-----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, DAT1CtFcFRocL+9kS5B85hxsXO9dBAUGsLT+0TlMCLmiJ0IYFBC6inghtgGwtdcV saK3S3S3va0kMoMdms9UEg== 0000935069-01-500052.txt : 20010426 0000935069-01-500052.hdr.sgml : 20010426 ACCESSION NUMBER: 0000935069-01-500052 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010425 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: 1610439 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 matthewsintern.txt MATTHEWS INTERNATIONAL FUNDS www.matthewsfunds.com MATTHEWS ASIAN GROWTH AND INCOME FUND MATTHEWS ASIAN TECHNOLOGY FUND MATTHEWS CHINA FUND MATTHEWS JAPAN FUND MATTHEWS KOREA FUND MATTHEWS PACIFIC TIGER FUND SEMI-ANNUAL REPORT February 28, 2001 [GRAPHIC OMITTED] TABLE OF CONTENTS - -------------------------------------------------------------------------------- INTRODUCTION ............................................................. 2 A MESSAGE TO SHAREHOLDERS ................................................ 3 RELATIVE PERFORMANCE INFORMATION ......................................... 4 PORTFOLIO MANAGERS' COMMENTS AND SCHEDULE OF INVESTMENTS Matthews Asian Growth and Income Fund (MACSX) ......................... 5 Matthews Asian Technology Fund (MATFX) ................................ 8 Matthews China Fund (MCHFX) ...........................................10 Matthews Japan Fund (MJFOX) ...........................................13 Matthews Korea Fund (MAKOX) ...........................................15 Matthews Pacific Tiger Fund (MAPTX) ...................................18 FINANCIAL STATEMENTS Statements of Assets and Liabilities ..................................21 Statements of Operations ..............................................22 Statements of Changes in Net Assets ...................................23 Financial Highlights ..................................................26 Notes to Financial Statements .........................................31 PRIVACY POLICY ...........................................................36 - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM INTRODUCTION MATTHEWS INTERNATIONAL FUNDS - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] FROM LEFT TO RIGHT: G. PAUL MATTHEWS, CHAIRMAN AND CHIEF INVESTMENT OFFICER AND MARK W. HEADLEY, PRESIDENT AND PORTFOLIO MANAGER. Matthews International Funds is one of the only no-load mutual fund families solely dedicated to investing in the Asian markets. Our goal is to provide shareholders with a distinctive and superior approach to investing in Asia -- a specialized approach that offers the expertise of a team of proven, seasoned veterans focused exclusively on Asia. In managing our six no-load Asian Funds, we hold to several principles which guide our work and fuel our commitment. 1. ASIA WILL BE A PREMIER GROWTH REGION IN THE 21ST CENTURY. The reason we have devoted our careers to Asian investing can be summed up in one word: growth. Over the years, our investment team has seen firsthand how closed, centrally managed economies can transform into free market powerhouses. In the past few decades, we witnessed the dynamic evolution of Hong Kong, Japan, Singapore and Korea. The same phenomenon is now occurring in China. In our opinion, the trend towards openness, freedom, and growth is not only intact, but also accelerating. Coming out of the financial crisis of 1997, we believe Asia has entered a new era of structural reform, improved corporate governance, better allocation of capital and an emphasis on shareholder value. It is this potential for long-term growth, transformation, and change that drives our enthusiasm and commitment to Asia. 2. ASIAN INVESTING REQUIRES AN UNDILUTED FOCUS. We focus exclusively on Asian markets and Asian companies. We devote all of our research to understanding the many facets of Asia and the changing factors affecting Asian companies. Because of our singular focus, we believe we can take advantage of the opportunities in the region in ways large, diversified investment firms cannot. 3. STOCK SELECTION DRIVES OUR INVESTMENT PROCESS. We do not practice top-down asset allocation and indexing. Similarly, we do not believe in the effectiveness of market timing. Given the difficulty of timing any one market, timing the 12 markets of Asia would be virtually unthinkable. Instead, we concentrate on intensive fundamental investing and bottom-up stock picking. We identify premier companies that we can own for many years through numerous market cycles. In Asia, where economic conditions, market regulations, local investor participation and accounting standards vary widely between countries, it is imperative to understand the inner workings of the companies themselves. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- 2 800.789.ASIA [2742] A MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- February 28, 2001 Dear Fellow Shareholders, World financial markets remained unstable for the six-month period ending February 28th 2001, but we are pleased to report that it was a period of relative calm for Asia. While Japan has continued to be a cause of concern for global investors, it is becoming increasingly apparent that the rest of the world is also vulnerable to periods of economic slowdown and falling financial asset prices. In this context, Asia's economies may be better prepared than some for more challenging times. The six months ended with the NASDAQ down by record amounts, and, although Asian technology stocks and Japan were also weak, the overall performance of the region was generally less severe. After years of uneven economic growth, Asia's corporations are seasoned citizens of an uncertain environment, and we are confident that as such they are well positioned in what remains a highly competitive environment. The financial markets of greater China have stood out in the first half of this fiscal year as relatively safe havens. This unlikely outcome has occurred in spite of many forecasts that China would be forced to both slow its recent pace of economic growth and devalue its currency. China's financial deregulation has continued, and while many problems and doubts remain, the success of China's continued market reforms are an encouragement to the region. Elsewhere in the region, the countries in which we are invested are expecting the rate of economic growth to slow from the levels of 2000, but most experts remain optimistic that the combination of continued reforms and easier monetary policies will allow them to sustain the recoveries that have been underway since late 1998. While the absolute performance of Asian funds has been generally disappointing in recent years, we are proud of the way in which our funds have performed relative to both their benchmarks and their peers in periods of one, three, and five years. In this respect, our two regionally diversified Asia ex-Japan funds, Matthews Pacific Tiger Fund and Matthews Asian Growth and Income Fund, stand out as having performed near the top of the Pacific ex-Japan category over one, three, and five years ending December 31, 2000 according to Lipper Analytical Services. In fact, the Matthews Asian Growth and Income Fund has been the single best performing fund in the category for the one year and five year periods ended December 31st, 2000. Thank you for your continued support, /S/ G. Paul Matthews /S/ Mark W. Headley G. Paul Matthews Mark W. Headley Chairman and Chief Investment Officer President and Portfolio Manager Lipper Analytical Services, Inc. ranks the Matthews Asian Growth and Income Fund # 1 out of 79 funds for one year ending 12/31/00, # 3 out of 71 funds for the 3 year period ending 12/31/00, # 1 out of 40 funds for the 5 year period ending 12/31/00 and 1 out of 25 funds for the life of the fund (inception date: 9/12/94) Lipper Analytical Services, Inc. rankings and fund performance are based on total return, including reinvestment of dividends and capital gains for the stated periods. Lipper Analytical Services, Inc. ranks the Matthews Pacific Tiger Fund # 19 out of 79 funds for one year ending 12/31/00, # 8 out of 71 funds for the 3 year period ending 12/31/00, # 9 out of 40 funds for the 5 year period ending 12/31/00 and 4 out of 25 funds for the life of the fund (inception date: 9/12/94) Lipper Analytical Services, Inc. rankings and fund performance are based on total return, including reinvestment of dividends and capital gains for the stated periods. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 3 RELATIVE PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- OUR CORE DIVERSIFIED FUNDS VS. ASIA EX-JAPAN EQUITY UNIVERSE - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Matthews Asian Matthews Pacific MSCI All Country Far East Lipper Pacific ex-Japan Growth & Income Tiger Fund Free ex-Japan Index(1) Funds Average(2) 9/12/94 0.00% 0.00% 0.00% 0.00% 11/30/94 -0.7 -2.8 -9.25 -8.95 2/28/95 -2.78 -7.59 -13 -16.08 5/31/95 2.84 -2.77 -2.86 -8.26 8/31/95 0.89 -2.07 -7.43 -10.82 11/30/95 1.91 -5.68 -8.23 -14.53 2/29/96 11.24 9.65 4.8 -3.06 5/31/96 12.28 11.86 7.55 -1.55 8/31/96 11.22 8.35 1.32 -7.06 11/30/96 19.78 19.08 7.75 -3.55 2/28/97 20.95 24.39 9.02 -1.43 5/31/97 22.68 29.2 5.53 -1.14 8/31/97 27.54 13.49 -11.16 -10.12 11/30/97 -2.42 -19.25 -37.58 -33.22 2/28/98 -1.27 -23.07 -32.87 -32.52 5/31/98 -5.89 -39.54 -50.35 -43.94 8/31/98 -17.44 -58.49 -63.63 -55.74 11/30/98 -7.72 -35.44 -44.04 -41.75 2/28/99 -8.83 -34.83 -46.07 -42.15 5/31/99 8.34 -8.72 -29.48 -27.36 8/31/99 26.03 6.38 -19.12 -14.91 11/30/99 32.62 19.15 -14.23 -5.6 2/29/00 38.72 31.29 -14.72 7.3 5/31/00 39.83 19.58 -24.6 -11.63 8/31/00 49.57 29.01 -24.79 -10.2 11/30/00 39.46 -1.07 -41.74 -29.83 2/28/01 51.26 8.14 -37.2 -26.63
(1) The MSCI All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Malaysia, Philippines, Thailand and China that excludes securities not available to foreign investors. Taiwan is only represented at 50% of its total market cap. (2) The Lipper Pacific ex-Japan Funds Average consisted of 23 funds as of 8/31/94. Past performance is not indicative of future results. - -------------------------------------------------------------------------------- 4 800.789.ASIA [2742] PORTFOLIO MANAGER'S COMMENTS - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH AND INCOME FUND Portfolio Manager: G. Paul Matthews HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? The Matthews Asian Growth and Income Fund achieved positive returns for both the six and twelve month periods ended February 28th 2001. The Fund was up +1.13% over the last six months and +9.04% over the past twelve months. These returns compare with negative returns for the MSCI AC Far East Free ex-Japan Index over the same periods, -16.50% for six months and -26.36% for twelve months. The Fund benefited during the period from positive returns from the bond component of the portfolio and from the Fund's weightings in the securities of utilities and other higher income paying equities. The period under review was a challenging period for almost all Asian financial markets as investors braced for an anticipated slowdown in economic growth in North America. Interest rates were in general trending lower over the period, benefiting securities that have historically paid higher yields than the broad equity markets. WHAT FACTORS CONTRIBUTED TO THIS SIX MONTH PERFORMANCE? The continued real high absolute growth rate of the economy of Mainland China has benefited the Fund's holdings in instruments of companies whose businesses are benefiting from that continued high growth rate. Examples of such companies include Chinese electric utilities such as Huaneng Power; light vehicle manufacturers such as Qingling Motors as well as real estate and other infrastructure developers such as New World Development. The Fund's overall exposure to China related investments accounted for about 20% of the portfolio. FUND MANAGER INSIGHTS Capital markets are slowly becoming more efficient in some Asian financial centers. For example, over the last two years we have seen yield spreads between government and non-government bonds in South Korea widen from less than 1% to a range of 3%-7%. We interpret this as a sign that reforms undertaken in Korea are starting to work, and have we maintained our weightings in Korean securities at around 10% of the portfolio. In China, the opening of the "B" share markets to local investors is, in our opinion, a positive development in that it is demonstrable progress towards the full opening of China's financial markets. The local financial markets are still in their relative infancy, but we are encouraged by the continued upgrade in the regulatory standards in China. WHAT IS THE OUTLOOK FOR THE FUND? The Fund is well placed to continue to benefit from continued declines in interest rates in the region, but will also benefit from any improvement in real economic activity. We believe that the Fund's combination of convertible bonds and higher yielding equities positions the Fund well for the current environment. FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH AND INCOME FUND One Year ................9.04% Five Years ..............6.33% Since inception (9/12/94)6.61% - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX1 One Year ..............(26.36%) Five Years ............(9.73%) Since 9/12/94 ..........(6.91%) - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX2 One Year ..............(26.89%) Five Years .............(6.59%) Since 9/12/94 ..........(5.76%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Matthews Asian Growth MSCI All Country Far MSCI All Country Far East Lipper Pacific and Income Fund East ex-Japan Index(2) Free ex-Japan Index(1) ex-Japan Funds Average(3) 9/12/94 $10,000.00 $10,000.00 $10,000.00 $10,000.00 11/30/94 9,930.00 9,329.22 9,074.96 9,104.79 2/28/95 9,721.70 8,878.63 8,700.08 8,392.00 5/31/95 10,284.10 9,447.07 9,714.12 9,174.17 8/31/95 10,088.90 8,873.17 9,256.69 8,918.42 11/30/95 10,191.00 8,783.99 9,176.84 8,546.68 2/29/96 11,124.10 9,563.05 10,480.30 9,694.15 5/31/96 11,228.20 10,185.00 10,754.60 9,845.31 8/31/96 11,122.40 9,657.71 10,131.80 9,293.71 11/30/96 11,978.00 10,172.90 10,774.90 9,644.63 2/28/97 12,094.90 10,325.40 10,902.30 9,856.72 5/31/97 12,268.10 10,117.10 10,553.40 9,885.97 8/31/97 12,753.60 9,015.88 8,883.53 8,987.76 11/30/97 9,758.49 6,233.33 6,241.93 6,677.74 2/28/98 9,872.76 6,768.71 6,713.26 6,748.45 5/31/98 9,410.88 5,087.90 4,965.10 5,606.47 8/31/98 8,255.87 3,797.75 3,637.16 4,425.53 11/30/98 9,227.89 5,614.14 5,596.41 5,825.08 2/28/99 9,117.03 5,520.30 5,392.58 5,784.90 5/31/99 10,833.80 7,203.09 7,051.83 7,264.02 8/31/99 12,602.60 8,430.04 8,088.39 8,508.58 11/30/99 13,261.70 8,781.62 8,577.46 9,440.30 2/29/00 13,871.50 9,298.57 8,528.31 10,729.80 5/31/00 13,982.60 8,366.02 7,539.83 8,837.03 8/31/00 14,957.30 8,219.66 7,521.14 8,980.13 11/30/00 13,945.90 6,299.00 5,826.25 7,017.45 2/28/01 15,125.60 6,797.81 6,280.19 7,336.89
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The MSCI All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Malaysia, Philippines, Thailand and China that excludes securities not available to foreign investors. Taiwan is only represented at 50% of its total market cap. (2) 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. (3) The Lipper Pacific ex-Japan Funds Average consisted of 23 funds as of 8/31/94. - ------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 5 MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- SHARES VALUE ------ ----- EQUITIES - 42.28%**** CHINA/HONG KONG - 29.14% Cafe De Coral Holdings, Ltd. 816,000 $ 342,620 China Hong Kong Photo Products Holdings, Ltd. 1,654,003 142,076 CLP Holdings, Ltd. 84,500 443,089 Hang Seng Bank, Ltd. 34,100 405,489 Hong Kong Electric Holdings, Ltd. 105,000 396,447 Hong Kong Land Holdings, Ltd. 85,000 215,050 Huaneng Power International, Inc. ADR 15,000 301,800 Petrochina Co. Ltd. ADR** 32,400 603,288 Shangri-La Asia, Ltd. 510,000 503,468 South China Morning Post Holdings, Ltd. 532,000 381,954 The Wharf Holdings, Ltd. 126,000 364,274 Vitasoy International Holdings, Ltd. 2,408,000 407,513 ----------- TOTAL CHINA/HONG KONG 4,507,068 ----------- SINGAPORE - 3.01% DBS Group Holdings Ltd. 9,000 101,640 Parkway Holdings, Ltd. 212,000 363,380 ----------- TOTAL SINGAPORE 465,020 ----------- SOUTH KOREA - 6.69% Hana Bank 62,530 388,912 Hyundai Motor Co., Ltd., 100,500 392,672 Pfd. Sindo Ricoh Co. 11,170 253,843 ----------- TOTAL SOUTH KOREA 1,035,427 ----------- UNITED KINGDOM - 3.44% HSBC Holdings PLC ADR 8,000 532,000 ----------- TOTAL EQUITIES (Cost $6,122,390) 6,539,515 ----------- FACE AMOUNT ------ INTERNATIONAL DOLLAR BONDS - 51.86%**** CHINA/HONG KONG - 36.63% New World Infrastructure, Ltd. 5.000%, 07/15/01 $ 450,000 447,750 Qingling Motors, Ltd.*** 3.500%, 01/22/02 1,300,000 425,750 First Pacific Capital, Ltd. 2.000%, 03/27/02 450,000 542,812 Shanghai Industrial Investment Co. 1.000%, 02/24/03 200,000 260,000 COSCO Treasury Co., Ltd. 1.000%, 03/13/03 200,000 256,000 FACE AMOUNT VALUE ----------- ----- New World Infrastructure Cnv. 1.000%, 04/15/03 $200,000 $ 239,000 Zhenhai Refining & Chemical Co., Ltd. 3.000%, 12/19/03 250,000 296,250 Huaneng Power International Public Co., Ltd. 1.750%, 05/21/04 400,000 484,000 New World Cap Finl, Cnv (New World Development) 3.000%, 06/09/04 500,000 515,625 Korea Deposit Insurance Cnv. 2.250%, 10/11/05 400,000 423,500 China Mobile HK Ltd., Cnv. 2.250%, 11/03/05 575,000 581,469 PCCW Capital Ltd., Cnv. 3.500%, 12/05/05 600,000 543,000 Amoy Properties, Ltd. 0.000%, 12/29/49 750,000 650,625 ----------- TOTAL CHINA/HONG KONG 5,665,781 ----------- SINGAPORE - 6.48% Fullerton Global Corp. (Singapore Telecom) 0.000%, 04/02/03 500,000 551,250 Finlayson Global Corp. (DBS Holdings)*** 0.000%, 02/19/04 250,000 451,250 ----------- TOTAL SINGAPORE 1,002,500 ----------- SOUTH KOREA - 3.28% Samsung Electronics Co. 0.250%, 12/31/06 75,000 152,812 Samsung Electronics Co. 0.000%, 12/31/07 250,000 355,000 ----------- TOTAL SOUTH KOREA 507,812 ----------- TAIWAN - 1.97% Walsin Lihwa Corp. 3.250%, 06/16/04 120,000 105,000 Mosel Vitelic, Inc.*** 1.000%, 02/02/05 200,000 199,000 ----------- TOTAL TAIWAN 304,000 ----------- THAILAND - 3.50% Bangkok Bank Public Co. 4.589%, 03/03/04 1,025,000 535,563 Robinson Department Store Public Co., Ltd. 4.250%, 04/07/04 50,000 5,000 ----------- TOTAL THAILAND 540,563 ----------- TOTAL INTERNATIONAL DOLLAR BONDS (Cost $8,084,407) 8,020,656 ----------- - -------------------------------------------------------------------------------- 6 800.789.ASIA [2742] MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- VALUE ----- TOTAL INVESTMENTS - 94.14%**** (Cost $14,206,797*) $14,560,171 CASH AND OTHER ASSETS, LESS LIABILITIES - 5.86% 905,557 ----------- NET ASSETS - 100.00% $15,465,728 =========== * Cost for Federal income tax purposes is $14,206,797 and net unrealized appreciation consists of: Gross unrealized appreciation $ 1,251,790 Gross unrealized depreciation (898,416) ----------- Net unrealized appreciation $ 353,374 =========== ** 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 February 28, 2001, the value of these securities amounted to $1,076,000 or 6.96% of net assets. **** As a percentage of net assets as of February 28, 2001. ADR American Depositary Receipt GDR Global 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.................... 15.07% Automobiles............................. 5.62 Distributors............................ 0.98 Hotels Restaurants & Leisure............ 5.81 Media................................... 2.62 Multiline Retail........................ 0.03 CONSUMER STAPLES.......................... 2.80 Food Products........................... 2.80 ENERGY.................................... 6.18 Oil & Gas............................... 6.18 FINANCIALS................................ 35.21 Banks................................... 16.58 Diversified Financials.................. 6.64 Real Estate............................. 11.99 HEALTH CARE............................... 2.50 Health Care Providers & Services........ 2.50 INDUSTRIALS............................... 8.98 Construction & Engineering.............. 1.76 Electrical Equipment.................... 0.72 Industrial Conglomerates................ 1.79 Transportation Infrastructure........... 4.72 INFORMATION TECHNOLOGY.................... 6.60 Office Electronics...................... 1.74 Semiconductor Equipment & Products...... 4.86 TELECOMMUNICATION SERVICES................ 11.51 Diversified Telecommunication Services . 7.52 Wireless Telecommunication Services..... 3.99 UTILITIES................................. 11.16 Electric Utilities...................... 11.16 ------ TOTAL INVESTMENTS ........................ 100.00% ====== - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 7 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS ASIAN TECHNOLOGY FUND Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Andrew T. Foster (Assistant) HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? Over the last six months, the Matthews Asian Technology Fund continued to outperform its benchmark, despite posting an absolute loss for the period. The Fund fell -37.68%, while the Fund's primary benchmark, the MSCI/Matthews Asian Technology Index, fell -40.76% during the same period. To help with perspective, the NASDAQ index fell -48.78% during the same period. The final four months of 2000 were particularly difficult for the Fund. Asian technology stocks fell sharply as the sector succumbed to downward earnings revisions and panic selling. Many Asian companies sit "upstream" in the global technology sector -- in other words, Asian companies produce components and finished goods that are ultimately consumed abroad. As orders declined and inventories bulged, many Asian technology shares began to forecast an I.T. slowdown before it was fully reflected in overseas markets. WHAT FACTORS CONTRIBUTED TO THIS SIX-MONTH PERFORMANCE? The Fund's ongoing strategy has been to remain concentrated, yet still offer good diversification within the technology sector. Typically, the Fund has held between 35 and 40 positions representing a broad range of technology investments, including semiconductors, PC hardware, software, fixed line telecoms, wireless telecoms, and the internet. Over the last six months, the Fund has taken particular care to focus on companies that garner the bulk of their revenues from the Asian region, and are thus less susceptible to an overseas slowdown. Legend Holdings, the Fund's largest position for the better part of the six-month period, is an excellent example of this strategy. Legend is China's largest PC manufacturer, and the company is benefiting from the fact that the mainland is in the early stages of PC adoption. Approximately 50% of the portfolio is weighted towards companies with Asian-oriented revenue streams. FUND MANAGER INSIGHTS Global capital markets appear preoccupied with a hazardous pastime: picking the bottom in blue-chip technology stocks. We believe that it is ultimately futile to time markets, but more importantly, we are convinced that the blue chips of today will not necessarily be the winners of tomorrow. Increasingly, Asian companies are coming to the fore. Whether the focus is on wireless networks, semiconductors or software, Asian companies are posting profit growth -- and stealing market share from U.S. competitors. Japan has generally lagged Asia's technology resurgence, but that trend may soon reverse. Poor cash flows and dramatic share declines have forced Japanese technology companies to restructure and close unprofitable business lines. More importantly, change has been introduced into the sector. Firms are adopting new ways of thinking with renewed vigor. Japan may be the source of some of the most exciting technology stories over the next five years. WHAT IS THE OUTLOOK FOR THE FUND? The Fund's valuations are reasonable, and we remain confident that the growth of the portfolio companies is largely on track. The Fund owns very competitive companies that are benefiting from strong technologies, cost advantages and robust outsourcing trends. We believe the companies in our portfolio will deliver, and thus we remain upbeat on the Fund's long-term prospects. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS ASIAN TECHNOLOGY FUND One Year .........................(58.29%) Since inception (12/27/99) .......(46.99%) - -------------------------------------------------------------------------------- MSCI/MATTHEWS ASIAN TECHNOLOGY INDEX(1) One Year .........................(53.49%) Since 12/31/99 ...................(50.47%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Matthews Asian MSCI/Matthews Asian Lipper Science & Technology Fund Technology Index(1) Technology Funds Average(2) 12/27/99 $10,000 $10,000 $10,000 2/28/00 11,370 9,488 12,514 5/31/00 7,900 7,717 9,117 8/31/00 7,610 7,449 11,598 11/30/00 4,870 5,112 6,801 2/28/01 4,743 4,413 5,341 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, office electronics, software, IT consulting and services, Internet software and services, diversified telecommunications services, and wireless telecommunications services. (2) The Lipper Science and Technology Funds Average consisted of 176 funds as of 12/31/99. - -------------------------------------------------------------------------------- 8 800.789.ASIA [2742] MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- SHARES VALUE ------ ----- EQUITIES - 99.85%*** CHINA/HONG KONG - 32.11% Asia Satellite Telecommunications Holdings, Ltd. 191,400 $ 435,563 AsiaInfo Holdings, Inc.** 27,100 340,444 China Mobile HK, Ltd. ADR** 5,000 133,250 China Mobile HK, Ltd.** 47,000 257,298 Chinadotcom Corp. A Shares** 91,300 407,997 Computer & Technologies Holdings, Ltd. 642,000 321,004 i-CABLE Communications Ltd.**705,000 379,620 i-CABLE Communications Ltd., ADR** 2,800 29,050 Legend Holdings, Ltd. 868,000 712,214 Pacific Century CyberWorks Ltd., ADR** 15,400 85,778 Pacific Century CyberWorks, Ltd.** 607,000 346,306 SINA.com** 110,950 284,309 ----------- TOTAL CHINA/HONG KONG 3,732,833 ----------- JAPAN - 22.01% Advantest Corp. 3,300 378,405 Canon, Inc. 8,500 276,823 Honda Tsushin Kogyo Co., Ltd. 50 916 NEC Corp. 21,000 341,779 Nintendo Co., Ltd. 2,935 479,679 Obic Business Consultants Ltd. 3,870 267,249 Rohm Co., Ltd. 2,000 323,969 Sony Corp. 4,800 345,795 Tokyo Denpa Co., Ltd. 6,200 143,510 ----------- TOTAL JAPAN 2,558,125 ----------- SINGAPORE - 9.65% CSE Systems & Engineering, Ltd.** 529,000 221,377 Datacraft Asia, Ltd. 67,720 389,390 Venture Manufacturing, Ltd. 66,000 510,777 ----------- TOTAL SINGAPORE 1,121,544 ----------- SOUTH KOREA - 19.35% Comtec System Co., Ltd. 77,430 169,172 Internet Auction Co., Ltd.** 14,552 288,348 Korea Telecom Corp. 6,010 312,936 Korea Telecom Corp. ADR 1,600 48,000 Korea Telecom Freetel** 12,591 389,547 NCSoft Corp. 3,543 268,670 Samsung Electronics 3,540 527,853 SK Telecom Co., Ltd. 1,449 245,525 ----------- TOTAL SOUTH KOREA 2,250,051 ----------- SHARES VALUE ------ ----- TAIWAN - 14.40% Realtek Semiconductor Corp. 45,000 $ 205,905 Taiwan Semiconductor Manufacturing Co., Ltd.** 203,240 565,516 VIA Technologies, Inc.** 58,000 525,398 WYSE Technology Taiwan, Ltd. 298,600 175,403 Zyxel Communications Corp.** 92,026 202,005 ----------- TOTAL TAIWAN 1,674,227 ----------- THAILAND - 2.33% Advanced Info Service Public Co., Ltd.** 16,300 196,842 Shinawatra Satellite Public Co., Ltd.** 93,800 74,064 ----------- TOTAL THAILAND 270,906 ----------- TOTAL INVESTMENTS - 99.85%*** (Cost $13,599,590*) 11,607,686 CASH AND OTHER ASSETS, LESS LIABILITIES - 0.15% 16,984 ----------- NET ASSETS - 100.00% $11,624,670 =========== * Cost for Federal income tax purposes is $13,559,590 and net unrealized appreciation consists of: Gross unrealized appreciation $ 260,971 Gross unrealized depreciation (2,252,875) ---------- Net unrealized depreciation $(1,991,904) ========== ** Non-income producing security *** As a percentage of net assets as of February 28, 2001. 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.................... 14.38% Household Durables...................... 2.98 Leisure Equipment & Products............ 4.13 Media................................... 7.27 INFORMATION TECHNOLOGY.................... 67.61 Communications Equipment................ 11.15 Computers & Peripherals ................ 10.59 Electronic Equipment & Instruments...... 5.64 Internet Software & Services............ 10.76 IT Consulting & Services................ 9.06 Office Electronics...................... 2.38 Semiconductor Equipment & Products...... 15.72 Software................................ 2.30 TELECOMMUNICATION SERVICES................ 18.00 Diversified Telecommunication Services.. 7.47 Wireless Telecommunication Services..... 10.53 ------ TOTAL INVESTMENTS ........................ 100.00% ====== - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 9 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS CHINA FUND Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard H. Gao HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? The Matthews China Fund was down -3.16% over the last six months, while the benchmark Credit Lyonnais China World Index and the MSCI China Free index were down -13.7% and -23.6%, respectively, during the same period. The Fund significantly outperformed the benchmark indices due to its overweight positions in H shares* and B shares**. WHAT FACTORS CONTRIBUTED TO THIS SIX-MONTH PERFORMANCE? The last six months saw a sharp decline in the global equity markets led by the collapse of the NASDAQ. In the Matthews China Fund, we reduced our overweight positions in China Mobile and Legend Holdings, two blue chip telecom and technology stocks in the Chinese equity universe. While we still believe in the high growth prospects of these two sectors in China, we are cautious about these two stocks due to their high valuations. As a result of our underweight position in the technology sector, the Fund was less affected by the sharp decline in the global tech sector during the period. On the other hand, we increased our weightings in the H shares as we believe these companies, mainly in the utilities, infrastructure and industrial sectors, will be the beneficiaries of China's strong economic growth. We also maintained our 10% weighting in the Shanghai and Shenzhen B shares, which we believe are quite undervalued given the huge valuation gap between the B shares and their domestic A share counterparts. FUND MANAGER INSIGHTS The Chinese economy continued to grow strongly during the past six months despite a slowdown in the export sector. The strong economy was mainly boosted by the recovery of domestic demand, the government's aggressive fiscal policy, and the increase of foreign direct investment. We were especially impressed by China's reform in the housing sector as an effort to bolster domestic consumption. During our recent visits to China, we have seen more and more Chinese citizens realize their dream of home ownership. Within just the past five years, over half of the urban Chinese population now own their own homes. In cities such as Shanghai and Guangzhou, home ownership is as high as 70%. In comparison, this number was virtually 0% five years ago. Reform in the housing sector has helped increase domestic demand, which has been declining in the past few years. Foreign direct investment (FDI) is another area of excitement. Total contracted FDI in 2001 increased by 37% over last year. More importantly, we are seeing more and more FDI coming from the U.S. and Europe, instead of Hong Kong and Japan as in the past. We believe that this shows renewed interest in China's local markets as well as an interest in China as a low-cost base for exports to the world's more open markets. WHAT IS THE OUTLOOK FOR THE FUND? Looking ahead, we are quite optimistic about the economic outlook in China. Although exports will be slowing down from 2000 due to the decline in global demand, we believe the recovery of domestic consumption and the government's expanding fiscal policy will both play a major role in China's economic growth. Meanwhile, China has undergone tremendous reform and restructuring during the past two decades, and we are convinced that the current government will be committed to its reform programs in the future. With China's expected entry into the WTO, we believe the country is stepping up its transition from a socialist economy into a true capitalist market economy. * H-Shares: state-owned Chinese companies listed on the Hong Kong stock exchange. ** Mainland Chinese B Shares are Chinese stocks listed on the Shanghai and Shenzhen Stock Exchanges. B Shares are traded in US dollars in Shanghai and in Hong Kong dollars in Shenzhen. FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS CHINA FUND One Year .........................15.15% Three Years ......................(2.32%) Since inception (2/19/98) ........(0.38%) - -------------------------------------------------------------------------------- CREDIT LYONNAIS CHINA WORLD INDEX(1) One Year .........................(4.61%) Three Years ......................(8.62%) Since 2/19/98 ....................(4.64%) - -------------------------------------------------------------------------------- MSCI CHINA FREE INDEX(2) One Year .........................(7.43%) Three Years .....................(22.38%) Since 2/19/98 ...................(22.38%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Matthews China Fund Credit Lyonnais Lipper China Region World Index(1) Funds Average(3) 2/19/98 $10,000 $10,000 $ 10,000 May-98 8,570 8,097 7,810 Aug-98 4,360 4,024 5,394 Nov-98 6,650 6,576 8,057 Feb-99 5,150 5,174 7,081 May-99 6,734 7,026 8,798 Aug-99 8,624 9,056 10,228 Nov-99 8,746 8,550 11,718 Feb-00 8,586 9,045 13,355 May-00 8,472 8,397 11,724 Aug-00 10,223 10,002 12,964 Nov-00 8,164 7,493 10,559 Feb-01 9,886 8,628 11,419 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) The MSCI China Free Index is an unmanaged capitalization-weighted index of Chinese equities that includes Red Chips and H shares listed on the Hong Kong exchange, and B shares listed on the Shanghai and Shenzhen exchanges. Red Chips are Chinese companies that are incorporated in Hong Kong but have at least 35% of their shares held by Chinese state-owned organizations. (3) The Lipper China Region Funds Average consisted of 18 funds as of 2/28/98. - -------------------------------------------------------------------------------- 10 800.789.ASIA [2742] MATTHEWS CHINA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- SHARES VALUE --------- ----------- EQUITIES - CHINA/HONG KONG - 93.22%*** CONSUMER DISCRETIONARY - 9.72% AUTOMOBILES & COMPONENTS - 5.56% Denway Motors Ltd.** 1,164,000 $ 276,081 Qingling Motors Co., Ltd. H Shares 1,979,000 296,854 ----------- 572,935 ----------- CONSUMER DURABLE & APPAREL - 3.46% China Hong Kong Photo Products Holdings, Ltd. 876,000 75,247 TCL International Holdings, Ltd.** 424,000 84,801 Texwinca Holdings, Ltd. 764,000 195,900 ----------- 355,948 ----------- MEDIA - 0.70% Television Broadcasts, Ltd. 12,000 72,155 ----------- TOTAL CONSUMER DISCRETIONARY 1,001,038 ----------- CONSUMER STAPLES - 1.13% FOOD & DRUG RETAILING - 0.00% Want Want Holdings Warrants 3,500 525 ----------- HOUSEHOLD & PERSONAL PRODUCTS - 1.13% Hengan International Group Co., Ltd. 524,000 116,222 ----------- TOTAL CONSUMER STAPLES 116,747 ----------- ENERGY - 4.69% PetroChina Co., Ltd. H Shares 1,408,000 261,747 Sinopec Zhenhai Refining & Chemical Co., Ltd. 1,406,000 221,718 ----------- TOTAL ENERGY 483,465 ----------- FINANCIALS - 11.19% DIVERSIFIED FINANCIALS - 3.94% China Everbright, Ltd. 348,000 406,005 ----------- REAL ESTATE - 7.25% China Vanke Co., Ltd. B Shares 504,912 353,443 New World China Land, Ltd.** 929,600 393,297 ----------- 746,740 ----------- TOTAL FINANCIALS 1,152,745 ----------- HEALTH CARE - 3.71% PHARMACEUTICALS & BIOTECHNOLOGY - 3.71% China Pharmaceutical Enterprise & Investment Corp., Ltd.1,502,000 169,459 Guangzhou Pharmaceutical Co., Ltd. H Shares 1,466,000 212,385 ----------- TOTAL HEALTH CARE 381,844 ----------- SHARES VALUE --------- ----------- INDUSTRIALS - 30.08% CAPITAL GOODS - 11.55% Beijing Enterprises Holdings, Ltd. 94,000 $ 99,424 Cheung Kong Infrastructure Holdings, Ltd. 147,000 265,734 China Resources Enterprises, Ltd. 190,000 308,145 Citic Pacific, Ltd. 81,000 290,773 Shanghai Industrial Holdings, Ltd. 118,000 226,170 ----------- 1,190,246 ----------- TRANSPORTATION - 18.53% China Merchants Holdings International Co., Ltd. 408,000 332,158 China Southern Airlines Co., Ltd. ADR** 14,800 222,000 China Southern Airlines Co. Ltd., Class H** 404,000 124,309 Cosco Pacific, Ltd. 334,000 235,516 New World Infrastructure, Ltd.** 353,000 296,433 Shanghai Zhenhua Port Machinery Co., Ltd. B Shares 417,000 271,467 Zhejiang Expressway Co., Ltd. H Shares 2,312,000 426,836 ----------- 1,908,719 ----------- TOTAL INDUSTRIALS 3,098,965 ----------- INFORMATION TECHNOLOGY - 9.82% SOFTWARE & SERVICES - 4.30% AsiaInfo Holdings, Inc.** 16,500 207,281 Computer & Technologies Holdings, Ltd. 44,000 22,000 SINA.com** 19,600 50,225 Travelsky Technology Ltd.** 241,000 163,759 ----------- 443,265 ----------- TECHNOLOGY HARDWARE & EQUIPMENT - 5.52% Eastern Communications Co., Ltd. B Shares 167,700 198,976 Legend Holdings, Ltd. 450,000 369,236 ----------- 568,212 ----------- TOTAL INFORMATION TECHNOLOGY 1,011,477 ----------- MATERIALS - 3.00% Sinopec Beijing Yanhua Petrochemical Co., Ltd. H Shares 1,390,000 196,028 Yizheng Chemical Fibre Co., Ltd. H Shares 488,000 113,243 ----------- TOTAL MATERIALS 309,271 ----------- - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 11 MATTHEWS CHINA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- SHARES VALUE ---------- ----------- TELECOMMUNICATION SERVICES - 5.41% China Mobile (Hong Kong), Ltd.** 68,000 $ 372,261 China Unicom, Ltd. ADR** 7,000 105,070 China Unicom, Ltd.** 52,000 80,001 ----------- TOTAL TELECOMMUNICATION SERVICES 557,332 ----------- UTILITIES - 14.47% CLP Holdings, Ltd. 44,500 233,343 Guangdong Electric Power Development Co., Ltd. B Shares 753,792 350,083 Huaneng Power International, Inc. ADR 27,200 547,264 Shandong International Power Development Co., Ltd. H Shares 1,888,000 360,661 ----------- TOTAL UTILITIES 1,491,351 ----------- TOTAL INVESTMENTS - 93.22%*** (Cost $9,287,559*) 9,604,235 CASH AND OTHER ASSETS, LESS LIABILITIES - 6.78% 699,018 ----------- NET ASSETS - 100.00% $10,303,253 =========== * Cost for Federal income tax purposes is $9,287,559 and net unrealized appreciation consists of: Gross unrealized appreciation $ 1,569,148 Gross unrealized depreciation (1,252,472) ----------- Net unrealized appreciation $ 316,676 =========== ** Non-income producing security *** As a percentage of net assets as of February 28, 2001. ADR American Depositary Receipt See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 800.789.ASIA [2742] PORTFOLIO MANAGER'S COMMENTS - -------------------------------------------------------------------------------- MATTHEWS JAPAN FUND Portfolio Manager: Mark W. Headley HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? Over the last six months, the Matthews Japan Fund suffered through a very difficult period in Japanese markets and underperformed versus the broad market average, the TOPIX. The Fund fell -32.84% versus a drop of -25.12% for the TOPIX. As long-term active investors, we have always accepted occasional underperformance as a necessary evil in the quest for superior out performance, but that does not make it any less painful. WHAT FACTORS CONTRIBUTED TO THIS SIX-MONTH PERFORMANCE? The Matthews Japan Fund runs a fairly concentrated portfolio of approximately thirty companies. The sector exposure in the Fund is comparable to our approach in the other five funds we manage with primary exposure to financials, consumer/retail, and technology (in the broad sense of the word). Unfortunately, all of these sectors have suffered from considerable weakness in recent months. Technology has obviously suffered from the global bout of nervousness over both growth and valuations. Consumer/retail has been very badly hit as a decade long struggle with deflation took a turn for the worst, and consumers voted with their pocket books against an unpopular government. The financial sector has suffered from a general sense of a government that has lost all bearings on economic policy. FUND MANAGER INSIGHTS Japan looks a great deal to us like the U.S. did in 1982. The market is at over a ten year low, just as the Dow Jones Industrial Average was at that time. Companies are generally considered to be has-beens. And, of course, there is the government about which few have any kind words to say. What Japan is desperately missing is any form of political leadership. The Liberal Democratic Party has run the country for too long. Japan remains a very attractive long-term investment if it can secure the leadership of an effective prime minister. Corporate Japan has been restructuring for years. The financial system is not in as dire shape as many reports would suggest and many important reforms have been instituted. Japan has enormous manufacturing capabilities with one of the best-trained labor forces in the world. In our discussions with company management, there is a real respect for shareholder value and the importance of managing businesses for the bottom-line. If the government's policy can be improved, the economy and the market should see steady and sustainable progress. WHAT IS THE OUTLOOK FOR THE FUND? Japanese companies remain fierce competitors in global markets and those companies with global businesses remain comparable to equity investments in Europe and the U.S. Where Japan suffers most is in the domestic economy that remains mired in inefficiencies. While much has been done in the way of reform and deregulation, a great deal more must be accomplished. The Fund's investments that are focused on the domestic economy, including financials, consumer/retail and telecommunications, have tremendous potential that can only be achieved through change. While signs of change are evident, the critical role of political leadership has been lacking. We hope that is about to change. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS JAPAN FUND One Year ....................... (38.60%) Since inception (12/31/98) ..... 18.04% - -------------------------------------------------------------------------------- TOPIX(1) (TOKYO PRICE INDEX) One Year ....................... (31.88%) Since 12/31/98 ................. 6.01% - -------------------------------------------------------------------------------- MSCI DEVELOPED MARKET JAPAN INDEX(2) One Year ....................... (27.09%) Since 12/31/98 ................. 4.48% - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [graphic omitted] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Lipper Japanese Matthews Japan Fund Topix Index (Tokyo)(1) Funds Average(3) 12/31/98 $10,000 $10,000 $10,000 Feb-99 11,310 9,946 10,114 May-99 15,370 11,314 11,885 Aug-99 21,700 14,156 16,201 Nov-99 22,840 17,207 20,067 Feb-00 23,323 16,659 21,079 May-00 21,238 15,096 17,309 Aug-00 21,320 15,154 17,520 Nov-00 16,935 13,199 14,133 Feb-01 14,319 11,347 11,893 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) TOPIX: The Tokyo Price Index is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. (2) The MSCI Developed Market Japan Index is an unmanaged, capitalization-weighted index of all Japanese equities. (3) The Lipper Japanese Funds Average consisted of 44 funds as of 12/31/98. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 13 MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- SHARES VALUE ---------- ---------- EQUITIES - JAPAN - 100.71%*** CONSUMER DISCRETIONARY - 30.47% INTERNET & CATALOG RETAIL - 5.29% Belluna Co., Ltd. 15,200 $ 427,640 ---------- LEISURE EQUIPMENT & PRODUCTS - 3.57% Nintendo Co., Ltd. 1,765 288,461 ---------- MEDIA - 3.04% Fuji Television Network, Inc. 36 245,535 ---------- RETAIL - 18.57% Arc Land Sakamoto Co., Ltd. 26,000 288,162 Don Quijote Co., Ltd. 4,800 233,258 Fast Retailing Company, Ltd. 2,200 354,303 Kyoto Kimono Yuzen Co., Ltd. 71 369,240 USS Co., Ltd. 10,400 254,913 ---------- 1,499,876 ---------- TOTAL CONSUMER DISCRETIONARY 2,461,512 ---------- FINANCIALS - 29.97% DIVERSIFIED FINANCIALS - 25.50% Daiwa Securities Group, Inc. 36,000 328,710 Ichiyoshi Securities Co., Ltd. 85,000 333,348 Japan Securities Finance Co., Ltd. 99,000 332,546 Mizuho Holdings, Inc. 47 288,503 The Nikko Securities Co., Ltd.62,000 449,295 Tsubasa Securities Co., Ltd. 106,000 327,141 ---------- 2,059,543 ---------- INSURANCE - 4.47% AFLAC, Inc. 6,000 360,960 ---------- TOTAL FINANCIALS 2,420,503 ---------- HEALTH CARE - 10.33% PHARMACEUTICALS - 10.33% Banyu Pharmaceutical Co., Ltd.11,000 218,040 Chugai Pharmaceutical Co., Ltd. 13,000 186,751 Kissei Pharmaceutical Co., Ltd. 11,000 212,882 Nippon Shinyaku Co., Ltd. 32,000 217,162 ---------- TOTAL HEALTH CARE 834,835 ---------- INDUSTRIALS - 3.51% MACHINERY - 3.51% Nitto Kohki Co., Ltd. 14,600 283,797 ---------- TOTAL INDUSTRIALS 283,797 ---------- INFORMATION TECHNOLOGY - 21.58% COMPUTERS & PERIPHERALS - 11.23% Ferrotec Corp. 10,000 187,561 NEC Corp. 25,000 406,880 Obic Business Consultants Ltd. 4,530 312,827 ---------- 907,268 ---------- SHARES VALUE -------- ---------- ELECTRONICS EQUIPMENT & INSTRUMENTS - 10.35% Canon, Inc. 8,500 $ 276,823 Honda Tsushin Kogyo Co., Ltd. 50 916 Rohm Co. Ltd. 1,000 161,985 Sony Corp. 5,500 396,223 ---------- 835,947 ---------- TOTAL INFORMATION TECHNOLOGY 1,743,215 ---------- TELECOMMUNICATION SERVICES - 4.85% DIVERSIFIED TELECOMMUNICATION SERVICES - 4.85% Nippon Telegraph & Telephone Corp. ADR 11,900 391,510 ---------- TOTAL INVESTMENTS - 100.71%*** (Cost $10,542,712*) 8,135,372 LIABILITIES, LESS CASH AND OTHER ASSETS - (0.71%) (57,201) ---------- NET ASSETS - 100.00% $8,078,171 ========== * Cost for Federal income tax purposes is $10,542,712 and net unrealized appreciation consists of: Gross unrealized appreciation $ 357,686 Gross unrealized depreciation (2,765,026) ----------- Net unrealized depreciation $(2,407,340) =========== ** Non-income producing security *** As a percentage of net assets as of February 28, 2001. ADR American Depositary Receipt USD United States Dollars See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 800.789.ASIA [2742] PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? The KOSPI Index was down - -25.92% for the six-months ending February 28, 2001, while the Matthews Korea Fund was down significantly less, -15.50%. After the sharp downturn in mid to late-2000, the Korean market turned around nicely at the beginning of this year sparked by falling interest rates in Korea, made possible by the U.S. Federal Reserve's interest rate cuts. The Fund was up 21.87% year-to-date through February 28, outperforming the benchmark KOSPI Index by 7%. WHAT FACTORS CONTRIBUTED TO THIS SIX-MONTH PERFORMANCE? From mid-2000, the Fund's exposure to the Internet sector was reduced. The portfolio has been concentrated in the companies in which we have the most conviction and a long-term overweight position in the financial sector has been maintained. We believe that the restructuring effort by the Korean government will be reflected in the financial industry first, and that financials will lead the recovery of the Korean market. The Fund has typically avoided the highly cyclical heavy industries and chemical companies. We have instead concentrated on finding new growth opportunities in areas such as consumer/retail and technology. Numerous company visits have revealed several very attractive investments, such as LG Home Shopping and NCSoft, as well as many promising candidates. We continue to search for companies managed by talented and motivated executives who offer transparent operations and clear long-term strategies. Entering 2001, the Korean market started to recover from the heavy sell-off in 2000, and the financials sector led the way. FUND MANAGER'S INSIGHTS The Korean market and economy continues to undergo a process of recovery and restructuring. In this environment, the ability to find solid individual companies that are rapidly restructuring and/or seizing emerging opportunities is more important than ever. Having managed the Matthews Korea Fund for over six years, we have the knowledge and expertise to conduct in-depth research and identify key trends. We use a wide range of analytical tools and information sources combined with our bedrock resource of on-site visits. We continue to see significant improvement in the openness and professionalism of local corporate management and the impact of foreign partnerships through mergers and acquisitions. We will continue to search for leaders in key sectors which we believe will lead the recovery of Korean economy and provide the best long-term returns to investors. WHAT IS THE OUTLOOK FOR THE FUND? Despite the slower than expected restructuring process, we have seen many positive changes in Korea; companies are concentrating on their core businesses rather than diverting their capital into unprofitable ones, and more "Chaebol" affiliated companies are becoming independent entities, enabling profitable units to survive and letting unprofitable ones fail. We believe the impact of a U.S. slowdown has already been priced in last year, although Korea's high dependency on exports remains a concern. In fact, the Korean market was up +14.37% year-to-date through February 28, while during the same period the Dow Jones Industrial Average and the NASDAQ were down -2.39% - -12.87%, respectively. The historic improvement in relations between South Korea and North Korea should provide long-term benefits as less money is spent on defense, although any true rapprochement is likely to take many years. With continued reform and restructuring, we expect Korea to fully join the ranks of developed nations, as one of the world's few true development success stories. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND One Year ....................... (30.71%) Five Years ..................... (10.14%) Since inception (1/3/95) ....... (10.87%) - -------------------------------------------------------------------------------- KOSPI(1) (SOUTH KOREAN STOCK PRICE INDEX) One Year ....................... (37.08%) Five Years ..................... (15.91%) Since 1/3/95 ................... (15.36%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [EDGAR representation of data points used in printed graphic as follows: South Korea Stock Lipper Pacific ex-Japan Matthews Korea Fund Price Index(1) Funds Average(2) 12/31/94 $10,000.00 $10,000.00 $10,000.00 2/28/95 9,000.00 8,768.39 9,492.26 5/31/95 8,960.00 9,009.59 10,337.20 8/31/95 9,130.00 9,152.66 10,077.20 11/30/95 9,230.00 9,416.78 9,716.27 2/29/96 8,403.70 8,500.60 10,961.80 5/31/96 8,635.74 8,918.80 11,162.00 8/31/96 7,293.97 7,423.01 10,524.10 11/30/96 6,819.81 6,820.47 10,929.40 2/28/97 5,891.67 6,093.21 11,151.60 5/31/97 6,416.27 6,603.12 11,202.80 8/31/97 6,244.77 5,974.91 10,182.90 11/30/97 3,046.72 2,736.63 7,481.67 2/28/98 3,046.72 2,653.17 7,553.92 5/31/98 2,280.00 1,828.70 6,297.94 8/31/98 2,047.96 1,781.01 4,987.13 11/30/98 3,107.25 2,810.91 6,567.75 2/28/99 3,763.00 3,296.06 6,542.16 5/31/99 6,012.73 4,809.27 8,274.24 8/31/99 7,556.27 6,157.41 9,726.68 11/30/99 8,222.11 6,663.65 10,806.60 2/29/00 7,103.27 5,675.93 12,164.70 5/31/00 5,723.01 5,022.04 10,140.30 8/31/00 5,824.01 4,794.60 10,330.30 11/30/00 4,309.09 3,247.45 8,093.81 2/28/01 4,921.56 3,571.19 8,509.16 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. (2) The Lipper Pacific ex-Japan Funds Average consisted of 28 funds as of 12/31/94. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 15 MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- SHARES VALUE ---------- ---------- EQUITIES - SOUTH KOREA - 97.44%*** CONSUMER DISCRETIONARY - 10.30% AUTO COMPONENTS - 0.31% Global & Yuasa Battery Co., Ltd. 224,800 $ 351,334 ----------- AUTOMOBILES - 4.30% Hyundai Motor Co., Ltd. 390,471 4,981,689 ----------- INTERNET & CATALOG RETAIL - 0.01% Hansol CSN Co., Ltd. 3,215 8,088 ----------- RETAIL - 5.68% LG Home Shopping, Inc. 96,087 3,639,350 Shinsegae Department Store Co.34,616 1,932,159 Shinsegae Department Stores Co. - Pfd. 28,879 1,004,013 ----------- 6,575,522 ----------- TOTAL CONSUMER DISCRETIONARY 11,916,633 ----------- CONSUMER STAPLES - 15.30% BEVERAGES - 7.10% Hite Brewery Co., Ltd. 146,911 5,212,933 Lotte Chilsung Beverage Co. 27,530 3,007,424 ----------- 8,220,357 ----------- FOOD PRODUCTS - 5.60% Lotte Confectionery Co., Ltd. 23,990 2,295,511 Nong Shim Co., Ltd. 107,208 4,188,814 ----------- 6,484,325 ----------- PERSONAL PRODUCTS - 2.60% Pacific Corp. 111,700 3,010,494 ----------- TOTAL CONSUMER STAPLES 17,715,176 ----------- FINANCIALS - 32.02% BANKS - 15.24% Hana Bank 1,079,350 6,713,125 Housing & Commercial Bank ADR 176,300 1,882,884 Kookmin Bank 330,445 4,769,201 Shinhan Bank 379,702 4,269,036 ----------- 17,634,246 ----------- DIVERSIFIED FINANCIALS - 12.85% Dongwon Securities Co. 184,350 1,153,933 Good Morning Securities Co., Ltd. 1,568,400 7,153,535 Samsung Securities Co., Ltd. 176,035 4,997,086 Seoul Securities Co., Ltd. 243,900 1,573,360 ----------- 14,877,914 ----------- INSURANCE - 3.93% Samsung Fire & Marine Insurance 158,032 4,549,043 ----------- TOTAL FINANCIALS 37,061,203 ----------- SHARES VALUE --------- ------------ HEALTH CARE - 1.31% HEALTH CARE EQUIPMENT & SUPPLIES - 0.97% Shinhung Co., Ltd. 342,700 $ 875,810 Suheung Capsule Co., Ltd. 35,050 245,945 ----------- 1,121,755 ----------- PHARMACEUTICALS - 0.34% Hanmi Pharmaceutical Industrial Co., Ltd. 53,645 391,394 ----------- TOTAL HEALTH CARE 1,513,149 ----------- INDUSTRIALS - 1.26% COMMERCIAL SERVICES & SUPPLIES - 1.21% S1 Corp. 142,805 1,400,607 ----------- MACHINERY - 0.05% Hanjin Heavy Industries Co., Ltd. 26,139 55,963 ----------- TOTAL INDUSTRIALS 1,456,570 ----------- INFORMATION TECHNOLOGY - 17.85% ELECTRONICS EQUIPMENT & INSTRUMENTS - 2.16% Dae Duck GDS Co., Ltd. 221,696 2,032,940 Hankuk Electric Glass Co., Ltd. 7,800 465,226 ----------- 2,498,166 ----------- IT CONSULTING & SERVICES - 0.38% Comtec Systems Co., Ltd. 198,270 433,187 ----------- INTERNET SOFTWARE & SERVICES - 5.97% Internet Auction Co., Ltd.** 204,817 4,058,450 Korea Next Education Service, Inc.** 328,440 607,592 NCSoft Corp. 29,650 2,248,397 ----------- 6,914,439 ----------- OFFICE ELECTRONICS - 0.99% Sindo Ricoh Co. 50,556 1,148,908 ----------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 8.35% Samsung Electronics 64,834 9,667,457 ----------- TOTAL INFORMATION TECHNOLOGY 20,662,157 ----------- MATERIALS - 0.32% CHEMICALS - 0.32% Honam Petrochemical Corp. 50,790 373,402 ----------- TOTAL MATERIALS 373,402 ----------- TELECOMMUNICATION SERVICES - 16.46% TELECOMMUNICATION SERVICES - 4.90% Korea Telecom Corp. 70,820 3,687,542 Korea Telecom Corp. ADR* 66,317 1,989,510 ----------- 5,677,052 ----------- - -------------------------------------------------------------------------------- 16 800.789.ASIA [2742] MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- SHARES VALUE -------- ------------ WIRELESS TELECOMMUNICATION SERVICES - 11.56% Korea Telecom Freetel** 198,244 $ 6,133,376 KT M.Com Co., Ltd.** 248,555 1,863,023 SK Telecom Co., Ltd. 20,570 3,485,468 SK Telecom Co., Ltd., ADR 97,200 1,894,428 ----------- 13,376,295 ----------- TOTAL TELECOMMUNICATION SERVICES 19,053,347 ----------- UTILITIES - 2.62% Daehan City Gas Co., Ltd. 57,492 559,288 Korea Electric Power Corp. 98,990 2,028,581 Seoul City Gas Co., Ltd. 36,750 448,349 ----------- TOTAL UTILITIES 3,036,218 ----------- TOTAL EQUITIES (Cost $116,955,865) 112,787,855 ----------- FACE AMOUNT --------- INTERNATIONAL DOLLAR BONDS - SOUTH KOREA - 0.58%*** INFORMATION TECHNOLOGY - 0.58% SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.58% Samsung Electronics Co. 0.250%, 12/31/06 $330,000 672,375 ------------ (Cost $384,912) TOTAL INVESTMENTS - 98.02%*** (Cost $117,340,777*) 113,460,230 CASH AND OTHER ASSETS, LESS LIABILITIES - 1.98% 2,285,989 ------------ NET ASSETS - 100.00% $115,746,219 ============ * Cost for Federal income tax purposes is $117,340,777 and net unrealized appreciation consists of: Gross unrealized appreciation $ 13,616,626 Gross unrealized depreciation (17,497,173) ------------ Net unrealized depreciation $ (3,880,547) ============ ** Non-income producing security *** As a percentage of net assets as of February 28, 2001. ADR American Depositary Receipt GDR Global Depositary Receipt Pfd. Preferred See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 17 PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Andrew T. Foster (Assistant) HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDING FEBRUARY 28, 2001? The Matthews Pacific Tiger Fund weathered a rough period of market performance relatively well falling -16.18% versus a fall of -16.50% for its benchmark, the MSCI AC Far East Free ex-Japan Index. The Fund has continued to perform very well compared to other diversified Asia ex-Japan funds. Such "relative" performance is always a poor alternative to positive numbers. WHAT FACTORS CONTRIBUTED TO THIS SIX-MONTH PERFORMANCE? The Fund has averaged approximately 40 positions in companies ranging from the region's largest, HSBC and Samsung Electronics, to small niche players, WYSE Technology and Hite Brewery. With stock selection as the driving force of our investment process, we find the flexibility of investing in a wide array of companies, large and small -- domestic and global, as a key strength in our work. Domestic Asian companies often control their own destinies in a way global companies sometimes cannot. Global Asian companies achieve levels of sophistication and competitiveness that domestic Asian companies cannot. We believe owning a range of companies that have been selected through our internal research and hundreds of company visits is the key driver in our long-term out-performance of our benchmarks and the majority of our competitors. FUND MANAGER INSIGHTS Asia suffered through a major financial crisis in 1997/98. It has also suffered through a decade of stagnation in Japan. Despite the turbulence of the markets, corporations across the region have made steady improvements to their corporate governance and strategic planning. While exceptions to this trend can always be found, our meetings with senior corporate management leave us extremely confident in the region's future. The vision and intelligence of many of these managers is comparable to the very best found anywhere in the world. It is our job to find superior management running companies that are well positioned in attractive industries. The time we spend with that management learning about their companies and their views on the region and the rest of the world is one of the most rewarding parts of our job. WHAT IS THE OUTLOOK FOR THE FUND? The Fund continues to have three key areas of exposure across the region. The financial industry is a key area of restructuring and a driver of change across most countries' economies. The technology industry, where Asia is both a global leader and, increasingly, a consumer of its own high-end products, offers a range of high growth companies that few investors are familiar with. Finally, there is the consumer/retail industry where Asia's ever growing middle-class will find the products they need. Each of these areas offers a wide range of opportunities, in which we have spent many years developing expertise. The challenges of that last decade are rapidly turning into the opportunities of the new decade in Asian growth and development. - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- ANNUALIZED PERFORMANCE INFORMATION (AS OF FEBRUARY 28, 2001) - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND One Year ...................... (17.63%) Five Years .................... (0.28%) Since inception (9/12/94) ..... 1.22% - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX(1) One Year ...................... (26.36%) Five Years .................... (9.73%) Since 9/12/94 ................. (6.91%) - -------------------------------------------------------------------------------- MSCI ALL COUNTRY FAR EAST EX-JAPAN INDEX(2) One Year ...................... (26.89%) Five Years .................... (6.59%) Since 9/12/94 ................. (5.76%) - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [graphic omitted] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Matthews Pacific MSCI All Country Far East MSCI All Country Far East Lipper Pacific Ex-Japan Tiger Fund ex-Japan Free Index(1) ex-Japan Index(2) Funds Average (3) 9/12/94 $10,000.00 $10,000.00 $10,000.00 $10,000.00 11/30/94 9,720.00 9,074.96 9,329.22 9,104.79 2/28/95 9,241.42 8,700.08 8,878.63 8,392.00 5/31/95 9,722.53 9,714.12 9,447.07 9,174.17 8/31/95 9,792.70 9,256.69 8,873.17 8,918.42 11/30/95 9,431.86 9,176.84 8,783.99 8,546.68 2/29/96 10,965.40 10,480.30 9,563.05 9,694.15 5/31/96 11,185.90 10,754.60 10,185.00 9,845.31 8/31/96 10,835.10 10,131.80 9,657.71 9,293.71 11/30/96 11,907.60 10,774.90 10,172.90 9,644.63 2/28/97 12,438.80 10,902.30 10,325.40 9,856.72 5/31/97 12,920.00 10,553.40 10,117.10 9,885.97 8/31/97 11,349.40 8,883.53 9,015.88 8,987.76 11/30/97 8,075.15 6,241.93 6,233.33 6,677.74 2/28/98 7,693.49 6,713.26 6,768.71 6,748.45 5/31/98 6,046.32 4,965.10 5,087.90 5,606.47 8/31/98 4,150.87 3,637.16 3,797.75 4,425.53 11/30/98 6,455.77 5,596.41 5,614.14 5,825.08 2/28/99 6,516.97 5,392.58 5,520.30 5,784.90 5/31/99 9,127.83 7,051.83 7,203.09 7,264.02 8/31/99 10,637.70 8,088.39 8,430.04 8,508.58 11/30/99 11,915.00 8,577.46 8,781.62 9,440.30 2/29/00 13,129.10 8,528.31 9,298.57 10,729.80 5/31/00 11,958.20 7,539.83 8,366.02 8,837.03 8/31/00 12,901.30 7,521.14 8,219.66 8,980.13 11/30/00 9,892.71 5,826.25 6,299.00 7,017.45 2/28/01 10,814.10 6,280.19 6,797.81 7,336.89
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. (1) The MSCI All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets of Hong Kong, Taiwan, Singapore, Korea, Indonesia, Malaysia, Philippines, Thailand and China that excludes securities not available to foreign investors. Taiwan is only represented at 50% of its total market cap. (2) 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. (3) The Lipper Pacific ex-Japan Funds Average consisted of 23 funds as of 8/31/94. - -------------------------------------------------------------------------------- 18 800.789.ASIA [2742] MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- SHARES VALUE -------- ---------- EQUITIES - 97.01%*** CHINA/HONG KONG - 50.68% Asia Satellite Telecommunications Holdings, Ltd. 1,048,600 $ 2,386,268 AsiaInfo Holdings, Inc.** 75,000 942,187 China Hong Kong Photo Products Holdings, Ltd. 16,886,000 1,450,483 China Mobile HK, Ltd.** 164,800 902,186 China Mobile HK, Ltd. ADR** 93,400 2,489,110 China.com Corp. A Shares** 159,900 714,553 Dah Sing Financial Group 450,000 2,330,799 Dao Heng Bank Group, Ltd. 383,000 1,900,294 Giordano International Ltd.** 7,019,000 4,139,463 Guangdong Electric Power Development Co., Ltd. B Shares 5,092,588 2,365,146 HSBC Holdings Plc. ADR 39,300 2,613,450 Huaneng Power International, Inc. ADR 172,700 3,474,724 Hutchison Whampoa, Ltd. 215,820 2,559,437 i-CABLE Communications** 3,751,000 2,019,795 Legend Holdings, Ltd. 5,122,000 4,202,720 Li & Fung Ltd. 938,000 1,707,663 Quality Healthcare Asia, Ltd.** 9,906,500 1,384,388 Shangri-La Asia, Ltd. 2,902,000 2,864,832 SINA.com** 162,200 415,637 Vitasoy International Holdings, Ltd. 17,738,750 3,001,981 ----------- TOTAL CHINA/HONG KONG 43,865,116 ----------- PHILIPPINES - 1.83% Benpres Holdings Corp.** 24,639,000 1,581,385 ----------- SINGAPORE - 8.47% CSE Systems & Engineering, Ltd.** 3,941,000 1,649,237 DBS Group Holdings Ltd. 42,000 474,318 Parkway Holdings, Ltd. 777,000 1,331,822 Venture Manufacturing, Ltd. 327,800 2,536,861 Vickers Ballas Holdings, Ltd. 2,047,000 1,337,755 ----------- TOTAL SINGAPORE 7,329,993 ----------- SHARES VALUE -------- ------------- SOUTH KOREA - 22.29% Comtec Systems Co., Ltd. 348,770 $ 762,004 Hana Bank 735,919 4,577,122 Hite Brewery Co., Ltd. 71,927 2,552,230 Samsung Electronics 23,418 3,491,879 Samsung Fire & Marine Insurance 58,981 1,697,802 Samsung Securities Co., Ltd. 110,594 3,139,420 Shinsegae Department Store Co. 853 47,584 SK Telecom Co., Ltd. 11,170 1,892,692 SK Telecom Co., Ltd., ADR 58,000 1,130,420 ----------- TOTAL SOUTH KOREA 19,291,153 ----------- TAIWAN - 8.73% Taiwan Semiconductor Manufacturing Co., Ltd.** 953,000 2,651,724 VIA Technologies, Inc.** 409,320 3,707,861 WYSE Technology Taiwan, Ltd. 2,045,000 1,201,268 ----------- TOTAL TAIWAN 7,560,853 ----------- THAILAND - 5.01% Advanced Info Service Public Co., Ltd.** 147,700 1,783,651 Charoen Pokphand Foods Public Co., Ltd. 1,340,000 1,314,793 Shinawatra Satellite Public Co., Ltd.** 1,565,500 1,236,112 ----------- TOTAL THAILAND 4,334,556 ----------- TOTAL EQUITIES (Cost $83,669,253) 83,963,056 ----------- - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 19 MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- FACE AMOUNT VALUE -------------- ---------- INTERNATIONAL DOLLAR BONDS - 2.75%*** SINGAPORE - 2.75% Finlayson Global Corp. (DBS Holdings) 0.000%, 02/19/04 $1,320,000 $ 2,382,600 ------------ (Cost $2,083,621) TOTAL INVESTMENTS - 99.76%*** (Cost $85,752,874*) 86,345,656 CASH AND OTHER ASSETS, LESS LIABILITIES - 0.24% 208,124 ------------ NET ASSETS - 100.00% $86,553,780 ============ * Cost for Federal income tax purposes is $85,752,874 and net unrealized appreciation consists of: Gross unrealized appreciation $ 13,285,331 Gross unrealized depreciation (12,692,549) ------------ Net unrealized appreciation $ 592,782 ============ ** Non-income producing security *** As a percentage of net assets as of February 28, 2001. 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.................... 18.76% Distributors............................ 1.68 Hotels Restaurants & Leisure............ 3.32 Media................................... 6.93 Multiline Retail........................ 0.06 Specialty Retail........................ 4.79 Textiles & Apparel...................... 1.98 CONSUMER STAPLES.......................... 7.96 Beverages............................... 2.96 Food Products........................... 5.00 FINANCIALS................................ 26.65 Banks................................... 13.51 Diversified Financials.................. 11.18 Insurance............................... 1.97 HEALTH CARE............................... 3.15 Health Care Providers & Services........ 3.15 INFORMATION TECHNOLOGY.................... 25.80 Computers & Peripherals................. 6.26 Electronic Equipment & Instruments...... 2.94 Internet Software & Services............ 1.31 IT Consulting & Services................ 3.88 Semiconductor Equipment & Products...... 11.41 TELECOMMUNICATION SERVICES................ 10.93 Diversified Telecommunication Services.. 1.43 Wireless Telecommunication Services..... 9.49 UTILITIES ................................ 6.76 Electric Utilities...................... 6.76 ------ TOTAL INVESTMENTS ........................ 100.00% ====== - -------------------------------------------------------------------------------- 20 800.789.ASIA [2742] STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 2001 (UNAUDITED) - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS ASIAN GROWTH ASIAN MATTHEWS MATTHEWS MATTHEWS PACIFIC AND INCOME TECHNOLOGY CHINA JAPAN KOREA TIGER FUND FUND FUND FUND FUND FUND ----------- ----------- ----------- ----------- ------------ ----------- ASSETS: Investments, at value (Cost $14,206,797, $13,599,590, $9,287,559, $10,542,712, $117,340,777 and $85,752,874, respectively).................. $14,560,171 $11,607,686 $ 9,604,235 $8,135,372 $113,460,230 $86,345,656 Cash ............................ 858,948 206,390 752,404 - 6,028,205 73,255 Foreign currency, at value (Cost $215, $432, $289, $0, $742, and $0, respectively).................. 114 429 237 -- 743 -- Dividends and interest receivable 82,222 2,349 52,008 3,804 59,367 12,193 Receivable for securities sold .. 550,000 -- -- 365,944 -- 542,742 Receivable for capital shares sold 73,641 17,489 334,915 0 68,699 30,142 Due from Advisor (Note 2)........ -- 716 -- 1,786 -- -- Deferred organization costs (Note 1-F) -- -- 6,096 -- -- -- Other assets .................... 3,540 92,095 1,832 2,915 83,759 34,901 ----------- ----------- ----------- ----------- ------------ ----------- Total assets................... 16,128,636 11,927,154 10,751,727 8,509,821 119,701,003 87,038,889 ----------- ----------- ----------- ----------- ------------ ----------- LIABILITIES: Payable for securities purchased. 630,453 100,345 437,645 302,783 3,470,893 -- Payable for capital shares redeemed -- 175,191 -- 7,966 99,266 87,745 Cash overdraft................... -- -- -- 73,831 -- -- Foreign currency, at value (Cost $0, $0, $0, $1,202, $0, and $4,357, respectively).................. -- -- -- 1,079 -- 3,966 Due to Advisor (Note 2) ......... 13,093 -- 7,364 -- 78,676 60,982 Accrued expenses................. 19,362 26,948 3,465 45,991 305,949 249,972 Other liabilities................ -- -- -- -- -- 82,444 ----------- ----------- ----------- ----------- ------------ ----------- Total liabilities.............. 662,908 302,484 448,474 431,650 3,954,784 485,109 ----------- ----------- ----------- ----------- ------------ ----------- NET ASSETS:......................... $15,465,728 $11,624,670 $10,303,253 $ 8,078,171 $115,746,219 $86,553,780 =========== =========== =========== =========== ============ =========== SHARES OUTSTANDING: (shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value).............. 1,655,886 2,559,474 1,130,550 611,169 42,422,228 9,468,027 =========== =========== =========== =========== ============ =========== Net asset value, offering price and redemption price ................ $9.34 $4.54 $9.11 $13.22 $2.73 $9.14 =========== =========== =========== =========== ============ =========== NET ASSETS CONSIST OF: Capital paid-in ................. $15,312,694 $27,489,563 $10,532,830 $13,609,002 $93,623,960 $85,139,079 Accumulated undistributed net investment income (loss)....... 207,957 114,705 38,801 277,752 139,767 (1,708,389) Accumulated net realized gain (loss) on investments................. (408,486)(13,987,654) (584,996) (3,401,305) 25,847,011 2,529,888 Net unrealized appreciation (depreciation) on investments and foreign currency related transactions........... 353,563 (1,991,944) 316,618 (2,407,278) (3,864,519) 593,202 ----------- ----------- ----------- ----------- ------------ ----------- $15,465,728 $11,624,670 $10,303,253 $ 8,078,171 $115,746,219 $86,553,780 =========== =========== =========== =========== ============ ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 21 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED) - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS ASIAN GROWTH ASIAN MATTHEWS MATTHEWS MATTHEWS PACIFIC AND INCOME TECHNOLOGY CHINA JAPAN KOREA TIGER FUND FUND FUND FUND FUND FUND ----------- ---------- --------- --------- ----------- ----------- INVESTMENT INCOME: Dividends (net of foreign tax withheld of $0, $0, $0, $5,170, $19,843, and $0, respectively). $ 56,489 $ 40,903 $ 126,233 $ 30,401 $ 140,725 $ 461,248 Interest......................... 422,986 5,194 3,369 (2,821) 7,133 (82,731) Other income (see Note 1K)....... 3,793 320,470 5,567 27,241 996,255 384,726 --------- --------- --------- --------- ----------- ----------- Total investment income ....... 483,268 366,567 135,169 54,821 1,144,113 763,243 --------- --------- --------- --------- ----------- ----------- EXPENSES: Investment advisory fees (Note 2) 59,746 75,962 39,704 79,571 507,811 442,828 Recovery of reimbursed expenses (Note 2).............. 4,269 -- -- -- -- -- Distribution expenses ........... -- -- -- -- 7,566 1,057 Transfer agent fees.............. 14,060 38,146 10,660 39,002 118,777 130,741 Administration fees ............. 8,701 20,891 5,652 21,456 82,675 84,855 Accounting fees.................. 3,706 12,383 3,168 12,300 56,629 48,762 Professional fees................ 2,941 4,044 1,765 6,519 47,920 27,340 Custodian fees................... 11,654 41,689 7,569 14,728 136,149 112,864 Directors fees (Note 2).......... 727 1,244 570 1,393 7,129 7,273 Insurance expense................ 609 360 424 1,259 8,033 5,328 Amortization of organization costs (Note 1-F)............... -- 24,686 1,531 -- -- -- Printing expense................. 986 993 1,950 1,807 7,228 6,734 Registration expenses............ 5,236 3,401 6,677 9,922 15,745 19,507 Other expenses................... 883 736 620 1,685 8,684 5,435 --------- --------- --------- --------- ----------- ----------- Total expenses................... 113,518 224,535 80,290 189,642 1,004,346 892,724 Expenses reimbursed and waived (Note 2)................ -- (72,611) (882) (30,500) -- (72,435) --------- --------- --------- --------- ----------- ----------- Net expenses................... 113,518 151,924 79,408 159,142 1,004,346 820,289 --------- --------- --------- --------- ----------- ----------- NET INVESTMENT INCOME (LOSS) ....... 369,750 214,643 55,761 (104,321) 139,767 (57,046) --------- --------- --------- --------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS: Net realized gain on investments. 101,344 (11,106,126) (459,886) (3,619,267) (2,293,148) (437,326) Net realized gain (loss) on foreign currency related transactions.. (2,164) (58,788) (6) 612,960 (460,523) (76,299) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions (301,796) 3,037,550 93,075 (3,354,839) (16,749,013) (17,270,540) --------- ---------- --------- ---------- ----------- ----------- Net realized and unrealized gain (loss) on investments and foreign currency related transactions........... (202,616) (8,127,364) (366,817) (6,361,146) (19,502,684) (17,784,165) --------- ---------- --------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.................. $ 167,134 ($7,912,721) ($311,056) ($6,465,467) ($19,362,917) ($17,841,211) ========= =========== ========= =========== ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 800.789.ASIA [2742] STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS ASIAN MATTHEWS ASIAN GROWTH AND INCOME FUND TECHNOLOGY FUND ------------------------- -------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED PERIOD FEBRUARY 28, ENDED FEBRUARY 28, ENDED 2001 AUGUST 31, 2001 AUGUST 31, (UNAUDITED) 2000 (UNAUDITED) 2000* ----------- ----------- ------------ ----------- OPERATIONS: Net investment income........................... $ 369,750 $ 712,430 $ 214,643 $ 524,171 Net realized gain (loss) on investments and foreign currency related transactions......... 99,180 1,422,306 (11,164,914) (2,831,523) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions................. (301,796) (151,186) 3,037,550 (5,029,494) ----------- ----------- ------------ ----------- Net increase (decrease) in net assets from operations............................... 167,134 1,983,550 (7,912,721) (7,336,846) ----------- ----------- ------------ ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I....................................... (391,355) (672,202) (615,326) -- Class A....................................... N/A N/A N/A N/A Realized gains on investments: Class I....................................... (1,037,531) -- -- -- Class A....................................... N/A N/A N/A N/A ----------- ----------- ------------ ----------- Net decrease in net assets resulting from distributions............................ (1,428,886) (672,202) (615,326) -- ----------- ----------- ------------ ----------- CAPITAL SHARE TRANSACTIONS (NET): Class I....................................... 5,258,513 (486,162) (4,417,263) 31,906,826 Class A....................................... N/A N/A N/A N/A ----------- ----------- ------------ ----------- Increase (decrease) in net assets derived from capital share transactions.................... 5,258,513 (486,162) (4,417,263) 31,906,826 ----------- ----------- ------------ ----------- Total increase in net assets.................... 3,996,761 825,186 (12,945,310) 24,569,980 NET ASSETS: Beginning of period............................. 11,468,967 10,643,781 24,569,980 -- ----------- ----------- ------------ ----------- End of period (including undistributed net investment income (loss) of $0, $229,562, $0, and $515,388, respectively)....................... $15,465,728 $11,468,967 $11,624,670 $24,569,980 =========== =========== =========== ===========
* The Asian Technology Fund commenced operations on December 27, 1999. N/A Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 23 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS CHINA FUND JAPAN FUND ------------------------- ---------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED YEAR FEBRUARY 28, ENDED FEBRUARY 28, ENDED 2001 AUGUST 31, 2001 AUGUST 31, (UNAUDITED) 2000 (UNAUDITED) 2000 ----------- ---------- ------------ ---------- OPERATIONS: Net investment income (loss).................... $ 55,761 $ 130,543 ($104,321) ($125,935) Net realized gain (loss) on investments and foreign currency related transactions......... (459,892) 909,591 (3,006,307) 1,149,155 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions......... 93,075 81,652 (3,354,839) (2,902,438) ----------- ---------- ------------ ---------- Net increase (decrease) in net assets from operations.................... (311,056) 1,121,786 (6,465,467) (1,879,218) ----------- ---------- ------------ ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I....................................... (135,340) (100,689) (360,020) -- Class A ...................................... N/A N/A -- -- Realized gains on investments: Class I....................................... (259,637) -- (487,694) (601,550) Class A....................................... N/A N/A N/A N/A ----------- ---------- ------------ ---------- Net decrease in net assets resulting from distributions............................ (394,977) (100,689) (847,714) (601,550) ----------- ---------- ------------ ---------- CAPITAL SHARE TRANSACTIONS (NET): Class I ...................................... 1,776,933 1,965,983 (8,477,423) 1,863,670 Class A....................................... N/A N/A N/A N/A ----------- ---------- ------------ ---------- Increase (decrease) in net assets derived from capital share transactions.................... 1,776,933 1,965,983 (8,477,423) 1,863,670 ----------- ---------- ------------ ---------- Total increase (decrease) in net assets......... 1,070,900 2,987,080 (15,790,604) (617,098) NET ASSETS: Beginning of period............................. 9,232,353 6,245,273 23,868,775 24,485,873 ----------- ---------- ------------ ---------- End of period (including undistributed net investment income (loss) of $0, $118,380, $0 and $742,093, respectively)...... $10,303,253 $9,232,353 $ 8,078,171 $23,868,775 =========== ========== =========== ===========
N/A Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 800.789.ASIA [2742] STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS KOREA MATTHEW PACIFIC FUND TIGER FUND --------------------------- -------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED YEAR FEBRUARY 28, ENDED FEBRUARY 28, ENDED 2001 AUGUST 31, 2001 AUGUST 31, (UNAUDITED) 2000 (UNAUDITED) 2000 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss).................... $ 139,767 $ 702,437 ($57,046) $ 1,924,495 Net realized gain (loss) on investments and foreign currency related transactions......... (2,753,671) 77,344,916 (513,625) 20,346,121 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions................. (16,749,013) (116,843,995) (17,270,540) (1,074,283) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets from operations.................... (19,362,917) (38,796,642) (17,841,211) 21,196,333 ------------ ------------ ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I....................................... -- -- (2,649,917) (2,508,804) Class A....................................... -- -- -- (36,563) Realized gains on investments: Class I....................................... (36,642,361) (22,901,449) (7,200,352) -- Class A....................................... -- (1,790,122) -- -- ------------ ------------ ------------ ------------ Net decrease in net assets resulting from distributions............................ (36,642,361) (24,691,571) (9,850,269) (2,545,367) ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS (NET): Class I....................................... 44,843,270 (57,694,292) 1,072,725 (16,792,146) Class A....................................... -- 1,963,559 -- 156,788 ------------ ------------ ------------ ------------ Increase (decrease) in net assets derived from capital share transactions.................... 44,843,270 (55,730,733) 1,072,725 (16,635,358) ------------ ------------ ------------ ------------ Total increase (decrease) in net assets......... (11,162,008) (119,218,946) (26,618,755) 2,015,608 NET ASSETS: Beginning of period............................. 126,908,227 246,127,173 113,172,535 111,156,927 ------------ ------------ ------------ ------------ End of period (including undistributed net investment income (loss) of $0, $0, $0, and $1,897,661, respectively.................................. $115,746,219 $126,908,227 $ 86,553,780 $113,172,535 ============ ============ ============ ============
N/A Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 25 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS ASIAN GROWTH AND INCOME FUND ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR YEAR YEAR YEAR YEAR FEBRUARY 28, ENDED ENDED ENDED ENDED ENDED 2001 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, (UNAUDITED) 2000 1999 1998 1997 1996 ------------ ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period $ 10.50 $ 9.37 $ 6.54 $ 11.71 $ 10.53 $ 9.88 --------- -------- -------- --------- -------- -------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income ................ 0.29(3) 0.63(3) 0.59(3) 0.13 0.10 0.25 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency................ (0.24) 1.09 2.75 (4.15) 1.42 0.75 --------- -------- -------- --------- -------- -------- Total from investment operations.... 0.05 1.72 3.34 (4.02) 1.52 1.00 --------- -------- -------- --------- -------- -------- LESS DISTRIBUTIONS FROM: Net investment income................. (0.33) (0.59) (0.51) (0.10) (0.10) (0.26) Net realized gains on investments..... (0.88) -- -- (1.05) (0.24) (0.09) --------- -------- -------- --------- -------- -------- Total distributions................. (1.21) (0.59) (0.51) (1.15) (0.34) (0.35) --------- -------- -------- --------- -------- -------- Net Asset Value, end of period........... $ 9.34 $ 10.50 $ 9.37 $ 6.54 $ 11.71 $ 10.53 ========= ======== ======== ========= ======== ======== TOTAL RETURN............................. 1.13%(2) 18.68% 52.65% (35.27%) 14.67% 10.24% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)............................ $15,466 $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........... 1.90%(1) 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) 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%(1) 6.17% 7.98% (0.36%) (1.55%) (4.13%) Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator....................... 6.17%(1) 6.24% 8.13% 1.50% 1.00% 2.75% Portfolio turnover.................... 23.79%(2) 62.23% 34.82% 54.67% 50.20% 88.16%
(1) Annualized. (2) Not Annualized. (3) Based on average shares method. 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 period presented.
MATTHEWS ASIAN MATTHEWS TECHNOLOGY FUND CHINA FUND ---------------------------- ----------------------------------------------------- SIX MONTHS SIX MONTHS ENDED PERIOD ENDED YEAR YEAR PERIOD FEBRUARY 28, ENDED FEBRUARY 28, ENDED ENDED ENDED 2001 AUGUST 31, 2001 AUGUST 31, AUGUST 31, AUGUST 31, (UNAUDITED) 2000(3) (UNAUDITED) 2000 1999 1998(4) ------------- ---------- ------------ ---------- ---------- ---------- Net Asset Value, beginning of period $ 7.61 $ 10.00 $ 9.93 $ 8.48 $ 4.36 $10.00 ------- ------- ------- ------ ------ ------ INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss) ........ 0.08(5) 0.26(5) 0.06(5) 0.12(5) 0.12 0.10 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency .. (2.93) (2.65) (0.45) 1.44 4.11 (5.74) ------- ------- ------- ------ ------ ------ Total from investment operations .. (2.85) (2.39) (0.39) 1.56 4.23 (5.64) ------- ------- ------- ------ ------ ------ LESS DISTRIBUTIONS FROM: Net investment income................ (0.22) -- (0.15) (0.11) (0.11) -- Net realized gains on investments ... -- -- (0.28) -- -- -- ------- ------- ------- ------ ------ ------ Total distributions ............... (0.22) -- (0.43) (0.11) (0.11) -- ------- ------- ------- ------ ------ ------ Net Asset Value, end of period ......... $ 4.54 $ 7.61 $ 9.11 $ 9.93 $ 8.48 $ 4.36 ======= ======= ======= ====== ====== ====== TOTAL RETURN............................ (37.68%)(2) (23.90%)(2) (3.29%)(2) 18.54% 97.79% (56.40%)(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's) ... $11,625 $24,570 $10,303 $9,232 $6,245 $1,576 Ratio of expenses to average net assets before reimbursement waiver or recovery of expenses by Advisor and Administrator. ........ 2.95%(1) 2.66%(1) 2.02%(1) 2.15% 2.09% 7.84%(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%(1) 2.00%(1) 2.00% 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.......... 1.87%(1) 3.75%(1) 1.38%(1) 1.54% 2.93% (3.45%)(1) Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator.................. 2.82%(1) 4.41%(1) 1.40%(1) 1.69% 3.02% 2.38%(1) Portfolio turnover................... 124.83%(2) 50.35%(2) 10.63%(2) 80.90% 40.27% 11.84%(2)
(1) Annualized (2) Not annualized (3) The Asian Technology Fund commenced operations on December 27, 1999. (4) The China Fund commenced operations on February 19, 1998. (5) Based on average shares method. 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 JAPAN FUND ----------------------------------- SIX MONTHS ENDED YEAR PERIOD FEBRUARY 28, ENDED ENDED 2001 AUGUST 31, AUGUST 31, (UNAUDITED) 2000 1999(3) ------------ --------- --------- Net Asset Value, beginning of period...... $20.76 $ 21.70 $ 10.00 ------ ------- ------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss)........... (0.11)(4) (0.11)(4) (0.04) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency..... (6.56) (0.29) 11.74 ------ ------- ------- Total from investment operations..... (6.67) (0.40) 11.70 ------ ------- ------- LESS DISTRIBUTIONS FROM: Net investment income.................. (0.37) -- Net realized gains on investments...... (0.50) (0.54) -- ------ ------- ------- Total distributions ................. (0.87) (0.54) -- ------ ------- ------- Net Asset Value, end of period............ $13.22 $ 20.76 $ 21.70 ====== ======= ======= TOTAL RETURN.............................. (32.84)%(2) (1.75%) 117.00%(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)... $8,078 $23,869 $24,486 Ratio of expenses to average net assets before reimbursement waiver or recovery of expenses by Advisor and Administrator............ 2.39%(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%(1) Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator............ (1.70)%(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.................... (1.31)%(1) (0.48%) (1.09%)(1) Portfolio turnover..................... 33.03%(2) 223.00% 28.92%(2) (1) Annualized (2) Not annualized (3) The Japan Fund commenced operations on December 31, 1998. (4) Based on average shares method. 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 ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR YEAR YEAR YEAR YEAR FEBRUARY 28, ENDED ENDED ENDED ENDED ENDED 2001 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, (UNAUDITED) 2000 1999 1998 1997 1996 ------------ ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period $ 5.19 $ 7.49 $ 2.03 $ 6.19 $ 7.23 $ 9.13 -------- -------- -------- ------- -------- ------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss)..... 0.00#,(3) 0.03(3) 0.03 (0.03) (0.04)(3) (0.07) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency........... (0.96) (1.45) 5.43 (4.13) (1.00)(3) (1.75) -------- -------- -------- ------- -------- ------- Total from investment operations (0.96) (1.42) 5.46 (4.16) (1.04) (1.82) -------- -------- -------- ------- -------- ------- LESS DISTRIBUTIONS FROM: Net realized gains on investments (1.50) (0.88) -- -- -- (0.08) -------- -------- -------- ------- -------- ------- Net Asset Value, end of period...... $ 2.73 $ 5.19 $ 7.49 $ 2.03 $ 6.19 $ 7.23 ======== ======== ======== ====== ======== ======= TOTAL RETURN..................... (15.50)%(2) (22.92%) 268.97% (67.21%) (14.38%) (20.11%) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)....................... $115,746 $115,145 $230,846 $66,607 $ 19,356 $ 2,721 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator...... 2.10%(1) 1.75% 1.77% 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)....................... 2.10%(1) 1.75% 1.77% 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.................. 0.29%(1) 0.42% (0.37%) (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.................. 0.29%(1) 0.42% (0.37%) (1.12%) (1.41%) (1.31%) Portfolio turnover............... 50.90%(2) 47.80% 57.06% 94.01% 112.68% 139.71%
(1) Annualized (2) Not annualized (3) Calculated using the average shares method. # Amount represents less than $0.01 per share. 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 ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR YEAR YEAR YEAR YEAR FEBRUARY 28, ENDED ENDED ENDED ENDED ENDED 2001 AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, (UNAUDITED) 2000 1999 1998 1997 1996 ------------ ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period............... $ 12.35 $ 10.41 $ 4.07 $ 11.30 $ 10.81 $ 9.77 -------- -------- -------- -------- ------- ------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net investment income (loss) (0.01)(3) 0.20(3) 0.21 0.02(3) 0.02 0.01 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency.. 2.05 2.01 6.15 (7.18) 0.50 1.03 -------- -------- -------- -------- ------- ------- Total from investment operations.......... (2.06) 2.21 6.36 (7.16) 0.52 1.04 -------- -------- -------- -------- ------- ------- LESS DISTRIBUTIONS FROM: Net investment income... (0.31) (0.27) (0.02) (0.01) (0.01) -- Net realized gains on investment....... (0.84) -- -- (0.06) (0.02) -- -------- -------- -------- -------- ------- ------- Total distributions..... (1.15) (0.27) (0.02) (0.07) (0.03) -- -------- -------- -------- -------- ------- ------- Net Asset Value, end of period $ 9.14 $ 12.35 $ 10.41 $ 4.07 $ 11.30 $ 10.81 ======== ======== ======== ======== ======= ======= TOTAL RETURN............... (16.18%)(2) 21.28% 156.28% (63.43%) 4.75% 10.64% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)..... $ 86,554 $111,502 $109,936 $31,319 $43,647 $17,148 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator 2.03%(1) 1.88% 1.90% 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).............. 1.87%(1) 1.81% 1.90% 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......... (0.29%)(1) 1.49% 3.35% 0.14% 0.20% (2.13%) Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator......... (0.13%)(1) 1.56% 3.35% 0.30% 0.27% 0.32% Portfolio turnover...... 32.97%(2) 52.11% 98.74% 73.09% 70.73% 124.69%
(1) Annualized (2) Not annualized (3) Calculated using the average shares method. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 30 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Matthews International Funds (the "Company") is an open-end management investment 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, "Funds"): Matthews Asian Growth and Income Fund (formerly, Matthews Asian Convertible Securities Fund), Matthews Asian Technology Fund, Matthews China Fund (formerly, Matthews Dragon Century China Fund), Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund. Matthews 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, Matthews Dragon Century China Fund suspended issuing Class A shares and Matthews Pacific Tiger Fund and Matthews Korea Fund suspended issuing Class A shares on December 15, 2000. Matthews Asian Technology Fund and Matthews Pacific Tiger Fund seek long-term capital appreciation by investing a substantial portion of their assets in the common and preferred stock of Pacific Tiger economies. Pacific Tiger economies include: China/Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, Philippines and Thailand. Matthews China Fund, Matthews Japan Fund and Matthews Korea Fund seek long-term capital appreciation by investing a substantial portion of their assets in the common and preferred stock of South Korean companies, Chinese companies and Japanese companies, respectively. Matthews Asian Growth and Income Fund seeks long-term capital appreciation and some current income by investing a substantial portion of its total assets in the convertible securities of Asian economies. Asian economies include: China/Hong Kong, Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand 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 - -------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- 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 six months ended February 28, 2001. 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 Matthews Japan Fund and Matthews Asian Technology Fund, which are being 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 period of amortization of the Funds' organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of initial shares being redeemed bears to the number of those shares outstanding at the time of redemption. 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 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 periods 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. Transactions in shares of beneficial interest were as follows:
MATTHEWS MATTHEWS ASIAN GROWTH AND INCOME FUND ASIAN TECHNOLOGY FUND -------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED FEBRUARY 28, 2001 AUGUST 31, 2000 FEBRUARY 28, 2001 AUGUST 31, 2000 ---------------------------------------- ------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ---------- -------- ---------- ---------- ------------- ---------- ------------ Shares sold ......... 649,156 $6,129,000 704,212 $ 7,052,878 5,046,172 $ 26,484,353 5,216,329 $ 49,292,911 Shares issued through reinvestment of dividends......... 160,907 1,417,588 65,587 663,908 125,864 610,441 -- -- Shares redeemed ..... (246,046)(2,288,075) (814,085) (8,202,948) (5,839,210) (31,512,057) (1,989,681) (17,386,085) -------- ---------- -------- ---------- ---------- ------------- ---------- ------------ Net increase (decrease) 564,017 $5,258,513 44,286) ($486,162) (667,174)($ 4,417,263) 3,226,648 $ 31,906,826 ======== ========== ======== ========== ========== ============= ========== ============
- -------------------------------------------------------------------------------- 32 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) -----------------------------
MATTHEWS MATTHEWS CHINA FUND JAPAN FUND -------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2001 AUGUST 31, 2000 FEBRUARY 28, 2001 AUGUST 31, 2000 -------------------- -------------------- ---------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ---------- -------- ----------- --------- ------------ ---------- ------------ Shares sold............. 313,427 $2,731,467 922,748 $ 8,321,445 169,357 $ 2,836,770 2,158,789 $ 47,157,104 Shares issued through reinvestment of dividends 49,078 392,130 11,236 100,022 51,576 826,764 28,758 573,444 Shares redeemed......... (162,047) (1,346,664) (740,130) (6,455,484) (759,567) (12,140,957) (2,166,167) (45,866,878) -------- ---------- -------- ----------- -------- ------------ ---------- ------------ Net increase............ 200,458 $1,776,933 193,854 $ 1,965,983 (538,634)$ 8,477,423 21,380 $ 1,863,670 ======== ========== ======== =========== ======== ============ ========== ============
MATTHEWS KOREA FUND -------------------------------------------------------------------------------------------------------- CLASS I CLASS A* -------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2001 AUGUST 31, 2000 FEBRUARY 28, 2001 AUGUST 31, 2000 -------------------------------------------------------------------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------- ---------- ------------ ---------- ----------- Shares sold............. 29,828,603 $ 97,102,976 22,234,328 $ 143,560,898 436,242 $ 1,828,679 1,087,775 $ 6,675,877 Shares issued through reinvestment of dividends ........... 12,620,333 31,172,384 2,867,052 22,391,670 1,380,958 3,341,918 221,542 1,714,731 Shares redeemed.........(22,194,849) (77,547,577) (33,747,464) (223,646,860) (4,107,637) (11,055,110)(1,072,224) (6,427,049) ----------- ------------ ----------- ------------- ---------- ------------ ---------- ----------- Net increase (decrease). 20,254,087 $ 50,727,783 (8,646,084) ($57,694,292) (2,290,437)($ 5,884,513) 237,093 $ 1,963,559 =========== ============ =========== ============= ========== ============ ========== ===========
MATTHEWS PACIFIC TIGER FUND --------------------------------------------------------------------------------------------------- CLASS I CLASS A* ----------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2001 AUGUST 31, 2000 FEBRUARY 28, 2001 AUGUST 31, 2000 -------------------------------------------------------------------------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------------------------------------- -------------------------------------- -------------------- Shares sold............. 2,250,644 $ 49,167,553 6,708,677 $ 82,110,584 64,314 $ 623,933 104,297 $ 1,247,215 Shares issued through reinvestment of dividends 1,126,265 10,050,287 197,956 2,392,082 17,003 152,169 2,903 35,066 Shares redeemed......... (5,865,639) (56,061,744)(8,441,468) (101,294,812) (215,664) (1,950,404) (89,013) (1,125,493) ---------- ------------ ---------- ------------- -------- ------------ ------- ----------- Net increase (decrease). 511,270 $ 3,156,096 (1,534,835) ($ 16,792,146) (134,347)($ 1,174,302) 18,187 $ 156,788 ========== ============ ========== ============= ======== ============ ======= ===========
*As of December 15, 2000 Class A Shares for Korea Fund and Pacific Tiger Fund were closed and exchanged for Class I Shares. The number of shares that were exchanged from the Korea Fund and Pacific Tiger Fund were 1,092,968 and 155,798, respectively. The dollar amount that was exchanged from the Korea Fund and Pacific Tiger Fund was $2,666,842 and $1,347,649, respectively. The Funds impose a redemption fee of 2.00% on shares that are redeemed within ninety days of purchase. The charge is 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 that were returned to the assets of Asian Growth and Income Fund, Asian Technology Fund, China Fund, Japan Fund, Korea Fund and Pacific Tiger Fund amounted to $3,793, $320,470, $5,567, $27,241, $996,255 and $384,726, respectively during the six-month period ending February 28, 2001. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 33 MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- 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 six months ended February 28, 2001, 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% $ 59,746 $ -- Matthews Asian Technology Fund.............. 1.00 2.00 75,962 72,611 Matthews China Fund ........................ 1.00 2.00 39,704 882 Matthews Japan Fund ........................ 1.00 2.00 79,571 30,500 Matthews Korea Fund ........................ 1.00 2.50 507,811 -- Matthews Pacific Tiger Fund ................ 1.00 1.90 442,828 72,435
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 six months ended February 28, 2001, Matthews Asian Growth and Income Fund reimbursed expenses to the Advisor totaling $4,269. As of February 28, 2001, the total expenses waived and reimbursed by the Advisor that are subject to reimbursement by Matthews Asian Growth and Income Fund, Matthews Asian Technology Fund, Matthews China Fund, Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund totaled $171,273, $148,154, $108,342, $56,790, $0 and $300,550, 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. Total fees received by PFPC for the six months ended February 28, 2001 was $170,248 for administrative and accounting services and $98,547 for transfer agent services. 3. DISTRIBUTOR FEES AND CLASS SPECIFIC EXPENSES Effective January 2, 2001, PFPC Distributors, Inc. (the "Distributor") serves as the Funds' Distributor pursuant to an Underwriting Agreement. Prior to January 2, 2001, Provident 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. The Class I shares of the Funds do not have a distribution plan. The Funds bear a portion of the fees paid to certain services 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 six months ended February 28, 2001 are reflected in the statement of operations as follows:
TRANSFER AGENT ADMINISTRATION TOTAL -------------- -------------- -------- Matthews Asian Growth and Income Fund ............... $ 3,662 $ 1,831 $ 5,493 Matthews Asian Technology Fund....................... 5,348 2,674 8,022 Matthews China Fund.................................. 2,503 1,251 3,754 Matthews Japan Fund.................................. 5,901 2,950 8,851 Matthews Korea Fund.................................. 33,043 16,521 49,564 Matthews Pacific Tiger Fund.......................... 28,969 14,485 43,454
- -------------------------------------------------------------------------------- 34 800.789.ASIA [2742] MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 (UNAUDITED) ----------------------------- 4. INVESTMENT TRANSACTIONS Investment transactions for the six months ended February 28, 2001, excluding temporary short-term investments, were as follows: PROCEEDS PURCHASES FROM SALES --------- ------------- Matthews Asian Growth and Income Fund.. $ 6,188,196 $ 2,829,670 Matthews Asian Technology Fund......... 19,328,219 24,302,398 Matthews China Fund.................... 1,855,513 861,474 Matthews Japan Fund.................... 5,129,248 13,731,386 Matthews Korea Fund.................... 59,786,517 53,040,502 Matthews Pacific Tiger Fund............ 29,890,257 38,684,580 The Funds invest excess cash in interest bearing deposits at The Bank of New York. - -------------------------------------------------------------------------------- WWW.MATTHEWSFUNDS.COM 35 MATTHEWS INTERNATIONAL FUNDS' PRIVACY POLICY FEBRUARY 28, 2001 - -------------------------------------------------------------------------------- Matthews International Funds will never sell or share your personal information with other companies. While it is necessary for us to collect certain nonpublic personal information about you when you open an account (such as your address and social security number), we protect this information and use it only for communication purposes or to assist us in providing the information and services necessary to address your financial needs. We respect your privacy and are committed to ensuring that it is maintained. As permitted by law, it is sometimes necessary for us to share your information with companies who perform administrative or marketing services on our behalf, such as transfer agents and/or mail facilities that assist us in shareholder servicing or distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your personal information. As you may know, "cookies" are small files a web site can use to recognize repeat users. We do not use cookies to access any personal information about you from your computer. When using Matthews International Funds' Online Account Access you will be required to provide personal information to gain access to your account. For your protection, the login screen resides on a secure server. If you have any questions or concerns regarding our Privacy Policy, please e-mail us at info@matthewsfunds.com or contact us at 800.789.ASIA. Thank you for your interest in Matthews International Funds. - -------------------------------------------------------------------------------- 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 Downey L. Hebble INVESTMENT ADVISOR Matthews International Capital Management, LLC 456 Montgomery Street, Suite 1200 San Francisco, California 94104-1245 800.789.ASIA (2742) UNDERWRITER PFPC 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 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 PFPC DISTRIBUTORS, INC. MA-SAR 2/01 -----END PRIVACY-ENHANCED MESSAGE-----