MERIDIAN VALUE FUND
July 22, 1998
To Our Shareholders:
The Meridian Value Fund's net asset value per share at June 30, 1998 was $19.30.
This represents an increase of 21.69% for the calendar year to date. The Fund's
total return and average compounded annual rate of return for the three years
ended June 1998, were 126.67% and 31.36%, respectively. We are pleased to report
that the Fund's three-year results placed it in the top 5% of all diversified
U.S. equity mutual funds ranked by Morningstar, resulting in a five-star rating
from Morningstar. The Fund's assets at the close of the quarter were invested
10.7% in cash and cash equivalents and 89.3% in stocks. Total net assets were
$12,196,379 and there were 232 shareholders.
Investors in "large cap" stocks experienced a solid second quarter. The S&P 500
with dividends gained 3.2 percent for the quarter and is ahead an impressive
17.6 percent calendar year-to-date. Investors in "small and medium cap" stocks
had a more difficult time. The Russell 2000 declined 4.9 percent during the
second quarter and was up a modest 4.7 percent at June 30, 1998.
Telecommunications, Internet and apparel retailers were the strongest sectors
during the second quarter. Energy related issues continued to suffer from
weakness in the price of oil. Interest rates declined during the quarter. The
yield on the five-year government bond dropped to 5.49 percent from 5.64
percent. The Dow Jones Bond Index, as a result, increased from 105.09 to 105.13.
We believe the economy posted modest growth during the second quarter. Weakness
in Asia impacted specific companies but didn't cause major damage to the US
economy in general. All vital signs remain positive. Industrial production,
housing starts, retail sales and consumer confidence are strong. Interest rates
are at attractive levels, inflation remains in check and the US dollar is
strong. Corporate profit growth has moderated this year but we expect good
results for the economy through the balance of 1998. Money supply growth has
accelerated during the past year. Historically, this has been followed by higher
inflation and interest rates down the road. This is something we will watch as
we move forward.
We continue to research stocks with reasonable valuations and improving business
prospects. This process is not easy in an eight-year old economic recovery and
bull market, especially with stocks selling at record valuations. Small and
medium-sized companies, in general, represent the most attractive sector of the
market. They have underperformed their larger counterparts for some time,
leaving relative valuations attractive, especially when compared to prospective
growth rates.
PAGE
During the quarter, we established positions in A.C. Moore Arts & Crafts,
Commscope, Donna Karan International, First Brands Corporation, InterVoice,
Mentor Graphics, PetsMart, Pharmacia & Upjohn, Physio-Control International,
Sanderson Farms, Scientific Games Holdings, Sonat, and Tyson Foods, Inc. Class
A. Sales included California Microwave, Computer Network Technology, Digi
International, Electronic Data Systems, Integrated Device Technology,
International Paper, Star Buffet and Sturm Ruger. We also sold PCA International
and Telxon, which were both the subject of acquisition bids.
Tyson Foods is the largest supplier of poultry products in the U.S., with 30%
market share. Operating results for poultry processing companies have been
mediocre for the past few years. The industry has suffered from excess
production capacity, strong growth in supplies of meats such as beef and pork,
and price shocks in chicken feed grains such as corn and soybean. Recent
consolidation in the poultry, beef, and pork industries has slowed supply
growth, while chicken feed grain prices have declined due to expected record
crops. Consequently, product prices are firming for Tyson Foods, while
production costs are declining. We expect substantial earnings growth for the
next couple of years. This, combined with an attractive relative valuation,
should result in a good investment.
We welcome those new shareholders who joined the Meridian Value Fund during the
quarter and appreciate the continued confidence of our existing shareholders.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
/s/ Kevin O'Boyle
Kevin O'Boyle
2
PAGE
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK - 89.3%
APPAREL/SHOE - 6.8%
Donna Karan International, Inc. ....................... 17,000 $ 249,687
Fossil, Inc. .......................................... 10,950 272,381
Maxwell Shoe Company, Inc. - Class A................... 15,200 302,100
CONSUMER FINANCE - 2.5%
Fingerhut Companies, Inc.*............................. 9,400 310,200
CONSUMER PRODUCTS - 12.5%
First Brands Corporation*.............................. 12,100 310,063
Rubbermaid, Inc.*...................................... 9,200 305,325
Sanderson Farms, Inc.*................................. 24,500 361,375
The Scotts Company..................................... 6,500 242,125
Tyson Foods, Inc. Class A*............................. 13,800 299,287
ENERGY - 5%
Sonat, Inc.*........................................... 8,000 309,000
Ultramar Diamond Shamrock Corporation*................. 9,500 299,844
HEALTH SERVICES - 11.9%
American Healthcorp, Inc. ............................. 25,000 246,875
Coventry Corporation................................... 20,000 297,500
Mylan Laboratories, Inc.*.............................. 9,700 291,606
Pharmacia & Upjohn, Inc.*.............................. 6,700 309,038
Physio-Control International Corp. .................... 11,800 310,487
INDUSTRIAL PRODUCTS - 6.6%
IMCO Recycling, Inc.*.................................. 15,800 292,300
Mechanical Dynamics, Inc. ............................. 27,000 297,000
Valley National Gases Incorporated..................... 19,400 213,400
INDUSTRIAL SERVICES - 2.3%
Information Resources, Inc. ........................... 15,000 277,500
LEISURE & AMUSEMENT - 2.7%
Scientific Games Holdings Corp. ....................... 14,500 333,500
RESTAURANTS - 2.4%
Buffets, Inc. ......................................... 19,000 298,063
</TABLE>
The accompanying notes are an integral part of the financial statements
3
PAGE
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----------
COMMON STOCK (continued)
<S> <C> <C>
RETAIL - 10.7%
A.C. Moore Arts & Crafts, Inc. ........................ 18,500 $ 300,625
Discount Auto Parts, Inc. ............................. 11,800 306,800
PetsMart, Inc. ........................................ 20,000 200,000
Shoe Carnival, Inc. ................................... 24,500 339,937
Sunglass Hut International, Inc. ...................... 14,000 154,875
TECHNOLOGY - 11.0%
American Management Systems, Inc. ..................... 7,500 224,531
Business Objects S.A. ................................. 18,000 303,750
Mentor Graphics Corporation............................ 25,000 264,063
Systems & Computer Technology Corporation.............. 9,000 243,000
Xircom, Inc. .......................................... 20,000 311,250
TELECOMMUNICATIONS/CABLE EQUIPMENT - 12.8%
ANTEC Corporation...................................... 13,000 301,438
Active Voice Corporation............................... 6,500 68,250
Commscope, Inc. ....................................... 15,600 252,525
InterVoice, Inc. ...................................... 23,000 408,250
Spectralink Corporation................................ 45,000 196,875
Universal Electronics, Inc. ........................... 26,500 331,250
TRANSPORTATION - 2.1%
Atlas Air, Inc. ....................................... 7,700 260,356
-----------
TOTAL COMMON STOCK
(Identified cost $8,622,830)...................................... 10,896,431
-----------
CASH AND OTHER ASSETS LESS LIABILITIES - 10.7%...................... 1,299,948
-----------
NET ASSETS - 100%................................................... $12,196,379
===========
Shares of capital stock outstanding................................. 632,098
===========
Net asset value per share........................................... $19.30
===========
</TABLE>
* income producing
The accompanying notes are an integral part of the financial statements
4
PAGE
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments (Cost $8,622,830)............................. $10,896,431
Cash and cash equivalents................................. 1,316,886
Receivables for:
Sales of capital stock................................. 3,954
Dividends.............................................. 1,598
Interest............................................... 4,224
Prepaid expenses.......................................... 101
-----------
TOTAL ASSETS........................................... 12,223,194
-----------
LIABILITIES
Payables For:
Accrued expenses....................................... 26,815
-----------
TOTAL LIABILITIES...................................... 26,815
-----------
NET ASSETS.................................................. $12,196,379
===========
Shares of capital stock outstanding, par value $.01
(25,000,000 shares authorized)............................ 632,098
===========
Net asset value per share (offering and redemption price)... $19.30
===========
Net assets consist of:
Paid in capital........................................... $9,539,068
Accumulated net realized gain............................. 383,710
Net unrealized appreciation on investments................ 2,273,601
-----------
$12,196,379
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
PAGE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $27,297
Interest............................................... 45,622
----------
Total investment income........................... $72,919
EXPENSES
Investment advisory fees............................... 90,889
Transfer agent fees.................................... 28,200
Pricing fees........................................... 23,940
Professional fees...................................... 16,527
Registration and filing fees........................... 11,379
Reports to shareholders................................ 10,950
Custodian fees......................................... 8,625
Miscellaneous expenses................................. 2,873
Directors' fees and expenses........................... 2,190
----------
Total expenses.................................... 195,573
----------
Net investment loss.................................... (122,654)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments....................... 1,155,399
Net increase in unrealized appreciation on
investments......................................... 994,456
----------
Net realized and unrealized gains on investments....... 2,149,855
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,027,201
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
PAGE
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
OPERATIONS
Net investment loss.................................... ($122,654) ($107,994)
Net realized gain on investments....................... 1,155,399 508,543
Net increase in unrealized appreciation of
investments.......................................... 994,456 805,771
----------- ----------
Net increase from operations......................... 2,027,201 1,206,320
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized capital gains.......... (1,049,358) (249,400)
----------- ----------
Total distributions.................................. (1,049,358) (249,400)
----------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock............................ 4,793,097 3,893,443
Reinvestment of distributions.......................... 1,027,567 244,328
Less: redemptions...................................... (1,942,238) (1,226,088)
----------- ----------
Increase resulting from capital share transactions... 3,878,426 2,911,683
----------- ----------
Total increase in net assets........................... 4,856,269 3,868,603
NET ASSETS
Beginning of year...................................... 7,340,110 3,471,507
----------- ----------
End of year............................................ $12,196,379 $7,340,110
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
7
PAGE
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994#
----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period........... $17.40 $15.32 $10.27 $9.87 $10.00
----------- ---------- ---------- -------- --------
Income from Investment Operations
- -----------------------------------
Net Investment (Loss) Income.................... (0.19) (0.26) (0.10) (0.04) 0.00
Net Gains or Losses on Securities (both realized
and unrealized)............................... 4.32 3.20 5.15 0.44 (0.13)
----------- ---------- ---------- -------- --------
Total From Investment Operations................ 4.13 2.94 5.05 0.40 (0.13)
----------- ---------- ---------- -------- --------
Less Dividends and Distributions
- -------------------------------
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................. $19.30 $17.40 $15.32 $10.27 $9.87
=========== ========== ========== ======== ========
Total Return.................................... 26.05% 20.55%+ 49.17%+ 4.05%+ (1.30%)+
=========== ========== ========== ======== ========
Ratios/Supplemental Data
- -------------------------
Net Assets, End of Period....................... $12,196,379 $7,340,110 $3,471,507 $715,021 $391,538
Ratio of Expenses to Average Net Assets......... 2.16% 2.51%* 2.55%* 2.78%* 1.28%*
Ratio of Net Investment Loss to Average Net
Assets........................................ (1.35%) (1.96%)* (1.36%)* (.58%)* (.07%)*
Portfolio Turnover Rate......................... 133% 144% 125% 77% 194%
</TABLE>
<TABLE>
<S> <C>
# 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. 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%, for the periods
ended June 30, 1997 through June 30, 1994, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements
8
PAGE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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
$8,622,830, the aggregate gross unrealized appreciation is $2,448,233,
and the aggregate gross unrealized depreciation is $174,632, resulting in
net unrealized appreciation of $2,273,601.
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.
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 gain are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting
principles. These "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
9
PAGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
g. (continued) 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 June 30,
1998, was 20.28%.
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 previous 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 state expense limitation of 2 1/2% and will do so in
the future as the Advisor has agreed to continue this practice. The
Investment Advisor did not reimburse the Fund during 1998.
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, 1998, and June 30, 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Shares sold 261,800 262,204
Shares issued on reinvestment of distributions 61,393 17,540
-------- -------
323,193 279,744
Shares redeemed (112,937) (84,575)
-------- -------
Net increase 210,256 195,169
======== =======
</TABLE>
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, 1998, was $1,292.
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, 1998, were $12,389,405 and $10,863,829, respectively.
10
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of Meridian Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Meridian Value Fund (one of the
portfolios constituting Meridian Fund, Inc., hereafter referred to as the
"Fund") at June 30, 1998, 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 four 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
July 31, 1998
11
PAGE
MERIDIAN VALUE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This report is submitted for
the information of shareholders of
Meridian Fund, Inc. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FIRST DATA
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER LLP
Washington, D.C.
Auditors
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
ANNUAL REPORT
[MERIDIAN FUND INCORPORATED(R) LOGO]
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
(415) 461-6237
Telephone (800) 446-6662
JUNE 30, 1998
PAGE
