MERIDIAN FUND
January 22, 1996
To Our Shareholders:
The Meridian Fund's net asset value per share at December 29, 1995, was $29.90.
This represents an increase of 22.43% for the calendar year. The Fund's total
return and average annual compound rate of return since inception, August 1,
1984, were 409.79% and 15.34%, respectively. The Fund's assets at the close of
the quarter were invested 26.3% in cash and cash equivalents and 73.7% in
stocks. Total net assets were $374,935,096 and there were 16,707 shareholders.
Stocks experienced a strong year in 1995. Low interest rates, low inflation,
strong corporate profits and the prospect of deficit reduction propelled most of
the popular averages into record territory. The S&P 500 advanced 34 percent, its
best performance since 1958. The NASDAQ gained 40 percent, the Russell 2000 26
percent and the Value Line 19 percent. There were no major bumps or corrections
along the way. The year will be remembered for the strong performance of
technology stocks, especially those related to semiconductors and the Internet.
It was a difficult year for many retail stocks. Merchandisers of women's apparel
were particularly hard hit.
Bonds had an exceptional year also in 1995. The thirty year treasury bond began
the year at 7.9 percent and closed the year at 5.95 percent, its lowest yield
since October, 1993. The Dow Jones Bond Index finished the year at 105.3, up
from 93.6 a year ago, reflecting the lower rates.
The economy grew at a steady, if not spectacular pace during 1995. The current
expansion will move into its sixth year this spring and we expect continued but
modest growth during 1996 with stable interest rates and moderate rates of
inflation. Consumer credit is somewhat high, but other than that there are no
major excesses or areas of concern that we see at this time. Inventories are in
line, plant expansion is modest and major corporations continue to streamline
and cut costs to become more competitive, both domestically and internationally.
Most important, the low level of inflation gives the Federal Reserve room to cut
interest rates should the economy weaken. It's difficult to imagine a recession
in 1996, given the economic landscape as described above and the fact that it's
a presidential election year.
<PAGE>
We currently have approximately 25 percent of our portfolio in cash. This is
higher than we would like. The economic backdrop is favorable and there are many
good companies with excellent prospects. The problem is valuation, especially
with the rapidly growing companies with strong market positions. Netscape, for
example, is a well publicized Internet company which most analysts believe has
excellent prospects. The company posted revenues of roughly $40 million for the
past four quarters and is expected to earn approximately $.35 for calendar 1996.
The market capitalization is approximately $6 billion. At its current price of
$160, Netscape's market value is over 150 times revenues and its price earnings
ratio 450 times estimated earnings. Netscape, in our view, will not be a good
investment during the next three to five-year period -- at least from this price
level. This may be an extreme example, but there are numerous other small and
medium sized growth stocks today that are over valued and will prove to be poor
investments over the next several years.
We will continue to research and monitor the best positioned small and medium
sized growth stocks. We will make purchases when our analysis indicates that a
company's valuation is reasonable. The price of the shares must offer an
acceptable return based on the company's growth prospects during the next three
to five years.
We recently purchased shares in Xilinx. Xilinx is the leading producer of Field
Programmable Logic Devices (FPLDs) with 50 percent market share. FPLDs are
semiconductors that can be programmed to provide custom functions, fast time to
market, low inventory costs and easy design changes. Fifty percent of the
company's sales go to the rapidly growing telecommunications and networking
markets which are expected to grow in excess of 20 percent for the next several
years. Xilinx's shares recently declined from $55 per share to under $30 due to
a modest slowdown in orders. We believe that this slowdown does not alter this
well-managed company's long-term prospects. The shares now sell at approximately
20 times 1996 earnings estimate and, in our opinion, offer the opportunity for
substantial capital appreciation.
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.
President
2
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS
DECEMBER 29, 1995
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON AND PREFERRED STOCK - 73.7%
BANKING AND FINANCE - 3.0%
Bancorp Hawaii, Inc. ................................ 215,000 $7,713,125
Mercury Finance Company.............................. 282,000 3,736,500
CELLULAR COMMUNICATIONS - 12.3%
AirTouch Communications, Inc. ....................... 358,000 10,113,500
Cellular Communications, Inc. - Series A............. 208,083 10,352,129
Cellular Communications, Inc. - Preferred............ 8,117 403,821
MFS Communications Company, Inc. .................... 98,000 5,218,500
Paging Network, Inc. ................................ 474,000 11,553,750
Vanguard Cellular Systems, Inc. ..................... 419,000 8,484,750
CONSUMER SERVICES - 10.1%
H & R Block, Inc. ................................... 214,000 8,667,000
Service Corp. International.......................... 320,000 14,080,000
Sotheby's Holdings, Inc. (Class A)................... 500,000 7,125,000
Stewart Enterprises, Inc. ........................... 220,000 8,140,000
ENERGY - 0.9%
Belden & Blake Corp. ................................ 200,000 3,500,000
HEALTH SERVICES - 16.5%
American Medical Response, Inc. ..................... 236,000 7,670,000
Beverly Enterprises, Inc. ........................... 436,000 4,632,500
Community Health Systems, Inc. ...................... 197,000 7,018,125
Healthsource, Inc. .................................. 325,600 11,721,600
Neuromedical Systems, Inc. .......................... 83,600 1,682,450
Quorum Health Group, Inc. ........................... 325,000 7,150,000
Surgical Care Affiliates, Inc. ...................... 325,000 11,050,000
Vivra, Inc. ......................................... 439,500 11,042,438
INDUSTRIAL SERVICES - 2.6%
Paychex, Inc. ....................................... 195,000 9,725,625
MEDIA - 1.3%
British Sky Broadcasting Group plc................... 126,000 4,740,750
REAL ESTATE INVESTMENT TRUSTS - 6.4%
Oasis Residential, Inc. ............................. 253,000 5,755,750
Spieker Properties, Inc. ............................ 285,000 7,160,625
Tanger Factory Outlet Centers, Inc. ................. 183,000 4,575,000
The Town and Country Trust........................... 515,000 6,695,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
3
<PAGE>
SCHEDULE OF INVESTMENTS AND NET ASSETS (CONTINUED)
DECEMBER 29, 1995
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
COMMON AND PREFERRED STOCK (continued)
<S> <C> <C>
RESTAURANTS - 1.6%
Buffets, Inc. ....................................... 235,000 $3,231,250
Cracker Barrel Old Country Store..................... 164,000 2,829,000
RETAIL - 7.8%
Baby Superstore, Inc. ............................... 93,000 5,301,000
Bed, Bath and Beyond, Inc. .......................... 290,000 11,255,625
The Gymboree Corporation............................. 275,000 5,671,875
Kohl's Corporation................................... 135,000 7,087,500
TECHNOLOGY - 8.5%
Adobe Systems, Inc. ................................. 70,000 4,340,000
KEMET Corporation.................................... 260,000 6,207,500
Molex Inc. (Class A)................................. 226,250 6,928,906
National Data Corporation............................ 290,000 7,177,500
Xilinx, Inc. ........................................ 235,000 7,167,500
TRANSPORTATION - 2.5%
Fritz Companies, Inc. ............................... 230,000 9,545,000
------------
TOTAL COMMON AND PREFERRED STOCK
(Identified cost $206,046,465)................................ 276,450,594
U.S. GOVERNMENT OBLIGATIONS
(Identified cost $93,759,415) - 25.2%
U.S. Treasury Bills @
5.45% to 5.47% due 01/11/96 thru 02/22/96..................... 94,514,721
------------
TOTAL INVESTMENTS (Identified Cost $299,805,880)................. 370,965,315
CASH AND RECEIVABLES LESS LIABILITIES - 1.1%....................... 3,969,781
------------
TOTAL NET ASSETS - 100%............................................ $374,935,096
============
Shares of capital stock outstanding................................ 12,538,329
============
Net asset value per share.......................................... $29.90
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 29, 1995
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $299,805,880).................................... $370,965,315
Cash and cash equivalents.......................................... 4,769,649
Receivables
Interest........................................................ 4,832
Dividends....................................................... 192,394
Receivable for securities sold.................................. 0
Subscriptions receivable........................................ 429,188
Prepaid expenses................................................... 16,053
-----------
TOTAL ASSETS.................................................... 376,377,431
-----------
LIABILITIES
Payables
Redemptions payable............................................. 496,533
Payable for securities purchased................................ 0
Distributions payable........................................... 625,013
Investment advisory fee......................................... 229,402
Accrued expenses................................................... 91,387
------------
TOTAL LIABILITIES............................................... 1,442,335
------------
TOTAL NET ASSETS..................................................... $374,935,096
============
Shares of capital stock outstanding, par value $.01,
25,000,000 shares authorized....................................... 12,538,329
============
Net asset value per share (offering and redemption price)............ $29.90
============
Net assets consist of:
Paid in capital.................................................... $304,230,933
Accumulated net realized gain...................................... 254,882
Net unrealized appreciation on investments......................... 70,459,875
Accumulated undistributed net investment income (loss)............. (10,595)
------------
$374,935,096
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 29, 1995
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend income...................................... $1,259,410
Interest income...................................... 2,388,364
-----------
Total investment income......................... $3,647,774
EXPENSES
Investment advisory fees............................. 1,388,304
Transfer agent fees.................................. 168,600
Registration and filing fees......................... 52,659
Custodian fees....................................... 45,500
Administrative fees.................................. 33,870
Reports to shareholders.............................. 24,570
Auditing fee......................................... 14,130
Insurance............................................ 10,336
Legal................................................ 4,550
Directors' fees and expenses......................... 3,094
Taxes................................................ 806
Miscellaneous........................................ 0
-----------
Total expenses.................................. 1,746,419
-----------
Net investment income................................ 1,901,355
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments..................... 12,873,452
Net increase in unrealized appreciation on
investments....................................... 27,056,849
-----------
Net realized and unrealized gains on investments..... 39,930,301
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $41,831,656
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Period Ended Year Ended
December 29, 1995 June 30, 1995
------------------ -------------
<S> <C> <C>
OPERATIONS
Net investment income............................... $1,901,355 $3,092,054
Net realized (loss) gains on investments............ 12,873,452 (6,008,265)
Net increase in unrealized appreciation of
investments....................................... 27,056,849 43,840,917
---------- ---------
Net increase (decrease) from operations........... 41,831,656 40,924,706
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (3,746,711) (1,719,823)
Net realized gains from investments................. (6,610,808) (6,374,831)
---------- ---------
Total distributions............................... (10,357,519) (8,094,654)
---------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock......................... 43,092,399 133,877,678
Reinvestment of distributions....................... 9,581,672 7,557,313
Less: redemptions................................... (37,366,365) (45,303,065)
---------- ---------
Increase resulting from
capital share transactions..................... 15,307,706 96,131,926
---------- ---------
Total increase in net assets........................ 46,781,843 128,961,978
NET ASSETS
Beginning of period................................. 328,153,253 199,191,275
---------- ---------
End of period (includes undistributed net investment
income of -$10,594.54 and $1,834,761,
respectively)..................................... $374,935,096 $328,153,253
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD
================================================================================
<TABLE>
<CAPTION>
For the
six months
ended For the fiscal year ended June 30,
December 29, ---------------------------------------------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 >
------------ -------- -------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <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 $11.83
-------- -------- -------- ------- ------- ------- ------- ------ ------- ------- -------
Income from
Investment
- ---------------
Operations
--------
Net Investment
Income
(loss)........ 0.16 0.27 0.09 (0.01) 0.07 0.20 0.06 0.41 (0.11) 0.02 0.05
Net Gains or
Losses on
Securities
(both realized
and
unrealized)... 3.30 3.63 0.76 5.51 3.45 0.49 2.84 1.87 (0.29) (0.52) 5.24
-------- -------- -------- ------- ------- ------- ------- ------ ------- ------- -------
Total From
Investment
Operations.... 3.46 3.90 0.85 5.50 3.52 0.69 2.90 2.28 (0.40) (0.50) 5.29
-------- -------- -------- ------- ------- ------- ------- ------ ------- ------- -------
Less
Distributions
- -------------
Dividends from
net investment
income........ (0.31) (0.18) (0.02) (0.04) (0.09) (0.12) (0.48) 0.00 (0.02) (0.07) (0.10)
Distributions
from
capital
gains......... (0.54) (0.70) (0.43) (0.56) (1.70) (1.04) (0.64) 0.00 (1.22) (1.16) 0.00
-------- -------- -------- ------- ------- ------- ------- ------ ------- ------- -------
Total
Distributions... (0.85) (0.88) (0.45) (0.60) (1.79) (1.16) (1.12) 0.00 (1.24) (1.23) (0.10)
-------- -------- -------- ------- ------- ------- ------- ------ ------- ------- -------
Net Asset
Value - End
of Period..... $29.90 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65 $15.29 $17.02
======== ======== ======== ======= ======= ======= ======= ====== ======= ======= =======
Total Return... 12.69% 16.44% 3.48% 29.50% 21.00% 5.62% 19.71% 16.70% (2.99%) (2.57%) 45.09%
======== ======== ======== ======= ======= ======= ======= ====== ======= ======= =======
Ratios/Supplemental
Data
- ---------------
Net Assets, End
of Period (in
thousands).... $374,935 $328,153 $199,191 $78,581 $18,363 $12,350 $11,058 $9,598 $10,706 $18,701 $18,458
Ratio of
Expenses to
Average Net
Assets 0.99%* 1.06% 1.22% 1.47% 1.75% 1.68% 2.08% 2.01%+ 1.85%+ 1.72% 1.91%
Ratio of Net
Investment
Income to
Average Net
Assets........ 1.08%* 1.18% 0.38% (0.01%) 0.24% 0.98% 0.14% 2.83%+ (.59%)+ 0.15% 0.80%
Portfolio
Turnover
Rate........... 23%* 29% 43% 61% 61% 85% 66% 62% 58% 88% 75%
+ Not representative of expenses incurred by the Fund as the Adviser waived its fee and/or paid certain expenses
of the Fund.
* Figures are annualized.
> As of January 1, 1986, the Fund retained as its investment adviser Aster Capital Management, Inc. The managers
and employees of Aster Capital Management, Inc. are the same as those of Aster Investment Management Co., Inc.,
adviser to the Fund from its inception to December 31, 1985.
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 29, 1995
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES: Meridian Fund (the "Fund") a series of
Meridian Fund, Inc. 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 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
$299,805,880, the aggregate gross unrealized appreciation is $75,864,756
and the aggregate gross unrealized depreciation is $5,404,881 resulting
in net unrealized appreciation of $70,459,875.
c. SECURITY TRANSACTIONS: As is common in the industry, 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 based on the guidelines established by
the Board of Directors.
f. CAPITAL ACCOUNTS: In accordance with recently approved accounting
pronouncements, the Fund has recorded several reclassification in the
capital accounts. These reclassifications have no impact on the net asset
value of the Fund and are designed generally to present undistributed
income and realized gains on a tax basis which is considered to be more
informative to the shareholder. As of July 1, 1993, the Fund has
reclassified $87,859 from undistributed net investment income to
additional paid-in capital. This reclassification is primarily
attributable to net operating losses which can not be carried forward
under Federal tax rules.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 29, 1995
================================================================================
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 29, 1995, were as follows:
<TABLE>
<CAPTION>
Shares
----------
<S> <C>
Shares sold 1,472,461
Shares issued on reinvestment of distributions 322,056
------
1,794,517
Shares redeemed (1,279,082)
------
Net increase 515,435
======
</TABLE>
5. 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 Fund 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 stock plus expenses for each Board of Directors meeting
attended. The aggregate compensation due the unaffiliated Directors of the
Fund for the period ended December 29, 1995 was $1,000.
6. INVESTMENTS:
a. COST OF INVESTMENTS: The cost of investments purchased, excluding
short-term securities, and the proceeds from sales of investments for the
period ended December 29, 1995 were $30,350,252 and $42,824,786
respectively.
b. INCOME PRODUCING INVESTMENTS: At December 29, 1995, those investments in
securities which produce investment income (cash dividends) are Adobe
Systems, Inc., Bancorp Hawaii, Inc., British Sky Broadcasting plc,
Cracker Barrell Old Country Store, Fritz Companies, Inc., H & R Block,
Inc., Healthsource Inc., KEMET Corporation, Mercury Finance, Molex Inc.
(Class A), National Data Corporation, Oasis Residential Inc., Paging
Network, Inc., Paychex, Inc., Service Corporation International,
Sotheby's Holdings, Inc., Spieker Properties Inc., Stewart Enterprises,
Inc., Surgical Care Affiliates, Tanger Factory Outlet Centers, Inc., The
Town and Country Trust, and Vivra Inc. All other investments in
securities are non-income producing.
10
<PAGE>
[This page intentionally left blank.]
<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
SEMI ANNUAL REPORT
[LOGO]
(R)
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
(415) 461-6237
Telephone (800) 446-6662
DECEMBER 29, 1995
<PAGE>
