MERIDIAN FUND
January 24, 1997
To Our Shareholders:
The Meridian Fund's net asset value per share at December 31, 1996 was $30.08.
This represents an increase of 11.19% for the calendar year. The Fund's total
return and average annual compound rate of return since inception, August 1,
1984, were 466.82% and 15.00%, respectively. The Fund's assets at the close of
the quarter were invested 25.7% in cash and cash equivalents and 74.3% in
stocks. Total net assets were $377,619,765 and there were 14,031 shareholders.
After a strong year in 1995, stocks surged ahead again in 1996. There was not a
meaningful correction during the year. Investors approved of the stable interest
rates, modest economic growth and the fall election results. The S&P 500
advanced from 615.93 to 740.74, a gain of 20.3 percent. The NASDAQ
(over-the-counter) index gained 22.7 percent and the Russell 2000, representing
smaller companies, gained 14.7 percent. Large capitalization stocks were the
star performers and accounted for the majority of the S&P 500 and NASDAQ gains.
For Example, Coca Cola was up 42 percent, Gillette 49 percent, IBM 66 percent,
Cisco 71 percent, Microsoft 88 percent, and Intel 131 percent.
Interest rates moved modestly higher. The Dow Jones Bond Index declined from
105.36 to 103.78, a drop of 1.5 percent during 1996. The yield on the five-year
treasury bond increased from 5.4 percent to 6.2 percent.
Nineteen ninety-six was a solid year for the economy. Gross Domestic Product
increased approximately 2.5 percent, unemployment declined, consumer prices
increased 3.3 percent and interest rates rose slightly. The economy shows no
imminent signs of danger. The consensus forecast for 1997 is for slow growth,
moderate inflation and stable interest rates. We don't argue with this forecast,
but we are somewhat cautious. This economic cycle is in its sixty-ninth month.
The average post war expansion has averaged fifty months. This late in the
business cycle it becomes increasingly difficult to show adequate growth without
experiencing higher levels of inflation and interest rates or other negative
side effects.
<PAGE>
The past two years have been frustrating for us. Most of the best performing
large capitalization stocks, such as Intel, Microsoft and Cisco, were too big
for us to own. Furthermore, we have been unwilling to pay the price necessary to
own the rapidly growing small and medium-sized growth stocks in our universe. We
have carried a high cash position and postured the portfolio somewhat
defensively. The discipline of being price conscious, especially late in the
business cycle, has served us well over the years. We continue to believe that
price is an important consideration when investing and we do not plan a change
in strategy. We will continue to invest in small and medium-sized growth stocks
with above average earnings prospects, but only when the price offers a positive
risk/reward relationship.
We enter 1997 with stock prices at record levels and the economic expansion
about to enter its seventh year. Valuations are clearly above historical
averages. Performance during the new year will depend on continued growth in
corporate profits and stable or lower interest rates. It's hard for us to
imagine that the large capitalization growth stocks such as Intel, Microsoft,
and Cisco, will offer investors good returns, given current price levels. At
some point, investors will be forced to invest in other sectors of the market to
achieve performance. Good relative performance during the new year, in our
opinion, will shift to some of the less fashionable smaller and mid cap
companies.
We sold our positions in Cato Corporation, MFS Communications, Neuromedical
Systems and Riscorp, Inc. during the quarter. We purchased shares in Arden
Realty Group, Mazel Stores, Inc., Nu Skin Asia Pacific, Inc. and Verifone, Inc.
We have owned shares in Kohl's Corporation for some time. Kohl's unique
combination of discount and department store strengths has given the company an
edge in this competitive retail environment. Merchandise is more focused than in
department stores, pricing is aggressive and stores are more appealing than
discounters. The company has 150 large stores, primarily in the midwest. Plans
are for approximately 20 percent annual square foot expansion for the next few
years. Immediate expansion will include filling in existing markets and going
into Washington DC and Philadelphia. Kohl's is well managed, has an excellent
track record and good prospects. The shares sell at approximately 22 times our
1997 estimate.
We wish everyone a happy and prosperous New Year.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
President
2
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK - 74.3%
BANKING AND FINANCE - 2.2%
Bancorp Hawaii, Inc. ................................ 200,000 $8,400,000
CELLULAR COMMUNICATIONS - 4.4%
AirTouch Communications, Inc. ....................... 358,000 9,039,500
Vanguard Cellular Systems, Inc. - Class A............ 470,000 7,402,500
CONSUMER PRODUCTS - 2.8%
Nu Skin Asia Pacific, Inc. .......................... 265,000 8,181,875
The York Group, Inc. ................................ 120,000 2,340,000
CONSUMER SERVICES - 7.9%
Service Corp. International.......................... 440,000 12,320,000
Sotheby's Holdings, Inc. - Class A................... 480,000 8,940,000
Stewart Enterprises, Inc. - Class A.................. 255,000 8,670,000
ENERGY - 2.6%
Belden & Blake Corp. ................................ 265,000 6,757,500
Lomak Petroleum, Inc. ............................... 172,000 2,945,500
HEALTH SERVICES - 12.2%
American Medical Response, Inc. ..................... 236,000 7,670,000
Beverly Enterprises, Inc. ........................... 490,000 6,247,500
Health Management Associates, Inc. .................. 380,000 8,550,000
Quorum Health Group, Inc. ........................... 435,000 12,941,250
Vivra, Inc. ......................................... 395,000 10,911,875
INDUSTRIAL SERVICES - 2.3%
Paychex, Inc. ....................................... 170,000 8,744,375
MEDIA - 2.3%
British Sky Broadcasting Group plc................... 165,000 8,662,500
REAL ESTATE INVESTMENT TRUSTS - 12.9%
Arden Realty Group, Inc. ............................ 355,000 9,851,250
Equity Residential Properties Trust.................. 210,000 8,662,500
Oasis Residential, Inc. ............................. 270,000 6,142,500
Spieker Properties, Inc. ............................ 285,000 10,260,000
Tanger Factory Outlet Centers, Inc. ................. 220,000 5,967,500
The Town and Country Trust........................... 540,000 7,897,500
</TABLE>
(unaudited)
3
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS (CONTINUED)
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
COMMON STOCK (continued)
<S> <C> <C>
RESTAURANTS - 2.4%
Buffets, Inc. ....................................... 550,000 $5,018,750
Cracker Barrel Old Country Store, Inc. .............. 164,000 4,161,500
RETAIL - 14.0%
Bed, Bath and Beyond, Inc. .......................... 340,000 8,245,000
Heilig-Meyers Company................................ 354,600 5,762,250
Kohl's Corporation................................... 310,000 12,167,500
Mac Frugals Bargains * Closeouts Inc. ............... 340,200 8,887,725
Mazel Stores, Inc. .................................. 82,000 1,845,000
The Gymboree Corporation............................. 260,000 5,947,500
Value City Department Stores, Inc. .................. 400,000 4,200,000
Williams-Sonoma, Inc. ............................... 155,000 5,638,125
TECHNOLOGY - 8.3%
Molex Inc. - Class A................................. 226,250 8,060,156
National Data Corp. ................................. 200,000 8,700,000
VeriFone, Inc. ...................................... 225,000 6,637,500
Xilinx, Inc. ........................................ 210,000 7,730,625
------------
TOTAL COMMON STOCK
(Identified cost $213,323,548)................................ 280,507,256
U.S. GOVERNMENT OBLIGATIONS
(Identified cost $83,927,843) - 22.5%
U.S. Treasury Bills @ 5.120% due 01/09/97........................ 84,905,745
------------
TOTAL INVESTMENTS (Identified Cost $297,251,391)................. 365,413,001
CASH AND OTHER ASSETS LESS LIABILITIES - 3.2%...................... 12,206,764
------------
NET ASSETS - 100%.................................................. $377,619,765
============
Shares of capital stock outstanding................................ 12,553,460
============
Net asset value per share.......................................... $30.08
============
</TABLE>
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $297,251,391).................................... $365,413,001
Cash and cash equivalents.......................................... 13,215,791
Receivables for:
Sales of captial stock.......................................... 159,218
Dividends....................................................... 385,814
Interest........................................................ 26,072
Prepaid expenses................................................... 11,821
------------
TOTAL ASSETS.................................................... 379,211,717
------------
LIABILITIES
Payables for:
Capital stock repurchased....................................... 466,500
Distributions................................................... 735,682
Accrued expenses................................................... 389,770
------------
TOTAL LIABILITIES............................................... 1,591,952
------------
NET ASSETS........................................................... $377,619,765
============
Shares of capital stock outstanding, par value $.01 (25,000,000
shares authorized)................................................. 12,553,460
============
Net asset value per share (offering and redemption price)............ $30.08
============
Net assets consist of:
Paid in capital.................................................... $304,187,510
Accumulated net realized gain...................................... 6,180,290
Net unrealized appreciation on investments......................... 67,183,708
Undistributed net investment income................................ 68,257
------------
$377,619,765
============
</TABLE>
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $2,004,353
Interest............................................. 2,561,501
-----------
Total investment income......................... $4,565,854
EXPENSES
Investment advisory fees............................. 1,495,083
Transfer agent fees.................................. 164,775
Registration and filing fees......................... 43,812
Pricing fees......................................... 36,800
Reports to shareholders.............................. 34,960
Custodian fees....................................... 32,200
Auditing fee......................................... 12,880
Association dues..................................... 11,592
Insurance............................................ 9,397
Directors' fees and expenses......................... 3,419
Legal................................................ 920
Taxes................................................ 806
-----------
Total expenses.................................. 1,846,644
Net investment income................................ 2,719,210
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments..................... 15,030,598
Net decrease in unrealized appreciation on
investments....................................... (5,807,805)
-----------
Net realized and unrealized gains on investments..... 9,222,793
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $11,942,003
===========
</TABLE>
(unaudited)
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, 1996 June 30, 1996
------------------ -------------
<S> <C> <C>
OPERATIONS
Net investment income............................... $2,719,210 $3,658,897
Net realized gains on investments................... 15,030,598 36,920,382
Net increase (decrease) in unrealized appreciation
of investments.................................... (5,807,805) 29,588,487
----------- -----------
Net increase from operations...................... 11,942,003 70,167,766
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................ (4,397,895) (3,746,716)
Distributions from net realized capital gains....... (33,152,104) (6,610,825)
----------- -----------
Total distributions............................... (37,549,999) (10,357,541)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock......................... 31,782,376 82,130,543
Reinvestment of distributions....................... 35,326,505 9,581,641
Less: redemptions................................... (47,968,140) (95,588,642)
----------- -----------
Increase (decrease) resulting from capital share
transactions................................... 19,140,741 (3,876,458)
----------- -----------
Total decrease in net assets........................ (6,467,255) 55,933,767
NET ASSETS
Beginning of period................................. 384,087,020 328,153,253
----------- -----------
End of period (includes undistributed net investment
income of $68,257 and $1,746,942, respectively)... $377,619,765 $384,087,020
=========== ===========
</TABLE>
(unaudited)
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD
================================================================================
<TABLE>
<CAPTION>
For the
six months
ended For the fiscal year ended June 30,
December 31, ---------------------------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------ -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value - Beginning
of Period..... $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65 $15.29 $17.02
-------- -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
Income from
Investment
Operations
- ---------------
Net Investment
Income
(loss)........ .22 .30 .27 .09 (.01) .07 .20 .06 .41 (.11) .02
Net Gains
(Losses) on
Securities
(both realized
and
unrealized)
.............. .77 5.47 3.63 .76 5.51 3.45 .49 2.84 1.87 (.29) (.52)
-------- -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
Total From
Investment
Operations.... .99 5.77 3.90 .85 5.50 3.52 .69 2.90 2.28 (.40) (.50)
-------- -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
Less Dividends
and
Distributions
- ---------------
Dividends from
net investment
income........ (0.36) (.31) (.18) (.02) (.04) (.09) (.12) (.48) .00 (.02) (.07)
Distributions
from net
realized
capital
gains......... (2.76) (.54) (.70) (.43) (.56) (1.70) (1.04) (.64) .00 (1.22) (1.16)
-------- -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
Total Dividends
and
Distributions... (3.12) (.85) (.88) (.45) (.60) (1.79) (1.16) (1.12) .00 (1.24) (1.23)
-------- -------- -------- -------- ------- ------- ------- ------- ------ ------- -------
Net Asset
Value - End of
Period........ $30.08 $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65 $15.29
======== ======== ======== ======== ======= ======= ======= ======= ====== ======= =======
Total Return... 3.12% 21.40% 16.44% 3.48% 29.50% 21.00% 5.62% 19.71% 16.70% (2.99%) (2.57%)
======== ======== ======== ======== ======= ======= ======= ======= ====== ======= =======
Ratios/Supplemental
Data
- ---------------
Net Assets, End
of Period (in
thousands).... $377,620 $384,087 $328,153 $199,191 $78,581 $18,363 $12,350 $11,058 $9,598 $10,706 $18,701
Ratio of
Expenses to
Average Net
Assets........ 0.97%* 0.96% 1.06% 1.22% 1.47% 1.75% 1.68% 2.08% 2.01%+ 1.85%+ 1.72%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets........ 1.42%* 0.99% 1.18% .38% (.01%) .24% .98% .14% 2.83%+ (.59%)+ .15%
Portfolio
Turnover
Rate.......... 32%* 34% 29% 43% 61% 61% 85% 66% 62% 58% 88%
Average
Commission
Paid per
Share......... $0.0592 $0.0588 -- -- -- -- -- -- -- -- --
</TABLE>
+ Not representative of expenses incurred by the Fund as the Adviser waived its
fee and/or paid certain expenses of the Fund.
* annualized
The accompanying notes are an integral part of the financial statements.
(unaudited)
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
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. SECURITY VALUATIONS: Investments are stated at market value based on
latest quoted prices. Short-term securities with maturity dates of 60
days or less are valued at amortized cost (premiums and discounts are
amortized on a straight-line basis) which has been determined by the
Fund's Board of Directors to represent fair 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
$297,251,391, the aggregate gross unrealized appreciation is $76,146,653
and the aggregate gross unrealized depreciation is $8,962,945 resulting
in net unrealized depreciation of $67,183,708.
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 record 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. 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 for
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess
of net realized capital gains. 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: The Fund has entered into a management agreement (the
Investment Advisory Fee) with Aster Capital Management, Inc. ("Aster
Capital") for calendar 1996. Certain Officers and/or Directors of the Fund
are also Officers and/or Directors of Aster Capital.
3. ADVISORY FEE AND EXPENSE LIMITATION: The Investment Adviser 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. 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. Although state requirements may change, the most
stringent state expense limitations currently require the Investment Adviser
to reimburse the Fund for operating expenses incurred in any fiscal year
which exceed 2 1/2% of the first $30 million of average net assets, 2% of the
next $70 million of average net assets and 1 1/2% of the remaining average
net assets. Reimbursement, if any, will be on a monthly basis, subject to
year-end adjustment.
4. 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, 1996 and June 30, 1996, were as follows:
<TABLE>
<CAPTION>
December June
1996 1996
---------- ----------
<S> <C> <C>
Shares sold 1,009,660 2,717,761
Shares issued on reinvestment of
distributions 1,166,025 322,055
----------- -----------
2,175,685 3,039,816
Shares redeemed (1,546,455) (3,138,480)
----------- -----------
Net increase (decrease) 629,230 (98,664)
=========== ===========
</TABLE>
5. 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, 1996 was $2,000.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
6. INVESTMENTS:
a. COST OF INVESTMENTS: The cost of investments purchased, excluding
short-term obligations, and the proceeds from sales of investments for the
period ended December 31, 1996 were $44,330,382 and $66,105,663,
respectively.
b. INCOME PRODUCING INVESTMENTS: At December 31, 1996, those investments in
securities which produce investment income (cash dividends) are Arden
Realty Group, Bancorp Hawaii, Inc., British Sky Broadcasting Group plc,
Cracker Barrel Old Country Store, Inc., Equity Residential Properties
Trust, Heilig-Meyers Company, Kohl's Corporation, Lomak Petroleum, Inc.,
Molex, Inc. - Class A, National Data Corp., Oasis Residential, Inc.,
Paychex, Inc., Service Corp. International, Sotheby's Holdings, Inc.,
Spieker Properties, Inc., Stewart Enterprises, Inc., Tanger Factory Outlet
Centers, Inc., The Town and Country Trust and The York Group, Inc. All
other investments in securities are non-income producing.
11
<PAGE>
MERIDIAN FUND
================================================================================
This report is submitted for
the information of shareholders of
Meridian Fund, Inc. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FPS SERVICES, INC.
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER
San Francisco, California
Auditors
PRICE WATERHOUSE
San Francisco, California
SEMI ANNUAL REPORT
[LOGO]
60 E. SIR FRANCIS DRAKE BLVD.
WOOD ISLAND, SUITE 306
LARKSPUR, CA 94939
(415) 461-6237
TELEPHONE (800) 446-6662
DECEMBER 31, 1996
<PAGE>
