridain Value Fund & the S&P 500
S&P 500 Value of
Index $10,000
Including Invested Value of
Date Dividends S&P 500 Meridian Value Fund
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2/10/94 1313.36 $10,000 $10,000 $10,000
6/30/94 1258.06 $9,579 $9,870 $9,870
6/30/95 1585.90 $12,075 $10,270 $10,270
6/30/96 1997.90 $15,212 $15,320 $15,320
6/30/97 2691.09 $20,490 $18,468 $18,468
- -------------------------------------------------------------------------------
Meridian Value Fund
Average Annual Total Return
One Year 20.55%
Since Inception 19.88%
- -------------------------------------------------------------------------------
</TABLE>
The Meridian Value Fund's average annual return from inception to June 30,
1997, was 19.88% compared to 23.38% for the S&P 500 with dividends. The Fund did
not approach full investment status until June 30, 1995, with cash comprising an
average of approximately 45-50% of the Fund's total portfolio from inception
until June 30, 1995. From June 30, 1995 through June 30, 1997, the Meridian
Value Fund's average annual total return was 34.10%, compared to 30.26% for the
S&P 500 with dividends. The Meridian Value Fund's investment performance of
20.6% during the fiscal year ended June 30, 1997 resulted primarily from
investments in retail, technology, consumer finance, industrial products, and
apparel/shoe sectors. The S&P 500 with dividends increased 34.70% during this
period. The worst performing investments were in the industrial services,
leisure and amusement, and agriculture sectors.
Meridian Fund and Meridian Value Fund may from time to time include
standardized and nonstandardized performance information and/or comparisons of
the investment results of the Funds to various unmanaged indices or results of
other mutual funds or groups of mutual funds in advertisements, sales literature
or in reports furnished to present or prospective shareholders.
A Fund's standardized total return is the average annual total return for
the applicable periods of one year, five years and ten years (or, if data for
the periods are not available, since inception). Average annual total return is
calculated by determining the change in value of a hypothetical $1,000
investment in the Fund for each of the periods. The calculation assumes the
reinvestment of all dividends and capital gains distributions and reflects
increases in net asset value. Because average annual returns for more than one
year tend to smooth out variations in a Fund's returns, they are not the same as
actual year-by-year results. Nonstandardized total returns for a Fund differ
from standardized total returns in that they may relate to nonstandard periods,
such as a fiscal year or may represent aggregate (rather than average) total
return over a specified period. Neither of the Funds impose a sales or other
distribution charges which would affect the total return computation.
All performance information presented for the Funds is based on past
performance and does not predict future performance.
7
<PAGE>
INVESTMENT POLICIES AND PORTFOLIO TECHNIQUES
Meridian Fund -- The Fund's investment objective is long-term growth of
capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest the majority of its assets in equity and
equity-related securities, primarily common stocks. These will include equity
investments in companies that are considered by the Investment Adviser to be
experiencing above-average growth in revenues and earnings. The Investment
Adviser also may invest in companies not meeting these criteria if the
Investment Adviser believes they represent favorable investment opportunities
for the Fund.
Meridian Value Fund -- The Fund's investment objective is long-term growth
of capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest at least 65% of its assets in equity and
equity-related securities, primarily common stocks. The Investment Adviser will
pursue this investment objective by emphasizing investment in equity securities
with prices which are, in the Investment Adviser's opinion, undervalued in
relation to the issuer's long-term earning power or asset value and/or the stock
market in general at the time of purchase. Securities may be undervalued because
of many factors, including market decline, poor economic conditions, tax- loss
selling or actual or anticipated unfavorable developments affecting the issuer
of the security. Any or all of these factors may provide buying opportunities at
attractive prices compared to historical or current market price-earnings
ratios, book value, underlying asset value, or the long-term earning prospects
of the company. If, in the Investment Adviser's opinion, a stock has reached a
fully valued position, it may, but need not, be sold and replaced by securities
which are deemed to be undervalued in the marketplace.
The Fund's policy of investing in securities that may be temporarily out of
favor differs from the investment approach followed by many other mutual funds
with a similar investment objective including the Meridian Fund. Many such
mutual funds typically do not invest in securities that have, e.g., declined
sharply in price, are not widely followed, or are issued by companies that have
reported poor earnings or that have suffered a downturn in business. The
Investment Adviser believes, however, that the securities of companies that may
be temporarily out of favor due to earnings declines or other adverse
developments may offer good investment opportunities for the Fund.
As a type of investment in undervalued securities with equity
characteristics, the Fund may invest in fixed-income securities, with an
emphasis on higher yielding, higher risk, lower rated or unrated corporate
bonds. The Fund will not invest 35% or more of its net assets in high-yield,
high-risk bonds. "High-yield, high-risk" bonds (also commonly referred to as
"junk bonds") typically are subject to greater market fluctuations and risk of
loss of income and principal due to default by the issuer than are investments
in lower yielding, higher rated bonds. These market characteristics make the
price movements of junk bonds more similar to the price movements of equity
securities than is typically the case with fixed-income securities. If the Fund
purchases junk bonds in pursuing its investment objective of growth of capital,
the Fund will seek to purchase high-yield, high-risk bonds that are expected by
the Investment Adviser to increase in value due to improvements in their credit
quality or ratings, anticipated declines in interest rates or improved business
conditions of the issuer.
High-yield, high-risk bonds include any bonds rated Ba or below by Moody's
Investors Service, Inc. or BB or below by Standard & Poor's Corporation or
unrated but are determined to be equivalent by the Investment Adviser. The Fund
may invest without limitation in bonds rated as low as Ca by Moody's or C by S&P
(or in unrated bonds that are determined to be of equivalent quality). In
addition, the Fund may invest up to 10% of its total assets in bonds rated C by
Moody's or D by S&P (or in unrated bonds that are determined to be of equivalent
quality.) Bonds rated D are in default. (See p. 20 for a description of bond
ratings.)
Policies Relating to Each Fund -- Investments will include common stocks,
other securities convertible into common stocks, and warrants to acquire common
stocks. The companies in which the Funds invest may be relatively small in terms
of total assets, revenues and earnings. The Investment Adviser in purchasing
securities will consider, among other criteria, the economic outlook, political
conditions, the specific issuer's growth rate relative to its price-earnings
ratio, other valuation criteria, the company's financial strength, management's
practices and perceived abilities, and the value of an individual security
relative to other investment alternatives. When, in the opinion of the
Investment Adviser, market conditions appear unfavorable, a Fund, as part of its
strategy to
8
<PAGE>
achieve growth of capital or maximize total return, may seek to preserve capital
by temporarily shifting a portion of its assets to cash and cash equivalents.
The sale of a security will be based upon, but not limited to, factors such
as a change in the political or economic outlook, actual or potential
deterioration of the issuer's earning power or underlying asset value, increases
in the security price that are considered excessive relative to the company's
earning power or asset value, and investment opportunities in other securities.
When the Investment Adviser concludes, on the basis of its analyses of the
economy, political conditions, or its own valuation guidelines and standards,
that general market conditions warrant the reduction of some or all of a Fund's
equity securities holdings, a Fund may adopt a temporary defensive posture to
preserve capital and, if possible, to achieve positive returns in defensive type
investments. A portion or all of a Fund's assets will be held during such
periods in corporate debt obligations, preferred stocks, cash or money market
instruments, including, but not limited to, obligations issued or guaranteed as
to principal or interest by the United States Government, its agencies or
instrumentalities, certificates of deposit, bankers' acceptances and other
obligations of domestic banks, and short-term commercial paper of U.S.
corporations. Investment income may increase during those periods. The Meridian
Fund will not invest in debt securities with a Moody's or Standard & Poor's
rating of less than single A, or, if unrated, deemed by the Investment Adviser
to be of equivalent investment quality and risk. The Meridian Value Fund may
invest in high-yield, high risk bonds (bonds rated less than Baa or BBB, or, if
unrated, of equivalent credit quality), as described elsewhere in this
Prospectus. (See Appendix for a description of debt ratings.)
The securities in which the Funds invest generally will be listed on a
national stock exchange or traded on the over-the-counter market. However, a
Fund may invest up to 10% of its total assets in securities for which the market
is considered illiquid.
A Fund may from time to time invest in the securities of issuers domiciled
outside the U.S. and may purchase or sell various currencies on a spot basis
only in connection with such investments. Although the Funds are not limited as
to the extent of their investments in securities of non-U.S. issuers, it is not
presently expected that within the next 12 months either Fund will have in
excess of 10% of its asset value (calculated at the time of purchase) invested
in such securities.
The application of each Fund's investment policies is dependent upon the
judgment of the Investment Adviser. The proportions of a Fund's assets invested
in equity or debt securities or cash, particular industries, and specific issues
will shift from time to time in accordance with the judgment of the Investment
Adviser. Each Fund's investment policies include investing in small to
medium-sized companies, companies whose equity securities are perceived as being
undervalued in the marketplace, securities of non-U.S. issuers, and seeking to
preserve capital during difficult market conditions. These policies will involve
considerable risk, and gains cannot be assured. Each Fund's investment objective
and its investment policies other than those listed as "fundamental investment
policies" in the Statement of Additional Information may be changed by the Board
of Directors without stockholder approval. Such changes may result in the Fund
having investment objectives different from the objectives which the shareholder
considered appropriate at the time of investment in the Fund.
Short-term trading is not intended to be the primary means by which the
Fund achieves its long-term investment objective. Each Fund, however, does
expect to engage in a substantial number of portfolio transactions. A Fund's
annual portfolio turnover rate may exceed 100%, but is not expected to exceed
200%. The portfolio turnover rate for the Meridian Fund was 37% for the period
July 1, 1996 through June 30, 1997. The portfolio turnover rate for the Meridian
Value Fund was 144% for the period July 1, 1996 through June 30, 1997. A higher
portfolio turnover rate will increase aggregate brokerage commission expenses
which must be borne directly by a Fund and ultimately by that Fund's
stockholders. These portfolio turnover rates and the resultant commission
expenses are higher on a relative basis than those of most other mutual funds.
Investments in Bonds -- The market values of fixed-income securities tend
to vary inversely with the level of interest rates -- when interest rates rise,
their values will tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than shorter term securities of
similar quality, they are subject to greater price fluctuations. Fluctuations in
the value of a Fund's fixed-income investments will be reflected in its net
asset value per share.
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The Meridian Fund will only purchase bonds rated A or better (or, if
unrated, are considered by the Investment Adviser to be of equivalent credit
rating). The Meridian Value Fund may purchase high-yield, high-risk bonds (bonds
rated less than Baa or BBB), which typically are subject to greater market
fluctuations and to greater risk of loss of income and principal due to default
by the issuer than are higher-rated bonds. Their values tend to reflect
short-term corporate, economic and market developments and investor perceptions
of the issuer's credit quality to a greater extent than lower yielding,
higher-rated bonds. In addition, it may be more difficult to dispose of, or to
determine the value of, high-yield, high-risk bonds. Bonds rated less than Baa
or BBB are considered speculative. Bonds rated Ca or CC are described by the
ratings agencies as "speculative in a high degree; often in default or [having]
other marked shortcomings." See the Appendix for a complete description of the
bond ratings.
Unseasoned Companies -- A Fund's portfolio may include securities of
smaller, less-seasoned companies which have limited operating histories and may
not yet be profitable. The investments in such companies offer opportunities for
capital gains, but entail significant risks including, but not limited to, the
absence of a ready market for the securities, volatility of the stock price, and
the viability of the firms' operations. A Fund will not invest in companies
having operating histories of less than three (3) years if immediately after and
as a result of such investment the value of the Fund's holdings of such
securities exceeds 25% of the value of the Fund's total assets.
Security Loans -- Consistent with applicable regulatory requirements, a
Fund may lend its portfolio securities to brokers, dealers and other financial
institutions. These loans will be callable at any time on reasonable notice by
the Fund and must be secured fully at all times by cash or cash equivalents.
Such loans allow the Fund to receive income on the loaned securities while
earning interest on the collateral. This collateral will be invested in
short-term obligations. A Fund will not lend portfolio securities which, when
valued at the time of the loan, have a value in excess of 10% of the Fund's
total assets. There are risks, as with any extensions of credit, of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by Meridian's management to be
creditworthy and when the income which can be earned from such loans is
considered sufficient to justify the attendant risks. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a loan
of its securities.
Money Market Investments -- A Fund may make a variety of money market
investments. These investments may include, but are not limited to, certificates
of deposit, bankers' acceptances, and other obligations of domestic banks and
short-term commercial paper of U.S. corporations.
Emergency Borrowing -- The Fund, as a temporary measure, may borrow from
banks for extraordinary or emergency purposes. Borrowing for these purposes, in
no event, will exceed 5% of total (gross) assets, determined immediately after
the time of the borrowing.
Securities of Non-U.S. Issuers -- A Fund may invest in the securities of
non-U.S. companies. These companies are not subject to uniform accounting,
auditing and financial reporting standards and practices, or regulatory
requirements comparable to those applicable to U.S. companies. There also may be
less public information available about non-U.S. companies. Additionally,
specific local political and economic factors must be evaluated in making these
investments, including trade balances and imbalances, and related economic
policies; expropriation or confiscatory taxation; limitations on the removal of
funds or other assets; political or social instability; the diverse structure
and liquidity of the various securities markets; and nationalization policies of
governments around the world. However, investing outside the U.S. can also
reduce certain of these risks due to greater diversification opportunities.
Securities of non-U.S. issuers may be denominated in currencies other than
the U.S. dollar. A Fund will not hold a currency other than U.S. dollars or
invest in securities not denominated in U.S. dollars if such currency is not
fully exchangeable into U.S. dollars without legal restriction at the time of
investment. A Fund may purchase securities that are issued by an issuer of one
nation but denominated in the currency of another nation (or a multinational
currency unit). If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a decline in the exchange rate of the currency would adversely
affect the value of the security expressed in dollars. The value of currencies
may fluctuate in a manner unrelated to the investment performance of the
securities denominated in those currencies.
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Foreign equity securities may be held by a Fund in the form of American
Depository Receipts or Shares (ADRs), European Depository Receipts (EDRs),
Continental Depository Receipts (CDRs) or securities convertible into foreign
equity securities. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. Generally, ADRs, in registered form, are
designed for use on the U.S. securities markets. See "Investment Policies and
Portfolio Techniques" in the Statement of Additional Information.
Additional Considerations -- Investments by a Fund in equity securities are
subject to stock market risks. The U.S. stock market tends to be cyclical, with
periods when stocks generally rise and periods when stock prices generally
decline. As of the date of this Prospectus, the stock market, as measured by the
S&P 500 Index and other commonly used indices, was trading at close to record
levels. There can be no guarantee that these levels will continue.
Investment Restrictions -- Each Fund's investment policies include a list
of fundamental restrictions on the Fund's investment activities which cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined in the Investment Company Act of
1940). Those fundamental restrictions, among other things, provide that a Fund
may not:
(1) invest more than 25% of the value of its assets in the securities of a
single issuer, nor may the remaining 75% of the assets contain any investments
in any other single issuer, which, immediately after such purchase, exceed 5% of
the value of the assets (except for obligations issued or guaranteed by the
United States Government, its agencies and instrumentalities);
(2) purchase the securities of companies in a particular industry if
thereafter 25% or more of the value of the Fund's total assets would consist of
securities issued by companies in that industry. This restriction does not apply
to obligations issued and guaranteed by the United States Government, its
agencies or instrumentalities;
(3) acquire more than 10% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer; or
(4) purchase the securities of any other investment company, except by
purchase in the open market where, to the best information of the Fund, no
commission or profit to a sponsor or dealer (other than the customary broker's
commission) results from such purchase and after such purchase not more than 5%
of the value of the Fund's total assets would consist of such securities, or
except when such purchase is part of a merger, consolidation, acquisition of
assets, or other reorganization approved by the Fund's stockholders.
A complete list of the fundamental restrictions appear in the Statement of
Additional Information.
Determination of Portfolio Percentage Restrictions -- If a percentage
restriction on investment or utilization of assets set forth under "Investment
Restrictions" and other fundamental restrictions is adhered to at the time an
investment is made, a later change in percentage resulting from changing market
values or a similar type of event will not be considered a violation of a Fund's
fundamental restrictions (except with respect to the limitation on borrowing.)
INVESTMENT MANAGEMENT
The Investment Adviser -- Meridian has for each Fund retained as its
investment adviser Aster Capital Management, Inc. ("Aster" or the "Investment
Adviser"), 60 E. Sir Francis Drake Blvd., Wood Island, Suite 306, Larkspur,
California 94939, a professional investment management organization founded in
1985. The Investment Adviser is registered under the Investment Advisers Act of
1940, and has no stock brokerage, banking or underwriting affiliations. Richard
F. Aster, Jr. owns 94% of the Investment Adviser and as a result may be deemed
to be "in control" of the Investment Adviser. Mr. Aster is President and a
Director of Meridian and of the Investment Adviser.
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Mr. Aster is the person employed by the Investment Advisor who is primarily
responsible for the day-to-day management of the Meridian Fund. Mr. Aster and
Mr. Kevin C. O'Boyle are Co-Managers of the Meridian Value Fund, and share
primary responsibility for the day-to-day management of this Fund. Mr. Aster has
been responsible for the management of each of the Funds since their respective
commencement dates (the Meridian Fund commenced operation in 1984 and the
Meridian Value Fund commenced operations in 1994). Mr. O'Boyle has shared
responsibility for the management of the Meridian Value Fund with Mr. Aster
since 1997. Since the inception of Meridian Fund, Mr. Aster has been an
investment adviser with the Investment Adviser and with Aster Investment
Management, Inc., which is wholly-owned by Mr. Aster. Aster Investment
Management, Inc. Provides investment management services to individuals and
institutional accounts other than registered investment companies. Mr. O'Boyle
has been employed by Aster Investment Management Co. Since September 1994 as
Vice President of Research. During the period July 1993 through September 1994,
Mr. O'Boyle worked for Pacific Physician Services, Inc. (PPSI), as Manager,
Business Development. Mr. O'Boyle attended the Stanford University Graduate
School of Business prior to his employment with PPSI.
The Investment Adviser manages the investment of Meridian's portfolios,
provides administrative services and manages its business affairs. These
services are subject to general oversight by Meridian's Board of Directors.
Aster Capital Management, Inc. and its affiliated companies have adopted a
personal investing policy that is consistent with the recommendations contained
in the report dated May 9, 1994 issued by the Investment Company Institute's
Advisory Group on Personal Investing. (See the Statement of Additional
Information).
Advisory Fee for Meridian Fund -- The Investment Adviser receives from the
Fund as compensation for its services to the Fund an annual fee of 1% of the
first $50 million of the Fund's net assets and 0.75% of the Fund's net assets in
excess of $50 million. The fee will be paid monthly and calculated on the basis
of that month's net assets.
Advisory Fee for Meridian Value Fund -- The Investment Adviser receives
from the Fund as compensation for its services to the Fund an annual fee of 1%
of the Fund's net assets. The fee will be paid monthly and calculated on the
basis of that month's net assets.
These fees are higher than fees charged most other mutual funds, but are
considered appropriate by the Investment Adviser because of the various types of
securities eligible for investment by a Fund and the amount of work deemed
necessary to manage appropriately a portfolio such as that of one of the Funds.
The Investment Adviser will use a portion of these fees to pay certain expenses
of the Funds.
Expenses -- Each Fund will pay all of its expenses not assumed by the
Investment Adviser. A Fund's expenses include: custodian, stock transfer, and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, proxy statements and notices to stockholders; cost of the
printing and distributing of prospectuses of the Fund and supplements thereto to
the Fund's stockholders; taxes; expenses of the issuance and redemption of
shares of the Fund (including stock certificates, registration and qualification
fees and expenses); legal and auditing expenses; compensation, fees, and
expenses paid to Meridian Directors unaffiliated with the Investment Adviser;
association dues; and costs of stationery and forms prepared exclusively for the
Fund. Expenses which relate to both Funds (such as, for example, the fees and
expenses paid to the Meridian Directors) will be allocated between Funds by the
Investment Adviser in a reasonable manner.
The Investment Adviser has agreed to reimburse each Fund in the amount, if
any, by which the aggregate operating expenses in any fiscal year exceed 2.5% of
the first $30 million of the average net assets of the Fund, 2.0% of the next
$70 million of the average net assets, and l.5% of the remaining average net
assets. Reimbursement, if any, will be on a monthly basis, subject to year-end
adjustment. Interest expense, taxes and capital items such as, but not limited
to, costs incurred in connection with the purchase or sale of portfolio
securities, including brokerage fees and commissions, are not included as
expenses for these purposes. Meridian and the Investment Adviser reserve the
right to amend the terms of this expense limitation to the extent deemed
appropriate to meet the requirements of the securities regulations of states in
which a Fund's shares will be sold and will delete the limitations altogether in
the event such state regulations are waived or withdrawn.
The net investment advisory fee for Meridian Fund for the period July 1,
1996 through June 30, 1997, was $2,897,147 (0.78% of average net assets). The
Fund's total expenses for the period noted above were 0.96% of average net
assets. The net investment advisory fee for the period July 1, 1995 through June
30, 1996 was $2,906,889, and the net investment advisory fee for the period July
1, 1994 through June 30, 1995 was $2,905,644.
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The net investment advisory fee for the Meridian Value Fund for the period
July 1, 1996 through June 30, 1997 was $55,055 (1.00% of average net assets).
The Fund's total expenses for the period noted above were 2.51% of average net
assets. The net investment advisory fee for the period July 1, 1995 through June
30, 1996 was $16,183 and the net investment advisory fee for the period July 1,
1994 through June 30, 1995 was $5,903.
Execution of Portfolio Transactions -- Orders for transactions in portfolio
securities are placed by the Investment Adviser with the objective of obtaining
the best available price, investment services and execution. There is no
agreement or commitment to place orders with any broker-dealer, and it is
expected that a number of broker-dealers will be used in various transactions.
Subject to the requirement of seeking the best available prices and executions,
the Investment Adviser may give preferences to brokers which have provided
research, statistical and other related services or have sold shares of the
Funds. Where transactions are executed in the over-the-counter market, a Fund
will seek to deal with the primary market-makers; but when necessary in order to
obtain the best price and execution, it will utilize the services of others.
Fixed-income securities are generally traded on a "net" basis with a dealer
acting as principal for its own account without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are usually purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Aggregate brokerage commissions paid by the Meridian Fund for the period
July 1, 1996 through June 30, 1997 were $351,073. Commissions paid by the Fund
for the period July 1, 1995 through June 30, 1996 were $317,164, and for the
period July 1, 1994 through June 30, 1995 were $426,549.
Aggregate brokerage commissions paid by the Meridian Value Fund for the
period July 1, 1996 through June 30, 1997 were $57,394. Commissions paid by the
Fund for the period July 1, 1995 through June 30, 1996 were $14,996 and for the
period July 1, 1994 through June 30, 1995 were $2,523.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Dividends and Distributions -- It is Meridian's policy to declare and pay
annually to the stockholders of each Fund dividends from net investment income,
with the amount dependent upon earnings, the financial condition of the Fund and
other factors. Net realized capital gains, if any, will be distributed to
shareholders annually at the end of the fiscal year. A Fund may make an
additional dividend or capital gain distribution near the end of the calendar
year. Any dividends or capital gain distributions will be automatically
reinvested in shares, at net asset value (without sales charge), unless a
stockholder otherwise instructs the Transfer Agent in writing.
Any dividend or capital gain distributions paid by a Fund has the effect of
reducing the net asset value per share on the record date by the amount of the
distribution. Therefore, a dividend or capital gain distribution paid shortly
after a purchase of shares by an investor would represent, in substance, a
return of capital to the stockholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.
Federal Taxes -- For the year ended June 30, 1997, each Fund qualified to
be treated as a separate "regulated investment company" under the Internal
Revenue Code, and each Fund intends to retain such treatment for the coming
year. In any taxable year in which a Fund so qualifies and distributes at least
90% of its net investment income, the Fund will be relieved of federal income
tax on the net investment income and net realized capital gains distributed to
shareholders.
In general, distributions from a Fund's net investment income and net
short-term capital gain (generally, the excess of net short-term capital gain
over net long-term capital loss), if any, are generally designated as dividend
distributions and taxable to the Fund's stockholders as ordinary income.
Distributions from a Fund's net capital gain (generally, the excess of net
long-term capital gain over net short-term capital loss) are designated as
capital gain distributions and taxable to the Fund's stockholders as long-term
capital gain. Under the Taxpayer Relief Act of 1997, noncorporate stockholders
may be taxed on all or a portion of their capital gain distributions at
preferential rates. In general, distributions will be taxable when paid, whether
a stockholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. However, distributions declared in
October,
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November, and December and distributed by the following January will be taxable
as if they were paid by December 31.
Stockholders (except tax-exempt stockholders and those holding Fund shares
through retirement plans and accounts) normally will have to pay federal income
taxes and any applicable state income taxes on distributions they receive from a
Fund. In addition, redemptions of Fund shares will ordinarily result in taxable
capital gain or loss, depending on the amount a stockholder receives for the
shares and the cost of the shares. Each stockholder will receive at the end of
each calendar year full information on dividend and capital gain distributions
for tax purposes, including information such as the portion taxable as ordinary
income, the portion taxable as capital gain, and the amount of dividends
eligible for the dividends received deduction for corporate stockholders.
Stockholders must furnish each Fund in which they are invested with their
correct Taxpayer Identification Number to avoid being subject to a 31% federal
backup withholding tax on distributions and on the proceeds of redemptions.
Investors also must certify on the account application that the stated Taxpayer
Identification Number is correct and that the investor is not subject to the 31%
backup withholding tax for previous underreporting to the Internal Revenue
Service ("IRS"). A stockholder's failure to provide a correct Taxpayer
Identification Number to the Fund may also result in the imposition of IRS
penalties against the stockholder. Amounts withheld are applied to the
stockholder's federal tax liability, and a refund may be obtained from the IRS
if withholding results in overpayment of taxes. Federal law also requires each
Fund to withhold 30% (or at a reduced treaty rate, where applicable) from
dividend distribution paid to in certain non-resident alien, foreign
partnership, foreign corporation, foreign trust and foreign estate stockholder
accounts.
The foregoing is a brief discussion of certain federal income tax
considerations. Further information is contained in the Statement of Additional
Information. All investors should consult their individual tax advisors with
respect to their particular tax situations as well as the state, foreign, and
local tax consequences of investments in shares of the Funds.
HOW TO PURCHASE SHARES
Each Fund's shares are sold on a continuing basis without a sales charge. A
minimum initial investment of $1,000 is required to open a stockholder account
and each subsequent investment must be $50 or more.
Initial Purchase -- Investors may purchase shares from a Fund by sending a
signed, completed application form and a check or money order payable in U.S.
dollars to Meridian Fund, Inc. to Meridian's Transfer Agent, FPS Services, Inc.,
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903. Meridian
Fund, Inc., does not accept purchases by third party checks, credit cards or
cash. Application forms may be obtained from Meridian Fund, Inc. at
1-800-446-6662.
A prospective investor wishing to pay for the initial share purchase with
funds transmitted by wire should first contact FPS Services, Inc.
(1-800-446-6662) directly to have an account number assigned and make
arrangements for the timely submission of the application form. See "Purchases
By Wire" for further instructions.
Share certificates are issued for full shares only and only upon the
specific request of the stockholder in writing to the Transfer Agent.
Meridian does not have dealer agreements. Meridian assumes no liability for
the failure of a dealer to transmit promptly or accurately an order to the Fund.
Tax-Deferred Plans -- You may be entitled to invest in the Funds through a
tax-deferred account under a prototype trust approved by the IRS (a "Plan
Account"), such as an Individual Retirement Account ("IRA"), Simplified Employee
Pension Plan ("SEP-IRA"), Savings Incentive Match Plan for Employees ("SIMPLE
plan"), Roth IRA, or Education IRA. There is no service charge for the purchase
of Fund shares through a Plan Account. Semper Trust Company serves as custodian
Plan Accounts offered by Meridian. For more information about Plan Accounts
along with the necessary materials to establish a Plan Account, please call
1-800-466-6662 or write to Meridian Fund, Inc., c/o FPS Services, Inc., 3200
Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406- 0903. Investors should
consult their own tax advisors regarding the tax consequences to them of the
establishment of or the purchase Fund shares through a Plan Account.
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Additional Purchases -- Once an account has been opened, an investor can
make additional purchases of shares at any time by sending a check or money
order for at least $50, payable to Meridian Fund, Inc., together with the stub
from the investor's last statement, c/o FPS Services, Inc., Post Office Box
412797, Kansas City, MO 64141-2797. Stockholders wishing to have automatic
deductions from a checking account should call Meridian or the Transfer Agent
for forms. Share purchase confirmations will include a form for the remittance
of additional funds.
Purchases By Wire -- Investors may wire funds to Meridian Fund, Inc.
Arrangements should be made so that funds arrive concurrently with instructions
for the purchase of shares. Wire-transferred funds should be transferred via the
Federal Reserve Wire System as follows: United Missouri Bank KC N.A., ABA
#10-10-00695, for FPS Services, Inc., A/C #98-7037-0719, FBO Meridian Fund (or
Meridian Value Fund), Account of (name(s) as registered), Shareholder A/C
#(account number). United Missouri Bank and Meridian cannot be held liable for
any loss incurred by delay in receipt of money submitted by wire transfer.
Purchases by Telephone -- Meridian may, from time to time, accept telephone
purchase orders from broker-dealers and institutions who have been previously
approved by Meridian. There is no sales or service charge imposed by Meridian,
but such broker-dealers may make a reasonable charge for their services. Such
charges may vary among broker-dealers.
Price of Shares -- The price paid for shares of a Fund is the net asset
value per share of the Fund next determined after receipt by the Transfer Agent
of properly identified purchase funds. Money sent to purchase additional shares
for existing accounts must be accompanied by the account number. Money sent to
open a new account must be preceded or accompanied by a completed application
form. Net asset value per share is computed as of the close of business
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open for trading and on each other day during which there is a sufficient degree
of trading in the Fund's investments to affect the net asset value. Net asset
value is determined by totaling the value of all portfolio securities, cash,
other assets, including accrued interest and dividends, held by the Fund, and
subtracting from that total all liabilities, including accrued expenses.
Securities in the Fund's portfolio will be valued primarily on market quotes,
or, if quotes are not available, by a method that the Board of Directors of
Meridian believes would reflect accurately the securities' fair value.
Short-term securities with original or remaining maturities in excess of 60 days
are valued at the mean of their quoted bid and asked prices. Short term
securities with 60 days or less to maturity are amortized to maturity based on
their cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund on the 60th day, based on the value determined on the 61st day.
The total net asset value is divided by the total number of shares outstanding
to determine the net asset value of each share.
Meridian's transfer agent will be closed on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
Exchanges Between Funds -- A stockholder may exchange shares from one Fund
to the other Fund. Exchange purchases are subject to the minimum investment
requirements of the Fund purchased. You may exchange shares by writing to
Meridian's Transfer Agent (see "Redemption and Transfer of Shares") or -- if you
submit a signed Account Application which indicates that you have not declined
the option -- by telephoning 1- 800-446-6662 toll free. By using the telephone
exchange option, you agree to indemnify and hold harmless Meridian, the Transfer
Agent, the Investment Adviser and each of their respective directors, officers,
employees and agents from any losses, expenses, costs or liability (including
attorney fees) which may be incurred in connection with the exercise of this
privilege. If a Fund, the Transfer Agent or the Investment Adviser, as the case
may be, does not employ reasonable procedures to confirm that the instructions
received from any person with appropriate account information are genuine, the
Fund or one of those other parties may be liable for losses due to unauthorized
or fraudulent instructions. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "How to Purchase Shares -- Price of Shares.")
Exchange transactions have the same tax consequences as ordinary sales and
purchases.
The above services are available only in states where the Fund to be
purchased may be legally offered and may be terminated or modified at any time
upon sixty (60) days' written notice.
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REDEMPTIONS AND TRANSFER OF SHARES
By Mail -- Shares of a Fund may be redeemed by mail by writing directly to
Meridian's Transfer Agent, FPS Services, Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, PA 19406-0903. The redemption request must be signed
exactly as the stockholder's name appears on the registration form and must
include the account number. If shares are owned by more than one person, the
redemption request must be signed by all owners exactly as the names appear on
the registration. Stock certificates for any shares to be redeemed must be
delivered together with the signed redemption request. Signature guarantees,
when required as described below, and any additional documents as may be
required by Meridian for shares owned by corporations, executors,
administrators, trustees or guardians also must accompany the redemption
request. A request for redemption will not be processed until all of the
necessary documentation has been received in proper form by the Transfer Agent.
A stockholder in doubt as to what documents are required should contact FPS
Services, Inc., Tel: 1-800-446-6662. If a redemption request is sent
inadvertently to Meridian, it will be forwarded to the Transfer Agent, but the
effective date of redemption may be delayed until the request is received by the
Transfer Agent.
By Telephone or Telegram -- Shares of a Fund may be redeemed by telephone
by calling FPS Services, Inc., 1-800-446-6662, during normal business hours.
Stockholders also may send a telegram or an overseas cable to FPS Services,
Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903, for
the account of the Fund.
A stockholder may elect at any time to use the telephone or telegram
redemption service. Such election may be made on the initial application form or
on other forms prescribed by the Fund. An executed authorization form must be on
file with the Transfer Agent before a stockholder may use the service. Share
certificates for the shares being redeemed must be held by the Transfer Agent. A
corporation (or partnership) also must submit a "Corporate Resolution" (or
"Certificate of Partnership") indicating the names, titles and the required
number of signatures authorized to act on its behalf. The authorization form
must be signed by a duly authorized officer(s) and the corporation seal affixed.
By signing a Telephone Redemption Authorization form or otherwise utilizing
telephone redemption privileges, the shareholder has agreed that the Funds will
not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. The Funds provide written confirmation of
transactions initiated by telephone as a procedure designed to confirm that
telephone transactions are genuine. As a result of this policy, the investor may
bear the risk of any financial loss in the event of such a transaction;
provided, however, if a Fund or the Transfer Agent fails to employ this and
other established procedures, the Fund or the Transfer Agent may be liable.
When utilizing the telephone or telegram redemption service, the
stockholder must give the full registration name, address, number of shares or
dollar amount to be redeemed, Fund account number and name of the Fund in order
for the redemption request to be processed.
Transfer of Redemption Proceeds by Wire -- Redemption proceeds may be
transmitted directly to the stockholder's predesignated account at a domestic
bank upon request if redemption proceeds are of at least $5,000. Proceeds of
less than $5,000 will be mailed to the stockholder's registered address of
record. Costs in connection with the administration of this service, including
wire charges, will be borne by the Fund. Any changes or exceptions to the
original election must be made in writing, with signature guaranteed, and will
be effective upon receipt by the Transfer Agent.
FPS Services, Inc. and Meridian reserve the right to refuse any telephone
or telegram instructions and may discontinue the aforementioned redemption
options upon 30 days written notice.
General -- All shares of the Funds offered for redemption will be redeemed
at the net asset value per share of the Fund next determined after receipt of
the redemption request, if in good order, by the Transfer Agent. (See "Price of
Shares.") Because the net asset value of a Fund's shares will fluctuate as a
result of changes in the market value of securities owned, the amount a
stockholder receives upon redemption may be more or less than the amount paid
for the shares.
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Payment for shares redeemed in writing, by telephone or by telegram, if in
good order, will be made promptly after receipt, but not later than seven
business days after the valuation date. Requests for redemption which are
subject to any special conditions or which specify an effective date other than
as provided herein cannot be accepted.
Requests for redemptions will not be honored until checks (including
certified checks or cashier's checks) received for the shares purchased have
cleared, which can take as long as fifteen days. Questions with respect to the
proper form for redemption may be directed to the Transfer Agent at
1-800-446-6662.
The redemption price will be paid on or before the seventh day following
proper tender, except a postponement may be permissible under the 1940 Act when
(a) the New York Stock Exchange is closed (other than for weekends and holidays)
or trading is restricted thereon, (b) an emergency exists making disposal of
portfolio securities or the valuation of net assets of the Fund not reasonably
practicable, or (c) the Securities and Exchange Commission has by order
permitted suspension of redemptions for the protection of the Fund's
stockholders. The Commission, by rules and regulations, determines the
conditions under which trading of securities shall be deemed to be restricted
and the conditions under which an emergency shall be deemed to exist.
Investment dealers handling redemption transactions may make a service
charge. There is no charge as described in the foregoing paragraphs for
redemption of shares tendered directly to the Transfer Agent.
Mandatory Redemption -- The Board of Directors has established a policy,
which is subject to change, to require redemption of accounts of a Fund that
drops as a result of redemptions to a value of less than $750 (determined, for
this purpose only, as the greater of the stockholder's cost or the current net
asset value of the shares, including any shares acquired through the
reinvestment of income dividends and capital gains distributions). Prior notice
of at least 60 days will be given to a stockholder before the involuntary
redemption provision is made effective with respect to the stockholder's
account. The stockholder will have no less than 30 days from the date of such
notice within which to bring the account up to the minimum determined as set
forth above.
Signature Guarantee -- Meridian Fund, Inc. requires that the signature of
each stockholder be guaranteed in connection with all redemptions in an effort
to minimize the possibility that another person may forge the stockholder's
signature on a redemption request. This means that a representative of a firm in
one of the categories specified below must acknowledge that the stockholder's
signature is genuine. To prevent fraudulent redemptions Meridian requires that
the signature of each stockholder be guaranteed for all redemptions greater that
$25,000 or those directed to an address or individual other than the holder of
record.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A broker-dealer guaranteeing signatures must be a member
of a clearing corporation or maintain net capital of at least $100,000. Credit
unions must be authorized to issue signature guarantees. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program.
The signature guarantees must appear, together with the signatures of the
registered owners on one of the following: (1) a written request for redemption,
which identifies clearly the exact names in which the account is registered, the
account number and the number of shares or the dollar amount to be redeemed, (2)
a separate instrument of assignment which should specify the total number of
shares to be redeemed (this "stock power" may be obtained from Meridian or FPS
Services, Inc., or from most banks and stockbrokers), or (3) all stock
certificates tendered for redemption, in which case the guarantees also must
appear on the letter of stock power if shares held by the Transfer Agent also
are being redeemed.
Share Transfers -- Shares of a Fund may be transferred upon delivery to FPS
Services, Inc. of the following: (1) a letter of instructions, signed exactly as
the shares are registered by each registered owner, which identifies clearly the
exact names in which the account presently is registered, the account number,
the number of shares to be transferred, and the names, address and social
security or tax identification number of the account to which the shares are to
be transferred, (2) stock certificates, if any, which are the subject of the
transfer, and (3) an instrument of assignment ("stock power"), which should
specify the total number of shares to be transferred and on which the signatures
of the registered owners have been guaranteed. (See "Signature Guarantee.")
Additional documents are
17
<PAGE>
required for transfers by corporations, executors, administrators, trustees and
guardians. A stockholder in doubt as to what documents are required should
contact FPS Services, Inc. (1-800-446-6662). If the transfer establishes a new
account, a new application must be submitted. Meridian is not bound to record
any transfer on the stock transfer books maintained by FPS Services, Inc. until
the latter has received all required documents.
GENERAL INFORMATION
Description of Common Stock -- Meridian was incorporated in Maryland on
March 5, 1984. The authorized capital stock of Meridian consists of 50,000,000
shares of Common Stock (par value $.01 per share), with 25,000,000 shares
presently allocated to each Fund. Each of the Funds corresponds to a distinct
investment portfolio in a distinct series of Meridian's Common Stock. Each of
the Fund's shares has equal dividend, distribution, redemption, liquidation and
noncumulative voting rights. In the future, from time to time, Meridian's Board
of Directors may, in its discretion, increase the amount of authorized shares
and/or establish additional funds and issue shares of additional series of
Meridian's Common Stock.
Transfer, Redemption and Dividend Disbursing Agent -- FPS Services, Inc.,
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903 is the
transfer and redemption and dividend disbursing agent for each Fund. Shareholder
inquiries should be made to the transfer agent at 1-800-446-6662.
Custodian -- Bank of New York, 48 Wall Street, New York, NY 10286, serves
as Custodian of all securities and funds owned by the Fund.
Experts -- Price Waterhouse LLP, 555 California Street, San Francisco,
California 94104, have been appointed as independent accountants for Meridian.
The financial statements of the Funds as of June 30, 1997 included in the
Statement of Additional Information have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
APPENDIX
Description of Bond Ratings
Moody's Investors Service, Inc. rates the long-term debt securities issued
by various entities from "Aaa" to "C," according to quality as described below:
"Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments
are protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues."
"Aa -- High quality by all standards. They are rated lower than the best
bond because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well
assured. The protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
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<PAGE>
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Standard & Poor's Corporation rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality as
described below:
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small
degree."
"A -- Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher rate categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is
in arrears."
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20
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MERIDIAN FUND, INC.(R)
================================================================================
INVESTMENT ADVISER MERIDIAN FUND
Aster Capital Management, Inc. MERIDIAN VALUE FUND(R)
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306 PROSPECTUS
Larkspur, CA 94939 October 28, 1997
TRANSFER AND REDEMPTION AGENT
FPS Services, Inc. 60 E. Sir Francis Drake Blvd.
P.O. Box 61503 Wood Island, Suite 306
King of Prussia, PA 19406-0903 Larkspur, CA 94939
(415) 461-6237
CUSTODIAN
The Bank of New York Telephone (800) 446-6662
48 Wall Street
New York, NY 10286
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
555 California Street
San Francisco, California 94104
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<PAGE>
MERIDIAN FUND, INC.(R)
Part B: Statement of Additional Information
Cross Reference Sheet
<TABLE>
<CAPTION>
Captions in Statement of
Item Number of Part B -- Form N-1A Additional Information
- ---------------------------------- ----------------------
<S> <C>
10. Cover Page .................................. Cover Page
11. Table of Contents............................ Table of Contents
12. General Information and History ............. Not applicable
13. Investment Objectives and Policies .......... Investment Objectives and
Portfolio Techniques;
Additional Investment Restrictions
14. Management of the Fund....................... Investment Management:
Directors and Officers
15. Control Persons and Principal Holders
of Securities ............................... Directors and Officers
16. Investment Advisory and Other Services ...... Investment Management;
Additional Information;
Custodian
17. Brokerage Allocation......................... Execution of Portfolio Transactions
18. Capital Stock and Other Securities .......... General Information --
Description of Common Stock
19. Purchase, Redemption and Pricing of Securities
Being Offered................................ Purchase, Redemption and Pricing of Shares
20. Tax Status................................... Dividends, Distributions and Federal Taxes
21. Underwriters................................. Not Applicable
22. Calculations of Performance Data ............ Investment Results
23. Financial Statements......................... Financial Statements
</TABLE>
22
<PAGE>
MERIDIAN FUND, INC.(R)
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
Telephone: 1-800-446-6662
STATEMENT OF ADDITIONAL INFORMATION
Meridian Fund, Inc. ("Meridian") is a no-load, open-end, diversified
management investment company (a "mutual fund") consisting of two separate
portfolios (each individually a "Fund" or collectively the "Funds"). Additional
funds may be established by Meridian from time to time. The Funds and their
investment objectives are:
Meridian Fund -- The Fund's investment objective is long-term growth of
capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest the majority of its assets in equity and
equity-related securities, primarily common stocks. Common stock investments
will include small and medium-sized companies considered by the Investment
Adviser to be experiencing above-average growth in revenue and earnings. The
Fund may significantly reduce its exposure to equities in an attempt to preserve
capital when the Investment Adviser believes it to be appropriate.
Meridian Value Fund(R) -- The Fund's investment objective is long-term
growth of capital. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund intends to invest the majority of its assets in equity and
equity-related securities, primarily common stocks. The Fund will emphasize
investment in equity securities of issuers which, in the opinion of the
Investment Adviser, are undervalued in relation to the issuer's long-term
earning power or asset value and/or the stock market in general at the time of
purchase.
Each Fund's investment policies include investing in small to medium-sized
companies and seeks to preserve capital during difficult market conditions.
These policies will involve considerable risk and there can be no assurance that
a Fund, in fact, will achieve its investment objective, and gains cannot be
assured.
The execution of a Fund's investment strategy may cause a higher rate of
portfolio turnover relative to other mutual funds. Each Fund reserves the right
to dispose of any security at any time. It is each Fund's intention to take
either short or long-term profits or losses when such action is consistent with
its objective and with sound investment practice, and when such action would not
impair the Fund's tax status as a "regulated investment company."
This Statement of Additional Information concerning Meridian Fund, Inc. is
not a Prospectus for the Funds. This Statement supplements the Prospectus dated
the same date as this Statement and should be read in conjunction with that
Prospectus. A copy of the Prospectus is available without charge by writing or
calling Meridian at the address or telephone number printed above.
The date of this Statement of Additional Information
is October 28, 1997
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<PAGE>
TABLE OF CONTENTS
Page
Investment Policies and Portfolio Techniques....................... 25
Investment Restrictions............................................ 26
Investment Management.............................................. 28
Investment Management Agreement.................................. 28
Directors and Officers............................................. 29
Dividends, Distributions and Federal Taxes......................... 30
Purchase, Redemption and Pricing of Shares......................... 32
Price of Shares.................................................. 32
Rejection of Orders.............................................. 32
The Open Account................................................. 33
Automatic Reinvestment of Dividends and Distributions.............. 33
Execution of Portfolio Transactions................................ 33
Investment Results................................................. 34
General Information................................................ 35
Description of Common Stock...................................... 35
Stockholder Reports.............................................. 36
Legal Opinions................................................... 37
Additional Information............................................. 37
Report of Independent Accountants.................................. 38
Financial Statements............................................... 39
24
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INVESTMENT POLICIES AND PORTFOLIO TECHNIQUES
The Prospectus presents each Fund's investment policies and techniques (See
Prospectus at pp. [8-12].) The following discussion provides additional
information on those policies and identifies certain policies not discussed in
the Prospectus.
Security Loans -- Consistent with applicable regulatory requirements, a
Fund may lend its portfolio securities to brokers, dealers and other financial
institutions. The Fund will seek to negotiate loan terms requiring that the
value of the collateral always be maintained at some level relative to the value
of the loaned securities. When a security loan is made, the collateral and
loaned securities will be valued each business day, and the borrower may be
required to increase the amount of collateral if the market value of the loaned
securities increases. A loan may be terminated by the borrower or by the Fund at
any time on reasonable notice. The borrower, on termination of the loan, is
required to return the securities to the Fund. Any gain or loss in the market
price during the period of the loan would accrue to the Fund. If the borrower
fails to deliver the loaned securities within four days after receipt of notice,
the Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. When loaned
securities grant voting or consent rights which pass to the borrower, the Fund
will call the securities to exercise such rights if the matters involved would
have a material effect on the Fund's investment in the securities.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
be made only to firms deemed by the Fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. The Fund will pay reasonable finder's, administrative and custodial fees
in connection with a loan of its securities.
Non-U.S. Securities -- While a Fund may invest its assets in equity and
fixed income securities of issuers domiciled outside the U.S., it is not
presently expected (at least for the next twelve months) that either Fund will
invest more than 10% of its assets (calculated at the time of purchase) in such
securities.
Investors should recognize that investing in foreign companies involves
certain considerations, including those set forth below, which are not typically
associated with investing in United States companies. Foreign companies
generally are not subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to United States
companies. There also may be less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than exists in the United
States. The Fund may be affected either unfavorably or favorably by fluctuations
in the relative rates of exchange as between the currencies of different nations
and exchange control regulations. Furthermore, there may be the possibility of
expropriation or confiscatory taxation, political, economic or social
instability or diplomatic developments which could affect assets of the Fund
held in foreign securities.
Additional costs could be incurred in connection with the Funds' investment
activities outside the U.S. Increased custodian costs as well as administrative
difficulties (for example, delays in clearing and settling portfolio
transactions or in receiving payment of dividends) may be associated with the
maintenance of assets in certain jurisdictions. Dividends or interest paid by
non-U.S. issuers may be subject to withholding and other foreign taxes which may
decrease the net return on such investments as compared to dividends or interest
paid to a Fund by United States issuers. Costs will also be incurred by a Fund
in connection with foreign exchange transactions necessary in connection with
the purchase and sale of non-U.S. securities and the receipt of dividends and
interest.
Certain Risk Factors Relating to High-Yield, High-Risk Bonds (Meridian Value
Fund only)
Sensitivity to Interest Rate and Economic Change -- High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interests rates, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to
obtain additional financing. If the issuer of a bond defaulted on its
obligations to pay interest or principal or entered into bankruptcy
proceedings, the Fund may incur losses or expenses in seeking recovery of
amounts owed to it. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
and yields of high-yield, high-risk bonds and the Fund's net asset value.
Payment Expectations -- High-yield, high-risk bonds may contain
redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the Fund may have to replace the
security with a lower yielding security, resulting in a decreased
current return for investors. Conversely, a high-yield, high-risk
bond's value will decrease in a rising interest rate market, as will
the value of the Fund's assets. If the Fund experiences unexpected net
redemptions, this may force it to sell high-yield, high-risk bonds
without regard to their investment merits,
25
<PAGE>
thereby decreasing the asset base upon which expenses can be spread
and possibly reducing the Fund's rate of return.
Liquidity and Valuation -- There may be little trading in the
secondary market for particular bonds, which may affect adversely the
Fund's ability to value accurately or dispose of such bonds. Adverse
publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of
high-yield, high-risk bonds, especially in a thin market.
Legislation or Regulation -- Future legislation or regulation may
limit the issuance of high-yield, high-risk bonds which could have a
negative effect on the market for high-yield, high-risk bonds.
Variable, Floating Rate and Synthetic Obligations -- The interest rates
payable on certain fixed-income securities in which a Fund may invest may not be
fixed but may fluctuate based upon changes in market rates. Variable and
floating rate obligations bear coupon rates that are adjusted at designated
intervals, based on the then current market rates of interest on which the
coupon rates are based. Variable and floating rate obligations permit a Fund to
"lock in" the current interest rate for only the period until the next scheduled
rate adjustment, but the rate adjustment feature tends to limit the extent to
which the market value of the obligation will fluctuate. A Fund may also invest
in "synthetic" securities whose value depends on the level of currencies,
commodities, securities, securities indexes, or other financial indicators or
statistics. For example, these could include fixed-income securities whose value
or interest rate is determined by reference to the value of a foreign currency
relative to the U.S. dollar, or to the value of different foreign currencies
relative to each other. The value or interest rate of these securities may
increase or decrease as the value of the underlying instrument changes.
Warrants -- Each Fund has given an undertaking to a state securities
commission as follows: the investment in warrants, valued at the lower of cost
or market, may not exceed 5.0% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2.0% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund in units or attached to securities may
be deemed to be without value.
Each Fund reserves the right to withdraw the undertaking at its discretion.
Portfolio Turnover -- It is the policy of each Fund to purchase and hold
securities for capital appreciation. Although a Fund does not intend to engage
in short-term trading of portfolio securities as a means of achieving its
investment objective, it may sell portfolio securities without regard to the
length of time they have been held whenever such sale, in the Investment
Adviser's opinion, will strengthen the Fund's position and contribute to its
investment objective. Changes in the portfolio will be made whenever the
Investment Adviser believes they are advisable (e.g. as a result of securities
having reached a price objective, or by reason of developments not foreseen at
the time of investment decision such as changes in the economics of an industry
or a particular company.) These investment changes will be made usually without
reference to the length of time a security has been held, and, therefore, there
may be a significant number of short-term transactions.
Each Fund, as a result of the investment policies described above, does
expect to engage in a substantial number of portfolio transactions. A Fund's
annual portfolio turnover rate may exceed 100%, but is not expected to exceed
200%. A 100% turnover rate would occur, for example, if the lesser of the value
of purchases or sales of portfolio securities for a year (excluding all
securities whose maturities at acquisition were one year or less) were equal to
100% of the average monthly value of the securities held by the Fund during such
year. A higher portfolio turnover rate will increase aggregate brokerage
commission expenses which must be borne directly by the Fund and ultimately by
the Fund's stockholders. (See "Execution of Portfolio Transactions.") The
portfolio turnover rates for Meridian Fund were 37% for the fiscal year ended
June 30, 1997, 34% for the fiscal year ended June 30, 1996, and 29% for the
fiscal year ended June 30, 1995. The portfolio turnover rates for Meridian Value
Fund were 144% for the fiscal year ended June 30, 1997, 125% for the fiscal year
ended June 30, 1996, and 77% for the fiscal year ended June 30, 1995.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment policies and
investment restrictions in addition to the policies and restrictions discussed
in the Prospectus. These policies and restrictions cannot be changed without
approval by the holders of a majority of the outstanding voting securities of
the Fund. The "vote of a majority of the outstanding voting securities" of the
Fund, as defined in Section 2(a)(42) of the 1940 Act, means the vote (I) of 67%
or more of the voting securities of the Fund present or represented at any
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (ii) of more than 50% of the
outstanding voting
26
<PAGE>
securities of the Fund, whichever is less. The only voting security of each Fund
is its Common Stock. These restrictions provide that a Fund may not:
(1) invest more than 25% of the value of its assets in the securities of a
single issuer, nor may the remaining 75% of the assets contain any investments
in any other single issuer, which, immediately after such purchase, exceed 5% of
the value of the assets (except for obligations issued or guaranteed by the
United States Government, its agencies and instrumentalities);
(2) purchase the securities of companies in a particular industry if
thereafter more than 25% (for Meridian Value Fund, 25% or more) of the value of
the Fund's total assets would consist of securities issued by companies in that
industry. This restriction does not apply to obligations issued and guaranteed
by the United States Government, its agencies or instrumentalities;
(3) acquire more than 10% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer; or
(4) purchase the securities of any other investment company, except by
purchase in the open market where, to the best information of the Fund, no
commission or profit to a sponsor or dealer (other than the customary broker's
commission) results from such purchase and after such purchase not more than 5%
of the value of the Fund's total assets would consist of such securities, or
except when such purchase is part of a merger, consolidation, acquisition of
assets, or other reorganization approved by the Fund's stockholders.
(5) invest in companies for the purpose of exercising control or
management;
(6) purchase or sell real estate; provided that the Fund may invest in
readily marketable securities secured by real estate or interest therein or
issued by companies which invest in real estate or interests therein (including
real estate investment trusts);
(7) purchase or sell commodities or commodities contracts, or interests in
oil, gas, or other mineral exploration or development programs;
(8) make loans of its funds or assets to any other person, which shall not
be considered as including: (I) the purchase of debt securities, including the
purchase of bank obligations such as certificates of deposit and bankers'
acceptances, and (ii) lending portfolio securities with a value not in excess of
10% of total assets at the time of the loan. The Fund will not enter into
repurchase agreements;
(9) make short sales of securities;
(10) purchase securities on margin, but it may obtain such short-term
credit from banks as may be necessary for the clearance of purchases and sales
of securities;
(11) underwrite the securities of other issuers except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed an underwriter under Federal or State securities laws;
(12) invest in the securities of any issuer which shall have a record of
less than three years of continuous operation (including the operation of any
predecessor) if immediately after and as a result of such investment the value
of the Fund's holdings of such securities exceeds 25% of the value of the Fund's
total assets. This restriction does not apply to any obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities;
(13) borrow for investment purposes or issue senior securities. The Fund,
however, may borrow from banks an amount not to exceed 5% of the Fund's total
assets, determined immediately after the time of the borrowing, as a temporary
measure for extraordinary or emergency purposes;
(14) participate on a joint or a joint-and-several basis in any trading
account in securities (The aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of the
Investment Adviser to save brokerage costs or average prices among them is not
deemed to result in a securities trading account.);
(15) knowingly purchase from or sell portfolio securities to its officers,
directors, or other "interested persons" (as defined in the 1940 Act) of the
Fund, other than otherwise unaffiliated broker-dealers;
(16) purchase or retain the securities of an issuer if, to the Fund's
knowledge, one or more of the directors, officers or employees of the Fund or
the Investment Adviser individually own beneficially
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more than 1/2 of l% of the securities of such issuer and together own
beneficially more than 5% of such securities;
(17) purchase or write put or call options; or
(18) invest more than 10% of its net assets in securities and other assets
for which there is no ready market.
For investment restriction (2) with respect to Meridian Fund, a
nonfundamental policy provides that the Fund will not purchase securities in any
one industry equaling 25% or more of the Fund's total net assets.
Each Fund also is subject to other restrictions under the 1940 Act;
however, the registration of Meridian under the 1940 Act does not involve any
supervision by any Federal or other agency of the Fund's management or
investment practices or policies.
INVESTMENT MANAGEMENT
For each Fund Meridian has retained as its investment adviser Aster Capital
Management, Inc. ("Aster" or the "Investment Adviser"), 60 E. Sir Francis Drake
Blvd., Wood Island, Suite 306, Larkspur, California 94939. The Prospectus
describes the Investment Adviser's duties and compensation and the allocation of
expenses between each Fund and the Investment Adviser. Richard F. Aster, Jr.
owns 94% of the Investment Adviser and as a result may be deemed to be "in
control" of the Investment Adviser. Mr. Aster is President and a Director of
Meridian and of the Investment Adviser.
Investment Management Agreement -- The Investment Management Agreement,
Power of Attorney and Service Agreement (the "Management Agreement") with the
Investment Adviser, dated January 1, 1986, as amended to date, provides that the
Investment Adviser shall furnish advice to each Fund with respect to its
investments and shall determine what securities shall be purchased or sold by
the Funds.
Under the Management Agreement, the Investment Adviser, in addition to
providing the investment advisory services, furnishes the services and pays the
compensation and travel expenses of persons to perform the executive,
administrative, clerical, and bookkeeping functions of Meridian, provides
suitable office space, necessary small office equipment and utilities, and
general purpose accounting forms, supplies and postage used at the offices of
the Fund. The Fund will pay all expenses not assumed by the Investment Adviser.
The Management Agreement has been approved by the Board of Directors to
remain in effect until October 31, 1998, and shall continue in effect from year
to year thereafter so long as such continuance specifically is approved as to a
particular Fund at least annually by (I) either the Board of Directors of
Meridian or the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, and (ii) the vote of a majority of
the directors of Meridian who are not parties to the Management Agreement or
interested persons (as that term is defined in the 1940 Act) of any such party
to the Management Agreement, cast in person at a meeting called for the purpose
of voting on such approval. The Management Agreement was initially approved on
October 25, 1985, by the stockholders and on September 30, 1985, by the Board of
Directors, including a majority of the non-interested members.
The Management Agreement is nonassignable and automatically shall be
terminated upon assignment. The Management Agreement may be terminated at any
time without penalty by either party on 60 days' written notice. Amendments to
the Management Agreement require the approval of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Fund. The Investment
Adviser shall not be liable under the Management Agreement to Meridian or to
stockholders of a Fund for any error of judgment, act or omission not involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations and duties thereunder.
Aster Capital Management, Inc. and its affiliated companies have adopted a
personal investing policy consistent with Investment Company Institute
guidelines. This policy includes: a ban on acquisitions of securities pursuant
to an initial public offering; restrictions on acquisitions of private placement
securities; pre-clearance and reporting requirements; review of duplicate
confirmation statements; annual recertification of compliance with code of
ethics; disclosure of personal holdings by certain investment personnel prior to
recommendation for purchase for the fund; blackout periods on personal investing
for certain investment personnel; ban on short-term trading profits for
investment personnel; limitations on service as a director of publicly traded
companies; and disclosure of personal securities transactions.
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DIRECTORS AND OFFICERS
The names and addresses of the directors and officers of Meridian and their
principal occupations, certain other affiliations during the past five years and
age are given below.
<TABLE>
<S> <C> <C>
*+ Richard F. Aster, Jr. Chairman of the Board and Aug. 1985 - Present: Aster Capital
60 E. Sir Francis Drake President Management, Inc., Pres.; March
Boulevard, Suite 306 1977 - Present: Aster Investment
Larkspur, CA 94939 Management Co., Inc., Pres.; Age: 57.
* Michael S. Erickson Director May 1987 - Present: Private Investor;
1 Baja Court May 1993 - Sept. 1994: Aster
Corte Madera, CA Investment Management, Inc., Analyst;
94925-1801 Sept. 1989 - Oct. 1992:
Romic Partners, Inc., President; Age:
45.
** James Bernard Glavin Director Sept. 1994 - Present: The Immune
5935 Darwin Court Response Corp., Chairman of the Board;
Carlsbad, CA Apr. 1987 - Sept. 1994: The Immune
92008-7302 Response Corp., C.E.O.;
Age: 62.
+ Michael Stolper Director Sept. 1975 - Present: Stolper &
One America Plaza Company Inc., Pres., investment
600 West Broadway, Suite 1010 adviser and broker- dealer; Age: 52.
San Diego, CA
92101-3355
** Herbert Charles Kay Director Private Investor; Age: 60.
3906 Strand Avenue
Manhattan Beach, CA
90266
Paul Robinson Principal Accounting Aug. 1985 - Present: Aster Capital
60 E. Sir Francis Drake Officer, Principal Management, Inc., Vice Pres. of
Boulevard, Suite 306 Financial Officer, Operations; Aug. 1983 - Present: Aster
Larkspur, CA 94939 Treasurer and Secretary Investment Management Co., Inc., Vice
Pres. of Operations; Age: 45.
</TABLE>
* Member, Executive Committee
** Member, Audit Committee
+ Director who is an "interested person," as defined in Section 2(a)(19) of
the 1940 Act.
- ----------
Mr. Stolper is a director of BDI Investment Company, a registered
investment company that invests primarily in tax exempt securities, of Janus
Capital, a registered investment adviser that manages mutual funds. Mr. Stolper
owns 6% of Aster Capital Management, Inc., Meridian's Investment Adviser.
Meridian pays no salaries or other compensation to its directors or
officers other than fees to directors who are unaffiliated with the Investment
Adviser. Each such unaffiliated director is paid a director's fee of $1,000 per
annum, plus a $1,000 investment in one of the Funds, and expenses, for each
Board of Directors' meeting attended. The aggregate compensation for the period
July 1, 1996 through June 30, 1997, was $6,000. All officers of Meridian are
employees of the Investment Adviser. Meetings of the Board of Directors are held
after each Annual or Special Shareholders Meeting and from time to time as the
Board deems necessary. The Executive Committee will meet, as required, when the
full Board does not meet, for the purpose of reviewing the Fund's investment
portfolio. The Executive Committee has the authority to exercise all of the
powers of Meridian's Board of Directors at any time
29
<PAGE>
when the Board is not in session, except the power to declare dividends or
distributions, to authorize the issuance of securities, to amend Meridian's
Bylaws, to recommend to stockholders of the Fund any action requiring their
approval, or as otherwise required by the 1940 Act. The Audit Committee will
meet from time to time with Meridian's independent accountants to exchange views
and information and to assist the full Board in fulfilling its responsibilities
relating to corporate accounting and reporting practices.
Beneficial ownership in the Funds by the Directors and officers as of
September 30, 1997, was as follows:
Meridian Fund Meridian Value Fund
Name Shares (%) Shares (%)
- ---- ------ --- ------ ---
Richard F. Aster, Jr ....... 187,846 (1.64%) 80,268 (17.62%)
James B. Glavin ............ 85,805 (0.75%) 578 (0.13%)
Michael Stolper ............ 34,014 (0.30%) 7,299 (1.60%)
Paul A. Robinson ........... 6,854 (0.06%) 4,965 (1.09%)
Herbert C. Kay ............. 2,587 (0.02%) 0 (0.00%)
Lana M. Ariue .............. 424 (0.00%) 729 (0.20%)
Michael S. Erickson ........ 0 (0.00%) 175 (0.04%)
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Each Fund intends to separately meet all the requirements of, and has
elected the tax status of, a "regulated investment company" under the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"). In general, if
the Fund distributes within specified times at least 90% of its net investment
and net short-term capital gains, it will be taxed only on that portion of its
net investment income and net capital gain, if any, which it retains.
To qualify, the Fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months (however, this requirement has been
repealed for tax years beginning after August 5, 1997); and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities and other securities, limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
A 4% nondeductible excise tax will be imposed on each Fund (other than to
the extent of its tax-exempt interest income, if any) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
Each Fund intends to actually or be deemed to distribute substantially all of
its net investment income and net capital gain by the end of each calendar year
and, thus, expects not to be subject to the excise tax.
Except as provided herein, gains and losses on the sale of portfolio
securities by a Fund will generally be capital gains and losses. Such gains and
losses will ordinarily be long-term capital gains and losses if the securities
have been held by the Fund for more than one year at the time of disposition of
the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
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<PAGE>
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
federal income tax or the interest charge with respect to its share of the PFIC.
Any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of. In
addition, if a stockholder receives a designated capital gain distribution with
respect to any Fund share and such Fund share is held for six months or less,
then (unless otherwise disallowed) any loss on the sale or exchange of that Fund
share will be treated as a long-term capital loss to the extent of the
designated capital gain distribution.
Under the Code, dividend distributions by a Fund to a nonresident alien
individual, foreign trust (i.e., trust which a U.S. court is able to exercise
primary supervision over administration of that trust and one or more U.S.
persons have authority to control substantial decisions of that trust), foreign
estate (i.e., the income of which is not subject to U.S. tax regardless of
source), foreign corporation or foreign partnership (a "foreign stockholder")
investing in the Fund will be subject to federal withholding tax (at a rate of
30% or, if an income tax treaty applies, at the lower treaty rate, if any). Such
tax withheld is generally not refundable. Withholding will not apply if a
dividend paid by the Fund to a foreign stockholder is "effectively connected"
with a U.S. trade or business (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment) of the foreign stockholder, in
which case the reporting and withholding requirements applicable to U.S. persons
will apply. Capital gain distributions are generally not subject to tax
withholding applicable to foreign stockholders.
The Fund may be required to pay withholding and other taxes imposed by
foreign countries which would reduce the Fund's investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If more than 50% of the total assets of a Fund consists of
securities of foreign issuers, the Fund will be eligible to elect to "pass
through" foreign tax credits to stockholders. However, each Fund does not expect
to qualify for this election.
As of the printing of this SAI, the maximum individual tax rate applicable
to ordinary income is 39.6% (marginal tax rates may be higher for some
individuals to reduce or eliminate the benefit of exemptions and deductions);
the maximum individual tax rate applicable to net capital gains is 28% (see
discussion of the Taxpayer Relief Act of 1997 below); and the maximum corporate
marginal tax rate applicable to ordinary income and capital gain is 35%
(however, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000).
Distributions which are designated by a Fund as capital gain distributions
will be taxed to stockholders as long-term term capital gain (to the extent such
distributions do exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a stockholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to the stockholders not later than 60 days after the
close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
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<PAGE>
greater than one year and 18 months or less. The 1997 Act retains the treatment
of short term capital gain or loss (generally, gain or loss attributable to
capital assets held for 1 year or less) and did not affect the taxation of
capital gains in the hands of corporate taxpayers. Under the 1997 Act, the
Treasury is authorized to issue regulations for application of the reduced
capital gains tax rates to pass-through entities, including regulated investment
companies, such as the Funds. Noncorporate stockholders of the Funds may
therefore qualify for the reduced rate of tax on capital gain dividends paid by
the Funds.
Corporate stockholders of a Fund may be eligible for the dividends-received
deduction on the dividend distributions paid by the Fund to the extent that the
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate stockholder must hold
the Fund shares paying the dividends upon which the deduction. During a 90 day
period that begins 45 days prior to the date upon which the stockholder became
entitled to the distribution, and the Fund must have held the shares of
corporate stock giving rise to the dividend for at least 46 days during a 90 day
period that begins 45 days prior to the date upon which the Fund became entitled
to the dividend.
The foregoing is limited to a summary of certain federal tax matters. It
should not be viewed as a comprehensive discussion of the items referred to nor
as covering all provisions of the Code relevant to investors. Dividends and
distributions may also be subject to state or local taxes. Stockholders should
consult their own tax advisers for additional details and the possible effect of
the Code on their particular tax status.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus provides general information concerning the purchase and
redemption of each Fund's shares. The following discussion explains further some
of that information and discloses certain policies not presented in the
Prospectus.
Price of Shares -- Each Fund calculates the net asset value per share in
the following manner:
1. Securities listed or traded on the New York Stock Exchange are valued at
the last sale price or, if no sale, at the last-reported bid price.
Non-convertible bonds and debentures, and other long-term debt securities
normally are valued at prices obtained for the day of valuation from a major
dealer in bonds. However, when such prices are unavailable or in circumstances
where the Investment Adviser deems it appropriate to do so, another bond pricing
service or an over-the-counter or exchange quotation may be used. United States
Treasury Bills, and other obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities, certificates of deposit issued by
banks, corporate short-term notes and other short-term investments with original
or remaining maturities in excess of 60 days normally are valued at the mean of
representative quoted bid and asked prices or, if such prices are not available,
quoted bid and asked prices for securities of comparable maturity, quality and
type. Short-term securities with 60 days or less to maturity are amortized to
maturity based on their cost to the Fund if acquired within 60 days of maturity
or, if already held by the Fund on the 60th day, based on the value determined
on the 61st day unless the Board determines that this does not represent the
securities' fair value. Other securities are valued on the basis of last sale or
bid prices in what is, in the opinion of the Investment Adviser, the broadest
and most representative market which may be either a securities exchange or the
over-the-counter market. Where quotations are not readily available, securities
are valued at fair value as determined in good faith by the Board of Directors.
The fair value of all other assets is added to the value of securities to derive
the Fund's total assets.
2. The liabilities of the Fund, including proper accruals of taxes and
other expense items, are deducted from the Fund's total assets to derive the
Fund's net asset value.
3. The net asset value is divided by the total number of shares
outstanding, and the result, rounded to the nearest cent, is the net asset value
per share.
Rejection of Orders -- Any purchase order may be rejected by Meridian.
32
<PAGE>
The Open Account -- When a stockholder makes an initial investment in a
Fund, a stockholder account is opened in accordance with the stockholder's
registration instructions. Each time there is a transaction in a stockholder
account such as an additional investment or the reinvestment of a dividend or
distribution, the stockholder will receive from the Transfer Agent a
confirmation statement showing the current transaction in the stockholder
account along with a summary of the status of the account as of the transaction
date.
Share certificates are issued only for full shares, and only upon the
specific request of the stockholder to the Transfer Agent. The stockholder may
request issuance of certificates representing all or any part of the full shares
in the stockholder account. Meridian will not charge stockholders for the
issuance of certificates.
Automatic Reinvestment of Dividends and Distributions -- A stockholder may
indicate at any time a choice of certain elections with respect to income
dividends and capital gain distributions. The stockholder may elect to have both
income dividends and capital gain distributions declared on the stockholder's
shares of a Fund reinvested automatically in additional shares of the Fund at
the closing net asset value per share on the reinvestment date determined by the
Board of Directors. A stockholder also may elect to receive income dividends in
cash while accepting capital gain distributions in additional shares of the
Fund. Alternatively, a stockholder may elect to receive both income dividend and
capital-gain distributions in cash. If no such election is made, all dividend
and capital-gain distributions will be applied automatically to the purchase of
shares of the Fund at net asset value per share. These elections may be changed
by the stockholder at any time by written notification to the Fund's Transfer
Agent, but, to be effective as to a particular distribution, must be received by
the Transfer Agent sufficiently in advance of the reinvestment date
(approximately 10 business days) to permit the change to be entered in the
stockholder's record. The Federal income tax status of income dividends and
capital gain distributions is the same whether taken in cash or reinvested in
shares of the Fund.
Dividend and capital-gain distributions on all shares in the stockholder
account are reinvested in full and fractional shares at the net asset value per
share unless the stockholder instructs the Fund to do otherwise.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for a Fund's portfolio securities transactions are placed by the
Investment Adviser. The objective of each Fund is to obtain the best available
prices in its portfolio transactions taking into account a broker's services,
costs and promptness of executions. There is no agreement or commitment to place
orders with any broker-dealer. The Investment Adviser evaluates a wide range of
criteria in seeking the most favorable price and market for the execution of
transactions, including the broker's commission rate, execution capability,
positioning and distribution capabilities, back-office efficiency, ability to
handle difficult trades, financial stability, and prior performance in serving
the Investment Adviser and its clients. Purchases and sales in typical
transactions executed in the over-the-counter market generally will be
transacted directly with principal market-makers except in those circumstances
where, in the opinion of the Investment Adviser, better prices and executions
are available elsewhere.
When circumstances relating to a proposed transaction indicate that a
particular broker-dealer is in a position to obtain the best execution, the
order is placed with that broker-dealer. This may or may not be a broker-dealer
which has provided research, statistical or other related services to the
Investment Adviser or its affiliate, Aster Investment Management Co., Inc. or
has sold shares of the Fund or other funds served by the Investment Adviser.
Subject to the requirement of seeking the best available prices and executions,
the Investment Adviser may give preferences, in circumstances in which two or
more broker-dealers are in a position to offer comparable prices and execution,
to broker-dealers which have provided research, statistical, and other related
services to the Investment Adviser for the benefit of the Fund and/or of other
accounts served by the Investment Adviser or Aster Investment Management Co.,
Inc. if, in its judgment, the Fund will obtain prices and executions comparable
with those available from other qualified firms. Substantially all of the total
brokerage commissions paid by the Meridian Fund during the period July 1, 1996
through June 30, 1997, were paid to brokers so selected.
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<PAGE>
The Board of Directors of Meridian has adopted a policy which permits the
Investment Adviser, subject to the objective of obtaining the best execution, to
consider a broker-dealer's sale of Fund shares as a factor in selecting from
among broker-dealers qualified to offer comparable prices and execution of
portfolio transactions. This policy does not imply a commitment by a Fund to
execute portfolio transactions through all broker- dealers who sell shares of
the Fund. Meridian has executed transactions, subject to obtaining the best
execution, with broker-dealers who have marketed Fund shares. The Board of
Directors will monitor executions of portfolio transactions periodically to
assure itself that the best execution objective continues to be paramount in the
selection of executing broker-dealers.
Meridian does not consider that it has an obligation to obtain the lowest
available commission rate to the exclusion of price, service and qualitative
considerations. Nevertheless, the personnel of the Investment Adviser are
authorized to negotiate payment only for brokerage services rendered and not for
research, statistical, or other services. Meridian does not authorize the
payment of commissions to brokers, in recognition of their having provided
research, statistical or other related services, or of their having sold Fund
shares, in excess of commissions other qualified brokers would have charged for
handling comparable transactions.
A Fund, in some instances, may deal in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market.
Where transactions are executed in the over-the-counter market, a Fund will seek
to deal with the primary market-makers; but when necessary in order to obtain
the best price and execution, it will utilize the services of others. Each Fund
in all cases will attempt to negotiate the best market price and execution.
The foreign and domestic debt securities and money market instruments in
which the Funds may invest are generally traded in the OTC markets. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, securities may be purchased directly from
an issuer, in which case no commissions or discounts are paid.
The Investment Adviser may perform investment management services for
various clients. There may be occasions in which portfolio transactions for a
Fund may be executed as part of concurrent authorizations to purchase or sell
the same security for other of the accounts served by the Investment Adviser or
Aster Investment Management Co., Inc. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the Fund, they
will be effected only when the Investment Adviser believes that to do so will be
in the best interest of its clients, including the Funds. When such concurrent
authorizations occur, the objective will be to allocate the executions in a
manner which is deemed equitable to the accounts involved, including the Funds.
Each Fund contemplates purchasing most foreign equity securities in OTC
markets or stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. The fixed commissions paid in connection with most
foreign stock transactions generally are higher than negotiated commissions on
United States transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by a Fund in the form of American
Depository Receipts or Shares (ADRs), European Depository Receipts (EDRs),
Continental Depository Receipts (CDRs) or securities convertible into foreign
equity securities. ADRs, EDRs and CDRs may be listed on stock exchanges, or
traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates.
34
<PAGE>
INVESTMENT RESULTS
Meridian Fund, Inc. may, from time to time, include standardized and
nonstandardized performance information and/or comparisons of the investment
results of a Fund to various unmanaged indices or results of other mutual funds
or groups of mutual funds in advertisements, sales literature or in reports
furnished to present or prospective shareholders.
Standardized average annual total return for a period is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Fund, made at the beginning of each period, and then calculating the
average annual compounded rate of return which would produce the same investment
return on the $1,000 investment over the same period.
The following assumptions will be reflected in computations of average
annual total return: (1) all share sales at net asset value, without a sales
load deduction from the $1000 initial investment; (2) reinvestment of dividends
and capital gains distributions at net asset value on the reinvestment date
determined by the Board; and (3) a complete redemption at the end of any period
illustrated. Total annual average return may be calculated for one year, five
years, ten years and for other periods, and will be updated on a quarterly
basis.
Total return for the Meridian Fund for the one year period ended June 30,
1997, was 13.92%. The average annual total return for the five year and ten year
periods ended June 30, 1997, and from inception of the Meridian Fund, August 1,
1984, through June 30, 1997, were 16.63%, 14.09% and 15.26%, respectively.
Total return for the Meridian Value Fund for the one year period ended June
30, 1997, was 20.55%. The average annual total return from inception of the
Meridian Value Fund, February 10, 1994 through June 30, 1997 was 19.88%.
The calculation of nonstandardized total returns for a Fund differs from
the calculation of standardized average annual total returns only in that
nonstandardized total returns relate to nonstandardized periods, and in that
they represent aggregate (rather than average) total return.
Investment results of each Fund will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund and should not be considered representative of what an
investment in the company may earn in any future period.
The Funds may in advertising refer to results compiled by organizations
such as Lipper Analytical Services, Morningstar, Inc. and Wiesenberger
Investment Companies Services. Additionally, the Funds may, from time to time,
refer to results published in various newspapers or periodicals, including
Barrons, Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance
Magazine, Money, U.S. News and World Report and The Wall Street Journal.
A Fund may from time to time compare its investment results with, e.g., the
following
(1)The Standard & Poor's 500 Composite Stock Price Index.
(2) 3-months weekly average yield of 90-day U.S. Treasury Bills, as
reported by the Federal Reserve Bank of St. Louis.
(3) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g. food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
GENERAL INFORMATION
Description of Common Stock -- There are no conversion or preemptive rights
in connection with any shares of the Funds. All shares of each Fund when duly
issued will be paid in full and non-assessable. The rights of the holders of
shares of Common Stock of a Fund may not be modified except by vote of the
majority of the outstanding voting securities of that fund. Certificates are not
issued unless
35
<PAGE>
requested and are never issued for fractional shares. Fractional shares are
liquidated at net asset value per share at the time a stockholder account is
closed.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the shares of the Fund (in the aggregate) voting for the
election of directors can elect 100% of the directors if they wish to do so. In
such event the holders of the remaining less than 50% of the shares voting for
the election of directors will not be able to elect any person or persons to the
Board of Directors.
As of September 30, 1997 the following persons were known to beneficially
or of record, own five percent or more of Meridian Fund's outstanding shares:
Charles Schwab 18.81%
Reinvest Account
Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104
As of September 30, 1997 the following persons were known to beneficially
or of record, own five percent or more of Meridian Value Fund's outstanding
shares:
Charles Schwab 22.78%
Reinvest Account
Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104
Richard F. Aster, Jr., Trustee 8.98%
Aster Family Trust
Separate Property Dtd 3/25/92
60 E. Sir Francis Drake Blvd. #306
Larkspur, CA 94939
Aster Investment Management Co. Inc. 8.65%
Profit Sharing Plan,
Richard Aster Jr. Trust dtd 1/1/84, Trustee
60 E. Sir Francis Drake Blvd. #306
Larkspur, CA 94939
John N. Mauro and Phyllis A. Mauro Jt Tn 6.15%
430 Lurgan Rd.
New Hope, PA 18938
Dennis S. Avery 5.06%
P.O. Box 540
Borrego Springs, CA 92004
Stockholder Reports -- The fiscal year of each Fund ends on June 30 of each
year. Each Fund will issue to its stockholders semi-annual and annual reports;
each annual report will contain a schedule of the Fund's portfolio securities
and audited annual financial statements. Stockholders, in addition, will receive
unaudited quarterly statements of the status of the Fund. The Federal income tax
status of stockholders' distributions also will be reported to stockholders
after the end of each calendar year.
36
<PAGE>
Legal Opinions -- The validity of the shares offered by this Prospectus has
been passed upon by Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W.,
Suite 5500, Washington D.C. 20006. Morrison & Foerster acts as counsel to
Meridian and to the Investment Adviser in various matters.
ADDITIONAL INFORMATION
The costs of sales and advertising materials are borne by the Investment
Adviser.
The Prospectus and this Statement of Additional Information, together, do
not contain all of the information set forth in the Fund's registration
statement and related forms filed with the Securities and Exchange Commission.
Certain information is omitted in accordance with rules and regulations of the
000Commission. The registration statement and related forms may be inspected at
the Public Reference Room of the Commission at Room 1024, 450 5th Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and copies thereof may be obtained from
the Commission at prescribed rates.
37
<PAGE>
FINANCIAL STATEMENTS
Schedule of Investments
June 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCK -- 78.4%
BANKING AND FINANCE -- 2.1%
Pacific Century Financial Corp* ................................ 160,000 $7,400,000
CELLULAR COMMUNICATIONS -- 4.6%
AirTouch Communications, Inc. .................................. 358,000 9,800,250
Vanguard Cellular Systems, Inc. -- Class A ...................... 470,000 6,403,750
CONSUMER PRODUCTS -- 3.6%
Circuit City Stores, Inc. - CarMax Group ....................... 242,000 3,463,625
Nu Skin Asia Pacific, Inc. ..................................... 265,000 7,022,500
The York Group, Inc* ........................................... 114,700 2,150,625
CONSUMER SERVICES -- 7.3%
Service Corp. International* ................................... 315,000 10,355,625
Sotheby's Holdings, Inc.-- Class A* ............................ 430,000 7,256,250
Stewart Enterprises, Inc.-- Class A* ........................... 190,000 7,980,000
ENERGY -- 4.1%
Lomak Petroleum, Inc.* ......................................... 367,100 6,538,969
Marine Drilling Companies, Inc. ................................ 395,000 7,751,875
HEALTH SERVICES -- 9.7%
American Home Patient, Inc. .................................... 152,400 3,810,000
Beverly Enterprises, Inc. ...................................... 475,500 7,726,875
Health Management Associates, Inc. -Class A .................... 380,000 10,830,000
Quorum Health Group, Inc. ...................................... 330,000 11,797,500
INDUSTRIAL SERVICES -- 5.8%
Expeditors International of Washington, Inc.* ................... 150,900 4,281,788
Paychex, Inc.* .................................................. 228,750 8,692,500
United Waste Systems, Inc. ...................................... 187,000 7,667,000
REAL ESTATE INVESTMENT TRUSTS -- 12.1%
Arden Realty Group, Inc.* ...................................... 350,000 9,100,000
Equity Residential Properties Trust,* .......................... 155,000 7,362,500
Kilroy Realty Corporation* ..................................... 267,000 6,741,750
Oasis Residential, Inc* ........................................ 270,000 6,345,000
Spieker Properties, Inc* ....................................... 180,000 6,333,750
The Town and Country Trust* .................................... 455,000 6,995,625
</TABLE>
The accompanying notes are an integral part of the financial statements
38
<PAGE>
<TABLE>
<CAPTION>
Shares Value
------- -----
<S> <C> <C>
RESTAURANTS -- 3.9%
Cracker Barrel Old Country Store, Inc.* ...................... 253,600 6,720,400
Showbiz Pizza Time, Inc. ..................................... 270,000 7,121,250
RETAIL -- 17.1%
Bed, Bath and Beyond, Inc. ................................... 275,000 8,353,125
Family Dollar Stores, Inc.* .................................. 295,000 8,038,750
Heilig-Meyers Company* ....................................... 354,600 6,959,025
Kohl's Corporation ........................................... 225,000 11,910,938
Mac Frugals Bargains * Closeouts Inc. ........................ 340,200 9,270,450
Mazel Stores, Inc. ........................................... 82,000 1,435,000
The Gymboree Corporation ..................................... 255,000 6,120,000
Value City Department Stores, Inc. ........................... 400,000 3,250,000
Williams-Sonoma, Inc. ........................................ 120,000 5,130,000
TECHNOLOGY -- 8.1%
Black Box Corporation ........................................ 124,100 4,995,025
Molex Inc. - Class A* ........................................ 243,750 8,500,781
National Data Corp* .......................................... 185,000 8,012,812
Xilinx, Inc. ................................................. 145,000 7,114,062
------------
TOTAL COMMON STOCK
(Identified cost $207,191,201) ............................... 276,739,375
------------
U.S. GOVERNMENT OBLIGATIONS (Identified cost $64,981,861) -- 18.4%
U.S. Treasury Bills @ 5.217% due 07/03/97 (par value $65,000,000) 64,981,861
------------
TOTAL INVESTMENTS
(Identified Cost $272,173,062) - 96.8% ........................... 341,721,236
------------
CASH AND OTHER ASSETS LESS LIABILITIES-- 3.2% ..................... 11,307,737
------------
NET ASSETS-- 100% ................................................. $353,028,973
============
Shares of capital stock outstanding ............................... 10,634,038
============
Net asset value per share ......................................... $33.20
============
</TABLE>
*income producing
The accompanying notes are an integral part of the financial statements
39
<PAGE>
Statement of Assets and Liabilities
June 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $272,173,062) ............................. $341,721,236
Cash and cash equivalents ................................... 9,348,728
Receivables for:
Securities sold .......................................... 2,741,090
Dividends ................................................ 323,994
Interest ................................................. 95,717
Sales of capital stock ................................... 28,036
Prepaid expenses ............................................ 3,970
------------
TOTAL ASSETS ........................................ $354,262,771
------------
LIABILITIES
Payables for:
Securities purchased ..................................... 533,026
Capital stock repurchased ................................ 384,655
Accrued expenses ............................................ 316,117
------------
TOTAL LIABILITIES ................................... 1,233,798
------------
NET ASSETS .................................................... $353,028,973
============
Shares of capital stock outstanding, par value $.01
(25,000,000 shares authorized) .............................. 10,634,038
============
Net asset value per share (offering and redemption price) ..... $33.20
============
Net assets consist of:
Paid in capital ............................................. $244,552,579
Accumulated net realized gain ............................... 37,025,804
Net unrealized appreciation on investments .................. 69,548,174
Undistributed net investment income ......................... 1,902,416
------------
$353,028,973
</TABLE>
The accompanying notes are an integral part of the financial statements
40
<PAGE>
Statement of Operations
For the year ended June 30, 1997
================================================================================
INVESTMENT INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Dividends .................................................. $3,492,892
Interest ................................................... 4,591,814
------------
Total investment income ............................... $8,084,706
------------
EXPENSES
Investment advisory fees ................................... 2,897,147
Transfer agent fees ........................................ 296,325
Pricing fees ............................................... 72,624
Reports to shareholders .................................... 69,758
Custodian fees ............................................. 63,875
Registration and filing fees ............................... 60,966
Miscellaneous expenses ..................................... 36,234
Professional fees .......................................... 27,690
Directors' fees and expenses ............................... 6,858
------------
Total expenses ........................................ 3,531,477
------------
Net investment income ................................. 4,553,229
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments ........................... 45,845,696
Proceeds from Litigation ................................... 29,948
Net decrease in unrealized appreciation on investments ..... (3,443,339)
------------
Net realized and unrealized gains on investments ........... 42,432,305
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $46,985,534
============
</TABLE>
The accompanying notes are an integral part of the financial statements
41
<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 income ........................................... $4,553,229 $3,658,897
Net realized gains on investments ............................... 45,875,644 36,920,382
Net (decrease) increase in unrealized appreciation
of investments ............................................... (3,443,339) 29,588,487
------------- -------------
Net increase from operations .................................. 46,985,534 70,167,766
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............................ (4,397,755) (3,746,716)
Distributions from net realized capital gains ................... (33,151,636) (6,610,825)
------------- -------------
Total distributions ........................................... (37,549,391) (10,357,541)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock ..................................... 52,295,893 82,130,543
Reinvestment of distributions ................................... 35,325,932 9,581,641
Less: redemptions ............................................... (128,116,015) (95,588,642)
------------- -------------
Decrease resulting from capital share transactions ............ (40,494,190) (3,876,458)
------------- -------------
Total (decrease) increase in net assets ......................... (31,058,047) 55,933,767
NET ASSETS
Beginning of year ............................................... 384,087,020 328,153,253
------------- -------------
End of year (includes undistributed net investment income
of $1,902,416 and $1,746,942, respectively) .................. $353,028,973 $384,087,020
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
42
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
================================================================================
The following ratios and per share data for each share of common stock
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants, whose report is included in the Statement of Additional
Information. The financial highlights should be read in conjunction with the
financial statements and accompanying notes which also are included in the
Statement of Additional Information.
Meridian Fund
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of
year ............................ 32.21 27.29 24.27 23.87 18.97
----------- ----------- ----------- ----------- -----------
Income from Investment
Operations
Net Investment Income (loss) .... .40 .30 .27 .09 (.01)
Net Gains (Losses) on Securities
(both realized and unrealized) .. 3.71 5.47 3.63 .76 5.51
----------- ----------- ----------- ----------- -----------
Total From Investment Operations 4.11 5.77 3.90 .85 5.50
----------- ----------- ----------- ----------- -----------
Less Dividends and Distributions
Dividends from net investment
income .......................... (0.36) (.31) (.18) (.02) (.04)
Distributions from net realized
capital gains ................... (2.76) (.54) (.70) (.43) (.56)
----------- ----------- ----------- ----------- -----------
Total Dividends and Distributions (3.12) (.85) (.88) (.45) (.60)
----------- ----------- ----------- ----------- -----------
Net Asset Value -- End of Period $33.20 $32.21 $27.29 $24.27 $23.87
=========== =========== =========== =========== ===========
Total Return .................... 13.92% 21.40% 16.44% 3.48% 29.50%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
Net Assets, End of Period (in
thousands) ...................... $353,029 $384,087 $328,153 $199,191 $78,581
Ratio of Expenses to Average Net
Assets .......................... 0.96% 0.96% 1.06% 1.22% 1.47%
Ratio of Net Investment Income
(Loss) to Average Net Assets .... 1.23% 0.99% 1.18% 38% (.01%)
Portfolio Turnover Rate ......... 37% 34% 29% 43% 61%
Average Commission Paid per
Share ........................... $0.0595^ $0.0588^ -- -- --
<CAPTION>
For the Fiscal year ended June 30,
----------------------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
Net Asset Value - Beginning of
year ............................ 17.94 17.71 15.93 13.65 15.29
----------- ----------- ----------- ----------- -----------
Income from Investment
Operations
Net Investment Income (loss) .... .07 .20 .06 .41 (.11)
Net Gains (Losses) on Securities
(both realized and unrealized) .. 3.45 .49 2.84 1.87 (.29)
----------- ----------- ----------- ----------- -----------
Total Investment Operations ..... 3.52 .69 2.90 2.28 (.40)
----------- ----------- ----------- ----------- -----------
Less Dividends and Distributions
Dividends from Investment
income .......................... (.09) (.12) (.48) .00 (.02)
Distributions from net realized
income .......................... (1.70) (1.04) (.64) .00 (1.22)
----------- ----------- ----------- ----------- -----------
Total Dividends and Distributions (1.79) (1.16) (1.12) .00 (1.24)
----------- ----------- ----------- ----------- -----------
Net Asset Value -- End of Period $18.97 $17.24 $17.71 $15.93 $13.65
=========== =========== =========== =========== ===========
Total Return .................... 21.00% 5.62% 19.71% 16.70%* (2.99%)*
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
Net Assets, End of Period (in
thousands) ...................... $18,363 $12,350 $11,058 $9,598 $10,706
Ratio of Expenses to Average Net
Assets .......................... 1.75% 1.68% 2.08% 2.01%+ 1.85%+
Ratio of Net Investment Income
(Loss) to average Net Assets .... .24% .98% .14% 2.83%+ (.59%)+
Portfolio Turnover Rate ......... 61% 85% 66% 62% 58%
Average Commission Paid per
Share ........................... -- -- -- -- --
</TABLE>
* 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. If the fund had paid all
of its expenses and there had been no reimbursement by the Adviser, the
ratio of expenses to average net assets for the year ended June 30, 1988
and 1989 would have been 1.86% and 2.19% respectively, and the ratio of net
investment income (loss) to average net assets would have been (.60%) and
2.63% 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 securities
may differ. This rate generally does not reflect markups, markdowns, or
spreads on shares traded on principle basis, if any. This disclosure is
required by the SEC and was effective beginning in 1996.
43
<PAGE>
Notes to Financial Statements
For the Year Ended June 30, 1997
1. Significant Accounting Policies: Meridian Fund (the "Fund") a series of
Meridian Fund, Inc. (the "Company"), began operations on August 1, 1984.
The Fund was registered on August 1, 1984, 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 Fund, the Company
also offers the Meridian Value 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 are
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 cost, 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 $272,173,062, the aggregate gross unrealized appreciation
is $75,233,526 and the aggregate gross unrealized depreciation is
$5,685,352 resulting in net unrealized appreciation of $69,548,174.
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 and accretion income are 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. Funds are automatically swept into a Cash Reserve account
which preserves capital with a consistently competitive rate of
return. Earnings are indexed to the Federal Reserve "Fed Funds Rate".
Interest accrues daily and is credited by the third business day of
the following month.
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.
44
<PAGE>
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.
The Investment Advisor receives from the Fund as compensation for its
services an annual fee of 1% of the first $50,000,000 of the Fund's net
assets and 0.75% of the Fund's net assets in excess of $50,000,000. The fee
is paid monthly and calculated based on that month's average net assets.
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 period ended June 30, 1997 and June 30, 1996, were as
follows:
1997 1996
---------- ----------
Shares sold 1,670,786 2,717,761
Shares issued on reinvestment of distributions 1,166,006 322,055
---------- ----------
2,836,792 3,039,816
Shares redeemed (4,126,984) (3,138,480)
---------- ----------
Net decrease (1,290,192) (98,664)
========== ==========
4. Compensation of Directors and Officers: Directors and officers of the Fund
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 $2,000.
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 $102,167,928 and $160,466,821, respectively. The
cost of short-term obligations purchased and the proceeds from sales of
short-term obligations, for the year ended June 30, 1997 were $326,044,734
and $349,935,383, respectively.
45
<PAGE>
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders
of Meridian 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 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 ten years in the period then ended,
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
46
<PAGE>
FINANCIAL STATEMENTS
Schedule of Investments
June 30, 1997
================================================================================
Share Value
----- -----
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
47
<PAGE>
Optical Coating Laboratory, Inc. .............. 16,100 217,350
Sensormatix Electronics Corporation* .......... 9,300 119,737
Telxon Corporation ............................ 9,400 169,200
Valley National Gases Incorporated ............ 18,100 190,050
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 Technologies 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, Corporation ... 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
==========
* income producing
The accompanying notes are an integral part of the financial statements
48
<PAGE>
Statement of Assets and Liabilities
June 30, 1997
================================================================================
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
Payable 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
==========
The accompanying notes are an integral part of the financial statements
49
<PAGE>
Statement of Operations
For the Year ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
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
50
<PAGE>
Statement of Changes in Net Assets
================================================================================
Year Ended Year Ended
June 30, 1997 June 30, 1996
------------- -------------
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
=========== ===========
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
Meridian Value Fund
<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 .40 (0.13)
----------- ----------- --------- ---------
Less Dividends and Distributions
Dividends from net investment income ................... 0.00 0.00 0.00 0.00
Distributions 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% 49.77% 4.05%+ (1.30%)+
=========== =========== ========= =========
Ratio/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%)* (.07%) (.58%)*
Portfolio Turnover Rate ................................ 144% 125% 77% 194%
Average Commission Paid Per Share ...................... $0.0572** $0.0559** -- --
===================================================================================================================================
</TABLE>
^ 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.
52
<PAGE>
** 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.
53
<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.
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
54
<PAGE>
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 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 21/2% 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:
1997 1996
-------- --------
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
======== ========
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.
55
<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
56
<PAGE>
MERIDIAN FUND, INC.(R)
Part C
Item 24: Financial Statements and Exhibits
(a) Financial Statements -- The following audited financial statements and the
report of independent accountants for the Meridian Fund and Meridian Value
Fund are set forth in Part B:
Report of Independent Accountants -- July 25, 1997
Statement of Assets and Liabilities at June 30, 1997
Statement of Operations for the Year Ended June 30, 1997
Statement of Changes in Net Assets for the Years Ended June 30, 1997 and
June 30, 1996
Schedule of Investments -- June 30, 1997
Supplementary Information for fiscal years 1987 through 1997
Notes to the Financial Statements
(b) (1) Articles of Incorporation -- previously filed
(2) Bylaws-- previously filed -- amendment -- previously filed
(3) None
(4) Specimen of each security issued -- previously filed
(5) Form of Investment Management Agreement -- previously filed
(6) None
(7) None
(8) Form of Custodian Agreement and Depository Contract as amended --
previously filed
(9) None
(10) Opinion and consent of counsel -- enclosed herewith
(11) Consent of independent accountants -- enclosed herewith
(12) None
(13) Form of Investment Representation Agreement -- previously filed
(14) IRA application and disclosure statement -- previously filed
(15) None
(16) Schedule for computation of Performance Quotations -- previously
filed
(17) Financial Data Schedules
Item 25:
Persons Controlled by or Under Common Control with Registrant:
None
57
<PAGE>
Item 26:
Number of Holders of Securities
As of September 30, 1997
Portfolio Number of Record Holders
Meridian Fund ............................... 11,287
Meridian Value Fund ......................... 188
Item 27: Indemnification
Subsection (B) of Section 2-418 of the General Corporation Law of Maryland
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director of that corporation or a director, officer,
employee or agent of another corporation or enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and (I) in the case of conduct in the
director's official capacity with the corporation, in a manner he reasonably
believed to be in the best interests of the corporation, and, (ii) in all other
cases, in a manner not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Subsection (B) of Section 2-418 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation.
Section 2-418 further provides that to the extent a director or officer of
a corporation has been successful in the defense of any action, suit or
proceeding referred to in Subsection (B), he shall be indemnified against
reasonable expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith that the scope of indemnification extends to
directors, officers, employees or agents of a constituent corporation absorbed
in a consolidation or merger and persons serving in that capacity at the request
of the constituent corporation for another; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 2-418.
Article V of the Bylaws of the Fund contains indemnification provisions
meant to conform to the above statute and to the provisions of Section 17 of the
Investment Company Act of 1940, as amended, and to Investment Company Act
Release No. 11330 (September 4, 1980). These Bylaws provide "reasonable and fair
means" to determine whether indemnification shall be made which include: (1)
reference to a final decision on the merits by a court or other body that
liability did not occur by reason of disabling conduct, or (2) in the absence of
such a decision, a reasonable, factually based decision to the same effect by
(a) a vote of a majority of a quorum of directors who are neither "interested
persons" of the company (as defined in Section 2(a)(19) of the Investment
Company Act) nor parties to the proceeding, or (b) an independent legal counsel
in a written opinion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Fund pursuant to the Fund's Articles of Incorporation and Bylaws, or otherwise,
the Fund has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
58
<PAGE>
as expressed in said Act, and is, therefore unenforceable. The Fund, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
will submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue in the event that a claim
for indemnification against such liabilities (other than the payment by the Fund
of expenses incurred or paid by a director, officer or controlling person of the
Fund, in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered.
Item 28: Business and Other Connections of Investment Adviser
See the material following the caption "Investment Management" appearing as
a portion of Part A and Part B hereof.
Item 29: Principal Underwriter
(a) None
(b) None
(c) None
Item 30: Location of Accounts and Records
Accounts, books and other records required by Rules 31a-1 and 31a-2 under
the Investment Company Act of 1940, as amended, are maintained and held in the
offices of the Fund and its investment manager located at 60 E. Sir Francis
Drake Boulevard, Wood Island, Suite 306, Larkspur, California.
Records covering shareholder accounts and portfolio transactions are
maintained and kept also by the Fund's transfer agent, FPS Services, Inc., 3200
Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903, and custodian,
Bank of New York, 48 Wall Street, New York, NY 10286.
Item 31: Management Services
None
Item 32: Undertakings
Previously filed
59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 16 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Larkspur and State of
California on the 28 day of October 1997.
MERIDIAN FUND, INC. (Registrant)
/s/ RICHARD F. ASTER, JR.
Richard F. Aster, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 16 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
*Richard F. Aster, Jr. Director and Principal October 28, 1997
Richard F. Aster, Jr. Executive Officer
*Michael S. Erickson Director October 28, 1997
Michael S. Erickson
*James B. Glavin Director October 28, 1997
James B. Glavin
*Herbert C. Kay Director October 28, 1997
Herbert C. Kay
*Michael Stolper Director October 28, 1997
Michael Stolper
*Paul A. Robinson Principal Financial Officer, October 28, 1997
Paul A. Robinson Principal Accounting Officer,
Treasurer and Secretary
*By: /s/ RICHARD F. ASTER, JR.
Richard F. Aster, Jr.,
Attorney-in-Fact
60
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
October 28, 1997
Meridian Fund, Inc.
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
Re: Shares of Common Stock of
Meridian Fund, Inc.
-----------------------------
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 16 and Amendment No. 17 to the
Registration Statement on Form N-1A (SEC File No. 2-90949; 811-4014)(the
"Registration Statement") of Meridian Fund, Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
Meridian Fund and the Meridian Value Fund (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its series. We
have examined such records, instruments, certificates of public officials and
of the Company, made such inquiries of the Company, and examined such questions
of law as we have deemed necessary for the purpose of rendering the opinion
set forth herein.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company have been duly and
validly authorized by all appropriate action and, assuming delivery of the
Shares by sale or in accord with the Company's dividend reinvestment plan in
accordance with the description set forth in the Registration Statement, as
amended, the Shares will be validly issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and reference
to our firm and to the description of advice rendered by our firm under the
caption "Legal Opinions" in the Statement of Additional Information, which is
included as part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
61
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 16 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated July
25, 1997, relating to the financial statements and financial highlights of the
Meridian Fund and Meridian Value Fund, which appear in such Statement of
Additional Information, and to the incorporation by reference of our reports
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "Experts" in such Prospectus.
Price Waterhouse LLP
San Francisco, CA
October 24, 1997
62
<PAGE>
