MERIDIAN VALUE FUND
January 20, 1997
To Our Shareholders:
The Meridian Value Fund's net asset value per share at December 31, 1996 was
$14.85, resulting in an increase of 32.3% for the calendar year. The Fund's
total return and average annual compounded rate of return since June 30, 1995,
were 53.5% and 33.1%, respectively. Prior to June 30, 1995, the Fund's cash
position exceeded 50%, as it was in the start-up process of becoming fully
invested. The total return and average annual compounded rate of return for the
S&P 500, with dividends reinvested, since June 30, 1995 were 40.7% and 25.6%,
respectively. The Fund's assets at the close of the quarter were invested 6.1%
in cash and cash equivalents, and 93.1% in stocks. Total net assets were
$5,446,416 and there were 196 shareholders.
After a very strong year in 1995, the stock indices surged ahead again in 1996.
Investors approved of the stable interest rates, modest economic growth and the
fall election results. The S&P 500, with dividends reinvested, advanced 23.0%;
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 most 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. Unweighted, the
S&P 500 with dividends reinvested, would have gained 18.5% for the year. The
NASDAQ, unweighted, would have gained only 7%.
Interest rates moved modestly higher in 1996. The Dow Jones Bond Index declined
from 105.36 to 103.78, a drop of 1.5 percent. 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 modestly. 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 far into 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>
Our portfolio was weighted heavily towards small companies during 1996. We found
the risk/reward prospects more favorable in this area. The Fund's technology
investments generated almost half of our gain during the year, despite
representing less than 20% of the Fund's holdings at all times. Our investments
in technology distributors and hard disk drive manufacturers were particularly
successful. The company's investments in energy, retail, and restaurant stocks
also contributed significantly to overall return.
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. We do not believe that the
large capitalization growth stocks such as Intel, Microsoft, and Cisco, present
good long term risk/reward characteristics to investors at current price levels.
We continue to research companies with improving business prospects, but trading
at valuations which present favorable risk/reward potential.
For example, we purchased additional shares in FabriCenters of America during
the quarter. FabriCenters is the nation's largest fabric and craft retailer with
over 20% market share. The company has successfully integrated its acquisition
of the industry's fourth largest competitor. The industry, which suffered from
over-capacity, continues to consolidate, with more than 600 stores (10% of the
total) having closed over the last three years. This consolidation has enabled
FabriCenters to resume reasonable same-store growth at improved margin levels.
The stock of this proven and well managed company, trades at just 12X trailing
earnings and less than 10X projected earnings.
We wish everyone a happy and prosperous New Year.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
/s/ Kevin C. O'Boyle
Kevin C. O'Boyle
2
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK - 93.9%
AUTOMOTIVE - 2.4%
Echlin Inc. ............................................ 4,100 $129,662
BANKING AND FINANCE - 2.5%
EZCORP, Inc. ........................................... 21,000 133,875
CONSTRUCTION - 1.9%
Griffon Corporation..................................... 8,600 105,350
CONSUMER PRODUCTS - 14.8%
Ashworth, Inc. ......................................... 22,000 126,500
Fossil, Inc. ........................................... 11,000 148,500
Maxwell Shoe Company, Inc. - Class A.................... 17,400 115,275
Norton McNaughton, Inc. ................................ 15,000 127,500
Paragon Trade Brands, Inc. ............................. 5,000 150,000
The Scotts Company...................................... 7,000 139,125
ENERGY - 5.2%
Apache Corporation**.................................... 3,900 137,962
Vintage Petroleum, Inc.**............................... 4,200 144,900
HEALTH SERVICES - 12.4%
Marquette Medical Systems, Inc. - Class A............... 8,000 177,000
NovaCare, Inc........................................... 15,000 165,000
Safeguard Health Enterprises, Inc. ..................... 6,500 113,750
Sullivan Dental Products, Inc. ......................... 10,800 141,750
Zoll Medical Corporation................................ 6,900 74,175
INDUSTRIAL SERVICES - 4.9%
Insituform Technologies, Inc. .......................... 18,000 132,750
Insurance Auto Auctions, Inc. .......................... 14,000 133,000
INDUSTRIAL PRODUCTS - 2.1%
Seda Specialty Packaging Corp. ......................... 7,000 115,500
LEISURE & AMUSEMENT - 6.4%
Aldila, Inc.**.......................................... 31,000 150,155
Arctic Cat, Inc.**...................................... 9,000 88,875
SMC Corporation......................................... 14,000 110,250
REAL ESTATE - 2.4%
Manufactured Home Communities, Inc.**................... 5,700 132,525
</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 - 2.1%
Brinker International, Inc. ............................ 7,300 $116,800
RETAIL - 19.1%
Burlington Coat Factory Warehouse Coporation............ 11,200 145,600
Central Tractor Farm & Country, Inc. ................... 11,000 151,250
Fabri-Centers of America, Inc. - Class B................ 19,000 292,125
J.C. Penney Company, Inc.**............................. 2,300 112,125
Shoe Carnival, Inc. .................................... 16,300 87,613
Toys "R" Us, Inc. ...................................... 4,000 120,000
Value City Department Stores, Inc. ..................... 12,500 131,250
TECHNOLOGY - 17.7%
Broadway & Seymour, Inc. ............................... 13,200 138,600
CFI ProServices, Inc. .................................. 7,700 109,725
MicroAge, Inc. ......................................... 5,800 116,000
Microtest, Inc. ........................................ 17,700 172,575
Quantum Corporation..................................... 5,600 160,300
Scientific-Atlanta, Inc.**.............................. 7,800 117,000
Systems & Computer Technology Corporation............... 9,500 152,000
----------
TOTAL COMMON STOCK (Identified cost $4,563,560)............ 5,116,342
----------
CASH AND OTHER ASSETS LESS LIABILITIES - 6.1%........................ 330,074
----------
NET ASSETS - 100%.................................................... $5,446,416
==========
Shares of capital stock outstanding.................................. 366,857
==========
Net asset value per share............................................ $14.85
==========
** Income producing
</TABLE>
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $4,563,560)........................................ $5,116,342
Cash and cash equivalents............................................ 200,128
Receivables for:
Securities sold................................................... 139,563
Subscriptions..................................................... 10,100
Dividends......................................................... 2,138
Reimbursement from Investment Advisor............................. 956
Interest.......................................................... 215
Prepaid expenses..................................................... 720
----------
TOTAL ASSETS...................................................... 5,470,162
----------
LIABILITIES
Accrued expenses..................................................... 16,133
Payable for securities purchased..................................... 6,550
Redemptions Payable.................................................. 1,063
----------
TOTAL LIABILITIES................................................. 23,746
----------
NET ASSETS............................................................. $5,446,416
==========
Shares of capital stock outstanding, par value $.01 (25,000,000 shares
authorized).......................................................... 366,857
==========
Net asset value per share (offering and redemption price).............. $14.85
==========
Net assets consist of:
Paid in capital...................................................... $4,787,666
Undistributed Net Investment Income (Loss)........................... (43,200)
Accumulated net realized gain........................................ 149,168
Net unrealized appreciation on investments........................... 552,782
----------
$5,446,416
==========
</TABLE>
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $9,629
Interest.................................................. 4,830
--------
Total investment income.............................. $14,459
EXPENSES
Transfer agent fees....................................... 12,880
Pricing fees.............................................. 12,144
Investment advisory fees.................................. 22,779
Registration and filing fees.............................. 8,072
Custodian fees............................................ 5,520
Legal..................................................... 2,024
Auditing fee.............................................. 3,434
Reports to shareholders................................... 2,760
Directors' fees and expenses.............................. 918
Taxes..................................................... 805
Insurance................................................. 565
Association dues.......................................... 74
--------
Total expenses....................................... 71,975
Less: Reimbursement by Investment Advisor............ (14,316)
--------
Net expenses.................................... 57,659
--------
Net investment loss....................................... (43,200)
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments.......................... 149,395
Net increase in unrealized appreciation on investments.... 79,407
--------
Net realized and unrealized gains on investments.......... 228,802
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $185,602
========
</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 loss................................... ($43,200) ($22,062)
Net realized gain on investments...................... 149,395 295,152
Net increase in unrealized appreciation of
investments......................................... 79,407 421,643
---------- ----------
Net increase from operations........................ 185,602 694,733
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income.................. (168,631) 0
Distributions from net realized capital gains......... (80,768) 0
---------- ----------
Total distributions................................. (249,399) 0
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................... 1,989,573 2,262,308
Reinvestment of distributions......................... 244,328 0
Less: redemptions..................................... (195,195) (200,555)
---------- ----------
Increase resulting from capital share
transactions..................................... 2,038,706 2,061,753
---------- ----------
Total increase in net assets.......................... 1,974,909 2,756,486
NET ASSETS
Beginning of period................................... 3,471,507 715,021
---------- ----------
End of period......................................... $5,446,416 $3,471,507
========== ==========
</TABLE>
(unaudited)
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================
<TABLE>
<CAPTION>
For the fiscal year ended June
For the period 30,
ended --------------------------------
December 31, 1996 1996 1995 1994*
----------------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period... $15.32 $10.27 $9.87 $10.00
---------- ---------- ------- -------
Income from Investment Operations
--------------------------------------
Net Investment (Loss) Income............ (0.12) (0.10) (0.04) 0.00
Net Gains or Losses on Securities (both
realized and unrealized).............. 0.51 5.15 0.44 (0.13)
---------- ---------- ------- -------
Total From Investment Operations........ 0.39 5.05 0.40 (0.13)
---------- ---------- ------- -------
Less Dividends and Distributions
-----------------------------------
Dividends from net investment income.... (0.58) 0.00 0.00 0.00
Distribution from net realized capital
gains................................. (0.28) 0.00 0.00 0.00
---------- ---------- ------- -------
Total Dividends and Distributions....... (0.86) 0.00 0.00 0.00
---------- ---------- ------- -------
Net Asset Value - End of Period......... $14.85 $15.32 $10.27 $9.87
========== ========== ======= =======
Total Return............................ 2.88% 49.17% 4.05% (1.30%)
========== ========== ======= =======
Ratios/Supplemental Data
----------------------------
Net Assets, End of Period (in
thousands)............................ $5,446,416 $3,471,507 $715,021 $391,538
Ratio of Expenses to Average Net
Assets................................ 2.53%+** 2.55%+ 2.78%+ 1.28%+
Ratio of Net Investment Loss to Average
Net Assets............................ (1.90%)+** (1.36%)+ (.58%)+ (.07%)+
Portfolio Turnover Rate................. 120%** 125% 77% 194%
Average Commission Paid Per Share....... $0.0571 $0.0559 -- --
* From commencement of operations on February 10, 1994.
+ 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
3.16%, 6.47%, 14.64% and 11.22%, and the ratio of net investment income to average net
assets would have been a loss of 2.52%, 5.28%, 12.44% and 10.02%, respectively.
** Figures are annualized.
</TABLE>
(unaudited)
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
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. 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
$4,563,560, the aggregate gross unrealized appreciation is $677,532 and
the aggregate gross unrealized depreciation is $124,750 resulting in net
unrealized appreciation of $552,782.
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. The "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 gain for financial reporting
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
================================================================================
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. Beneficial ownership
in the Fund by Richard F. Aster, Jr., President, as of December 31, 1996,
was 16.26%.
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
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. 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 the
average net assets, 2% of the next $70 million of the 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. Reimbursements
were $14,316 for the period ended December 31, 1996.
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 136,207 173,212
Shares issued on reinvestment of distributions 17,540 0
------- -------
153,747 173,212
Shares redeemed 13,562 16,140
------- -------
Net increase 140,185 157,072
======= =======
</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 $1,000.
6. 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 $4,174,346 and $2,570,538
respectively.
10
<PAGE>
MERIDIAN VALUE FUND
================================================================================
This report is submitted for
the information of shareholders of
Meridian Fund, Inc. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
PAUL A. ROBINSON
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
FPS SERVICES, INC.
King of Prussia, Pennsylvania
(800) 441-6580
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>
