MERIDIAN FUND
July 24, 1997
To Our Shareholders:
The Meridian Fund's net asset value per share at June 30, 1997 was $33.20. This
represents a total return of 13.9% for the fiscal year ended June 30, 1997 and
10.4% for the calendar year to date. The Fund's total return and average
compound rate of return since inception, August 1, 1984, were 525.6% and 15.3%,
respectively. The Fund's ten year total return and ten year average compound
rate of return were 273.8% and 14.1%, respectively. The Fund's net assets at the
close of the quarter were invested 21.6% in cash and other assets less
liabilities and 78.4% in stocks. Total net assets were $353,028,973 and there
were 11,904 shareholders.
Stocks posted a major gain during the quarter ending June 30, reflecting
favorable economic conditions. The S&P 500 gained 16.9 percent, the NASDAQ 18.0
percent and the Russell 2000 15.7 percent. Large capitalization companies
continue to outperform their smaller counterparts. Year to date, the S&P 500 is
ahead 19.5 percent, the NASDAQ 11.7 percent and the Russell 2000 9.3 percent.
This is the tenth consecutive quarterly advance for the S&P 500. The last
decline took place during the fourth quarter of 1994 and was less than one
percent. The Dow Jones Bond Index advanced modestly as interest rates declined.
The five-year government bond yield dropped from 6.8 percent to 6.4 percent
during the quarter.
It is hard to imagine a more favorable economic backdrop for stocks. Economic
growth moderated to approximately two percent during the second quarter while
interest rates declined and inflation slowed to an annual rate of about two
percent. The economic cycle is in its seventh year, but consumer confidence
remains high, unemployment is low, corporate profits are growing, stock prices
are at record levels and leading economic indicators portend more growth ahead.
Labor markets are tight, but otherwise, there are no major storm clouds on the
economic horizon. Things can change quickly, but we expect continued growth
through the first half of 1998.
We believe that stock prices reflect the favorable economic conditions described
above. The price earnings ratio, price to book and dividend yield for the S&P
500, the primary measures of valuation, are all near or at the high end of their
historical range. The stock prices of such excellent companies as Microsoft,
Coca Cola, General Electric, Gillette,
<PAGE>
etc., in our opinion, more than adequately reflect their respective growth
prospects. The valuations on small companies are relatively better if we compare
their expected growth rates to those of the large S&P 500 type of company.
However, they are not cheap by historical measures. This makes it difficult for
us to achieve our goal of being fully invested in smaller and medium-sized
growth stocks at this time. Our cash and cash equivalents position remains at
approximately twenty-one percent of net assets.
We purchased shares in Showbiz Pizza Time, CarMax Group and added to our
position in Cracker Barrel Old Country Stores during the quarter. We sold our
position in British Sky Broadcasting while VeriFone, Vivra and Belden & Blake
were acquired by other companies at a substantial profit.
We purchased shares of Black Box Corporation earlier this year. Black Box is a
leading direct marketer of networking equipment in the U.S. and internationally.
The networking industry is large and will experience significant growth for many
years to come, especially internationally. The company offers over seven
thousand items through its catalog, published biannually. Many of the products
are sold under the Black Box label. Management backs its product line with an
excellent technical service and support team. This formula has led to consistent
growth and has resulted in excellent financial characteristics. Fifty percent of
the company's business comes from abroad and is growing rapidly. The shares sell
at approximately eighteen times estimated earnings. We believe that this
well-managed company represents a low-risk way to invest in the rapidly growing
and changing networking industry.
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
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK - 78.4%
BANKING AND FINANCE - 2.1%
Pacific Century Financial Corp.*..................... 160,000 $7,400,000
CELLULAR COMMUNICATIONS - 4.6%
AirTouch Communications, Inc. ....................... 358,000 9,800,250
Vanguard Cellular Systems, Inc. - Class A............ 470,000 6,403,750
CONSUMER PRODUCTS - 3.6%
Circuit City Stores, Inc. - CarMax Group............. 242,000 3,463,625
Nu Skin Asia Pacific, Inc. .......................... 265,000 7,022,500
The York Group, Inc.*................................ 114,700 2,150,625
CONSUMER SERVICES - 7.3%
Service Corp. International*......................... 315,000 10,355,625
Sotheby's Holdings, Inc. - Class A*.................. 430,000 7,256,250
Stewart Enterprises, Inc. - Class A*................. 190,000 7,980,000
ENERGY - 4.1%
Lomak Petroleum, Inc.*............................... 367,100 6,538,969
Marine Drilling Companies, Inc. ..................... 395,000 7,751,875
HEALTH SERVICES - 9.7%
American HomePatient, Inc. .......................... 152,400 3,810,000
Beverly Enterprises, Inc. ........................... 475,500 7,726,875
Health Management Associates, Inc. - Class A......... 380,000 10,830,000
Quorum Health Group, Inc. ........................... 330,000 11,797,500
INDUSTRIAL SERVICES - 5.8%
Expeditors International of Washington, Inc.*........ 150,900 4,281,788
Paychex, Inc.*....................................... 228,750 8,692,500
United Waste Systems, Inc. .......................... 187,000 7,667,000
REAL ESTATE INVESTMENT TRUSTS - 12.1%
Arden Realty Group, Inc.*............................ 350,000 9,100,000
Equity Residential Properties Trust*................. 155,000 7,362,500
Kilroy Realty Corporation*........................... 267,000 6,741,750
Oasis Residential, Inc.*............................. 270,000 6,345,000
Spieker Properties, Inc.*............................ 180,000 6,333,750
The Town and Country Trust*.......................... 455,000 6,995,625
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
RESTAURANTS - 3.9%
Cracker Barrel Old Country Store, Inc.*.............. 253,600 $6,720,400
Showbiz Pizza Time, Inc. ............................ 270,000 7,121,250
RETAIL - 17.1%
Bed, Bath and Beyond, Inc. .......................... 275,000 8,353,125
Family Dollar Stores, Inc.*.......................... 295,000 8,038,750
Heilig-Meyers Company*............................... 354,600 6,959,025
Kohl's Corporation................................... 225,000 11,910,938
Mac Frugals Bargains * Closeouts Inc. ............... 340,200 9,270,450
Mazel Stores, Inc. .................................. 82,000 1,435,000
The Gymboree Corporation............................. 255,000 6,120,000
Value City Department Stores, Inc. .................. 400,000 3,250,000
Williams-Sonoma, Inc. ............................... 120,000 5,130,000
TECHNOLOGY - 8.1%
Black Box Corporation................................ 124,100 4,995,025
Molex Inc. - Class A*................................ 243,750 8,500,781
National Data Corp.*................................. 185,000 8,012,812
Xilinx, Inc. ........................................ 145,000 7,114,062
-----------
TOTAL COMMON STOCK
(Identified cost $207,191,201).......................... 276,739,375
-----------
U.S. GOVERNMENT OBLIGATIONS (Identified cost $64,981,861) - 18.4%
U.S. Treasury Bills @ 5.217% due 07/03/97 (par value
$65,000,000).................................................. 64,981,861
-----------
TOTAL INVESTMENTS
(Identified Cost $272,173,062) - 96.8%........................... 341,721,236
-----------
CASH AND OTHER ASSETS LESS LIABILITIES - 3.2%...................... 11,307,737
-----------
NET ASSETS - 100%.................................................. $353,028,973
===========
Shares of capital stock outstanding................................ 10,634,038
===========
Net asset value per share.......................................... $33.20
===========
</TABLE>
*income producing
The accompanying notes are an integral part of the financial statements
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $272,173,062).................................... $341,721,236
Cash and cash equivalents.......................................... 9,348,728
Receivables for:
Securities sold................................................. 2,741,090
Dividends....................................................... 323,994
Interest........................................................ 95,717
Sales of capital stock.......................................... 28,036
Prepaid expenses................................................... 3,970
------------
TOTAL ASSETS.................................................... 354,262,771
------------
LIABILITIES
Payables for:
Securities purchased............................................ 533,026
Capital stock repurchased....................................... 384,655
Accrued expenses................................................... 316,117
------------
TOTAL LIABILITIES............................................... 1,233,798
------------
NET ASSETS........................................................... $353,028,973
============
Shares of capital stock outstanding, par value $.01 (25,000,000
shares authorized)................................................. 10,634,038
============
Net asset value per share (offering and redemption price)............ $33.20
============
Net assets consist of:
Paid in capital.................................................... $244,552,579
Accumulated net realized gain...................................... 37,025,804
Net unrealized appreciation on investments......................... 69,548,174
Undistributed net investment income................................ 1,902,416
------------
$353,028,973
============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $3,492,892
Interest............................................. 4,591,814
-----------
Total investment income......................... $8,084,706
-----------
EXPENSES
Investment advisory fees............................. 2,897,147
Transfer agent fees.................................. 296,325
Pricing fees......................................... 72,624
Reports to shareholders.............................. 69,758
Custodian fees....................................... 63,875
Registration and filing fees......................... 60,966
Miscellaneous expenses............................... 36,234
Professional fees.................................... 27,690
Directors' fees and expenses......................... 6,858
-----------
Total expenses.................................. 3,531,477
-----------
Net investment income........................... 4,553,229
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments..................... 45,845,696
Proceeds from Litigation............................. 29,948
Net decrease in unrealized appreciation on
investments....................................... (3,443,339)
-----------
Net realized and unrealized gains on investments..... 42,432,305
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $46,985,534
===========
</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, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income................................. $4,553,229 $3,658,897
Net realized gain on investments...................... 45,875,644 36,920,382
Net (decrease) increase in unrealized appreciation of
investments......................................... (3,443,339) 9,588,487
------------- ------------
Net increase from operations........................ 46,985,534 70,167,766
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income.................. (4,397,755) (3,746,716)
Distributions from net realized capital gains......... (33,151,636) (6,610,825)
------------- ------------
Total distributions................................. (37,549,391) (10,357,541)
------------- ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................... 52,295,893 82,130,543
Reinvestment of distributions......................... 35,325,932 9,581,641
Less: redemptions..................................... (128,116,015) (95,588,642)
------------- ------------
Decrease resulting from capital share
transactions..................................... (40,494,190) (3,876,458)
------------- ------------
Total (decrease) increase in net assets............... (31,058,047) 55,933,767
NET ASSETS
Beginning of year..................................... 384,087,020 328,153,253
------------- ------------
End of year (includes undistributed net investment
income of $1,902,416 and $1,746,942, respectively).. $353,028,973 $384,087,020
============= ============
</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,
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value -- Beginning of
year................. $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65 $15.29
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
----------------------
Net Investment Income
(loss)............... .40 .30 .27 .09 (.01) .07 .20 .06 .41 (.11)
Net Gains (Losses) on
Securities (both
realized and
unrealized).......... 3.71 5.47 3.63 .76 5.51 3.45 .49 2.84 1.87 (.29)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations........... 4.11 5.77 3.90 .85 5.50 3.52 .69 2.90 2.28 (.40)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Less Dividends and
Distributions
----------------------
Dividends from net
investment income.... (0.36) (.31) (.18) (.02) (.04) (.09) (.12) (.48) .00 (.02)
Distributions from net
realized capital
gains................ (2.76) (.54) (.70) (.43) (.56) (1.70) (1.04) (.64) .00 (1.22)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total Dividends and
Distributions........ (3.12) (.85) (.88) (.45) (.60) (1.79) (1.16) (1.12) .00 (1.24)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value -- End
of Period............ $33.20 $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
Total Return.......... 13.92% 21.40% 16.44% 3.48% 29.50% 21.00% 5.62% 19.71% 16.70% * (2.99%)*
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data
-------------------
Net Assets, End of
Period (in
thousands)........... $353,029 $384,087 $328,153 $199,191 $78,581 $18,363 $12,350 $11,058 $9,598 $10,706
Ratio of Expenses to
Average Net Assets... 0.96% 0.96% 1.06% 1.22% 1.47% 1.75% 1.68% 2.08% 2.01%+ 1.85%+
Ratio of Net
Investment Income
(Loss) to Average Net
Assets............... 1.23% 0.99% 1.18% .38% (.01%) .24% .98% .14% 2.83%+ (.59%)+
Portfolio Turnover
Rate................. 37% 34% 29% 43% 61% 61% 85% 66% 62% 58%
Average Commission
Paid per Share....... $0.0595(+) $0.0588(+) -- -- -- -- -- -- -- --
* 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. If the Fund had paid all of its expenses and there had been no reimbursement by
the Adviser, the ratio of expenses to average net assets for the year ended June 30, 1988 and 1989 would
have been 1.86% and 2.19%, respectively, and the ratio of net investment income (loss) to average net
assets would have been (.60%) and 2.63%, respectively.
(+) A fund is required to disclose its average commission rate per share for security trades on which
commission is charged. This amount may vary from fund to fund and period to period depending on the mix
of trades executed in various markets where trading practices and commission rate structures may differ.
This rate generally does not reflect markups, markdowns, or spreads on shares traded on a principle
basis, if any. This disclosure is required by the SEC and was effective beginning in 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
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. 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
$272,173,062, the aggregate gross unrealized appreciation is $75,233,526
and the aggregate gross unrealized depreciation is $5,685,352 resulting
in net unrealized appreciation of $69,548,174.
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 and accretion income are 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 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 are reported as
dividends in excess of net investment income or distributions in excess
of net
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
================================================================================
g. (continued) 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, 1996 through October 31, 1997. Certain Officers and/or Directors
of the Fund are also Officers and/or Directors of Aster Capital.
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.
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 June 30, 1997 and June 30, 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Shares sold 1,670,786 2,717,761
Shares issued on reinvestment of distributions 1,166,006 322,055
---------- ----------
2,836,792 3,039,816
Shares redeemed (4,126,984) (3,138,480)
---------- ----------
Net decrease (1,290,192) (98,664)
========== ==========
</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, 1997 was $2,000.
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, 1997 were $102,167,928 and $160,466,821, respectively. The cost of
short-term obligations purchased and the proceeds from sales of short-term
obligations, for the year ended June 30, 1997 were $326,044,734 and
$349,935,383, respectively.
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 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, 1997, 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, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
July 25, 1997
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
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, 1997
<PAGE>
