-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OHM4Gsk9I+4XMkbRurGlr0sn7+/GjQ9Syh4mpOOKkkib6egemqt4kvTLJSNWF1IZ PmfZorEs1ewmGMhtDbAp8Q== 0000935069-97-000173.txt : 19971031 0000935069-97-000173.hdr.sgml : 19971031 ACCESSION NUMBER: 0000935069-97-000173 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971030 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS INTERNATIONAL FUNDS CENTRAL INDEX KEY: 0000923184 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08510 FILM NUMBER: 97703468 BUSINESS ADDRESS: STREET 1: 2 W ELM ST STREET 2: C/O FUND/PLAN SERVICES INC CITY: CONSHOHOCKEN STATE: PA ZIP: 19428 N-30D 1 MATTHEWS INTERNATIONAL FUND ANNUAL REPORT ANNUAL REPORT AUGUST 31, 1997 [LOGO] MATTHEWS PACIFIC TIGER FUND MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND MATTHEWS KOREA FUND - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - -------------------------------------------------------------------------------- DEAR FELLOW SHAREHOLDER: I HAVE PLEASURE IN ENCLOSING THE ANNUAL FINANCIAL STATEMENTS FOR THE MATTHEWS INTERNATIONAL FUNDS FOR THE 12 MONTHS ENDED AUGUST 31, 1997. DURING THIS PERIOD THE NET ASSET VALUE OF THE MATTHEWS PACIFIC TIGER FUND GAINED 4.75%, THE MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND GAINED 14.67%, AND THE MATTHEWS KOREA FUND DECLINED 14.38%. A BROAD BENCHMARK OF ASIAN TIGER MARKETS, THE MORGAN STANLEY ALL COUNTRIES FAR EAST EX-JAPAN INDEX DECLINED 6.6% OVER THE SAME PERIOD. WE ATTRIBUTE THE OUT-PERFORMANCE OF OUR TWO DIVERSIFIED FUNDS TO OUR EMPHASIS ON "BOTTOM-UP" STOCK SELECTION. SINCE INCEPTION THE MATTHEWS PACIFIC TIGER FUND GAINED 13.49% AND THE MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND GAINED 27.54%. THE MORGAN STANLEY ALL COUNTRIES FAR EAST EX-JAPAN INDEX DECLINED 9.84% OVER THE SAME PERIOD. THE MATTHEWS KOREA FUND DECLINED 37.55% AND OVER THE SAME PERIOD THE KOSPI INDEX DECLINED 40.42%. ASIAN ECONOMIES IN GENERAL CONTINUED TO EXHIBIT STRONG GROWTH DURING THE YEAR, ALTHOUGH CONDITIONS VARIED CONSIDERABLY AROUND THE REGION. THE BEST PERFORMANCE CAME FROM CHINA AND HONG KONG, WHILE THAILAND AND OTHER SOUTH-EAST ASIAN COUNTRIES SAW THEIR ECONOMIES SLOW. THE TIGER REGION HAS FACED THE CHALLENGE OF A MORE COMPETITIVE EXPORT ENVIRONMENT AT A TIME WHEN EXTERNAL DEMAND FOR ITS PRODUCTS HAS BEEN FLAT. THE RAPID EMERGENCE OF A HIGHLY COMPETITIVE MAINLAND CHINESE ECONOMY IS CREATING BOTH ENORMOUS OPPORTUNITIES AND INCREASED CHALLENGES FOR COMPANIES ELSEWHERE IN ASIA. RECENT CURRENCY WEAKNESS IN SOUTH-EAST ASIA HAS AFFECTED SENTIMENT THROUGHOUT THE REGION AND A NUMBER OF MARKETS ARE DOWN CONSIDERABLY FROM THEIR HIGHS. IN SPITE OF THESE CHALLENGES, WE REMAIN OPTIMISTIC THAT ASIA'S LONG TERM ATTRACTIONS AS GROWTH ECONOMIES REMAIN INTACT, UNDERPINNED BY HIGH RATES OF SAVINGS AND A COMMITMENT TO FREE MARKET PRINCIPLES. WE ARE FOCUSED ON IDENTIFYING TIGER BASED COMPANIES WITH THE NECESSARY ATTRIBUTES TO CONTINUE THEIR HISTORIC ABOVE AVERAGE EARNINGS GROWTH. WITH MARKETS AT CURRENT LEVELS, THESE COMPANIES APPEAR TO US TO OFFER EXCEPTIONAL LONG TERM VALUE. THANK YOU FOR YOUR SUPPORT. SINCERELY, /S/ SIGNATURE G. PAUL MATTHEWS PRESIDENT, MATTHEWS INTERNATIONAL FUNDS ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 ================================================================================ The graph below compares the increase in value of a $10,000 investment in Matthews Pacific Tiger Fund and Matthews Asian Convertible Securities Fund with the performance of the MSCI AC Far East ex Japan Index with gross dividends in U.S. dollars. The total returns of the Matthews Pacific Tiger Fund and the Matthews Asian Convertible Securities Fund for one year was 4.75% and 14.67%, respectively, and the average annual total return was 4.35% and 8.53%, respectively. [LINE GRAPH DEPICTING PACIFIC TIGER & ASIAN CONV. SEC. FUNDS ASSUMING $10,000 INVESTED AT INCEPTION] Matthews MSCI AC Matthews Pacific Far East Asian Conv. Tiger ex Japan Sec. Fund Index Fund 09/12/94 10,000 10,000 10,000 11/94 9,720 9,329 9,930 02/95 9,241 8,879 9,722 05/95 9,723 9,447 10,284 08/95 9,793 8,873 10,089 11/95 9,432 8,784 10,191 02/96 10,965 9,563 11,124 05/96 11,186 10,185 11,228 08/96 10,835 9,658 11,122 11/96 11,908 10,174 11,978 02/97 12,439 10,326 12,095 05/97 12,920 10,118 12,268 08/97 11,349 9,017 12,754 The graph below compares the increase in value of a $10,000 investment in Matthews Korea Fund with the performance of the Korea Stock Price Index. The total return of the Matthews Korea Fund for one year was (14.38%) and the average annual total return was (16.21%). [LINE GRAPH DEPICTING KOREA FUND ASSUMING $10,000 INVESTED AT INCEPTION] Matthews Korea Korea Stock Fund Price Index 01/02/95 10,000 10,000 02/95 9,000 8,621 05/95 8,960 8,590 08/95 9,130 8,897 11/95 9,230 9,061 02/96 8,404 8,301 05/96 8,636 8,790 08/96 7,294 7,620 11/96 6,820 6,990 02/97 5,892 6,245 05/97 6,416 6,767 08/97 6,245 6,124 GENERAL MARKET AND ECONOMIC INFORMATION ================================================================================ [LINE GRAPH DEPICTING ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS DECEMBER 1987 - AUGUST 1997] MSCI ALL S&P 500 MSCI EUROPE COUNTRY FAR INDEX AUSTRALIA FAR EAST (EX EAST INDEX JAPAN) INDEX DEC-87 0 0 0 JAN-88 11.88 4.04 6.96 FEB-88 18.56 8.39 14.41 MAR-88 21.83 4.78 17.35 APR-99 33.42 5.77 19.57 MAY-88 39.65 6.1 16.49 JUN-88 47.03 10.69 20.58 JUL-88 63.59 10.09 24.17 AUG-88 70.7 5.84 18.7 SEP-88 79.54 10.05 22.63 OCT-88 66.08 12.91 24.66 NOV-88 76.67 10.77 28.47 DEC-88 66.65 12.4 31.99 JAN-89 83.77 20.39 39.08 FEB-89 93.01 16.91 37.27 MAR-89 102.81 19.34 39.89 APR-89 112.54 25.32 41.36 MAY-89 127.93 29.13 42.89 JUN-89 115.13 28.7 40.1 JUL-89 121.61 40.07 50.09 AUG-89 129.87 42.24 50.52 SEP-89 138.06 41.31 52.01 OCT-89 132.43 37.75 47.68 NOV-89 125.13 40.03 54.4 DEC-89 133.5 43.03 58.4 JAN-90 160.02 33.19 51.58 FEB-90 153.72 34.32 43.37 MAR-90 139.08 37.58 32.93 APR-90 114.15 33.88 31.59 MAY-90 109.81 46.19 42.77 JUN-90 89.86 44.9 39.4 JUL-90 96.35 44.14 35.59 AUG-90 59.28 30.55 20.24 SEP-90 36.58 23.87 1.31 OCT-90 52.9 23.04 11.96 NOV-90 58.71 30.41 6.51 DEC-90 63.33 33.65 9.32 JAN-91 59.97 39.2 10.19 FEB-91 82.81 48.56 23.49 MAR-91 87.53 51.86 24.83 APR-91 94.96 51.91 25.19 MAY-91 92.4 57.77 27.01 JUN-91 91.72 50.22 19.98 JUL-91 96.13 56.96 23.66 AUG-91 85.38 60.04 20.61 SEP-91 87.8 56.98 22.86 OCT-91 83.9 58.84 24.25 NOV-91 84.66 51.86 16.6 DEC-91 89.16 68.81 16.78 JAN-92 109.41 65.44 17.02 FEB-92 106.85 67.03 15.21 MAR-92 101.53 63.38 9.25 APR-92 104.85 67.94 9.46 MAY-92 112.5 68.1 12.65 JUN-92 116.06 65.19 4.01 JUL-92 106.31 71.69 0.29 AUG-92 100.63 67.57 2.87 SEP-92 99.34 69.1 2.13 OCT-92 116.06 69.45 3.05 NOV-92 112.59 74.58 6.59 DEC-92 105.8 76.34 7.43 JAN-93 109.37 77.59 7.57 FEB-93 126.86 79.45 9.92 MAR-93 131.55 82.8 16.02 APR-93 146.1 78.16 22.84 MAY-93 155.18 82.2 23.58 JUN-93 147.09 82.34 23.21 JUL-93 146.34 81.37 28.48 AUG-93 157.29 87.62 34.14 SEP-93 166.65 85.74 30.61 OCT-93 205.87 89.34 37.04 NOV-93 212.21 86.9 25.95 DEC-93 291.08 88.79 36.62 JAN-94 276.6 94.92 45.84 FEB-94 255.11 89.06 41.86 MAR-94 221.53 80.41 33.96 APR-94 238.98 82.5 37.85 MAY-94 251.21 84.76 38.46 JUN-94 241.44 79.81 34.86 JUL-94 263.29 85.47 36.98 AUG-94 288.62 92.45 39.72 SEP-94 293.38 87.27 33.06 OCT-94 292.54 91.17 34.27 NOV-94 262.55 83.62 31.23 DEC-94 262.13 85.88 31.93 JAN-95 223.16 90.39 25.37 FEB-95 245.04 97.26 22.88 MAR-95 250.32 102.65 21.15 APR-95 241.78 108.32 24.55 MAY-95 267.13 115.88 24.12 JUN-95 261.36 120.48 21.22 JUL-95 263.93 127.48 29.85 AUG-95 244.83 127.41 33.35 SEP-95 255.15 136.53 34.24 OCT-95 249.49 135.35 31.96 NOV-95 241.37 145.01 36.76 DEC-95 255.52 149.28 42.13 JAN-96 272.22 157.41 47.17 FEB-96 271.64 159.2 45.42 MAR-96 278.2 161.25 49.19 APR-96 306.11 164.76 54.12 MAY-96 295.81 170.81 52.08 JUN-96 293.3 171.42 53.36 JUL-96 265.74 159.01 45.65 AUG-96 275.32 163.88 46.65 SEP-96 284.32 178.18 53.23 OCT-96 276.59 185.44 51.17 NOV-96 295.29 206.39 57.02 DEC-96 290.96 199.8 55.64 JAN-97 297.6 218.18 57.78 FEB-97 301.27 220.07 61.35 MAR-97 283.39 206.43 61.87 APR-97 277.77 224.32 66.45 MAY-97 293.17 243.32 71.08 JUN-97 307.24 258.24 80.1 JUL-97 310.89 286.23 89.2 AUG-97 250.38 264.04 75.17 ECONOMIC STATISTICS (AS OF 6/30/97)
POPULATION 1997E REAL 1996 REAL 1996E GDP 1996 GDP MARKET (MILLIONS) GDP GROWTH GDP GROWTH (US$ BILLIONS) PER CAPITA (US$) - --------------------------------------------------------------------------------------- U.S. 264 3.7% 2.4% 7,447 28,060 - --------------------------------------------------------------------------------------- Japan 126 1.3% 3.5% 4,506 35,842 - --------------------------------------------------------------------------------------- China 1,215 10.5% 9.7% 846 684 - --------------------------------------------------------------------------------------- Hong Kong 7 5.4% 4.8% 155 24,489 - --------------------------------------------------------------------------------------- Indonesia 198 7.3% 7.8% 220 1,120 - --------------------------------------------------------------------------------------- Malaysia 21 7.8% 8.2% 99 4,821 - --------------------------------------------------------------------------------------- Philippines 69 6.5% 5.5% 83 1,197 - --------------------------------------------------------------------------------------- Singapore 3 6.8% 7.0% 94 31,510 - --------------------------------------------------------------------------------------- South Korea 45 4.1% 6.7% 490 10,852 - --------------------------------------------------------------------------------------- Taiwan 22 6.2% 5.7% 273 12,755 - --------------------------------------------------------------------------------------- Thailand 61 5.3% 6.8% 183 3,047 - ---------------------------------------------------------------------------------------
1997E 1996 PRIME 96E CURRENT A/C MARKET INFLATION INFLATION LENDING RATES (% OF GDP) - ------------------------------------------------------------------- U.S. 2.6% 2.9% 8.5% (2%) - ------------------------------------------------------------------- Japan 1.1% 0.0% 2.5% 1.5% - ------------------------------------------------------------------- China 8.6% 8.3% 10.0% (0.1%) - ------------------------------------------------------------------- Hong Kong 6.5% 6.0% 8.5% (1.9%) - ------------------------------------------------------------------- Indonesia 6.7% 7.9% 21.5% (3.3%) - ------------------------------------------------------------------- Malaysia 4.0% 3.5% 9.1% (6.3%) - ------------------------------------------------------------------- Philippines 5.9% 8.4% 14.5% (4.6%) - ------------------------------------------------------------------- Singapore 2.5% 1.4% 6.4% 8.8% - ------------------------------------------------------------------- South Korea (4.5%) (4.5%) 12.5% (4.8%) - ------------------------------------------------------------------- Taiwan 2.5% 3.1% 7.6% 3.4% - ------------------------------------------------------------------- Thailand 4.1% 5.8% 13.3% (8.2%) - -------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MARKET SECTOR DIVERSIFICATION AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES AS OF AUGUST 31, 1997 MATTHEWS MATTHEWS ASIAN PACIFIC CONVERTIBLE MATTHEWS TIGER SECURITIES KOREA FUND FUND FUND ----------- ----------- --------- EQUITIES Agricultural Equipment ...... 1.38% 0.00% 0.00% Automotive .................. 1.88 0.00 6.65 Banking ..................... 3.79 0.01 0.00 Building Materials .......... 0.00 1.14 0.00 Chemical .................... 0.00 0.00 7.00 Commercial & Industrial ..... 10.39 1.35 16.04 Communications .............. 0.00 0.00 7.83 Conglomerate ................ 4.49 0.00 0.00 Construction ................ 0.00 0.76 5.46 Consumer .................... 0.81 0.00 0.00 Department Stores ........... 1.01 0.00 0.00 Electrical .................. 0.00 0.00 12.88 Electronics ................. 8.79 0.00 0.00 Financial ................... 9.65 1.92 13.10 Food ........................ 1.01 0.00 0.00 Food & Beverages ............ 6.47 0.00 0.91 Gaming ...................... 0.85 0.00 0.00 Health Care ................. 1.83 0.00 0.00 Hotels ...................... 2.02 0.00 0.00 Infrastructure .............. 0.00 1.98 0.00 Insurance ................... 2.29 0.00 4.34 Investments ................. 1.46 1.36 0.00 Machinery & Equipment ....... 0.44 0.00 0.00 Manufacturing ............... 5.50 0.00 0.00 Media ....................... 1.59 1.45 0.00 Paper Products .............. 0.00 0.00 4.33 Petro-Chemical .............. 0.00 1.06 0.00 Pharmaceutical .............. 0.00 0.00 1.91 Property .................... 1.53 0.00 0.00 Retail ...................... 2.84 0.00 0.00 Road Construction ........... 0.00 0.33 0.00 Rubber Manufacturer ......... 0.00 0.00 3.99 Shipping .................... 2.04 0.00 0.00 Software .................... 5.26 0.00 0.00 Trading ..................... 6.75 0.00 0.00 Transportation .............. 0.00 0.00 0.59 Utility ..................... 11.35 1.22 3.22 Wholesale & Retail Trade .... 0.00 0.00 11.75 ----- ----- ------ Total Equities .......... 95.42 12.58 100.00 See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MARKET SECTOR DIVERSIFICATION (CONTINUED) AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES AS OF AUGUST 31, 1997 MATTHEWS MATTHEWS ASIAN PACIFIC CONVERTIBLE MATTHEWS TIGER SECURITIES KOREA FUND FUND FUND --------- ------------ -------- BONDS Automotive .................... 0.00 3.23 0.00 Banking ....................... 0.00 2.49 0.00 Basic Industry ................ 0.00 2.01 0.00 Commercial & Industrial ....... 0.00 7.81 0.00 Conglomerate .................. 0.00 5.42 0.00 Department Stores ............. 1.52 0.82 0.00 Electrical .................... 0.00 6.56 0.00 Electrical Appliance .......... 0.00 1.27 0.00 Electronics ................... 1.87 10.24 0.00 Financial ..................... 0.00 5.18 0.00 Food .......................... 0.00 1.09 0.00 Hotels ........................ 0.00 7.53 0.00 Industrial .................... 1.19 3.89 0.00 Infrastructure ................ 0.00 2.80 0.00 Petro-Chemical ................ 0.00 7.95 0.00 Plastics ...................... 0.00 1.81 0.00 Property ...................... 0.00 5.57 0.00 Retail ........................ 0.00 4.35 0.00 Transportation ................ 0.00 4.09 0.00 Utility ....................... 0.00 2.51 0.00 ------- ------ ------ Total Bonds ............... 4.58 86.62 0.00 MUTUAL FUND ........................ 0.00 0.80 0.00 ------- ------ ------ TOTAL INVESTMENTS .................. 100.00% 100.00% 100.00% ======= ====== ====== See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MATTHEWS PACIFIC TIGER FUND SHARES VALUE -------- --------- EQUITIES -- 89.20%*** HONG KONG -- 49.67% China Light & Power Co., Ltd. .. 190,000 $ 880,238 China Resources Enterprise, Ltd. 220,000 922,694 China Travel International Investment Hong Kong, Ltd. .1,226,000 909,725 Dickson Concepts International, Ltd. ........ 305,000 1,157,175 Founder Hong Kong, Ltd. ........2,426,954 2,145,379 Guangdong Brewery Holdings, Ltd.** ........... 129,000 45,364 Guangdong Electric Power Development Co., Ltd. B Shares .............. 699,990 509,475 Guangdong Investment, Ltd. .....1,032,000 1,245,212 Guangdong Investment, Ltd. Warrants** ................. 103,200 59,930 Guangdong Kelon Electric Holding ....................1,230,000 1,531,737 Guangnan Holdings .............. 736,000 987,786 Hong Kong Telecommunications, Ltd. ....................... 491,907 1,034,719 HSBC Holdings PLC .............. 55,608 1,693,562 Li & Fung, Ltd. ................1,402,000 1,429,312 National Mutual Asia, Ltd. .....1,150,000 934,954 Peregrine Investments Holdings, Ltd. ............. 650,000 1,207,891 Qingling Motors, Ltd. ..........1,360,000 767,837 Shanghai New Asia Group Co., Ltd. B Shares ..............1,800,000 824,400 Swire Pacific, Ltd. A Shares ... 140,000 1,070,455 Vitasoy International Holdings, Ltd. .............3,172,000 1,606,663 Wuxi Little Swan Co., Ltd. B Shares .............. 425,000 712,991 ---------- TOTAL HONG KONG ................ 21,677,499 ---------- INDONESIA -- 4.80% PT Bimantara Citra ............. 555,000 498,559 PT Matahari Putra Prima ........ 705,000 370,423 PT Modern Photo Film Co. ....... 192,000 455,593 PT Telekomunikasi Indonesia .... 486,500 441,148 PT Tempo Scan Pacific .......... 295,000 330,000 ---------- TOTAL INDONESIA ................ 2,095,723 ---------- MALAYSIA -- 3.98% Arab Malaysian Finance Berhad .. 382,000 360,312 Berjaya Sports Toto Berhad ..... 127,000 348,479 Public Bank Berhad ............. 3 3 RHB Capital Berhad ............. 221,000 379,005 Star Publications (Malaysia) ... 307,000 647,585 ---------- TOTAL MALAYSIA ................. 1,735,384 ---------- SHARES VALUE -------- -------- PHILIPPINES -- 5.26% Manila Electric Co. B Shares ... 203,980 $ 691,115 Philippine Long Distance Telephone Co. .............. 35,300 894,110 RFM Corp. ......................2,229,000 410,605 Security Bank Corp.** .......... 348,000 297,631 ---------- TOTAL PHILIPPINES .............. 2,293,461 ---------- SINGAPORE -- 11.20% Avimo Group, Ltd. .............. 515,000 653,745 Osprey Maritime, Ltd. .......... 717,000 834,318 Parkway Holdings, Ltd. ......... 198,000 746,173 Sunright, Ltd. ................. 495,000 719,992 Venture Manufacturing (Singapore), Ltd. .......... 360,000 1,309,076 Wing Tai Holdings, Ltd. ........ 296,000 626,241 ---------- TOTAL SINGAPORE ................ 4,889,545 ---------- SOUTH KOREA -- 9.68% Keum Kang Development Ind. Co. . 30,840 410,061 Korea Electric Power Corp. ..... 33,300 870,781 Kyung Nam Bank ................. 80,000 695,844 Kyungwon Century Co. ........... 16,000 416,620 LG Cable & Machinery ........... 46,000 749,252 Maxon Electronics Co. .......... 18,900 487,944 Samsung Securities Co., Ltd.** . 39,000 596,343 ---------- TOTAL SOUTH KOREA .............. 4,226,845 ---------- THAILAND -- 4.61% Bangkok Bank Public Co., Ltd. .. 71,000 350,950 Bank of Ayudhya Public Co., Ltd. 321,000 497,601 Srithai Superware Public Co., Ltd. ........... 223,000 423,954 Thai Engine Manufacturing Public Co., Ltd.** ................ 100,000 561,567 Tipco Asphalt Public Co., Ltd. Warrants** ................. 30,600 178,105 ---------- TOTAL THAILAND ................. 2,012,177 ---------- TOTAL EQUITIES (Cost $40,119,667) ......... 38,930,634 ---------- See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MATTHEWS PACIFIC TIGER FUND (CONTINUED) FACE AMOUNT VALUE -------- ---------- INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 4.28% Far Eastern Department Stores 3.000%, 07/06/01 ........... $590,000 $ 622,450 Samsung Electronics Co. 0.250%, 12/31/06 ........... 600,000 763,500 Jardine Strategic Holdings, Ltd. 7.500%, 05/07/49 ........... 400,000 484,000 ----------- TOTAL INTERNATIONAL DOLLAR BONDS (Cost $1,838,208) .......... 1,869,950 ----------- TOTAL INVESTMENTS -- 93.48% (Cost $41,957,875*) ........ 40,800,584 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES -- 6.52% ... 2,846,569 ----------- NET ASSETS -- 100% .............. $43,647,153 =========== * Cost for Federal income tax purposes is $41,957,875 and net unrealized depreciation consists of: Gross unrealized appreciation .. $ 5,939,417 Gross unrealized depreciation .. (7,096,708) ----------- Net unrealized depreciation .... $(1,157,291) =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 1997. See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND SHARES VALUE ---------- --------- EQUITIES -- 12.69%*** HONG KONG -- 5.40% Cross-Harbour Tunnel Co. ........ 60,000 $ 123,112 Peregrine Investments Holdings, Ltd. .............. 64,000 118,931 Peregrine Investments Holdings, Ltd. Warrants** ............. 1,400 695 South China Morning Post (Holdings), Ltd. ............ 112,000 90,334 ----------- TOTAL HONG KONG ................. 333,072 ----------- MALAYSIA -- 0.77% Renong Berhad Warrants** ........ 40,000 12,348 United Engineers (Malaysia), Ltd. 8,624 35,200 ----------- TOTAL MALAYSIA .................. 47,548 ----------- SOUTH KOREA -- 4.82% Korea Electric Power Corp. ...... 2,900 75,834 Korea Kumho Petrochemical Co. Preferred ................... 16,000 65,595 Tong Yang Cement Co. Preferred .. 11,450 70,920 Tong Yang Securities Co. Preferred** ................. 27,300 84,698 ----------- TOTAL SOUTH KOREA ............... 297,047 ----------- THAILAND -- 1.70% Industrial Finance Corp. of Thailand Warrants** .................. 15,600 867 Srithai Superware Public Co., Ltd. 44,000 83,650 Tipco Asphalt Public Co., Ltd. Warrants** .................. 3,500 20,371 ----------- TOTAL THAILAND .................. 104,888 ----------- TOTAL EQUITIES (Cost $984,995) ............. 782,555 ----------- FACE AMOUNT VALUE --------- -------- INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 87.36% HONG KONG -- 34.69% China Travel International Investment Overseas Finance, Ltd. 4.250%, 11/18/98 ............$150,000 223,500 Goldlion Capital (B.V.I.) 4.875%, 02/01/99 ............ 150,000 127,500 Shangri-La Asia Capital, Ltd. 2.875%, 12/16/00 ............ 200,000 170,000 FACE AMOUNT VALUE --------- -------- Hong Kong & Shanghai Overseas Finance, Ltd. 5.000%, 01/06/01 ............$200,000 $ 186,000 Sino Land 5.000%, 02/26/01 ............ 100,000 94,500 New World Infrastructure, Ltd. 5.000%, 07/15/01 ............ 150,000 174,000 Qingling Motors, Ltd.P. 3.500%, 01/22/02 ............ 200,000 201,000 First Pacific Capital, Ltd. 2.000%, 03/27/02 ............ 250,000 243,750 Bank of East Asia, Ltd. 2.000%, 07/19/03 ............ 200,000 229,500 Zhenhai Refining & Chemical Co., Ltd. 3.000%, 12/19/03 ............ 200,000 295,000 Regal Hotels International Holdings, Ltd. 5.250%, 12/13/08 ............ 95,000 112,575 Amoy Properties, Ltd. 5.500%, 12/29/49 ............ 100,000 81,500 ----------- TOTAL HONG KONG ................. 2,138,825 ----------- INDONESIA -- 2.03% PT Indocement 2.000%, 02/27/06 ............ 150,000 125,250 ----------- MALAYSIA -- 1.50% Commerce Asset Holdings 1.750%, 09/26/04 ............ 80,000 92,600 ----------- PHILIPPINES -- 7.89% Metro Pacific Capital, Ltd. 2.500%, 04/11/03 ............ 60,000 53,250 JG Summit (Cayman), Ltd. 3.500%, 12/23/03 ............ 80,000 53,000 International Container Terminal Services, Inc. 1.750%, 03/13/04 ............ 100,000 88,500 FDC Capital Cayman 2.500%, 05/15/06 ............ 90,000 74,925 RFM Capital, Ltd. 2.750%, 05/30/06 ............ 60,000 60,900 Philippine Long Distance Telephone Co. 3.500%, 12/31/49 ............ 290,000 155,875 ----------- TOTAL PHILIPPINES ............... 486,450 ----------- See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND (CONTINUED) FACE AMOUNT VALUE -------- --------- SINGAPORE -- 8.32% Jardine Strategic Holdings, Ltd. 7.500%, 05/07/49 ............$200,000 $ 242,000 Dairy Farm International Holdings, Ltd. 6.500%, 05/10/49 ............ 345,000 270,825 ----------- TOTAL SINGAPORE ................. 512,825 ----------- SOUTH KOREA -- 11.70% Yukong, Ltd. 3.000%, 12/31/01 ...........3,400,000 199,580 Samsung Display Devices Co. 0.250%, 03/12/06 ........... 100,000 98,750 Samsung Electronics Co. 0.250%, 12/31/06 ........... 160,000 203,600 Daewoo Corp.** 0.000%, 12/31/07 ........... 100,000 113,750 LG Electronics, Inc. 0.250%, 12/31/07 ........... 100,000 105,750 ----------- TOTAL SOUTH KOREA .............. 721,430 ----------- TAIWAN -- 17.21% Nan Ya Plastic Corp. 1.750%, 07/19/01 ........... 80,000 112,400 President Enterprises+** 0.000%, 07/22/01 ........... 40,000 67,500 Yangming Marine Transport Corp. 2.000%, 10/06/01 ........... 150,000 166,125 Yageo Corp. 1.250%, 07/24/03 ........... 80,000 258,000 Compal Electronics, Inc.P. 1.000%, 11/21/03 ........... 100,000 252,500 Walsin Lihwa Corp. 3.250%, 06/16/04 ........... 70,000 78,750 Acer Peripherals, Inc. 1.250%, 11/27/06 ........... 80,000 126,000 ----------- TOTAL TAIWAN ................... 1,061,275 ----------- THAILAND -- 4.02% Tanayong Public Co., Ltd. 3.500%, 03/01/04 ........... 110,000 42,350 Robinson Department Store Public Co., Ltd. 4.250%, 04/07/04 ........... 50,000 50,875 FACE AMOUNT VALUE -------- ---------- Bangkok Bank Public Co., Ltd. 1.500%, 08/07/06 ........... $160,000 $ 154,600 ----------- TOTAL THAILAND ................. 247,825 ----------- TOTAL INTERNATIONAL DOLLAR BONDS (Cost $4,963,419) .......... 5,386,480 ----------- SHARES VALUE -------- ---------- INVESTMENT COMPANY -- 0.81% (Cost $58,293) The India Fund, Inc. ........... 6,000 49,878 ----------- TOTAL INVESTMENTS -- 100.86% (Cost $6,006,707*) ......... 6,218,913 ----------- LIABILITIES, LESS CASH AND OTHER ASSETS -- (0.86%) ..... (52,921) ----------- NET ASSETS -- 100% .............. $6,165,992 =========== * Cost for Federal income tax purposes is $6,006,707 and net unrealized appreciation consists of: Gross unrealized appreciation .....$ 656,110 Gross unrealized depreciation ..... (443,904) --------- Net unrealized appreciation .......$ 212,206 ========= ** Non-income producing security + Convertible bond with put option P. Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At August 31, 1997, the value of these securities amounted to $453,500 or 7.35% of net assets. ***As a percentage of net assets as of August 31, 1997. See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997 ================================================================================ MATTHEWS KOREA FUND SHARES VALUE ---------- ----------- EQUITIES -- SOUTH KOREA -- 99.51%*** Dae Duck Electronics Co. ........ 9,130 $ 688,923 Daewoo Corp. .................... 50,860 400,117 Daewoo Heavy Industries Preferred** ................. 140,550 537,282 Daewoo Telecom Co. .............. 40,550 485,252 Dong-A Pharmaceutical Co., Ltd. . 13,584 367,270 Dongwon Securities Co. .......... 50,100 610,637 Halla Climate Control ........... 6,980 198,766 Handsome Co., Ltd. .............. 16,010 713,132 Hankook Tire Manufacturing Co. .. 11,030 438,755 Hankuk Electric Glass ........... 27,730 497,757 Hansol Paper Co. ................ 19,000 467,368 Heung-Ah Tire & Rubber Co. ...... 14,050 330,039 Hyosung T & C Co., Ltd. ......... 28,080 793,396 Hyundai Cement Co.** ............ 2,690 116,840 Hyundai Engineering & Construction Co.** .......... 25,380 534,315 Keumkang, Ltd. .................. 17,000 858,947 Kookmin Bank .................... 6,795 85,079 Korea Electric Power Corp. ...... 15,000 392,244 Korea Exchange Bank ............. 95,000 542,105 Korea Express Co. ............... 15,210 328,637 Korea Industrial Leasing Co. .... 38,570 241,890 Korean Air** .................... 7,550 113,773 Kyung Nam Bank .................. 66,430 577,812 LG Cable & Machinery ............ 54,440 886,723 LG Chemical, Ltd. ............... 20,500 338,449 LG Electronics .................. 40,000 859,833 LG Industrial Systems ........... 25,000 531,856 LG Information & Communication, Ltd. ........................ 9,722 1,023,368 Lotte Chilsung Beverage Co. ..... 1,500 175,346 SHARES VALUE ---------- ----------- Mando Machinery Corp. ........... 6,000 $ 222,715 Medison Co., Ltd. ............... 8,580 741,540 Namhae Chemical ................. 7,530 321,224 Oriental Fire & Marine Insurance 23,000 468,919 Pohang Iron & Steel Co., Ltd. ... 980 62,872 Pusan Bank ...................... 80,000 465,374 Rocket Electric Co. Preferred ... 22,640 180,618 Samsung Electro-Mechanics Co. Preferred ................... 21,850 254,210 Samsung Fire & Marine Insurance . 920 366,980 Seoul City Gas Co., Ltd. ........ 5,570 228,354 Shinsegae Department Store Co. .. 11,080 387,953 Young Poong Paper Manufacturing Co.** ....................... 10,290 367,133 Youngone Corp. .................. 18,000 368,975 Yukong, Ltd. .................... 30,000 688,088 ----------- TOTAL EQUITIES (Cost $19,975,252) .......... 19,260,866 ----------- TOTAL INVESTMENTS -- 99.51% (Cost $19,975,252*) ......... 19,260,866 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES -- 0.49% .... 95,155 ----------- NET ASSETS -- 100% ............... $19,356,021 =========== *Cost for Federal income tax purposes is $19,975,252 and net unrealized depreciation consists of: Gross unrealized appreciation ...$ 1,076,312 Gross unrealized depreciation ... (1,790,698) ----------- Net unrealized depreciation .......$ (714,386) =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 1997. See accompanying notes to financial statements. STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1997 ================================================================================
MATTHEWS MATTHEWS ASIAN PACIFIC CONVERTIBLE MATTHEWS TIGER SECURITIES KOREA FUND FUND FUND ------------ ------------ ----------- ASSETS: Investments, at value (Cost $41,957,875, $6,006,707 and $19,975,252, respectively) .................................. $40,800,584 $6,218,913 $19,260,866 Cash .............................................................. 2,843,264 371,118 344,758 Dividends and interest receivable ................................. 120,627 45,906 1,782 Receivable for capital shares sold ................................ 439,220 12,817 91,273 Deferred organization costs (Note 1-E) ............................ 13,691 13,692 7,641 Due from Advisor (Note 2) ......................................... 9,788 8,320 1,631 Other assets ...................................................... 87 227 630 ----------- ---------- ----------- Total assets .................................................... 44,227,261 6,670,993 19,708,581 ----------- ---------- ----------- LIABILITIES: Payable for securities purchased .................................. 286,755 0 56,878 Payable for capital shares redeemed ............................... 230,287 493,288 255,502 Accrued expenses .................................................. 63,066 11,713 40,180 ----------- ---------- ----------- Total liabilities ............................................... 580,108 505,001 352,560 ----------- ---------- ----------- NET ASSETS: Applicable to 3,861,005, 526,451, and 3,125,655 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value ............. $43,647,153 $6,165,992 $19,356,021 =========== ========== =========== NET ASSETS CONSIST OF: Capital paid-in ................................................... $44,320,180 $5,649,975 $20,715,603 Accumulated undistributed net investment income ................... 109,395 0 0 Accumulated undistributed net realized gain (loss) on investments ..................................................... 377,138 303,811 (645,352) Net unrealized appreciation (depreciation) on investments and foreign currency related transactions ........................... (1,159,560) 212,206 (714,230) ----------- ---------- ----------- $43,647,153 $6,165,992 $19,356,021 =========== ========== =========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ....................... $11.30 $11.71 $6.19 ====== ====== =====
See accompanying notes to financial statements. STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1997 ================================================================================
MATTHEWS MATTHEWS ASIAN PACIFIC CONVERTIBLE MATTHEWS TIGER SECURITIES KOREA FUND FUND FUND ---------- ----------- -------- INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $58,937, $1,725 and $18,213, respectively) ...................... $ 685,401 $ 53,993 $ 94,735 Interest .......................................................... 90,721 74,208 18,842 Other ............................................................. 13,956 450 40,671 ----------- --------- --------- Total investment income ......................................... 790,078 128,651 154,248 ----------- --------- --------- EXPENSES: Investment advisory fees (Note 2) ................................. 358,055 44,164 104,316 Transfer agent fees ............................................... 42,158 31,751 35,519 Administration fees ............................................... 30,932 28,801 30,046 Accounting fees ................................................... 67,208 45,218 45,000 Professional fees ................................................. 38,589 4,784 14,086 Custodian fees .................................................... 107,178 12,334 41,442 Directors fees (Note 2) ........................................... 5,000 5,000 5,000 Insurance expense ................................................. 7,278 791 1,283 Amortization of organization costs (Note 1-E) ..................... 6,734 6,734 3,124 Printing expense .................................................. 13,702 2,433 4,571 Registration expenses ............................................. 27,252 14,186 17,742 Other expenses .................................................... 1,921 360 660 ----------- --------- --------- Total expenses .................................................. 706,007 196,556 302,789 Expenses reimbursed and waived (Note 2) ........................... (25,702) (112,644) (42,000) ----------- --------- --------- Net expenses .................................................... 680,305 83,912 260,789 ----------- --------- --------- NET INVESTMENT INCOME (LOSS) ......................................... 109,773 44,739 (106,541) ----------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS: Net realized gain (loss) on investments ........................... 382,226 309,419 (393,866) Net realized loss on foreign currency related transactions ........ (5,567) (1,243) (55,376) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ........... (1,348,057) 221,863 (175,375) ----------- --------- --------- Net realized and unrealized gain (loss) on investments and foreign currency related transactions ........................... (971,398) 530,039 (624,617) ----------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................ $ (861,625) $ 574,778 $(731,158) =========== ========= =========
See accompanying notes to financial statements. STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
MATTHEWS MATTHEWS PACIFIC ASIAN CONVERTIBLE MATTHEWS KOREA TIGER FUND SECURITIES FUND FUND ------------------------- ----------------------- ----------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1997 1996 1997 1996 1997 1996 ------------ ---------- ---------- ---------- ---------- ---------- OPERATIONS: Net investment income (loss) ........... $ 109,773 $ 25,665 $ 44,739 $ 58,981 $ (106,541) $ (20,150) Net realized gain (loss) on investments and foreign currency related transactions ......................... 376,659 81,306 308,176 81,497 (449,242) (206,210) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions (1,348,057) 179,432 221,863 (11,326) (175,375) (512,998) ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in net assets from operations ...................... (861,625) 286,403 574,778 129,152 (731,158) (739,358) ----------- ----------- ---------- ---------- ----------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .................. (19,824) 0 (44,739) (55,874) 0 0 Realized gains on investments .......... (69,727) 0 (86,133) (10,864) 0 (7,128) ----------- ----------- ---------- ---------- ----------- ---------- (89,551) 0 (130,872) (66,738) 0 (7,128) ----------- ----------- ---------- ---------- ----------- ---------- CAPITAL SHARE TRANSACTIONS (NET) (NOTE 1-I) ............................. 27,450,272 15,779,289 2,449,726 2,347,269 17,365,849 2,963,715 ----------- ----------- ---------- ---------- ----------- ---------- Total increase in net assets ........... 26,499,096 16,065,692 2,893,632 2,409,683 16,634,691 2,217,229 NET ASSETS: Beginning of period .................... 17,148,057 1,082,365 3,272,360 862,677 2,721,330 504,101 ----------- ----------- ---------- ---------- ----------- ---------- End of period (including undistributed net investment income of $109,395, $0 and $0, respectively) ............. $43,647,153 $17,148,057 $6,165,992 $3,272,360 $19,356,021 $2,721,330 =========== =========== ========== ========== =========== ==========
See accompanying notes to financial statements. FINANCIAL HIGHLIGHTS ================================================================================ The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS ASIAN CONVERTIBLE MATTHEWS PACIFIC TIGER FUND SECURITIES FUND ---------------------------------- ---------------------------------- YEAR YEAR PERIOD YEAR YEAR PERIOD ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1997 1996 1995* 1997 1996 1995* ---------- ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period ................ $ 10.81 $ 9.77 $ 10.00 $ 10.53 $ 9.88 $ 10.00 ------- ------- ------ ------- ------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income ............................ 0.02 0.01 0.02 0.10 0.25 0.23 Net realized and unrealized gain (loss) on investments and foreign currency ............... 0.50 1.03 (0.23) 1.42 0.75 (0.14) ------- ------- ------ ------- ------- ------ Total from investment operations ............... 0.52 1.04 (0.21) 1.52 1.00 0.09 ------- ------- ------ ------- ------- ------ LESS DISTRIBUTIONS FROM: Net investment income ............................ (0.01) 0.00 (0.02) (0.10) (0.26) (0.21) Net realized gains on investments ................ (0.02) 0.00 0.00 (0.24) (0.09) 0.00 ------- ------- ------ ------- ------- ------ Total distributions ............................ (0.03) 0.00 (0.02) (0.34) (0.35) (0.21) ------- ------- ------ ------- ------- ------ Net Asset Value, end of period ...................... $ 11.30 $ 10.81 $ 9.77 $ 11.71 $ 10.53 $ 9.88 ======= ======= ====== ======= ======= ====== TOTAL RETURN ........................................ 4.75% 10.64% (2.07)%** 14.67% 10.24% 0.89%** RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ............. $43,647 $17,148 $ 1,082 $ 6,166 $ 3,272 $ 863 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ...................... 1.97% 4.35% 25.95%+ 4.45% 8.73% 23.11%+ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ............. 1.90% 1.90% 2.17%+ 1.90% 1.85% 2.26%+ Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .......... 0.20% (2.13)% (23.41)%+ (1.55)% (4.13)% (18.68)%+ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator .......... 0.27% 0.32% 0.36%+ 1.00% 2.75% 2.17%+ Portfolio turnover ............................... 70.73% 124.69% 92.53% 50.20% 88.16% 121.63% Average commission rate paid ..................... $0.0065 $0.0064 N/A $0.0077 $0.0020 N/A + Annualized * The Funds commenced operations on September 13, 1994. ** Not annualized.
See accompanying notes to financial statements. FINANCIAL HIGHLIGHTS (CONTINUED) ================================================================================ The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS KOREA FUND ---------------------------------- YEAR YEAR PERIOD ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, 1997 1996 1995* ---------- ---------- ---------- Net Asset Value, beginning of period .......................................... $ 7.23 $ 9.13 $ 10.00 ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) ............................................... (0.04)** (0.07) 0.08** Net realized and unrealized loss on investments and foreign currency ....... (1.00)** (1.75) (0.95)** ------ ------ ------ Total from investment operations ......................................... (1.04) (1.82) (0.87) ------ ------ ------ LESS DISTRIBUTIONS FROM: Net investment income ...................................................... 0.00 0.00 0.00 Net realized gains on investments .......................................... 0.00 (0.08) 0.00 ------ ------ ------ Total distributions ...................................................... 0.00 (0.08) 0.00 ------ ------ ------ Net Asset Value, end of period ................................................ $ 6.19 $ 7.23 $ 9.13 ====== ====== ====== TOTAL RETURN .................................................................. (14.38)% (20.11)% (8.70)%*** RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ....................................... $19,356 $ 2,721 $ 504 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ...................... 2.90% 11.36% 42.87%+ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ............. 2.50% 2.23% 0.24%+ Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ........ (1.81)% (10.44)% (41.79)%+ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ........ (1.41)% (1.31)% 0.84%+ Portfolio turnover ......................................................... 112.68% 139.71% 42.16% Average commission rate paid ............................................... $0.0911 $0.1397 N/A + Annualized * The Funds commenced operations on January 3, 1995. ** Calculated using the average shares method. *** Not annualized
See accompanying notes to financial statements. MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1997 ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Matthews International Funds (the "Company") is an open-end investment management company registered under the Investment Company Act of 1940, as amended, as a series company. The Company currently consists of three separate investment series (each a "Fund" and collectively, the "Funds"): Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund and Matthews Korea Fund. The Matthews Pacific Tiger Fund and Matthews Korea Fund are organized to offer separate classes of shares and currently offer one class (Class I). The Matthews Pacific Tiger Fund and Matthews Korea Fund seek to maximize capital appreciation by investing, under normal circumstances, at least 65% of their total assets in equity securities of Pacific Tiger economies and South Korean companies, respectively. Pacific Tiger economies include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and China. The Matthews Asian Convertible Securities Fund seeks capital appreciation and current income by investing, under normal circumstances, at least 65% of its total assets in convertible securities of Asian economies. Asian economies include Hong Kong, Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, China and India. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. A. SECURITY VALUATION: Securities listed on any national securities exchange are valued at their last sale price on the exchange where the securities are principally traded or, if there has been no sale on that date, at the mean between the last reported bid and asked prices. Securities traded over-the-counter are priced at the mean of the last bid and asked prices. All other securities are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Trustees. The books and records of the Funds are maintained in U.S. dollars. Transactions denominated in foreign currencies are recorded at the current prevailing exchange rates. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the current exchange rate. Translation gains or losses resulting from changes in the exchange rate during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the results of operations for the current period. The Funds do not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rate from that which is due to changes in market prices of equity securities. International dollar bonds are issued offshore, pay interest and principal in U.S. dollars, and are denominated in U.S. dollars. Portfolio securities traded on a foreign exchange are generally valued at the respective current prevailing exchange rates. The securities' values are translated into U.S. dollars using these rates. If subsequent to the time a rate has been established and it has been determined to have materially changed, the fair value of those securities, (considering the changing conditions) will be determined by (or under the direction of) the Funds' Board of Trustees. B. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in the securities of foreign issuers may involve investment risks different from those of U.S. issuers including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, the possibility of currency exchange controls, the possible imposition of foreign withholding tax on the interest income payable on such instruments, the possible establishment of foreign controls, the possible seizure or nationalization of foreign deposits or assets, or the adoption of other foreign government restrictions that might adversely affect the foreign securities held by the Funds. Foreign securities may also be subject to greater fluctuations in price than securities of domestic corporations or the U.S. Government. C. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended August 31, 1997. Therefore, no Federal income tax provision is required. MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1997 (CONTINUED) ================================================================================ D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses on the sale of securities are determined on the identified cost basis. E. ORGANIZATION COSTS: Organization costs are being amortized on a straight-line basis over five years from each Fund's respective commencement of operations. In the event that any of the initial shares are redeemed during the period of amortization of the Funds organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of initial shares being redeemed bears to the number of those shares outstanding at the time of redemption. F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Convertible Securities Fund to distribute net investment income on a semi-annual basis and capital gains annually, if any. Matthews Pacific Tiger Fund and Matthews Korea Fund distribute net investment income and capital gains annually, if any. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Net investment losses may not be utilized to offset net investment income in future periods for tax purposes. At August 31, 1997 the Matthews Korea Fund reclassified $135,889 from accumulated net investment loss to additional paid-in capital. This reclassification had no effect on net assets. G. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. H. OTHER: Securities transactions are accounted for on the date the securities are purchased or sold. Interest income is recorded on the accrual basis and dividend income on the ex-dividend date. I. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share. Transactions in shares of beneficial interest were as follows:
MATTHEWS MATTHEWS ASIAN CONVERTIBLE PACIFIC TIGER FUND SECURITIES FUND ------------------ ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1996 ----------------------- ---------------------- --------------------- ------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- --------- ----------- ------- ----------- ------- --------- Shares sold ................ 3,849,789 $46,641,829 1,657,416 $17,743,189 348,345 $ 3,949,981 259,782 $2,726,198 Shares issued through reinvestment of dividends 6,471 82,965 0 0 8,922 99,805 5,283 54,160 Shares redeemed ............ (1,581,884) (19,274,522) (181,523) (1,963,900) (141,726) (1,600,060) (41,474) (433,089) ---------- ----------- --------- ----------- -------- ----------- ------- ---------- Net increase ............... 2,274,376 $27,450,272 1,475,893 $15,779,289 215,541 $ 2,449,726 223,591 $2,347,269 ========== =========== ========= =========== ======== =========== ======= ==========
MATTHEWS KOREA FUND ------------------- YEAR ENDED YEAR ENDED AUGUST 31, 1997 AUGUST 31, 1996 ----------------------- --------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ -------- ---------- Shares sold ................ 4,805,699 $ 30,420,501 452,855 $3,926,319 Shares issued through reinvestment of dividends 0 0 801 6,952 Shares redeemed ............ (2,056,201) (13,054,652) (132,685) (969,556) ---------- ------------ -------- ---------- Net increase ............... 2,749,498 $ 17,365,849 320,971 $2,963,715 ========== ============ ======== ========== MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1997 (CONTINUED) ================================================================================ 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Matthews International Capital Management (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Advisor charges the Funds a monthly fee of 1/12 of 1% on each Fund's respective average daily net assets. Certain officers and trustees of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Investment advisory fees and other transactions with affiliates, for the year ended August 31, 1997, are as follows:
EXPENSES INVESTMENT VOLUNTARY WAIVED AND ADVISORY EXPENSE ADVISORY REIMBURSED DUE FROM DAEWOO FEE RATE LIMITATION FEES BY ADVISOR ADVISOR SECURITIES ---------- ---------- -------- ---------- -------- ---------- Matthews Pacific Tiger Fund ................... 1.00% 1.90% $358,055 $ 25,702 $9,788 -- Matthews Asian Convertible Securities Fund .... 1.00 1.90 44,164 112,644 8,320 -- Matthews Korea Fund ........................... 1.00 2.50 104,316 42,000 1,631 $73,436+ +Daewoo Securities is the affiliated broker for the Fund. This amount is the affiliated brokerage commissions paid.
The investment advisory agreements provide that any reductions made by the Advisor in its fees are subject to reimbursement by the Funds within the following three years provided that Funds are able to effect such reimbursement and remain in compliance with applicable expense limitations. 3. INVESTMENT TRANSACTIONS Investment transactions for the year ended August 31, 1997, excluding temporary short-term investments, are as follows:
PURCHASES PROCEEDS FROM SALES ----------- ------------------- Matthews Pacific Tiger Fund ................................. $49,364,880 $23,871,174 Matthews Asian Convertible Securities Fund .................. 4,894,927 2,278,319 Matthews Korea Fund ......................................... 28,709,972 11,475,029
The Funds invest excess cash in interest bearing deposits at The Bank of New York. 4. CAPITAL LOSS CARRYOVER At August 31, 1997, the Matthews Korea Fund had a capital loss carryover of $78,721, which expires in 2004, to offset possible future capital gains of the Fund. REPORT OF INDEPENDENT AUDITORS ================================================================================ To The Shareholders and Board of Trustees of Matthews International Funds: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Matthews International Funds (comprising, respectively, the Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund and Matthews Korea Fund, collectively referred to as the "Funds") as of August 31, 1997, and the related statements of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Funds for the periods ended August 31, 1995 were audited by other auditors whose report dated September 29, 1995 expresses an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 1997, by correspondence with the custodian and brokers or applying alternative procedures when replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Matthews International Funds as of August 31, 1997, the results of their operations for the year then ended, and the changes in their net assets and financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. /S/ SIGNATURE ERNST & YOUNG LLP San Francisco, California October 9, 1997 BOARD OF TRUSTEES G. Paul Matthews John H. Dracott Richard K. Lyons Robert K. Connolly Dong Wook Park David FitzWilliam-Lay Norman J. Berryessa OFFICERS G. Paul Matthews John H. Dracott Brian B. Stableford INVESTMENT ADVISOR Matthews International Capital Management, LLC 655 Montgomery Street, Suite 1438 San Francisco, CA 94111 (800) 789-ASIA KOREAN ADVISOR Daewoo Capital Management Co., Ltd. 34-3, Yoido-dong, Yungdungpo-gu Seoul, 150-010 Korea UNDERWRITER FPS Broker Services, Inc. 3200 Horizon Drive P.O. Box 61503 King of Prussia, PA 19406 (800) 892-0382 SHAREHOLDER SERVICES FPS Services, Inc. 3200 Horizon Drive P.O. Box 61503 King of Prussia, PA 19406 (800) 892-0382 CUSTODIAN The Bank of New York 90 Washington Street New York, NY 10286 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 AUDITORS Ernst & Young LLP 555 California Street, Suite 1700 San Francisco, CA 94104 FOR ADDITIONAL INFORMATION ABOUT THE MATTHEWS INTERNATIONAL FUNDS CALL: (800) 789-ASIA This report is submitted for general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. -----END PRIVACY-ENHANCED MESSAGE-----