UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04014
Meridian Fund, Inc.(R)
(Exact name of registrant as specified in charter)
60 E. Sir Francis Drake Boulevard
Suite 306
Larkspur, CA 94939
(Address of principal executive offices) (Zip code)
Gregg B. Keeling
60 E. Sir Francis Drake Boulevard
Suite 306
Larkspur, CA 94939
(Name and address of agent for service)
registrant's telephone number, including area code: 415-461-8770
Date of fiscal year end: June 30
Date of reporting period: June 30, 2006
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
MERIDIAN FUND, INC.
July 11, 2006
To Our Shareholders:
Stocks experienced a difficult quarter, with investors anticipating higher
inflation and slower economic growth during the balance of the year. The S&P 500
declined 1.9%. Small cap stocks, after a strong March quarter, were hardest hit:
the NASDAQ dropped 7.2% and the Russell 2000 declined 5.0%. Transportation,
lodging and energy related stocks were among the best performing sectors. The
worst performing groups included home construction, tires and toys. Interest
rates continued higher. The rate on the ten-year government bond advanced from
4.85% to 5.14%.
The economy grew at a rapid rate of 5.6% during the first quarter, but slowed
during the just ended June quarter and is expected to post modest growth during
the balance of 2006. Inflation has become a concern, fueled by higher commodity
prices. The Federal Reserve has raised the Fed Funds rate to 5.25% and is
pursuing more restrictive money growth to combat the rising inflationary
pressures. The question is how long will the Fed's policy take and how much
damage will it do to the economy. We believe the job will be completed during
the second half of this year and will result in slower growth, but not a full-
scale recession. The strongest economic sector during the balance of the year,
in our opinion, will continue to be business fixed investment. We expect
consumer expenditures will show modest growth, with the exception of residential
construction and auto sales.
We welcome those new shareholders who joined the Meridian Funds during the
quarter and appreciate the continued confidence of our existing shareholders.
The prospectus, news articles and information on how to purchase shares of the
Funds are available on our website at www.meridianfund.com.
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
MERIDIAN EQUITY INCOME FUND(R)
The Meridian Equity Income Fund's net asset value per share at June 30, 2006 was
$11.05. This represents an increase of 5.5% for the calendar year to date. The
Fund's total return and average annual compound rate of return since inception,
January 31, 2005, were 11.9% and 8.3%,
respectively. The Fund's assets at the close of the quarter were invested 4.3%
in cash and 95.7% in stocks. Total net assets were $25,450,702 and there were
457 shareholders.
The Equity Income Fund continues to focus on companies with above-average yields
and strong financial returns that, in our opinion, have the ability to grow
dividends. The portfolio is diversified with 36 positions representing 25
different industry groups. At the end of the second quarter, the portfolio's
average holding had a return on equity and average dividend yield of 17.7% and
2.96% respectively, both measures substantially higher than the average S&P 500
stock. The average position had a market capitalization of $16 billion, a debt
ratio of 45% and earnings per share that are expected to grow 9.3% during the
next several years. We believe these financial characteristics will lead to
positive returns for the Fund.
During the quarter we purchased shares of IHOP, Mercury General, RPM
International and VF Corp. We sold our shares in Jefferson-Pilot, Kinder Morgan,
Masco Corp. and Pacer International.
We recently purchased shares in VF Corp., a leading manufacturer of branded
apparel and related items in the U.S. and internationally. The company's broad
product line includes leading brands in jeans wear, outdoor apparel, intimate
apparel and sportswear. Products are sold to department stores, specialty
stores, chain stores and discounters. VF Corp. continues to gain share in this
large market through expanded product offerings and selected acquisitions. The
shares yield 3.18%, sell at 13.8 times earnings and the company has strong
financial characteristics. Return on equity has averaged 19% during the past
five years, debt is a conservative 25% of total capitalization and future
earnings are expected to grow at 10%. We believe VF Corp. will be a rewarding
investment for our shareholders.
MERIDIAN GROWTH FUND(R)
The Meridian Growth Fund's net asset value per share at June 30, 2006 was
$38.54. This represents an increase of 5.4% for the calendar year to date. The
Fund's total return and average annual compound rate of return since inception,
August 1, 1984, were 1,608.9% and 13.8%, respectively. The Fund's assets at the
close of the quarter were invested 5.1% in cash and cash equivalents and 94.9%
in stocks. Total net assets were $1,689,374,318 and there were 72,438
shareholders.
The interest rate and general economic issues referred to above make investing
more difficult for now, but much of the uncertainty, in our opinion, is
reflected in current prices. Valuations on small and mid-cap stocks are more
attractive than they have been for some time. We believe this sector will
experience positive investment results during the next several years. Stock
selection, as usual, will be critical. Our heaviest areas of concentration
remain technology, industrial services, consumer related and health care.
During the quarter we purchased shares of Carters, Cerner Corp. and RPM
International. We sold our shares in STERIS Corp.
2
DENTSPLY International, a current holding, is the leading manufacturer of dental
products and equipment, with the number one or two market share position in most
categories. Growth, in our opinion, will remain strong for many years due to the
aging of the population, longer retention of natural teeth and an increasing
interest in cosmetic dentistry. Most important, 60% of DENTSPLY's business is
outside the United States. The demand for dental products from developing
countries continues to grow at a rapid pace, driven by strong economic growth
and higher per capita income. The company, we believe, can grow revenue and
earnings at double-digit rates and still generate free cash flow for several
years. DENTSPLY has an experienced management team and sells at a reasonable
valuation, especially considering the company's growth prospects and ability to
generate cash.
MERIDIAN VALUE FUND(R)
The Wall Street Journal ranked the Meridian Value Fund the twenty-sixth best
performing stock fund for the ten-year period ending June 30, 2006. This is out
of a universe of approximately 2,000 funds.
The Meridian Value Fund's net asset value per share at June 30, 2006 was $36.14.
This represents an increase of 4.4% for the calendar year to date. The Fund's
total return and average compounded annual rate of return since June 30, 1995,
were 577.2% and 19.0%, respectively. The comparable period returns for the S&P
500 with dividends were 196.2% and 10.4%, respectively. The Fund's assets at the
close of the quarter were invested 5.3% in cash and cash equivalents and 94.7%
in stocks. Total net assets were $1,686,874,055 and there were 80,875
shareholders.
Our investment strategy is unchanged. We continue to seek out-of-favor companies
that have defensible positions in their industries, strong or improving balance
sheets, reasonable valuations and good prospects for earnings growth. We believe
that over the long term this strategy will continue to outperform. In our
opinion the portfolio is well positioned, reasonably valued and diversified. We
continue to invest in companies of all market capitalizations and our largest
areas of concentration are technology, real estate and financials. We currently
monitor, but don't yet own, a number of solid companies that sell at reasonable
valuations. The outlook for our approach, in our view, is favorable at this
time.
During the quarter we purchased shares of AMVESCAP, Anheuser-Busch, Beckman
Coulter, Cabot, Diebold, Hot Topic, International Flavors & Fragrances,
MedImmune, SYSCO and XL Capital. We sold our shares in ADESA, Aracruz Celulose,
Arch Coal, BJ's Wholesale Club, Chiquita Brands International, Electronic Arts,
Embraer-Empresa Brasileira de Aeronautica, Mettler-Toledo International,
National Oilwell Varco, Northrop Grumman and ServiceMaster.
We recently invested in Entegris, a leading supplier of packaging and handling
equipment and related consumables to the microelectronics industry. Earnings
suffered in 2005 from poor industry conditions and acquisition integration costs
related to the company's merger with Mykrolis. Entegris has a dominant market
share in most of the areas in which it competes and the completed merger should
make the company an even more formidable competitor. Secular trends
3
in the semiconductor industry such as smaller sizes and more demanding
manufacturing conditions play to the company's strength in micro-contamination
control. Entegris has a clean balance sheet with over $1.50 in net cash per
share and is reasonably valued at 14 times this year's earnings estimates and
less than 10 times our estimate of normalized earnings potential of $0.95. The
entire semiconductor industry is out of favor, but we believe that conditions
will eventually improve and Entegris will prove to be a positive investment for
the Fund.
4
MERIDIAN EQUITY INCOME FUND
SUMMARY OF PORTFOLIO HOLDINGS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY CATEGORY (% OF TOTAL NET ASSETS)
<Table>
Telecommunications Services........................... 5.8% $ 1,473,116
Business Services..................................... 5.4 1,378,001
Consumer Products..................................... 5.4 1,371,335
Industrial Services................................... 5.3 1,362,169
Paper/Forest Products................................. 5.3 1,353,139
Electrical Equipment.................................. 5.3 1,350,853
Industrial Products................................... 5.3 1,337,557
Insurance............................................. 5.2 1,336,805
Chemicals............................................. 5.1 1,309,351
Brokerage & Money Management.......................... 4.9 1,259,719
Banking............................................... 4.8 1,223,140
Agriculture........................................... 3.1 782,040
Pharmaceuticals....................................... 2.9 730,946
Oil & Gas............................................. 2.8 709,036
Automobile............................................ 2.8 708,539
Apparel............................................... 2.8 702,972
Retail................................................ 2.7 693,489
Restaurants........................................... 2.7 692,352
Basic Materials....................................... 2.7 688,050
Diversified Operations................................ 2.7 681,200
Office Supplies....................................... 2.6 657,530
Healthcare Products................................... 2.6 651,112
Furniture & Fixtures.................................. 2.5 646,982
Business Products..................................... 2.5 638,750
Insurance Brokers..................................... 2.5 628,357
Cash & Other Assets, Less Liabilities................. 4.3 1,084,162
------ -----------
Total Net Assets...................................... 100.0% $25,450,702
====== ===========
</Table>
5
MERIDIAN GROWTH FUND
SUMMARY OF PORTFOLIO HOLDINGS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY CATEGORY (% OF TOTAL NET ASSETS)
<Table>
Retail............................................... 10.5% $ 177,612,494
Industrial Services.................................. 9.7 163,872,560
Healthcare Products.................................. 8.3 139,371,001
Healthcare Services.................................. 6.8 115,265,066
Tech-Software........................................ 6.7 113,026,753
Brokerage & Money Management......................... 4.9 83,528,714
Industrial Products.................................. 4.5 75,794,366
Tech-Hardware........................................ 4.0 68,062,080
Banking.............................................. 3.9 65,969,641
Business Services.................................... 3.8 64,925,802
Consumer Services.................................... 3.6 61,173,625
Cellular Communications.............................. 3.1 51,889,488
Restaurants.......................................... 3.0 50,406,421
Hotels & Lodging..................................... 2.8 47,105,300
Insurance............................................ 2.7 45,742,902
Construction......................................... 2.6 43,358,927
Real Estate.......................................... 2.5 42,321,730
Leisure & Amusement.................................. 2.5 41,958,911
Insurance Brokers.................................... 2.5 41,406,753
Business Products.................................... 2.4 39,739,562
Aerospace/Defense.................................... 2.2 37,911,024
U.S. Government Obligations.......................... 1.5 24,834,583
Chemicals............................................ 1.0 16,707,780
Apparel.............................................. 0.9 15,605,594
Cash & Other Assets, Less Liabilities................ 3.6 61,783,241
------ --------------
Total Net Assets..................................... 100.0% $1,689,374,318
====== ==============
</Table>
6
MERIDIAN VALUE FUND
SUMMARY OF PORTFOLIO HOLDINGS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY CATEGORY (% OF TOTAL NET ASSETS)
<Table>
Technology........................................... 10.9% $ 184,477,573
Real Estate.......................................... 7.6 128,001,643
Banking.............................................. 7.5 126,474,850
Industrial Services.................................. 6.5 109,135,836
Retail............................................... 6.1 102,787,265
Industrial Products.................................. 5.8 98,698,984
Energy............................................... 5.7 96,163,629
Consumer Products.................................... 5.0 84,617,595
Telecommunications Equipment......................... 5.0 84,453,462
Healthcare Products.................................. 4.7 78,816,370
Pharmaceuticals...................................... 4.0 66,977,498
Healthcare Services.................................. 2.7 45,231,680
Media................................................ 2.6 43,301,695
Consumer Products/Food & Beverage.................... 2.4 40,955,670
Telecommunications Services.......................... 2.3 38,121,600
Insurance............................................ 2.2 38,024,990
Aerospace/Defense.................................... 2.2 37,188,648
Utilities............................................ 2.1 36,135,611
U.S. Government Obligations.......................... 2.1 34,764,903
Information Technology Services...................... 1.8 29,964,600
Publishing........................................... 1.6 27,283,620
Basic Materials...................................... 1.6 27,202,400
Insurance Brokers.................................... 1.2 19,680,510
Restaurants.......................................... 1.1 19,176,496
Oil & Gas............................................ 1.1 18,956,333
Business Products.................................... 1.0 16,260,186
Cash & Other Assets, Less Liabilities................ 3.2 54,020,408
------ --------------
Total Net Assets..................................... 100.0% $1,686,874,055
====== ==============
</Table>
7
MERIDIAN FUND, INC.
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
FOR THE SIX MONTH PERIOD JANUARY 1, 2006 TO JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We believe it is important for you to understand the impact of fees and expenses
on your investment. All mutual funds have operating expenses. As a shareholder
of the Fund, you incur ongoing costs, which include costs for portfolio
management, administrative services, and shareholder reports (like this one),
among others. Operating expenses, which are deducted from a Fund's gross income,
directly reduce the investment return of the portfolio. A Fund's expenses are
expressed as a percentage of its average net assets. This figure is known as the
expense ratio. The following examples are intended to help you understand the
ongoing costs (in dollars) of investing in your Fund and to compare these costs
with those of other mutual funds. The examples are based on an investment of
$1,000 made at the beginning of the period shown and held for the entire period
and assume reinvestment of all dividends and distributions.
<Table>
<Caption>
Beginning Ending Expenses
Account Value Account Value Expense Paid During
01/01/06 06/30/06 Ratio(1) Period(2)
------------- ------------- -------- -----------
ACTUAL FUND RETURN
(See explanation below)
Meridian Equity Income Fund............... $1,000.00 $1,055.40 1.25%(4) $6.36
Meridian Growth Fund...................... $1,000.00 $1,053.90 0.85% $4.32
Meridian Value Fund....................... $1,000.00 $1,043.60 1.09% $5.55
HYPOTHETICAL 5% RETURN(3)
(See explanation below)
Meridian Equity Income Fund............... $1,000.00 $1,018.61 1.25%(4) $6.24
Meridian Growth Fund...................... $1,000.00 $1,020.59 0.85% $4.25
Meridian Value Fund....................... $1,000.00 $1,019.37 1.09% $5.48
</Table>
(1) Annualized, based on the Fund's most recent fiscal half-year expenses.
(2) Expenses are equal to the Fund's annualized expense ratio multiplied by
the average account value over the period, multiplied by the number of
days in the most recent fiscal half-year, then divided by 365.
(3) Before expenses.
(4) See note 2 to Financial Statements.
The table above illustrates your Fund's costs in two ways:
ACTUAL FUND RETURN: This section helps you to estimate the actual expenses that
you paid over the period. The "Ending Account Value" shown is derived from the
Fund's ACTUAL return, the third column shows the period's annualized expense
ratio, and the last column shows the dollar amount that would have been paid by
an investor who started with $1,000 in the Fund at the beginning of the period.
You may use the information here, together with your account value, to estimate
the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period."
8
HYPOTHETICAL 5% RETURN: This section is intended to help you compare your Fund's
costs with those of other mutual funds. It assumes that the Fund had a return of
5% before expenses during the period shown, but that the expense ratio is
unchanged. In this case, because the return used is NOT the Fund's actual
return, the results do not apply to your investment. You can assess your Fund's
costs by comparing this 5% Return hypothetical example with the 5% Return
hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as short-term
redemption and exchange fees or sales and service charges you may pay third
party broker/dealers. Had these transactional costs been included, your costs
would have been higher. Therefore, the hypothetical section of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds.
9
MERIDIAN EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK - 95.7%
AGRICULTURE - 3.1%
Delta & Pine Land Co. ............. 26,600 $ 782,040
APPAREL - 2.8%
VF Corp. .......................... 10,350 702,972
AUTOMOBILE - 2.8%
Autoliv, Inc. (Sweden)............. 12,525 708,539
BANKING - 4.8%
Comerica, Inc. .................... 11,550 600,484
Regions Financial Corp. ........... 18,800 622,656
-----------
1,223,140
BASIC MATERIALS - 2.7%
PPG Industries, Inc. .............. 10,425 688,050
BROKERAGE & MONEY MANAGEMENT - 4.9%
Mellon Financial Corp. ............ 18,300 630,069
Waddell & Reed Financial, Inc.
Class A.......................... 30,625 629,650
-----------
1,259,719
BUSINESS PRODUCTS - 2.5%
Diebold, Inc. ..................... 15,725 638,750
BUSINESS SERVICES - 5.4%
ABM Industries, Inc. .............. 39,900 682,290
R. R. Donnelley & Sons Co. ........ 21,775 695,711
-----------
1,378,001
CHEMICALS - 5.1%
Lubrizol Corp. .................... 16,325 650,551
RPM International, Inc. ........... 36,600 658,800
-----------
1,309,351
CONSUMER PRODUCTS - 5.4%
Newell Rubbermaid, Inc. ........... 25,750 665,123
Reynolds American, Inc. ........... 6,125 706,212
-----------
1,371,335
DIVERSIFIED OPERATIONS - 2.7%
E.I. du Pont de Nemours & Co. ..... 16,375 681,200
ELECTRICAL EQUIPMENT - 5.3%
Emerson Electric Co. .............. 8,400 704,004
Hubbell, Inc. Class B.............. 13,575 646,849
-----------
1,350,853
FURNITURE & FIXTURES - 2.5%
Leggett & Platt, Inc. ............. 25,900 646,982
HEALTHCARE PRODUCTS - 2.6%
Hillenbrand Industries, Inc. ...... 13,425 651,112
INDUSTRIAL PRODUCTS - 5.3%
Bemis Co. ......................... 22,575 691,247
Briggs & Stratton Corp. ........... 20,775 646,310
-----------
1,337,557
INDUSTRIAL SERVICES - 5.3%
Genuine Parts Co. ................. 16,075 669,685
Waste Management, Inc. ............ 19,300 692,484
-----------
1,362,169
INSURANCE - 5.2%
Lincoln National Corp. ............ 11,950 674,458
Mercury General Corp. ............. 11,750 662,347
-----------
1,336,805
</Table>
The accompanying notes are an integral part of the financial statements.
10
MERIDIAN EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK (continued)
INSURANCE BROKERS - 2.5%
Willis Group Holdings, Ltd. (United
Kingdom)......................... 19,575 $ 628,357
OFFICE SUPPLIES - 2.6%
Avery Dennison Corp. .............. 11,325 657,530
OIL & GAS - 2.8%
Chevron Corp. ..................... 11,425 709,036
PAPER/FOREST PRODUCTS - 5.3%
Kimberly-Clark Corp. .............. 10,915 673,455
Sonoco Products Co. ............... 21,475 679,684
-----------
1,353,139
PHARMACEUTICALS - 2.9%
Eli Lilly & Co. ................... 13,225 730,946
RESTAURANTS - 2.7%
IHOP Corp. ........................ 14,400 692,352
RETAIL - 2.7%
Limited Brands, Inc. .............. 27,100 693,489
TELECOMMUNICATIONS SERVICES - 5.8%
Alltel Corp. ...................... 10,375 662,236
BellSouth Corp. ................... 22,400 810,880
-----------
1,473,116
TOTAL INVESTMENTS - 95.7%
(Identified cost $23,118,017)........................ 24,366,540
CASH AND OTHER ASSETS, LESS LIABILITIES - 4.3%............ 1,084,162
-----------
NET ASSETS - 100.0%....................................... $25,450,702
===========
</Table>
The accompanying notes are an integral part of the financial statements.
11
MERIDIAN GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK - 94.9%
AEROSPACE/DEFENSE - 2.2%
BE Aerospace, Inc.* ............... 1,658,400 $ 37,911,024
APPAREL - 0.9%
Carter's, Inc.*.................... 590,450 15,605,594
BANKING - 3.9%
SVB Financial Group*............... 777,400 35,340,604
UCBH Holdings, Inc. ............... 1,851,816 30,629,037
--------------
65,969,641
BROKERAGE & MONEY MANAGEMENT - 4.9%
Affiliated Managers Group, Inc.*... 483,545 42,015,225
T. Rowe Price Group, Inc. ......... 1,097,950 41,513,489
--------------
83,528,714
BUSINESS PRODUCTS - 2.4%
Diebold, Inc. ..................... 978,325 39,739,562
BUSINESS SERVICES - 3.8%
CSG Systems International, Inc.*... 1,410,630 34,898,986
Mercury Interactive Corp.*......... 858,645 30,026,816
--------------
64,925,802
CELLULAR COMMUNICATIONS - 3.1%
American Tower Corp. Class A*...... 1,667,400 51,889,488
CHEMICALS - 1.0%
RPM International, Inc. ........... 928,210 16,707,780
CONSTRUCTION - 2.6%
Granite Construction, Inc. ........ 957,785 43,358,927
CONSUMER SERVICES - 3.6%
Regis Corp. ....................... 997,200 35,510,292
Rollins, Inc. ..................... 1,306,687 25,663,333
--------------
61,173,625
HEALTHCARE PRODUCTS - 8.3%
C. R. Bard, Inc. .................. 577,275 42,291,167
DENTSPLY International, Inc. ...... 763,000 46,237,800
Edwards Lifesciences Corp.*........ 970,485 44,089,134
Symmetry Medical, Inc.*............ 438,500 6,752,900
--------------
139,371,001
HEALTHCARE SERVICES - 6.8%
Cerner Corp.*...................... 865,230 32,108,685
DaVita, Inc.*...................... 848,400 42,165,480
Laboratory Corp. of America
Holdings*........................ 658,700 40,990,901
--------------
115,265,066
HOTELS & LODGING - 2.8%
Las Vegas Sands Corp.*............. 605,000 47,105,300
INDUSTRIAL PRODUCTS - 4.5%
Airgas, Inc. ...................... 1,103,575 41,108,169
Dionex Corp.*...................... 634,581 34,686,197
--------------
75,794,366
INDUSTRIAL SERVICES - 9.7%
Allied Waste Industries, Inc.*..... 3,514,725 39,927,276
EGL, Inc. *........................ 810,278 40,675,956
Republic Services, Inc. ........... 996,100 40,182,674
United Rentals, Inc.*.............. 1,347,300 43,086,654
--------------
163,872,560
INSURANCE - 2.7%
Mercury General Corp. ............. 811,476 45,742,902
</Table>
The accompanying notes are an integral part of the financial statements.
12
MERIDIAN GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK (continued)
INSURANCE BROKERS - 2.5%
Willis Group Holdings, Ltd. (United
Kingdom)......................... 1,289,930 $ 41,406,753
LEISURE & AMUSEMENT - 2.5%
Royal Caribbean Cruises, Ltd. ..... 1,096,965 41,958,911
REAL ESTATE - 2.5%
Host Hotels & Resorts, Inc.(a)..... 1,935,150 42,321,730
RESTAURANTS - 3.0%
CBRL Group, Inc. .................. 600,888 20,382,121
Ruby Tuesday, Inc. ................ 1,230,000 30,024,300
--------------
50,406,421
RETAIL - 10.5%
Bed Bath & Beyond, Inc.*........... 948,300 31,455,111
Claire's Stores, Inc. ............. 1,062,740 27,110,497
Foot Locker, Inc. ................. 1,462,825 35,824,584
PetSmart, Inc. .................... 1,281,000 32,793,600
Ross Stores, Inc. ................. 1,206,300 33,836,715
Zale Corp.*........................ 688,750 16,591,987
--------------
177,612,494
TECH-HARDWARE - 4.0%
American Power Conversion Corp. ... 1,556,573 30,337,608
Vishay Intertechnology, Inc.*...... 2,398,250 37,724,472
--------------
68,062,080
TECH-SOFTWARE - 6.7%
Advent Software, Inc.*............. 1,066,438 38,466,419
Cognos, Inc.* (Canada)............. 929,065 26,431,899
FileNet Corp.*..................... 749,500 20,184,035
Getty Images, Inc.*................ 440,000 27,944,400
--------------
113,026,753
TOTAL COMMON STOCK - 94.9%
(Identified cost $1,288,946,653)..................... 1,602,756,494
--------------
U.S. GOVERNMENT OBLIGATIONS - 1.5%
U.S. Treasury Bill @ 4.812%
due 08/10/06
(Face Value $15,000,000)............................. 14,921,833
U.S. Treasury Bill @ 4.864%
due 09/07/06
(Face Value $10,000,000)............................. 9,912,750
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $24,832,300)........................ 24,834,583
--------------
TOTAL INVESTMENTS - 96.4%
(Identified cost $1,313,778,953)........................ 1,627,591,077
CASH AND OTHER ASSETS, LESS LIABILITIES - 3.6%............ 61,783,241
--------------
NET ASSETS - 100.0%....................................... $1,689,374,318
==============
</Table>
* Non-income producing securities.
(a) Real Estate Investment Trust (REIT)
The accompanying notes are an integral part of the financial statements.
13
MERIDIAN VALUE FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK - 94.7%
AEROSPACE/DEFENSE - 2.2%
BE Aerospace, Inc.*................ 1,626,800 $ 37,188,648
BANKING - 7.5%
AMVESCAP PLC ADR (United Kingdom).. 674,000 12,462,260
Federated Investors, Inc. Class B.. 785,700 24,749,550
Greater Bay Bancorp................ 579,200 16,652,000
JPMorgan Chase & Co. .............. 1,124,000 47,208,000
Regions Financial Corp. ........... 767,000 25,403,040
--------------
126,474,850
BASIC MATERIALS - 1.6%
Barrick Gold Corp. (Canada)........ 919,000 27,202,400
BUSINESS PRODUCTS - 1.0%
Diebold, Inc. ..................... 400,300 16,260,186
CONSUMER PRODUCTS - 5.0%
Newell Rubbermaid, Inc. ........... 2,012,100 51,972,543
Pactiv Corp.*...................... 1,318,992 32,645,052
--------------
84,617,595
CONSUMER PRODUCTS/FOOD & BEVERAGE - 2.4%
Anheuser-Busch Cos., Inc. ......... 525,000 23,934,750
International Flavors & Fragrances,
Inc. ............................ 483,000 17,020,920
--------------
40,955,670
ENERGY - 5.7%
El Paso Corp. ..................... 1,274,300 19,114,500
GlobalSanteFe Corp. ............... 508,900 29,388,975
Hanover Compressor Co.*............ 1,504,300 28,250,754
Tidewater, Inc. ................... 394,500 19,409,400
--------------
96,163,629
HEALTHCARE PRODUCTS - 4.7%
Baxter International, Inc. ........ 1,431,600 52,625,616
Beckman Coulter, Inc. ............. 317,500 17,637,125
Thoratec Corp.*.................... 616,700 8,553,629
--------------
78,816,370
HEALTHCARE SERVICES - 2.7%
AmerisourceBergen Corp. ........... 1,079,000 45,231,680
INDUSTRIAL PRODUCTS - 5.8%
Cabot Corp. ....................... 284,500 9,820,940
General Electric Co. .............. 491,400 16,196,544
Manitowoc Co., Inc. (The).......... 944,600 42,034,700
Sealed Air Corp. .................. 407,500 21,222,600
Spartech Corp. .................... 417,000 9,424,200
--------------
98,698,984
INDUSTRIAL SERVICES - 6.5%
Allied Waste Industries, Inc.*..... 3,788,500 43,037,360
Sysco Corp. ....................... 581,300 17,764,528
Waste Management, Inc. ............ 1,347,100 48,333,948
--------------
109,135,836
INFORMATION TECHNOLOGY SERVICES - 1.8%
BearingPoint, Inc.*................ 3,580,000 29,964,600
INSURANCE - 2.2%
Conseco, Inc.*..................... 597,900 13,811,490
XL Capital, Ltd. (Bermuda)......... 395,000 24,213,500
--------------
38,024,990
INSURANCE BROKERS - 1.2%
Willis Group Holdings, Ltd. (United
Kingdom)......................... 613,100 19,680,510
</Table>
The accompanying notes are an integral part of the financial statements.
14
MERIDIAN VALUE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
--------------- --------------------
COMMON STOCK (continued)
MEDIA - 2.6%
Time Warner, Inc. ................. 2,195,500 $ 37,982,150
Valassis Communications, Inc.*..... 225,500 5,319,545
--------------
43,301,695
OIL & GAS - 1.1%
Kinder Morgan Management, LLC.*.... 440,640 18,956,333
PHARMACEUTICALS - 4.0%
Medimmune, Inc.*................... 735,200 19,923,920
Schering-Plough Corp. ............. 2,472,600 47,053,578
--------------
66,977,498
PUBLISHING - 1.6%
Pearson PLC ADR (United Kingdom)... 1,998,800 27,283,620
REAL ESTATE - 7.6%
Apartment Investment & Management
Co. Class A(a)................... 800,900 34,799,105
Equity Residential(a).............. 862,300 38,570,679
Healthcare Realty Trust, Inc.(a)... 534,100 17,011,085
Host Hotels & Resorts, Inc.(a)..... 1,720,200 37,620,774
--------------
128,001,643
RESTAURANTS - 1.1%
Ruby Tuesday, Inc. ................ 785,600 19,176,496
RETAIL - 6.1%
HOT Topic, Inc.*................... 1,217,300 14,011,123
Jean Coutu Group, Inc. Class A
(Canada)......................... 1,512,300 15,850,497
Ross Stores, Inc. ................. 1,212,900 34,021,845
Safeway, Inc. ..................... 1,496,300 38,903,800
--------------
102,787,265
TECHNOLOGY - 10.9%
Analog Devices, Inc. .............. 1,055,000 33,907,700
Entegris, Inc.*.................... 2,435,400 23,209,362
Intersil Corp. Class A............. 769,300 17,886,225
Symbol Technologies, Inc. ......... 2,854,800 30,803,292
Tektronix, Inc. ................... 730,000 21,476,600
Western Digital Corp.*............. 1,517,400 30,059,694
Xilinx, Inc. ...................... 1,198,000 27,134,700
--------------
184,477,573
TELECOMMUNICATIONS EQUIPMENT - 5.0%
Nokia Oyj ADR (Finland)............ 2,155,200 43,664,352
Powerwave Technologies, Inc.*...... 2,256,200 20,576,544
Tellabs, Inc.*..................... 1,518,600 20,212,566
--------------
84,453,462
TELECOMMUNICATIONS SERVICES - 2.3%
DIRECTV Group, Inc. (The)*......... 2,310,400 38,121,600
UTILITIES - 2.1%
Hawaiian Electric Industries,
Inc. ............................ 703,275 19,628,405
TECO Energy, Inc. ................. 1,104,900 16,507,206
--------------
36,135,611
TOTAL COMMON STOCK - 94.7%
(Identified cost $1,428,802,460)..................... 1,598,088,744
--------------
<Caption>
</Table>
The accompanying notes are an integral part of the financial statements.
15
MERIDIAN VALUE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Value
--------------------
U.S. GOVERNMENT OBLIGATIONS - 2.1%
U.S. Treasury Bill @ 4.812%
due 08/10/06
(Face Value $20,000,000)............................. $ 19,895,778
U.S. Treasury Bill @ 4.864%
due 09/07/06
(Face Value $15,000,000)............................. 14,869,125
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $34,761,478)........................ 34,764,903
--------------
TOTAL INVESTMENTS - 96.8%
(Identified cost $1,463,563,938)........................ 1,632,853,647
CASH AND OTHER ASSETS, LESS LIABILITIES - 3.2%............ 54,020,408
--------------
NET ASSETS - 100.0%....................................... $1,686,874,055
==============
</Table>
* Non-income producing securities.
(a) Real Estate Investment Trust (REIT)
ADR - American Depository Receipt
The accompanying notes are an integral part of the financial statements.
16
MERIDIAN FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Equity
Income Fund Growth Fund Value Fund
----------- -------------- --------------
ASSETS
Investments (Cost $23,118,017,
$1,313,778,953 and $1,463,563,938,
respectively)........................ $24,366,540 $1,627,591,077 $1,632,853,647
Cash.................................... 1,078,196 60,298,210 53,018,665
Receivable for:
Capital shares purchased............. 2,310 664,352 483,647
Dividends............................ 42,190 1,134,719 1,251,963
Interest............................. 4,114 191,548 154,520
Securities sold...................... -- 5,074,679 10,816,529
Prepaid expenses........................ 43 6,276 8,204
----------- -------------- --------------
TOTAL ASSETS......................... $25,493,393 $1,694,960,861 $1,698,587,175
----------- -------------- --------------
LIABILITIES
Payable for:
Capital shares sold.................. -- 667,300 1,072,044
Securities purchased................. -- 3,652,042 8,913,191
Accrued expenses:
Investment advisory fees............. 9,978 1,036,341 1,393,870
Other payables and accrued expenses.. 32,713 230,860 334,015
----------- -------------- --------------
TOTAL LIABILITIES.................... 42,691 5,586,543 11,713,120
----------- -------------- --------------
NET ASSETS................................ $25,450,702 $1,689,374,318 $1,686,874,055
=========== ============== ==============
Capital shares issued and outstanding, par
value $0.01 (500,000,000, 500,000,000
and 500,000,000 shares authorized,
respectively)........................... 2,303,908 43,832,006 46,673,089
=========== ============== ==============
Net asset value per share (offering and
redemption price)....................... $ 11.05 $ 38.54 $ 36.14
=========== ============== ==============
Net Assets consist of:
Paid in capital......................... $24,056,576 $1,312,857,781 $1,367,174,248
Accumulated net realized gain (loss).... (67,437) 62,704,413 150,410,098
Net unrealized appreciation on
investments.......................... 1,248,523 313,812,124 169,289,709
Accumulated undistributed net investment
income............................... 213,040 -- --
----------- -------------- --------------
$25,450,702 $1,689,374,318 $1,686,874,055
=========== ============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
17
MERIDIAN FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Equity
Income Fund Growth Fund Value Fund
----------- ------------ ------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of
$0, $0 and $316,459, respectively)...... $ 496,817 $ 10,589,657 $ 27,103,400
Interest................................... 36,247 3,121,948 3,903,706
Other income............................... -- 8,094 448,728
---------- ------------ ------------
Total investment income............... 533,064 13,719,699 31,455,834
---------- ------------ ------------
EXPENSES
Investment advisory fees................... 167,080 12,712,196 19,930,825
Transfer agent fees........................ 30,725 561,888 635,257
Reports to shareholders.................... -- 251,369 337,267
Custodian fees............................. 10,421 371,368 428,133
Pricing fees............................... 27,934 203,051 246,069
Professional fees.......................... 33,681 44,642 57,417
Registration and filing fees............... 20,732 34,103 26,983
Miscellaneous expenses..................... 904 23,883 33,430
Directors' fees and expenses............... 853 19,710 30,295
---------- ------------ ------------
Total expenses........................ 292,330 14,222,210 21,725,676
Expenses waived and reimbursed by Advisor
(Note 2)................................ (74,072) -- --
---------- ------------ ------------
Net expenses.......................... 218,258 14,222,210 21,725,676
---------- ------------ ------------
Net investment income (loss)............... 314,806 (502,511) 9,730,158
---------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 1,824 69,915,840 173,580,142
Net change in unrealized appreciation
(depreciation) on investments........... 1,235,646 86,155,525 (37,832,024)
---------- ------------ ------------
Net gain on investments.................... 1,237,470 156,071,365 135,748,118
---------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $1,552,276 $155,568,854 $145,478,276
========== ============ ============
</Table>
The accompanying notes are an integral part of the financial statements.
18
MERIDIAN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Equity Income Fund Growth Fund
------------------------------ -------------------------------
Period from
January 31, 2005
Year Ended through Year Ended Year Ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
----------- ---------------- -------------- --------------
OPERATIONS
Net investment income (loss).... $ 314,806 $ 50,803 $ (502,511) $ (3,142,905)
Net realized gain (loss) on
investments................... 1,824 (56,815) 69,915,840 28,329,375
Net increase in unrealized
appreciation of investments... 1,235,646 12,877 86,155,525 18,946,511
----------- ---------- -------------- --------------
Net increase in net assets
from operations............ 1,552,276 6,865 155,568,854 44,132,981
----------- ---------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from ordinary
income........................ (152,533) -- -- --
Distributions from net realized
capital gains................. (12,482) -- (35,405,369) (23,729,781)
----------- ---------- -------------- --------------
Net distributions............. (165,015) -- (35,405,369) (23,729,781)
----------- ---------- -------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares... 16,180,179 8,419,848 353,645,898 687,734,375
Reinvestment of distributions... 137,665 -- 29,835,577 20,093,262
Less: redemptions of shares..... (666,247) (14,869) (507,834,420) (307,969,106)
----------- ---------- -------------- --------------
Increase (decrease) resulting
from capital share
transactions............... 15,651,597 8,404,979 (124,352,945) 399,858,531
----------- ---------- -------------- --------------
Total increase (decrease) in net
assets........................ 17,038,858 8,411,844 (4,189,460) 420,261,731
----------- ---------- -------------- --------------
NET ASSETS
Beginning of year............... 8,411,844 -- 1,693,563,778 1,273,302,047
----------- ---------- -------------- --------------
End of year..................... $25,450,702 $8,411,844 $1,689,374,318 $1,693,563,778
=========== ========== ============== ==============
Undistributed Net Investment
Income included in net assets
at end of year................ $ 213,040 $ 50,803 $ -- $ --
=========== ========== ============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
19
MERIDIAN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Value Fund
-------------------------------
Year Ended Year Ended
June 30, 2006 June 30, 2005
-------------- --------------
OPERATIONS
Net investment income.............................. $ 9,730,158 $ 10,705,840
Net realized gain on investments................... 173,580,142 246,645,725
Net decrease in unrealized appreciation of
investments...................................... (37,832,024) (78,508,153)
-------------- --------------
Net increase in net assets from operations....... 145,478,276 178,843,412
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from ordinary income................. (16,078,058) (15,996,704)
Distributions from net realized capital gains...... (216,870,523) (288,644,525)
-------------- --------------
Net distributions................................ (232,948,581) (304,641,229)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares...................... 200,186,023 510,656,976
Reinvestment of distributions...................... 195,949,460 255,316,413
Less: redemptions of shares........................ (893,269,040) (595,287,416)
-------------- --------------
Increase (decrease) resulting from capital share
transactions.................................. (497,133,557) 170,685,973
-------------- --------------
Total increase (decrease) in net assets............ (584,603,862) 44,888,156
-------------- --------------
NET ASSETS
Beginning of year.................................. 2,271,477,917 2,226,589,761
-------------- --------------
End of year........................................ $1,686,874,055 $2,271,477,917
============== ==============
Undistributed Net Investment Income
included in net assets at end of year............ $ -- $ --
============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
20
MERIDIAN EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE FISCAL
PERIOD FROM
FOR THE JANUARY 31, 2005
YEAR ENDED THROUGH
JUNE 30, 2006 JUNE 30, 2005+
------------- ----------------
Net Asset Value - Beginning of Period.................. $10.10 $10.00
----------- -----------
Income from Investment Operations
- ---------------------------------
Net Investment Income*................................. 0.15 0.06
Net Gains on Investments (both realized and
unrealized).......................................... 0.93 0.04
----------- -----------
Total From Investment Operations....................... 1.08 0.10
----------- -----------
Less Distributions
- ------------------
Distributions from Net Investment Income............... (0.12) 0.00
Distributions from Net Realized Capital Gains.......... (0.01) 0.00
----------- -----------
Total Distributions.................................... (0.13) 0.00
----------- -----------
Net Asset Value - End of Period........................ $11.05 $10.10
=========== ===========
Total Return........................................... 10.75% 1.00%(1)
=========== ===========
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's)...................... $25,451 $8,412
Ratio of Expenses to Average Net Assets
Before expense reimbursement......................... 1.67% 3.96%**
After expense reimbursement(2)....................... 1.25% 1.25%**
Ratio of Net Investment Income (Loss) to Average Net
Assets
Before expense reimbursement......................... 1.38% (0.60%)**
After expense reimbursement.......................... 1.80% 2.11%**
Portfolio Turnover Rate................................ 60% 25%
</Table>
* Net Investment Income per share has been computed before adjustments for
book/tax differences.
** Annualized for periods of less than one year.
+ The Fund commenced investment operations on January 31, 2005.
(1) Not Annualized.
(2) See note 2 to Financial Statements.
The accompanying notes are an integral part of the financial statements.
21
MERIDIAN GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
For the fiscal year ended June 30,
--------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value -
Beginning of Year...... $35.77 $35.38 $27.24 $28.10 $31.30 $29.45 $26.28 $33.26 $33.20 $32.21
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Income from Investment Operations
- ---------------------------------
Net Investment Income
(Loss)*................ (0.01) (0.07) (0.04) (0.08) (0.12) 2.26 0.11 0.16 0.27 0.40
Net Gains (Losses) on
Investments
(both realized and
unrealized)............ 3.58 1.02 9.10 (0.11) (0.24) 3.89 4.99 (0.50) 4.92 3.71
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............. 3.57 0.95 9.06 (0.19) (0.36) 6.15 5.10 (0.34) 5.19 4.11
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
- ------------------
Distributions from Net
Investment Income...... 0.00 0.00 0.00 (0.06) 0.00 (2.44) (0.15) (0.14) (0.32) (0.36)
Distributions from Net
Realized Capital
Gains.................. (0.80) (0.56) (0.92) (0.61) (2.84) (1.86) (1.78) (6.50) (4.81) (2.76)
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Total Distributions...... (0.80) (0.56) (0.92) (0.67) (2.84) (4.30) (1.93) (6.64) (5.13) (3.12)
---------- ---------- ---------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value - End of
Year................... $38.54 $35.77 $35.38 $27.24 $28.10 $31.30 $29.45 $26.28 $33.26 $33.20
========== ========== ========== ======== ======== ======== ======== ======== ======== ========
Total Return............. 10.08% 2.65% 33.65% (0.20%) 0.42% 23.34% 21.45% 3.05% 16.92% 13.92%
========== ========== ========== ======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year
(000's)................ $1,689,374 $1,693,564 $1,273,302 $448,393 $310,659 $182,117 $140,990 $185,683 $296,803 $353,029
Ratio of Expenses to
Average Net Assets..... 0.85% 0.86% 0.88% 0.95% 1.02% 1.04% 1.09% 1.01% 0.95% 0.96%
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... (0.03%) (0.21%) (0.21%) (0.47%) (0.62%) (0.26%) 0.31% 0.49% 0.76% 1.23%
Portfolio Turnover Rate.. 29% 32% 19% 27% 26% 43% 28% 51% 38% 37%
</Table>
* Net Investment Income (Loss) per share has been computed before adjustments
for book/tax differences.
The accompanying notes are an integral part of the financial statements.
22
MERIDIAN VALUE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Net Asset Value -
Beginning of Year...... $38.11 $40.35 $31.65 $30.34 $30.98 $25.88 $22.29 $19.30 $17.40 $15.32
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Income from Investment Operations
- ---------------------------------
Net Investment Income
(Loss)**............... 0.18 0.19 0.00 (0.03) (0.05) 1.12 0.05 (0.10) (0.19) (0.26)
Net Gains (Losses) on
Investments (both
realized and
unrealized)............ 2.45 2.96 8.70 1.34 (0.51) 5.75 5.91 3.56 4.32 3.20
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Total From Investment
Operations............. 2.63 3.15 8.70 1.31 (0.56) 6.87 5.96 3.46 4.13 2.94
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Less Distributions
- ------------------
Distributions from Net
Investment Income...... (0.32) (0.28) 0.00 0.00 (0.04) (1.09) 0.00 0.00 0.00 0.00
Distributions from Net
Realized Capital
Gains.................. (4.28) (5.11) 0.00 0.00 (0.04) (0.68) (2.37) (0.47) (2.23) (0.86)
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Total Distributions...... (4.60) (5.39) 0.00 0.00 (0.08) (1.77) (2.37) (0.47) (2.23) (0.86)
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------- ------
Net Asset Value - End of
Year................... $36.14 $38.11 $40.35 $31.65 $30.34 $30.98 $25.88 $22.29 $19.30 $17.40
========== ========== ========== ========== ========== ======== ======= ======= ======= ======
Total Return............. 7.35% 8.00% 27.49% 4.32% (1.78%) 27.95% 29.63% 18.92% 26.05% 20.55%+
========== ========== ========== ========== ========== ======== ======= ======= ======= ======
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year
(000's)................ $1,686,874 $2,271,478 $2,226,590 $1,456,552 $1,297,207 $768,559 $87,930 $24,912 $12,196 $7,340
Ratio of Expenses to
Average Net Assets..... 1.09% 1.08% 1.09% 1.11% 1.12% 1.10% 1.41% 1.63% 2.16% 2.51%*
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... 0.49% 0.48% 0.01% (0.12%) (0.22%) 0.60% 0.39% (0.65%) (1.35%) (1.96%)*
Portfolio Turnover Rate.. 58% 59% 81% 60% 54% 76% 86% 124% 133% 144%
</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. As indicated in Note 2,
the Adviser may reduce a portion of its fee and absorb 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 2.80% and the
ratio of net investment income to average net assets would have been a
loss of 2.25% for the period ended June 30, 1997.
** Net Investment Income (Loss) per share has been computed before
adjustments for book/tax differences.
The accompanying notes are an integral part of the financial statements.
23
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: Meridian Fund, Inc., (the
"Meridian Funds"), is comprised of the Meridian Equity Income Fund (the
"Equity Income Fund"), the Meridian Growth Fund (the "Growth Fund") and the
Meridian Value Fund (the "Value Fund"). The Equity Income Fund, the Growth
Fund and the Value Fund (each a "Fund" and collectively, the "Funds") are
registered under the Investment Company Act of 1940, as no-load,
diversified, open-end management investment companies. The Equity Income
Fund began operations and was registered on January 31, 2005. The Growth
Fund began operations and was registered on August 1, 1984. The Value Fund
began operations on February 10, 1994 and was registered on February 7,
1994.
The primary investment objective of the Equity Income Fund is to seek long-
term growth of capital along with income as a component of total return.
The primary investment objective of the Growth Fund is to seek long-term
growth of capital. Originally named Meridian Fund, the name was changed
effective April 20, 2001 to Meridian Growth Fund, to more closely reflect
the investment style. There was no change in how the Fund is managed.
The primary investment objective of the Value Fund is to seek long-term
growth of capital.
The following is a summary of significant accounting policies for all of
the Funds:
a. INVESTMENT VALUATIONS: Marketable securities are valued at the closing
price or 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. Securities and other assets for which reliable
market quotations are not readily available or for which a significant
event has occurred since the time of the most recent market quotation,
will be valued at their fair value as determined by the Adviser under
the guidelines established by, and under the general supervision and
responsibility of, the Funds' Board of Directors. Short-term debt
securities with original or remaining maturities in excess of 60 days
are valued at the mean of their quoted bid and asked prices. Short-term
debt securities with 60 days or less to maturity are amortized to
maturity based on their cost.
b. FEDERAL INCOME TAXES: It is the Funds' policy to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to regulated investment companies and
to distribute all of their taxable income to their shareholders;
therefore, no federal income tax provision is required.
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. Available funds are automatically swept into a Cash
Reserve account, which preserves capital with a consistently
competitive rate of return. Interest accrues daily and is credited by
the third business day of the following month.
24
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
e. EXPENSES: Expenses arising in connection with a Fund are charged
directly to that Fund. Expenses common to the Funds are generally
allocated to each Fund in proportion to their relative net assets.
f. USE OF ESTIMATES: The preparation of financial statements in accordance
with accounting principals generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and revenue and
expenses at the date of the financial statements. Actual amounts could
differ from those estimates.
g. DISTRIBUTIONS TO SHAREHOLDERS: The Funds record distributions to
shareholders on the ex-dividend date. The amount of 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.
Distributions which exceed net investment income and net realized
capital gains are reported as distributions 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.
Permanent book-tax differences, if any, are not included in ending
undistributed net investment income (loss) for the purposes of
calculating net investment income (loss) per share in the Financial
Highlights.
h. GUARANTEES AND INDEMNIFICATION: Under the Funds' organizational
documents, its Officers and Directors are indemnified against certain
liability arising out of the performance of their duties to the Funds.
Additionally, in the normal course of business, the Funds enter into
contracts with service providers that contain general indemnification
clauses. The Funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against
the Funds that have not yet occurred. However, based on experience, the
Funds expect the risk of loss to be remote.
2. RELATED PARTIES: The Funds have entered into a management agreement with
Aster Investment Management Company, Inc. (the "Investment Adviser").
Certain Officers and/or Directors of the Funds are also Officers and/or
Directors of the Investment Adviser. Beneficial ownership in the Funds by
Richard F. Aster, Jr., President, as of June 30, 2006 were as follows:
<Table>
Equity Income Fund................... 40.41%
Growth Fund.......................... 1.00%
Value Fund........................... 0.88%
</Table>
The Investment Adviser receives from the Equity Income Fund, as
compensation for its services, an annual fee of 1% of the first $10,000,000
of the Equity Income Fund's net assets, 0.90% of the next $20,000,000 of
the Equity Income Fund's net assets, 0.80% of the next $20,000,000 of the
Equity Income Fund's net
25
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
assets and 0.70% of the Equity Income Fund's net assets in excess of
$50,000,000. The fee is paid monthly and calculated based on that month's
daily average net assets.
The Investment Adviser receives from the Growth Fund, as compensation for
its services, an annual fee of 1% of the first $50,000,000 of the Growth
Fund's net assets and 0.75% of the Growth Fund's net assets in excess of
$50,000,000. The fee is paid monthly and calculated based on that month's
daily average net assets.
The Investment Adviser receives from the Value Fund, as compensation for
its services, an annual fee of 1% of the Value Fund's net assets. The fee
is paid monthly and calculated based on that month's daily average net
assets.
The Investment Adviser has contractually agreed to waive its fee and
reimburse expenses, at least until November 1, 2006, to the extent that
total annual operating expenses for the Equity Income Fund exceeds 1.25%.
The Investment Adviser has voluntarily agreed to limit the operating
expenses of the Growth and Value Funds to 2.50%. With respect to these
limits, the Investment Adviser reimbursed the Equity Income Fund $74,072,
but did not reimburse the Growth and Value Funds, during the year ended
June 30, 2006. Subject to the approval of the Board of Directors of the
Fund, the Fund will repay the Investment Adviser the amount of its
reimbursement for the Equity Income Fund for up to three years following
the reimbursement to the extent the Equity Income Fund's expenses drop
below 1.25%, after giving effect to repayment by the Fund. Either the Fund
or the Investment Adviser can modify or terminate this arrangement at any
time.
3. CAPITAL SHARES TRANSACTIONS: Transactions in capital shares for the year
ended June 30, 2006 and the year ended June 30, 2005 were as follows:
<Table>
<Caption>
Equity Income Fund
---------------------------
June 30, June 30,
2006 2005
------------ -----------
Shares sold......................................... 1,518,742 834,727
Shares reinvested on reinvestment of distributions.. 12,963 --
------------ -----------
1,531,705 834,727
Shares redeemed..................................... (61,043) (1,481)
------------ -----------
Net increase........................................ 1,470,662 833,246
------------ -----------
</Table>
26
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
Growth Fund
---------------------------
June 30, June 30,
2006 2005
------------ -----------
Shares sold......................................... 9,349,992 19,610,076
Shares reinvested on reinvestment of distributions.. 805,510 548,115
------------ -----------
10,155,502 20,158,191
Shares redeemed..................................... (13,664,615) (8,805,258)
------------ -----------
Net increase (decrease)............................. (3,509,113) 11,352,933
------------ -----------
</Table>
<Table>
<Caption>
Value Fund
--------------------------
June 30, June 30,
2006 2005
----------- -----------
Shares sold......................................... 5,344,976 13,372,342
Shares reinvested on reinvestment of distributions.. 5,630,731 6,795,760
----------- -----------
10,975,707 20,168,102
Shares redeemed..................................... (23,900,160) (15,746,779)
----------- -----------
Net increase (decrease)............................. (12,924,453) 4,421,323
----------- -----------
</Table>
4. COMPENSATION OF DIRECTORS AND OFFICERS: Directors and Officers of the Funds
who are Directors and/or Officers of the Investment Adviser receive no
compensation from the Funds. Directors of the Funds who are not interested
persons, as defined in the Investment Company Act of 1940, receive
compensation in the amount of $3,000 per annum and a $2,000 purchase of
Equity Income Fund, Growth Fund or Value Fund shares, plus expenses and a
$1,000 purchase in one of the Funds for each additional Board of Directors
meeting attended other than the annual meeting.
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, 2006, were as follows:
<Table>
<Caption>
Purchases Proceeds from Sales
-------------- -------------------
Equity Income Fund............................. $ 25,121,008 $ 9,962,422
Growth Fund.................................... 461,953,203 618,338,154
Value Fund..................................... 1,096,986,935 1,779,634,589
</Table>
27
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. DISTRIBUTION INFORMATION: Income and long-term capital gains distributions
are determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles accepted in the United
States. The tax character of distributions made during the fiscal years
ended June 30, 2006 and June 30, 2005 were as follows:
2006 TAXABLE DISTRIBUTIONS
<Table>
<Caption>
Net
Long-Term Total
Fund Ordinary Income Capital Gains Distributions
- ---- --------------- ------------- -------------
Equity Income Fund.................... $ 165,015 $ -- $ 165,015
Growth Fund........................... -- 35,405,369 35,405,369
Value Fund............................ 26,262,428 206,686,153 232,948,581
</Table>
2005 TAXABLE DISTRIBUTIONS
<Table>
<Caption>
Net
Long-Term Total
Fund Ordinary Income Capital Gains Distributions
- ---- --------------- ------------- -------------
Equity Income Fund.................... $ -- $ -- $ --
Growth Fund........................... 10,056,382 13,674,732 23,731,114
Value Fund............................ 15,996,704 288,644,525 304,641,229
</Table>
7. FEDERAL INCOME TAXES: Permanent differences, incurred during the year ended
June 30, 2006, resulting from differences in book and tax accounting have
been reclassified at year end to undistributed net investment income,
accumulated realized gain/(loss) and paid-in capital as follows:
<Table>
<Caption>
Increase/(Decrease) Increase/(Decrease)
Increase/(Decrease) Undistributed Net Accumulated Realized
Paid-In Capital Investment Income Gain/(Loss)
------------------- ------------------- --------------------
Equity Income Fund................ $ -- $ (36) $ 36
Growth Fund....................... (502,511) 502,511 --
Value Fund........................ -- 6,347,900 (6,347,900)
</Table>
The aggregate cost of investments, unrealized appreciation and
depreciation, for federal income tax purposes at June 30, 2006 is as
follows:
<Table>
<Caption>
Aggregate Gross Aggregate Gross
Unrealized Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- --------------- --------------- --------------
Equity Income Fund........ $ 23,178,785 $ 1,649,088 $ (461,332) $ 1,187,756
Growth Fund............... 1,313,789,903 345,132,325 (31,331,151) 313,801,174
Value Fund................ 1,464,460,023 204,767,944 (36,374,320) 168,393,624
</Table>
28
MERIDIAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPONENTS OF ACCUMULATED EARNINGS (LOSSES) ON A TAX BASIS
<Table>
<Caption>
Equity Income Fund Growth Fund Value Fund
------------------ ------------ ------------
Undistributed ordinary income........ $ 213,040 $ -- $ --
Undistributed long-term capital
gains.............................. -- 62,715,363 151,306,183
Post October losses deferred......... (6,670) -- --
Unrealized appreciation.............. 1,187,756 313,801,174 168,393,624
---------- ------------ ------------
Total Accumulated Earnings......... $1,394,126 $376,516,537 $319,699,807
========== ============ ============
</Table>
Post-October losses represent losses realized on investment transactions
from November 1, 2005 through June 30, 2006 that, in accordance with
Federal income tax regulations, the Funds have elected to defer and treat
as having arisen in the following fiscal year. The differences between book
and tax-basis unrealized appreciation are attributable primarily to the tax
deferral of losses on wash sales.
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Meridian Fund, Inc.
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 the Meridian Equity Income Fund(R),
Meridian Growth Fund(R) and Meridian Value Fund(R) (constituting Meridian Fund,
Inc., hereafter referred to as the "Funds") at June 30, 2006, the results of
each of their operations for the period then ended and the changes in each of
their net assets and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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, 2006 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 14, 2006
30
MERIDIAN FUND, INC.
ADDITIONAL INFORMATION
FOR THE YEAR ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. PROXY VOTING RECORD AND PROXY VOTING POLICIES AND PROCEDURES: A description
of the policies and procedures that each Fund uses to determine how to vote
proxies relating to portfolio securities along with information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12 month period ended June 30, 2006 is available (i) without charge,
upon request, by calling (800) 446-6662; (ii) on our website at
http://www.meridianfund.com; and (iii) on the Securities and Exchange
Commission ("SEC") website at http://www.sec.gov.
2. INFORMATION ON FORM N-Q: The Company files its complete schedule of
portfolio holdings with the SEC for the first and third quarters of each
fiscal year on Form N-Q within sixty days after the end of the period. The
Company's Form N-Q is available on the SEC's website at http://www.sec.gov,
and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room
may be obtained by calling 1-202-551-8090.
31
DISCLOSURE REGARDING APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Directors of the Funds unanimously approved the continuance of the
Investment Advisory Agreements between the Meridian Growth Fund, the Meridian
Value Fund and the Meridian Equity Income Fund and the Adviser at a meeting held
on October 5, 2005.
In preparation for the meetings, the Directors received and evaluated
information supplied by the Adviser in response to a letter prepared by counsel,
at the Board of Director's request, which identified items that should be
reviewed in order for the Directors to gain reasonable assurance that they have
sufficiently considered all relevant and required information related to
approval of the Advisory Agreements. The Directors examined and considered,
among other items, performance and expense information of other investment
companies with similar objectives, derived from data compiled by an independent
third-party provider. The Independent Directors of the Funds also met in a
private session at which no representatives of the Adviser were present prior to
voting to approve the Advisory Agreements with respect to each of the Funds. In
reaching their conclusions, the Directors considered factors they believed
materially related to the selection of the Adviser, the approval of the fee
structures and any other amounts paid under the Advisory Agreements. The
Directors based their decisions on the evaluation of all factors taken as a
whole and did not consider any one factor as all-important or controlling. Some
of the factors considered are discussed in more detail below.
The Directors considered the nature, extent and quality of the investment
research and portfolio management functions of the Adviser and the resources the
Adviser has dedicated to performing services for the Funds. The Directors also
considered the respective investment strategies of the Funds and noted favorably
the Adviser's demonstrated ability, over time, to achieve a highly competitive
rate of return for long-term investors. The quality of other services, including
the Adviser's assistance in the coordination of the activities of the Funds
relating to other service providers, fund administration and compliance programs
also was considered. The Directors considered the consistency of the Funds'
service quality when forming a basis for their confidence in the Adviser's
integrity and competence, in light of their on-going experience as Directors of
the Funds. The Directors concluded that, in all material respects, they were
satisfied with the nature, extent and quality of services provided (and expected
to be provided) to the Funds under the Advisory Agreements.
At their meetings, the Directors reviewed the current and long-term performance
of the Funds. The Directors noted that both the Meridian Growth Fund and the
Meridian Value Fund had recently been recognized by independent rating agencies
as being among the top performing funds in their categories over a ten and five
year period, respectively. In addition to the information reviewed by the
Directors during the meetings, the Directors receive detailed monthly
performance reports for the Funds throughout the year. These reports present the
Funds' performance in comparison to both broad market and peer group indices.
Based upon their review, the Directors concluded that the Adviser's management
of the Funds' investment portfolios has resulted in consistently competitive
performance overall and, in particular, returns for long-term investors that are
well above average.
32
DISCLOSURE REGARDING APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Directors considered the direct and indirect costs incurred by the Adviser
in providing investment management services for the Funds. In light of the
changes in assets under management for each Fund during relevant time periods,
the Directors concluded that economies of scale currently being realized do not
necessarily warrant the implementation of additional breakpoints for any of the
Funds. While intending to monitor future growth in Fund assets, and to the
extent that economies of scale are realized, the Directors believe that current
advisory fee levels reflect an equitable sharing of benefits with shareholders.
The Directors concluded that profits being realized by the Adviser from its
relationship with the Funds are reasonable and appropriate, based on the
business judgment of the Directors, with consideration duly given to, among
other things, the nature and quality of services provided, the outstanding long-
term performance of the Funds, investment industry practices and comparable
funds' average fee expense, determined using independent third party data. The
Directors recognized that it is difficult to make comparisons of profitability
from investment advisory contracts. This is because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the type of clients it advises, its
business mix, and numerous assumptions regarding allocations and the adviser's
capital and management structure.
The Directors additionally considered certain benefits the Adviser realizes due
to its relationship with the Funds. In particular, the Adviser has arrangements
under which certain brokers may provide industry research to the Adviser's
portfolio managers through the use of a portion of the brokerage commissions
generated from the Adviser's trading activities on behalf of the Funds. The
Directors acknowledge that the Funds' shareholders benefit as well from these
research products paid for through broker commissions and soft dollar
arrangements.
33
INFORMATION ABOUT THE DIRECTORS AND
OFFICERS OF MERIDIAN FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The individuals listed below serve as Directors or Officers of Meridian Fund,
Inc. (the "Meridian Funds"). Each Director of the Meridian Funds serves until a
successor is elected and qualified or until resignation. Each Officer of the
Meridian Funds is elected annually by the Board of Directors. The address of all
Officers and Directors is 60 East Sir Francis Drake Blvd., Suite 306, Larkspur,
CA 94939. The Meridian Funds' Statement of Additional Information (SAI) includes
more information about the Directors. To request a free copy, call Meridian
Funds at 1-800-446-6662.
INTERESTED DIRECTORS *
- --------------------------------------------------------------------------------
Richard F. Aster, Jr. (66)
Positions(s) Held with Meridian Funds: President, Chairman of the Board,
Portfolio Manager
Length of Service (Beginning Date): May 3, 1985
Principal Occupation(s) During Past 5 Years: President, Aster Investment
Management, Inc.
Number of Portfolios Overseen: 3
Other Directorships: N/A
Michael Stolper (61)
Positions(s) Held with Meridian Funds: Director
Length of Service (Beginning Date): May 3, 1985
Principal Occupation(s) During Past 5 Years: Investment Adviser and
Broker/Dealer, Stolper & Company, Inc.
Number of Portfolios Overseen: 3
Other Directorships: Kane Miller Publishing, Window Pane Funds
- --------------------------------------------------------------------------------
* Aster Investment Management, Inc. is investment adviser to the Meridian Funds.
Mr. Stolper is a minority owner of Aster Investment Management, Inc.
34
INFORMATION ABOUT THE DIRECTORS AND
OFFICERS OF MERIDIAN FUND, INC. (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
Ralph Cechettini (66)
Positions(s) Held with Meridian Funds: Director
Length of Service (Beginning Date): October 6, 2004
Principal Occupation(s) During Past 5 Years: Owner and Portfolio Manager, CIM
Portfolio Advisers; Managing Partner, Pivotal Asset Management, LLC
Number of Portfolios Overseen: 3
Other Directorships: Guide Dogs for the Blind, Inc.
Michael S. Erickson (54)
Positions(s) Held with Meridian Funds: Director
Length of Service (Beginning Date): May 3, 1985
Principal Occupation(s) During Past 5 Years: Private Investor
Number of Portfolios Overseen: 3
Other Directorships: AeroAstro, Decimal, Inc., The Marin School
James Bernard Glavin (71)
Positions(s) Held with Meridian Funds: Vice Chairman of the Board
Length of Service (Beginning Date): May 3, 1985
Principal Occupation(s) During Past 5 Years: Chairman of the Board, The Immune
Response Corp.
Number of Portfolios Overseen: 3
Other Directorships: N/A
Herbert Charles Kay (69)
Positions(s) Held with Meridian Funds: Director
Length of Service (Beginning Date): May 3, 1985
Principal Occupation(s) During Past 5 Years: Private Investor
Number of Portfolios Overseen: 3
Other Directorships: N/A
- --------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------
Gregg B. Keeling, CPA (51)
Positions(s) Held with Meridian Funds: Chief Financial Officer, Treasurer,
Secretary and Chief Compliance Officer
Length of Service: (Beginning Date) April 1999
Principal Occupation(s) During Past 5 Years: Aster Investment Management, Inc.,
Vice President of Operations and Chief Compliance Officer
35
MANAGEMENT'S DISCUSSION OF MERIDIAN EQUITY INCOME FUND
PERFORMANCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
During the fiscal year ended June 30, 2006, the Meridian Equity Income Fund
gained 10.75% compared to a gain of 8.62% for the S&P 500 with reinvested
dividends, a gain of 14.58% for the Russell 2000, and a gain of 5.60% for the
NASDAQ. The positive performance reflected the strength of our holdings in the
consumer products, electrical equipment, industrial services, paper/forest
products, retail and telecommunications services sectors, as well as the
performance of individual stocks that may be the only issue we own in a
particular sector. This was offset, primarily by weakness in our holdings in the
banking, business services, chemicals, and insurance sectors, as well as the
performance of individual stocks that may be the only issue we own in a
particular sector. Not being weighted in the best performing sectors during the
period materially affected the Fund's performance. The Fund emphasizes
investments in companies that pay dividends or interest, have the potential for
capital appreciation and which the Investment Adviser believes may have the
capacity to raise dividends in the future.
VALUE OF $10,000 INVESTED IN THE MERIDIAN EQUITY INCOME FUND AND THE S&P 500
[PERFORMANCE LINE GRAPH]
<Table>
<Caption>
MERIDIAN EQUITY INCOME FUND S&P 500
--------------------------- -------
1/31/05* 10000 10000
3/31/05 10090 10029
6/30/05 10100 10166
9/30/05 10360 10533
12/31/05 10599 10755
3/31/06 11358 10208
6/30/06 11186 11046
</Table>
Meridian Equity Income Fund
Average Annual Total Return
<Table>
One Year 10.75%
</Table>
Past performance is not predictive of future performance. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
* Inception date.
36
MANAGEMENT'S DISCUSSION OF MERIDIAN GROWTH FUND
PERFORMANCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
During the fiscal year ended June 30, 2006, the Meridian Growth Fund gained
10.08% compared to a gain of 8.62% for the S&P 500 with reinvested dividends, a
gain of 14.58% for the Russell 2000, and a gain of 5.60% for the NASDAQ. The
positive performance reflected the strength of our holdings in the brokerage and
money management, business services and industrial products and services
sectors, as well as the performance of individual stocks that may be the only
issue we own in a particular sector. This was offset, primarily by weakness in
our holdings in the banking, consumer services, healthcare services,
restaurants, retail and telecommunication equipment sectors, as well as the
performance of individual stocks that may be the only issue we own in a
particular sector. Not being weighted in the best performing sectors during the
period materially affected the Fund's performance. Additionally, as the Fund's
investments include companies that are relatively small in terms of total
assets, revenues and earnings, the Fund's performance is influenced by the broad
stock market fluctuations of the small and mid-cap company sectors.
VALUE OF $10,000 INVESTED IN THE MERIDIAN GROWTH FUND, THE S&P 500 AND THE
RUSSELL 2000
[PERFORMANCE LINE GRAPH]
<Table>
<Caption>
MERIDIAN GROWTH FUND S&P 500 RUSSELL 2000
-------------------- ------- ------------
06/30/96 10000 10000 10000
06/30/97 11392 13470 11633
06/30/98 13320 17530 13554
06/30/99 13726 21520 13757
06/30/00 16670 23080 15727
06/30/01 20561 19659 15817
06/30/02 20647 16125 14456
06/30/03 20606 16165 14219
06/30/04 27540 19254 18964
06/30/05 28269 20471 20756
06/30/06 31119 22236 23782
</Table>
Meridian Growth Fund
Average Annual Total Return
<Table>
One Year 10.08%
Five Years 8.64%
Ten Years 12.02%
</Table>
Past performance is not predictive of future performance. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
37
MANAGEMENT'S DISCUSSION OF MERIDIAN VALUE FUND
PERFORMANCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
During the fiscal year ended June 30, 2006, the Meridian Value Fund gained 7.35%
compared to a gain of 8.62% for the S&P 500 with reinvested dividends, a gain of
14.58% for the Russell 2000, and a gain of 5.60% for the NASDAQ. The positive
performance reflected the strength of our holdings in the aerospace/defense,
energy, industrial products/services, real estate, telecommunications equipment
and transportation sectors. This was offset primarily by weakness in our
holdings, with some exceptions, in the food and beverage, consumer services,
furniture/fixtures, healthcare products/services, media and retail sectors.
These factors materially affected the Fund's performance.
The Meridian Value Fund's strategy is to invest in stocks, across a range of
market capitalizations, which the Investment Adviser believes are undervalued in
relation to the issuer's long-term earnings power, asset value and/or the stock
market in general. Investments include both smaller company equities and mid-to-
large capitalization stocks. Based on this strategy, the Fund's average
compounded annual return for the ten-year period from June 30, 1996 to June 30,
2006 was 16.33% compared to 8.30% for the S&P 500, with reinvested dividends.
The Fund did not approach full investment status until June 30, 1995, with cash
comprising approximately 45-50% of the Fund's total portfolio from inception
until June 30, 1995. The Meridian Value Fund's average compounded annual return
from inception to June 30, 2006 was 16.95%, compared to 10.90% for the S&P 500,
with reinvested dividends.
VALUE OF $10,000 INVESTED IN THE MERIDIAN VALUE FUND AND THE S&P 500
[PERFORMANCE LINE GRAPH]
<Table>
<Caption>
MERIDIAN VALUE FUND S&P 500
------------------- -------
06/30/96 10000 10000
06/30/97 12055 13470
06/30/98 15195 17530
06/30/99 18070 21520
06/30/00 23425 23080
06/30/01 29974 19659
06/30/02 29440 16125
06/30/03 30712 16165
06/30/04 39155 19254
06/30/05 42288 20471
06/30/06 45396 22236
</Table>
Meridian Value Fund
Average Annual Total Return
<Table>
One Year 7.35%
Five Years 8.66%
Ten Years 16.33%
</Table>
Past performance is not predictive of future performance. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
38
2006 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
Federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in early 2007. Please
consult your tax advisor for proper treatment of this information.
Pursuant to Internal Revenue Code Section 852(b)(3), the Funds listed below
designate the amounts listed below as a long-term capital gain distribution of
the year ended June 30, 2006:
<Table>
Equity Income Fund......................................... $ --
Growth Fund................................................ $ 35,405,369
Value Fund................................................. $206,686,153
</Table>
Pursuant to Internal Revenue Code Section 854(b)(2), the Funds listed below
designate a percentage of its ordinary income dividends distributed during the
year ended June 30, 2006 as qualifying for the corporate dividends-received
deduction:
<Table>
Equity Income Fund............................................. 89.14%
Growth Fund.................................................... 37.78%
Value Fund..................................................... 92.07%
</Table>
Pursuant to Section 1(h)(11) of the Internal Revenue Code, the Funds listed
below designate the following amounts of their income dividends paid during the
year ended June 30, 2006 as qualified dividend income (QDI):
<Table>
Equity Income Fund............................................ 100.00%
Growth Fund................................................... 0.00%
Value Fund.................................................... 77.21%
</Table>
39
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40
MERIDIAN FUND, INC.
-------------------------------------------------------------------------------
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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
RALPH CECHETTINI
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
GREGG B. KEELING
Chief Financial Officer,
Treasurer and Secretary
Chief Compliance Officer
Custodian
PFPC TRUST COMPANY
Philadelphia, Pennsylvania
Transfer Agent and Disbursing Agent
PFPC, INC.
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER LLP
Washington, D.C.
Auditors
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
MERIDIAN EQUITY INCOME FUND(R)
MERIDIAN GROWTH FUND(R)
MERIDIAN VALUE FUND(R)
ANNUAL REPORT
[MERIDIAN FUND LOGO]
60 E. Sir Francis Drake Blvd.
Wood Island, Suite 306
Larkspur, CA 94939
www.meridianfund.com
Telephone (800) 446-6662
JUNE 30, 2006
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, that relates to one or
more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that James Glavin is qualified to serve as an audit
committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$40,000 in 2006 and $68,964 in 2005.
Audit-Related Fees
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $0 in 2006 and $0 in 2005.
Tax Fees
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $12,400 in 2006 and
$8,200 in 2005.
All Other Fees
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$0 in 2006 and $0 in 2005.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
PRE-APPROVAL OF AUDIT AND PERMITTED NON-AUDIT SERVICES PROVIDED
TO THE COMPANY
1. Pre-Approval Requirements. The Committee shall pre-approve
all auditing services and permissible non-audit services
(e.g., tax services) to be provided to the Company by the
Auditor, including the fees therefor. The Committee may
delegate to one or more of its members the authority to
grant pre-approvals. In connection with such delegation, the
Committee shall establish pre-approval policies and
procedures, including the requirement that the decisions of
any member to whom authority is delegated under this section
shall be presented to the full Committee at each of its
scheduled meetings.
2. De Minimis Exception to Pre-Approval: Pre-approval for a
permitted non-audit service shall not be required if:
a. the aggregate amount of all such non-audit services is
not more than 5% of the total revenues paid by the
Company to the Auditor in the fiscal year in which the
non-audit services are provided;
b. such services were not recognized by the Company at the
time of the engagement to be non-audit services; and
c. such services are promptly brought to the attention of
the Committee and approved prior to the completion of
the audit by the Committee or by one or more members of
the Committee to whom authority to grant such approvals
has been delegated by the Committee.
Additionally, the Committee shall pre-approve the Auditor's
engagements for non-audit services with the Adviser and any
affiliate of the Adviser that provides ongoing services to the
Company in accordance with the foregoing, if the engagement
relates directly to the operations and financial reporting of the
Company, unless the aggregate amount of all services provided
constitutes no more than 5% of the total amount of revenues paid
to the Auditor by the Company, the Adviser and any affiliate of
the Adviser that provides ongoing services to the Company during
the fiscal year in which the services are provided that would
have to be pre-approved by the Committee pursuant to this
paragraph (without regard to this exception).
PROHIBITED SERVICES
The Committee shall confirm with the Auditor engaged to perform
the audit of the Company that the Auditor is not performing
contemporaneously any of the following non-audit services for the
Company, the Adviser, or any affiliates of the Company or
Adviser:
1. bookkeeping or other services related to the accounting
records or financial statements of the Company;
2. financial information systems design and implementation;
3. appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
4. actuarial services;
5. internal audit outsourcing services;
6. Management functions or human resources;
7. broker or dealer, investment adviser, or investment banking
services;
8. legal services and expert services unrelated to the audit;
and
9. any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible.
The Auditor is responsible for informing the Committee of whether
it believes that a particular service is permissible or
prohibited pursuant to applicable regulations and standards.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are
as follows:
(b) N/A
(c) 100%
(d) N/A
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was zero percent (0%).
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant was $0 in 2006 and $0 in 2005.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, that is the subject of disclosure required by Item
2, filed as exhibit 11(a)(1) to the Registrant's Form N-CSR, on
September 8, 2004 (Accession No. 0000950134-04-013324).
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Meridian Fund, Inc.(R)
By (Signature and Title)* /s/ Richard F. Aster, Jr.
--------------------------------------
Richard F. Aster, Jr., President & CEO
(principal executive officer)
Date 9-5-06
--------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Richard F. Aster, Jr.
--------------------------------------
Richard F. Aster, Jr., President & CEO
(principal executive officer)
Date 9-5-06
--------------------------------
By (Signature and Title)* /s/ Gregg B. Keeling
--------------------------------------
Gregg B. Keeling, CFO & Treasurer
(principal financial officer)
Date 9-5-06
--------------------------------
* Print the name and title of each signing officer under his or her
signature.