MERIDIAN FUND
July 24, 1996
To Our Shareholders:
The Meridian Fund's net asset value per share at June 28, 1996, was $32.21. This
represents an increase of 7.7% for the calendar year to date. The Fund's total
return and average annual compound rate of return since inception, August 1,
1984, were 449.2% and 15.4%, respectively. The Fund's assets at the close of the
quarter were invested 23.7% in cash and cash equivalents, and 76.3% in stocks.
Total net assets were $384,087,020 and there were 15,388 shareholders.
Stocks posted another solid performance during the second quarter. All the
popular averages advanced. The S&P 500 gained 3.9 percent, the Dow Jones
Industrials 1.2 percent and the NASDAQ composite increased 7.6 percent, as
technology stocks rebounded from a weak first quarter. This is the sixth
straight quarterly advance for the S&P 500. Year to date, the S&P 500 is up 8.9
percent and the NASDAQ composite 12.6 percent. The Dow Jones Bond Index declined
from 103.25 to 101.71 during the quarter, a drop of 1.5 percent. The yield on
the five-year government bond increased from 6.1 percent on March 31 to 6.5
percent on June 30.
The economy continued to move forward at a moderate pace with a slight pick up
in the level of inflation and interest rates during the quarter. Industrial
production, employment, business productivity, new construction and retail sales
all reflect a growing economy. The high level of consumer debt is somewhat
troubling. Our forecast for the balance of the year is for continued growth
accompanied by modest increases in the level of interest rates and inflation.
We spent a considerable amount of time visiting with company management during
the past three months. We attended research conferences, visited companies,
attended meetings and listened to conference calls. The companies included a
number of rapidly growing and well-positioned small and medium-sized growth
companies with excellent prospects. Yet we still have approximately 25 percent
cash. The problem for us has been price. Since the end of the quarter, however,
there has been a meaningful correction in small and medium-sized growth stocks.
The NASDAQ has declined from a peak of 1249 during the second quarter to 1062 at
the time of this writing, a decline of fifteen
<PAGE>
percent. The rapidly growing high multiple stocks have been hardest hit. Many
have declined in excess of thirty percent and some more than fifty percent. This
decline removes some of the speculation and froth from an overvalued market and
increases our prospects for redeploying our cash in emerging growth stocks going
forward.
During the quarter we established positions in Heilig-Meyers Company, Mac
Frugals Bargains * Closeouts Inc., The York Group, Inc. and added to our
position in Quorum Health Group, Inc. We sold Baby Superstore, Inc.,
Healthsource, Inc., KEMET Corporation, Mercury Finance Company and Paging
Network, Inc.
One company we believe is well-positioned and reasonably valued is Buffets, Inc.
The company is the leading operator of buffet style restaurants, all you can eat
at a fixed price, with over 250 units. The company appeals to a broad range of
value-oriented consumers, including families and senior citizens. The
restaurants offer a wide variety of freshly prepared items in an attractive and
informal setting. During the past year, management has focused on strengthening
the company's infrastructure and has recently acquired its largest competitor,
Home Town Buffets. We expect future growth in the 15 percent to 20 percent
range. The shares are attractively priced, selling at roughly 12 times our
estimated earnings.
We welcome those new shareholders who joined the Meridian Fund during the
quarter and appreciate the continued confidence of our existing shareholders.
Sincerely,
/s/ Richard F. Aster, Jr.
----------------------------
Richard F. Aster, Jr.
2
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS
JUNE 30, 1996
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK - 76.3%
BANKING AND FINANCE - 2.0%
Bancorp Hawaii, Inc. ................................ 215,000 $7,740,000
CELLULAR COMMUNICATIONS - 9.5%
AirTouch Communications, Inc. ....................... 358,000 10,113,500
Cellular Communications, Inc. - Series A............. 216,200 11,485,625
MFS Communications Company, Inc. .................... 135,000 5,079,375
Vanguard Cellular Systems, Inc. - Class A............ 445,000 9,678,750
CONSUMER PRODUCTS - 0.5%
The York Group, Inc.................................. 120,000 2,070,000
CONSUMER SERVICES - 7.6%
Service Corp. International.......................... 220,000 12,650,000
Sotheby's Holdings, Inc. - Class A................... 500,000 7,250,000
Stewart Enterprises, Inc. - Class A.................. 300,000 9,375,000
ENERGY - 2.4%
Belden & Blake Corp. ................................ 329,000 6,826,750
Lomak Petroleum, Inc................................. 172,000 2,451,000
HEALTH SERVICES - 17.1%
American Medical Response, Inc. ..................... 236,000 8,319,000
Beverly Enterprises, Inc. ........................... 465,000 5,580,000
Community Health Systems, Inc. ...................... 197,000 10,194,750
HEALTHSOUTH Corporation.............................. 240,000 8,640,000
Neuromedical Systems, Inc. .......................... 83,600 1,254,000
Quorum Health Group, Inc. ........................... 435,000 11,473,125
RISCORP, Inc. ....................................... 384,700 7,020,775
Vivra, Inc. ......................................... 395,000 12,985,625
INDUSTRIAL SERVICES - 2.4%
Paychex, Inc. ....................................... 195,000 9,384,375
MEDIA - 2.0%
British Sky Broadcasting Group plc................... 191,000 7,759,375
REAL ESTATE INVESTMENT TRUSTS - 8.5%
Equity Residential Properties Trust.................. 228,000 7,495,500
Oasis Residential, Inc. ............................. 260,000 5,687,500
Spieker Properties, Inc. ............................ 285,000 7,766,250
Tanger Factory Outlet Centers, Inc. ................. 200,000 4,650,000
The Town and Country Trust........................... 540,000 7,087,500
</TABLE>
3
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS (CONTINUED)
JUNE 30, 1996
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
COMMON STOCK (continued)
<S> <C> <C>
RESTAURANTS - 2.8%
Buffets, Inc. ....................................... 550,000 $6,737,500
Cracker Barrel Old Country Store, Inc. .............. 164,000 3,977,000
RETAIL - 13.6%
Bed, Bath and Beyond, Inc. .......................... 355,000 9,496,250
Cato Corporation - Class A........................... 400,000 2,400,000
Heilig-Meyers Company................................ 340,000 8,160,000
Kohl's Corporation................................... 260,000 9,522,500
Mac Frugals Bargains * Closeouts Inc. ............... 245,000 4,348,750
The Gymboree Corporation............................. 295,000 8,997,500
Value City Department Stores, Inc. .................. 400,000 4,400,000
Williams-Sonoma, Inc. ............................... 200,000 4,725,000
TECHNOLOGY - 6.0%
Molex Inc. - Class A................................. 226,250 6,646,094
National Data Corp. ................................. 275,000 9,418,750
Xilinx, Inc. ........................................ 215,000 6,826,250
TRANSPORTATION - 1.9%
Fritz Companies, Inc. ............................... 230,000 7,417,500
-----------
TOTAL COMMON STOCK
(Identified cost $220,099,355........................... 293,090,869
-----------
U.S. GOVERNMENT OBLIGATIONS (Identified cost $84,034,431) - 22.1%
U.S. Treasury Bills @ 5.086% due 07/11/96........................ 84,883,889
-----------
TOTAL INVESTMENTS
(Identified Cost $304,983,244)................................... 377,974,758
-----------
CASH AND OTHER ASSETS LESS LIABILITIES - 1.6%...................... 6,112,262
-----------
NET ASSETS - 100%.................................................. $384,087,020
===========
Shares of capital stock outstanding................................ 11,924,230
===========
Net asset value per share.......................................... $32.21
===========
</TABLE>
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $304,983,244).................................... $377,974,758
Cash and cash equivalents.......................................... 5,993,126
Receivables for:
Sales of capital stock.......................................... 371,565
Dividends....................................................... 260,464
Interest........................................................ 26,627
Securities sold................................................. 25,874
Prepaid expenses................................................... 5,381
----------
TOTAL ASSETS.................................................... 384,657,795
----------
LIABILITIES
Payables for:
Investment advisory fee......................................... 257,406
Capital stock repurchased....................................... 218,146
Securities purchased............................................ 25,900
Accrued expenses................................................... 69,323
----------
TOTAL LIABILITIES............................................... 570,775
----------
NET ASSETS........................................................... $384,087,020
==========
Shares of capital stock outstanding, par value $.01
(25,000,000 shares authorized)..................................... 11,924,230
==========
Net asset value per share (offering and redemption price)............ $32.21
==========
Net assets consist of:
Paid in capital.................................................... $285,046,769
Accumulated net realized gain...................................... 24,301,796
Net unrealized appreciation on investments......................... 72,991,513
Undistributed net investment income................................ 1,746,942
----------
$384,087,020
==========
</TABLE>
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $2,589,529
Interest.............................................. 4,647,705
----------
Total investment income.......................... $7,237,234
EXPENSES
Investment advisory fees.............................. 2,906,889
Transfer agent fees................................... 336,400
Pricing fees.......................................... 70,115
Custodian fees........................................ 70,750
Registration and filing fees.......................... 68,367
Reports to shareholders............................... 57,570
Auditing fee.......................................... 27,930
Insurance............................................. 21,008
Legal................................................. 7,690
Directors' fees and expenses.......................... 6,222
Association dues...................................... 4,252
Taxes................................................. 811
Shareholder Communication............................. 333
----------
Total expenses................................... 3,578,337
Net investment income............................ 3,658,897
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments...................... 36,920,382
Net increase in unrealized appreciation on
investments........................................ 29,588,487
----------
Net realized and unrealized gains on investments...... 66,508,869
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $70,167,766
===========
</TABLE>
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income.................................. $3,658,897 $3,092,054
Net realized gains (losses) on investments............. 36,920,382 (6,008,265)
Net increase in unrealized appreciation of
investments.......................................... 29,588,487 43,840,917
------------ ------------
Net increase from operations......................... 70,167,766 40,924,706
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................... (3,746,716) (1,719,823)
Distributions from net realized capital gains.......... (6,610,825) (6,374,831)
------------ ------------
Total distributions.................................. (10,357,541) (8,094,654)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock............................ 82,130,543 133,877,678
Reinvestment of distributions.......................... 9,581,641 7,557,313
Less: redemptions...................................... (95,588,642) (45,303,065)
------------ ------------
Increase (decrease) resulting from
capital share transactions........................ (3,876,458) 96,131,926
------------ ------------
Total increase in net assets........................... 55,933,767 128,961,978
NET ASSETS
Beginning of period.................................... 328,153,253 199,191,275
------------ ------------
End of period (includes undistributed net investment
income of $1,746,942 and $1,834,761, respectively)... $384,087,020 $328,153,253
============ ============
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================
<TABLE>
<CAPTION>
For the period ended June 30,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value -
Beginning
of Period............ $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)............... .30 .27 .09 (.01) .07 .20 .06 .41 (.11) .02
Net Gains (Losses) on
Securities
(both realized and
unrealized).......... 5.47 3.63 .76 5.51 3.45 .49 2.84 1.87 (.29) (.52)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations........... 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............... (.31) (.18) (.02) (.04) (.09) (.12) (.48) .00 (.02) (.07)
Distributions from net
realized capital
gains................ (.54) (.70) (.43) (.56) (1.70) (1.04) (.64) .00 (1.22) (1.16)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total Dividends and
Distributions........ (.85) (.88) (.45) (.60) (1.79) (1.16) (1.12) .00 (1.24) (1.23)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value - End
of Period............ $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65 $15.29
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
Total Return.......... 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)....... $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... 0.96% 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............... 0.99% 1.18% .38% (.01%) .24% .98% .14% 2.83%+ (.59%)+ .15%
Portfolio Turnover
Rate................. 34% 29% 43% 61% 61% 85% 66% 62% 58% 88%
Average Commission
Paid per Share....... $0.0588 -- -- -- -- -- -- -- -- --
+ Not representative of expenses incurred by the Fund as the Adviser waived its fee and/or paid certain
expenses of the Fund.
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 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
$304,983,244, the aggregate gross unrealized appreciation is $80,032,759
and the aggregate gross unrealized depreciation is $7,041,246 resulting
in net unrealized appreciation of $72,991,513.
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 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1996
================================================================================
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 June 30, 1996 and June 30, 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Shares sold 2,717,761 5,275,075
Shares issued on reinvestment of distributions 322,055 305,024
---------- ----------
3,039,816 5,580,099
Shares redeemed (3,138,480) (1,765,630)
---------- ----------
Net increase (decrease) (98,664) 3,814,469
========== ==========
</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 June 30, 1996 was $3,000.
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 June 30, 1996 were $93,954,480 and $115,838,474,
respectively.
b. INCOME PRODUCING INVESTMENTS: At June 30, 1996, those investments in
securities which produce investment income (cash dividends) are Bancorp
Hawaii, Inc., British Sky Broadcasting Group plc, Cato Corporation -
Class A, 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.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Board of Directors and Shareholders
of Meridian Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments and net assets, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Meridian Fund (one
of the portfolios constituting Meridian Fund, Inc., hereafter referred to as the
"Fund") at June 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the ten years in the period then ended,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as the "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
July 31, 1996
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 P. MORK
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FUND/PLAN SERVICES, INC.
Conshohocken, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER
San Francisco, California
Auditors
PRICE WATERHOUSE
San Francisco, California
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
JUNE 30, 1996
<PAGE>
