MERIDIAN FUND
January 22, 1998
To Our Shareholders:
The Meridian Fund's net asset value per share at December 31, 1997 was $30.73.
This represents an increase of 19.23% for the calendar year. The Fund's total
return and average annual compound rate of return since inception, August 1,
1984, were 575.83% and 15.31%, respectively. The Fund's assets at the close of
the quarter were invested 12.3% in cash and cash equivalents and 87.7% in
stocks. Total net assets were $332,615,497 and there were 10,899 shareholders.
The S&P 500 gained 31 percent in 1997, as the market posted its third
consecutive outstanding year. The three main forces behind the rise, in our
opinion, were solid corporate profits, lower interest rates and a strong dollar.
Big companies dominated the market. The Russell 2000 advanced only 20.5 percent.
Small company stocks have trailed large caps for three straight years. The S&P
500 and the Russell 2000 closed the year 1.4 percent and 6.1 percent off their
all time highs respectively. Financial stocks, airlines, trucking and oil
service companies were among the best performing groups. The worst performing
groups included precious and nonferrous metals, footwear, casinos and health
care.
The Dow Jones Bond Index began the year at 103.78 and closed the year at 105.05,
a gain of 1.2 percent. The yield on the thirty-year government bond declined
from 6.64 percent to 5.92 during 1997.
The economic focus is on the difficulties in Asia and the possible consequences
for the U.S. economy. At this point, our view is that the damage to the U.S.
economy will be limited. It will mean somewhat slower growth in the U.S., lower
interest rates and inflation, and a stronger dollar. Companies exporting into
Asian markets or competing with Asian companies will find the going more
difficult. Companies manufacturing in Asia or purchasing goods from Asian
companies will benefit. The U.S. economy is in good shape as we begin 1998. Our
forecast is for moderate growth with stable levels of interest rates and
inflation. However, it will be difficult to raise prices at a time when most
companies are experiencing wage pressure from a tightening labor market. The
result will be slower profit growth.
<PAGE>
The tremendous surge in stock prices during the past three years has resulted in
high valuations. The price earnings ratio, price to book value and the dividend
yield on the S&P 500 are all at the high end of their historical range. This, of
course, means additional risk. Corporate profits, as stated above, could be
under some pressure this year. We expect the major market indices to post more
modest increases in 1998, unless interest rates experience another significant
decline.
The shares of smaller companies, as stated above, have underperformed their
larger counterparts during the past three years. Valuations in this sector are
more compelling and growth rates should prove superior going forward. We believe
that this combination will lead to positive relative performance for this area
of the market sooner or later, hopefully sooner. We have approximately 20
percent of our portfolio in cash entering the new year. We continue to research
and evaluate a large number of companies in the small-cap group, making
purchases when, in our opinion, the fundamental prospects are good and the
valuations are attractive.
We purchased shares in American Business Information, Inc., American Management
Systems, Inc., Assisted Living Concepts, Inc., Graham-Field Health Products,
Inc., Meadowcraft, Inc., PharMerica, Inc., Startec Global Communications Corp.,
Suburban Lodges of America, Inc., and West Marine, Inc., during the quarter.
Sales included AirTouch Communications, Inc., Circuit City Stores Inc. - CarMax
Group, Oasis Residential, Inc., Value City Department Stores, Inc. and Xilinx,
Inc.
Graham-Field is a leading manufacturer and distributor of medical products into
the home health care and medical/surgical markets. The company's broad product
line and cost-effective distribution programs reduce overall product costs for
health care providers and expedite the delivery of medical equipment and
supplies. The company distributes 30,000 products and manufactures more than
half of the products it sells, including wheelchairs, home care beds, blood
pressure monitors and thermometry systems. Management has considerable
experience in the manufacturing and distribution of medical products and has
demonstrated an ability to profit from industry consolidation. Internal growth
should continue to exceed 20 percent. The shares sell at approximately 19 times
estimated earnings and represent an excellent opportunity to participate in a
rapidly growing sector of health care.
We wish everyone a happy and prosperous New Year.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
President
2
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK - 87.7%
BANKING AND FINANCE - 2.2%
Pacific Century Financial Corp.*..................... 290,000 $7,177,500
CELLULAR COMMUNICATIONS - 1.8%
Vanguard Cellular Systems, Inc. - Class A............ 470,000 5,992,500
CONSUMER PRODUCTS - 4.8%
Circuit City Stores, Inc. - CarMax Group............. 117,100 1,053,900
Meadowcraft, Inc. ................................... 125,000 1,468,750
Nu Skin Asia Pacific, Inc. .......................... 265,000 4,836,250
Perrigo Company...................................... 435,000 5,818,125
The York Group, Inc.*................................ 114,700 2,795,813
CONSUMER SERVICES - 8.0%
Service Corp. International*......................... 290,000 10,711,875
Sotheby's Holdings, Inc. - Class A*.................. 415,000 7,677,500
Stewart Enterprises, Inc. - Class A*................. 175,000 8,159,375
ENERGY - 3.8%
Lomak Petroleum, Inc.*............................... 367,100 5,965,375
Marine Drilling Companies, Inc. ..................... 330,000 6,847,500
HEALTH SERVICES - 16.4%
American HomePatient, Inc. .......................... 152,400 3,581,400
Assisted Living Concepts, Inc. ...................... 182,000 3,594,500
Beverly Enterprises, Inc.*........................... 540,000 7,020,000
Graham-Field Health Products, Inc.................... 455,000 7,592,812
Health Management Associates, Inc. - Class A......... 385,000 9,721,250
Mylan Laboratories Inc.*............................. 425,000 8,898,437
PharMerica Inc. ..................................... 296,400 3,075,150
Quorum Health Group, Inc. ........................... 430,000 11,233,750
HOTELS & LODGING - 0.6%
Suburban Lodges of America, Inc. .................... 145,000 1,930,312
INDUSTRIAL PRODUCTS - 0.9%
TETRA Technologies................................... 145,000 3,054,063
INDUSTRIAL SERVICES - 6.6%
Expeditors International of Washington, Inc.*........ 150,900 5,809,650
Paychex, Inc.*....................................... 160,000 8,100,000
U.S.A. Waste Services, Inc........................... 201,025 7,890,231
REAL ESTATE INVESTMENT TRUSTS - 11.7%
Arden Realty Group, Inc.*............................ 260,000 7,995,000
Equity Residential Properties Trust*................. 150,000 7,584,375
Kilroy Realty Corporation*........................... 267,000 7,676,250
Spieker Properties, Inc.*............................ 180,000 7,717,500
The Town and Country Trust*.......................... 445,000 7,870,938
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
3
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Value
------- ------------
COMMON STOCK (continued)
<S> <C> <C>
RESTAURANTS - 4.3%
Cracker Barrel Old Country Store, Inc.*.............. 240,000 $8,010,000
Showbiz Pizza Time, Inc. ............................ 270,000 6,210,000
RETAIL - 16.7%
Bed, Bath and Beyond, Inc. .......................... 215,000 8,277,500
Family Dollar Stores, Inc.*.......................... 442,500 12,970,781
Heilig-Meyers Company*............................... 354,600 4,255,200
Kohl's Corporation................................... 155,000 10,559,375
Mac Frugals Bargains* Closeouts Inc.*................ 230,000 9,458,750
Mazel Stores, Inc. .................................. 150,000 2,175,000
West Marine, Inc. ................................... 160,000 3,580,000
Williams-Sonoma, Inc. ............................... 100,000 4,187,500
TECHNOLOGY - 9.2%
American Business Information, Inc. - Class A........ 220,000 2,310,000
American Business Information, Inc. - Class B........ 41,600 426,400
American Management Systems Incorporated............. 340,000 6,630,000
Black Box Corporation................................ 192,500 6,809,687
Molex Inc. - Class A*................................ 273,437 7,861,314
National Data Corp.*................................. 185,000 6,683,125
TELECOMMUNICATIONS/CABLE EQUIPMENT - 0.7%
Startec Global Communications Corporation............ 105,000 2,349,375
------------
TOTAL COMMON STOCK
(Identified cost $217,903,796)................................ 291,604,088
U.S. GOVERNMENT OBLIGATIONS
(Identified cost $29,642,500) - 9.0%
U.S. Treasury Bills @ 5.000% due 1/2/98 (par value
$30,000,000).................................................. 29,995,938
------------
TOTAL INVESTMENTS (Identified Cost $247,546,296) - 96.7%......... 321,600,026
CASH AND OTHER ASSETS LESS LIABILITIES - 3.3%.................... 11,015,471
------------
NET ASSETS - 100%................................................ $332,615,497
============
Shares of capital stock outstanding.............................. 10,823,112
============
Net asset value per share........................................ $30.73
============
</TABLE>
* income producing
The accompanying notes are an integral part of the financial statements.
(unaudited)
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments (Cost $247,546,296).................................... $321,600,026
Cash and cash equivalents.......................................... 11,168,805
Receivables for:
Dividends....................................................... 369,789
Interest........................................................ 34,171
Sales of capital stock.......................................... 482,599
Prepaid expenses................................................... 10,932
------------
TOTAL ASSETS.................................................... 333,666,322
------------
LIABILITIES
Payables for:
Distributions................................................... 682,599
Capital stock repurchased....................................... 75,814
Accrued expenses................................................... 292,412
------------
TOTAL LIABILITIES............................................... 1,050,825
------------
NET ASSETS........................................................... $332,615,497
============
Shares of capital stock outstanding, par value $.01 (25,000,000
shares authorized)................................................. 10,823,112
============
Net asset value per share (offering and redemption price)............ $30.73
============
Net assets consist of:
Paid in capital.................................................... $249,557,794
Accumulated net realized gain...................................... 9,233,100
Net unrealized appreciation on investments......................... 73,700,293
Undistributed net investment income................................ 124,310
------------
$332,615,497
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $1,784,655
Interest............................................. 1,441,202
-----------
Total investment income......................... $3,225,857
EXPENSES
Investment advisory fees............................. 1,406,786
Transfer agent fees.................................. 151,800
Pricing fees......................................... 35,328
Reports to shareholders.............................. 35,841
Custodian fees....................................... 32,200
Registration and filing fees......................... 14,100
Miscellaneous expenses............................... 16,445
Professional fees.................................... 16,560
Directors' fees and expenses......................... 2,852
-----------
Total expenses.................................. 1,711,912
-----------
Net investment income................................ 1,513,945
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments..................... 21,982,461
Net increase in unrealized appreciation on
investments....................................... 4,152,119
-----------
Net realized and unrealized gains on investments..... 26,134,580
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $27,648,525
===========
</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 31, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
OPERATIONS
Net investment income.............................. 1,513,945 $4,553,229
Net realized gain on investments................... 21,982,461 45,875,644
Net increase (decrease) in unrealized appreciation
of investments................................... 4,152,119 (3,443,339)
------------ ------------
Net increase from operations..................... 27,648,525 46,985,534
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income............... (3,292,051) (4,397,755)
Distributions from net realized capital gains...... (49,775,166) (33,151,636)
------------ ------------
Total distributions.............................. (53,067,217) (37,549,391)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................ 14,281,901 52,295,893
Reinvestment of distributions...................... 50,420,541 35,325,932
Less: redemptions.................................. (59,697,226) (128,116,015)
------------ ------------
Increase (decrease) resulting from capital share
transactions.................................. 5,005,216 (40,494,190)
------------ ------------
Total decrease in net assets....................... (20,413,476) (31,058,047)
NET ASSETS
Beginning of the period............................ 353,028,973 384,087,020
------------ ------------
End of the period (includes undistributed net
investment income of $124,310 and $1,902,416,
respectively).................................... $332,615,497 $353,028,973
============ ============
</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 EACH PERIOD
================================================================================
<TABLE>
<CAPTION>
For the
six months
ended For the year ended June 30,
December 31, ----------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------------ -------- -------- -------- -------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value - Beginning
of Period.... $33.20 $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)....... 0.17 .40 .30 .27 .09 (.01) .07 .20 .06 .41 (.11)
Net Gains
(Losses) on
Securities
(both
realized and
unrealized)... 2.49 3.71 5.47 3.63 .76 5.51 3.45 .49 2.84 1.87 (.29)
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------ -------
Total From
Investment
Operations... 2.66 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....... (0.32) (0.36) (.31) (.18) (.02) (.04) (.09) (.12) (.48) .00 (.02)
Distributions
from net
realized
capital
gains........ (4.81) (2.76) (.54) (.70) (.43) (.56) (1.70) (1.04) (.64) .00 (1.22)
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------ -------
Total
Dividends and
Distributions... (5.13) (3.12) (.85) (.88) (.45) (.60) (1.79) (1.16) (1.12) .00 (1.24)
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------ -------
Net Asset
Value - End
of Period.... $30.73 $33.20 $32.21 $27.29 $24.27 $23.87 $18.97 $17.24 $17.71 $15.93 $13.65
======== ======== ======== ======== ======== ======= ======= ======= ======= ====== =======
Total
Return....... 8.03% 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)... $332,615 $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....... 0.95%** 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... 0.84%** 1.23% 0.99% 1.18% .38% (.01%) .24% .98% .14% 2.83%+ (.59%)+
Portfolio
Turnover
Rate......... 58%** 37% 34% 29% 43% 61% 61% 85% 66% 62% 58%
Average
Commission
Paid per
Share........ $0.0596++ $0.0595++ $0.0588++ -- -- -- -- -- -- -- --
</TABLE>
* 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.
** Figures are annualized.
The accompanying notes are an integral part of the financial statements.
(unaudited)
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 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
$247,546,296, the aggregate gross unrealized appreciation is $89,797,316
and the aggregate gross unrealized depreciation is $16,097,023 resulting
in net unrealized appreciation of $73,700,293.
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 BuNd are cHovgud
d)rectly 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"
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1997
================================================================================
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 taxbasis
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 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, 1997 through October 31, 1998. 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 December 31, 1997 and June 30, 1997, were as follows:
<TABLE>
<CAPTION>
December June
1997 1997
---------- ----------
<S> <C> <C>
Shares sold 432,496 1,670,786
Shares issued on reinvestment of
distributions 1,590,869 1,166,006
----------- -----------
2,023,365 2,836,792
Shares redeemed (1,834,291) (4,126,984)
----------- -----------
Net decrease 189,074 (1,290,192)
=========== ===========
</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 December 31, 1997 was $2,000.
5. COST OF INVESTMENTS: The cost of investments purchased and the proceeds from
sales of investments, excluding shortterm obligations, for the period ended
December 31, 1997 were $85,370,067 and $131,758,595, respectively.
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 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
Washington D.C.
Auditors
PRICE WATERHOUSE
San Francisco, California
SEMI ANNUAL REPORT
[MERIDIAN FUND INCORPORATED LOGO]
60 E. SIR FRANCIS DRAKE BLVD.
WOOD ISLAND, SUITE 306
LARKSPUR, CA 94939
(415) 461-6237
TELEPHONE (800) 446-6662
DECEMBER 31, 1997
<PAGE>
