-----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, J2LJY6gpT/y6Gx8BFpQBJa9w8SzzhpaGcqSlOEzxs0IuNAUI/bK9WdpUXr9di3VK TQUEHnOU0JniljwLYR5N1w== /in/edgar/work/20001101/0000935069-00-000566/0000935069-00-000566.txt : 20001106 0000935069-00-000566.hdr.sgml : 20001106 ACCESSION NUMBER: 0000935069-00-000566 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001101 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: 750967 BUSINESS ADDRESS: STREET 1: C/O FIRST DATA INVESTOR SERVICE GROUP IN STREET 2: 3200 HORIZON DRIVE BOX 61503 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 MAIL ADDRESS: STREET 1: FIRST DATA INVESTOR SERIVES GROUP INC STREET 2: 3200 HORIZON DRIVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 N-30D 1 0001.txt MATTHEWS ANNUAL REPORT TABLE OF CONTENTS - -------------------------------------------------------------------------------- A MESSAGE TO SHAREHOLDERS ............................................... 2 INVESTMENT MANAGEMENT TEAM .............................................. 3 GENERAL MARKET AND ECONOMIC INFORMATION ................................. 4 PORTFOLIO MANAGERS' COMMENTS AND SCHEDULE OF INVESTMENTS Matthews Asian Growth and Income Fund (MACSX) ........................ 5 Matthews Asian Technology Fund (MATFX) ............................... 8 Matthews Dragon Century China Fund (MCHFX) ........................... 11 Matthews Japan Fund (MJFOX) .......................................... 14 Matthews Korea Fund (MAKOX) .......................................... 16 Matthews Pacific Tiger Fund (MAPTX) .................................. 19 FINANCIAL STATEMENTS Statements of Assets and Liabilities ................................. 22 Statements of Operations ............................................. 23 Statements of Changes in Net Assets .................................. 24 Financial Highlights ................................................. 27 Notes to Financial Statements ........................................ 31 Report of Independent Auditors ....................................... 36 - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM A MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Fellow Shareholders, The twelve-month period ending August 31, 2000 has seen Asia continue to build on its recovery from the financial turmoil of two years ago. China has made substantial progress towards its goal of full World Trade Organization membership; North and South Korea have made historic steps towards long term peace; Japan has continued to show slow but steady improvement in its economic reform process and real economies across the region have seen restored growth. In spite of these substantive and real advances in Asia, the financial markets of the region have remained mixed, plagued by self-doubt and external skepticism that the "Crisis" is truly over. After the markets' dramatic recovery in 1999, some period of consolidation and correction was perhaps inevitable. We firmly believe that Asia is now well positioned to continue to build on its post-Crisis achievements and that the overall environment for equity investors in the region is extremely positive with solid corporate earnings growth and low inflation. Economic performance around the region has been generally positive. For the full year 2000, growth estimates now range from 2% in Japan to 9% in China, with the rest of the region somewhere in between. Central banks across the region remain relatively cautious, continuing to maintain near record levels of foreign exchange reserves and only modestly expansionary monetary policies. In the meantime, at the company level where we focus most of our attention, the drive to improve capital returns and corporate governance continues with varied success. The approximately 150 companies in which we are invested in Asia are on average seeing revenue and profit expansion this year of between 10% and 30%. The level of mergers and acquisitions is still not up to levels that are considered normal in developed markets. Governments in Asia are still prone to believing they can control factors that should be left to the market. Overall, however, Asia's financial markets are operating with greater transparency and better governance than they were three years ago. With the addition of the Matthews Asian Technology Fund launched at the end of 1999, our fund family now includes six no-load Asian portfolios. With three diversified regional funds and three single country funds, our fund family offers a sophisticated range of investment vehicles for participation in the Asian financial markets. We have recently launched our redesigned Web site, WWW.MATTHEWSFUNDS.COM, adding significant information for investors including monthly fund commentary by our portfolio managers and a discussion on the appropriate use of our funds in a globally diversified portfolio. Please visit WWW.MATTHEWSFUNDS.COM to take advantage of these new enhancements. Thank you for your continued support, /S/ SIGNATURE /S/ SIGNATURE G. Paul Matthews Mark W. Headley Chairman and Chief Investment Officer President and Portfolio Manager - -------------------------------------------------------------------------------- 2 800.789.ASIA [2742] MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC INVESTMENT MANAGEMENT TEAM - -------------------------------------------------------------------------------- [PHOTO OMITTED] G. Paul Matthews CHAIRMAN, CHIEF EXECUTIVE OFFICER, CHIEF INVESTMENT OFFICER Andrew T. Foster ASSISTANT PORTFOLIO MANAGER Mark W. Headley PRESIDENT, PORTFOLIO MANAGER James M. Bogin PORTFOLIO MANAGER Richard H. Gao PORTFOLIO MANAGER - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 3 GENERAL MARKET AND ECONOMIC INFORMATION - -------------------------------------------------------------------------------- ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS DECEMBER 1987-SEPTEMBER 2000 - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MSCI MSCI ALL COUNTRY EUROPE FAR EAST AUSTRALIA EX JAPAN FAR EAST S&P 500(1) INDEX(2) INDEX(3) Mar. 88 5.68% 21.83% 15.32% Sept. 88 13.08 79.54 11.11 Mar. 89 24.81 102.81 29.02 Sept. 89 50.32 138.06 36.22 Mar. 90 48.81 139.08 14.38 Sept. 90 36.44 36.58 -1.09 Mar. 91 70.22 87.53 17.66 Sept. 91 78.87 87.80 20.97 Mar. 92 88.96 101.53 8.59 Sept. 92 98.62 99.34 12.76 Mar. 93 117.70 131.55 21.62 Sept. 93 124.33 166.65 42.93 Mar. 94 120.85 221.50 49.40 Sept. 94 132.60 293.38 57.39 Mar. 95 155.17 250.32 58.92 Sept. 95 201.70 255.15 67.00 Mar. 96 237.01 278.20 79.05 Sept. 96 263.00 284.32 81.93 Mar. 97 303.80 283.39 82.20 Sept. 97 409.76 239.93 104.66 Mar. 98 497.49 156.72 116.68 Sept. 98 455.94 61.98 88.12 Mar. 99 607.84 136.16 130.47 Sept. 99 610.45 201.56 147.03 Mar. 00 734.80 275.58 189.01 Sept. 00 704.75 181.56 155.49 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The S&P 500 Index is a capitalization-weighted index of 500 U.S. stocks. (2) The MCSI All Country Far East ex-Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region excluding Japan. (3) The MCSI Europe, Australia, Far East Index is an unmanaged capitalization-weighted index of stock markets in Europe, Australia and the Far East. ECONOMIC STATISTICS (AS OF 9/30/00) - --------------------------------------------------------------------------------
2000E REAL 1999 REAL 3Q00 THREE 2000E GDP GDP 2000E GDP 2000E GDP 2000E 1999E MONTH INTEREST 2000E POPULATION GROWTH GROWTH (US $ PER CAPITA INFLATION INFLATION RATE CURRENT A/C MARKET (MILLIONS) % % BILLIONS) (US $) % % % (% OF GDP) ---------- -------- -------- ---------- -------- --------- ------ ------ ------------ Japan............. 126.5 2.1% 0.5% 4,783.0 37,795 (0.5%) (0.5%) 0.25% 2.6% China............. 1,261.8 8.5% 7.1% 1,072.0 850 0.3% (1.4%) 2.0% 1.1% Hong Kong......... 7.1 10.0% 3.1% 166.6 23,411 (3.7%) (4.0%) 6.2% 4.1% Indonesia......... 224.8 3.5% 0.3% 184.0 819 4.0% 20.5% 12.7% 7.2% Malaysia.......... 21.8 9.0% 5.6% 87.5 4,015 1.8% 2.8% 3.8% 8.5% Philippines....... 81.2 3.5% 3.3% 77.5 955 4.5% 6.7% 9.0% 10.3% Singapore......... 4.2 8.0% 5.4% 92.7 22,331 1.7% 0.4% 2.7% 25.3% South Korea....... 47.5 9.0% 10.7% 486.5 10,248 2.0% 0.8% 8.7% 1.4% Taiwan............ 22.2 6.7% 5.7% 328.6 14,808 1.3% 0.2% 5.4% 0.1% Thailand.......... 61.2 5.7% 4.2% 121.6 1,986 1.7% 0.3% 4.0% 9.0% SOURCE: U.S. CENSUS BUREAU, GOLDMAN SACHS, ABN AMRO
- -------------------------------------------------------------------------------- 4 800.789.ASIA [2742] PORTFOLIO MANAGER'S COMMENTS - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH AND INCOME FUND Portfolio Manager: G. Paul Matthews Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S OUTPERFORMANCE OF ITS BENCHMARK FOR THE FISCAL YEAR ENDED AUGUST 31, 2000? A: During the fiscal year that ended August 31st 2000, the Matthews Asian Growth and Income Fund gained 18.68%, significantly outperforming the MSCI Far East Ex-Japan Index(1), which declined (2.50%) during the period. This outperformance was due to two factors. Firstly, the individual securities included in the portfolio have been selected based on their ability to pay a current return to shareholders, either through dividends or a fixed return on a convertible bond. During the twelve months under review, the market has favored this type of security. Secondly, the Fund has held a high percentage of its investments in Hong Kong and China, where markets have performed better than other markets that are included in the Index. Q: HOW DOES THE FUND ARRIVE AT ITS COUNTRY WEIGHTINGS? A: Our primary focus is selecting individual securities that have historically paid a higher level of income than is generally available, but which still have long-term growth potential. Because we are finding more such companies and securities in the more developed markets of Hong Kong, Korea, Singapore and Taiwan, we have tended to have higher exposure to those countries than to the lesser-developed ASEAN countries such as the Philippines, Thailand and Indonesia. The country weightings are therefore a byproduct of our "bottom up" process, rather than a deliberate attempt to forecast short-term country performance. Q: WHAT NEW POSITIONS HAVE YOU ADDED TO THE PORTFOLIO? A: We have been adding to equity positions that have historically paid out an above average level of dividend and where we believe those higher dividends are sustainable. We believe that the overall prospects for Asian financial markets are positive now that Asia's Financial Crisis is behind it and that the Fund should have more exposure to equities than has historically been the case. At year end approximately 35% of the funds portfolio was invested in dividend-paying equities, while 65% was invested in dollar-denominated convertible bonds that may be converted into Asian equities. Examples of equity positions added to the portfolio include Huaneng Power (a Chinese based electric utility), South China Morning Post (Hong Kong's leading English language newspaper), and Cafe de Coral (a Chinese style fast food chain based in Hong Kong). Q: WHAT IS THE OUTLOOK FOR ASIAN CONVERTIBLE BONDS? A: Asian convertible bonds tend to perform best when interest rates are falling and underlying equity markets are rising. Neither condition has prevailed so far in 2000. While the economies of the region are all at various stages of recovery, confidence is still fragile. We believe that as it becomes clearer that Asia's recovery is sustainable and will be long term in nature, the prospects for the underlying equity markets will improve, although interest rates may not fall much from current levels. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH AND INCOME FUND One Year ....................... 18.68% Five Years ..................... 8.18% Since inception (9/12/94) ...... 6.97% - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX(1) One Year ...................... (2.50%) Five Years .................... (1.52%) Since 9/12/94 ................. (3.23%) - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX(2) One Year ...................... (7.01%) Five Years .................... (4.06%) Since 9/12/94 ................. (4.66%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS MSCI ASIAN ALL COUNTRY GROWTH AND FAR EAST INCOME EX-JAPAN FUND INDEX(1) 09/12/94 $10,000 $10,000 02/95 9,722 8,879 08/95 10,089 8,873 02/96 11,124 9,563 08/96 11,122 9,658 02/97 12,095 10,326 08/97 12,754 9,017 02/98 9,873 6,769 08/98 8,256 3,798 02/99 9,117 5,520 08/99 12,603 8,430 02/00 13,872 9,299 08/00 14,957 8,220 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The MSCI All Country Far East ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China. (2) The MSCI All Country Far East ex-Japan Free Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Philippines, Thailand and China that excludes securities not available to foreign investors. Malaysia is not represented in the Index, and Taiwan is only represented at 50% of its total market cap. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 5 MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - 31.13%**** CHINA/HONG KONG - 22.39% Cafe de Coral Holdings, Ltd. 936,000 $ 354,036 China Hong Kong Photo Products Holdings, Ltd. 1,654,003 165,417 CLP Holdings, Ltd. 64,500 289,453 Hang Seng Bank, Ltd. 26,400 283,491 Hong Kong Land Holdings, Ltd. 85,000 170,000 Huaneng Power International, Inc. ADR 10,000 161,875 Shangri-La Asia, Ltd. 260,000 263,360 South China Morning Post Holdings, Ltd. 334,000 250,526 The Wharf Holdings, Ltd. 126,000 299,685 Vitasoy International Holdings, Ltd. 1,830,000 330,842 ----------- TOTAL CHINA/HONG KONG 2,568,685 ----------- SOUTH KOREA - 6.67% Hana Bank 42,930 230,767 Hyundai Motor Co., Ltd., Pfd. 50,200 258,074 Sindo Ricoh Co. 11,170 276,039 ----------- TOTAL SOUTH KOREA 764,880 ----------- TAIWAN - 0.05% Winbond Electronic Corp., GDR** 215 5,370 ----------- UNITED KINGDOM - 2.02% HSBC Holdings PLC Spon ADR 3,200 231,800 ----------- TOTAL EQUITIES (Cost $3,313,132) 3,570,735 ----------- FACE AMOUNT ------ INTERNATIONAL DOLLAR BONDS - 65.99%**** CHINA/HONG KONG - 37.92% Hong Kong Land Co. 4.000%, 02/23/01 $ 550,000 541,750 New World Infrastructure, Ltd. 5.000%, 07/15/01 450,000 439,875 Qingling Motors, Ltd.*** 3.500%, 01/22/02 1,300,000 412,750 First Pacific Capital, Ltd. 2.000%, 03/27/02 450,000 515,250 Shanghai Industrial Investment Co. 1.000%, 02/24/03 200,000 236,000 COSCO Treasury Co., Ltd. 1.000%, 03/13/03 400,000 480,000 FACE AMOUNT VALUE ----------- ----- Zhenhai Refining & Chemical Co., Ltd. 3.000%, 12/19/03 $ 250,000 $ 281,250 Huaneng Power International Public Co., Ltd. 1.750%, 05/21/04 500,000 566,250 New World Cap Finl, Cnv. (New World Development) 3.000%, 06/09/04 300,000 289,125 Amoy Properties, Ltd. 0.000%, 12/29/49 750,000 586,875 ----------- TOTAL CHINA/HONG KONG 4,349,125 ----------- SINGAPORE - 12.49% Fullerton Global Corp. (Singapore Telecom) 0.000%, 04/02/03 500,000 531,250 Finlayson Global Corp. (DBS Holdings)*** 0.000%, 02/19/04 250,000 485,625 Natsteel Electronics Cnv 1.500%, 06/30/04 400,000 416,000 ----------- TOTAL SINGAPORE 1,432,875 ----------- SOUTH KOREA - 6.42% Samsung SDI Co., Ltd. 0.250%, 03/12/06 250,000 300,000 Samsung Electronics Co. 0.250%, 12/31/06 75,000 238,687 Samsung Electronics Co. 0.000%, 12/31/07 100,000 197,500 ----------- TOTAL SOUTH KOREA 736,187 ----------- TAIWAN - 3.79% Winbond Electronics Corp. 1.000%, 11/04/02 150,000 317,250 Walsin Lihwa Corp. 3.250%, 06/16/04 120,000 117,600 ----------- TOTAL TAIWAN 434,850 ----------- THAILAND - 5.37% Bank of Asia Public Co., Ltd. 3.750%, 02/09/04 300,000 171,000 Bangkok Bank Public Co. 4.589%, 03/03/04 825,000 439,312 Robinson Department Store 4.250%, 04/07/04 50,000 5,000 ----------- TOTAL THAILAND 615,312 ----------- TOTAL INTERNATIONAL DOLLAR BONDS (Cost $7,170,581) 7,568,349 ----------- - -------------------------------------------------------------------------------- 6 800.789.ASIA [2742] MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- VALUE ----- TOTAL INVESTMENTS - 97.12%**** (Cost $10,483,713*) $11,139,084 CASH AND OTHER ASSETS, LESS LIABILITIES - 2.88% 329,883 ----------- NET ASSETS - 100.00% $11,468,967 =========== * Cost for Federal income tax purposes is $10,483,713 and net unrealized appreciation consists of: Gross unrealized appreciation $ 1,336,879 Gross unrealized depreciation (681,508) ----------- Net unrealized appreciation $ 655,371 =========== ** Non-income producing security *** 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, 2000, the value of these securities amounted to $898,375 or 7.83% of net assets. **** As a percentage of net assets as of August 31, 2000. ADR - American Depositary Receipt GDR - Government Depositary Receipt Pfd. - Preferred Cnv. - Convertible See accompanying notes to financial statements. MARKET SECTOR DIVERSIFICATION AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES CONSUMER DISCRETIONARY .................... 15.31% Automobiles ............................. 6.02% Distributors ............................ 1.49% Hotels Restaurants & Leisure ............ 5.55% Media ................................... 2.25% CONSUMER STAPLES .......................... 2.97% Food Products ........................... 2.97% ENERGY .................................... 2.53% Oil & Gas ............................... 2.53% FINANCIALS ................................ 38.12% Banks ................................... 16.54% Diversified Financials .................. 4.63% Real Estate ............................. 16.95% INDUSTRIALS ............................... 11.44% Construction & Engineering .............. 4.31% Electrical Equipment .................... 1.06% Industrial Conglomerates ................ 2.12% Transportation Infrastructure ........... 3.95% INFORMATION TECHNOLOGY .................... 15.72% Computers & Peripherals ................. 3.73% Electronic Equipment & Instruments ...... 2.69% Office Electronics ...................... 2.48% Semiconductor Equipment & Products ...... 6.82% TELECOMMUNICATION SERVICES ................ 4.77% Diversified Telecommunication Services .. 4.77% UTILITIES ................................. 9.14% Electric Utilities ...................... 9.14% ------- TOTAL INVESTMENTS ......................... 100.00% ======= - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 7 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS ASIAN TECHNOLOGY FUND Portfolio Managers: G. Paul Matthews, Mark W. Headley and Andrew T. Foster (Assistant) Q: HOW HAS THE FUND PERFORMED RELATIVE TO ITS BENCHMARK OVER THE FISCAL YEAR ENDING AUGUST 31ST, 2000? A: Year-to-date, the Fund slightly outpaced its benchmark, the MSCI/Matthews Asian Technology Index. Over the period, the Fund declined (23.90%), while the Index declined (25.51%). During the better part of 2000, the Fund outpaced the Index by a significant margin. The Fund's relatively strong performance was driven initially by exposure to the Internet sector; later, semiconductor stocks boosted the Fund's returns. However, exposure to the Internet sector and Korean holdings ultimately hindered the Fund's performance. The Index's low weightings in these two areas boosted its relative return. As a result, the year-to-date performances of the Fund and the Index are nearly identical. Q: WHY HAS THE TECHNOLOGY SECTOR IN ASIA BEEN LAGGING BEHIND ITS NASDAQ COUNTERPART? A: Year-to-date through August 31st, the NASDAQ rose 3.5%, while the MSCI/ Matthews Asian Technology Index fell (25.51%). Asian technology shares have lagged behind the NASDAQ during the entire year, though from December to May, Asia's underperformance was relatively muted. From June to August, however, Asian tech shares weakened appreciably, failing to participate in the NASDAQ's summer rally. Asia's underperformance stems largely from concerns over the global semiconductor industry. Several analysts have warned that the industry cycle has peaked, triggering a global sell-off in semiconductor stocks. Such warnings have hit Asia particularly hard, as the region's technology sector has a number of very large semiconductor companies. Q: WHAT IS THE OUTLOOK FOR ASIAN TECHNOLOGY COMPANIES? A: Broadly speaking, prospects appear strong for Asian tech firms. Many of Asia's semiconductor firms are poised to benefit from growing demand for PCs and digital products. Tech hardware companies also stand to gain from ongoing outsourcing trends--many U.S. tech firms continue to outsource production to Asia's highly efficient manufacturers. Asia's wireless telecom carriers and equipment makers continue to run ahead of the pack. Wireless penetration rates in Japan, Korea and Hong Kong are among the highest in the world, and China is set for impressive subscriber growth. Q: WHAT CAN YOU TELL US ABOUT THE FUND'S STRATEGY? A: The Asian Technology Fund includes holdings in a number of the world's most powerful and innovative technology companies as well as a wide range of smaller niche players and domestic technology service companies. We believe that Asia's technology sector includes many of the region's best run companies including dominant global competitors such as Sony of Japan, Samsung Electronics of Korea and TSMC of Taiwan. We also are finding a wide array of new technology companies as Asian technology entrepreneurs bring expertise and innovation back to their home companies from Silicon Valley. A very exciting area of investment for the Fund is found in those companies that are bringing high tech services and products to Asian consumers and corporations. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS ASIAN TECHNOLOGY FUND Since inception (12/27/99) .... (23.90%) - -------------------------------------------------------------------------------- MSCI MATTHEWS ASIAN TECHNOLOGY INDEX(1) Since 12/31/99 .... (25.51%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS MSCI/ ASIAN MATTHEWS TECHNOLOGY ASIAN FUND TECHNOLOGY INDEX(1) 12/27/99 $10,000 $10,000 1/31/00 9,280 9,263 2/28/00 11,370 9,487 3/31/00 10,890 9,436 4/30/00 8,620 8,315 5/31/00 7,900 7,717 6/30/00 8,530 8,268 7/31/00 7,460 7,025 8/31/00 7,610 7,449 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The MSCI/Matthews Asian Technology Index is an unmanaged capitalization-weighted index of Asian equities tracking a broad range of technology stocks including: semiconductor equipment and products, communications equipment, computers and peripherals, electronic equipment and instruments, offices electronics, software, IT consulting and services, Internet software and services, diversified telecommunications services, and wireless telecommunications services. - -------------------------------------------------------------------------------- 8 800.789.ASIA [2742] MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - 100.33%*** CHINA/HONG KONG - 21.96% Asia Satellite Telecommunications Holdings, Ltd. 237,000 $ 692,840 Asia Satellite Telecommunications Holdings, Ltd. ADR 5,900 177,737 AsiaInfo Holdings, Inc.** 4,000 126,000 China Telecom HK, Ltd.** 115,000 884,706 e-Kong Group, Ltd.** 2,276,000 306,416 ehealthcareasia, Ltd.** 3,870,000 277,875 Global Sources, Ltd.** 7,700 255,544 Hutchison Whampoa, Ltd. 52,000 733,409 Legend Holdings, Ltd. 1,188,000 1,264,283 SINA.com** 17,000 365,500 SmarTone Telecommunications Holdings, Ltd. 161,000 310,679 ----------- TOTAL CHINA/HONG KONG 5,394,989 ----------- JAPAN - 26.49% Canon, Inc. 14,000 626,102 Fujitsu, Ltd. 21,000 608,382 Honda Tsushin Kogyo Co., Ltd. 9,400 519,970 Kyowa Hakko Kogyo Co., Ltd. 38,000 312,094 NEC Corp. 39,000 1,115,226 Nintendo Co., Ltd. 4,400 760,698 Sharp Corp. 26,000 414,157 Sony Corp. 11,700 1,305,363 Tokyo Denpa Co., Ltd. 8,100 410,088 Woodland Corp. 21,000 437,090 ----------- TOTAL JAPAN 6,509,170 ----------- SINGAPORE - 13.66% CSE Systems & Engineering, Ltd.** 1,028,000 722,724 Datacraft Asia, Ltd. 147,720 1,240,848 Informatics Holdings, Ltd. 642,000 318,930 Venture Manufacturing, Ltd 84,000 1,073,732 ----------- TOTAL SINGAPORE 3,356,234 ----------- SHARES VALUE ------ ----- SOUTH KOREA - 17.33% Comtec System Co., Ltd. 103,830 $ 427,026 Cybertek Holdings, Inc.** 22,786 297,990 Daou Technology, Inc. 10,803 72,588 Daum Communications Corp.** 3,669 228,992 Korea Next Education Service, Inc.** 60,333 202,969 Korea Telecom Corp. 3,310 226,588 Korea Telecom Corp. ADR 5,000 189,375 Korea Telecom Freetel** 10,741 495,999 KT M.com Co., Ltd.** 15,765 202,617 Samsung Electronics 4,570 1,127,301 Serome Technology, Inc. 10,255 231,691 SK Telecom Co., Ltd.** 1,820 400,523 SK Telecom Co., Ltd. ADR 6,000 153,750 ----------- TOTAL SOUTH KOREA 4,257,409 ----------- TAIWAN - 17.57% Acer, Inc. 240,000 299,227 Realtek Semiconductor Corp. 88,600 667,925 Taiwan Semiconductor Manufacturing Co., Ltd.** 165,240 716,004 VIA Technologies, Inc.** 126,000 1,680,541 WYSE Technology Taiwan, Ltd. 386,000 460,116 Zyxel Communications Corp.** 175,650 492,318 ----------- TOTAL TAIWAN 4,316,131 ----------- THAILAND - 3.32% Advanced Info Service Public Co., Ltd.** 46,400 560,842 Shinawatra Satellite Public Co., Ltd.** 302,800 255,606 ----------- TOTAL THAILAND 816,448 ----------- TOTAL INVESTMENTS - 100.33%*** (Cost $29,679,894*) 24,650,381 LIABILITIES, LESS CASH AND OTHER ASSETS - (0.33%) (80,401) ----------- NET ASSETS - 100.00% $24,569,980 =========== * Cost for Federal income tax purposes is $30,112,198 and net unrealized depreciation consists of: Gross unrealized appreciation $ 189,965 Gross unrealized depreciation (5,651,782) ----------- Net unrealized depreciation $(5,461,817) =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 2000. ADR - American Depositary Receipt See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 9 MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- MARKET SECTOR DIVERSIFICATION AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES CONSUMER DISCRETIONARY .................... 13.60% Household Durables ...................... 6.98% Leisure Equipment & Products ............ 3.09% Media ................................... 3.53% FINANCIALS ................................ 2.98% Diversified Financials .................. 2.98% HEALTH CARE ............................... 1.27% Biotechnology ........................... 1.27% INFORMATION TECHNOLOGY .................... 67.23% Communications Equipment ................ 7.03% Computers & Peripherals ................. 15.19% Electronic Equipment & Instruments ...... 8.13% Internet Software & Services ............ 7.88% IT Consulting & Services ................ 6.47% Office Electronics ...................... 2.54% Semiconductor Equipment & Products ...... 17.01% Software ................................ 2.98% TELECOMMUNICATION SERVICES ................ 14.92% Diversified Telecommunication Services .. 2.72% Wireless Telecommunication Services ..... 12.20% ------- TOTAL INVESTMENTS ......................... 100.00% ======= - -------------------------------------------------------------------------------- 10 800.789.ASIA [2742] PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS DRAGON CENTURY CHINA FUND Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard H. Gao Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S OUTPERFORMANCE OF ITS BENCHMARK FOR THE FISCAL YEAR ENDED AUGUST 31, 2000? A: The Matthews Dragon Century China Fund ended August 31, 2000 with an annual return of 18.54%, while the benchmark CL China World Index(1) was up 10.14% and the MSCI China Free Index was down (24.01%). The Fund outperformed the benchmark index by overweighting the utilities, telecom, and technology sectors in the first part of 2000, and also through exposure to Mainland Chinese B shares(2) that performed strongly in June and July. Q: WHY HAS CHINA BEEN SO STRONG RELATIVE TO OTHER ASIAN MARKETS IN 2000? A: After seven years of economic slowdown due to deflation and structural reforms, China's macro economy began turning around strongly this year. In the first half of 2000, GDP growth was an impressive 8.2% versus a respectable 7.1% for the whole of 1999. It is the first time in seven years that economic growth has increased. China's strong economic performance came mainly from rising exports and a mild recovery in domestic demand. During the first half of 2000, China's exports grew 38% over last year due to strong demand from the U.S. and neighboring Asian countries. China is also recovering from a deflationary stage as its Consumer Price Index ("CPI") finally rose a mild 0.1% in the first half after two years of negative growth or "deflation". Q: WHAT FACTORS WILL CONTRIBUTE TO SUSTAINABLE MARKET PERFORMANCE IN CHINA? A: China adopted its "Open-Door Policy" in 1978. During the next twenty years, reforms were at the center stage of the economy. The government's reform projects in the state-owned enterprises: banking, housing, health care, etc., have significantly changed every aspect of people's lives. By the end of 1998, state-owned enterprises contributed less than 30% to the total economy, down from over 70% just a decade ago. The private sector is playing an ever more crucial role in the economy. China is changing from a socialist, planned economy to a market economy. We believe China's long-term growth lies in its continued reform process in key economic areas. Under the comparatively enlightened leadership of China's current heads of state, economic reform will gradually lead the economy to healthy long-term growth. Q: WHAT IS THE IMPACT OF CHINA'S ENTRY INTO THE WORLD TRADE ORGANIZATION? A: China is expected to join the World Trade Organization ("WTO") by the end of this year or early next year. WTO membership entry will have a significant impact on China's long-term economic development. Firstly, WTO membership will increase trade activities and further boost China's exports. Secondly, more foreign direct investment will come into China as it becomes more open. Thirdly, WTO membership will strengthen reform efforts the government is making as the country prepares itself to face competition from multi-national corporations. Finally and most importantly, entry into the WTO will provide a level playing field for all companies doing business in China. Q: WHAT IS THE FUND'S CURRENT INVESTMENT STRATEGY? A: The Fund remains well diversified. Currently it is overweight in the utilities, telecommunications and infrastructure sectors. China's strong economic growth has led to a strong demand in the energy sector. Utility companies' profitability will also be raised due to prospects of mergers and acquisitions. To take advantage of the WTO entry, we also hold significant positions in ports and transportation companies. We are currently avoiding the consumer sector, especially household appliance companies. Cutthroat price competition has greatly eroded margins and profitability of these companies. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS DRAGON CENTURY CHINA FUND One Year ....................... 18.54% Since inception (2/19/98) ...... 0.87% - -------------------------------------------------------------------------------- CREDIT LYONNAIS CHINA WORLD INDEX(1) One Year ....................... 10.14% Since 2/19/98 .................. 0.02% - -------------------------------------------------------------------------------- MSCI CHINA FREE INDEX(3) One Year .......................(24.01%) Since 2/19/98 .................. (7.03%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS CREDIT DRAGON LYONNAIS CENTURY CHINA CHINA WORLD FUND INDEX(1) 02/19/98 $10,000 $10,000 05/98 8,570 8,100 08/98 4,360 4,027 11/98 6,650 6,573 02/99 5,150 5,200 05/99 6,734 7,107 08/99 8,624 9,090 11/99 8,746 8,578 02/00 8,586 9,075 05/00 8,472 8,585 08/00 10,223 9,996 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The Credit Lyonnais China World Index is an unmanaged capitalization-weighted index of Chinese equities which are listed on the Hong Kong, Shanghai and Shenzhen stock exchanges. (2) Mainland Chinese B Shares are Chinese stocks listed on the Shanghai and Shenzhen stock markets which are available to foreign investors. (3) The MSCI China Free Index is an unmanaged capitalization-weighted index of Chinese equities that includes only H-shares listed on the Hong Kong exchange, B-shares listed on the Shanghai and Shenzhen exchanges, and N-shares listed on the New YorkStock Exchange. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 11 MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - CHINA/HONG KONG - 97.23%*** CONSUMER DISCRETIONARY - 7.93% AUTOMOBILES & COMPONENTS - 1.87% Qingling Motors Co., Ltd. H Shares 1,071,000 $ 173,025 ----------- CONSUMER DURABLE & APPAREL - 5.33% China Hong Kong Photo Products Holdings, Ltd. 876,000 87,609 Glorious Sun Enterprises, Ltd. 852,000 195,543 TCL International Holdings, Ltd.** 424,000 120,961 Wuxi Little Swan Co., Ltd. B Shares 170,000 87,624 ----------- 491,737 ----------- MEDIA - 0.73% Television Broadcasts, Ltd. 12,000 67,853 ----------- TOTAL CONSUMER DISCRETIONARY 732,615 ----------- CONSUMER STAPLES - 5.21% FOOD & DRUG RETAILING - 3.59% Ng Fung Hong, Ltd. 602,000 329,976 Want Want Holdings Warrants 3,500 1,155 ----------- 331,131 ----------- HOUSEHOLD & PERSONAL PRODUCTS - 1.62% Hengan International Group Co., Ltd. 524,000 149,490 ----------- TOTAL CONSUMER STAPLES 480,621 ----------- ENERGY - 6.43% PetroChina Co., Ltd. H Shares 1,408,000 335,788 Sinopec Zhenhai Refining & Chemical Co., Ltd. 1,406,000 257,793 ----------- TOTAL ENERGY 593,581 ----------- FINANCIALS - 8.80% DIVERSIFIED FINANCIALS - 2.86% China Everbright, Ltd. 282,000 263,950 ----------- REAL ESTATE - 5.94% China Vanke Co., Ltd. B Shares 504,912 257,661 New World China Land, Ltd.** 761,600 290,512 ----------- 548,173 ----------- TOTAL FINANCIALS 812,123 ----------- HEALTH CARE - 3.86% PHARMACEUTICALS & BIOTECHNOLOGY - 3.86% China Pharmaceutical Enterprise & Investment Corp., Ltd. 1,502,000 192,584 Guangzhou Pharmaceutical Co., Ltd. H Shares 1,466,000 163,532 ----------- TOTAL HEALTH CARE 356,116 ----------- SHARES VALUE ------ ----- INDUSTRIALS - 28.51% CAPITAL GOODS - 11.89% Beijing Enterprises Holdings, Ltd. 94,000 $ 110,281 Cheung Kong Infrastructure Holdings, Ltd. 103,000 176,307 China Resources Enterprises, Ltd. 160,000 237,973 Citic Pacific, Ltd. 67,000 319,571 Shanghai Industrial Holdings, Ltd. 118,000 253,423 ----------- 1,097,555 ----------- TRANSPORTATION - 16.62% China Merchants Holdings International Co., Ltd. 348,000 274,413 China Southern Airlines Co., Ltd. ADR** 9,500 141,313 Cosco Pacific, Ltd. 334,000 301,916 New World Infrastructure, Ltd.** 255,000 289,357 Shanghai Zhenhua Port Machinery Co., Ltd. B Shares 253,000 101,200 Zhejiang Expressway Co., Ltd. H Shares 2,312,000 426,875 ----------- 1,535,074 ----------- TOTAL INDUSTRIALS 2,632,629 ----------- MATERIALS - 3.61% Beijing Yanhua Petrochemical Co., Ltd. H Shares 1,390,000 208,521 Yizheng Chemical Fibre Co., Ltd. H Shares 488,000 125,141 ----------- TOTAL MATERIALS 333,662 ----------- INFORMATION TECHNOLOGY - 11.22% SOFTWARE & SERVICES - 3.44% Asiainfo Holdings, Inc.** 3,000 94,500 Computer & Technologies Holdings, Ltd. 44,000 40,055 SINA.com** 8,500 182,750 ----------- 317,305 ----------- TECHNOLOGY HARDWARE & EQUIPMENT - 7.78% Eastern Communications Co., Ltd. B Shares 167,700 158,309 Legend Holdings, Ltd. 450,000 478,895 Yuxing Infotech Holdings, Ltd. 272,000 81,085 ----------- 718,289 ----------- TOTAL INFORMATION TECHNOLOGY 1,035,594 ----------- - -------------------------------------------------------------------------------- 12 800.789.ASIA [2742] MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- TELECOMMUNICATION SERVICES - 7.48% China Mobile (Hong Kong), Ltd.** 68,000 $ 523,131 China Unicom, Ltd. ADR** 7,000 162,750 China Unicom, Ltd.** 2,000 4,642 ----------- TOTAL TELECOMMUNICATION SERVICES 690,523 ----------- UTILITIES - 14.18% CLP Holdings, Ltd. 44,500 199,700 Guangdong Electric Power Development Co., Ltd. B Shares 376,896 306,380 Huaneng Power International, Inc. ADR 27,200 440,300 Shandong International Power Development Co., Ltd. H Shares 1,888,000 363,114 ----------- TOTAL UTILITIES 1,309,494 ----------- TOTAL INVESTMENTS - 97.23%*** (Cost $8,753,406*) 8,976,958 CASH AND OTHER ASSETS, LESS LIABILITIES - 2.77% 255,395 ----------- NET ASSETS - 100.00% $ 9,232,353 =========== * Cost for Federal income tax purposes is $8,872,238 and net unrealized appreciation consists of: Gross unrealized appreciation $ 1,282,721 Gross unrealized depreciation (1,178,001) ----------- Net unrealized appreciation $ 104,720 =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 2000. ADR - American Depositary Receipt See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 13 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS JAPAN FUND Co-Portfolio Managers: James M. Bogin and Mark W. Headley Q: HOW DID THE FUND PERFORM RELATIVE TO ITS INDEX IN THE ONE-YEAR PERIOD ENDING AUGUST 31, 2000? A: In the period ending August 31, 2000, the TOPIX(1) Index was up 7.05% while the Matthews Japan Fund fell (1.75%). This underperformance resulted largely from the Fund's underweighting in technology stocks during the last part of 1999. Year-to-date, the Fund is up 2.82% while the TOPIX Index is down (15.3%), outperforming by over 18%. Because the Fund had a relatively low weighting in technology and Internet stocks during 1Q2000, it was relatively unscathed by their decline. In the first part of the year, the brokerage and pharmaceutical sectors also performed very strongly, and the Fund's relatively high weighting in these industries contributed to outperformance. Q: WHAT IS THE CURRENT MACRO SITUATION IN JAPAN? A: It has been somewhat of a paradox this year that the Japanese stock market has performed poorly, and sentiment has been poor, while the economy has been recovering. Private capital investment, exports, and government expenditures have been driving economic growth. Japan has lagged in capital expenditure for technology in recent years, and as its 'catch-up' phase begins, information technology expenditure may grow as much as 20% each year for the next three years. In real terms, the economy may grow around 3% this year, which is impressive, considering that many forecasters expected a pedestrian 1% growth rate at the beginning of the year. Overtime hours, a leading indicator of consumption, are now increasing, and this will hopefully lead to an increase in consumption. Government economic policy has been a bit of an enigma. On the spending side, there is still too much pork barrel spending on 'bridges to nowhere', which does not lead to sustainable growth. The government plans a change in tax policy, but at this writing, we do not know whether they plan to raise them or lower them. Q: WILL JAPAN FALL BACK INTO RECESSION? A: Given that Japan is just now emerging from a 'lost decade' of sluggish or no growth, we think it is unlikely to sink back into recession. Instead, the economy is likely to shift further and further into services and away from manufacturing. The biggest concern at present is deflation. Prices are still falling in Japan, which, among other things, causes consumers to postpone purchases. Q: WHAT WAS THE OUTCOME OF THE PARLIAMENTARY ELECTION IN JUNE? A: The election of Prime Minister Mori after the untimely death of the incumbent, Mr. Obuchi, has not led to any substantive policy changes. Obuchi accomplished real reform, including the lowering of taxes. Mr. Mori is much less popular and as such, may be able to accomplish less. Japan's dominant Liberal Democratic Party (LDP) saw its majority further eroded in Parliament. Over time, it is hoped that pressure from other political parties will lead to further economic deregulation. Q: HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THE RESTRUCTURING? A: We take the view that the entire economy is in the midst of a restructuring, and several of the industries in which we invest shall be positively affected. A shift from department store shopping to specialty stores benefits several of the retail chains in which we are invested. In Japan, the mutual fund business is just beginning to be reborn after a ten-year hiatus, and our exposure to brokerage firms should be rewarded. We invest in both large well-known technology firms and businesses that are continually renewing themselves in terms of their product lines. By focusing on investing through a bottom-up or company-by-company basis, we are continually searching for those companies that will drive change in Japan rather than be overrun by it. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS JAPAN FUND One Year .........................(1.75%) Since inception (12/31/98) .......57.42% - -------------------------------------------------------------------------------- TOPIX(1) (TOKYO PRICE INDEX) One Year ......................... 7.05% Since 12/31/98 ...................28.30% - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS TOPIX JAPAN INDEX FUND (TOKYO)(1) 12/31/98 $10,000 $10,000 02/99 11,310 9,937 05/99 15,370 11,258 08/99 21,770 14,080 11/99 22,840 17,094 02/00 23,323 16,659 05/00 21,238 15,096 08/00 21,320 15,156 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) TOPIX: The Tokyo Price Index is a capitalization-weighted index of all companies of the Tokyo Stock Exchange. - -------------------------------------------------------------------------------- 14 800.789.ASIA [2742] MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - JAPAN - 97.53%*** CONSUMER DISCRETIONARY - 31.27% HOTELS, RESTAURANTS & LEISURE - 1.98% Marche Corp. 39,600 $ 472,259 ----------- INTERNET & CATALOG RETAIL - 6.03% Belluna Co., Ltd. 33,600 1,439,640 ----------- MEDIA - 0.03% Aoi Advertising Promotion, Inc. 400 5,963 ----------- RETAIL - 23.23% Arcland Sakamoto Co., Ltd. 59,000 663,791 Don Quijote Co., Ltd. 8,100 907,510 Himiko Co., Ltd. 76,000 847,928 Kyoto Kimono Yuzen Co., Ltd. 149 908,025 Thanks Japan Corp. 36,000 438,777 Tsutsumi Jewelry Co., Ltd. 30,000 590,662 USS Co., Ltd. 35,000 1,187,887 ----------- 5,544,580 ----------- TOTAL CONSUMER DISCRETIONARY 7,462,442 ----------- CONSUMER STAPLES - 1.60% FOOD & DRUG RETAILING - 1.60% Eco's Co., Ltd. 48,000 382,524 ----------- TOTAL CONSUMER STAPLES 382,524 ----------- FINANCIALS - 27.82% DIVERSIFIED FINANCIALS - 23.29% Daiwa Securities Group, Inc. 51,000 635,946 Ichiyoshi Securities Co., Ltd. 222,000 1,446,559 Japan Securities Finance Co., Ltd. 230 1,334,802 The 77 Bank, Ltd. 57,000 443,559 The Nikko Securities Co., Ltd. 95,000 916,510 Tsubasa Securities Co., Ltd. 163,000 782,449 ----------- 5,559,825 ----------- INSURANCE - 4.53% AFLAC, Inc. 20,000 1,080,000 ----------- TOTAL FINANCIALS 6,639,825 ----------- HEALTH CARE - 7.78% PHARMACEUTICALS - 7.78% Banyu Pharmaceutical Co., Ltd. 20,000 409,713 Chugai Pharmaceutical Co., Ltd. 22,000 391,899 Kissei Pharmaceutical Co., Ltd. 19,000 374,086 Nippon Shinyaku Co., Ltd. 75,000 682,074 ----------- TOTAL HEALTH CARE 1,857,772 ----------- INDUSTRIALS - 3.71% MACHINERY - 3.71% Nitto Kohki Co., Ltd. 31,000 886,462 ----------- TOTAL INDUSTRIALS 886,462 ----------- SHARES VALUE ------ ----- INFORMATION TECHNOLOGY - 25.35% COMPUTERS & PERIPHERALS - 14.30% Ferrotec Corp. 49,000 $ 790,174 Fujitsu, Ltd. 34,000 984,999 NEC Corp. 42,000 1,201,013 Woodland Corp. 21,000 437,090 ----------- 3,413,276 ----------- ELECTRONICS EQUIPMENT & INSTRUMENTS - 11.05% Honda Tsushin Kogyo Co., Ltd. 7,000 387,212 Canon, Inc. 11,000 491,937 Hitachi, Ltd. 92,000 1,089,406 Sony Corp. 6,000 669,417 ----------- 2,637,972 ----------- TOTAL INFORMATION TECHNOLOGY 6,051,248 ----------- TOTAL INVESTMENTS - 97.53%*** (Cost $22,764,118*) 23,280,273 CASH AND OTHER ASSETS, LESS LIABILITIES - 2.47% 588,502 ----------- NET ASSETS - 100.00% $23,868,775 =========== SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS EXPIRATION UNREALIZED DATE APPRECIATION ---------- ------------ Forward Foreign Exchange Contracts to Deliver 1,645,500,000**** Japanese Yen in exchange for USD, $16,000,000 ......... 09/29/00-11/30/00 $431,358 * Cost for Federal income tax purposes is $22,899,423 and net unrealized appreciation consists of: Gross unrealized appreciation $ 2,805,306 Gross unrealized depreciation (2,424,456) ----------- Net unrealized appreciation $ 380,850 =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 2000. **** Principal amount denoted in Japanese Yen. USD - United States Dollars See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 15 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley Q: WHY DID THE FUND UNDERPERFORM ITS BENCHMARK THE FISCAL YEAR ENDING AUGUST 31, 2000? A: During the year, which ended on August 31st, the Korean market as measured by the KOSPI(1) declined by (21.55%) while the Matthews Korea Fund Class I Shares fell by (22.92%). This marginal underperformance was due to the fact that in Korea a small number of companies account for a large proportion of the market and the Fund has adopted a higher degree of diversification. Specifically Samsung Electronics, a world leader in DRAM chips, accounts for approximately 20% of the index, while the Matthews Korea Fund has held a weighting of approximately 12% in this stock. During the year, and in particular in the latter half of calendar 1999, Samsung Electronics performed well relative to the Index, and our relative underweighting affected performance. While we believe that Samsung Electronics is an attractive long-term investment, it is highly exposed to the semi-conductor cycle and its earnings have historically been very volatile. We believe that there are other attractive investments in Korea that do not currently account for such a large percentage of the Index and that, over time, will contribute positively to the relative performance of the portfolio. Q: WHY HAS THE KOREAN MARKET BEEN SO WEAK IN RECENT MONTHS? A: Following its dramatic recovery from its low point during the Asian Crisis, the Korean market has "given back" about 45% from its highs. While some correction might have been expected, the extent of the decline suggests that some investors are concerned about the sustainability of Korea's recovery. In the immediate aftermath to the Crisis, Korea commenced a drive to reform and restructure its key industries and financial system and this was well received by investors. This reform program has not proceeded as fast as the financial markets would like and this has put pressure on the stock market. Although in broad terms the restructuring process has been slow, the changes that we are observing at individual companies are very real. Disclosure, transparency and corporate governance are in general terms significantly better than prior to the Crisis. While it is likely that the pace of economic recovery will slow in the next twelve months, we believe it is sustainable and that current valuations are very attractive. Q: WHAT SECTORS DO YOU FIND ATTRACTIVE IN KOREA? A: As "bottom-up" investors we are looking for companies that can achieve long-term growth in earnings whose stocks are trading at reasonable multiples to those projected earnings. We are finding many of these companies are either in industries focused on manufacturing electronics goods or are in domestic consumer-based businesses. In addition, the financial sector, which is going through a period of great change in Korea, appears to us to offer many attractive growth opportunities and is very reasonably priced. As a result, our portfolio is currently concentrated in three sectors, technology (including telecoms), financial services and consumer/retail. Q: WHAT POSITIVE CHANGES DO YOU SEE IN KOREA? A: Prior to the Financial Crisis, Korea's economy was dominated by a small number of large conglomerates, known as Chaebol, whose business strategy was dictated in large part by the government. Since the Crisis, the government has been consciously seeking to reduce its role in business decisions and to encourage more entrepreneurial activity. We are now seeing a high level of new company formations, and many Korean companies are developing innovative products and services at record rates. This has been reflected in the rapid development of the new economy in Korea, an economy which is now widely recognized as one of the world's most advanced users of the Internet. We are seeing the impact of this every time we visit one of the portfolio's companies. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND CLASS I SHARES One Year ........................(22.92%) Five Years ...................... (8.59%) Since inception (1/3/95) ........ (9.10%) - -------------------------------------------------------------------------------- KOSPI(1) (SOUTH KOREAN STOCK PRICE INDEX) One Year ........................(21.55%) Five Years ......................(12.02%) Since 1/3/95 ....................(12.02%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS KOREA KOREA FUND STOCK CLASS I PRICE SHARES INDEX(1) 01/02/95 $10,000 $10,000 02/95 8,960 8,855 08/95 9,230 9,237 02/96 8,636 8,779 08/96 6,820 6,794 02/97 6,416 6,412 08/97 3,047 2,748 02/98 2,280 1,832 08/98 3,107 2,748 02/99 6,103 4,733 08/99 8,222 6,666 02/00 5,723 5,035 08/00 5,824 4,833 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) KOSPI: The South Korea Stock Price Index is a capitalization-weighted index of all common stocks listed on the Korea Stock Exchange. - -------------------------------------------------------------------------------- 16 800.789.ASIA [2742] MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - SOUTH KOREA - 97.03% CONSUMER DISCRETIONARY - 11.99% AUTO COMPONENTS - 0.66% Global & Yuasa Battery Co., Ltd. 224,800 $ 427,804 Hankook Tire Co., Ltd. 164,568 403,720 ------------ 831,524 ------------ AUTOMOBILES - 3.31% Hyundai Motor Co., Ltd. 276,931 4,196,113 ------------ INTERNET & CATALOG RETAIL - 0.01% Hansol CSN Co., Ltd. 3,215 12,759 ------------ RETAIL - 8.01% LG Home Shopping, Inc. 30,400 3,070,846 Shinsegae Department Store Co. 122,420 6,094,777 Shinsegae Department Stores Co. - Pfd. 27,504 997,214 ------------ 10,162,837 ------------ TOTAL CONSUMER DISCRETIONARY 15,203,233 ------------ CONSUMER STAPLES - 15.69% BEVERAGES - 8.04% Hite Brewery Co., Ltd. 156,281 6,695,240 Lotte Chilsung Beverage Co. 34,260 3,507,112 ------------ 10,202,352 ------------ FOOD PRODUCTS - 4.78% Lotte Confectionery Co., Ltd. 23,990 2,444,979 Nong Shim Co., Ltd. 100,308 3,618,778 ------------ 6,063,757 ------------ PERSONAL PRODUCTS - 2.87% Pacific Corp. 147,450 3,643,860 ------------ TOTAL CONSUMER STAPLES 19,909,969 ------------ ENERGY - 0.96% OIL & GAS - 0.96% SK Corp. GDR 59,938 242,749 SK Corp. GDR** 241,000 976,050 ------------ TOTAL ENERGY 1,218,799 ------------ FINANCIALS - 23.78% BANKS - 11.58% Hana Bank 1,034,430 5,560,499 Kookmin Bank 309,245 3,765,328 Shinhan Bank 491,702 5,366,038 ------------ 14,691,865 ------------ DIVERSIFIED FINANCIALS - 6.94% Dongwon Securities Co. 184,350 1,163,878 Good Morning Securities Co., Ltd. 941,810 2,905,064 Samsung Securities Co., Ltd. 167,075 3,405,542 Seoul Securities Co., Ltd. 203,000 1,332,888 ------------ 8,807,372 ------------ SHARES VALUE ------ ----- INSURANCE - 5.26% Samsung Fire & Marine Insurance 249,942 $ 6,672,634 ------------ TOTAL FINANCIALS 30,171,871 ------------ HEALTH CARE - 1.26% HEALTH CARE EQUIPMENT & SUPPLIES - 0.97% Shinhung Co., Ltd. 342,700 930,351 Suheung Capsule Co., Ltd. 35,050 306,638 ------------ 1,236,989 ------------ PHARMACEUTICALS - 0.29% Hanmi Pharmaceutical Industrial Co., Ltd. 51,090 370,935 ------------ TOTAL HEALTH CARE 1,607,924 ------------ INDUSTRIALS - 3.08% COMMERCIAL SERVICES & SUPPLIES - 1.27% S1 Corp. 135,635 1,614,775 ------------ ELECTRICAL EQUIPMENT - 1.76% LG Cable, Ltd. 161,501 2,228,605 ------------ MACHINERY - 0.05% Hanjin Heavy Industries Co., Ltd. 26,139 67,661 ------------ TOTAL INDUSTRIALS 3,911,041 ------------ INFORMATION TECHNOLOGY - 18.59% ELECTRONICS EQUIPMENT & INSTRUMENTS - 4.29% Dae Duck GDS Co., Ltd. 221,233 2,105,081 Dae Duck Industrial Co., Ltd. 5,924 40,072 Samsung SDI Co., Ltd. 73,793 3,294,479 ------------ 5,439,632 ------------ IT CONSULTING & SERVICES - 0.91% Comtec Systems Co., Ltd. 198,270 815,433 Locus Corp.** 9,600 340,275 ------------ 1,155,708 ------------ INTERNET SOFTWARE & SERVICES - 3.13% Daou Technology, Inc. 192,851 1,295,820 Korea Next Education Service, Inc.** 328,440 1,104,921 Serome Technology, Inc. 69,560 1,571,570 ------------ 3,972,311 ------------ OFFICE ELECTRONICS - 0.98% Sindo Ricoh Co. 50,556 1,249,366 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS - 9.28% Samsung Electronics 47,724 11,772,279 ------------ TOTAL INFORMATION TECHNOLOGY 23,589,296 ------------ - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 17 MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- MATERIALS - 0.52% CHEMICALS - 0.52% Han Kuk Carbon Co., Ltd. 121,188 $ 306,044 Honam Petrochemical Corp. 50,790 350,434 Korea Fine Chemical Co., Ltd. 374 6,780 ------------ TOTAL MATERIALS 663,258 ------------ TELECOMMUNICATION SERVICES - 12.74% TELECOMMUNICATION SERVICES - 6.00% Dacom Corp.** 13,618 1,228,230 Korea Telecom Corp. 51,100 3,498,074 Korea Telecom Corp. ADR** 76,317 2,890,506 ------------ 7,616,810 ------------ WIRELESS TELECOMMUNICATION SERVICES - 6.74% Korea Telecom Freetel** 21,670 1,000,680 KT M.Com Co., Ltd.** 230,355 2,960,594 SK Telecom Co., Ltd. 20,900 4,599,414 ------------ 8,560,688 ------------ TOTAL TELECOMMUNICATION SERVICES 16,177,498 ------------ UTILITIES - 8.42% Daehan City Gas Co., Ltd. 57,492 762,239 Korea Electric Power Corp. 240,080 7,058,947 Korea Electric Power Corp. ADR 132,900 2,242,687 Seoul City Gas Co., Ltd. 36,750 619,820 ------------ TOTAL UTILITIES 10,683,693 ------------ TOTAL EQUITIES (Cost $111,994,210) 123,136,582 ------------ INTERNATIONAL DOLLAR BONDS SOUTH KOREA - 2.08% INFORMATION TECHNOLOGY - 2.08% SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.08% Samsung Electronics Co. 0.250%, 12/31/06 830,000 2,641,475 ------------ (Cost $899,232) VALUE ----- TOTAL INVESTMENTS - 99.11%*** (Cost $112,893,442*) $125,778,057 CASH AND OTHER ASSETS, LESS LIABILITIES - 0.89% 1,130,170 ------------ NET ASSETS - 100.00% $126,908,227 ============ * Cost for Federal income tax purposes is $113,146,510 and net unrealized appreciation consists of: Gross unrealized appreciation $ 29,548,934 Gross unrealized depreciation (16,917,387) ------------ Net unrealized appreciation $ 12,631,547 ============ ** Non-income producing security *** As a percentage of net assets as of August 31, 2000. ADR - American Depositary Receipt GDR - Government Depositary Receipt Pfd. - Preferred See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 800.789.ASIA [2742] PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley Q: HOW HAS THE FUND PERFORMED RELATIVE TO ITS BENCHMARK? A: The Matthews Pacific Tiger Fund Class I Shares returned 21.28% in twelve-month period ending August 31, 2000. This was significantly better than (2.50%) for the MSCI Far East ex-Japan Index(1) over the same period. The outperformance of the Fund can be largely attributed to individual stock selection. While many similar funds are run from a top-down perspective with country weightings driving the investment process, we search the region for companies that meet our desired characteristics with bottom-up, company considerations driving the investment process. Excellent returns were seen from most of our technology and telecommunications holdings in the first half of the period. More recently, performance has been helped by holdings in the financial sector, the energy sector and the consumer/retail sector. Q: HOW IS THE PORTFOLIO POSITIONED IN GENERAL? A: The Fund has consistently had the majority of its 40 to 50 holdings in three general areas, technology/communications, financials and consumer retail. We believe each of these sectors has considerable long-term growth potential and we strive to find Asia's regional and global winners in their respective niches. This industry diversification is important to our risk control process as well. The Fund also has consistently invested across the range of company sizes from Asia's largest companies to its smaller companies. This diversification of the portfolios allows for participation in huge globally competitive companies as well as locally oriented companies with strong domestic businesses. While the portfolio is driven by bottom-up considerations, we are constantly analyzing domestic policies in each country and intra-regional policies that can have an impact on our decisions. For example, the actions of the Malaysian government to impose capital controls during the 97/98 period has led us to exclude the country from our investment universe until this policy is renounced by the government. Q: LOOKING AHEAD, WHAT ARE THE KEY FACTORS FOR ASIAN FINANCIAL MARKETS? A: Asian economies are generally continuing to recover impressively from the after-effects of the 97/98 recession. Individual companies have been focusing on profitability rather than market share. We are particularly impressed with the improvement in communications between company management and institutional investors such as ourselves. We believe the coming years in Asia will see slower absolute growth rates than in the previous decade, but will also see stronger corporate profitability. Strong corporate earnings, such as we are currently seeing, can be attributed to more focused management efforts and more open market environments in most countries and industries. While there are always exceptions, Asia is moving to a much more free competitive environment similar to the U.S. This transformation is very positive for long-term fundamentally driven investors. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF AUGUST 31, 2000) - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND CLASS I SHARES One Year ........................21.28% Five Years ...................... 5.66% Since inception (9/12/94) ....... 4.36% - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX(1) One Year ........................(2.50%) Five Years ......................(1.52%) Since 9/12/94 ...................(3.23%) - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX(2) One Year ........................(7.01%) Five Years ......................(4.06%) Since 9/12/94 ...................(4.66%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: MATTHEWS PACIFIC MSCI TIGER ALL COUNTRY FUND FAR EAST CLASS I EX-JAPAN SHARES INDEX(1) 09/12/94 $10,000 $10,000 02/95 9,241 8,879 08/95 9,793 8,873 02/96 10,965 9,563 08/96 10,835 9,658 02/97 12,439 10,326 08/97 11,349 9,017 02/98 7,693 6,769 08/98 4,151 3,798 02/99 6,517 5,520 08/99 10,638 8,430 02/00 13,129 9,299 08/00 12,901 8,220 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The MSCI All Country Far East ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China. (2) The MSCI All Country Far East ex-Japan Free Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Philippines, Thailand and China that excludes securities not available to foreign investors. Malaysia is not represented in the Index, and Taiwan is only represented at 50% of its total market cap. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 19 MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- SHARES VALUE ------ ----- EQUITIES - 97.34%*** CHINA/HONG KONG - 51.60% Asia Satellite Telecommunications Holdings, Ltd. ADR 125,200 $ 3,771,650 China Hong Kong Photo Products Holdings, Ltd. 16,886,000 1,688,773 China Mobile HK, Ltd. ADR** 57,000 2,198,062 China Mobile HK, Ltd.** 280,800 2,160,222 China Unicom, Ltd.** 6,000 13,925 Dah Sing Financial Group 761,600 3,544,733 Dao Heng Bank Group, Ltd. 561,000 2,841,253 Dickson Concepts International, Ltd. 2,661,000 2,371,262 ehealthcareasia, Ltd.** 532,525 38,236 Giordano International, Ltd.** 7,413,000 4,063,311 Guangdong Electric Power Development Co., Ltd. B Shares 3,540,294 2,877,919 HSBC Holdings Plc. ADR 32,300 2,339,731 Huaneng Power International, Inc. ADR 219,800 3,558,012 Hutchison Whampoa, Ltd. 358,320 5,053,749 Legend Holdings, Ltd. 5,036,000 5,359,370 Li & Fung, Ltd. 1,120,000 4,882,552 Quality Healthcare Asia, Ltd.** 10,650,500 3,345,693 Shangri-La Asia, Ltd. 3,584,000 3,630,321 Vitasoy International Holdings, Ltd. 19,620,750 3,547,192 Wuxi Little Swan Co., Ltd. B Shares 2,143,703 1,104,945 ------------ TOTAL CHINA/HONG KONG 58,390,911 ------------ INDONESIA - 0.90% PT Hero Supermarket** 5,564,500 1,022,051 ------------ PHILIPPINES - 0.93% Benpres Holdings Corp.** 11,869,000 1,052,566 ------------ SINGAPORE - 9.27% CSE Systems & Engineering, Ltd.** 3,101,000 2,180,123 Parkway Holdings, Ltd. 1,385,000 3,524,664 Venture Manufacturing, Ltd. 238,800 3,052,466 Vickers Ballas Holdings, Ltd. 3,615,000 1,732,831 ------------ TOTAL SINGAPORE 10,490,084 ------------ SHARES VALUE ------ ----- SOUTH KOREA - 21.48% Comtec Systems Co., Ltd. 239,770 $ 986,112 Daeduck Electronics Co., Ltd. 2,839 27,014 Daou Technology, Inc. 12,565 84,428 Hana Bank 657,549 3,534,604 Hite Brewery Co., Ltd. 109,677 4,698,676 KT M.com Co., Ltd.** 93,330 1,199,506 Samsung Electronics 19,498 4,809,653 Samsung Fire & Marine Insurance 87,031 2,323,443 Samsung Securities Co., Ltd. 124,894 2,545,754 Shinsegae Department Store Co. 58,240 2,899,525 SK Telecom Co., Ltd. 5,480 1,205,971 ------------ TOTAL SOUTH KOREA 24,314,686 ------------ TAIWAN - 8.79% Bank Sinopac** 5,340,500 3,045,324 VIA Technologies, Inc.** 428,321 5,712,780 WYSE Technology Taiwan, Ltd. 1,000,000 1,192,010 ------------ TOTAL TAIWAN 9,950,114 ------------ THAILAND - 4.37% Advanced Info Service Public Co., Ltd.** 140,000 1,692,195 Bangkok Bank Public Co., Ltd.** 723,100 747,516 Shinawatra Satellite Public Co., Ltd.** 2,962,500 2,500,765 ------------ TOTAL THAILAND 4,940,476 ------------ TOTAL EQUITIES (Cost $92,749,604) 110,160,888 ------------ FACE AMOUNT -------- INTERNATIONAL DOLLAR BONDS - 2.45% SINGAPORE - 2.45% Finlayson Global Corp. (DBS Holdings) 0.000%, 02/19/04 (Cost $2,325,946) $1,430,000 2,777,775 ------------ - -------------------------------------------------------------------------------- 20 800.789.ASIA [2742] MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- VALUE ------- TOTAL INVESTMENTS - 99.79%*** (Cost $95,075,550*) $112,938,663 CASH AND OTHER ASSETS, LESS LIABILITIES - 0.21% 233,872 ------------ NET ASSETS - 100.00% $113,172,535 ============ * Cost for Federal income tax purposes is $95,206,297 and net unrealized appreciation consists of: Gross unrealized appreciation $30,219,088 Gross unrealized depreciation (12,486,722) ----------- Net unrealized appreciation $17,732,366 =========== ** Non-income producing security *** As a percentage of net assets as of August 31, 2000. ADR - American Depositary Receipt See accompanying notes to financial statements. MARKET SECTOR DIVERSIFICATION AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES CONSUMER DISCRETIONARY ...................... 22.54% Distributors .............................. 1.50% Hotels Restaurants & Leisure .............. 3.21% Household Durables ........................ 0.98% Media ..................................... 4.27% Multiline Retail .......................... 2.57% Specialty Retail .......................... 5.69% Textiles & Apparel ........................ 4.32% CONSUMER STAPLES ............................ 8.21% Beverages ................................. 4.16% Food & Drug Retailing ..................... 0.91% Food Products ............................. 3.14% FINANCIALS .................................. 27.00% Banks ..................................... 14.60% Diversified Financials .................... 10.34% Insurance ................................. 2.06% HEALTH CARE ................................. 6.08% Health Care Providers & Services .......... 6.08% INFORMATION TECHNOLOGY ...................... 20.76% Computers & Peripherals ................... 5.80% Electronic Equipment & Instruments ........ 2.73% Internet Software & Services .............. 0.11% IT Consulting & Services .................. 2.80% Semiconductor Equipment & Products ........ 9.32% TELECOMMUNICATION SERVICES .................. 9.71% Diversified Telecommunication Services .... 2.21% Wireless Telecommunication Services ....... 7.50% UTILITIES ................................... 5.70% Electric Utilities ........................ 5.70% ------- TOTAL INVESTMENTS ........................... 100.00% ======= - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 21 STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2000 - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS MATTHEWS ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER FUND FUND CHINA FUND FUND FUND FUND ------------ ---------- ---------- -------- -------- -------- ASSETS: Investments, at value (Cost $10,483,713, $29,679,894, $8,753,406, $22,764,118, $112,893,442 and $95,075,550, respectively) .............................. $11,139,084 $24,650,381 $8,976,958 $23,280,273 $125,778,057 $112,938,663 Cash ......................................... 226,027 834,413 33,570 - - 149,327 Foreign currency, at value (Cost $23,166, $19,510, $344, $0, $0, and $0, respectively) .......................... 23,152 19,497 292 - - - Dividends and interest receivable ............ 114,579 6,938 31,588 7,575 33,302 282,497 Receivable for securities sold ............... - 446,359 97,722 - 4,845,122 - Receivable for capital shares sold ........... 72,004 39,401 113,559 625,472 469,620 290,999 Unrealized appreciation on forward foreign exchange contracts ................. - - - 431,358 - - Deferred organization costs (Note 1-F) ....... - 24,686 7,628 - - - Other assets ................................. 366 24,063 12,074 9,223 41,563 4,668 ----------- ----------- ---------- ----------- ------------ ------------ Total assets ............................... 11,575,212 26,045,738 9,273,391 24,353,901 131,167,664 113,666,154 ----------- ----------- ---------- ----------- ------------ ------------ LIABILITIES: Payable for securities purchased ............. - 539,403 - - 3,342,637 - Payable for capital shares redeemed .......... 79,984 859,891 26,270 13,000 436,271 263,929 Cash overdraft ............................... - - - 430,826 161,582 - Due to Advisor (Note 2) ...................... 8,797 14,675 3,707 6,286 110,266 20,309 Accrued expenses ............................. 17,464 37,474 11,061 33,991 206,094 157,320 Accrued distribution expense ................. - - - - 2,587 362 Other liabilities ............................ - 24,315 - 1,023 - 51,699 ----------- ----------- ---------- ----------- ------------ ------------ Total liabilities .......................... 106,245 1,475,758 41,038 485,126 4,259,437 493,619 ----------- ----------- ---------- ----------- ------------ ------------ NET ASSETS: ..................................... $11,468,967 $24,569,980 $9,232,353 $23,868,775 $126,908,227 $113,172,535 =========== =========== ========== =========== ============ ============ CLASS I SHARES: Net assets (Applicable to 1,091,869, 3,226,648, 930,092, 1,149,803, 22,168,141 and 9,029,279 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value) ................... $11,468,967 $24,569,980 $9,232,353 $23,868,775 $115,145,274 $111,501,997 =========== =========== ========== =========== ============ ============ Net asset value, offering price and redemption price per Class I share ......... $10.50 $7.61 $9.93 $20.76 $5.19 $12.35 =========== =========== ========== =========== ============ ============ CLASS A SHARES:* Net assets (Applicable to 0, 0, 0, 0, 2,290,437, and 135,437 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value) ........ N/A N/A N/A N/A $ 11,762,953 $ 1,670,538 =========== =========== ========== =========== ============ ============ Net asset value and redemption price per Class A share .......................... N/A N/A N/A N/A $5.14 $12.33 =========== =========== ========== =========== ============ ============ Offering price per Class A share (Net asset value / 0.9505) ................. N/A N/A N/A N/A $5.41 $12.97 =========== =========== ========== =========== ============ ============ NET ASSETS CONSIST OF: Capital paid-in .............................. $10,054,181 $31,906,826 $8,755,897 $22,086,425 $ 48,780,690 $ 84,076,515 Accumulated undistributed net investment income (loss) ................... 229,562 515,388 118,380 742,093 - 998,574 Accumulated net realized gain (loss) on investments ............................. 529,865 (2,822,740) 134,533 92,696 65,243,043 10,243,705 Net unrealized appreciation (depreciation) on investments and foreign currency related transactions ....................... 655,359 (5,029,494) 223,543 947,561 12,884,494 17,863,741 ----------- ----------- ---------- ----------- ------------ ------------ $11,468,967 $24,569,980 $9,232,353 $23,868,775 $126,908,227 $113,172,535 =========== =========== ========== =========== ============ ============ * At August 31, 2000, the Matthews Asian Growth and Income Fund, Matthews Asian Technology Fund, Matthews Dragon Century China Fund and Matthews Japan Fund did not offer Class A shares. N/A - Not Applicable
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 800.789.ASIA [2742] STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2000 - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS MATTHEWS ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER FUND FUND* CHINA FUND FUND FUND FUND ------------ ----------- ---------- -------- -------- -------- INVESTMENT INCOME: Dividends (net of foreign tax withheld of $7,478, $31,773, $409, $38,145, $565,290, and $157,221, respectively) .................... $ 231,549 $ 611,618 $ 242,663 $ 218,781 $ 2,764,889 $ 3,881,568 Interest ..................................... 672,775 15,941 11,697 26,266 4,073 (75,514) Other income (See Note 1K) ................... 24,847 133,462 30,325 151,786 1,074,793 226,710 ---------- ---------- ---------- ---------- ----------- ----------- Total investment income .................... 929,171 761,021 284,685 396,833 3,843,755 4,032,764 ---------- ---------- ---------- ---------- ----------- ----------- EXPENSES: Investment advisory fees (Note 2) ............ 114,463 117,827 77,085 260,067 1,783,564 1,169,262 Recovery of reimbursed expenses (Note 2) .......................... - - - 34,633 - - Distribution expenses ........................ - - - - 35,229 4,457 Transfer agent fees .......................... 33,004 46,971 25,297 82,565 394,632 349,888 Administration fees .......................... 21,205 25,570 13,622 44,242 254,892 213,746 Accounting fees .............................. 11,513 16,789 6,064 24,697 138,230 93,002 Professional fees ............................ 4,252 4,443 3,065 14,168 79,895 50,013 Custodian fees ............................... 21,115 51,296 14,138 33,667 334,447 224,025 Directors fees (Note 2) ...................... 945 664 621 2,128 13,857 10,157 Insurance expense ............................ 841 44 563 936 16,678 8,476 Amortization of organization costs (Note 1-F) ........................... 223 25,315 3,096 - 1,393 223 Printing expense ............................. 2,540 2,119 5,693 4,242 27,963 19,007 Registration expenses ........................ 12,838 23,857 16,125 19,084 46,730 40,084 Other expenses ............................... 1,621 499 774 2,339 13,808 10,109 ---------- ---------- ---------- ---------- ----------- ----------- Total expenses .............................. 224,560 315,394 166,143 522,768 3,141,318 2,192,449 Expenses reimbursed and waived (Note 2) ............................ (7,819) (78,544) (12,001) - - (84,180) ---------- ---------- ---------- ---------- ----------- ----------- Net expenses ............................... 216,741 236,850 154,142 522,768 3,141,318 2,108,269 ---------- ---------- ---------- ---------- ----------- ----------- NET INVESTMENT INCOME (LOSS) .................... 712,430 524,171 130,543 (125,935) 702,437 1,924,495 ---------- ---------- ---------- ---------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS: Net realized gain (loss) on investments ...... 1,425,875 (2,822,740) 909,244 2,394,637 77,627,464 20,371,270 Net realized gain (loss) on foreign currency related transactions .............. (3,569) (8,783) 347 (1,245,482) (282,548) (25,149) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ...... (151,186) (5,029,494) 81,652 (2,902,438) (116,843,995) (1,074,283) ---------- ---------- ---------- ---------- ----------- ----------- Net realized and unrealized gain (loss) on investments and foreign currency related transactions ....................... 1,271,120 (7,861,017) 991,243 (1,753,283) (39,499,079) 19,271,838 ---------- ---------- ---------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............................. $1,983,550 ($7,336,846) $1,121,786 ($1,879,218) ($38,796,642) $21,196,333 ========== ========== ========== ========== =========== =========== * The Fund commenced operations on December 27, 1999.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 23 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS ASIAN MATTHEWS ASIAN GROWTH AND INCOME FUND TECHNOLOGY FUND -------------------------- ------------------- YEAR YEAR PERIOD ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, 2000 1999 2000* ------------ ------------ ------------ OPERATIONS: Net investment income ........................ $ 712,430 $ 530,190 $ 524,171 Net realized gain (loss) on investments and foreign currency related transactions ...... 1,422,306 (13,355) (2,831,523) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions .............. (151,186) 2,441,914 (5,029,494) ----------- ----------- ----------- Net increase (decrease) in net assets from operations ............................ 1,983,550 2,958,749 (7,336,846) ----------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I .................................... (672,202) (436,230) - Class A .................................... N/A N/A N/A Realized gains on investments: Class I .................................... - - - Class A .................................... N/A N/A N/A ----------- ----------- ----------- Net decrease in net assets resulting from distributions ......................... (672,202) (436,230) - ----------- ----------- ----------- CAPITAL SHARE TRANSACTIONS (NET): Class I .................................... (486,162) 4,058,565 31,906,826 Class A .................................... N/A N/A N/A ----------- ----------- ----------- Increase (decrease) in net assets derived from capital share transactions ................. (486,162) 4,058,565 31,906,826 ----------- ----------- ----------- Total increase in net assets ................. 825,186 6,581,084 24,569,980 NET ASSETS: Beginning of period .......................... 10,643,781 4,062,697 - ----------- ----------- ----------- End of period (including undistributed net investment income (loss) of $229,562, $94,927, and $515,388, respectively) ....... $11,468,967 $10,643,781 $24,569,980 =========== =========== =========== *The Asian Technology Fund commenced operations on December 27, 1999. N/A - Not Applicable
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 800.789.ASIA [2742] STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS DRAGON MATTHEWS CENTURY CHINA FUND JAPAN FUND -------------------------- -------------------------- YEAR YEAR YEAR PERIOD ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000 1999 2000 1999* ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) ................. $ 130,543 $ 88,561 ($125,935) ($45,727) Net realized gain (loss) on investments and foreign currency related transactions ...... 909,591 (513,007) 1,149,155 448,510 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ...... 81,652 2,028,439 (2,902,438) 3,849,999 ---------- ---------- ----------- ----------- Net increase (decrease) in net assets from operations ................. 1,121,786 1,603,993 (1,879,218) 4,252,782 ---------- ---------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I .................................... (100,689) (40,925) - - Class A .................................... N/A N/A - - Realized gains on investments: Class I .................................... - - (601,550) - Class A .................................... N/A N/A N/A N/A ---------- ---------- ----------- ----------- Net decrease in net assets resulting from distributions ......................... (100,689) (40,925) (601,550) - ---------- ---------- ----------- ----------- CAPITAL SHARE TRANSACTIONS (NET): Class I .................................... 1,965,983 3,106,211 1,863,670 20,233,091 Class A .................................... N/A N/A N/A N/A ---------- ---------- ----------- ----------- Increase in net assets derived from capital share transactions ................. 1,965,983 3,106,211 1,863,670 20,233,091 ---------- ---------- ----------- ----------- Total increase (decrease) in net assets ...... 2,987,080 4,669,279 (617,098) 24,485,873 NET ASSETS: Beginning of period .......................... 6,245,273 1,575,994 24,485,873 - ---------- ---------- ----------- ----------- End of period (including undistributed net investment income of $118,380, $88,179, $742,093 and $0, respectively) .... $9,232,353 $6,245,273 $23,868,775 $24,485,873 ========== ========== =========== =========== *The Japan Fund commenced operations on December 31, 1998. N/A - Not Applicable
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 25 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS KOREA MATTHEW PACIFIC FUND TIGER FUND -------------------------- --------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000 1999 2000 1999 ------------ ------------ ------------- ------------ OPERATIONS: Net investment income ........................ $ 702,437 $ 837,323 $ 1,924,495 $ 2,241,628 Net realized gain (loss) on investments and foreign currency related transactions ...... 77,344,916 37,190,472 20,346,121 (25,438) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions .............. (116,843,995) 143,518,288 (1,074,283) 47,488,287 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets from operations ................. (38,796,642) 181,546,083 21,196,333 49,704,477 ------------ ------------ ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I .................................... - - (2,508,804) (233,408) Class A .................................... - - (36,563) (1,392) Realized gains on investments: Class I .................................... (22,901,449) - - - Class A .................................... (1,790,122) - - - ------------ ------------ ------------ ------------ Net decrease in net assets resulting from distributions ......................... (24,691,571) - (2,545,367) (234,800) ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS (NET): Class I .................................... (57,694,292) (6,709,788) (16,792,146) 29,385,046 Class A .................................... 1,963,559 560,219 156,788 837,725 ------------ ------------ ------------ ------------ Increase (decrease) in net assets derived from capital share transactions ................. (55,730,733) (6,149,569) (16,635,358) 30,222,771 ------------ ------------ ------------ ------------ Total increase (decrease) in net assets ...... (119,218,946) 175,396,514 2,015,608 79,692,448 NET ASSETS: Beginning of period .......................... 246,127,173 70,730,659 111,156,927 31,464,479 ------------ ------------ ------------ ------------ End of period (including undistributed net investment income (loss) of $0, ($643,314), $1,897,661 and $1,634,802, respectively ............... $126,908,227 $246,127,173 $113,172,535 $111,156,927 ============ ============ ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 800.789.ASIA [2742] FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each year presented.
MATTHEWS ASIAN GROWTH AND INCOME FUND -------------------------------------------------------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Net Asset Value, beginning of year ......... $ 9.37 $ 6.54 $11.71 $10.53 $ 9.88 ------ ------ ------ ------ ------ INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income ................... 0.63 0.59 0.13 0.10 0.25 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency .................. 1.09 2.75 (4.15) 1.42 0.75 ------ ------ ------ ------ ------ Total from investment operations ...... 1.72 3.34 (4.02) 1.52 1.00 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS FROM: Net investment income ................... (0.59) (0.51) (0.10) (0.10) (0.26) Net realized gains on investments ....... - - (1.05) (0.24) (0.09) ------ ------ ------ ------ ------ Total distributions ................... (0.59) (0.51) (1.15) (0.34) (0.35) ------ ------ ------ ------ ------ Net Asset Value, end of year ............... $10.50 $ 9.37 $ 6.54 $11.71 $10.53 ====== ====== ====== ====== ====== TOTAL RETURN ............................... 18.68% 52.65% (35.27%) 14.67% 10.24% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in 000's) ............................ $11,469 $10,644 $4,063 $6,166 $3,272 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ............. 1.97% 2.05% 3.76% 4.45% 8.73% Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ............ 1.90% 1.90% 1.90% 1.90% 1.85% Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ..................... 6.17% 7.98% (0.36%) (1.55%) (4.13%) Ratio of net investment income to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ......................... 6.24% 8.13% 1.50% 1.00% 2.75% Portfolio turnover ...................... 62.23% 34.82% 54.67% 50.20% 88.16%
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 27 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS ASIAN MATTHEWS DRAGON MATTHEWS TECHNOLOGY FUND CENTURY CHINA FUND JAPAN FUND ------------------- ---------------------------------------------- ------------------------------ PERIOD YEAR YEAR PERIOD YEAR PERIOD ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000(3) 2000 1999 1998(4) 2000 1999(5) -------------- -------------- -------------- -------------- -------------- -------------- CLASS I CLASS I CLASS I CLASS I CLASS I CLASS I ------- ------- ------- ------- ------- ------- Net Asset Value, beginning of period ........................ $10.00 $ 8.48 $ 4.36 $10.00 $21.70 $10.00 ------ ------- ------ ------ ------ ------ INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss) ..... 0.26(6) 0.12(6) 0.12 0.10 (0.11)(6) (0.04) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency ........... (2.65) 1.44 4.11 (5.74) (0.29) 11.74 ------ ------- ------ ------ ------ ------ Total from investment operations (2.39) 1.56 4.23 (5.64) 0.40 11.70 ------ ------- ------ ------ ------ ------ LESS DISTRIBUTIONS FROM: Net investment income ............ - (0.11) (0.11) - - - Net realized gains on investments - - - - (0.54) - ------ ------- ------ ------ ------ ------ Total distributions ............ - (0.11) (0.11) - (0.54) - ------ ------- ------ ------ ------ ------ Net Asset Value, end of period ...... $ 7.61 $ 9.93 $ 8.48 $ 4.36 $20.76 $21.70 ====== ====== ====== ====== ====== ====== TOTAL RETURN ........................ (23.90%)(2) 18.54% 97.79% (56.40%)(2) (1.75%) 117.00%(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ..................... $24,570 $9,232 $6,245 $1,576 $23,869 $24,486 Ratio of expenses to average net assets before reimbursement waiver or recovery of expenses by Advisor and Administrator ... 2.66%(1) 2.15% 2.09% 7.84%(1) 1.88% 3.45%(1) Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ..... 2.00%(1) 2.00% 2.00% 2.00%(1) 2.00% 2.00%(1) Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ...... 3.75%(1) 1.54% 2.93% (3.45%)(1) (0.36%) (2.54%)(1) Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator .............. 4.41%(1) 1.69% 3.02% 2.38%(1) (0.48%) (1.09%)(1) Portfolio turnover ............... 50.35%(2) 80.90% 40.27% 11.84%(2) 223.00% 28.92%(2) (1) Annualized (2) Not annualized (3) The Asian Technology Fund commenced operations on December 27, 1999. (4) The Dragon Century China Fund Class I commenced operations on February 19, 1998. (5) The Japan Fund commenced operations on December 31, 1998. (6) Based on average shares method. # Amount represents less than $0.01 per share.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 28 800.789.ASIA [2742] FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS KOREA FUND ----------------------------------------------------------------------------------------------- YEAR YEAR YEAR YEAR PERIOD YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000 2000 1999 1999 1998(5) 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period ........................ $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 5.32 $ 6.19 $ 7.23 $ 9.13 ------ ------ ------ ------ ------ ------ ------ ------ INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss) ..... 0.01(6) 0.03(6) 0.01 0.03 (0.04) (0.03) (0.04)(4) (0.07) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency ........... (1.43) (1.45) 5.42 5.43 (3.27) (4.13) (1.00)(4) (1.75) ------ ------ ------ ------ ------ ------ ------ ------ Total from investment operations ................... (1.42) (1.42) 5.43 5.46 (3.31) (4.16) (1.04) (1.82) ------ ------ ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS FROM: Net realized gains on investments (0.88) (0.88) - - - - - (0.08) ------ ------ ------ ------ ------ ------ ------ ------ Net Asset Value, end of period ...... $ 5.14 $ 5.19 $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 6.19 $ 7.23 ====== ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN ........................ (23.08%)(3) (22.92%) 270.15%(3) 268.97% (62.03%)(2,3) (67.21%) (14.38%) (20.11%) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ................ $11,763 $115,145 $15,281 $230,846 $4,123 $66,607 $19,356 $2,721 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ........ 2.00% 1.75% 2.02% 1.77% 2.97%(1) 2.07% 2.90% 11.36% Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ......................... 2.00% 1.75% 2.02% 1.77% 2.68%(1) 2.06% 2.50% 2.23% Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .................... 0.17% 0.42% (0.62%) (0.37%) (2.03%)(1) (1.13%) (1.81%) (10.44%) Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator .................... 0.17% 0.42% (0.62%) (0.37%) (1.74%)(1) (1.12%) (1.41%) (1.31%) Portfolio turnover .................. 47.80% 47.80% 57.06% 57.06% 94.01% 94.01% 112.68% 139.71% (1) Annualized (2) Not annualized (3) Total return calculation does not reflect sales load. (4) Calculated using the average shares method. (5) The Korea Fund Class A commenced operations on October 9, 1997. (6) Based on average shares method.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 29 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS PACIFIC TIGER FUND ----------------------------------------------------------------------------------------------- YEAR YEAR YEAR YEAR PERIOD YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 2000 2000 1999 1999 1998(4) 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period ........................ $10.41 $10.41 $ 4.07 $ 4.07 $10.84 $11.30 $10.81 $ 9.77 ------ ------ ------ ------ ------ ------ ------ ------ INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income ............... 0.17(5) 0.20(5) 0.21 0.21 0.03(5) 0.02(5) 0.02 0.01 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency ............. 2.01 2.01 6.15 6.15 (6.73) (7.18) 0.50 1.03 ------ ------ ------ ------ ------ ------ ------ ------ Total from investment operations ................... 2.18 2.21 6.36 6.36 (6.70) (7.16) 0.52 1.04 ------ ------ ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS FROM: Net investment income ............... (0.26) (0.27) (0.02) (0.02) (0.01) (0.01) (0.01) - Net realized gains on investments ................... - - - - (0.06) (0.06) (0.02) - ------ ------ ------ ------ ------ ------ ------ ------ Total distributions .............. (0.26) (0.27) (0.02) (0.02) (0.07) (0.07) (0.03) - ------ ------ ------ ------ ------ ------ ------ ------ Net Asset Value, end of period ...... $12.33 $12.35 $10.41 $10.41 $ 4.07 $ 4.07 $11.30 $10.81 ====== ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN ........................ 21.01%(3) 21.28% 156.28%(3) 156.28% (61.87%)(2,3) (63.43%) 4.75% 10.64% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ....................... $1,671 $111,502 $1,221 $109,936 $ 146 $31,319 $43,647 $17,148 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ........ 2.13% 1.88% 2.15% 1.90% 11.99%(1) 2.06% 1.97% 4.35% Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ....... 2.06% 1.81% 1.90% 1.90% 1.91%(1) 1.90% 1.90% 1.90% Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ................ 1.24% 1.49% 3.10% 3.35% (9.61%)(1) 0.14% 0.20% (2.13%) Ratio of net investment income to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ................ 1.31% 1.56% 3.35% 3.35% 0.47%(1) 0.30% 0.27% 0.32% Portfolio turnover .................. 52.11% 52.11% 98.74% 98.74% 73.09% 73.09% 70.73% 124.69% (1) Annualized (2) Not annualized (3) Total return calculation does not reflect sales load. (4) Class A commenced operations on October 9, 1997. (5) Calculated using the average shares method. (6) Based on average shares method.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 30 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- 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 (the "Act"). The Company currently issues six separate series of shares (each a "Fund" and collectively, the "Funds"): Matthews Asian Growth and Income Fund (formerly, the Matthews Asian Convertible Securities Fund), Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund. The Matthews Dragon Century China Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund are authorized to offer two classes of shares: Class I shares and Class A shares. Although authorized, on September 1, 1998, the Matthews Dragon Century China Fund suspended issuing Class A shares. The classes offered have different sales charges and other expenses which may affect performance. The Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund seek to maximize capital appreciation by investing a substantial portion of their assets in equity securities of Pacific Tiger economies, South Korean companies, Chinese companies and Japanese companies, respectively. Pacific Tiger economies include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand and China. Matthews Asian Growth and Income Fund seeks capital appreciation and current income by investing a substantial portion of their assets in the convertible securities of Asian economies. Asian economies include Hong Kong, Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia, 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. FORWARD FOREIGN EXCHANGE CONTRACTS: The Funds may engage in forward foreign exchange contracts for hedging a specific transaction in which the currency is denominated as deemed appropriate by Matthews International Capital Management, LLC (the "Advisor"). Forward foreign exchange contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by the Funds as an unrealized gain or loss. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying prices of the Funds' portfolio securities, but it does establish a rate of exchange that can be achieved in the future. Although forward foreign exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Funds could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. C. 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. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 31 MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- D. 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, 2000. Therefore, no Federal income tax provision is required. E. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses on the sale of securities are determined on the identified cost basis. F. ORGANIZATION COSTS: Organization costs are being amortized on a straight-line basis over five years from each Fund's respective commencement of operations with the exception of the Matthews Japan Fund and the Matthews Asian Technology Fund are amortized on a straight-line basis over one year from the Fund's commencement of operations. In the event that any of the initial shares are redeemed during the year 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. G. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth and Income Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund distribute net investment income and capital gains, if any, annually. 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 years for tax purposes. H. FUND AND CLASS ALLOCATIONS: The Funds account separately for the assets, liabilities and operations of each Fund. Direct expenses of each Fund are charged to the Fund while general expenses are allocated pro-rata among the Funds based on net asset value. Income, expenses (other than class specific expenses), and realized and unrealized gains (losses) are calculated at the Fund level and allocated daily to each class of shares based on the relative proportion of net assets of each class. I. 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. J. 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. K. 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. Class A Shares are sold with a front-end sales charge of 4.95%. Transactions in shares of beneficial interest were as follows:
MATTHEWS MATTHEWS ASIAN GROWTH AND INCOME FUND ASIAN TECHNOLOGY FUND ------------------------------------------------ ------------------------- CLASS I CLASS I ------------------------------------------------ ------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 ----------------------- ----------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ------------- Shares sold ................ 704,212 $7,052,878 1,019,797 $8,107,270 5,216,329 $49,292,911 Shares issued through reinvestment of dividends 65,587 663,908 49,419 406,448 - - Shares redeemed ............ (814,085) (8,202,948) (554,197) (4,455,153) (1,989,681) (17,386,085) -------- ---------- --------- ---------- ---------- ----------- Net increase (decrease) .... (44,286) ($486,162) 515,019 $4,058,565 3,226,648 $31,906,826 ======== ========== ========= ========== ========== ===========
- -------------------------------------------------------------------------------- 32 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS DRAGON CENTURY CHINA FUND JAPAN FUND ---------------------------------------------------- ------------------------------------------------ CLASS I CLASS I ---------------------------------------------------- ------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999 ------------------------- ------------------------- ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ---------- -------- ---------- ---------- ----------- ---------- ----------- Shares sold ................ 922,748 $8,321,445 791,595 $6,408,921 2,158,789 $47,157,104 1,248,676 $22,728,238 Shares issued through reinvestment of dividends 11,236 100,022 6,071 39,314 28,758 573,444 - - Shares redeemed ............ (740,130) (6,455,484) (423,005) (3,342,024) (2,166,167) (45,866,878) (120,253) (2,495,147) -------- ---------- -------- ---------- ---------- ----------- --------- ----------- Net increase ............... 193,854 $1,965,983 374,661 $3,106,211 21,380 $ 1,863,670 1,128,423 $20,233,091 ======== ========== ======== ========== ========== =========== ========= ===========
MATTHEWS KOREA FUND ------------------------------------------------------------------------------------------------------ CLASS I CLASS A ---------------------------------------------------- ------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999 ------------------------- ------------------------- ----------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------ ---------- ---------- --------- ----------- Shares sold ................ 22,234,328 $143,560,898 46,512,355 $307,041,168 1,087,775 $6,675,877 349,768 $2,266,586 Shares issued through reinvestment of dividends 2,867,052 22,391,670 - - 221,542 1,714,731 - - Shares redeemed ............ (33,747,464) (223,646,860) (48,584,494) (313,750,956) (1,072,224) (6,427,049) (343,013) (1,706,367) ----------- ------------ ----------- ------------ ---------- ---------- -------- ---------- Net increase (decrease) .... (8,646,084) ($57,694,292) (2,072,139) ($6,709,788) 237,093 $1,963,559 6,755 $ 560,219 =========== ============ =========== ============ ========== ========== ======== ==========
MATTHEWS PACIFIC TIGER FUND ---------------------------------------------------- ------------------------------------------------ CLASS I CLASS A ---------------------------------------------------- ------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999 ------------------------- ------------------------- ----------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------ ---------- ---------- --------- ----------- Shares sold ................ 6,708,677 $ 82,110,584 14,367,556 $125,011,426 104,297 $1,247,215 117,898 $1,081,693 Shares issued through reinvestment of dividends 197,956 2,392,082 20,786 223,856 2,903 35,066 129 1,390 Shares redeemed ............ (8,441,468) (101,294,812) (11,513,378) (95,850,236) (89,013) (1,125,493) (36,570) (245,358) ----------- ------------ ----------- ------------ ------- ---------- ------- ---------- Net increase (decrease) .... (1,534,835) ($16,792,146) 2,874,964 $ 29,385,046 18,187 $ 156,788 81,457 $ 837,725 =========== ============ =========== ============ ======= ========== ======= ==========
The Funds imposed a redemption fee of 2.00% on shares that are redeemed within ninety days of purchase. The charge will be assessed on an amount equal to the net asset value of the shares at the time of redemption. The redemption fee is deducted from the proceeds otherwise payable to the shareholder. The redemption fees were returned to the assets of the Asian Growth and Income Fund, Asian Technology Fund, Dragon Century China Fund, Japan Fund, Korea Fund and Pacific Tiger Fund in the amounts of $24,847, $133,462, $30,325, $151,786, $1,074,793 and $226,710, respectively. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 33 MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES 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. The Funds reimburse the Advisor any service fees paid by it to the extent that shareholder service related expenses are incurred by the Advisor. 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, 2000, are as follows:
EXPENSES INVESTMENT VOLUNTARY WAIVED AND ADVISORY EXPENSE ADVISORY REIMBURSED FEE RATE LIMITATION* FEES BY ADVISOR ---------- ------------- ---------- ------------ Matthews Asian Growth and Income Fund ......... 1.00% 1.90% $ 114,463 $ 7,819 Matthews Asian Technology Fund................. 1.00 2.00 117,827 78,544 Matthews Dragon Century China Fund ............ 1.00 2.00 77,085 12,001 Matthews Japan Fund ........................... 1.00 2.00 260,067 - Matthews Korea Fund ........................... 1.00 2.50 1,783,564 - Matthews Pacific Tiger Fund ................... 1.00 1.90 1,169,262 84,180 *For Funds offering Class A shares, the contractual expense limitation would include an additional 0.25% for Class A Distributor fees.
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. During the year ended August 31, 2000, the Matthews Japan Fund reimbursed expenses to the Advisor totaling $34,366. As of August 31, 2000, the total expenses waived and reimbursed by the Advisor that are subject to reimbursement by the Matthews Asian Growth and Income Fund, Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund totaled $189,272, $78,544, $107,459, $26,281, $0 and $228,116, respectively. PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank, serves as the Trust's Administrator and, in that capacity, performs various administrative and accounting services for each Fund. PFPC also serves as the Trust's Transfer Agent, dividend disbursing agent and registrar. An officer of PFPC serves as Treasurer to the Trust. Total fees received by PFPC for the year end August 31, 2000 was $594,610 for administrative and accounting services and $249,000 for transfer agent services. 3. DISTRIBUTOR FEES AND CLASS SPECIFIC EXPENSES Effective December 1, 1999, Provident Distributors, Inc. (the "Distributor") serves as the Funds' Distributor pursuant to an Underwriting Agreement. Prior to December 1, 1999, First Data Distributors, Inc. served as the Funds' distributor. Pursuant to Rule 12b-1 adopted by the Securities and Exchange Commission under the Act, the Korea Fund Class A and the Pacific Tiger Fund Class A, have adopted a Plan of Distribution (the "Plan"). The Plan permits the participating Funds to pay certain expenses associated with the distribution of their shares. Under the Plan, each Fund offering Class A shares may pay actual expenses not exceeding, on an annual basis, 0.25% of each participating Fund's Class A average daily net assets. Pacific Tiger distribution fees were reimbursed by the Advisor. The Class I shares of the Funds do not have a distribution plan. The Funds bear a portion of the fees paid to certain service providers (exclusive of the Funds' transfer agent) which provide transfer agency and shareholder servicing to certain shareholders. Fees paid to such service providers for the year ended August 31, 2000 are reflected in the statement of operations as follows:
TRANSFER AGENT ADMINISTRATION TOTAL -------------- ---------------- ----------- Matthews Asian Growth and Income Fund .................. $ 23,516 $ 11,471 $ 34,987 Matthews Asian Technology Fund.......................... 15,138 7,592 22,730 Matthews Dragon Century China Fund...................... 14,260 7,112 21,372 Matthews Japan Fund..................................... 35,708 17,811 53,519 Matthews Korea Fund..................................... 218,557 109,160 327,717 Matthews Pacific Tiger Fund............................. 216,117 107,895 324,012
- -------------------------------------------------------------------------------- 34 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 - -------------------------------------------------------------------------------- 4. INVESTMENT TRANSACTIONS Investment transactions for the year ended August 31, 2000, excluding temporary short-term investments, were as follows: PROCEEDS PURCHASES FROM SALES ------------- -------------- Matthews Asian Growth and Income Fund..... $ 6,774,366 $ 7,543,275 Matthews Asian Technology Fund............ 40,711,886 8,209,252 Matthews Dragon Century China Fund........ 7,918,839 5,967,412 Matthews Japan Fund....................... 57,440,570 57,352,869 Matthews Korea Fund....................... 83,741,687 163,177,401 Matthews Pacific Tiger Fund............... 59,384,600 73,995,240 The Funds invest excess cash in interest bearing deposits at The Bank of New York. 5. CAPITAL LOSS CARRYOVER At August 31, 2000, the Funds had capital loss carryovers expiring through 2008 as follows: EXPIRING ON: ---------------------------------- 2006 2007 2008 ---------- ---------- ---------- Matthews Asian Technology Fund ......... $ - $ - $2,390,436 These amounts are available to offset possible future capital gains of the Fund. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 35 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of Matthew International Funds: We have audited the accompanying statements of assets and liabilities, including the schedules of investments of Matthews International Funds (comprised of the Matthews Asian Growth and Income Fund, Matthews Asian Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund, collectively referred to as the "Funds") as of August 31, 2000, and the related statements of operations, statements of changes in net assets and financial highlights for the periods indicated thereon. 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 prior to August 31, 1999 were audited by other auditors whose report dated October 9, 1998 expressed an unqualified opinion on the 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, 2000, by correspondence with the custodian and brokers. 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, 2000, the results of their operations, changes in their net assets and the financial highlights for each of the periods indicated thereon, in conformity with generally accepted accounting principles. TAIT, WELLER & BAKER Philadelphia, Pennsylvania October 13, 2000 - -------------------------------------------------------------------------------- 36 800.789.ASIA [2742] This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. BOARD OF TRUSTEES Richard K. Lyons, Chairman Robert K. Connolly David FitzWilliam-Lay Norman W. Berryessa John H. Dracott, Emeritus OFFICERS G. Paul Matthews Mark W. Headley Joseph M. O'Donnell James E. Walter INVESTMENT ADVISOR Matthews International Capital Management, LLC 456 Montgomery Street, Suite 1200 San Francisco, California 94104-1245 800.789.ASIA (2742) UNDERWRITER Provident Distributors, Inc. 3200 Horizon Drive King of Prussia, PA 19406-0903 SHAREHOLDER SERVICES PFPC Inc. 211 South Gulph Road King of Prussia, Pennsylvania 19406-0903 800.892.0382 CUSTODIAN The Bank of New York 90 Washington Street New York, New York 10286-0007 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street San Francisco, California 94104-2635 [GRAPHIC OF DRAGON OMITTED] - -------------------------------------------------------------------------------- FOR ADDITIONAL INFORMATION ABOUT THE MATTHEWS INTERNATIONAL FUNDS: 456 MONTGOMERY STREET, SUITE 1200 SAN FRANCISCO, CALIFORNIA 94104-1245 800.789.ASIA (2742) WWW.MATTHEWSFUNDS.COM - -------------------------------------------------------------------------------- DISTRIBUTED BY PROVIDENT DISTRIBUTORS, INC. MAT-AR 8/00 - -------------------------------------------------------------------------------- MATTHEWS - -------------------------------------------------------------------------------- INTERNATIONAL FUNDS WWW.MATTHEWSFUNDS.COM MATTHEWS ASIAN GROWTH AND INCOME FUND MATTHEWS ASIAN TECHNOLOGY FUND MATTHEWS DRAGON CENTURY CHINA FUND MATTHEWS JAPAN FUND MATTHEWS KOREA FUND MATTHEWS PACIFIC TIGER FUND [GRAPHIC OF DRAGON OMITTED] - -------------------------------------------------------------------------------- ANNUAL REPORT AUGUST 31, 2000 [GRAPHIC OF ASIAN CHARACTERS OMITTED] - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----