MERIDIAN VALUE FUND(SM)
January 21, 1999
To Our Shareholders:
The Meridian Value Fund's net asset value per share at December 31, 1998 was
$18.32, a gain of 18.9% for the calendar year. The Fund made a dividend
distribution of $.47 per share on September 23, 1998. The Fund's total return
and average annual compounded rate of return since June 30, 1995, were 121.6%
and 25.5%, 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 Fund's assets at the close of the quarter were invested 20.1% in cash and
cash equivalents and 79.9% in stocks. Total net assets were $17,768,116 and
there were 254 shareholders.
Notwithstanding the third quarter market downturn, equities experienced another
exceptional year during 1998. The S&P 500 gained 28.6 percent, primarily the
result of a steady economy and lower interest rates. The S&P 500 has advanced
for eight consecutive years, with gains in excess of 20 percent during each of
the past four years. Small-cap stocks continued to under perform the market, but
this time by a significant margin. The Russell 2000 posted a loss of 3.4 percent
during the year. The best performing areas of the market were large technology
stocks such as Microsoft, Intel, Cisco and Dell, and internet-related issues
such as America Online, Yahoo and Amazon.com. The worst performing sectors
included energy, hotels and real estate.
It was another good year for the bond market. The Dow Jones Bond Index advanced
to 106.42 from 105.05 at the end of 1997, a gain of 1.3 percent. The interest
rate on the five-year government bond declined from 5.72 percent to 4.59 percent
during the year.
The economy recorded a solid year during 1998. The problems in Asia, Russia and
Latin America only modestly impacted our economy. Corporate profits were weak
but all other indicators were positive. Gross Domestic Product increased
approximately 3 percent, interest rates declined, inflation remained calm, more
jobs were created, unemployment declined and wage gains eased. It will be
difficult to repeat this performance again in 1999, but we see nothing in the
current mix to cause a recession. Our forecast for 1999 is for continued growth
with modest increases in interest rates and inflation. Corporate profits, in our
opinion, will be flat to slightly higher. The economic landscape, in our view,
will be modestly favorable for equities during 1999.
At this time, the Meridian Value Fund's holdings continue to consist primarily
of small and medium capitalization stocks. The S&P 500 has outperformed the
Russell 2000 for five consecutive years, and by a wide margin. Popular large-cap
stocks sell at extreme valuations, leaving little room for error. The price
valuations are more compelling in the
<PAGE>
small-cap sector, especially when earnings prospects for the next few years are
taken into consideration. We don't know when the psychology will shift or what
the catalyst will be, but the odds of a positive multi-year cycle for investors
in small and medium-sized stocks continue to improve.
Purchases during the quarter included Agrium, Boston Scientific, Clarify, Great
Atlantic Pacific & Tea, Imation, Pep Boys, Smart and Final, and Wang Global.
Sales included A.C. Moore Arts & Crafts, Fossil, Information Resources,
Intervoice, Maxwell Shoe, Inc., Mechanical Dynamics, Mylan Laboratories, and
Scotts. In addition, First Brands and Rubbermaid were acquired, and we sold the
shares.
The Great Atlantic Pacific & Tea Company (A&P) is a leading supermarket chain
with a market capitalization of less than $1.2 billion. The industry has been
consolidating for some time. A&P suffered an earnings decline in 1998 due to
poor results in markets in which it does not have a strong competitive position
and due to increased costs associated with its store modernization program. The
stock price dropped from $36 to as low as $23. The company brought in a new CEO
and announced a restructuring of operations to reduce its presence in weaker
markets, streamline distribution and administration, and accelerate the store
modernization program. Same-store sales growth is now improving. We expect A&P
operating earnings of $2.00 per share in 1999, followed by $2.50 in 2000. The
stock now trades at $29, 14.5X projected 1999 earnings and 11.5X estimated 2000
earnings, approximately half the S&P 500 multiple.
We wish everyone a happy and prosperous New Year.
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
/s/ Kevin O'Boyle
Kevin O'Boyle
2
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK - 79.9%
AGRICULTURE - 2.5%
Agrium Inc.*........................................... 50,600 $439,588
CONSUMER FINANCE - 0.8%
Fingerhut Companies, Inc.*............................. 9,400 145,113
CONSUMER PRODUCTS - 4.8%
Sanderson Farms, Inc.*................................. 26,500 407,438
Tyson Foods, Inc. Class A*............................. 21,000 446,250
ENERGY - 1.9%
Ultramar Diamond Shamrock Corporation*................. 14,000 339,500
FOOD CHAINS - 4.7%
Great Atlantic & Pacific Tea Company, Inc. ............ 15,100 447,338
Smart & Final, Inc.*................................... 41,000 394,625
HEALTH SERVICES - 13.3%
American Healthcorp, Inc. ............................. 40,400 396,425
Boston Scientific Corporation.......................... 18,000 482,625
Haemonetics Corporation................................ 17,500 398,125
Pharmacia & Upjohn, Inc.*.............................. 6,700 379,387
Teva Pharmaceutical Industries Ltd.*................... 10,200 415,012
Zoll Medical Corporation............................... 33,000 292,875
INDUSTRIAL PRODUCTS - 7.6%
ITI Technologies, Inc. ................................ 14,500 449,500
Imation Corporation.................................... 26,900 470,750
Pall Corp. ............................................ 17,300 437,906
LEISURE & AMUSEMENT - 2.1%
Scientific Games Holdings Corp. ....................... 20,000 377,500
RESTAURANTS - 4.4%
Buffets, Inc. ......................................... 65,000 775,937
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
3
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----------
COMMON STOCK (continued)
<S> <C> <C>
RETAIL - 9.9%
Discount Auto Parts, Inc. ............................. 17,100 $375,131
PETsMART, Inc. ........................................ 50,000 550,000
Pep Boys*.............................................. 23,900 374,931
Shoe Carnival, Inc. ................................... 29,000 322,625
Sunglass Hut International, Inc. ...................... 20,000 140,000
TECHNOLOGY - 13.9%
American Management Systems, Inc. ..................... 7,500 300,000
Business Objects S.A. ................................. 15,000 487,500
Clarify, Inc. ......................................... 18,300 447,206
Mentor Graphics Corporation............................ 45,000 382,500
Wang Laboratories, Inc. ............................... 16,000 444,000
Xircom, Inc. .......................................... 12,000 408,000
TELECOMMUNICATIONS/CABLE EQUIPMENT - 11.2%
ANTEC Corporation...................................... 21,800 438,725
Commscope, Inc. ....................................... 25,000 420,313
Newbridge Networks Corp. .............................. 14,200 431,325
Teltrend, Inc. ........................................ 20,000 382,500
Universal Electronics, Inc. ........................... 30,000 322,500
TRANSPORTATION - 2.6%
Atlas Air, Inc. ....................................... 9,500 464,906
-----------
TOTAL COMMON STOCK (Identified cost $11,966,732).................. 14,188,056
CASH AND OTHER ASSETS LESS LIABILITIES - 20.1%...................... 3,580,060
-----------
NET ASSETS - 100%................................................... $17,768,116
===========
Shares of capital stock outstanding................................. 969,634
===========
Net asset value per share........................................... $18.32
===========
</TABLE>
<TABLE>
<S> <C>
* Income producing
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
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- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments (Cost $11,966,732)............................ $14,188,056
Cash and cash equivalents................................. 3,589,858
Receivables for:
Dividends.............................................. 3,150
Interest............................................... 9,905
Sales of capital stock................................. 14,917
Prepaid expenses.......................................... 515
-----------
TOTAL ASSETS........................................... 17,806,401
-----------
LIABILITIES
Payables For:
Purchase of capital stock.............................. 23,463
Accrued expenses....................................... 14,822
-----------
TOTAL LIABILITIES...................................... 38,285
-----------
NET ASSETS.................................................. $17,768,116
===========
Shares of capital stock outstanding, par value $.01
(25,000,000 shares authorized)............................ 969,634
===========
Net asset value per share (offering and redemption price)... $18.32
===========
Net assets consist of:
Paid in capital........................................... $15,207,740
Undistributed net investment loss......................... (42,463)
Accumulated net realized gain............................. 381,515
Net unrealized appreciation on investments................ 2,221,324
-----------
$17,768,116
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $25,272
Interest.................................................. 57,075
--------
Total investment income.............................. $82,347
EXPENSES
Investment advisory fees.................................. 70,742
Transfer agent fees....................................... 14,720
Pricing fees.............................................. 11,960
Registration and filing fees.............................. 5,905
Professional fees......................................... 9,200
Custodian fees............................................ 4,755
Reports to shareholders................................... 5,060
Directors' fees and expenses.............................. 1,104
Miscellaneous expenses.................................... 1,364
--------
Total expenses....................................... 124,810
--------
Net investment loss....................................... (42,463)
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments.......................... 381,547
Net decrease in unrealized appreciation on investments.... (52,277)
--------
Net realized and unrealized gains on investments.......... 329,270
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $286,807
========
</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, 1998 June 30, 1998
----------------- -------------
<S> <C> <C>
OPERATIONS
Net investment loss................................... ($42,463) ($122,654)
Net realized gain on investments...................... 381,547 1,155,399
Net increase (decrease) in unrealized appreciation of
investments......................................... (52,277) 994,456
----------- -----------
Net increase from operations........................ 286,807 2,027,201
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income.................. 0 0
Distributions from net realized capital gains......... (383,742) (1,049,358)
----------- -----------
Total distributions................................. (383,742) (1,049,358)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................... 6,442,517 4,793,097
Reinvestment of distributions......................... 274,369 1,027,567
Less: redemptions..................................... (1,048,214) (1,942,238)
----------- -----------
Increase resulting from capital share
transactions..................................... 5,668,672 3,878,426
----------- -----------
Total increase in net assets.......................... 5,571,737 4,856,269
NET ASSETS
Beginning of period................................... 12,196,379 7,340,110
----------- -----------
End of period......................................... $17,768,116 $12,196,379
=========== ===========
</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, 1998 1998 1997 1996 1995 1994(+)
------------------ ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of
year........................... $19.30 $17.40 $15.32 $10.27 $9.87 $10.00
----------- ----------- ---------- ---------- -------- --------
Income from Investment Operations
- -------------------------------
Net Investment (Loss) Income..... (0.04) (0.19) (0.26) (0.10) (0.04) 0.00
Net Gains or Losses on Securities
(both realized and
unrealized).................... (0.47) 4.32 3.20 5.15 0.44 (0.13)
----------- ----------- ---------- ---------- -------- --------
Total From Investment
Operations..................... (0.51) 4.13 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 0.00
Distribution from net realized
capital gains.................. (0.47) (2.23) (0.86) 0.00 0.00 0.00
----------- ----------- ---------- ---------- -------- --------
Total Dividends and
Distributions.................. (0.47) (2.23) (0.86) 0.00 0.00 0.00
----------- ----------- ---------- ---------- -------- --------
Net Asset Value - End of
Period......................... $18.32 $19.30 $17.40 $15.32 $10.27 $9.87
=========== =========== ========== ========== ======== ========
Total Return..................... (2.26%)** 26.05% 20.55%+ 49.17%+ 4.05%+ (1.30%)+
=========== =========== ========== ========== ======== ========
Ratios/Supplemental Data
- ----------------------
Net Assets, End of Period........ $17,768,116 $12,196,379 $7,340,110 $3,471,507 $715,021 $391,538
Ratio of Expenses to Average
Net Assets..................... 1.75%++ 2.16% 2.51%* 2.55%* 2.78%* 1.28%*
Ratio of Net Investment Loss to
Average Net Assets............. (0.60%)++ (1.35%) (1.96%)* (1.36%)* (.58%)* (.07%)*
Portfolio Turnover Rate.......... 128%++ 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. 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.
** Figure not annualized.
++ 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, 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
$11,966,732, the aggregate gross unrealized appreciation is $2,482,712,
and the aggregate gross unrealized depreciation is $261,388, resulting in
net unrealized appreciation of $2,221,324.
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
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998 through October 31, 1999. 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, 1998, was 18.91%.
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 period ended December 31, 1998, and the year ended June 30,
1998, were as follows:
<TABLE>
<CAPTION>
December June
1998 1998
-------- --------
<S> <C> <C>
Shares sold 384,240 261,800
Shares issued on reinvestment of
distributions 17,299 61,393
------- --------
401,539 323,193
Shares redeemed (64,002) (112,937)
------- --------
Net increase 337,537 210,256
======= ========
</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 December 31, 1998, was $1,104.
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, 1998, were $10,410,540 and $7,448,185, respectively.
10
<PAGE>
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<PAGE>
MERIDIAN VALUE FUND(SM)
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This report is submitted for
the information of shareholders of
Meridian Value Fund. 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
Washington D.C.
Auditors
PRICEWATERHOUSECOOPERS LLP
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, 1998
<PAGE>
