0000935069-01-500611.txt : 20011106
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ACCESSION NUMBER: 0000935069-01-500611
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1
matthewsedgar.txt
MATTHEWS ANNUAL REPORT, 08/01
MATTHEWS ASIAN FUNDS
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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
James E. Walter
Downey L. Hebble
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
800.789.ASIA [2742]
UNDERWRITER
PFPC Distributors, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
SHAREHOLDER SERVICES
PFPC Inc.
211 South Gulph Road
King of Prussia, PA 19406
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walter LLP
345 California Street
San Francisco, CA 94104
[DRAGON GRAPHIC OMITTED]
FOR ADDITIONAL INFORMATION ABOUT
MATTHEWS ASIAN FUNDS:
--------------------------------------
WWW.MATTHEWSFUNDS.COM
--------------------------------------
800.789.ASIA [2742]
--------------------------------------
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CA 94104
Distributed by PFPC Distributors, Inc.
ANNUAL REPORT
AUGUST 31, 2001
[DRAGON GRAPHIC OMITTED]
PACIFIC TIGER FUND
----------------------------
ASIAN GROWTH AND INCOME FUND
----------------------------
KOREA FUND
----------------------------
CHINA FUND
----------------------------
JAPAN FUND
----------------------------
ASIAN TECHNOLOGY FUND
----------------------------
[ASIAN LETTERS OMITTED]
WWW.MATTHEWSFUNDS.COM
WWW.MATTHEWSFUNDS.COM
---------------------
MATTHEWS ASIAN FUNDS 800.789.ASIA [2742]
--------------------------------------------------------------------------------
A MESSAGE TO SHAREHOLDERS
Dear Fellow Shareholder,
Since the end of our fiscal year ended August 31, 2001, the free world has been
confronted with perhaps the greatest challenge it has faced since the end of
World War II. The tragic events of September 11, 2001, are so recent that few
forecasters can say with any great certainty what the long-term global economic
impact will be from them. In the immediate aftermath of the crisis, the
outpouring of support for the American people from the Asian countries that we
invest in has encouraged us to believe that the world is more united in its
defense of freedom than it has ever been. Chinese factories are working overtime
to sew American flags, and we are confident that the free world will prevail.
While it is a daunting task, we believe that it is imperative that all of us
return to our normal lives and routines. In the spirit of this effort, we
present our Message to Shareholders.
In the many years that we have been following the developing economies of Asia,
the pace of change has been relentless, and this last year has been no
exception. Following their rapid recoveries from the economic crisis of 1997 and
1998, economic growth in Asia slowed again last year, affected by continued
weakness in Japan and the anticipated downturn in the United States. In spite of
slower growth overall, large segments of Asia's young and highly motivated
population have continued to enjoy dramatic improvements in their living
standards, most notably in China. While changes that have transformed China in
the last 20 years have been incremental, the last 12 months have seen this vast
country progress to the point that it is rapidly becoming the most important
economy in the region, in some respects surpassing Japan in regional
significance.
In the post-crisis period, China's economy has proven to be one of the most
resilient in Asia, and it is currently the fastest growing major economy in the
world. The emergence of China as a major economic power has had an important
impact on all of its neighbors, not all of them positive. In general, Asia's
societies have continued to move closer to the open market, and with that has
come increased freedom. In this respect, China and Taiwan's coming accession
into the World Trade Organization marks another important step in Asia's
transition from the closed economic model that prevailed in the immediate
post-World War II period to the open model that now dominates the region.
The performance of Asia's financial markets and our family of Asian funds in the
last 12 months has been mixed. On one hand, Japan has continued to fall to new
lows as its economy has again stalled, while on the other, China's financial
markets have continued
continues....
[PHOTO OF G. PAUL MATTHEWS AND MARK W. HEADLEY OMITTED]
G. PAUL MATTHEWS,
Chairman and Chief
Investment Officer (left), and
MARK W. HEADLEY, President
and Portfolio Manager
CONTENTS
-------------------------------------
PORTFOLIO MANAGERS' COMMENTARIES AND
SCHEDULES OF INVESTMENTS
-------------------------------------
Pacific Tiger Fund 1
-------------------------------------
Asian Growth
and Income Fund 4
-------------------------------------
Korea Fund 7
-------------------------------------
China Fund 10
-------------------------------------
Japan Fund 13
-------------------------------------
Asian Technology Fund 15
-------------------------------------
FINANCIAL STATEMENTS
-------------------------------------
Assets and Liabilities 17
-------------------------------------
Operations 18
-------------------------------------
Changes in Net Assets 19
-------------------------------------
Financial Highlights 22
-------------------------------------
Notes 27
-------------------------------------
Report of
Independent Auditors 32
-------------------------------------
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
[DRAGON GRAPHIC OMITTED]
WE ARE PARTICULARLY PLEASED THAT THE MATTHEWS CHINA FUND BECAME THE FIRST OF OUR
ASIAN FUNDS TO EARN AN OVERALL MORNINGSTAR RATING OF 5 STARS (OUT OF 1,308 FUNDS
IN THE INTERNATIONAL EQUITY FUNDS CATEGORY AS OF AUGUST 31, 2001).
As of 8/31/01, the Matthews China Fund had a three-year Morningstar Rating of 5
Stars out of 1,308 funds in the International Equity Funds category.
Morningstar, Inc. rates over 6,700 mutual funds by assigning each fund's
historical total returns and risk relative to other mutual funds in its
class-e.g. Domestic Equity, International Equity, Taxable Bond or Municipal
Bond. Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 8/31/01. The ratings are subject to change every month.
Morningstar ratings are calculated from a fund's three-, five-, and 10-year
average annual returns (if applicable) in excess of 90-day Treasury bill returns
with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day T-bill returns. The top 10% of funds in each
broad-asset class receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars, and the bottom
10% receive one star. The Overall Morningstar Rating for a fund is derived from
a weighted average of the performance figures associated with its three-, five-
and 10-year (if applicable) Morningstar Rating metrics. Morningstar does not
rate funds or share classes that have less than three years of performance. A
fund's rating may change at any time based on new data. Ratings are historical
and do not represent future performance.
---------------------------------
to develop at a rapid pace. We are very proud of our funds' performance relative
to other Asian funds that are available to U.S. investors, but we are also aware
that in absolute terms, few investors have earned significant returns from their
Asian investments in the last 12 months. We are particularly pleased that the
Matthews China Fund became the first of our Asian funds to earn an Overall
Morningstar Rating of 5 stars (out of 1,308 funds in the International Equity
Funds category as of August 31, 2001).
During the last 12 months, Asia has faced a number of challenges, including the
dramatic events surrounding the downing and capture of the U.S. "spy plane" in
Southern China earlier this year. The successful resolution of that crisis, and
the subsequent award of the 2008 Summer Olympics to China and its likely
accession into the World Trade Organization next year, demonstrate how far China
has come in recent years. In South Korea, the government has pressed ahead with
difficult reforms, reducing the number of banks, forcing the closure of many
financial institutions, encouraging investment from abroad, and selling large
portions of domestic companies to overseas buyers.
South Asia has suffered from the growing competition from newly competitive
Chinese behemoths, and our investments in Thailand, Indonesia and the
Philippines remain a small percentage of our portfolios. Japan's new leadership
provides some optimism that the 18-year bear market in Japanese equities is
nearing an end. We are confident that in the coming years, the region as a whole
will enjoy growth rates that will match their historic performance, and we are
particularly optimistic for the economy of China.
In closing, for seven fascinating years we have been managing what we believe
are the finest Asian funds available to U.S. investors. We thought it would be
appropriate to take this anniversary to rename our fund family to MATTHEWS ASIAN
FUNDS. While a small change, we want investors to know that our lives are
dedicated to providing superior asset management in the most dynamic region of
the world--Asia. All of us at Matthews Asian Funds are passionate in our
conviction that Asia will remain at the forefront of world economic growth for
many years and that economic freedom and openness will remain the dominant
trends in Asia.
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
WWW.MATTHEWSFUNDS.COM
---------------------
800.789.ASIA [2742]
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LIPPER RANKINGS: PACIFIC EX-JAPAN FUND CATEGORY FOR THE PERIODS ENDED AUGUST 31,
2001
[LIPPER LOGO OMITTED]
LIPPER
A REUTERS Company
MATTHEWS ASIAN FUNDS RANKING/
TOTAL NUMBER OF FUNDS IN CATEGORY
One Three Five Since Inception
year years years inception date
------------------------------------------------------------------------------------------------------------------
Matthews Asian Growth and Income Fund (MACSX) 2 of 72 10 of 63 1 of 53 1 of 25 9/12/94
------------------------------------------------------------------------------------------------------------------
Matthews Pacific Tiger Fund (MAPTX) 12 of 72 3 of 63 9 of 53 3 of 25 9/12/94
------------------------------------------------------------------------------------------------------------------
Matthews Korea Fund (MAKOX) 4 of 72 2 of 63 23 of 53 27 of 29 1/3/95
------------------------------------------------------------------------------------------------------------------
MATTHEWS ASIAN FUNDS QUARTILE RANKINGS
One Three Five Since
year years years inception
------------------------------------------------------------------------------------------------------------
Matthews Asian Growth and Income Fund (MACSX) 1st 1st 1st 1st
------------------------------------------------------------------------------------------------------------
Matthews Pacific Tiger Fund (MAPTX) 1st 1st 1st 1st
------------------------------------------------------------------------------------------------------------
Matthews Korea Fund (MAKOX) 1st 1st 2nd 4th
------------------------------------------------------------------------------------------------------------
The three remaining Matthews Asian Funds belong in the following Lipper fund
categories:
Matthews China Fund: China Region fund category
Matthews Japan Fund: Japanese fund category
Matthews Asian Technology Fund: Science & Technology fund category
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF MUTUAL FUNDS WILL VARY WITH MARKET CONDITIONS, SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
INVESTING IN FOREIGN SECURITIES MAY INVOLVE CERTAIN ADDITIONAL RISKS, INCLUDING
EXCHANGE RATE FLUCTUATIONS, REDUCED LIQUIDITY, GREATER VOLATILITY AND LESS
REGULATION.
As of 6/30/01, the MATTHEWS PACIFIC TIGER FUND had a one-year return of -21.79%,
a three-year average annual total return of 25.72%, a five-year average annual
total return of -1.42%, and a since inception (9/12/94) average annual total
return of 0.49%; the MATTHEWS ASIAN GROWTH AND INCOME FUND had a one-year return
of 7.18%, a three-year average annual total return of 20.76%, a five-year
average annual total return of 7.04%, and a since inception (9/12/94) average
annual total return of 6.84%; and the MATTHEWS KOREA FUND had a one-year return
of -19.74%, a three-year average annual total return of 37.51%, a five-year
average annual total return of -7.19%, and a since inception (1/3/95) average
annual total return of -9.45%.
Lipper and the Lipper corporate marks are proprietary trademarks of Lipper, a
Reuters company. Lipper Analytical Services, Inc. rankings and fund performance
are based on total return, including reinvestment of dividends and capital gains
for the stated periods and do not reflect sales charges.
(COPYRIGHT) 2001 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content is expressly prohibited without the prior
written consent of Lipper.
-----------------------------------------
HIGHLIGHTS
-----------------------------------------
The Matthews Asian Growth and Income Fund
is the top-performing fund in the Pacific
ex-Japan fund category for five years and
since inception as of August 31, 2001.
-----------------------------------------
The Matthews Pacific Tiger Fund and
Matthews Asian Growth and Income Fund have
been first-quartile performers in the
Pacific ex-Japan fund category for every
Lipper time period since their inception
as of August 31, 2001.
-----------------------------------------
WWW.MATTHEWSFUNDS.COM
---------------------
800.789.ASIA [2742]
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PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The Matthews Pacific Tiger Fund suffered a loss of -27.46% for the fiscal year
ended August 31, 2001. While such losses were extreme, they compared favorably
to both of the Fund's benchmarks, the MSCI All Country Far East ex-Japan Index,
down -31.94% and MSCI All Country Far East Free ex-Japan Index, down -31.02%, as
well as its peer group of diversified Asia ex-Japan funds. The Fund remained
fully invested and well diversified throughout the time period. Portfolio
turnover was an acceptable 63.59%, driven largely by investor subscriptions and
redemptions.
Asia ex-Japan had only partially recovered from the trials of the 1997-98
financial crisis when the recent global slowdown began. Extensive structural
reform has occurred in most countries, however many banking systems continue to
grapple with bad debt. China has remained the most impressive reform story and
has weathered both the past crisis and the current challenges admirably. China's
stable and growing economy has shrugged off deflation and achieved a level of
consumer confidence the rest of the region lacks. Korea has also shown
significant progress in corporate restructuring. Singapore and Hong Kong remain
the leading headquarters for many outstanding regional companies. While the
global outlook remains cloudy, the reform and restructuring engendered by the
recent past will serve corporate Asia well going forward. While many remain
critical of China, we believe an increasingly China-centric Asia will be more
stable and well rounded.
The Matthews Pacific Tiger Fund focuses on a selection of growth companies that
can be accumulated at reasonable valuations. One of our bedrock principles is
that the fund remains fully invested at all times. While we constantly examine
the portfolio positions, we do not believe market timing with cash positions
serves the interests of long-term investors. The Fund's exceptional long-term
performance relative to similar funds is a testament to the principle of being
fully invested. This strategy may increase the day-to-day volatility of the
Fund, but we believe volatility should be a secondary consideration for
long-term investors. The Matthews Asian Growth and Income Fund was launched for
those who wish to avoid volatility.
We search across the region for exceptional companies that range from small
domestic groups to some of the world's largest companies. We strive to balance
the portfolio between companies that focus on domestic economies and those that
compete globally. We invest in niche providers of specialty services as well as
large highly diversified conglomerates. Our focus is on the long-term creation
of shareholder value by motivated and professional corporate management. Through
extensive on-the-ground research, we study company strategies and industry
developments. Hundreds of meetings each year with senior corporate executives
from across Asia form the backbone of our analytical process. We analyze
financial ratios and compare companies within industries across the region. The
primary focus of the portfolio continues to be exposure to the financial,
consumer/retail, telecommunications and technology sectors. Today, Asia is
embracing more open markets, better regulated financial systems and drastically
improved corporate governance. While there are major exceptions in each of these
areas across the region, the trend is unmistakable. As portfolio managers, we
strive to provide direct participation in the best corporate Asia ex-Japan has
to offer. The long term potential is starting to become apparent as the
economies slowly begin to work in closer unison. We believe the integration of
Asian economies into a highly efficient whole is just beginning to take shape.
We believe such trends make innovative, professionally managed companies
exceptional long-term opportunities as the region gains a larger share of the
global economic market.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS
PACIFIC TIGER FUND
One Year .......................................... (27.46%)
Three Years ....................................... 31.10%
Five Years ........................................ (2.89%)
Since inception (9/12/94) ......................... (0.95%)
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
FREE EX-JAPAN INDEX(1)
One Year .......................................... (31.02%)
Three Years ....................................... 12.56%
Five Years ........................................ (12.52%)
Since 9/12/94 ..................................... (8.98%)
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
EX-JAPAN INDEX(2)
One Year .......................................... (31.94%)
Three Years ....................................... 13.77%
Five Years ........................................ (10.34%)
Since 9/12/94 ..................................... (7.99%)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GROWTH OF A $10,000 INVESTMENT
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Matthews Pacific MSCI AC Far East MSCI AC Far East Lipper Pacific ex-Japan
Tiger Fund Free ex-Japan Index(1) ex-Japan Index(2) Funds Average(3)
9/12/94 10,000 10,000 10,000 10,000
11/30/94 9,720 9,074.96 9,329.22 9,104.79
2/28/95 9,241.42 8,700.08 8,878.63 8,392
5/31/95 9,722.53 9,714.12 9,447.07 9,174.17
8/31/95 9,792.7 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 10,965.4 10,480.3 9,563.05 9,694.15
5/31/96 11,185.9 10,754.6 10,185 9,845.31
8/31/96 10,835.1 10,131.8 9,657.71 9,293.71
11/30/96 11,907.6 10,774.9 10,172.9 9,644.63
2/28/97 12,438.8 10,902.3 10,325.4 9,856.72
5/31/97 12,920 10,553.4 10,117.1 9,885.97
8/31/97 11,349.4 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 4,965.1 5,087.9 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 5,372 5,502 5,784.9
5/31/99 9,127.83 7,051.83 7,205 7,264.02
8/31/99 10,637.7 8,077 8,421 8,508.58
11/30/99 11,915 8,573 8,778 9,440.3
2/29/00 13,129.1 8,506 9,280 10,729.8
5/31/00 11,958.2 7,541 8,368 8,837.03
8/31/00 12,901.3 7,522 8,221 8,980.13
11/30/00 9,892.71 5,828 6,301 7,017.45
2/28/01 10,814.1 6,276 6,794 7,336.89
5/31/01 10,636.6 5,599 6,050 6,636.18
8/31/01 9,358.83 5,189 5,595 6,007.64
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
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.
1
MATTHEWS ASIAN FUNDS
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MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
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SHARES VALUE
---------- ----------
EQUITIES - 96.63%***
CHINA/HONG KONG - 44.55%
Asia Satellite Telecommunications
Holdings, Ltd. 1,287,600 $1,873,724
AsiaInfo Holdings, Inc.** 91,200 1,299,600
China Hong Kong Photo
Products Holdings, Ltd. 16,886,000 1,363,943
China Mobile HK, Ltd.** 298,217 931,022
China Mobile HK, Ltd. ADR** 165,850 2,602,186
China.com Corp. A Shares** 353,900 810,431
Dah Sing Financial Group 351,600 1,735,555
Giordano International Ltd. 7,223,000 3,495,935
HSBC Holdings Plc. ADR 19,400 1,153,136
Huaneng Power International, Inc. ADR 136,800 2,990,448
i-CABLE Communications** 5,019,000 2,509,635
Legend Holdings, Ltd. 8,350,000 3,961,111
Li & Fung Ltd. 1,186,000 1,512,992
New World China Land, Ltd.** 5,009,600 1,814,472
Quality Healthcare Asia, Ltd.** 12,808,500 418,762
Shangri-La Asia, Ltd. 3,949,400 3,190,072
Vitasoy International Holdings, Ltd. 17,128,750 2,415,723
------------
TOTAL CHINA/HONG KONG 34,078,747
------------
PHILIPPINES - 1.01%
Benpres Holdings Corp.** 24,639,000 773,015
------------
SINGAPORE - 9.67%
CSE Systems &
Engineering, Ltd.** 3,941,000 746,804
Datacraft Asia, Ltd. 305,000 1,091,900
DBS Group Holdings Ltd. 171,000 1,345,251
Singapore Telecommunications Ltd. 1,581,000 1,833,875
Venture Manufacturing, Ltd. 356,800 2,376,672
------------
TOTAL SINGAPORE 7,394,502
------------
SOUTH KOREA - 29.51%
Hana Bank 652,919 4,957,755
Hite Brewery Co., Ltd. 74,627 2,678,486
Internet Auction Co., Ltd.** 49,600 912,439
S1 Corp. 102,450 1,090,699
Samsung Electronics 23,418 3,483,032
Samsung Fire & Marine Insurance 81,741 2,405,924
Samsung Securities Co., Ltd.** 94,244 2,375,547
SK Telecom Co., Ltd. 8,395 1,478,622
SK Telecom Co., Ltd., ADR 31,400 602,252
SHARES VALUE
---------- ----------
Swire Pacific Ltd. A Shares 533,500 $2,592,402
------------
TOTAL SOUTH KOREA 22,577,158
------------
TAIWAN - 7.22%
Bank Sinopac** 2,754,800 1,192,749
Taiwan Semiconductor
Manufacturing Co., Ltd.** 1,334,200 2,472,970
VIA Technologies, Inc.** 382,120 1,859,204
------------
TOTAL TAIWAN 5,524,923
------------
THAILAND - 4.67%
Advanced Info Service
Public Co., Ltd. 203,100 2,395,727
Shinawatra Satellite
Public Co., Ltd.** 1,565,500 1,180,780
------------
TOTAL THAILAND 3,576,507
------------
TOTAL EQUITIES
(Cost $83,415,138) 73,924,852
------------
FACE
AMOUNT
------
INTERNATIONAL DOLLAR BONDS - 2.34%***
SINGAPORE - 2.34%
Finlayson Global Corp.
(DBS Holdings)**
0.000%, 02/19/04 $1,320,000 1,791,900
------------
(Cost $2,273,625)
TOTAL INVESTMENTS - 98.97%***
(Cost $85,688,763*) 75,716,752
CASH AND OTHER ASSETS,
LESS LIABILITIES - 1.03% 786,357
-----------
NET ASSETS - 100.00% $76,503,109
===========
* Cost for Federal income tax purposes is $86,863,446 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 5,396,557
Gross unrealized depreciation (16,543,251)
------------
Net unrealized depreciation $(11,146,694)
============
** Non-income producing security
*** As a percentage of net assets as of August 31, 2001
ADR American Depositary Receipt
See accompanying notes to financial statements.
2
WWW.MATTHEWSFUNDS.COM
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800.789.ASIA [2742]
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MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CONSUMER DISCRETIONARY.................... 19.61%
Distributors............................ 1.80
Hotels Restaurants & Leisure............ 4.19
Internet & Catalog Retail............... 1.20
Media................................... 5.79
Specialty Retail........................ 4.62
Textiles & Apparel...................... 2.00
CONSUMER STAPLES.......................... 6.73
Beverages............................... 3.54
Food Products........................... 3.19
FINANCIALS................................ 28.16
Banks................................... 14.56
Diversified Financials.................. 8.08
Insurance............................... 3.18
Real Estate............................. 2.35
HEALTH CARE............................... 0.55
Health Care Providers & Services........ 0.55
INDUSTRIALS............................... 2.46
Commercial Services & Supplies.......... 1.44
Industrial Conglomerates................ 1.02
INFORMATION TECHNOLOGY.................... 23.95
Communications Equipment................ 1.44
Computers & Peripherals................. 5.24
Electronic Equipment & Instruments...... 3.14
Internet Software & Services............ 1.05
IT Consulting & Services................ 2.75
Semiconductor Equipment & Products...... 10.32
TELECOMMUNICATION SERVICES................ 14.56
Diversified Telecommunication Services.. 3.99
Wireless Telecommunication Services..... 10.58
UTILITIES................................. 3.98
Electric Utilities...................... 3.98
-----
TOTAL INVESTMENTS ........................ 100.00%
======
3
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
PORTFOLIO MANAGER'S COMMENTS
--------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND
Portfolio Manager: G. Paul Matthews
The Matthews Asian Growth and Income Fund produced a positive return in the
twelve months ended August 31, 2001, gaining 1.15% during the period. The fund
easily outperformed its indices. Over the same period, the MSCI All Country Far
East ex-Japan Index was down -31.94% and MSCI All Country Far East Free ex-Japan
Index was down -31.02%.
The strong relative performance of this fund over the last year can be
attributed to its focus on income producing investments, which consist of both
high dividend paying equities and dollar-denominated convertible bonds. During
the year, the fund shifted its emphasis somewhat, increasing its exposure to
dividend paying stocks, and reducing its exposure to convertible bonds. Falling
interest rates throughout Asia have reduced the yield available to convertible
bond investors and the average yield on the fund's equity holdings is now
significantly higher than the current yield on its bond portfolio.
The economic environment has been mixed in the last twelve months, with most
Asian countries seeing growth rates drop. The major exception to this trend has
been the economy of China, which has continued to show substantial growth.
Generally speaking, countries and sectors, which have been historically
dependent on exports, have seen their growth impacted more than others. The
strong relative performance of the fund can be explained in part by the fact
that most listed companies in Asia that have historically paid above-average
dividends have been focused in domestic industries. During the year, the fund
received positive contributions from its holdings in consumer and financial
stocks in both South Korea and China. South Korean consumers, having lived
through far more difficult times in 1997 and 1998, have so far proved more
resilient during the current downturn, as have their counterparts in China. The
growth of credit cards throughout the region has undoubtedly contributed to the
relative strength of consumer spending. Electric utilities, which in some parts
of Asia are still enjoying strong absolute growth rates, also performed well in
the period.
During the year, the fund also saw two of its electric utility holdings merge,
part of a broader trend of increased M & A activity that has emerged in recent
years. Financial stocks in Asia also produced positive returns in the recent
period as the post-crisis financial restructuring that is underway in many Asian
markets continued in earnest. We fully expect additional mergers between banks
in individual countries in Asia as well as between banks in different Asian
countries. While the export sector will undoubtedly recover in the coming year,
there are many well positioned domestic companies in stable growth industries
which still offer dividend yields in excess of 4% per annum, and we consider
their risk return characteristics to be attractive.
By country, the fund has had its highest exposure in Hong Kong, China and South
Korea. Hong Kong's overall economy remains weak, but several domestic industries
and sectors continue to perform relatively well. The fund held positions in the
food industry, hotels, publishing, and non-bank financial services, all of which
are somewhat insulated from the volatility of international trade.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS ASIAN
GROWTH AND INCOME FUND
One Year .................................................... 1.15%
Three Years ................................................. 22.35%
Five Years .................................................. 6.34%
Since inception (9/12/94) ................................... 6.12%
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST FREE
EX-JAPAN INDEX(1)
One Year .................................................... (31.02%)
Three Years ................................................. 12.56%
Five Years .................................................. (12.52%)
Since 9/12/94 ............................................... (8.98%)
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
EX-JAPAN INDEX(2)
One Year .................................................... (31.94%)
Three Years ................................................. 13.77%
Five Years .................................................. (10.34%)
Since 9/12/94 ............................................... (7.99%)
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Matthews Asian Growth MSCI AC Far East MSCI AC Far East Lipper Pacific
and Income Fund ex-Japan Index Free(1) ex Japan Index(2) Ex-Japan Funds Average(3)
9/12/94 10,000 10,000 10,000 10,000
11/30/94 9,930 9,074.96 9,329.22 9,104.79
2/28/95 9,721.7 8,700.08 8,878.63 8,392
5/31/95 10,284.1 9,714.12 9,447.07 9,174.17
8/31/95 10,088.9 9,256.69 8,873.17 8,918.42
11/30/95 10,191 9,176.84 8,783.99 8,546.68
2/29/96 11,124.1 10,480.3 9,563.05 9,694.15
5/31/96 11,228.2 10,754.6 10,185 9,845.31
8/31/96 11,122.4 10,131.8 9,657.71 9,293.71
11/30/96 11,978 10,774.9 10,172.9 9,644.63
2/28/97 12,094.9 10,902.3 10,325.4 9,856.72
5/31/97 12,268.1 10,553.4 10,117.1 9,885.97
8/31/97 12,753.6 8,883.53 9,015.88 8,987.76
11/30/97 9,758.49 6,241.93 6,233.33 6,677.74
2/28/98 9,872.76 6,713.26 6,768.71 6,748.45
5/31/98 9,410.88 4,965.1 5,087.9 5,606.47
8/31/98 8,255.87 3,637.16 3,797.75 4,425.53
11/30/98 9,227.89 5,596.41 5,614.14 5,825.08
2/28/99 9,117.03 5,392.58 5,520.3 5,784.9
5/31/99 10,833.8 7,051.83 7,203.09 7,264.02
8/31/99 12,602.6 8,077 8,421 8,508.58
11/30/99 13,261.7 8,573 8,778 9,440.3
2/29/00 13,871.5 8,506 9,280 10,729.8
5/31/00 13,982.6 7,541 8,368 8,837.03
8/31/00 14,957.3 7,522 8,221 8,980.13
11/30/00 13,945.9 5,828 6,301 7,017.45
2/28/01 15,125.6 6,276 6,794 7,336.89
5/31/01 15,741 5,599 6,050 6,636.18
8/31/01 15,130 5,189 5,595 6,007.64
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
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.
4
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MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
------------ -----------
EQUITIES - 56.90%****
CHINA/HONG KONG - 40.88%
Bank of East Asia, Ltd. 260,200 $ 595,490
Cafe De Coral Holdings, Ltd. 1,458,000 766,426
Cheung Kong Infrastructure
Holdings, Ltd. 297,500 493,953
China Hong Kong Photo
Products Holdings, Ltd. 4,420,003 357,020
CLP Holdings, Ltd. 137,600 557,486
CNOOC Ltd.** 46,000 45,413
CNOOC Ltd., ADR** 13,500 267,840
Dickson Concepts
International, Ltd. 862,000 213,301
H & CB ADR 47,150 513,935
Hang Seng Bank, Ltd. 55,800 627,784
Hong Kong Electric
Holdings, Ltd. 159,000 604,436
Hong Kong Land Holdings, Ltd. 426,000 694,380
Huaneng Power
International, Inc. ADR** 20,000 437,200
Petrochina Co. Ltd. ADR 39,300 803,685
PT Indosat (Persero) ADR 37,200 374,976
Shangri-La Asia, Ltd. 883,600 713,715
South China Morning
Post Holdings, Ltd. 884,000 510,027
Television Broadcasts, Ltd. 137,000 469,865
The Wharf Holdings, Ltd. 158,000 318,043
Vitasoy International
Holdings, Ltd. 4,450,000 627,598
----------
TOTAL CHINA/HONG KONG 9,992,573
----------
SINGAPORE - 2.47%
DBS Group Holdings Ltd. 76,800 604,183
----------
SOUTH KOREA - 10.85%
Hana Bank 90,850 689,844
Hyundai Department Store Co., Ltd. 42,850 511,534
Hyundai Motor Co., Ltd., Pfd. 159,850 1,001,052
Sindo Ricoh Co.** 14,970 449,994
----------
TOTAL SOUTH KOREA 2,652,424
----------
UNITED KINGDOM - 2.70%
HSBC Holdings PLC ADR 11,100 659,784
----------
TOTAL EQUITIES
(Cost $13,595,795) 13,908,964
----------
FACE
AMOUNT
----------
INTERNATIONAL DOLLAR BONDS - 38.85%****
CHINA/HONG KONG - 24.82%
Amoy Properties, Ltd.
5.500%, 12/29/49 $ 850,000 733,125
FACE AMOUNT VALUE
----------- ------
China Mobile HK Ltd., Cnv
2.250%, 11/03/05 $1,300,000 $1,179,750
First Pacific Capital, Ltd.
2.000%, 03/27/02 550,000 688,875
Huaneng Power International
Public Co., Ltd.
1.750%, 05/21/04 500,000 631,250
Korea Deposit Insurance Cnv
2.250%, 10/11/05 920,000 1,010,850
New World Cap Finl, Cnv
(New World Development)
3.000%, 06/09/04 600,000 660,000
New World Infrastructure Cnv
1.000%, 04/15/03 400,000 505,000
PCCW Capital Ltd., Cnv
3.500%, 12/05/05 700,000 661,500
----------
TOTAL CHINA/HONG KONG 6,070,350
----------
SINGAPORE - 5.20%
Finlayson Global Corp.
(DBS Holdings)***
0.000%, 02/19/04 250,000 339,375
Finlayson Global Corp.
(DBS Holdings)
0.000%, 02/19/04 100,000 135,750
Fullerton Global Corp.
(Singapore Telecom)
0.000%, 04/02/03 700,000 796,250
----------
TOTAL SINGAPORE 1,271,375
----------
SOUTH KOREA - 3.84%
Samsung Electronics Co.
2.000%, 07/30/02 200,000 228,000
Samsung Electronics Co.
0.000%, 12/31/07 500,000 711,250
----------
TOTAL SOUTH KOREA 939,250
----------
TAIWAN - 1.28%
Mosel Vitelic, Inc.***
1.000%, 02/02/05 200,000 202,000
Walsin Lihwa Corp.
3.250%, 06/16/04 120,000 109,800
----------
TOTAL TAIWAN 311,800
----------
THAILAND - 3.71%
Bangkok Bank Public Co.
4.589%, 03/03/04 1,625,000 901,875
Robinson Department
Store Public Co., Ltd.
4.250%, 04/07/04 50,000 5,000
----------
TOTAL THAILAND 906,875
----------
TOTAL INTERNATIONAL
DOLLAR BONDS
(Cost $9,398,216) 9,499,650
----------
5
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
VALUE
----------
TOTAL INVESTMENTS - 95.75%****
(Cost $22,994,011*) $23,408,614
CASH AND OTHER ASSETS,
LESS LIABILITIES - 4.25% 1,037,931
-----------
NET ASSETS - 100.00% $24,446,545
===========
* Cost for Federal income tax purposes is $23,001,980 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 1,769,309
Gross unrealized depreciation (1,362,675)
-----------
Net unrealized appreciation $ 406,634
===========
** Non-income producing security
*** Securities 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
**** As a percentage of net assets as of August 31, 2001
ADR American 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.................... 19.27%
Automobiles............................. 4.28
Distributors............................ 1.53
Hotels, Restaurants & Leisure........... 6.15
Media................................... 4.19
Multiline Retail........................ 2.21
Textile & Apparel....................... 0.91
CONSUMER STAPLES.......................... 2.69
Food Products........................... 2.69
ENERGY.................................... 4.75
Oil & Gas............................... 4.75
FINANCIALS................................ 34.95
Banks................................... 18.90
Diversified Financials.................. 7.11
Real Estate............................. 8.94
INDUSTRIALS............................... 4.74
Electrical Equipment.................... 0.47
Industrial Conglomerates................ 2.11
Transportation Infrastructure........... 2.16
INFORMATION TECHNOLOGY.................... 6.81
Office Electronics...................... 1.92
Semiconductor Equipment & Products...... 4.89
TELECOMMUNICATION SERVICES................ 12.90
Diversified Telecommunication Services . 7.85
Wireless Telecommunication Services..... 5.05
UTILITIES................................. 13.89
Electric Utilities...................... 13.89
------
TOTAL INVESTMENTS ........................ 100.00%
======
6
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PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS KOREA FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The Matthews Korea Fund fell -13.09% for the fiscal year ended August 31, 2001,
while the KOSPI Index fell -31.41%. The KOSPI Index is heavily weighted to a
small number of individual stocks such as Samsung Electronics, Korea Electric
Power, SK Telecom and Korea Telecom, amongst others. The Matthews Korea Fund has
invested in all four of the companies mentioned, but in much smaller percentages
than the index itself, preferring to overweight less well known companies that
we believed were better positioned in the current environment to achieve their
growth objectives.
Examples of companies in which the fund has invested that are not large
components of the KOSPI Index would include: Pacific Corporation, Korea's
largest manufacturer and distributor of cosmetics; Good Morning Securities, the
former Ssangyong Securities that is now majority owned by international
investors; Hite Brewery, one of Korea's largest brewers with a major stake owned
by Carlsberg; and Internet Auction, a Korean version of eBay, which is now
controlled by eBay. We believe that by including a broader range of
Korean-listed companies, which are themselves established companies in a Korean
context, we have been able to provide consistently higher returns than the broad
index over time. While there will be periods when the largest capitalization
issues lead the market, we believe that a more diversified portfolio of Korean
companies is appropriate for those seeking to participate in Korea's long-term
economic prospects.
While there have been moments in the last twelve months when we have been
frustrated by the apparent lack of progress in Korea's restructuring efforts,
overall the Korean government has made more progress than almost any other in
Asia. Examples of Korea's success include: the early repayment of all IMF loans,
the successful closure of large numbers of financial sector companies, a
commensurate reduction in numbers of employees, a substantial write-down of bad
debt in the banking system, the sale of key stakes in both financial entities
and industrial companies to highly credible international partners, the
emergence of the domestic technology market and in particular the penetration
rates of cellular and broadband, and finally, the progress towards a peaceful
reconciliation with North Korea. Against these positive developments, Korea has
remained highly dependent on semiconductors at a time when global demand has
collapsed and the government has continued to support companies that perhaps
would be better allowed to go out of business.
We are very encouraged by Korea's overall acceptance of market principles in
recent years, and the substantial improvements that have been made in both
corporate governance and transparency. The acceptance and introduction of class
action suits that will allow shareholders, however small, to exercise their
rights, is the next step that Korea may have to undertake before investors will
apply higher valuations to Korean equities. Generally, we believe that after a
difficult final few months in calendar year 2001, the fiscal year to August 31,
2002 will show a marked improvement for the Korean economy overall.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS KOREA FUND
One Year ............................................ (13.09%)
Three Years ......................................... 35.17%
Five Years .......................................... (7.04%)
Since inception (1/3/95) ............................ (9.71%)
--------------------------------------------------------------------------------
KOSPI(1)
(SOUTH KOREAN STOCK PRICE INDEX)
One Year ............................................ (31.41%)
Three Years ......................................... 23.85%
Five Years .......................................... (14.24%)
Since 1/3/95 ........................................ (15.27%)
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Matthews South Korea Lipper Pacific ex-Japan
Korea Fund Stock Price Index(1) Funds Average(2)
12/31/94 10,000 10,000 10,000
2/28/95 9,000 8,768.39 9,492.26
5/31/95 8,960 9,009.59 10,337.2
8/31/95 9,130 9,152.66 10,077.2
11/30/95 9,230 9,416.78 9,716.27
2/29/96 8,403.7 8,500.6 10,961.8
5/31/96 8,635.74 8,918.8 11,162
8/31/96 7,293.97 7,423.01 10,524.1
11/30/96 6,819.81 6,820.47 10,929.4
2/28/97 5,891.67 6,093.21 11,151.6
5/31/97 6,416.27 6,603.12 11,202.8
8/31/97 6,244.77 5,974.91 10,182.9
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 1,828.7 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 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 10,806.6
2/29/00 7,103.27 5,675.93 12,164.7
5/31/00 5,723.01 5,022.04 10,140.3
8/31/00 5,824.01 4,794.6 10,330.3
11/30/00 4,309.09 3,247.45 8,093.81
2/28/01 4,921.56 3,571.19 8,509.16
5/31/01 5,269.49 3,707 7,822.59
8/31/01 5,061.74 3,302 7,091.08
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
1 KOSPI: The South Korea Stock Price Index is a capitalization-weighted index
of all common stocks listed on the Korean Stock Exchange.
2 The Lipper Pacific ex-Japan Funds Average consisted of 28 funds as of
12/31/94.
7
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
EQUITIES - SOUTH KOREA - 99.90%***
CONSUMER DISCRETIONARY - 8.54%
AUTO COMPONENTS - 0.53%
Global & Yuasa Battery Co., Ltd. 224,800 $ 622,071
----------
AUTOMOBILES - 4.27%
Hyundai Motor Co., Ltd. 300,301 5,007,148
----------
INTERNET & CATALOG RETAIL - 0.00%
Hansol CSN Co., Ltd.** 3,215 4,354
----------
RETAIL - 3.74%
Hyundai Department Store
Co., Ltd. 84,200 1,005,162
LG Home Shopping, Inc. 61,083 2,106,300
Shinsegae Department Stores
Co. - Pfd. 27,504 1,270,287
----------
4,381,749
----------
TOTAL CONSUMER DISCRETIONARY 10,015,322
----------
CONSUMER STAPLES - 19.48%
BEVERAGES - 8.61%
Hite Brewery Co., Ltd. 146,911 5,272,878
Lotte Chilsung Beverage Co. 29,820 4,808,714
----------
10,081,592
----------
FOOD PRODUCTS - 6.36%
Lotte Confectionery Co., Ltd. 20,990 3,335,512
Nong Shim Co., Ltd. 101,048 4,113,250
----------
7,448,762
----------
PERSONAL PRODUCTS - 4.51%
Pacific Corp. 82,320 5,284,127
----------
TOTAL CONSUMER STAPLES 22,814,481
----------
FINANCIALS - 28.31%
BANKS - 14.74%
Hana Bank 880,350 6,684,688
Housing & Commercial
Bank ADR** 176,300 1,921,670
Kookmin Bank 427,945 5,761,963
Shinhan Bank 295,702 2,893,466
----------
17,261,787
----------
DIVERSIFIED FINANCIALS - 7.63%
Good Morning Securities
Co., Ltd.** 1,074,200 3,489,694
Samsung Securities Co., Ltd.** 179,315 4,519,876
Seoul Securities Co., Ltd. 336,380 924,254
----------
8,933,824
----------
INSURANCE - 5.94%
Samsung Fire & Marine Insurance 220,182 6,480,726
SHARES VALUE
---------- ----------
Samsung Fire & Marine
Insurance - Pfd. 45,000 $ 482,600
----------
6,963,326
----------
TOTAL FINANCIALS 33,158,937
----------
HEALTH CARE - 1.08%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.61%
Shinhung Co., Ltd. 342,700 720,299
----------
PHARMACEUTICALS - 0.47%
Yuhan Corp. 11,280 544,814
----------
TOTAL HEALTH CARE 1,265,113
----------
INDUSTRIALS - 2.78%
COMMERCIAL SERVICES & SUPPLIES - 2.73%
S1 Corp. 300,405 3,198,160
----------
MACHINERY - 0.05%
Hanjin Heavy Industries
Co., Ltd. 26,139 52,791
----------
TOTAL INDUSTRIALS 3,250,951
----------
INFORMATION TECHNOLOGY - 18.29%
ELECTRONICS EQUIPMENT & INSTRUMENTS - 2.49%
Dae Duck GDS Co., Ltd. 256,296 1,966,174
Hankuk Electric Glass Co., Ltd. 20,180 952,560
----------
2,918,734
----------
INTERNET SOFTWARE & SERVICES - 5.12%
Internet Auction Co., Ltd.** 148,417 2,730,270
NCSoft Corp. 40,387 3,272,171
----------
6,002,441
----------
IT CONSULTING & SERVICES - 0.45%
Posdata Co., Ltd.** 41,060 523,915
----------
OFFICE ELECTRONICS - 0.91%
Sindo Ricoh Co.** 35,356 1,062,792
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 9.32%
Samsung Electronics Co. 63,354 9,422,838
Samsung Electronics Co. - Pfd. 23,840 1,492,967
----------
10,915,805
----------
TOTAL INFORMATION TECHNOLOGY 21,423,687
----------
TELECOMMUNICATION SERVICES - 16.82%
TELECOMMUNICATION SERVICES - 8.41%
Cheil Communications, Inc. 23,970 1,833,229
Humax Co., Ltd. 107,630 1,592,389
Korea Telecom Corp. 120,570 4,813,528
Korea Telecom Corp. ADR** 77,317 1,607,420
----------
9,846,566
----------
8
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MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
WIRELESS TELECOMMUNICATION SERVICES - 8.41%
Korea Telecom Freetel** 207,034 $5,348,225
SK Telecom Co., Ltd. 15,635 2,753,813
SK Telecom Co., Ltd., ADR** 91,300 1,751,134
-----------
9,853,172
-----------
TOTAL TELECOMMUNICATIONS SERVICES 19,699,738
-----------
UTILITIES - 4.60%
Daehan City Gas Co., Ltd. 57,492 585,066
Korea Electric Power Corp. 270,850 4,802,320
-----------
TOTAL UTILITIES 5,387,386
-----------
TOTAL EQUITIES
(Cost $105,347,168) 117,015,615
-----------
FACE
AMOUNT
---------
INTERNATIONAL DOLLAR BONDS -
SOUTH KOREA - 0.19%***
FINANCIALS - 0.19%
INSURANCE - 0.19%
Korea Deposit Insurance Cnv.
2.250%, 10/11/03 $ 200,000 219,750
------------
(Cost $213,611)
TOTAL INVESTMENTS - 100.09%***
(Cost $105,560,779*) 117,235,365
LIABILITIES, LESS CASH AND
OTHER ASSETS - (0.09%) (103,073)
------------
NET ASSETS - 100.00% $117,132,292
============
* Cost for Federal income tax purposes is $112,509,848 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 15,115,637
Gross unrealized depreciation (10,390,120)
------------
Net unrealized appreciation $ 4,725,517
============
** Non-income producing security
*** As a percentage of net assets as of August 31, 2001
ADR American Depositary Receipt
Cnv. Convertible
Pfd. Preferred
See accompanying notes to financial statements.
9
MATTHEWS ASIAN FUNDS
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PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS CHINA FUND
Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard H. Gao
The Matthews China Fund fell -2.23% for the fiscal year ended August 31, 2001.
The Fund significantly outperformed its benchmark indices, the Credit Lyonnais
China World Index and the MSCI China Free Index, which fell -28.13% and -49.50%,
respectively, over the same time period.
The Fund's relative under-weighting in telecom and technology stocks such as
China Mobile and Legend Holdings helped resist a sharp downward correction in
the technology sector. Meanwhile, our bottom-up stock picking approach has
helped us discover small cap niche companies such as Guangzhou Pharmaceutical
and Texwinca Holdings, which more than doubled during the period. Our investment
in the B share market also had positive results. We kept around 10% of our fund
in the B shares for most of the period, as we believed that B shares were
undervalued and that B share prices would gradually catch up to their A share
counterparts. This decision turned out to be the right one, as China opened its
B share market to domestic investors in February 2001 and B share prices rose
significantly to catch up to their A share counterparts.
China continued to show strong economic growth: GDP growth grew at 8.0% in 2000
and 7.9% during the first half of 2001. Strong domestic consumer demand is the
most significant factor behind the growth. China's housing sector reform has
created a whole new area of consumer demand, as individuals are now able to buy
their own apartments and houses. The government has also taken other measures to
boost the domestic economy. These measures include opening up mortgage and
consumer loans for the first time, increasing salaries for public servants, and
extending vacation days for company employees. Fixed asset investments were
another driver of China's economic growth. During the first seven months of this
year, fixed asset investments increased by 20% compared with the same time
period last year.
China continued to strengthen its reform process. Corporate restructuring,
foreign partnerships, and layoffs were seen everywhere in the banking and
state-owned-enterprises (SOE) sectors. With reform continuing, we are starting
to see some positive results: last year, two-thirds of China's largest
money-losing SOEs reported net profits. In a broader range, 190,100 SOEs last
year reported combined profits of approximately U.S. $34 billion, a net increase
of 147% compared to the previous year. In the banking sector, China continued to
clean up its bad debt, establishing asset management companies to repackage and
sell problem loans of state-owned banks. At the same time, China is also looking
for foreign partnerships for its major state banks. Foreign banks like Citicorp
are expected to take strategic stakes in certain Chinese banks.
Looking forward, we remain positive on China's economic outlook and believe that
China will be a bright spot among the slowing global economy. We expect that
China can keep a high growth rate of above 7% for 2001. Export activities, which
account for 20% of total GDP and was once the primary driver for economic
growth, will slow down and may even see a negative growth rate in the second
half due to a very weak global economy. However, domestic demand still has room
to grow. Meanwhile, China's entry into the World Trade Organization will bring
in more foreign direct investment and will further strengthen China's
competitiveness in the manufacturing sector.
The Matthews China Fund remains well diversified among various sectors. We
adhere to our Growth At a Reasonable Price approach and try to find companies
that are leaders in their industries with large growth potential and selling at
relatively cheap valuations. Frequent company visits are also an integral part
of our investment approach.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS CHINA FUND
One Year ......................................... (2.23%)
Three Years ...................................... 31.82%
Since inception (2/19/98) ........................ (0.01%)
--------------------------------------------------------------------------------
CREDIT LYONNAIS
CHINA WORLD INDEX(1)
One Year ......................................... (28.13%)
Three Years ...................................... 21.32%
Since 2/19/98 .................................... (8.85%)
--------------------------------------------------------------------------------
MSCI CHINA FREE INDEX(2)
One Year ......................................... (49.50%)
Three Years ...................................... (6.77%)
Since 2/19/98 .................................... (28.23%)
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Matthews CL China MSCI China Lipper China Region
China Fund World Index(1) Free Index(2) Funds Average(3)
02/19/98 10,000 10,000 10,000 10,000
05/98 8,570 8,097 7,592 7,810
08/98 4,360 4,024 3,827 5,364.01
11/98 6,650 6,576 6,218 8,018.56
02/99 5,150 5,174 4,448 7,038.55
05/99 6,734 7,026 6,336 8,771.49
08/99 8,624 9,056 8,077 10,225.1
11/99 8,746 8,550 6,992 11,711
02/00 8,586 9,045 5,049 13,345.5
05/00 8,472 8,397 5,752 11,684.6
08/00 10,223 10,002 6,137 12,940.8
11/00 8,164 7,493 4,455 10,507.6
02/01 9,886 8,628 4,673 11,388.8
05/01 12,371.6 9,380 4,431 11,356.5
08/01 9,994.92 7,189 3,100 9,297.75
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
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 17 funds as of 2/28/98.
10
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MATTHEWS CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
EQUITIES - CHINA/HONG KONG - 99.94%***
CONSUMER DISCRETIONARY - 19.38%
AUTOMOBILES & COMPONENTS - 5.30%
Denway Motors Ltd.** 2,536,600 $ 682,968
Qingling Motors Co., Ltd. H Shares 2,745,000 369,539
----------
1,052,507
----------
CONSUMER DURABLE & APPAREL - 7.49%
China Hong Kong Photo
Products Holdings, Ltd. 876,000 70,758
Li & Fung Ltd. 332,000 423,535
TCL International
Holdings, Ltd. 424,000 51,644
Texwinca Holdings, Ltd. 2,644,000 940,704
----------
1,486,641
----------
HOTELS, RESTAURANTS & LEISURE - 4.22%
Shangri-La Asia, Ltd. 1,037,000 837,622
----------
MEDIA - 2.37%
Television Broadcasts, Ltd. 137,000 469,865
----------
TOTAL CONSUMER DISCRETIONARY 3,846,635
----------
CONSUMER STAPLES - 0.01%
FOOD & DRUG RETAILING - 0.01%
Want Want Holdings Warrants 3,500 1,767
----------
TOTAL CONSUMER STAPLES 1,767
----------
ENERGY - 11.16%
CNOOC Ltd.** 617,000 609,123
Petrochina Co., Ltd. H Shares 6,378,000 1,300,201
Sinopec Zhenhai Refining &
Chemical Co., Ltd. 2,040,000 306,016
----------
TOTAL ENERGY 2,215,340
----------
FINANCIALS - 7.33%
DIVERSIFIED FINANCIALS - 1.50%
China Everbright, Ltd. 510,000 297,516
----------
REAL ESTATE - 5.83%
China Vanke Co., Ltd. B Shares 504,912 567,085
New World China Land, Ltd.** 1,628,800 589,950
----------
1,157,035
----------
TOTAL FINANCIALS 1,454,551
----------
HEALTH CARE - 1.18%
PHARMACEUTICALS & BIOTECHNOLOGY - 1.18%
China Pharmaceutical Enterprise
& Investment Corp., Ltd. 2,642,000 233,728
----------
TOTAL HEALTH CARE 233,728
----------
INDUSTRIALS - 28.30%
CAPITAL GOODS - 12.98%
Beijing Enterprises Holdings, Ltd. 420,000 433,485
SHARES VALUE
---------- ----------
Cheung Kong Infrastructure
Holdings, Ltd. 344,500 $ 571,989
China Resources Enterprises, Ltd. 336,000 392,021
Citic Pacific, Ltd. 114,000 252,860
Shanghai Industrial Holdings, Ltd. 194,000 300,965
Swire Pacific Ltd. A Shares 128,500 624,412
----------
2,575,732
----------
TRANSPORTATION - 15.32%
China Merchants Holdings International Co., Ltd. 592,000 375,713
China Southern
Airlines Co. Ltd., Class H** 1,810,000 481,532
China Southern Airlines Co., Ltd. ADR** 14,800 192,400
Cosco Pacific, Ltd. 806,000 428,856
New World Infrastructure, Ltd.** 908,400 477,518
Shanghai Zhenhua Port
Machinery Co., Ltd. B Shares 316,500 305,423
Zhejiang Expressway Co., Ltd. H Shares 3,840,000 777,888
----------
3,039,330
----------
TOTAL INDUSTRIALS 5,615,062
----------
INFORMATION TECHNOLOGY - 12.89%
SOFTWARE & SERVICES - 5.88%
Asiainfo Holdings, Inc.** 51,250 730,312
Travelsky Technology Ltd.** 518,000 435,011
----------
1,165,323
----------
TECHNOLOGY HARDWARE & EQUIPMENT - 7.01%
Legend Holdings, Ltd. 2,934,000 1,391,844
----------
TOTAL INFORMATION TECHNOLOGY 2,557,167
----------
TELECOMMUNICATIONS SERVICES - 8.66%
China Mobile (Hong Kong), Ltd.** 234,083 730,798
China Mobile (Hong Kong), Ltd. ADR** 12,600 197,694
China Unicom, Ltd.** 468,000 585,032
China Unicom, Ltd. ADR** 16,200 204,606
----------
TOTAL TELECOMMUNICATIONS SERVICES 1,718,130
----------
UTILITIES - 11.03%
CLP Holdings, Ltd. 142,100 575,718
Guangdong Electric Power
Development Co., Ltd. B Shares 370,792 233,422
Huaneng Power International, Inc. ADR** 39,400 861,284
Shandong International Power
Development Co., Ltd. H Shares 2,558,000 518,187
----------
TOTAL UTILITIES 2,188,611
----------
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--------------------------------------------------------------------------------
MATTHEWS CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
VALUE
--------
TOTAL INVESTMENTS - 99.94%***
(Cost $21,939,324*) $19,830,991
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.06% 12,067
-----------
NET ASSETS - 100.00% $19,843,058
===========
* Cost for Federal income tax purposes is $22,243,209 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 1,480,026
Gross unrealized depreciation (3,892,244)
-----------
Net unrealized depreciation $(2,412,218)
============
** Non-income producing security
*** As a percentage of net assets as of August 31, 2001
ADR American Depositary Receipt
See accompanying notes to financial statements.
12
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PORTFOLIO MANAGER'S COMMENTS
--------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
Portfolio Manager: Mark W. Headley
For the fiscal year ended August 31, 2001, the Matthews Japan Fund fell -40.92%.
This return was worse than the MSCI Japan Index, which fell -33.17% and the
TOPIX index which fell -33.18% over the same time period. However, according to
Lipper Analytical Services, the fund was about average for the Japanese funds
category that fell -40.42% over the same time period. The year was a very
difficult one in almost every respect. Japan's high quality exporters of
consumer goods and technology have been sold off brutally in line with other
global markets. At the same time, a new economic recession and intensified
deflation has made domestic earnings very difficult.
Looking at Japan's ongoing attempts to restructure and reform its economy, one
must examine the country's leadership. For the first half of the period, the
country was saddled with one of the least successful prime ministers in Japanese
history. Prime Minister Yoshiro Mori was a general disaster. He managed to
insult Japan's neighbors and failed to introduce any sense of urgency in the
areas of the economy that needed help. His successor in April, Prime Minister
Junichiro Koizumi, has been far more articulate about reform, but the markets
remain very skeptical without concrete action to assess. Still, we believe that
Koizumi is a huge improvement and his strong statements and wide popularity bode
well for reform efforts moving forward.
Throughout the year, the portfolio has combined large global companies with
smaller domestically oriented companies. The more successful investment area has
been on the small domestic side. Even here, the daily liquidity or share
turnover has been an area of concern and several positions were removed as
trading fell below what we consider to be an acceptable level. Generally, the
domestic companies offer a more defensive environment for earnings but with
significantly less long-term potential. The larger export oriented companies
continue to restructure their operations, but the deterioration of the global
economy has generally out-paced efforts to reduce costs and eliminate less
profitable divisions. We expect a day will come in the not too distant future
where an improved business outlook will combine with far more efficient
operations to produce a period of superior earnings. Companies such as NEC and
Sony are examples of organizations that are substantially improving their
operations yet are being sold down due to the current difficult environment.
Generally, valuations have been pared down to levels not seen in many years in
Japan. This has been partially hidden by the lack of earnings due to the current
domestic and global environment. We have learned from past periods of crisis in
Asia that some measures such as price to earnings ratios are almost meaningless
at the bottom of a bear market. The "E" in a PE simply is not there. As earnings
begin to recover, the ongoing work to achieve greater levels of efficiency will
become very apparent. Whether this happens on a company-by-company basis or
across a broadly recovering economy remains to be seen. Certainly some companies
in Japan are acting far more rationally than they have in the past and major
strides have been made. These are the companies we continue to invest in across
the portfolio. If the government is now able to deliver a more supportive
environment through mass deregulation and financial restructuring, an exciting
period should lay ahead for long-term investors in Japan.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
One Year ..................................................... (40.92%)
Since inception (12/31/98) ................................... 9.03%
--------------------------------------------------------------------------------
TOPIX(1)
(TOKYO PRICE INDEX)
One Year ..................................................... (33.88%)
Since 12/31/98 ............................................... (0.07%)
--------------------------------------------------------------------------------
MSCI DEVELOPED MARKET
JAPAN INDEX(2)
One Year ..................................................... (33.17%)
Since 12/31/98 ............................................... (1.35%)
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Matthews Topix Index Lipper Japanese
Japan Fund (Tokyo)(1) Funds Average(3)
12/31/98 10,000 10,000 10,000
02/99 11,310 9,943 10,146.4
05/99 15,370 11,260 11,932.2
08/99 21,700 14,085 16,380.9
11/99 22,840 17,077 20,461.9
02/00 23,323 16,526 21,615
05/00 21,238 14,929 17,593.3
08/00 21,320 14,983 17,791.2
11/00 16,935 13,017 14,312.8
02/01 14,319 11,185 12,026.7
05/01 16,063.8 11,664 12,650.6
08/01 12,595.1 9,822 10,237
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
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 41 funds as of 12/31/98.
13
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
EQUITIES - JAPAN - 100.23%***
CONSUMER DISCRETIONARY - 38.47%
AUTOMOBILES - 5.78%
Honda Motor Co., Ltd. ADR 3,300 $ 240,900
Toyota Motor Corp. ADR 3,400 207,740
----------
448,640
----------
INTERNET & CATALOG RETAIL - 5.09%
Belluna Co., Ltd. 12,040 394,585
----------
LEISURE EQUIPMENT & PRODUCTS - 4.35%
Konami Corp. 3,800 119,747
Nintendo Co., Ltd. 1,365 217,366
----------
337,113
----------
MEDIA - 4.61%
Fuji Television Network, Inc. 70 357,644
----------
RETAIL - 18.64%
Arc Land Sakamoto Co., Ltd.** 21,000 321,174
Don Quijote Co., Ltd. 4,800 263,797
Fast Retailing Company, Ltd. 2,400 302,519
Kyoto Kimono Yuzen Co., Ltd. 64 290,418
USS Co., Ltd.** 7,600 268,233
----------
1,446,141
----------
TOTAL CONSUMER DISCRETIONARY 2,984,123
----------
FINANCIALS - 24.77%
DIVERSIFIED FINANCIALS - 20.37%
Ichiyoshi Securities Co., Ltd. 75,000 274,158
Japan Securities Finance Co., Ltd. 79,000 293,427
Mizuho Holdings, Inc.** 85 351,426
The Nikko Securities Co., Ltd. 55,000 364,199
Tsubasa Securities Co., Ltd. 106,000 297,510
----------
1,580,720
----------
INSURANCE - 4.40%
AFLAC, Inc. 12,400 341,248
----------
TOTAL FINANCIALS 1,921,968
----------
HEALTH CARE - 6.24%
PHARMACEUTICALS - 6.24%
Banyu Pharmaceutical Co., Ltd. 7,000 117,646
Chugai Pharmaceutical Co., Ltd. 9,000 144,982
Kissei Pharmaceutical Co., Ltd. 8,000 117,109
Nippon Shinyaku Co., Ltd. 17,000 104,285
----------
TOTAL HEALTH CARE 484,022
----------
INDUSTRIALS - 2.83%
MACHINERY - 2.83%
Nitto Kohki Co., Ltd. 14,600 219,611
----------
TOTAL INDUSTRIALS 219,611
----------
SHARES VALUE
---------- ----------
INFORMATION TECHNOLOGY - 24.16%
COMPUTERS & PERIPHERALS - 8.44%
NEC Corp. 30,000 $ 365,795
Obic Business Consultants Ltd. 6,030 288,830
----------
654,625
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 15.72%
Canon, Inc. 8,500 255,712
Kyocera Corp. 4,200 283,410
Rohm Co. Ltd. 1,700 187,284
Sony Corp. 5,500 244,494
Sony Corp. ADR 3,400 152,660
Tokyo Denpa Co., Ltd. 6,900 96,194
----------
1,219,754
------------
TOTAL INFORMATION TECHNOLOGY 1,874,379
------------
TELECOMMUNICATION SERVICES - 3.76%
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.76%
Nippon Telegraph & Telephone Corp. ADR 12,900 291,411
----------
TOTAL TELECOMMUNICATION SERVICES 291,411
------------
TOTAL INVESTMENTS - 100.23%***
(Cost $10,963,511*) 7,775,514
LIABILITIES, LESS CASH AND
OTHER ASSETS - (0.23%) (17,510)
-----------
NET ASSETS - 100.00% $ 7,758,004
===========
* Cost for Federal income tax purposes is $11,251,774 and net unrealized
depreciation consists of:
Gross unrealized appreciation $260,753
Gross unrealized depreciation (3,737,013)
-----------
Net unrealized depreciation $(3,476,260)
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 2001
ADR American Depositary Receipt
See accompanying notes to financial statements.
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PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The Matthews Asian Technology Fund suffered a horrific fall of -51.54% in the
fiscal year ended August 31, 2001. This performance was somewhat better than the
MSCI/Matthews Asian Technology Index that fell -54.81% over the same time
period. Despite this abysmal period, we believe that the case for an Asian
technology fund is very strong. As we look back at the last year, there is no
doubt that too much money was thrown at the technology sector too quickly. Too
much production came on line just as a slowing global economy led to a very
steep fall off in demand. Such cycles have been common in the past but never
with such intensity. The purging of many weak companies across the globe should
set the stage for a new cycle where supply and demand will be in a much
healthier balance.
Two primary trends are continuing across much of the region. First, Asia is
becoming increasingly dominant in the global supply chain for almost all
technology-related manufacturing. Companies that once manufactured
unsophisticated electronics are now providing essential design elements in the
process of manufacturing some of the world's most advanced technology. The trend
to rely on Asian manufacturers has only increased in a difficult global
environment as companies seek to make their operations more efficient. Secondly,
the adoption of technology within Asia on both a consumer and corporate level
continues at a rapid pace. Korea now has the highest percentage of broadband
access in the world. Japan continues to push ahead with the world's most
sophisticated mobile phone services. The world's first third generation (3G)
network was introduced in Tokyo in October 2001. Also, China has added millions
of new PC, Internet and mobile phone users and is now the world's largest market
for mobile phones with over 120 million users.
China is rapidly becoming the defacto workshop for the world's technology
giants. The vast Taiwanese technology manufacturing base is being moved to China
at a rapid pace. Even multi-billion dollar semiconductor chip fabrication plants
are being built in China due to significant cost savings in infrastructure and
human resources. The Matthews Asian Technology Fund is invested in a number of
companies benefiting from all of these events. The Fund holds both the primary
Chinese mobile company and leading Taiwanese technology manufacturers. We are
investing in those Japanese companies that are restructuring their businesses
most effectively and have the most exciting product lines. Combined with a
number of smaller domestic and regional companies that offer various services to
either corporations or individuals, the Fund is broadly diversified in a
sophisticated array of technology corporations.
Valuations in the Asian technology sector have fallen to levels that make as
little sense to us as some of the extreme over-valuations during the period of
the Nasdaq bubble. The current slowdown in technology spending has led to a few
terrible quarters, but unless humanity is going back to sticks and stones for
our tools, the future will see a rapid recovery as a new era of incredibly
powerful digital products arrives. From mobile phones that will offer direct
video links to cars that will literally tell you exactly where to go, a new
generation of technology is about to arrive that will change our lives as much
as the use of electricity changed the lives of our great grandparents. We
continue to search Asia for the companies that we believe are inventing,
manufacturing and delivering in this new era.
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2001)
--------------------------------------------------------------------------------
MATTHEWS ASIAN
TECHNOLOGY FUND
One Year ..................................................... (51.54%)
Since inception (12/27/99) ................................... (44.79%)
--------------------------------------------------------------------------------
MSCI/MATTHEWS
ASIAN TECHNOLOGY INDEX(1)
One Year ..................................................... (54.81%)
Since 12/31/99 ............................................... (47.81%)
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Lipper Science &
Matthews Asian MSCI/Matthews Technology
Technology Fund Asian Technology Index(1) Funds Average(2)
12/27/99 10,000 10,000 10,000
2/28/00 11,370 9,488 12,501.2
5/31/00 7,900 7,717 9,125.94
8/31/00 7,610 7,449 11,614.9
11/30/00 4,870 5,112 6,816.21
2/28/01 4,743 4,413 5,346.37
5/31/01 4,533.73 4,278 5,135.96
8/31/01 3,687.58 3,355 4,068.5
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
BEFORE TAXES ON DISTRIBUTIONS OR REDEMPTION OF FUND SHARES.
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 175 funds as of
12/31/99.
15
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2001
--------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
EQUITIES - 99.89%***
CHINA/HONG KONG - 23.64%
Asia Satellite Telecommunications
Holdings, Ltd. 205,400 $ 298,899
AsiaInfo Holdings, Inc.** 25,700 366,225
China Mobile HK, Ltd.** 89,000 277,855
China Mobile HK, Ltd. ADR** 5,000 78,450
Chinadotcom Corp. A Shares** 113,500 259,915
i-CABLE Communications Ltd.** 791,000 395,521
i-CABLE Communications Ltd., ADR** 2,800 27,720
Legend Holdings, Ltd. 1,195,000 566,890
----------
TOTAL CHINA/HONG KONG 2,271,475
----------
INDIA - 1.37%
Infosys Technologies Ltd. ADR** 2,500 131,250
----------
JAPAN - 22.17%
Advantest Corp. 3,500 198,234
Canon, Inc. 8,500 255,712
NEC Corp. 32,000 390,182
Nintendo Co., Ltd. 1,935 308,134
Obic Business Consultants Ltd. 3,870 185,368
Rohm Co., Ltd. 1,600 176,268
Sony Corp. 6,700 297,838
Sony Corp. ADR 4,000 179,600
Tokyo Denpa Co., Ltd. 6,200 86,435
YOZAN, Inc.** 6 52,437
----------
TOTAL JAPAN 2,130,208
----------
SINGAPORE - 10.51%
CSE Systems &
Engineering, Ltd.** 529,000 100,243
Datacraft Asia, Ltd. 94,720 339,098
Singapore Telecommunications, Ltd. 239,000 277,227
Venture Manufacturing, Ltd. 44,000 293,087
----------
TOTAL SINGAPORE 1,009,655
----------
SOUTH KOREA - 21.75%
Humax Co., Ltd. 14,270 211,125
Internet Auction Co., Ltd.** 14,902 274,136
Korea Telecom Corp. 6,010 239,938
Korea Telecom Corp. ADR** 1,600 33,264
Korea Telecom Freetel** 11,231 290,126
NCSoft Corp. 3,783 306,500
Samsung Electronics 2,890 429,839
SK Telecom Co., Ltd. 1,729 304,531
----------
TOTAL SOUTH KOREA 2,089,459
----------
TAIWAN - 15.44%
Asustek Computer, Inc.** 42,000 153,263
Hon Hai Precision Industry Co., Ltd. 38,600 149,240
Realtek Semiconductor Corp.** 67,500 213,083
SHARES VALUE
---------- ----------
Sunplus Technology Co., Ltd 70,000 $ 167,252
Taiwan Semiconductor
Manufacturing Co., Ltd.** 257,536 477,349
VIA Technologies, Inc.** 63,200 307,499
Zyxel Communications Corp.** 13,804 15,871
----------
TOTAL TAIWAN 1,483,557
----------
THAILAND - 5.01%
Advanced Info Service
Public Co., Ltd. 34,800 410,494
Shinawatra Satellite
Public Co., Ltd.** 93,800 70,749
----------
TOTAL THAILAND 481,243
----------
TOTAL INVESTMENTS - 99.89%***
(Cost $12,611,894*) 9,596,847
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.11% 10,241
----------
NET ASSETS - 100.00% $9,607,088
==========
* Cost for Federal income tax purposes is $15,124,137 and net unrealized
depreciation consists of:
Gross unrealized appreciation $241,667
Gross unrealized depreciation (5,768,957)
-----------
Net unrealized depreciation $(5,527,290)
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 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.................... 19.29%
Household Durables...................... 4.97
Internet & Catalog Retail............... 2.85
Leisure Equipment & Products............ 3.21
Media................................... 8.26
INFORMATION TECHNOLOGY.................... 60.81
Communications Equipment................ 6.44
Computers & Peripherals ................ 15.52
Electronic Equipment & Instruments...... 5.51
Internet Software & Services............ 5.84
IT Consulting & Services................ 6.38
Office Electronics...................... 2.66
Semiconductor Equipment & Products...... 16.53
Software................................ 1.93
TELECOMMUNICATION SERVICES................ 19.90
Diversified Telecommunication Services.. 5.70
Wireless Telecommunication Services..... 14.20
------
TOTAL INVESTMENTS ........................ 100.00%
======
16
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--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2001
--------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS
PACIFIC ASIAN GROWTH MATTHEWS MATTHEWS MATTHEWS ASIAN
TIGER AND INCOME KOREA CHINA JAPAN TECHNOLOGY
FUND FUND FUND FUND FUND FUND
----------- ----------- ------------ ----------- ---------- -----------
ASSETS:
Investments, at value (Cost
$85,688,763, $22,994,011,
$105,560,779, $21,939,324,
$10,963,511, and $12,611,894,
respectively)................. $75,716,752 $23,408,614 $117,235,365 $19,830,991 $7,775,514 $ 9,596,847
Cash............................ 1,234,735 141,530 -- -- 35,865 25,744
Foreign currency, at value (Cost
$20,654, $327, $0, $9,674, $0,
and $0, respectively)......... 20,626 324 -- 9,674 -- --
Dividends and interest receivable 316,470 225,169 2,508 67,477 3,157 2,624
Receivable for securities sold.. -- -- 298,519 1,179,075 -- --
Receivable for capital shares sold 83,165 755,478 61,319 44,189 15,720 100
Due from Advisor (Note 2)....... -- 7,688 -- 9,813 -- --
Deferred organization costs
(Note 1-F) -- -- -- 4,540 -- --
Other assets.................... 5,818 8,268 25,983 49,466 720 26,018
----------- ----------- ------------ ----------- ---------- -----------
Total assets.................. 77,377,566 24,547,071 117,623,694 21,195,225 7,830,976 9,651,333
----------- ----------- ------------ ----------- ---------- -----------
LIABILITIES:
Payable for securities purchased 439,034 42,886 -- -- -- --
Payable for capital shares redeemed 182,709 33,291 254,984 821,677 39,769 5,551
Cash overdraft.................. -- -- 3,444 516,762 -- 150
Due to Advisor (Note 2)......... 149,989 -- 102,657 -- 18,944 9,217
Accrued expenses................ 95,212 24,349 130,317 13,728 14,259 29,327
Other liabilities............... 7,513 -- -- -- -- --
----------- ----------- ------------ ----------- ---------- -----------
Total liabilities............. 874,457 100,526 491,402 1,352,167 72,972 44,245
----------- ----------- ------------ ----------- ---------- -----------
NET ASSETS:........................ $76,503,109 $24,446,545 $117,132,292 $19,843,058 $7,758,004 $ 9,607,088
=========== =========== ============ =========== ========== ===========
SHARES OUTSTANDING:
(shares of beneficial interest
issued and outstanding,
respectively, unlimited number
of shares authorized with a
$0.001 par value) 9,675,096 2,691,014 43,703,280 2,155,532 691,527 2,724,606
=========== =========== ============ =========== =========== ===========
Net asset value, offering price
and redemption price.......... $7.91 $9.08 $2.68 $9.21 $11.22 $3.53
=========== =========== ============ =========== =========== ===========
NET ASSETS CONSIST OF:
Capital paid-in................. $88,497,923 $24,700,012 $118,757,829 $22,697,931 $15,077,358 $28,167,132
Accumulated undistributed net
investment income ............ 42,401 280,057 121,474 358,736 62,709 78,879
Accumulated net realized gain
(loss) on investments......... (2,065,180) (948,124) (13,421,597) (1,105,276) (4,194,096) (15,623,882)
Net unrealized appreciation
(depreciation)
on investments and foreign
currency related transactions (9,972,035) 414,600 11,674,586 (2,108,333) (3,187,967) (3,015,041)
----------- ----------- ------------ ----------- ---------- -----------
$76,503,109 $24,446,545 $117,132,292 $19,843,058 $7,758,004 $ 9,607,088
=========== =========== ============ =========== ========== ===========
See accompanying notes to financial statements.
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MATTHEWS ASIAN FUNDS
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STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2001
--------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS
PACIFIC ASIAN GROWTH MATTHEWS MATTHEWS MATTHEWS ASIAN
TIGER AND INCOME KOREA CHINA JAPAN TECHNOLOGY
FUND FUND FUND FUND FUND FUND
----------- ----------- ------------ ----------- ---------- -----------
INVESTMENT INCOME:
Dividends (net of foreign tax
withheld of $87,297, $12,055,
$262,770, $5,546, $11,871
and $0, respectively)........... $ 1,535,346 $ 407,107 $ 1,312,478 $ 481,089 $ 68,956 $ 63,997
Interest........................ 110,988 1,152,098 15,820 12,444 -- 4,758
Other income.................... 562,008 22,075 1,455,637 170,617 78,555 441,968
----------- ----------- ----------- ----------- ---------- -----------
Total investment income....... 2,208,342 1,581,280 2,783,935 664,150 147,511 510,723
----------- ----------- ----------- ----------- ---------- -----------
EXPENSES:
Investment advisory fees (Note 2) 859,562 164,505 1,100,527 143,738 125,198 133,330
Recovery of reimbursed expenses
(Note 2) 87,437 2,329 -- 2,740 -- --
Distribution expenses........... 1,057 -- 7,566 -- -- --
Transfer agent fees............. 223,418 45,787 284,706 33,922 35,209 40,737
Administration fees............. 133,523 26,633 167,204 20,648 17,642 21,388
Accounting fees................. 87,600 18,000 110,115 14,700 12,720 14,100
Professional fees............... 35,980 4,340 23,893 3,811 7,099 9,489
Custodian fees.................. 130,042 23,692 182,528 34,446 25,413 74,172
Directors fees (Note 2)......... 9,233 1,974 12,500 2,304 1,323 1,855
Insurance expense............... 11,586 1,452 14,764 991 2,438 1,330
Amortization of organization
costs (Note 1-F).............. -- -- -- 3,088 -- 24,685
Printing expense................ 14,361 4,128 8,606 3,800 4,600 5,013
Registration expenses........... 30,724 17,919 30,220 21,165 26,510 27,147
Other expenses.................. 9,491 1,800 10,903 2,123 2,689 5,055
----------- ----------- ------------ ----------- ---------- -----------
Total expenses................ 1,634,014 312,559 1,953,532 287,476 260,841 358,301
Expenses reimbursed and waived
(Note 2) -- -- -- -- (10,446) (91,642)
----------- ----------- ------------ ----------- ---------- -----------
Net expenses.................. 1,634,014 312,559 1,953,532 287,476 250,395 266,659
----------- ----------- ------------ ----------- ---------- -----------
INVESTMENT INCOME (LOSS)........... 574,328 1,268,721 830,403 376,674 (102,884) 244,064
----------- ----------- ------------ ----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized loss on investments (1,934,434) (820,021) (13,167,603) (985,052) (4,058,791) (12,801,142)
Net realized gain (loss) on
foreign currency related
transactions ................. (102,624) (5,242) (561,939) 3,915 612,627 (67,085)
Net change in unrealized
depreciation on investments and
foreign currency related
transactions ................. (27,835,776) (240,759) (1,209,908) (2,331,876) (4,135,528) 2,014,453
----------- ----------- ------------ ----------- ---------- -----------
Net realized and unrealized loss
on investments and foreign
currency related transactions (29,872,834) (1,066,022) (14,939,450) (3,313,013) (7,581,692) (10,853,774)
----------- ----------- ------------ ----------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................. $29,298,506) $ 202,699 ($14,109,047) ($2,936,339) ($7,684,576) ($10,609,710)
=========== ========== ============ =========== =========== ============
See accompanying notes to financial statements.
18
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800.789.ASIA [2742]
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
MATTHEWS PACIFIC MATTHEWS ASIAN
TIGER FUND GROWTH AND INCOME FUND
---------------------------- ----------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 2001 2000
------------ ------------ ------------- ------------
OPERATIONS:
Net investment income ................................. $ 574,328 $ 1,924,495 $ 1,268,721 $ 712,430
Net realized gain (loss) on investments and
foreign currency related transactions ............... (2,037,058) 20,346,121 (825,263) 1,422,306
Net change in unrealized depreciation on investments and
foreign currency related transactions ............... (27,835,776) (1,074,283) (240,759) (151,186)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations (29,298,506) 21,196,333 202,699 1,983,550
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I ............................................. (2,614,945) (2,508,804) (1,065,963) (672,202)
Class A ............................................. (34,982) (36,563) N/A N/A
Realized gains on investments:
Class I ............................................. (7,093,168) -- (1,037,531) --
Class A ............................................. (107,171) -- N/A N/A
------------ ------------ ------------ ------------
Net decrease in net assets resulting
from distributions .................................. (9,850,266) (2,545,367) (2,103,494) (672,202)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (NET):
Class I ............................................. 3,667,083 (16,792,146) 14,878,373 (486,162)
Class A ............................................. (1,187,737) 156,788 N/A N/A
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from
capital share transactions .......................... 2,479,346 (16,635,358) 14,878,373 (486,162)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ............... (36,669,426) 2,015,608 12,977,578 825,186
NET ASSETS:
Beginning of year ..................................... 113,172,535 111,156,927 11,468,967 10,643,781
------------ ------------ ------------ ------------
End of year (including undistributed net investment
income of $42,401, $988,574, $280,057
and $229,562, respectively) ........................... $ 76,503,109 $113,172,535 $ 24,446,545 $ 11,468,967
============ ============ ============ ============
N/A Not Applicable
See accompanying notes to financial statements.
19
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
MATTHEWS KOREA MATTHEWS CHINA
FUND FUND
---------------------------- ----------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 2001 2000
------------ ------------ ------------- -------------
OPERATIONS:
Net investment income .................................. $ 830,403 $ 702,437 $ 376,674 $ 130,543
Net realized gain (loss) on investments and
foreign currency related transactions ................ (13,729,542) 77,344,916 (981,137) 909,591
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions ................ (1,209,908) (116,843,995) (2,331,876) 81,652
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets from operations ........................... (14,109,047) (38,796,642) (2,936,339) 1,121,786
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I .............................................. -- -- (135,340) (100,689)
Class A .............................................. -- -- N/A N/A
Realized gains on investments:
Class I .............................................. (29,963,931) (22,901,449) (259,637) --
Class A .............................................. (12,702,421) (1,790,122) N/A N/A
------------ ------------ ------------ ------------
Net decrease in net assets resulting from distributions (42,666,352) (24,691,571) (394,977) (100,689)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (NET):
Class I .............................................. 52,883,977 (57,694,292) 13,942,021 1,965,983
Class A .............................................. (5,884,513) 1,963,559 N/A N/A
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from
capital share transactions ........................... 46,999,464 (55,730,733) 13,942,021 1,965,983
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ................ (9,775,935) (119,218,946) 10,610,705 2,987,080
NET ASSETS:
Beginning of year ...................................... 126,908,227 246,127,173 9,232,353 6,245,273
------------ ------------ ------------ ------------
End of year (including undistributed
net investment income of $121,474,
$0, $358,736 and $118,380, respectively) ............. $117,132,292 $126,908,227 $ 19,843,058 $ 9,232,353
============ ============ ============ ============
N/A Not Applicable
See accompanying notes to financial statements.
20
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800.789.ASIA [2742]
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
MATTHEWS JAPAN MATTHEWS ASIAN
FUND TECHNOLOGY FUND
---------------------------- ----------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 2001 2000
------------ ------------ ------------ -------------
OPERATIONS:
Net investment income (loss) ........................... ($102,884) ($125,935) $ 244,064 $ 524,171
Net realized gain (loss) on investments and
foreign currency related transactions ................ (3,446,164) 1,149,155 (12,868,227) (2,831,523)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions ........................ (4,135,528) (2,902,438) 2,014,453 (5,029,494)
------------ ------------ ------------ ------------
Net decrease in
net assets from operations ........................... (7,684,576) (1,879,218) (10,609,710) (7,336,846)
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I .............................................. (360,020) -- (615,326) --
Class A .............................................. -- -- N/A N/A
Realized gains on investments:
Class I .............................................. (910,401) (601,550) -- --
Class A .............................................. N/A N/A N/A N/A
------------ ------------ ------------ ------------
Net decrease in net assets resulting
from distributions ................................... (1,270,421) (601,550) (615,326) --
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (NET):
Class I .............................................. (7,155,774) 1,863,670 (3,737,856) 31,906,826
Class A .............................................. N/A N/A N/A N/A
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from
capital share transactions ........................... (7,155,774) 1,863,670 (3,737,856) 31,906,826
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ................ (16,110,771) (617,098) (14,962,892) 24,569,980
NET ASSETS:
Beginning of period .................................... 23,868,775 24,485,873 24,569,980 --
------------ ------------ ------------ ------------
End of period (including undistributed
net investment income of $62,709,
$742,093, $78,879 and $515,388, respectively) ........ $ 7,758,004 $ 23,868,775 $ 9,607,088 $ 24,569,980
============ ============ ============ ============
*The Asian Technology Fund commenced operations on December 27, 1999.
N/A Not Applicable
See accompanying notes to financial statements.
21
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each year presented.
MATTHEWS PACIFIC
TIGER FUND
-----------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 1999 1998 1997
------- -------- -------- ------- -------
Net Asset Value, beginning of year .......................... $ 12.35 $ 10.41 $ 4.07 $ 11.30 $ 10.81
-------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income ..................................... 0.08 0.20 0.21 0.02 0.02
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and foreign currency ...... (3.37) 2.01 6.15 (7.18) 0.50
------- -------- -------- ------- -------
Total from investment operations ........................ (3.29) 2.21 6.36 (7.16) 0.52
------- -------- -------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ..................................... (0.31) (0.27) (0.02) (0.01) (0.01)
Net realized gains on investments ......................... (0.84) -- -- (0.06) (0.02)
------- -------- -------- ------- -------
Total distributions ..................................... (1.15) (0.27) (0.02) (0.07) (0.03)
------- -------- -------- ------- -------
Net Asset Value, end of year ................................ $ 7.91 $ 12.35 $10.41 $ 4.07 $ 11.30
======= ======== ======== ======= =======
TOTAL RETURN ................................................ (27.46%) 21.28% 156.28% (63.43%) 4.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .......................... $76,503 $111,502 $109,936 $31,319 $43,647
Ratio of expenses to average net assets before reimbursement
and waiver of expenses by Advisor and Administrator ..... 1.90% 1.88% 1.90% 2.06% 1.97%
Ratio of expenses to average net assets after reimbursement
and waiver of expenses by Advisor and Administrator
(Note 2) ................................................ 1.90% 1.81% 1.90% 1.90% 1.90%
Ratio of net investment income to average net assets
before reimbursement and waiver of expenses by Advisor
and Administrator ....................................... 0.67% 1.49% 3.35% 0.14% 0.20%
Ratio of net investment income to average net assets after
reimbursement and waiver of expenses by Advisor
and Administrator ....................................... 0.67% 1.56% 3.35% 0.30% 0.27%
Portfolio turnover ........................................ 63.59% 52.11% 98.74% 73.09% 70.73%
See accompanying notes to financial statements.
22
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800.789.ASIA [2742]
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each year presented.
MATTHEWS ASIAN
GROWTH AND INCOME FUND
---------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 1999 1998 1997
------- -------- -------- ------- -------
Net Asset Value, beginning of year................... $ 10.50 $ 9.37 $ 6.54 $ 11.71 $ 10.53
------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income ............................ 0.55 0.63 0.59 0.13 0.10
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments and foreign currency................ (0.49) 1.09 2.75 (4.15) 1.42
------- -------- -------- ------- -------
Total from investment operations................ 0.06 1.72 3.34 (4.02) 1.52
------- -------- -------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.60) (0.59) (0.51) (0.10) (0.10)
Net realized gains on investments................. (0.88) -- -- (1.05) (0.24)
------- -------- -------- ------- -------
Total distributions............................. (1.48) (0.59) (0.51) (1.15) (0.34)
------- -------- -------- ------- -------
Net Asset Value, end of year......................... $ 9.08 $ 10.50 $ 9.37 $ 6.54 $ 11.71
======= ======= ======== ======= =======
TOTAL RETURN ........................................ 1.15% 18.68% 52.65% (35.27%) 14.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)................... $24,447 $11,469 $ 10,644 $ 4,063 $ 6,166
Ratio of expenses to average net assets before reimbursement
and waiver of expenses by Advisor and Administrator 1.90% 1.97% 2.05% 3.76% 4.45%
Ratio of expenses to average net assets after reimbursement
and waiver of expenses by Advisor and Administrator
(Note 2) ....................................... 1.90% 1.90% 1.90% 1.90% 1.90%
Ratio of net investment income to average net assets
before reimbursement and waiver of expenses by Advisor
and Administrator............................... 7.71% 6.17% 7.98% (0.36%) (1.55%)
Ratio of net investment income to average net assets
after reimbursement and waiver of expenses by Advisor
and Administrator............................... 7.71% 6.24% 8.13% 1.50% 1.00%
Portfolio turnover................................ 33.94% 62.23% 34.82% 54.67% 50.20%
See accompanying notes to financial statements.
23
MATTHEWS ASIAN FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each year presented.
MATTHEWS KOREA
FUND
---------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 1999 1998 1997
------- -------- -------- ------- -------
Net Asset Value, beginning of year ........................... $ 5.19 $ 7.49 $ 2.03 $ 6.19 $ 7.23
-------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) ............................... 0.02 0.03 0.03 (0.03) (0.04)
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and foreign currency ....... (0.90) (1.45) 5.43 (4.13) (1.00)
-------- -------- -------- ------- -------
Total from investment operations ......................... (0.88) (1.42) 5.46 (4.16) (1.04)
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS FROM:
Net realized gains on investments .......................... (1.63) (0.88) -- -- --
-------- -------- -------- ------- -------
Net Asset Value, end of year ................................. $ 2.68 $ 5.19 $ 7.49 $ 2.03 $ 6.19
======== ======== ======== ======= =======
TOTAL RETURN ................................................. (13.09%) (22.92%) 268.97% (67.21%) (14.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) ........................... $117,132 $115,158 $230,846 $66,607 $19,356
Ratio of expenses to average net assets before reimbursement
and waiver of expenses by Advisor and Administrator ...... 1.78% 1.75% 1.77% 2.07% 2.90%
Ratio of expenses to average net assets after reimbursement
and waiver of expenses by Advisor and Administrator
(Note 2) ................................................. 1.78% 1.75% 1.77% 2.06% 2.50%
Ratio of net investment income (loss) to average net assets
before reimbursement and waiver of expenses by Advisor
and Administrator ........................................ 0.75% 0.42% (0.37%) (1.13%) (1.81%)
Ratio of net investment income (loss) to average net assets
after reimbursement and waiver of expenses by Advisor
and Administrator ........................................ 0.75% 0.42% (0.37%) (1.12%) (1.41%)
Portfolio turnover ......................................... 81.96% 47.80% 57.06% 94.01% 112.68%
See accompanying notes to financial statements.
24
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800.789.ASIA [2742]
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FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
MATTHEWS
CHINA FUND
------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 1999 1998(3)
------- ------ ------- ------
Net Asset Value, beginning of period ..................... $ 9.93 $ 8.48 $ 4.36 $10.00
------- ------ ------- ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income .................................. 0.32 0.12 0.12 0.10
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and foreign currency ... (0.61) 1.44 4.11 (5.74)
------- ------ ------- ------
Total from investment operations ....................... (0.29) 1.56 4.23 (5.64)
------- ------ ------- ------
LESS DISTRIBUTIONS FROM:
Net investment income .................................. (0.15) (0.11) (0.11) --
Net realized gains on investments ...................... (0.28) -- -- --
------- ------ ------- ------
Total distributions .................................. (0.43) (0.11) (0.11) --
------- ------ ------- ------
Net Asset Value, end of period ........................... $ 9.21 $ 9.93 $ 8.48 $ 4.36
======= ====== ======= ======
TOTAL RETURN ............................................. (2.23%) 18.54% 97.79% (56.40%)(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ................... $19,843 $9,232 $ 6,245 $1,576
Ratio of expenses to average net assets before reimbursement
and waiver of expenses by Advisor and Administrator .. 2.00% 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% 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 .................................... 2.62% 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 .................................... 2.62% 1.69% 3.02% 2.38%(1)
Portfolio turnover ..................................... 61.07% 80.90% 40.27% 11.84%(2)
(1) Annualized
(2) Not annualized
(3) The China Fund commenced operations on February 19, 1998.
See accompanying notes to financial statements.
25
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--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
MATTHEWS MATTHEWS ASIAN
JAPAN FUND TECHNOLOGY FUND
-------------------------------------- ------------------------
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2001 2000 1999(3) 2001 2000(4)
---- ---- ------ ---- ------
Net Asset Value, beginning of period .................. $20.76 $ 21.70 $ 10.00 $ 7.61 $ 10.00
------ ------- ------- ------ -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) ........................ (0.15) (0.11) (0.04) 0.11 0.26
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments and foreign currency .................. (7.99) (0.29) 11.74 (3.97) (2.65)
------ ------- ------- ------ -------
Total from investment operations .................. (8.14) (0.40) 11.70 (3.86) (2.39)
------ ------- ------- ------ -------
LESS DISTRIBUTIONS FROM:
Net investment income ............................... (0.37) -- -- (0.22) --
Net realized gains on investments ................... (1.03) (0.54) -- -- --
------ ------- ------- ------ -------
Total distributions ............................... (1.40) (0.54) -- (0.22) --
------ ------- ------- ------ -------
Net Asset Value, end of period ...................... $11.22 $ 20.76 $ 21.70 $ 3.53 $ 7.61
====== ======= ======= ====== =======
TOTAL RETURN ........................................ (40.92%) (1.75%) 117.00%(2) (51.54%) (23.90%)(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ................ $7,758 $23,869 $24,486 $9,607 $24,570
Ratio of expenses to average net assets
before reimbursement and waiver
of expenses by Advisor
and Administrator ............................... 2.08% 1.88% 3.45%(1) 2.69% 2.66%(1)
Ratio of expenses to average net assets
after reimbursement and waiver of
expenses by Advisor and
Administrator (Note 2) .......................... 2.00% 2.00% 2.00%(1) 2.00% 2.00%(1)
Ratio of net investment income (loss) to
average net assets before reimbursement
and waiver of expenses by Advisor
and Administrator ............................... (0.90%) (0.36%) (2.54%)(1) 1.14% 3.75%(1)
Ratio of net investment income (loss) to
average net assets after reimbursement
and waiver of expenses by Advisor
and Administrator ............................... (0.82%) (0.48%) (1.09%)(1) 1.83% 4.41%(1)
Portfolio turnover ................................ 71.09% 23.00% 28.92%(2) 181.24% 50.35%(2)
(1) Annualized
(2) Not annualized
(3) The Japan Fund commenced operations on December 31, 1998.
(4) The Asian Technology Fund commenced operations on December 27, 1999.
See accompanying notes to financial statements.
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MATTHEWS ASIAN FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001
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1. SIGNIFICANT ACCOUNTING POLICIES
Matthews Asian Funds (formerly, Matthews International Funds) (the "Company")
is an open-end investment management company registered under the Investment
Company Act of 1940, as amended (the "Act"). The Company currently issues six
separate series of shares (each a "Fund" and collectively, the "Funds"):
Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund (formerly,
Matthews Asian Convertible Securities Fund), Matthews Korea Fund, Matthews
China Fund (formerly, Matthews Dragon Century China Fund), Matthews Japan
Fund and Matthews Asian Technology Fund. Matthews Pacific Tiger Fund,
Matthews Korea Fund and Matthews China Fund are authorized to offer two
classes of shares: Class I shares and Class A shares. Matthews Pacific Tiger
Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund and
Matthews Asian Technology Fund seek to maximize capital appreciation by
investing, under normal circumstances, at least 65% of their total assets in
equity securities of Pacific Tiger economies, South Korean companies, Chinese
companies and Japanese companies, respectively. Pacific Tiger economies
include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia,
Philippines, Thailand and China. Matthews Asian Growth and Income Fund seeks
capital appreciation and current income by investing, under normal
circumstances, at least 65% of its total assets in the convertible securities
of Asian economies. Asian economies include Hong Kong, Japan, Singapore,
South Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand, China and
India. The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their financial
statements.
A. SECURITY VALUATION: Securities listed on any national securities exchange
are valued at their last sale price on the exchange where the securities are
principally traded or, if there has been no sale on that date, at the mean
between the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices. All
other securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices
provided by investment dealers in accordance with procedures established by
the Board of Trustees.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate
during the reporting period and realized gains and losses on the settlement
of foreign currency transactions are reported in the results of operations
for the current period. The Funds do not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rate from that which is due to changes in market prices of
equity securities. International dollar bonds are issued offshore, pay
interest and principal in U.S. dollars, and are denominated in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at the
respective current prevailing exchange rates. The securities' values are
translated into U.S. dollars using these rates. If subsequent to the time a
rate has been established and it has been determined to have materially
changed, the fair value of those securities, (considering the changing
conditions) will be determined by (or under the direction of) the Funds'
Board of Trustees.
B. FORWARD FOREIGN EXCHANGE CONTRACTS: The Funds may engage in forward
foreign exchange contracts for hedging a specific transaction in which the
currency is denominated as deemed appropriate by Matthews International
Capital Management, LLC (the "Advisor"). Forward foreign exchange contracts
are valued at the forward rate and are marked-to-market daily. The change in
market value is recorded by the Funds as an unrealized gain or loss. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations
in the underlying prices of the Funds' portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts.
C. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in the
securities of foreign issuers may involve investment risks different from
those of U.S. issuers including possible political or economic instability of
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of currency exchange controls, the possible
imposition of foreign withholding tax on the interest income payable on such
instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect the foreign
securities held by the Funds. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations or the
U.S. Government.
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 their
taxable income to their shareholders. The Funds have met the requirements of
the Code applicable to regulated investment companies for the year ended
August 31, 2001. Therefore, no federal income tax provision is required.
Income and capital gains of the Funds are determined in accordance with both
tax regulations and accounting principles generally accepted in the United
States of America. Such may result in temporary and permanent differences
between tax basis earnings and earnings reported for financial statement
purposes. These reclassifications, which have no impact on the net asset
value of the Funds, are primarily attributable to certain
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MATTHEWS ASIAN FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001
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differences in computation of distributable income and capital gains under
federal tax rules versus accounting principles generally accepted in the
United States of America and the use of the tax accounting practice known as
equalization.
E. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
F. ORGANIZATION COSTS: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective commencement
of operations with the exception of the Matthews Japan Fund and Matthews
Asian Technology Fund which were 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 Pacific Tiger Fund, Matthews
Korea Fund, Matthews China Fund, Matthews Japan Fund, and Matthews Asian
Technology 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 accounting principles generally
accepted in the United States of America. 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. Through December 15, 2001, 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. On
December 15, 2000 Class A Shares were completely redeemed out of the Funds.
I. USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
Adoption of new accounting principle -- In order to comply with new
accounting standards mandated by the latest AICPA Audit and Accounting Guide
for Audits of Investment Companies (dated 12/1/00), premiums and discounts on
debt securities will be amortized using the interest method for the next
fiscal year beginning September 1, 2001. The effect of initially applying
changes required by the Guide will have no effect on the net assets of the
Funds.
K. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an unlimited
number of shares of beneficial interest with a par value of $0.001 per share.
Class A shares were sold with a front-end sales charge of 4.95% On December
15, 2000 Class A shares were completely redeemed out of the Funds.
Transactions in shares of beneficial interest were as follows:
MATTHEWS
PACIFIC TIGER FUND
-----------------------------------------------------------------------------------------------------
CLASS I CLASS A
-------------------------------------------------- --------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 2001 AUGUST 31, 2000 AUGUST 31, 2001* AUGUST 31, 2000
---------------------- ---------------------- ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- ----------- --------- ----------
Shares sold............. 9,483,405 $84,833,523 6,708,677 $ 82,110,584 64,314 $ 623,933 104,297 $ 1,247,215
Shares issued through
reinvestment of
dividends ........... 1,053,742 9,155,114 197,956 2,392,082 15,913 138,734 2,903 35,066
Shares redeemed......... (9,891,330) (90,321,554) (8,441,468) (101,294,812) (215,664) (1,950,404) (89,013) (1,125,493)
---------- ----------- ---------- ------------ -------- ---------- ------- -----------
Net increase (decrease). 645,817 $ 3,667,083 (1,534,83) ($ 16,792,146) (135,437) ($ 1,187,737) 18,187 $ 156,788
========== =========== ========== ============== ========= ============ ======= ===========
*As of December 15, 2000 Class A shares of Pacific Tiger Fund were closed and
exchanged for Class I shares. 155,798 shares were exchanged.
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MATTHEWS ASIAN FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001
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MATTHEWS
ASIAN GROWTH AND INCOME FUND
--------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 2001 AUGUST 31, 2000
---------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ------------
Shares sold ............ 2,216,555 $20,619,255 704,212 $7,052,878
Shares issued through
reinvestment of
dividends ........... 231,759 2,084,304 65,587 663,908
Shares redeemed ........ (849,169) (7,825,186) (814,085) (8,202,948)
--------- ----------- --------- -----------
Net increase (decrease) 1,599,145 $14,878,373 (44,286) ($ 486,162)
========= =========== ========= ===========
MATTHEWS
KOREA FUND
--------------------------------------------------------------------------------------------------------
CLASS I CLASS A
----------------------------------------------------- -------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 2001 AUGUST 31, 2000 AUGUST 31, 2001* AUGUST 31, 2000
-------------------------- ------------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------ ---------- ----------- --------- -----------
Shares sold............. 46,719,161 $ 139,361,838 22,234,328 $143,560,898 436,242 $ 1,828,679 1,087,775 $ 6,675,877
Shares issued through
reinvestment of
dividends 14,125,165 35,370,865 2,867,052 22,391,670 1,380,958 3,341,918 221,542 1,714,731
Shares redeemed......... (39,309,187) (121,848,726) (33,747,464) (223,646,860) (4,107,637) (11,055,110)(1,072,224) (6,427,049)
----------- ------------ ----------- ------------ ---------- ------------ ---------- -----------
Net increase (decrease). 21,535,139 $ 52,883,977 (8,646,084)($ 57,694,292) (2,290,437) ($ 5,884,513) 237,093 $ 1,963,559
=========== ============= =========== ============ ========== ============ ========== ===========
MATTHEWS MATTHEWS
CHINA FUND JAPAN FUND
--------------------------------------------------- -------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 2001 AUGUST 31, 2000 AUGUST 31, 2001 AUGUST 31, 2000
-------------------------- ------------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------ ---------- ----------- --------- -----------
Shares sold............. 3,045,164 $ 32,057,967 922,748 $ 8,321,445 639,752 $9,296,535 2,158,789 $47,157,104
Shares issued through
reinvestment of
dividends 49,078 392,130 11,236 100,022 79,959 1,232,922 28,758 573,444
Shares redeemed......... (1,868,802) (18,508,076) (740,130) (6,455,484) (1,177,987) (17,685,231)(2,166,167) (45,866,878)
----------- ------------ ----------- ------------ ---------- ------------ ---------- -----------
Net increase (decrease). 1,225,440 $ 13,942,021 193,854 $ 1,965,983 (458,276) ($7,155,774) 21,380 $1,863,670
=========== ============= =========== ============ ========== ============ ========== ===========
MATTHEWS
ASIAN TECHNOLOGY FUND
--------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 2001 AUGUST 31, 2000
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -----------
Shares sold............. 6,956,729 $ 34,380,863 5,216,329 $49,292,911
Shares issued through
reinvestment of
dividends 125,864 610,441 -- --
Shares redeemed......... (7,584,635) (38,729,160) (1,989,681) (17,386,085)
----------- ------------ ----------- -----------
Net increase (decrease). (502,042) ($ 3,737,856) 3,226,648 $31,906,826
=========== ============= =========== ===========
*As of December 15, 2000 Class A shares of Korea Fund were closed and exchanged
for Class I shares. 1,092,968 shares were exchanged.
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 were returned to the assets of the Pacific Tiger Fund, Asian
Growth and Income Fund, Korea Fund, China Fund, Japan Fund and Asian
Technology Fund in the amounts of $562,008, $22,074, $1,455,637, $170,617,
$78,555 and $441,968, respectively.
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MATTHEWS ASIAN FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001
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2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor, a registered investment advisor, provides the Funds with
investment management services. As compensation for these services, the
Advisor charges the Funds a monthly fee of 1/12 of 1% on each Fund's
respective average daily net assets. The Funds reimburse the Advisor any
service fees paid by it to the extent that shareholder service related
expenses are incurred by the Advisor. Certain officers and Trustees of the
Funds are also officers and directors of the Advisor. All officers serve
without direct compensation from the Funds. Investment advisory fees and
other transactions with affiliates, for the year ended August 31, 2001, are
as follows:
EXPENSES
INVESTMENT VOLUNTARY WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED
FEE RATE LIMITATION FEES BY ADVISOR
---------- ----------- ---------- -----------
Matthews Pacific Tiger Fund ................ 1.00% 1.90% $ 859,562 $ --
Matthews Asian Growth and Income Fund ...... 1.00 1.90 164,505 --
Matthews Korea Fund ........................ 1.00 2.50 1,100,527 --
Matthews China Fund ........................ 1.00 2.00 143,738 --
Matthews Japan Fund ........................ 1.00 2.00 125,198 10,446
Matthews Asian Technology Fund.............. 1.00 2.00 133,330 91,642
The investment advisory agreements provide that any reductions made by the
Advisor in its fees are subject to reimbursement by the Funds within the
following three years provided that Funds are able to effect such
reimbursement and remain in compliance with applicable expense limitations.
During the year ended August 31, 2001, the Matthews Pacific Tiger Fund,
Matthews Asian Growth and Income Fund and Matthews China Fund reimbursed
expenses to the Advisor totaling $87,437, $2,329 and $2,740. As of August 31,
2001, the total expenses waived and reimbursed by the Advisor that are
subject to reimbursement by the Matthews Pacific Tiger Fund, Matthews Asian
Growth and Income Fund, Matthews Korea Fund, Matthews China Fund, Matthews
Japan Fund and Matthews Asian Technology Fund totaled $85,156, $17,499, $0,
$14,721, $71,360 and $170,186, respectively.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank, serves
as the Trust's Administrator and, in that capacity, performs various
administrative and accounting services for each Fund. PFPC also serves as the
Trust's Transfer Agent, dividend disbursing agent and registrar. An officer
of PFPC serves as Asst. Treasurer to the Trust. Total fees received by PFPC
for the year ended August 31, 2001 were $469,192 for administrative and
accounting services and $220,056 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 Pacific
Tiger Fund Class A and the Korea 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 year ended August 31, 2001 are reflected in the statement
of operations as follows:
TRANSFER AGENT ADMINISTRATION TOTAL
-------------- -------------- ---------
Matthews Pacific Tiger Fund.......................... $ 101,497 $47,531 $149,028
Matthews Asian Growth and Income Fund ............... 16,176 8,106 24,282
Matthews Korea Fund.................................. 110,257 55,264 165,521
Matthews China Fund.................................. 13,394 6,712 20,106
Matthews Japan Fund.................................. 14,456 7,262 21,718
Matthews Asian Technology Fund....................... 16,471 8,273 24,744
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4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended August 31, 2001, excluding
temporary short-term investments, were as follows:
PROCEEDS
PURCHASES FROM SALES
----------- ------------
Matthews Pacific Tiger Fund............ $55,054,008 $62,384,411
Matthews Asian Growth and Income Fund.. 17,978,210 5,459,060
Matthews Korea Fund.................... 96,353,955 90,508,536
Matthews China Fund.................... 22,631,491 8,460,520
Matthews Japan Fund.................... 8,941,313 16,683,129
Matthews Asian Technology Fund......... 24,404,534 28,671,392
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
5. CAPITAL LOSS CARRYOVER
At August 31, 2001, the Funds had capital loss carryovers expiring through
2009 as follows:
FUND EXPIRING ON:
------ ----------------------
2008 2009
---- ----
Matthews Japan Fund.................... $2,390,436 $3,877,447
Matthews Asia Technology Fund.......... -- 35,094
These amounts are available to offset possible future capital gains of the
Fund.
6. POST OCTOBER LOSS
Under the current tax law, capital losses realized after October 31 and prior
to the Fund's fiscal year end may be deferred as occuring on the first day of
the following year. For the fiscal year ended August 31, 2001, the Funds
elected to defer capital losses as follows:
LOSSES DEFERRED
------------------------------
FUND SECURITIES FOREIGN CURRENCY
------ ----------- ----------------
Matthews Pacific Tiger................. $ 1,264,587 $ 98,857
Matthews Asia Growth & Income.......... 940,157 5,242
Matthews Korea......................... 11,180,368 519,336
Matthews China......................... 801,391 --
Matthews Japan ........................ 3,870,740 119,711
Matthews Asia Technology .............. 6,843,754 63,015
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MATTHEWS ASIAN FUNDS
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of Matthews Asian Funds:
We have audited the accompanying statements of assets and liabilities of
Matthews Asian Funds, formerly Matthews International Funds (comprised of the
Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews
Korea Fund, Matthews China Fund, formerly Matthews Dragon Century China Fund,
Matthews Japan Fund and Matthews Asian Technology Fund, collectively referred
to as the "Funds") including the schedules of Investments as of August 31,
2001, and the related statements of operations for the year then ended,
statements of changes in net assets for each of the two years in the period
then ended and financial highlights for the periods subsequent to August 31,
1998 indicated thereon. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Funds for the periods
prior to September 1, 1998 were audited by other auditors whose report dated
October 9, 1998 expressed an unqualified opinion on the financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31, 2001,
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Matthews Asian Funds as of August 31, 2001, the results of their operations
for the year then ended, changes in their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods subsequent to August 31, 1998 indicated thereon, in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 5, 2001
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MORNINGSTAR ANALYSIS by William Samuel Rocco
[MORNINGSTAR LOGO OMITTED]
MORNINGSTAR (REGISTRATION MARK]
MATTHEWS PACIFIC TIGER FUND:
Matthews Pacific Tiger continues to crush the competition in its chaotic
category.
This fund has outpaced the vast majority of its rivals so far this year. Korea
and China have been among the region's best markets in 2001, and the fund has
been heavily weighted in both all year. Indeed, managers Paul Matthews and Mark
Headley have held on to their sizable stakes in Korea's Hana Bank and Samsung
Electronics, and they initiated positions in S1 Corporation and Internet Auction
in May. They've also stuck with Huaneng Power and most of their other stocks in
China, while adding a few new names such as New World China Land. What's more,
the fund got a boost from its tech exposure earlier in the year and its
financials exposure more recently. As a result, the fund is up 6% for the year
to date through June 26, 200, whereas the average offering in its group is down
5%.
The fund has also fared better than its typical peer over the long term, as
Matthews and Headley's growth-oriented stock selection has usually been right on
the mark. For example, the fund gained 83% in 1999's growth surge--while its
average peer returned 75%--thanks largely to Legend Holdings and several of
their other tech and telecom picks.
Moreover, the fund has earned its returns without suffering too much more
volatility than most other entries in the turbulent Pacific/Asia ex-Japan group.
Though Matthews and Headley are growth-oriented investors, they pay a lot of
attention to issue diversification, and the fund has a broader country range
than many in the category (which includes several greater-China offerings).
Thus, we think that this fund remains a first-rate option for investors who are
confident about emerging Asia's long-term future and are comforable with the
many risks that come with investing in any regional emerging-markets offering.
-- JUNE 27, 2001
-------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND:
This fund continues to be a great way to play emerging Asia while moderating the
risks that come with investing in that region.
Matthews Asian Growth & Income fund is the least risky option in the perilous
Pacific/Asia ex-Japan category. Thanks to its emphasis on convertible bonds, it
has handily outpaced its rivals during the region's many downturns. In fact,
besides losing 10 percentage points less than its average peer in the crash of
1997, the fund gained 1% in the stormy conditions of 1998--while its typical
rival lost 9%--buoyed by the fixed-income features and dollar denominations of
its converts.
While he favors converts, manager Paul Matthews also has routinely purchased
stocks that have high dividends. And as the yields on emerging Asia's bonds have
come down over the past year, Matthews had paid increased attention to
high-yielding stocks. He sold or trimmed the fund's stakes in Zenhai Refining
and some other converts earlier this year, for example, while adding to his
positions in the stocks of Petro China, Huaneng Power, and others. And he
recently initiated positions in the stocks of Korea's Hyundai Department Stores
and the Hong Kong fast-food chain Cafe de Coral, partly because he's optimistic
about domestic oonsumption in those markets. Overall, the fund's equity
weighting is now roughly 50% of assets, up from less than 20% few years ago.
This increased equity exposure has paid off thus far in 2001. Petro China and
Huaneng Power are up about 36% and 29%, respectively, this year, and several of
the fund's other stocks have posted solid gains. Many of its converts have also
helped performance. For example, the converts of Hyundai Motors and China's
Qingling Motors have provided a boost in recent weeks.
-- JUNE 27, 2001
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OUR VIEWS OF ASIA
[PHOTO OF MARK HEADLEY'S VISIT TO SMIC OMITTED]
Mark Headley, President of Matthews International Capital Management, visits
SMIC's new $1.6 billion semiconductor fabrication plant in Shanghai. SMIC is a
consortium of major technology companies from Taiwan and the United States.
SEPTEMBER 2001
[PHOTO OF RICHARD GAO'S VISIT TO YANJING BEER GROUP OMITTED]
Richard Gao, co-portfolio manager of the Matthews China Fund, visits Yanjing
Beer Group in Beijing, one of the largest high-tech breweries in the world.
OCTOBER 2000
[DRAGON GRAPHIC OMITED]
MATTHEWS ASIAN FUNDS
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[PHOTO OF GIORDANO'S GUANGZHOU BRANCH OMITTED]
Giordano's Guangzhou branch, one of the retailer's 400 retail clothing stores in
China. There are a total of 800 Giordano stores throughout Asia.
MAY 2001
[PHOTO OF OLD SHANGHAI OMITTED]
A view of old Shanghai from new Shanghai.
MAY 2001
[PHOTO OF STARBUCKS OMITTED]
Starbucks is taking Tokyo by storm with clean, smoke-free shops. A good jolt of
caffeine is just what Japan needs.
SEPTEMBER 2001
[PHOTO OMITTED]
Japan has the world's most sophisticated mobile phone service. The world's first
3G (third-generation) system is being introduced in Japan in October 2001.
SEPTEMBER 2001
[DRAGON GRAPHIC OMITTED]