<PAGE> 1
MERIDIAN FUND
January 27, 2000
To Our Shareholders:
The Meridian Fund's net asset value per share at December 31, 1999 was $25.40.
This represents an increase of 13.33% for the calendar year to date and 10.15%
for the quarter to date. The Fund's total return and average annual compound
rate of return since inception, August 1, 1984, were 689.6% and 14.4%,
respectively. The Fund's assets at the close of the quarter were invested 4.88%
in cash and cash equivalents and 95.12% in stocks. Total net assets were
$138,198,839 and there were 5,998 shareholders.
All of the popular averages posted big gains in 1999. The S&P 500 gained 19.5%,
the NASDAQ an astounding 85.5% and the Russell 2000, 19.6%. This doesn't tell
the entire story, however. Internet-driven technology stocks were responsible
for the lion's share of the market's advance. A significant part of the market,
responding to higher interest rates, actually declined. Over half of the stocks
on the NASDAQ ended down for the year. It was the same story for small-cap
stocks. The twenty largest companies comprising the Russell 2000 Index are now
mostly Internet related. Seven of the twenty have no earnings and the balance
sell at an average of 351 times earnings. A recent study showed that companies
in the Russell 2000 with no earnings were up, on average, in excess of 50%
during 1999.
The Dow Jones Bond Index declined from 106.42 to 97.17 during 1999, a
significant drop of 8.7%. The yield on the thirty-year government bond climbed
to 6.46% from 5.12% at the beginning of the year.
The economy experienced strong growth during 1999. Retail sales, employment,
industrial production, corporate profits, and housing starts all showed solid
gains. There were no Y2K disruptions and the federal government is now
experiencing budget surpluses. There were a few disturbing signs. Energy prices
doubled, the rate of inflation picked up modestly, long-term interest rates
moved up considerably and labor markets remained tight. We expect continued
growth in the economy during the year 2000. The stock market is at record
levels, leading indicators are pointing upward and consumer confidence is at an
all time high. We look for higher corporate profits and modestly higher rates of
inflation and interest rates in the coming year.
As we enter the new millennium, the S&P 500 sells at thirty times earnings,
large technology companies sell from fifty to several hundred times earnings and
Internet stocks sell at even greater multiples of revenues. Many non-technology
stocks, which have not participated in the long bull market, have a more
reasonable valuation. Our portfolio, for example, sells at 20.4 times estimated
earnings. The average expected earnings growth rate for the companies in our
portfolio for the year 2000 is 28%. Compared to the S&P 500, we are paying
approximately two-thirds the price for three times the growth. Not bad during
normal times. We do not believe we
<PAGE> 2
have sacrificed quality in our quest for growth at a reasonable price. On the
contrary, most of our companies generate above average returns on capital and
can fund their growth internally.
Technology stocks make up approximately 23% of our portfolio, but we do not own
pure-play Internet stocks and this has hurt our relative performance. The
Internet is revolutionary and is changing the way we work and live. We have
spent significant time researching the proliferation of Internet companies and
their spectacular reception by investors. We believe that it is not prudent to
pay the extraordinary valuations required to own companies with limited
revenues, significant losses, unproven business models and a number of
competitive start-ups on the horizon. There are currently 75 Internet companies
in registration waiting to go public and hundreds more in the works. We cannot
imagine that many of these companies will ever grow into their valuations. The
logical outcome, at some point, will be a sharp downward adjustment in price.
Purchases during the quarter included American Tower Corp, Renal Care Group,
Inc., Integrated Device Technology, Inc., and Plantronics, Inc. We increased our
position in Precision Drilling Corporation, Jack in the Box, Bed, Bath, &
Beyond, Inc., Cost Plus, Inc., and Williams-Sonoma, Inc. Sales included Marine
Drilling Co., Extended Stay America, Inc., Airborne Freight Corporation, Annuity
and Life Re Holding, Arden Realty, Inc., CBRL Group, Inc., Family Dollar Stores,
Inc., Mazel Stores, Inc., PETsMART, Inc., and Genesys Telecommunications Labs,
Inc.
We continue to research companies with good growth prospects, proven financial
models and reasonable valuations. We recently purchased shares in Plantronics,
Inc., the largest manufacturer of lightweight communications headsets and
accessories in the world. We estimate the market to be $525 million, growing at
15% annually, with Plantronics holding a 50% share. The growth, historically,
has been driven by call centers. Customer service for those businesses or
retailers selling over the Internet will be a requirement for survival in the
future. We believe headsets will become necessary for such high growth
applications as Internet telephony, speech recognition and hands-free use of
wireless phones. Plantronics sells at fifteen times earnings and we believe the
company's growth prospects, pristine balance sheet, high return on capital and
reasonable valuation will result in a good investment.
We wish everyone a happy and prosperous New Year.
Sincerely,
/s/ Richard F. Aster, Jr.
Richard F. Aster, Jr.
President
2
<PAGE> 3
MERIDIAN FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK - 95.1%
BANKING AND FINANCE - 3.1%
Pacific Century Financial Corp.*..................... 231,000 $ 4,316,813
CELLULAR COMMUNICATIONS - 3.3%
American Tower Corp. ................................ 151,100 4,617,994
CONSUMER SERVICES - 5.0%
Regis Corporation*................................... 207,300 3,912,788
Sotheby's Holdings, Inc. - Class A*.................. 102,000 3,060,000
CORRECTIONAL & DETENTION FACILITIES - 2.5%
Wackenhut Correction Corp. .......................... 299,400 3,499,238
ENERGY - 3.3%
Precision Drilling Corp. ............................ 177,000 4,546,688
HEALTH SERVICES - 8.7%
Health Management Associates, Inc. - Class A......... 365,000 4,881,875
Province Healthcare Company.......................... 170,000 3,230,000
Renal Care Group, Inc. .............................. 169,900 3,971,413
INDUSTRIAL SERVICES - 7.4%
Expeditors International of Washington, Inc.*........ 116,500 5,104,156
Paychex, Inc.*....................................... 127,500 5,100,000
INDUSTRIAL PRODUCTS - 2.9%
Tektronix, Inc. ..................................... 103,150 4,009,956
LEISURE & AMUSEMENT - 1.0%
Scientific Games Holdings Corp. ..................... 81,700 1,353,156
REAL ESTATE INVESTMENT TRUSTS - 3.4%
The Town and Country Trust*.......................... 263,700 4,730,119
RESTAURANTS - 10.5%
CEC Entertainment, Inc.*............................. 135,000 3,830,625
Jack in the Box...................................... 167,000 3,454,813
P.F. Chang's China Bistro............................ 140,500 3,494,938
Sonic Corporation.................................... 130,800 3,727,800
RETAIL - 17.4%
Bed, Bath and Beyond, Inc. .......................... 124,900 4,340,275
Cost Plus, Inc. ..................................... 112,500 4,007,813
Kohl's Corporation................................... 69,000 4,980,938
West Marine, Inc. ................................... 332,100 2,739,825
Williams-Sonoma, Inc. ............................... 80,000 3,680,000
Zale Corporation..................................... 89,000 4,305,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
3
<PAGE> 4
MERIDIAN FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ------------
<S> <C> <C>
COMMON STOCK (continued)
TECHNOLOGY - 14.7%
Integrated Device Technology, Inc. .................. 147,300 $ 4,271,700
KEMET Corporation.................................... 82,600 3,722,163
Molex Inc. -- Class A*............................... 93,000 4,208,250
National Data Corp.*................................. 109,200 3,705,975
Synopsys, Inc. ...................................... 65,000 4,338,750
TELECOMMUNICATIONS/CABLE EQUIPMENT - 9.0%
ANTEC Corporation.................................... 95,000 3,467,500
Adtran, Inc. ........................................ 87,500 4,500,781
Plantronics, Inc. ................................... 61,400 4,393,938
TRANSPORTATION - 2.9%
Atlantic Coast Airlines Holdings, Inc. .............. 166,000 3,942,500
------------
TOTAL COMMON STOCK (Identified cost $92,588,486)................. 131,448,150
CASH AND OTHER ASSETS LESS LIABILITIES - 4.9%.................... 6,750,689
------------
NET ASSETS - 100%................................................ $138,198,839
============
Shares of capital stock outstanding.............................. 5,440,123
============
Net asset value per share........................................ $25.40
============
</TABLE>
* income producing
The accompanying notes are an integral part of the financial statements.
(unaudited)
4
<PAGE> 5
MERIDIAN FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments (Cost $92,588,486)............................ $131,448,150
Cash and cash equivalents................................. 5,574,787
Receivables for:
Dividends.............................................. 10,325
Interest............................................... 16,393
Securities sold........................................ 1,318,403
Prepaid expenses.......................................... 7,420
------------
TOTAL ASSETS........................................... $138,375,478
------------
LIABILITIES
Payables for:
Accrued expenses.......................................... 176,639
------------
TOTAL LIABILITIES...................................... 176,639
------------
NET ASSETS.................................................. $138,198,839
============
Shares of capital stock outstanding, par value $.01
(25,000,000 shares authorized)............................ 5,440,123
============
Net asset value per share (offering and redemption price)... $25.40
============
Net assets consist of:
Paid in capital........................................... $96,415,335
Accumulated net realized gain............................. 2,765,529
Net unrealized appreciation on investments................ 38,859,664
Undistributed net investment income....................... 158,311
------------
$138,198,839
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
5
<PAGE> 6
MERIDIAN FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $684,462
Interest........................................... 296,994
------------
Total investment income....................... $981,456
------------
EXPENSES
Investment advisory fees........................... 671,246
Transfer agent fees................................ 82,800
Pricing fees....................................... 28,980
Reports to shareholders............................ 23,000
Custodian fees..................................... 22,080
Registration and filing fees....................... 16,727
Miscellaneous expenses............................. 13,572
Professional fees.................................. 24,480
Directors' fees and expenses....................... 2,208
------------
Total expenses................................ 885,093
------------
Net investment income.............................. 96,363
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain on investments................... 2,764,459
Net increase in unrealized appreciation on
investments..................................... 2,352,305
------------
Net realized and unrealized gains on investments... 5,116,764
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $5,213,127
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
6
<PAGE> 7
MERIDIAN FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, 1999 June 30, 1999
----------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income.............................. $96,363 $1,068,820
Net realized gain on investments................... 2,764,459 11,913,210
Net unrealized appreciation (depreciation) of
investments...................................... 2,352,305 (17,968,517)
------------ ------------
Net increase (decrease) from operations.......... 5,213,127 (4,986,487)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income........... (1,007,190) (1,187,972)
Distributions from net realized capital gains...... (11,919,392) (54,557,125)
------------ ------------
Total distributions.............................. (12,926,582) (55,745,097)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of stock........................ 6,029,844 11,727,850
Reinvestment of distributions...................... 12,403,277 53,097,094
Less: redemptions.................................. (58,204,332) (115,212,451)
------------ ------------
Decrease resulting from capital share
transactions.................................. (39,771,211) (50,387,507)
------------ ------------
Total decrease in net assets....................... (47,484,666) (111,119,091)
NET ASSETS
Beginning of the period............................ 185,683,505 296,802,596
------------ ------------
End of the period (includes undistributed net
investment income of $159,311 and $1,069,138,
respectively).................................... $138,198,839 $185,683,505
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
7
<PAGE> 8
MERIDIAN FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
six months
ended For the year June 30,
December 31, -------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value - Beginning of
Period.................. $26.28 $33.26 $33.20 $32.21 $27.29 $24.27 $23.87 $18.97
-------- -------- -------- -------- -------- -------- -------- -------
Income from Investment
- ------------------
Operations
- --------
Net Investment Income
(loss).................. 0.03 .16 .27 .40 .30 .27 .09 (.01)
Net Gains (Losses) on
Securities (both
realized and
unrealized)............. 1.02 (.50) 4.92 3.71 5.47 3.63 .76 5.51
-------- -------- -------- -------- -------- -------- -------- -------
Total From Investment
Operations.............. 1.05 (.34) 5.19 4.11 5.77 3.90 .85 5.50
-------- -------- -------- -------- -------- -------- -------- -------
Less Distributions
- -------------
Distributions from net
investment income....... (0.15) (0.14) (0.32) (0.36) (.31) (.18) (.02) (.04)
Distributions from net
realized capital
gains................... (1.78) (6.50) (4.81) (2.76) (.54) (.70) (.43) (.56)
-------- -------- -------- -------- -------- -------- -------- -------
Total Distributions...... (1.93) (6.64) (5.13) (3.12) (.85) (.88) (.45) (.60)
-------- -------- -------- -------- -------- -------- -------- -------
Net Asset Value - End of
Period.................. $25.40 $26.28 $33.26 $33.20 $32.21 $27.29 $24.27 $23.87
======== ======== ======== ======== ======== ======== ======== =======
Total Return............. 8.38%* 3.05% 16.92% 13.92% 21.40% 16.44% 3.48% 29.50%
======== ======== ======== ======== ======== ======== ======== =======
Ratios/Supplemental Data
- -------------------
Net Assets, End of Period
(in thousands).......... $138,199 $185,683 $296,803 $353,029 $384,087 $328,153 $199,191 $78,581
Ratio of Expenses to
Average Net Assets...... 1.09%** 1.01% 0.95% 0.96% 0.96% 1.06% 1.22% 1.47%
Ratio of Net Investment
Income (Loss) to Average
Net Assets.............. 0.12%** 0.49% 0.76% 1.23% 0.99% 1.18% .38% (.01%)
Portfolio Turnover
Rate.................... 29%** 51% 38% 37% 34% 29% 43% 61%
<CAPTION>
For the year June 30,
---------------------------
1992 1991 1990
------- ------- -------
<S> <C> <C> <C>
Net Asset
Value - Beginning of
Period.................. $17.24 $17.71 $15.93
------- ------- -------
Income from Investment
- ------------------
Operations
- --------
Net Investment Income
(loss).................. .07 .20 .06
Net Gains (Losses) on
Securities (both
realized and
unrealized)............. 3.45 .49 2.84
------- ------- -------
Total From Investment
Operations.............. 3.52 .69 2.90
------- ------- -------
Less Distributions
- -------------
Distributions from net
investment income....... (.09) (.12) (.48)
Distributions from net
realized capital
gains................... (1.70) (1.04) (.64)
------- ------- -------
Total Distributions...... (1.79) (1.16) (1.12)
------- ------- -------
Net Asset Value - End of
Period.................. $18.97 $17.24 $17.71
======= ======= =======
Total Return............. 21.00% 5.62% 19.71%
======= ======= =======
Ratios/Supplemental Data
- -------------------
Net Assets, End of Period
(in thousands).......... $18,363 $12,350 $11,058
Ratio of Expenses to
Average Net Assets...... 1.75% 1.68% 2.08%
Ratio of Net Investment
Income (Loss) to Average
Net Assets.............. .24% .98% .14%
Portfolio Turnover
Rate.................... 61% 85% 66%
</TABLE>
<TABLE>
<S> <C>
* Figure not annualized.
** Figures are annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
(unaudited)
8
<PAGE> 9
MERIDIAN FUND
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES: Meridian Fund (the "Fund") a series of
Meridian Fund, Inc. (the "Company"), began operations on August 1, 1984. The
Fund was registered on August 1, 1984, under the Investment Company Act of
1940, as amended, as a no-load, diversified, open-end management investment
company. The primary investment objective of the Fund is to seek long-term
growth of capital. In addition to the Meridian Fund, the Company also offers
the Meridian Value Fund. The following is a summary of significant accounting
policies:
a. INVESTMENT VALUATIONS: Marketable securities are valued at the last
sales price on the principal exchange or market on which they are
traded; or, if there were no sales that day, at the last reported bid
price. Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value.
b. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders; therefore, no federal income tax provision is required.
The aggregate cost of investments for federal income tax purposes is
$92,588,486, the aggregate gross unrealized appreciation is $47,753,924,
and the aggregate gross unrealized depreciation is $8,894,260, resulting
in net unrealized appreciation of $38,859,664.
c. SECURITY TRANSACTIONS: Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Realized gains
and losses on security transactions are determined on the basis of
specific identification for both financial statement and federal income
tax purposes. Dividend income is recorded on the ex-dividend date.
Interest income and accretion income are accrued daily.
d. CASH AND CASH EQUIVALENTS: All highly liquid investments with an
original maturity of three months or less are considered to be cash
equivalents. Funds are automatically swept into a Cash Reserve account,
which preserves capital with a consistently competitive rate of return.
Earnings are indexed to the Federal Reserve "Fed Funds Rate". Interest
accrues daily and is credited by the third business day of the following
month.
e. EXPENSES: Expenses arising in connection with the Fund are charged
directly to the Fund. Expenses common to both series of Meridian Fund,
Inc. are allocated to each series in proportion to their relative net
assets.
f. USE OF ESTIMATES: The preparation of financial statements requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial
statements. Actual amounts could differ from the estimates.
g. DISTRIBUTIONS TO SHAREHOLDERS: The Fund records distributions to its
shareholders on the ex-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
9
<PAGE> 10
MERIDIAN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 dividends in
excess of net investment income or distributions in excess of net
realized capital gains for financial reporting purposes but not for tax
purposes. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. RELATED PARTIES AND ADVISORY FEE AND EXPENSE LIMITATION: The Fund has entered
into a management agreement (the Investment Advisory Fee) with Aster Capital
Management, Inc. ("Aster Capital") for the 12 month period beginning November
1, 1999 through October 31, 2000. Certain Officers and/or Directors of the
Fund are also Officers and/or Directors of Aster Capital.
The Investment Adviser receives from the Fund as compensation for its
services an annual fee of 1% of the first $50,000,000 of the Fund's net
assets and 0.75% of the Fund's net assets in excess of $50,000,000. The fee
is paid monthly and calculated based on that month's average net assets.
3. CAPITAL STOCK TRANSACTIONS: The Fund has authorized 25,000,000 shares of
common stock at a par value of $.01 per share. Transactions in capital stock
for the period ended December 31, 1999 and the year ended June 30, 1999, were
as follows:
<TABLE>
<CAPTION>
December June
1999 1999
---------- ----------
<S> <C> <C>
Shares sold 246,077 466,943
Shares issued on reinvestment of
distributions 531,407 2,431,185
---------- ----------
777,484 2,898,128
Shares redeemed (2,402,835) (4,756,060)
---------- ----------
Net decrease (1,625,351) (1,857,932)
========== ==========
</TABLE>
4. COMPENSATION OF DIRECTORS AND OFFICERS: Directors and officers of the Fund
who are directors and/or officers of Aster Capital Management, Inc. receive
no compensation from the Fund. Directors of the Company who are not
interested persons as defined in the Investment Company Act of 1940 receive
compensation in the amount of $1,000 per annum and a $1,000 purchase of
Meridian Fund or Meridian Value Fund stock, plus expenses for each Board of
Directors meeting attended. The aggregate compensation due the unaffiliated
Directors of the Fund as of December 31, 1999, was $2,208.
5. COST OF INVESTMENTS: The cost of investments purchased and the proceeds from
sales of investments, excluding short-term obligations, for the period ended
December 31, 1999, were $22,662,446, and $70,668,034 respectively. The cost
of the U.S. Government securities purchased and the proceeds from sales of
such investments were $19,882,621, and $20,000,000, respectively for the
period ended December 31, 1999.
10
<PAGE> 11
[This page intentionally left blank.]
<PAGE> 12
MERIDIAN FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This report is submitted for
the information of shareholders of
Meridian Fund. It is not
authorized for distribution to
prospective investors unless
preceded or accompanied by an
effective prospectus.
-----------------------------------------------------------------
Officers and Directors
RICHARD F. ASTER, JR.
President and Director
MICHAEL S. ERICKSON
HERBERT C. KAY
JAMES B. GLAVIN
MICHAEL STOLPER
Directors
GREGG B. KEELING
Treasurer and Secretary
Custodian
BANK OF NEW YORK
New York, New York
Transfer Agent and Disbursing Agent
PFPC, INC.
King of Prussia, Pennsylvania
(800) 446-6662
Counsel
MORRISON & FOERSTER
Washington D.C.
Auditors
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
SEMI ANNUAL REPORT
[MERIDIAN FUND LOGO]
60 E. SIR FRANCIS DRAKE BLVD.
WOOD ISLAND, SUITE 306
LARKSPUR, CA 94939
(415) 461-6237
TELEPHONE (800) 446-6662
DECEMBER 31, 1999
