MERIDIAN VALUE FUND(SM)
January 23, 1998
To Our Shareholders:
The Meridian Value Fund's net asset value per share at December 31, 1997 was
$15.86, a gain of 21.4% for the calendar year. The Fund made a dividend
distribution of $1.31 per share on December 29, 1997, in addition to the $0.92
per share dividend distribution paid on September 23, 1997. The Fund's total
return and average annual compounded rate of return since June 30, 1995, were
86.3% and 28.3%, respectively. Prior to June 30, 1995, the Fund's cash position
was approximately 50%, as it was in the start-up process of becoming fully
invested. The total return and average annual compounded rate of return for the
S&P 500 with dividends reinvested since June 30, 1995, were 87.7% and 28.6%,
respectively. The Fund's assets at the close of the quarter were invested 18.7%
in cash and cash equivalents and 81.3% in stocks. Total net assets were
$8,591,867 and there were 207 shareholders.
The S&P 500 gained 31 percent in 1997, as the market posted its third
consecutive outstanding year. The three main forces behind the rise, in our
opinion, were solid corporate profits, lower interest rates and a strong dollar.
Big companies dominated the market. The Russell 2000 advanced 20.5 percent.
Small company stocks have trailed large caps for three straight years. The S&P
500 and the Russell 2000 closed the year 1.4 percent and 6.1 percent off their
all time highs respectively. Financial stocks, airlines, trucking and oil
service companies were among the best performing groups. The worst performing
groups included precious and nonferrous metals, footwear, casinos and health
care.
The Dow Jones Bond Index began the year at 103.78 and closed the year at 105.05,
a gain of 1.2 percent. The yield on the thirty-year government bond declined
from 6.64 percent to 5.92 during 1997.
The economic focus is on the difficulties in Asia and the possible consequences
for the U.S. economy. At this point, our view is that the damage to the U.S.
economy will be limited. It will mean somewhat slower growth in the U.S., lower
interest rates and inflation, and a stronger dollar. Companies exporting into
Asian markets or competing with Asian companies will find the going more
difficult. Companies manufacturing in Asia or purchasing goods from Asian
companies will benefit. The U.S. economy is in good shape as we begin 1998. Our
forecast is for moderate growth with stable levels of interest rates and
inflation. However, it will be difficult to raise prices at a time when most
companies are experiencing wage pressure from a tightening labor market. The
result will be slower profit growth.
<PAGE>
The tremendous surge in stock prices during the past three years has resulted in
high valuations. The price earnings ratio, price to book value and the dividend
yield on the S&P 500 are all at the high end of their historical range. This, of
course, means additional risk. Corporate profits, as stated above, could be
under some pressure this year. We expect the major market indices to post more
modest increases in 1998, unless interest rates experience another significant
decline.
The shares of smaller companies, as stated above, have underperformed their
larger counterparts during the past three years. Valuations in this sector are
more compelling and growth rates should prove superior going forward. We believe
that this combination will lead to positive relative performance for this area
of the market sooner or later, hopefully sooner. We have approximately 20
percent of our portfolio in cash entering the new year. We continue to research
and evaluate a large number of companies, making purchases when, in our opinion,
the fundamental prospects are good and the valuations are attractive.
InFocus Systems is the world's leading supplier of personal and conference room
multimedia projection systems used for presentations, with approximately 25%
market share. The overall projection market is growing in excess of 20%
annually, despite continued price declines. Eighteen months ago, increased
competition and an industry technology change resulted in excess inventory,
causing steep price declines. Consequently, the company's earnings plummeted and
the stock price dropped from $58 to $13. During the past year, InFocus Systems
has significantly reduced its costs, sold off obsolete inventory, and launched
several new products based upon new technology that will expand its presence
into new market segments. Meanwhile, competition has leveled off. While the
stock has rebounded a bit from its 1996 low, it sells at 13.5 times projected
1998 earnings.
We wish everyone a happy and prosperous New Year.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
/s/ Kevin C. O'Boyle
Kevin C. O'Boyle
2
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK - 81.3%
APPAREL/SHOE - 5.6%
Fossil, Inc. ........................................... 11,300 $282,500
Maxwell Shoe Company, Inc. - Class A.................... 18,400 197,800
CONSUMER FINANCE - 7.2%
EZCORP, Inc. ........................................... 36,000 418,500
Fingerhut Companies, Inc.*.............................. 9,400 200,925
CONSUMER PRODUCTS - 7.2%
Perrigo Company......................................... 12,500 167,188
Rubbermaid, Inc.*....................................... 8,000 200,000
The Scotts Company...................................... 8,200 248,050
CONSUMER SERVICES - 2.2%
PCA International, Inc.*................................ 9,000 189,000
HEALTH SERVICES - 10.6%
Coram Healthcare Corporation............................ 52,000 175,500
Coventry Corporation.................................... 11,600 176,900
Mylan Laboratories Inc.*................................ 9,700 203,094
NovaCare, Inc. ......................................... 11,400 148,912
Staff Builders, Inc. - Class A.......................... 97,000 203,089
INDUSTRIAL PRODUCTS - 11.8%
IMCO Recycling Inc.*.................................... 14,000 224,875
In Focus Systems, Inc. ................................. 6,400 194,400
Mechanical Dynamics, Inc. .............................. 28,000 187,250
Telxon Corporation*..................................... 8,500 202,938
Valley National Gases Incorporated...................... 19,400 207,338
INDUSTRIAL SERVICES - 4.5%
Angelica Corporation*................................... 11,000 248,875
Information Resources, Inc. ............................ 10,700 143,112
LEISURE & AMUSEMENT - 1.0%
Sturm, Ruger & Company, Inc.*........................... 4,700 86,656
RESTAURANTS - 5.2%
Buffets, Inc. .......................................... 26,700 250,312
Star Buffet, Inc. ...................................... 17,000 195,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
3
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ ----------
COMMON STOCK (continued)
<S> <C> <C>
RETAIL - 3.6%
Shoe Carnival, Inc. .................................... 27,000 $219,375
Sunglass Hut International.............................. 14,000 88,375
TECHNOLOGY - 14.6%
American Management Systems, Incorporated............... 11,800 230,100
Computer Network Technology Corporation................. 52,000 182,000
Digi International Inc. ................................ 11,000 187,000
Electronic Data Systems, Inc.*.......................... 5,600 246,050
Integrated Device Technology, Inc. ..................... 7,000 66,062
MicroAge, Inc. ......................................... 7,700 115,981
Systems & Computer Technology Corporation............... 4,500 223,313
TELECOMMUNICATIONS/CABLE EQUIPMENT - 7.8%
Active Voice Corporation................................ 6,500 81,250
CIDCO Incorporated...................................... 11,000 214,500
Scientific-Atlanta, Inc.*............................... 9,300 155,775
Universal Electronics Inc. ............................. 22,000 220,000
----------
TOTAL COMMON STOCK (Identified cost $6,161,021)............ 6,982,495
----------
CASH AND OTHER ASSETS LESS LIABILITIES - 18.7%....................... 1,609,372
----------
NET ASSETS - 100%.................................................... $8,591,867
==========
Shares of capital stock outstanding.................................. 541,822
==========
Net asset value per share............................................ $15.86
==========
* Income producing
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $6,161,021)........................................ $6,982,495
Cash and cash equivalents............................................ 1,627,287
Receivables for:
Dividends......................................................... 3,658
Interest.......................................................... 5,558
Prepaid expenses..................................................... 440
----------
TOTAL ASSETS...................................................... 8,619,438
----------
LIABILITIES
Payables For:
Distributions..................................................... 14,615
Accrued expenses.................................................. 12,956
----------
TOTAL LIABILITIES................................................. 27,571
----------
NET ASSETS............................................................. $8,591,867
==========
Shares of capital stock outstanding, par value $.01 (25,000,000 shares
authorized).......................................................... 541,822
==========
Net asset value per share (offering and redemption price).............. $15.86
==========
Net assets consist of:
Paid in capital...................................................... $7,759,783
Undistributed net investment loss.................................... (68,949)
Accumulated net realized gain........................................ 79,559
Net unrealized appreciation on investments........................... 821,474
----------
$8,591,867
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................ $8,077
Interest................................................. 16,791
---------
Total investment income............................. $24,868
EXPENSES
Investment advisory fees................................. 41,899
Transfer agent fees...................................... 14,720
Pricing fees............................................. 12,144
Registration and filing fees............................. 5,472
Professional fees........................................ 6,808
Custodian fees........................................... 4,905
Reports to shareholders.................................. 5,535
Directors' fees and expenses............................. 1,104
Miscellaneous expenses................................... 1,230
---------
Total expenses...................................... 93,817
--------
Net investment loss...................................... (68,949)
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments......................... 728,427
Net decrease in unrealized appreciation on investments... (457,672)
---------
Net realized and unrealized gains on investments......... 270,755
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $201,806
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, 1997 June 30, 1997
----------------- -------------
<S> <C> <C>
OPERATIONS
Net investment loss................................... ($68,949) ($107,994)
Net realized gain on investments...................... 728,427 508,543
Net decrease (increase) in unrealized appreciation of
investments......................................... (457,672) 805,771
---------- ----------
Net increase from operations........................ 201,806 1,206,320
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income.................. 0 0
Distributions from net realized capital gains......... (1,049,191) (249,400)
---------- ----------
Total distributions................................. (1,049,191) (249,400)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................... 1,472,577 3,893,443
Reinvestment of distributions......................... 1,027,567 244,328
Less: redemptions..................................... (401,002) (1,226,088)
---------- ----------
Increase resulting from capital share
transactions..................................... 2,099,142 2,911,683
---------- ----------
Total increase in net assets.......................... 1,251,757 3,868,603
NET ASSETS
Beginning of period................................... 7,340,110 3,471,507
---------- ----------
End of period......................................... $8,591,867 $7,340,110
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================
<TABLE>
<CAPTION>
For the six
months For the fiscal year ended June 30,
ended ---------------------------------------------
December 31, 1997 1997 1996 1995 1994(a)
----------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Year.... $17.40 $15.32 $10.27 $9.87 $10.00
------- ------- ------- ------- -------
Income from Investment Operations
-----------------------------------
Net Investment (Loss) Income........... (0.13) (0.26) (0.10) (0.04) 0.00
Net Gains or Losses on Securities (both
realized and unrealized)............. 0.82 3.20 5.15 0.44 (0.13)
------- ------- ------- ------- -------
Total From Investment Operations....... 0.69 2.94 5.05 0.40 (0.13)
------- ------- ------- ------- -------
Less Dividends and Distributions
-------------------------------
Dividends from net investment income... 0.00 0.00 0.00 0.00 0.00
Distribution from net realized capital
gains................................ (2.23) (0.86) 0.00 0.00 0.00
------- ------- ------- ------- -------
Total Dividends and Distributions...... (2.23) (0.86) 0.00 0.00 0.00
------- ------- ------- ------- -------
Net Asset Value - End of Period........ $15.86 $17.40 $15.32 $10.27 $9.87
======= ======= ======= ======= =======
Total Return........................... 3.58% 20.55%+ 49.17%+ 4.05%+ (1.30%)+
======= ======= ======= ======= =======
Ratios/Supplemental Data
-------------------------
Net Assets, End of Period.............. $8,591,867 $7,340,110 $3,471,507 $715,021 $391,538
Ratio of Expenses to Average Net
Assets............................... 2.24%++ 2.51%* 2.55%* 2.78%* 1.28%*
Ratio of Net Investment Loss to Average
Net Assets........................... (1.65%)++ (1.96%)* (1.36%)* (.58%)* (.07%)*
Portfolio Turnover Rate................ 141%++ 144% 125% 77% 194%
Average Commission Paid Per Share...... $0.0559** $0.0572** $0.0559** -- --
(a) 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.
++ Figures are annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 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
$6,161,021 the aggregate gross unrealized appreciation is $1,171,271 and
the aggregate gross unrealized depreciation is $349,797 resulting in net
unrealized appreciation of $821,474.
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
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1997
================================================================================
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, 1997 through October 31, 1998. Certain Officers
and/or Directors of the Fund are also Officers and/or Directors of Aster
Capital. Beneficial ownership in the Fund by Richard F. Aster, Jr.,
President, as of December 31, 1997, was 20.48%.
The Investment Adviser receives from the Fund as compensation for its
services an annual fee of 1% of the Fund's net assets. The fee is paid
monthly and calculated based on that month's average net assets. The
Investment Adviser has agreed to reimburse the Fund for any fiscal year's
expenses, including advisory fees, which exceed the most stringent limits
prescribed by any state in which the Fund's shares are offered for sale.
During the fiscal year the federal government pre-empted the state's right
to impose expense limitations as a result of the National Securities
Markets Improvement Act of 1996. However, the Fund continues to use the
most stringent expense limitation of 2 1/2% and will do so in the future as
the Adviser has agreed to continue this practice.
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 December 31, 1997 and June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
December June
1997 1997
------- -------
<S> <C> <C>
Shares sold 80,375 262,204
Shares issued on reinvestment of
distributions 61,393 17,540
-------- --------
141,768 279,744
Shares redeemed (21,788) (84,575)
-------- --------
Net increase 119,980 195,169
======== ========
</TABLE>
4. COMPENSATION OF DIRECTORS AND OFFICERS: Directors and officers of the
Company who are directors and/or officers of Aster Capital Management, Inc.
receive no compensation from the Fund. Directors of the Company who are not
interested persons as defined in the Investment Company Act of 1940 receive
compensation in the amount of $1,000 per annum and a $1,000 purchase of
Meridian Fund or Meridian Value Fund stock, plus expenses for each Board of
Directors meeting attended. The aggregate compensation due the unaffiliated
Directors of the Fund as of December 31, 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 period
ended December 31, 1997 were $5,249,288 and $5,758,549 respectively.
10
<PAGE>
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<PAGE>
MERIDIAN VALUE FUND(SM)
================================================================================
This report is submitted for
the information of shareholders of
Meridian Fund, Inc. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FPS SERVICES, INC.
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER
Washington D.C.
Auditors
PRICE WATERHOUSE
San Francisco, California
SEMI ANNUAL REPORT
MERIDIAN FUND LOGO
60 E. SIR FRANCIS DRAKE BLVD.
WOOD ISLAND, SUITE 306
LARKSPUR, CA 94939
(415) 461-6237
TELEPHONE (800) 446-6662
DECEMBER 31, 1997
<PAGE>
