-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TlWV9xhqotS+ZhzwWUroxkLhDupUbpKjJmjeY7U+rAJ0/SWyGzfHuhUOkWCvykvm wYYCA97VJSyoJwuyWPSUmw== 0000950152-01-506602.txt : 20020413 0000950152-01-506602.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950152-01-506602 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20011221 EFFECTIVENESS DATE: 20011221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS INTERNATIONAL FUNDS CENTRAL INDEX KEY: 0000923184 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-78960 FILM NUMBER: 1821963 BUSINESS ADDRESS: STREET 1: C/O FIRST DATA INVESTOR SERVICE GROUP IN STREET 2: 3200 HORIZON DRIVE BOX 61503 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 MAIL ADDRESS: STREET 1: FIRST DATA INVESTOR SERIVES GROUP INC STREET 2: 3200 HORIZON DRIVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS INTERNATIONAL FUNDS CENTRAL INDEX KEY: 0000923184 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08510 FILM NUMBER: 1821964 BUSINESS ADDRESS: STREET 1: C/O FIRST DATA INVESTOR SERVICE GROUP IN STREET 2: 3200 HORIZON DRIVE BOX 61503 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 MAIL ADDRESS: STREET 1: FIRST DATA INVESTOR SERIVES GROUP INC STREET 2: 3200 HORIZON DRIVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 485BPOS 1 l90902ae485bpos.txt MATTHEWS INTERNATIONAL FUND 485BPOS As filed with the U.S. Securities and Exchange Commission on December 21, 2001 Securities Act of 1933 File No. 33-78960 Investment Company Act of 1940 File No. 811-8510 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ ] Post Effective Amendment No. 16 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 19 [X] Matthews International Funds (Exact name of Registrant as Specified in Charter) 456 Montgomery Street, Suite 1200, San Francisco, CA 94104-1245 (Address of Principal Executive Offices)(Zip Code) Registrant's Telephone Number, including Area Code: (415)788-7553 G. Paul Matthews, President Matthews International Capital Management, LLC 456 Montgomery Street, Suite 1200 San Francisco, California 94104-1245 (Name and Address of Agent for Service) COPIES TO: Thao H. Ngo, Esq. Downey L. Hebble Paul, Hastings, Janofsky Matthews International Capital Management, LLC & Walker LLP 456 Montgomery Street, Suite 1200 345 California Street San Francisco, CA 94104-1245 San Francisco, CA 94104-2635 Approximate date of proposed public offering: It is proposed that this filing become effective: [ ] immediately upon filing pursuant to Paragraph (b) of Rule 485. [ X ] on December 28, 2001, pursuant to Paragraph (b). [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1)of Rule 485. [ ] 75 days after filing pursuant to paragraph (a)(2). [ ] on (date) pursuant to paragraph (a)(2) of rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. 1 INTRODUCTION - -------------------------------------------------------------------------------- HOW TO USE THIS DOCUMENT. This document is called a prospectus. It is intended to explain to you the information that you need to know so that you may make an informed decision as to whether an investment in one or more of the Matthews Asian Funds is right for you. This prospectus begins with some general information which is then explained in greater detail further in the document. A second document called the "Statement of Additional Information" or SAI for short, provides expanded information and much greater detail than the prospectus. The SAI is available to you free of charge. To receive an SAI, please call 1.800.789.2742, visit our Web site at "www.matthewsfunds.com" or visit the SEC's Web site at "www.sec.gov" and go into the EDGAR database. Please read this document carefully before you make any investment decision and if you have any questions, do not hesitate to contact us at 1.800.789.2742. Also, please keep this prospectus with your papers for future reference. DEFINITIONS THE FOLLOWING WORDS HAVE SPECIAL MEANING IN THIS PROSPECTUS: 1. Funds means the six individual mutual funds that make up the Matthews Asian Funds. They are: MATTHEWS PACIFIC TIGER FUND, MATTHEWS ASIAN GROWTH AND INCOME FUND, MATTHEWS KOREA FUND, MATTHEWS CHINA FUND, MATTHEWS JAPAN FUND AND MATTHEWS ASIAN TECHNOLOGY FUND. 2. Pacific Tiger refers to certain Asian countries whose economies have been and are expected to continue to rapidly develop. Those countries include: China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand, but not Japan. 3. Asia refers to the Pacific Tiger countries plus Japan and India. 4. What is considered to be an "Asian Company?" A company is considered to be "Asian" or "located" in a particular country in Asia if: (i) it is organized under the laws of China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan or Thailand, or (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, services performed, or has at least 50% of its assets located within the region or (iii) it has the primary trading markets for its securities in one of these countries or (iv) it is a governmental entity or an agency or instrumentality or political subdivision of such country. 5. Matthews or The Advisor means Matthews International Capital Management, LLC, the company which manages the money which you invest into the Funds. 800.789.ASIA [2742] 2 INVESTMENT GOALS OF THE FUNDS - -------------------------------------------------------------------------------- The investment goal of all six Matthews Asian Funds is long term capital appreciation. Matthews Asian Growth and Income Fund seeks to provide some current income as well. SUMMARY INFORMATION - -------------------------------------------------------------------------------- MATTHEWS' INVESTMENT STRATEGY How Matthews chooses investments for each of the Funds is known as an investment strategy. The strategy Matthews uses is called "Growth at a Reasonable Price." This means that the investment team studies the fundamental characteristics of companies appropriate for each Fund and from those fundamentals makes a judgment that certain companies are poised for growth, and at the same time are available to the Funds at a reasonable price. Fundamental characteristics of a company include the people who are running the company, the products it makes, the marketing strategy it is following and its financial health. The size of a company, which Matthews measures by its market capitalization (the number of shares outstanding times the market price per share) is not a primary consideration for Matthews when it decides whether to include that company's securities in one or more of the Funds. If Matthews believes that market conditions are developing in a way that is not good for the shareholders, it may sell all of a Fund's securities and temporarily invest that Fund's money in U.S. Government securities. As of the date of this prospectus this has never happened, but if it were to occur, the investment goals of the Funds may not be achieved. PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS MATTHEWS PACIFIC TIGER FUND invests at least 80% of its assets in the common and preferred stock of companies located in the Pacific Tiger countries. MATTHEWS ASIAN GROWTH AND INCOME FUND invests at least 80% of its assets in the convertible bonds and dividend-paying equity securities of companies located in Asia. Examples of convertible securities are convertible bonds and debentures which may, under specific circumstances, be converted into the common or preferred stock of that company. MATTHEWS KOREA FUND invests at least 80% of its assets in the common and preferred stock of companies located in South Korea. MATTHEWS CHINA FUND invests at least 80% of its assets in the common and preferred stock of companies located in China. China includes Taiwan and Hong Kong. MATTHEWS JAPAN FUND invests at least 80% of its assets in the common and preferred stock of companies located in Japan. www.matthewsfunds.com 3 MATTHEWS ASIAN TECHNOLOGY FUND invests at least 80% of its assets in the common and preferred stock of companies located in Asia which derive a substantial portion of their revenues from the sale of products or services in technology-related industries and services. Matthews considers technology-related industries and businesses to include, among others, telecommunications, telecommunications equipment, computers, semiconductors, semiconductor capital equipment, networking, Internet and online service companies, office automation, server hardware producers, software companies (e.g., design, consumer and industrial) biotechnology and medical device technology companies, and companies involved in the distribution and servicing of these products. PRINCIPAL RISKS OF INVESTING IN THE FUNDS The most important risk to understand is that there is no guarantee that your investment in the Funds will increase in value. The value of your investment in the Funds could go down, meaning you could lose money. The Funds concentrate their investments in Asia. The Asian markets can be very volatile for many reasons including the size of the local economies (as compared with the United States) and each country's unique political structure. This volatility can cause the price of the Funds' shares (the net asset value or "NAV") to go up or down dramatically. Because of this volatility, we recommend that you invest in the Funds as a long term investment only, and only for a portion of your investment portfolio, not for all of it. Further, when one of the Funds buys or sells stock on an Asian stock market, the transaction is made in the local currency. The price that the Funds must purchase or sell local currency will impact the value of your shares in the Funds. These and other risks are more fully discussed below and in the SAI. The principal investments of all the Funds except the Asian Growth and Income Fund are common and preferred stocks. The major risk involved with the ownership of common and preferred stock is that a Fund may lose money if the value of a stock goes down during the time that the Fund owns it. RISKS ASSOCIATED WITH NON-UNITED STATES COMPANIES Investments by the Funds in the securities of non-U.S. issuers involve investment risks different from those of U.S. issuers. These risks include: - Possible political or economic instability of the country of issue - Predicting international trade patterns incorrectly - Possibility of currency exchange controls - Imposition of foreign withholding taxes - Seizure or nationalization of foreign deposits or assets - Adoption of adverse foreign government trade restrictions There may be less publicly available information about a non-U.S. company than about a U.S. company. Sometimes non-U.S. companies are subject to different accounting, auditing and 800.789.ASIA [2742] 4 financial reporting standards, practices and requirements than U.S. companies. There is generally less government regulation of stock exchanges, brokers and listed companies abroad than in the United States, and the absence of negotiated brokerage commissions in certain countries may result in higher brokerage fees. With respect to certain non-U.S. countries, there is a possibility of expropriation, nationalization, confiscatory taxation, or diplomatic developments that could affect investments in those countries. In addition, brokerage commissions, custodian services, withholding taxes, and other costs relating to investment in foreign markets generally are more expensive than in the United States. RISKS ASSOCIATED WITH SMALLER COMPANIES (SO-CALLED "SMALL-CAP" COMPANIES) The Funds may invest in securities of issuers of various sizes, large or small. Smaller companies often have limited product lines, markets or financial resources, and they may be dependent upon one or a few key people for management. The securities of such companies generally are subject to more abrupt or erratic market movements and may be less liquid than securities of larger, more established companies or the market averages in general. LONG TERM INVESTING AND VOLATILITY Dramatic changes (volatility) in the price of an investment can be dangerous because you may have planned or may need to sell your investment just at a time when its value has decreased. We recommend an investment in the Funds only as a long term investment (5 years and longer) because you will be better able to plan to sell your shares at a time when this volatility will not be as great a factor in your decision process. MATTHEWS PACIFIC TIGER FUND UNIQUE RISKS: In addition to the "Principal Risks" noted above and since this Fund may invest in companies from many different countries, each country's size, level of economic development and governmental stability will have an impact on the value of those companies. In general, the economies of these countries are smaller and less developed than in the United States. Their stock exchanges and brokerage industries do not have the level of government oversight as do those in the United States and sometimes their governments are unstable. Each of these factors can cause these stock markets to be more volatile. Please read the SAI for a more detailed presentation of these and other risk factors. MATTHEWS ASIAN GROWTH AND INCOME FUND UNIQUE RISKS: In addition to the "Principal Risks" noted above, the ownership of convertible securities and bonds have different kinds of risks than those of the ownership of common and preferred stock. These risks include interest rate risk and principal risk. The principal of a bond refers to the amount of money that was borrowed when the bond was issued. This principal could be lost if the borrower cannot make timely payment (default) on the bond. In the event of a default the Fund could lose money. Further, in the event that market interest rates increase, the bond's market value will go down, which means that if the Fund sold a bond during that time it would get less money for it. Also, many Asian convertible securities and bonds are not rated by rating www.matthewsfunds.com 5 agencies like Moody's or Standard & Poor's, or if they are rated, they're rated below investment grade. These securities are commonly referred to as "junk bonds" and may have a greater risk of default. Since this Fund may invest in companies from many different countries, each country's size, level of economic development and governmental stability will have an impact on the value of those companies. In general, the economies of these countries are smaller and less developed than in the United States. Their stock exchanges and brokerage industries do not have the level of government oversight as do those in the United States and sometimes their governments are unstable. Each of these factors can cause these stock markets to be more volatile. Please read the SAI for a more detailed presentation of these and other risk factors. MATTHEWS KOREA FUND UNIQUE RISKS: In addition to the "Principal Risks" noted above investing in Korean securities has special risks including: - substantial government involvement in, and influence on, the economy and the private sector; - political, economic and social instability, including the potential for increasing militarization in North Korea; - the substantially smaller size and lower trading volume of the securities markets for Korean equity securities compared to the U.S. or Japanese securities markets, resulting in a potential lack of liquidity and increased price volatility; - that the sale of portfolio securities by the Korean Securities Stabilization Fund (the "Stabilization Fund"), a fund established in order to stabilize the Korean securities markets, or other large Korean institutional investors, may adversely impact the market value of securities in the Fund's portfolio; and - heavy concentration of market capitalization and trading volume in a small number of issuers, which result in potentially fewer investment opportunities for the Fund. Risks Associated with North Korea Following World War II, the Korean peninsula was partitioned. The demilitarized zone at the boundary between Korea and North Korea was established after the Korean War of 1950-1953 and is supervised by United Nations forces. The United States maintains a military force in Korea to help deter the ongoing military threat from North Korean forces. The situation remains a source of tension although negotiations to ease tensions and resolve the political division of the Korean peninsula have been carried on from time to time. There also have been efforts from time to time to increase economic, cultural and humanitarian contacts between North Korea and Korea. There can be no assurance that such negotiations or efforts will continue to occur or will result in an easing of tension between North Korea and Korea. Military action or the risk of military action or the economic collapse of North Korea could have a material adverse effect on Korea, and consequently, on the ability of the Fund to achieve its investment objective. Lack of available information regarding North Korea may be the greatest risk factor. Risks Associated with the Influence of the Korean Government The Korean government has historically exercised and continues to exercise substantial influence over many aspects of the 800.789.ASIA [2742] 6 private sector. The Korean government from time to time has informally influenced the prices of certain products, encouraged companies to invest or to concentrate in particular industries and induced mergers between companies in industries suffering from excess capacity. The Korean government has sought to minimize excessive price volatility on the KSE through various steps, including the imposition of limitations on daily price movements of securities. Risks Associated with a Non-Diversified Investment Company The Fund is a "non-diversified" investment company, which means that it may invest a larger portion of its assets in the securities of a single issuer compared to that of a diversified fund. An investment in the Fund therefore will entail greater risk than an investment in a diversified fund because a higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio, and economic, political or regulatory developments may have a greater impact on the value of the Fund's portfolio than would be the case if the portfolio were diversified among more issuers. MATTHEWS CHINA FUND UNIQUE RISKS: In addition to the "Principal Risks" noted above, investing in the regional markets of China and Hong Kong involves risks and considerations not present when investing in more established securities markets. Investing in regionally concentrated investment funds should be considered speculative and thus not appropriate for all investors. China remains a totalitarian society with the continuing risk of nationalization, expropriation or confiscation of property. The legal system is still in its infancy making it more difficult to obtain and/or enforce judgments. Further, the government could at any time alter or discontinue economic reform programs implemented since 1978. Military conflicts, either in response to internal social unrest or conflicts with other countries are an ever present consideration. In addition to political risk, investments in China are also subject to economic risk. There is a potential risk of total loss, including interest, capital appreciation and principal. There is also a greater risk involved in currency fluctuations, currency convertibility, interest rate fluctuations and higher rates of inflation. The emergence of a domestic consumer class is still at an early stage, making China heavily dependent on exports. MATTHEWS JAPAN FUND UNIQUE RISKS: Japan is the second largest economy in the world, but it has been in a recession lately. The government there has been working to change certain regulations and policies that could help its economy, but there is no guarantee that these changes will occur or be effective. MATTHEWS ASIAN TECHNOLOGY FUND UNIQUE RISKS: In addition to the "Principal Risks" noted above, as a sector fund that invests in technology companies, the Fund is subject to the risks associated with this sector. This makes the Fund more vulnerable to the price changes of securities issuers in technology-related industries and more vulnerable to factors that affect the technology industry, relative to a broadly diversified fund. www.matthewsfunds.com 7 Certain technology-related companies may face special risks because their products or services may not prove to be commercially successful. Technology-related companies are also strongly affected by worldwide scientific or technological developments. As a result, their products may rapidly become obsolete which could cause a dramatic decrease in the value of their stock. Such companies are also often subject to government regulation and may therefore be adversely affected by governmental policies. 800.789.ASIA [2742] 8 PAST PERFORMANCE - -------------------------------------------------------------------------------- The bar charts and performance tables help show some of the risks of investing in the Funds. The bar charts show each Fund's performance from prior years. Below the charts you will find the best and worst quarterly returns for the period shown in the bar chart. You can then compare those returns with that of a broad based index (or indices) found in the tables below the bar charts. This information only speaks to the past. We do not know how the Funds will perform in the future. MATTHEWS PACIFIC TIGER FUND ANNUAL RETURNS FOR PERIODS ENDED 12/31 [BAR GRAPH]
PACIFIC TIGER FUND (%) ---------------------- 1995 3.06 1996 24.18 1997 -40.89 1998 -2.86 1999 83.01 2000 -24
Best Quarter: 2nd - 1999 58.23% Worst Quarter: 4th - 1997 (38.17%) YEAR-TO-DATE RETURN: (16.46%) AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR 5 YEARS SEPTEMBER 12, 1994 --------------------------------------- Matthews Pacific Tiger Fund (24.00%) (0.17%) (0.48%) MSCI All Country Far East ex-Japan Index(1) (33.98%) (7.28%) (7.14%)* MSCI All Country Far East Free ex-Japan Index(2) (36.80%) (9.59%) (8.24%)*
--------------------------------- (1) The MSCI (Morgan Stanley Capital International) All Country Far East ex-Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region excluding Japan. (2) The MSCI (Morgan Stanley Capital International) All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region, excluding Japan, that excludes securities not available to foreign investors. (The Fund is now being compared with this additional index as it more appropriately reflects the securities held in the portfolio.) * Calculated from 8/31/94. www.matthewsfunds.com 9 MATTHEWS ASIAN GROWTH AND INCOME FUND ANNUAL RETURNS FOR PERIODS ENDED 12/31 [BAR GRAPH]
ASIAN GROWTH AND INCOME FUND (%) -------------------------------- 1995 8.19 1996 13.89 1997 -23.18 1998 1.24 1999 48.88 2000 3.73
Best Quarter: 2nd - 1999 21.85% Worst Quarter: 4th - 1997 (25.31%) YEAR-TO-DATE RETURN: (0.91%) AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR 5 YEARS SEPTEMBER 12, 1994 --------------------------------------- Matthews Asian Growth and Income Fund 3.73% 6.46% 6.02% MSCI All Country Far East ex-Japan Index(1) (33.98%) (7.28%) (7.14%)* MSCI All Country Far East Free ex-Japan Index(2) (36.80%) (9.59%) (8.24%)*
--------------------------------- (1) The MSCI (Morgan Stanley Capital International) All Country Far East ex-Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region excluding Japan. (2) The MSCI (Morgan Stanley Capital International) All Country Far East Free ex-Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region, excluding Japan, that excludes securities not available to foreign investors. (The Fund is now being compared with this additional index as it more appropriately reflects the securities held in the portfolio.) * Calculated from 8/31/94. 800.789.ASIA [2742] 10 MATTHEWS KOREA FUND ANNUAL RETURNS FOR PERIODS ENDED 12/31 [BAR GRAPH]
MATTHEWS KOREA FUND (%) ----------------------- 1995 -12.73 1996 -31.79 1997 -64.75 1998 96.15 1999 108.01 2000 -52.84
Best Quarter: 4th - 1998 99.98% Worst Quarter: 4th - 1997 (64.44%) YEAR-TO-DATE RETURN: 13.65% AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR 5 YEARS JANUARY 3, 1995 ---------------------------------------------- Matthews Korea Fund (52.84%) (14.27%) (14.03%) Korea Stock Price Index(1) (55.15%) (18.86%) (17.60%)*
--------------------------------- (1) The Korean Stock Price Index is a capitalization-weighted index of all common stocks listed on the Korean Stock Exchange. * Calculated from 12/31/94. www.matthewsfunds.com 11 MATTHEWS CHINA FUND ANNUAL RETURN FOR PERIOD ENDED 12/31 [BAR GRAPH]
MATTHEWS CHINA FUND (%) ----------------------- 1999 47.11 2000 -6.69
Best Quarter: 2nd - 1999 67.56% Worst Quarter: 3rd - 2001 (29.11%) YEAR-TO-DATE RETURN: 4.28% AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR FEBRUARY 19, 1998 ------------------------------- Matthews China Fund (6.69%) (5.06%) Credit Lyonnais China World Index(1) (8.55%) (7.83%)* MSCI China Free Index(2) (30.54%) (24.37%)*
--------------------------------- (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 (Morgan Stanley Capital International) China Free Index is a capitalization-weighted index of Chinese stocks that are listed in Hong Kong and are adjusted for the free float. (The Fund is now being compared with this additional index as it more appropriately reflects the securities held in the portfolio.) * Calculated from 2/28/98. 800.789.ASIA [2742] 12 MATTHEWS JAPAN FUND ANNUAL RETURN FOR PERIOD ENDED 12/31 [BAR GRAPH]
MATTHEWS JAPAN FUND (%) ----------------------- 1999 107.35 2000 -25.04
Best Quarter: 1st - 1999 38.40% Worst Quarter: 4th - 2000 (23.54%) YEAR-TO-DATE RETURN: (25.68%) AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR DECEMBER 31, 1998 ------------------------------ Matthews Japan Fund (25.04%) 24.64% TOPIX Index(1) (32.89%) 9.59%
--------------------------------- (1) The TOPIX, also known as the Tokyo Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. www.matthewsfunds.com 13 MATTHEWS ASIAN TECHNOLOGY FUND ANNUAL RETURNS FOR PERIOD ENDED 12/31 [BAR GRAPH]
MATTHEWS ASIAN TECHNOLOGY FUND (%) ---------------------------------- 2000 -57.04
Best Quarter: 1st - 2000 5.40% Worst Quarter: 4th - 2000 (34.78%) YEAR-TO-DATE RETURN: (29.74%) AS OF SEPTEMBER 30, 2001 AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 2000:
SINCE INCEPTION 1 YEAR DECEMBER 27, 1999 ----------------------------- Matthews Asian Technology Fund (57.04%) (55.95%) MSCI/Matthews Asian Technology Index(1) (54.69%) (54.69%)*
--------------------------------- (1) The MSCI (Morgan Stanley Capital International)/Matthews Asian Technology Index is an unmanaged capitalization-weighted index of Asian equities tracking a broad range of technology stocks. * Calculated from 12/31/99. 800.789.ASIA [2742] 14 FEES AND EXPENSES - -------------------------------------------------------------------------------- This table describes the fees and expenses that you may pay if you buy and hold shares of any of the Funds: SHAREHOLDER FEES MAXIMUM SALES LOAD IMPOSED ON PURCHASES as a percentage of offering price 0.00% MAXIMUM SALES LOAD IMPOSED ON REINVESTED DIVIDENDS as a percentage of offering price 0.00% CONTINGENT DEFERRED SALES CHARGE as a percentage of original purchase price 0.00% REDEMPTION FEE as a percentage of amount redeemed within 90 days of purchase 2.00%
TOTAL ANNUAL FEE REDUCTION NET EXPENSES MANAGEMENT DISTRIBUTION/ OTHER OPERATING AND/OR EXPENSE AFTER MATTHEWS FUND FEES 12b-1 FEES EXPENSES EXPENSES REIMBURSEMENT REIMBURSEMENT --------------------------------------------------------------------------------------------------------------------- Pacific Tiger 1.00% None 0.90% 1.90% None 1.90% Asian Growth and Income 1.00% None 0.90% 1.90% None 1.90% Korea 1.00% None 0.78% 1.78% None 1.78% China 1.00% None 1.00% 2.00% None 2.00% Japan 1.00% None 1.08% 2.08% 0.08% 2.00% Asian Technology 1.00% None 1.69% 2.69% 0.69% 2.00%
Under a written agreement between the Funds and the Advisor, the Advisor agrees to reimburse money to a Fund if its expense ratio exceeds a certain percentage level as indicated above. In turn, if a Fund's expenses fall below the level noted above within three years after the Advisor has made such a reimbursement, a Fund may reimburse the Advisor up to an amount not to exceed its expense limitation. This agreement will continue through at least August 31, 2002. EXAMPLE Based on the level of expenses listed above, the total expenses relating to an investment of $10,000 would be as follows, assuming a 5% annual return, reinvestment of all dividends and distributions and redemption at the end of each time period.
NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------------------------------------------------------------------------------------- Pacific Tiger Fund $193 $597 $1,026 $2,222 Asian Growth and Income Fund $193 $597 $1,026 $2,222 Korea Fund $181 $560 $ 964 $2,095 China Fund $203 $627 $1,078 $2,327 Japan Fund $203 $644 $1,111 $2,404 Asian Technology Fund $203 $770 $1,364 $2,972
The purpose of this table is to assist the investor in understanding the various costs and expenses that a shareholder will bear directly or indirectly. While the example assumes a 5% annual return, each Fund's actual performance will vary and may result in actual returns greater or less than 5%. The above example should not be considered a representation of past or future expenses or performance. Actual expenses of the Funds will most likely be different than those shown. www.matthewsfunds.com 15 THE INVESTMENT PROCESS - -------------------------------------------------------------------------------- The investment goal of each Fund noted above is fundamental. This means that it can not be changed without a vote of a majority of the voting securities of each respective Fund. The way Matthews attempts to achieve each Fund's investment goals is not fundamental and may change without shareholder approval. While an investment policy or restriction may be changed by the Board of Trustees (which oversees the management of the Funds) without shareholder approval, you will be notified before we make any material change. MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC is the investment advisor to the Funds. Matthews' address is 456 Montgomery Street, Suite 1200, San Francisco, California 94104-1245 and can be reached by telephone toll-free at 1-800-789-2742. The Advisor was founded in 1991 by G. Paul Matthews who serves as Chief Investment Officer. Each Fund pays an annual fee of 1% of its total assets to Matthews for the services it provides to the Funds. Matthews invests the Funds' assets, manages the Funds' business affairs and supervises their overall day-to-day operations. Matthews also furnishes the Funds with office space and certain administrative and clerical services, and provides the personnel needed by the Funds with respect to the Advisor's responsibilities under the investment advisory agreement. PORTFOLIO MANAGERS Pacific Tiger Fund Mark W. Headley and G. Paul Matthews Asian Growth and Income Fund G. Paul Matthews Korea Fund Mark W. Headley and G. Paul Matthews China Fund G. Paul Matthews, Mark W. Headley and Richard H. Gao Japan Fund Mark W. Headley Asian Technology Fund Mark W. Headley and G. Paul Matthews
G. Paul Matthews: has been actively involved in the Asian financial markets since 1982. Prior to founding Matthews International Capital Management in 1991, he served as portfolio manager of G. T. Pacific Growth Fund from 1982-85. While residing in Hong Kong, Mr. Matthews oversaw all Asian investment from 1985-88 for G. T. Management Asia. From 1989 to 1991 he was self-employed. Mr. Matthews holds an M.A. in history and law from Cambridge University in the United Kingdom. Mark W. Headley: joined Matthews International as managing director and as senior analyst on the investment team in 1995. He has over 10 years of experience in the Asian markets. From 1989 to 1992 he held various positions at Newport Pacific Management and its subsidiaries. In 1992, Mr. Headley moved to Hong Kong, where he served as a director of Regent Fund Management. He returned to San Francisco in 1993 and joined Litman/Gregory & Co. as director of international investments. Mr. Headley holds a B.A. in Economics and Politics from the University of California at Santa Cruz. 800.789.ASIA [2742] 16 Richard H. Gao: joined Matthews International in 1997 as a China analyst. In 1999 he was promoted to portfolio manager of the China Fund. In 1989 Mr. Gao served as a loan officer at the Bank of China in the city of Guanzhow, China. He later became a foreign exchange trader at the Bank of China's Treasury Department in 1991. From 1993 through 1994 he served as assistant manager in charge of foreign exchange trading for import/export companies at the Bank. Mr. Gao holds an M.B.A. from Dominican College of San Rafael and is fluent in three Chinese dialects: Mandarin, Cantonese and Shanghaiese. All members of the investment team travel extensively to Asia to conduct research relating to those markets. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- PRICING OF FUND SHARES The price at which the Funds' shares are bought or sold is called the net asset value per share or "NAV." The NAV is computed once daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m. Eastern time. In addition to Saturday and Sunday the NYSE is closed on the days that the following holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV is computed by adding the value of all securities and other assets of a Fund, deducting any liabilities, and dividing by the total number of outstanding shares. The Funds' expenses are accounted for by estimating the total expenses for the year and applying each day's estimated amount when the NAV calculation is made. The Funds' equity securities are valued based on market quotations or, when no market quotations are available, at fair value as determined in good faith by or under direction of the Board of Trustees. Foreign securities are valued as of the close of trading on the primary exchange on which they trade. The value is then converted to U.S. dollars using current exchange rates. Securities listed on any U.S. 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. 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. Short-term fixed-income securities having a maturity of 60 days or less are valued at amortized cost, which the Board of Trustees believes represents fair value. When a security is valued at amortized cost, it is first valued at its purchase price. After it is purchased, it is valued by assuming a constant amortization to maturity of any discount or premium (because the Fund will hold the www.matthewsfunds.com 17 security until it matures and then receive its face value), regardless of the way of changing interest rates could change the market value of the instrument. Foreign currency exchange rates are generally determined prior to the close of trading on the NYSE. Occasionally, events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of trading on the NYSE. Such events would not normally be reflected in a calculation of the Funds' net asset value on that day. If events that materially affect the value of the Funds' foreign investments or the foreign currency exchange rates occur during such period, the investments will be valued at their fair value as determined in good faith by or under the direction of the Board of Trustees. Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed. Accordingly, the net asset value of the Funds may be significantly affected on days when shareholders have no access to the Funds. For valuation purposes, quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates. PURCHASE OF SHARES You may purchase Fund shares directly from the Funds by mail or by wire without paying any sales charge. The price for each share you buy will be the NAV calculated after your order is "received" by the Fund. "Received" means that payment for your purchase and all the information needed to complete your order must be received by the Fund before your order is processed. If your order is received before 4:00 p.m. on a day the Funds' NAVs are calculated, the price you pay will be that day's NAV. If your order is received after 4:00 p.m., the price you will pay will be the next NAV calculated. Generally, you may purchase shares of the Funds through the Funds' underwriter, a registered broker-dealer, by calling 800.892.0382. Shares of the Funds may also be purchased through various brokers who have arrangements with the respective Funds. These brokers may charge you a fee for their services. You may purchase and sell shares through securities brokers and benefit plan administrators or their subagents. You should contact them directly for information regarding how to invest or redeem through them. They may also charge you service or transaction fees. If you purchase or redeem shares through them, you will receive the NAV calculated after receipt of the order by them (generally, 4:00 p.m. Eastern time) on any day the NYSE is open. If your order is received by them after that time, it will be purchased or redeemed at the next-calculated NAV. Brokers and benefit plan administrators who perform shareholder servicing for the Fund may receive fees from the Funds or Matthews for providing these services. These brokers may charge you a fee for their services. Minimum Initial Investment (non-retirement plan account): $ 2,500 Subsequent Investments: $ 250 Minimum Initial Investment (retirement plan account*): $ 500 Subsequent Investments: $ 50
* Retirement Plan Accounts include IRAs and 401(k) plans. Speak with the Funds' agents for the many retirement plans available. 800.789.ASIA [2742] 18 The Funds may reject any purchase order or stop selling shares of the Funds at any time. Also, the Funds may vary or waive the initial investment minimum and minimums for additional investments. OPEN AN ACCOUNT ADDING TO AN ACCOUNT BY MAIL - Complete and sign application - Make check payable to: - Make check payable to: Matthews (name of Fund) Matthews (name of Fund) - Mail check with a statement stub to address at - Mail application and check to: left. Matthews Asian Funds P.O. Box 61767 211 South Gulph Road King of Prussia, PA 19406 VIA PHONE You cannot open an account over the When you open your account, you must check the telephone. box for "Telephone Options." Note that you may only exchange shares from one Matthews Fund to another. *BY WIRE - Complete and sign application - Notify Funds' agent by calling: - Mail application to: 800-892-0382. Matthews Asian Funds - Then wire funds to: Post Office Box 61767 Boston Safe Deposit & Trust 211 South Gulph Road ABA # 011001234 King of Prussia, PA 19406 Credit: [name of specific Matthews Fund] - Wire funds using instructions at right. Account # 000221 FBO: [your name and account number] VIA INTERNET You cannot currently open an account over the - When you open your account, complete the Internet. Online Account Access Section and attach a voided check. - After you have received confirmation of your purchase, call 800.892.0382 and request a Personal Identification Number (PIN). - You may also request an application to enable this feature after an account is open by calling 800.892.0382. VIA AUTOMATIC N/A Complete the Automatic Investment Plan section INVESTMENT of the application. Be sure to sign the PLAN application and include a voided check.
* NOTE THAT WIRE FEES ARE CHARGED BY MOST BANKS. www.matthewsfunds.com 19 EXCHANGE OF SHARES You may exchange your shares of one Matthews Fund for another. Note that minium investment requirements and redemption fees apply. Any request must be received by the Fund's agent by 4:00 p.m. Eastern time on any day the New York Stock Exchange is open, to receive that day's NAV. Such exchanges may be made by telephone or the Internet if you have so authorized on your application. Call 800.892.0382 for full details. Because excessive exchanges can harm a Fund's performance, no more than four exchanges out of any one Fund are allowed during a 12-month period. The exchange privilege may also be terminated if the management of the Funds believes it is in the best interest for all shareholders to do so. SELLING (REDEEMING) SHARES You may sell your shares back to the Funds on any day they are open for business. To receive a specific day's NAV, your request must be received by the Funds before 4:00 p.m. Eastern time of that day. If it is received after 4:00 p.m. Eastern time, you will receive the next NAV calculated. If you used a check to buy your shares and later decide to sell them, your proceeds from that redemption will be withheld until the Funds are sure that your check has cleared. This could take as much as 15 days or more. If your request to sell your shares is made by telephone or Internet, you may have difficulty getting through to the Funds in times of drastic market conditions. If the Funds believe that it is in the best interest of all shareholders, it may modify or discontinue telephone and/or Internet transactions without notice. SIGNATURE GUARANTEES -- The Funds require a medallion signature guarantee on any redemption over $100,000 (but may require additional documentation or a medallion signature guarantee on any redemption request to help protect against fraud), the redemption of corporate, partnership or fiduciary accounts, or for certain types of transfer requests or account registration changes. A medallion signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which is participating in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP). Please call 800.892.0382 for information on obtaining a signature guarantee. TELEPHONE AND INTERNET SECURITY The convenience of using telephone and/or Internet transactions may have a cost in decreased security. The Funds employ certain security measures as they process these transactions. If such security procedures are used, the Funds or their agents will not be responsible for any losses that you incur because of a fraudulent telephone or Internet transaction. If the security measures are not followed and you incur a loss because of a fraudulent telephone or Internet transaction, the Funds or their agents will be responsible for that loss. 800.789.ASIA [2742] 20 PRIVACY POLICY Matthews Asian Funds will never sell or share your personal information with other companies. While it is necessary for us to collect certain nonpublic personal information about you when you open an account (such as your address and social security number), we protect this information and use it only for communication purposes or to assist us in providing the information and services necessary to address your financial needs. We respect your privacy and are committed to ensuring that it is maintained. As permitted by law, it is sometimes necessary for us to share your information with companies who perform administrative or marketing services on our behalf, such as transfer agents and/or mail facilities that assist us in shareholder servicing or distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your personal information. As you may know, "cookies" are small files a web site can use to recognize repeat users. We do not use cookies to access any personal information about you from your computer. When using Matthews Asian Funds' Online Account Access you will be required to provide personal information to gain access to your account. For your protection, the login screen resides on a secure server. www.matthewsfunds.com 21 SELLING (REDEEMING) SHARES BY MAIL - Send a letter to the Funds at the following address: Matthews Asian Funds P.O. Box 61767 211 South Gulph Road King of Prussia, PA 19406 The letter must include your name and account number, the name of the Fund and the amount you want to sell in dollars or shares. This letter must be signed by each owner of the account. For security purposes, a signature guarantee will be required if: SIGNATURE - your request is for an amount over $100,000; or GUARANTEE - the money is to be paid to anyone other than the REQUIRED IF registered owners; or - the money is to be sent to an address which is different than the registered address or to a bank account other than the account which was pre-authorized. VIA PHONE When you opened your account, you must have checked the appropriate part of the application or after you opened your account, you have instructed the Funds (in writing, with signature guarantee) to allow telephone transactions. Call 800.892.0382. BY WIRE Same as by phone above. VIA INTERNET - You must have already obtained online account access and a PIN number from the Funds' transfer agent. (See "Adding to an Account" on page 18.) - Go to www.matthewsfunds.com and click on "Account Access", then follow instructions on how to place a redemption. THROUGH A BROKER Contact your broker directly. Note that your Broker may charge you a fee.
REDEMPTION FEE Please remember that if you sell your shares within 90 days of the day you bought them, the money you receive will be 2% less than the total amount redeemed. This 2% fee is retained by the Funds to compensate the Funds for the extra expense they incur because of short term trading. In addition, the Funds hope that the fee will discourage short term trading of their shares. REDEMPTION IN KIND Under certain circumstances, you could receive your redemption proceeds as a combination of cash and securities. Receiving securities instead of cash is called "redemption in kind." Even though the Funds are permitted to do this, the first $250,000 of any redemption must be paid to you in cash. Note that if you receive securities as well, you will incur transaction charges if you sell them. 800.789.ASIA [2742] 22 MINIMUM SIZE OF AN ACCOUNT The Funds reserve the right to redeem small accounts (excluding IRAs) which fall below $2,500 due to redemption activity. If this happens to your account, you may receive a letter from the Funds giving you the option of investing more money into your account, or closing it. Accounts that fall below $2,500 due to market volatility will not be affected. DISTRIBUTIONS All of the Funds except Growth and Income will distribute their net investment income annually in December. Growth and Income will distribute its net investment income semi-annually in June and December. Any net realized gain from the sale of portfolio securities and net realized gains from foreign currency transactions are distributed at least once each year unless they are used to offset losses carried forward from prior years. All such distributions are reinvested automatically in additional shares at net asset value, unless you elect to receive them in cash. The way you receive distributions may be changed at any time by writing the Funds. Any check in payment of dividends or other distributions which cannot be delivered by the Post Office or which remains uncashed for a period of more than one year will be reinvested in the shareholder's account at the then current net asset value and the dividend option changed from cash to reinvest. Distributions are treated the same for tax purposes whether received in cash or reinvested. Please note that shares purchased shortly before the record date for a dividend or distribution may have the effect of returning capital although such dividends and distributions are subject to taxes. This is called "buying a dividend." TAXES An investment in the Funds has certain tax consequences, depending on the type of account that you have. Distributions are subject to federal income tax and may also be subject to state and local income taxes. Distributions are generally taxable when they are paid, whether in cash or by reinvestment. Distributions declared in October, November or December, and paid in the following January are taxable as if they were paid on December 31. The exchange of one Matthews Fund for another is a "taxable event" which means that if you have a gain you may be obligated to pay tax on it. If you have a qualified retirement account, taxes are generally deferred until distributions are made from the retirement account. Part of a distribution may include realized capital gains which may be taxed at different rates depending on how long the fund has held specific securities. Make sure you have a social security number or tax I.D. number on file with the Funds. If you do not, you may be subject to a 31% back up withholding on your distributions. Speak with your tax counselor for complete information concerning the tax implications of your ownership of the Funds. www.matthewsfunds.com 23 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- These financial highlights tables are intended to help you understand the Funds' financial performance for the past 5 fiscal years or since inception if less than 5 fiscal years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund assuming all of the dividends and distributions were reinvested. The information for the fiscal years ended August 31, 1999 through 2001 was audited by Tait, Weller and Baker. The information for the periods prior to August 31, 1999 was audited by other independent accountants.
MATTHEWS PACIFIC TIGER FUND --------------------------------------------------------- YEAR ENDED 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 and unrealized gain (loss) 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) 0.00 0.00 (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 1.90% 1.81% 1.90% 1.90% 1.90% Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator 0.67% 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% MATTHEWS ASIAN GROWTH AND INCOME FUND ----------------------------------------------------- YEAR ENDED 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 and unrealized gain (loss) 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) 0.00 0.00 (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 1.90% 1.90% 1.90% 1.90% 1.90% Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator 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%
800.789.ASIA [2742] 24 FINANCIAL HIGHLIGHTS CONTINUED - --------------------------------------------------------------------------------
MATTHEWS KOREA FUND ---------------------------------------------------------- YEAR ENDED 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 and unrealized gain (loss) 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 investment income N/A N/A N/A N/A N/A Net realized gains on investments (1.63) (0.88) 0.00 0.00 0.00 ---------------------------------------------------------- TOTAL DISTRIBUTIONS 0.00 0.00 0.00 0.00 0.00 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 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% MATTHEWS CHINA FUND ---------------------------------------------- YEAR ENDED AUGUST 31, PERIOD ENDED ----------------------------- AUGUST 31 2001 2000 1999 1998(1) NET ASSET VALUE, BEGINNING OF YEAR $ 9.93 $ 8.48 $ 4.36 $10.00 Income (loss) from Investment Operations Net investment income (loss) 0.32 0.12 0.12 0.10 Net realized and unrealized gain (loss) 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) 0.00 Net realized gains on investments (0.28) 0.00 0.00 0.00 ---------------------------------------------- TOTAL DISTRIBUTIONS (0.43) (0.11) (0.11) 0.00 NET ASSET VALUE, END OF YEAR $ 9.21 $ 9.93 $ 8.48 $ 4.36 TOTAL RETURN (2.23%) 18.54% 97.79% (56.40%)++ RATIOS/SUPPLEMENTAL DATA Net assets, end of year (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%+ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator 2.00% 2.00% 2.00% 2.00%+ 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%)+ 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%+ Portfolio turnover 61.07% 80.90% 40.27% 11.84%++
- --------------- +Annualized. ++Not Annualized. (1)The Fund commenced operations on February 19, 1998. www.matthewsfunds.com 25 FINANCIAL HIGHLIGHTS CONTINUED - --------------------------------------------------------------------------------
MATTHEWS ASIAN MATTHEWS JAPAN FUND TECHNOLOGY FUND ---------------------------------- ------------------------- YEAR ENDED PERIOD YEAR PERIOD AUGUST 31, ENDED ENDED ENDED ------------------- AUGUST 31, AUGUST 31, AUGUST 31, 2001 2000 1999(1) 2001 2000(2) 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 and unrealized gain (loss) 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) 0.00 0.00 (0.22) 0.00 Net realized gains on investments (1.03) (0.54) 0.00 -- 0.00 ---------------------------------------------------------------- TOTAL DISTRIBUTIONS (1.40) (0.54) 0.00 (0.22) 0.00 NET ASSET VALUE, END OF PERIOD $ 11.22 $ 20.76 $ 21.70 $ 3.53 $ 7.61 TOTAL RETURN (40.92%) (1.75%) 117.00%++ (51.54%) (23.90%)++ 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%+ 2.69% 2.66%+ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator 2.00% 2.00% 2.00%+ 2.00% 2.00%+ 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%)+ 1.14% 3.75%+ 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%)+ 1.83% 4.41%+ Portfolio turnover 71.09% 23.00% 28.92%++ 181.24% 50.35%++
- --------------- + Annualized. ++ Not Annualized. (1) The Fund commenced operations on December 31, 1998. (2)The Fund commenced operations on December 27, 1999. 800.789.ASIA [2742] 26 GENERAL INFORMATION - -------------------------------------------------------------------------------- If you wish to know more about Matthews Asian Funds, You will find additional information in the following documents. SHAREOWNER REPORTS You will receive Semi-Annual Reports dated February 28 and Annual Reports, audited by independent accountants, dated August 31. These reports contain a discussion of the market conditions and investment strategies that significantly affected each Fund's performance during its last fiscal year. In order to save costs, if you have two or more accounts with the same registration, only one report will be sent to you. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI, which is incorporated into this prospectus by reference and dated December 28, 2001, is available to you without charge. It contains more detailed information about the Funds. HOW TO OBTAIN REPORTS CONTACTING MATTHEWS ASIAN FUNDS You can obtain free copies of the above reports and SAI by visiting our web site at www.matthewsfunds.com. To request additional information or to speak to a representative of the Funds, contact us at: Matthews Asian Funds P.O. Box 61767 211 South Gulph Road King of Prussia, PA 19406 800.789.2742 OBTAINING INFORMATION FROM THE SEC: You can visit the SEC's web site at www.sec.gov to view the SAI and other information. You can also view and copy information about the Funds at the SEC's Public Reference Room in Washington, DC. Also, you can obtain copies of this information by sending your request and duplication fee to the SEC's Public Reference Room, Washington DC 20549-0102. To find out more about the Public Reference Room, you can call the SEC at 202.942.8090. You may also e-mail the SEC at publicinfo@sec.gov to obtain additional information about a Fund. Investment Company Act File Number: 811-08510 www.matthewsfunds.com - ------------------------------------------------------------------------------------------------------------------------ [MATTHEWS LOGO] MATTHEWS ASIAN FUNDS NO-LOAN ASIAN SPECIALISTS WWW.MATTHEWSFUNDS.COM NEW ACCOUNT APPLICATION ---------------------------------------------------------------------------------------------- 1 CHOOSE YOUR INVESTMENTS (Minimum initial investment: $2,500 per fund) Use this application [ ] Matthews Pacific Tiger Fund (802)................ $______________ to open a non- [ ] Matthews Asian Growth and Income Fund (801)...... $______________ retirement account [ ] Matthews Korea Fund (803)........................ $______________ only. If you wish to [ ] Matthews China Fund (804)........................ $______________ open an IRA account, [ ] Matthews Japan Fund (805)........................ $______________ please call (800) [ ] Matthews Asian Technology Fund (806)............. $______________ 789-2742 and ask for Total Investment:................................ $______________ an IRA application. PLEASE COMPLETE AND If you have an existing Matthews Fund account registered exactly as you would SIGN THIS APPLICATION like your new account(s) registered, please provide the following: AND RETURN IT IN THe ENCLOSED POSTAGE-PAId _________________________________________ ________________________________ ENVELOPE. Existing Account Number Fund Name It should take only ============================================================================================== a few minutes to 2 INVESTMENT METHOD complete this application. If you [ ] By check: I have enclosed a check(s), payable to the appropriate Fund(s). have questions, [ ] By wire: Federal Funds were wired on ______________ for Account No. ________. please call us at Month/day/year (800) 892-0382 ============================================================================================== between 9:00 a.m. and 3 ACCOUNT REGISTRATION (Please select one) 7:00 p.m. Eastern Time. [ ] INDIVIDUAL OR JOINT ACCOUNT --------------------------------------- ------------------------------------- Owner's Name Joint Owner's Name --------------------------------------- ------------------------------------- Owner's Social Security Number Joint Owner's Social Security Number Please make your [ ] GIFT OR TRANSFER TO A MINOR check(s) payable to the appropriate --------------------------------------- as custodian for ____________________ Fund(s) and mail, Custodian Name Minor's Name along with your completed, signed under the _____________________________ Uniform Gifts/Transfers to Minors Act application, to: State --------------------------------------- -------------------------------------- Minor's Social Security Number Minor's Date of Birth MATTHEWS ASIAN FUNDS [ ] Trust C/O PFPC INC. P.O. BOX 61767 --------------------------------------- as trustee(s) of ________________________ 211 S. GULPH ROAD Trustee(s) Names(s) Name of Trust Agreement KING OF PRUSSIA, PA 19406-8767 for the benefit of ________________________________________. Beneficiary's Name --------------------------------------- --------------------------------------- Trust's Taxpayer I.D. Number Date of Trust Agreement [ ] CORPORATION, PARTNERSHIP OR OTHER ENTITY ---------------------------------------- ---------------------------------------- Name of Corporation or Other Entity Taxpayer I.D. Number ============================================================================================= 4 MAILING ADDRESS I am a citizen of: ---------------------------------------- -------------------- [ ] The United States Street Address or P.O. Box Evening Phone Number [ ] Other (please specify): ---------------------------------------- -------------------- --------------------------- CIty, State, ZIP Code Daytime Phone Number [OVER] E-mail Address__________________________ - ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ =============================================================================================== 5 DIVIDEND OPTIONS (All distributions will be reinvested unless otherwise indicated.) [ ] Reinvest all dividends and capital gains. [ ] Pay all dividends and capital gains to me by check. [ ] Pay all dividends to me by check and reinvest all capital gains =============================================================================================== IF YOU WANT REDEMPTION 6 TELEPHONE EXCHANGE AND REDEMPTION PROCEEDS WIRED TO YOUR BANK, YOU MUST ENCLOSE YOU WILL HAVE THE ABILITY TO EXCHANGE AND REDEEM SHARES BY TELEPHONE UNLESS YOU CHECK BELOW: A VOIDED CHECK OR DEPOSIT SLIP FROM YOUR [ ] Please remove the telephone exchange feature from my account. BANK ACCOUNT. [ ] Please remove the telephone redemption feature from my account. Proceeds of telephone redemption requests are paid by check and mailed to the address of record unless a wire to your bank account of record is requested. [ ] I want the ability to have redemption proceeds wired to my [ ] checking or [ ] savings account (please check one). Exchanges must be between identically registered accounts. See the prospectus for details. ================================================================================================ 7 AUTOMATIC INVESTMENT PLAN This service allows you to automatically invest monthly from your bank account to your Matthews International Fund account(s). To establish this feature, you must meet the minimum initial TO ESTABLISH investment of $2,500 per fund. Please specify below the amount you would like deducted from AUTOMATIC INVESTING your bank account on a monthly basis and attach a voided check or deposit slip. This plan OR ONLINE ACCOUNT normally becomes active 20 business days after your application is processed. ACCESS, YOU MUST ENCLOSE A VOIDED [ ] Matthews Pacific Tiger Fund (802)..................... $ ____________________ CHECK OR DEPOSIT [ ] Matthews Asian Growth and Income Fund (801)........... $ ____________________ ($100 SLIP FROM YOUR [ ] Matthews Korea Fund (803)............................. $ ____________________ minimum BANK ACCOUNT. [ ] Matthews China Fund (804)............................. $ ____________________ per [ ] Matthews Japan Fund (805)............................. $ ____________________ account) [ ] Matthews Asian Technology Fund (806).................. $ ____________________ Please debit the above amount(s) from my [ ] checking/[ ] savings account on the [ ] 10th [ ] 15th or [ ] 20th of each month. ACH debit(s) will be dated on the day of each month indicated above. If that day falls on a day in which the NYSE is not open for business, the debit will occur on the next available business day. ================================================================================================ 8 ONLINE ACCOUNT ACCESS This feature allows you to check your Matthews International Fund account balance online, as well as make financial transactions with payment debited directly from your bank account. A voided check must be enclosed on the account which you wish us to debit via the Automated Clearing House (ACH) system to pay for additional purchases. Please note it can take up to 20 business days to enable this feature. [ ] I want the ability to make purchases over the Internet and have enclosed a voided check or deposit slip for my [ ] checking or [ ] savings account (please check one). In order to utilize the Internet for access to your account, once you receive confirmation of your initial investment, which will show your new account number, please call (800) 892-0382 and ask to be assigned a Personal Identification Number (PIN) for Internet Account Access. Once you have your PIN, simply go to WWW.MATTHEWSFUNDS.COM and click on Account Access. ================================================================================================ 9 SIGNATURES AND CERTIFICATION By signing below, I certify that: - I have received and read the prospectus for the Fund and I agree to its terms. - I am a U.S. person (including a U.S. resident alien). - If I am a U.S. citizen or resident alien, I certify under penalties of perjury that the Social Security Number or Taxpayer Identification Number provided on this application is correct (or that I have applied for a Number and am waiting for it to be issued to me), and that I have not been notified by the IRS that I am subject to backup withholding. [ ] I HAVE BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. - If I have agreed to telephone exchange or redemption privileges, I (we) authorize PFPC Inc. to honor telephone instructions for my (our) account. Neither the Fund nor PFPC Inc. will be liable for properly acting upon telephone instructions believed to be genuine. - If I have requested online account access or participation in the Automatic Investment Plan, I (we) agree that if my (our) ACH debit is not honored, PFPC Inc. reserves the right to discontinue this service and any share purchase made upon such deposit will be cancelled. I (we) further agree that if the net asset value of shares purchased is less when said purchase is cancelled than when the purchase was made, PFPC Inc. shall be authorized to liquidate other assets or fractions thereof held in my (our) account to make up the deficiency. The Automatic Investment Plan may be discontinued by PFPC Inc. upon 30 days written notice or at any time by the investor by written notice to PFPC Inc., which is received no later than five business days prior to the above-designated investment date. ____________________________________________________________________________________________________ Signature of Owner/Authorized Signer Date ____________________________________________________________________________________________________ Signature of Joint Owner/Authorized Signer Date - ------------------------------------------------------------------------------------------------------------------------
(This Page Intentionally Left Blank) MATTHEWS ASIAN FUNDS Board of Trustees Richard K. Lyons, Chairman Norman W. Berryessa Robert K. Connolly PROSPECTUS David Fitz William-Lay G. Paul Matthews DECEMBER 28, 2001 John H. Dracott, Emeritus Officers G. Paul Matthews Mark W. Headley James E. Walter Downey L. Hebble Investment Advisor Matthews International [MATTHEWS LOGO] 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 Pacific Tiger Fund King of Prussia, PA 19406 _____________________________ 800.892.0382 Asian Growth and Income Fund _____________________________ Custodian Korea Fund The Bank of New York _____________________________ One Wall Street China Fund New York, NY 10286 _____________________________ Legal Counsel Japan Fund Paul, Hastings, Janofsky & Walter LLP _____________________________ 345 California Street Asian Technology Fund San Francisco, CA 94104 _____________________________ [MATTHEWS LOGO] [PICTURE] For additional information about Matthews Asian Funds: __________________________________ www.matthewsfunds.com __________________________________ WWW.MATTHEWSFUNDS.COM 800.789.ASIA [2742] __________________________________ The U.S. Securities and 456 Montgomery Street, Suite 1200 Exchange Commission (The "SEC") San Francisco, CA 94104 has not approved or disapproved of the Funds. Also, the SEC has not passed upon the Investment Company Act File adequacy or accuracy of this Number: 811-08510 prospectus. Anyone who informs you otherwise is committing a Distributed by PFPC Distributors, Inc. crime. MATTHEWS INTERNATIONAL FUNDS d/b/a MATTHEWS ASIAN FUNDS WWW.MATTHEWSFUNDS.COM MATTHEWS PACIFIC TIGER FUND MATTHEWS ASIAN GROWTH AND INCOME FUND MATTHEWS KOREA FUND MATTHEWS CHINA FUND MATTHEWS JAPAN FUND MATTHEWS ASIAN TECHNOLOGY FUND STATEMENT OF ADDITIONAL INFORMATION December 28, 2001 This Statement of Additional Information or "SAI" is not a Prospectus, but it does relate to the Prospectus of Matthews Asian Funds dated December 28, 2001. Read this document in conjunction with the Prospectus. A copy of the Prospectus may be obtained without charge from the companies at the addresses and telephone numbers below or at our Web site: www.matthewsfunds.com. UNDERWRITER: - ----------- PFPC Distributors, Inc. 3200 Horizon Drive King of Prussia, PA 19406 (800) 892-0382 INVESTMENT ADVISOR: - ------------------ Matthews International Capital Management, LLC 456 Montgomery Street, Suite 1200 San Francisco, CA 94104 (800) 789-2742 No person has been authorized to give any information or to make any representations not contained in this Statement of Additional Information or in the Prospectus in connection with the offering made by the Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Funds or its Underwriter. The Prospectus does not constitute an offering by the Funds or by the Underwriter in any jurisdiction in which such offering may not lawfully be made. TABLE OF CONTENTS Page FUND HISTORY....................................... 2 DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS......................................... 2 Classification................................ 2 Investment Strategies and Risks............... 3 MATTHEWS' INVESTMENT PROCESS ...................... 3 Foreign Currency Transactions................. 4 Investment Strategies and Risks Common to All Funds....................... 4 Investment Strategies and Risks Specific to Each Fund.............................. 6 Risks Related to Lower Rated Debt Securities................................ 11 Non-Principal Investment Strategies........... 12 FUNDS' POLICIES.................................... 22 TEMPORARY DEFENSIVE POSITION....................... 23 PORTFOLIO TURNOVER................................. 23 MANAGEMENT OF THE FUNDS............................ 23 Trustees and Officers......................... 23 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................. 25 INVESTMENT ADVISORY AND OTHER SERVICES...................................... 26 The Investment Advisor........................ 26 Principal Underwriter......................... 27 Service Agreements............................ 28 Other Service Providers....................... 29 BROKERAGE ALLOCATION AND OTHER PRACTICES..................................... 29 Matthews Asian Funds Page 1 of 40 SHARES OF BENEFICIAL INTEREST...................... 31 PURCHASE, REDEMPTION AND PRICING OF SHARES..................................... 31 Purchase of Shares............................ 31 Determination of Net Asset Value.............. 31 Redemption in Kind........................ 32 Equalization.................................. 32 TAXATION OF THE TRUST.............................. 32 In General.................................... 32 Taxes Regarding Options, Futures and Foreign Currency Transactions................. 33 Unique Foreign Tax Issues..................... 34 CALCULATION OF PERFORMANCE DATA.................... 34 In General.................................... 34 Average Total Return Quotation................ 34 Yield Quotation............................... 36 Performance and Advertisements................ 36 OTHER INFORMATION.................................. 37 Reports to Shareholders....................... 38 Financial Statements.......................... 38 APPENDIX........................................... 38 Bond Ratings.................................. 38 FUND HISTORY Matthews International Funds d/b/a Matthews Asian Funds (the "Trust"), 456 Montgomery Street, Suite 1200, San Francisco, California 94104, is a family of mutual funds currently offering six separate series of shares named: Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews China Fund, Matthews Japan Fund, Matthews Asian Technology Fund (collectively referred to as the "Funds" or individually as a "Fund"). All six funds are offered in a single prospectus, referred to herein as the "Prospectus." The Trust was organized as a Delaware business trust on April 13, 1994 and commenced operations on September 12, 1994. It has never been engaged in any other business. DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS Please read the following information together with the information contained in the Prospectus concerning the investment strategies, risks and policies of the Funds. The information here supplements the information in the Prospectus. Classification The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund is "diversified" except for the Korea Fund which is non diversified. Diversified means that as to 75% of the assets of a Fund, one holding can not represent more than 5% of the assets of the Fund, nor can any holding represent more that 10% of its company's shares. The remaining 25% of the Fund could be invested in one holding, or in multiple holdings not subject to the above limitations. Each Fund has elected and intends to continue to qualify and elect to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Such qualification relieves the Funds of liability for federal income taxes to the extent the Funds' earnings are distributed in accordance with the Code. To so qualify, among other requirements, each Fund will limit its investments so that, at the close of each quarter of its taxable year, (i) not more than 25% of the market value of the Fund's total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer, and it will not own more than 10% of the outstanding voting securities of a single issuer. Investment Strategies and Risks Matthews Asian Funds Page 2 of 40 As a general matter, the Advisor believes that the discipline of company evaluation and choosing good stocks (and in the case of the Asian Growth and Income Fund, convertible securities as well) is the best way to manage the assets of the Funds, and to be fully invested as appropriate with cash needs. MATTHEWS' INVESTMENT PROCESS Matthews International Capital Management LLC, serves as the investment advisor to the Trust. In this SAI, they are referred to as "Matthews" or the "Advisor." Although the Advisor uses a multi-factor research approach when selecting investments for the Funds, primary emphasis is placed on individual stock selection ("bottom up") using a "Growth at a Reasonable Price" process ("GARP"). Other factors include evaluation of each country's political stability, prospects for economic growth (inflation, interest direction, trade balance and currency strength), identification of long term trends that might create investment opportunities, the status of the purchasing power of the people and population and composition of the work force. In reviewing potential companies in which to invest, the Advisor considers the company's quality of management, plans for long-term growth, competitive position in the industry, future expansion plans and growth prospects, valuations compared with industry average, earnings track record, technology, research and development, productivity, labor costs, raw material costs and sources, profit margins, capital resources, governmental regulation, a debt/equity ratio less than the market average, and other factors. In addition, the Advisor will visit countries and companies in person to derive firsthand information for further evaluation. After evaluation of all factors, the Advisor attempts to identify those companies in such countries and industries that are best positioned and managed to take advantage of the varying economic and political factors. The Funds may invest in securities of issuers of various sizes, large or small. Smaller companies often have limited product lines, markets or financial resources, and they may be dependent upon one or a few key people for management. The securities of such companies generally are subject to more abrupt or erratic market movements and may be less liquid than securities of larger, more established companies or the market averages in general. Many of the debt and convertible securities in which the Funds invest are un-rated by any rating agency and, therefore, there is no objective standard against which the Advisor may evaluate such securities. The Advisor seeks to minimize the risks of investing in lower-rated securities through investment analysis and attention to current developments in interest rates and economic conditions. In selecting debt and convertible securities for the Funds, the Advisor will assess the following factors: 1) potential for capital appreciation; 2) price of security relative to price of underlying stock, if a convertible security; 3) yield of security relative to yield of other fixed-income securities; 4) interest or dividend income; 5) call and/or put features; 6) creditworthiness; 7) price of security relative to price of other comparable securities 8) size of issue; 9) currency of issue; and 10) impact of security on diversification of the portfolios. The Funds may also invest in securities of foreign issuers in the form of American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs in registered form are dollar denominated securities designed for use in the U.S. securities markets, which represent and may be converted into an underlying foreign security. EDRs, in bearer form, are designed for use in the European securities markets. The Funds may purchase securities on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis in order to hedge against anticipated changes in interest rates and prices. Matthews Asian Funds Page 3 of 40 Foreign Currency Transactions The Funds must engage in foreign currency transactions in connection with their investment in foreign securities but will not speculate in foreign currency exchange. The Funds will conduct their foreign currency exchange transactions either on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market, or through forward contracts to purchase or sell foreign currencies. A forward foreign currency exchange contract involves an obligation to purchase or sell a specified currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders and their customers. When a Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may want to establish the United States dollar cost or proceeds, as the case may be. By entering into a forward contract in United States dollars for the purchase or sale of the amount of foreign currency involved in an underlying security transaction, a Fund is able to protect itself against a possible loss between trade and settlement dates resulting from an adverse change in the relationship between the United States dollar and such foreign currency. This tends to limit potential gains however, that might result from a positive change in such currency relationships. The Funds may also hedge their foreign currency exchange rate risk by engaging in currency financial futures and options transactions. When the Advisor believes that the currency of a particular foreign country may suffer a substantial decline against the United States dollar, it may enter into a forward contract to sell an amount of foreign currency approximating the value of some or all of the Funds' securities denominated in such foreign currency. In this situation the Funds may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed United States dollar amount where the Advisor believes that the United States dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the United States dollar value of the currency in which portfolio securities of the Funds are denominated ("cross-hedge"). The forecasting of short-term currency market movement is extremely difficult and whether such a short-term hedging strategy will be successful is highly uncertain. The Funds may enter into forward contracts to sell foreign currency with respect to portfolio positions denominated or quoted in that currency. INVESTMENT STRATEGIES AND RISKS COMMON TO ALL FUNDS Below are explanations and the associated risks of certain unique securities and investment techniques. Shareholders should understand that all investments involve risk and there can be no guarantee against loss resulting from an investment in the Funds, nor can there be any assurance that the Funds' investment objectives will be attained. Again, we remind you that generally speaking, the Trust's investment strategy is to invest the shareholders' money in equity securities (convertible securities in the case of Asian Growth and Income Fund) consistent with each Funds' investment goal. ADRs and EDRs For many foreign securities, there are United States dollar denominated ADRs, which are bought and sold in the United States and are issued by domestic banks. ADRs represent the right to receive securities of foreign issuers deposited in the domestic bank or a correspondent bank. ADRs do not eliminate all the risks inherent in investing in the securities of foreign issuers. By investing in ADRs rather than directly in foreign issuer's Matthews Asian Funds Page 4 of 40 stock however, the Funds will avoid currency risks during the settlement period for either purchases or sales. The Funds may also invest in EDRs which are receipts evidencing an arrangement with a European bank similar to that for ADRs and are designed for use in the European securities markets. EDRs are not necessarily denominated in the currency of the underlying security. The Funds have no current intention to invest in unsponsored ADRs and EDRs. IDRs IDRs (Asian Depositary Receipts, also known as GDRs or Global Depositary Receipts) are similar to ADRs except that they are bearer securities for investors or traders outside the U.S., and for companies wishing to raise equity capital in securities markets outside the U.S. Most IDRs have been used to represent shares although it is possible to use them for bonds, commercial paper and certificates of deposit. IDRs can be convertible to ADRs in New York making them particularly useful for arbitrage between the markets. The Funds have no current intention to invest in unsponsored IDRs. Risks Associated with Euroconvertible Securities Most of the convertible securities in which the Funds will invest are unrated by any rating agency and, therefore, there is no objective standard against which the Advisor may evaluate such securities. Investing in a convertible security denominated in a currency different from that of the security into which it is convertible exposes the Fund to currency risk. The theoretical value of convertible securities varies with a number of factors including the value and volatility of the underlying stock, the level and volatility of the interest rates, the passage of time, dividend policy, and other variables. Euroconvertible securities, specifically, are also influenced by the level and volatility of the foreign exchange rate between the security's currency and the underlying stock's currency. While the volatility of convertible fixed income securities will typically be less than that of the underlying securities, the volatility of warrants will typically be greater than that of the underlying securities. Risks Associated with Emerging Markets Investing in securities of issuers in Asia and the Pacific Basin involves special risks. First, the Funds' investment focus on that region makes the Funds particularly subject to political, social, or economic conditions experienced in that region. Second, many of the countries in Asia and the Pacific Basin constitute so-called "developing" or "emerging" economies and markets. The risks of investing in foreign markets generally are greater for investments in developing markets. Additional risks of investment in such markets include (i) less social, political, and economic stability; (ii) the smaller size of the securities markets in such countries and the lower volume of trading, which may result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Funds' investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests, or expropriation or confiscation of assets or property, which could result in the Funds' loss of their entire investment in that market; and (iv) less developed legal structures governing private or foreign investment or allowing for judicial redress for injury to private property. Risks Associated with Foreign Currency The U.S. dollar market value of the Funds' investments and of dividends and interest earned by the Funds may be significantly affected by changes in currency exchange rates. Matthews Asian Funds Page 5 of 40 The value of Fund assets denominated in foreign currencies will increase or decrease in response to fluctuations in the value of those foreign currencies relative to the U.S. dollar. Although the Funds may attempt to manage currency exchange rate risks, there is no assurance that the Funds will do so at an appropriate time or that they will be able to predict exchange rates accurately. For example, if the Funds increase their exposure to a currency and that currency's price subsequently falls, such currency management may result in increased losses to the Funds. Similarly, if the Funds decrease their exposure to a currency and the currency's price rises, the Funds will lose the opportunity to participate in the currency's appreciation. Some currency prices may be volatile, and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets, which could adversely affect the Funds. Foreign investments which are not U.S. dollar denominated may require the Funds to convert assets into foreign currencies or to convert assets and income from foreign currencies to U.S. dollars. Normally, exchange transactions will be conducted on a spot, cash or forward basis at the prevailing rate in the foreign exchange market. Dividends and interest received by the Funds with respect to foreign securities may give rise to withholding and other taxes imposed by foreign countries. Tax consequences between certain countries and the United States may reduce or eliminate such taxes. In addition, foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Matthews Korea Fund does not intend to engage in activities that will create a permanent establishment in Korea within the meaning of the Korea-U.S. Tax Treaty. Therefore, Matthews Korea Fund generally will not be subject to any Korean income taxes other than Korean withholding taxes. Exemptions or reductions in these taxes apply if the Korea-U.S. Tax Treaty applies to the Fund. If the treaty provisions are not, or cease to be, applicable to Matthews Korea Fund, significant additional withholding taxes would apply. INVESTMENT POLICIES AND RISKS SPECIFIC TO MATTHEWS PACIFIC TIGER FUND. Equity securities in which the Fund may invest include common stocks, preferred stocks, warrants, and securities convertible into common stocks, such as convertible bonds and debentures. The Fund may invest up to 20% of its total assets in equity and other securities of issuers located outside of the Pacific Tiger economies, including, without limitation, the United States, and in non-convertible bonds and other debt securities issued by foreign issuers and foreign government entities. The Fund may invest up to 15% of its total assets in securities rated below investment grade (securities rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or, if unrated, are comparable in quality). Debt securities rated below investment grade, commonly referred to as junk bonds, have speculative characteristics that result in a greater risk of loss of principal and interest. The Advisor may invest where the Advisor believes the potential for capital growth exists and in companies which have demonstrated the ability to anticipate and adapt to changing markets. The Fund may invest in the securities of all types of issuers, large or small, whose earnings are believed by the Advisor to be in a relatively strong growth trend or whose assets are substantially undervalued. Under normal circumstances, the Advisor expects that the portfolio of the Fund will be comprised of forty to eighty individual stocks in various countries in the Pacific Tiger economies. When purchasing portfolio securities for the Fund, Matthews Asian Funds Page 6 of 40 the Advisor's philosophy is a buy and hold strategy versus buying for short-term trading. INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN GROWTH AND INCOME FUND You should refer to the section of this SAI entitled Investment Strategies and Risks Common to All Funds for the investment strategies and risks specific to the Matthews Asian Growth and Income Fund. INVESTMENT STRATEGIES SPECIFIC TO MATTHEWS KOREA FUND Equity securities in which the Fund may invest include South Korean common stocks, preferred stocks (including convertible preferred stock), bonds, notes and debentures convertible into common or preferred stocks, warrants and rights, equity interests in trusts, partnerships, joint ventures or similar enterprises and depositary receipts. At present, not all of these types of securities are available for investment in South Korea. The Fund may invest up to 35% of its total assets in non-convertible debt securities provided that such securities are rated, at the time of investment, BBB or higher by S&P or Baa or higher by Moody's or rated of equivalent credit quality by an internationally recognized statistical rating organization or, if not rated, are of equivalent credit quality as determined by the Advisor. Securities rated BBB by S&P or Baa by Moody's are considered to have speculative characteristics. Non-convertible debt securities in which the Fund may invest include U.S. dollar or won-denominated debt securities issued by the South Korean government or South Korean companies and obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Korean law does not currently permit foreign investors such as the Fund to acquire debt securities denominated in won or equity securities of companies organized under the laws of Korea that are not listed on the Korea Stock Exchange ("KSE"). At the present time, however, foreign investors are permitted to invest in debt securities issued by Korean companies outside of Korea and denominated in currencies other than won. The Fund may invest up to 35% of its total assets in securities rated below investment grade (securities rated below Baa by Moody's or below BBB by S&P or, if unrated, are comparable in quality) commonly referred to as "junk bonds." Debt securities rated below investment grade may have speculative characteristics that result in a greater risk of loss of principal or interest. See "Risks Associated with Lower Rated Securities." The Fund may invest its assets in a broad spectrum of securities of Korean industries which are believed to have attractive long-term growth potential. Because the Fund intends to invest primarily in equity securities of South Korean companies, an investor in the Fund should be aware of certain risks relating to South Korea, the Korean securities markets and Asian investments generally which are not typically associated with U.S. domestic investments. In addition, the Fund may be more volatile than a geographically diverse fund. Security Valuation Considerations The Korean government has historically imposed significant restrictions and controls for foreign investors. As a result, the Fund may be limited in its investments or precluded from investing in certain Korean companies, which may adversely affect the performance of the Fund. Under the current regulations, foreign investors are allowed to invest in almost all shares listed on the KSE. From time to time, many of the securities trade among non-Korean residents at a premium over the market price. Foreign investors may effect transactions with other foreign investors off the KSE in the shares of companies that have reached the maximum aggregate foreign ownership limit through a securities company in Korea. These transactions typically occur at a premium over prices on the KSE. There can be no assurance that the Fund, if it purchases such shares at a premium, will be able to realize such premium, on the sale of such shares or that such premium will not be adversely affected by changes in regulations or otherwise. Such securities will be valued at fair value as determined in good faith by the Board of Trustees. Matthews Asian Funds Page 7 of 40 Risks Associated with Investing in Korean Securities Investments by the Fund in the securities of Korean issuers may involve investment risks different from those of U.S. issuers, including possible political, economic or social instability in Korea, and by changes in Korean law or regulations. In addition, there is the possibility of the imposition of currency exchange controls, foreign withholding tax on the interest income payable on such instruments, foreign controls, seizure or nationalization of foreign deposits or assets, or the adoption of other foreign government restrictions that might adversely affect the Korean securities held by the Fund. Political instability and/or military conflict involving North Korea may adversely affect the value of the Fund's assets. Foreign securities may also be subject to greater fluctuations in price than securities of domestic corporations or the U.S. Government. There may be less publicly available information about a Korean company than about a domestic company. Brokers in Korea may not be as well capitalized as those in the U.S., so that they are more susceptible to financial failure in times of market, political, or economic stress. Additionally, Korean accounting, auditing and financial reporting standards and requirements differ, in some cases, significantly, from those applicable to U.S. issuers. In particular the assets and profits appearing on the financial statements of a Korean issuer may not reflect its financial position or results of operations in accordance with U.S. generally accepted accounting principles. There is a possibility of expropriation, nationalization, confiscatory taxation, or diplomatic developments that could affect investments in Korea. In addition, brokerage commissions, custodian services, withholding taxes, and other costs relating to investment in foreign markets generally are more expensive than in the United States. Therefore, the operating expense ratio of the Fund can be expected to be higher than that of a fund investing primarily in the securities of U.S. issuers. Risks Associated with the Korean Securities Markets In addition to the risks of investing in Korea discussed in the Fund's Prospectus, investors should know that the Korean securities markets are smaller than the securities markets of the U.S. or Japan. Certain restrictions on foreign investment in the Korean securities markets may preclude investments in certain securities by the Fund and limit investment opportunities for the Fund. Investing in securities of South Korean companies and of the government of the Republic of Korea involves certain considerations not typically associated with investing in securities of United States companies or the United States government. Among these are the risks of political, economic and social uncertainty and instability, including the potential for increasing militarization in North Korea. Relations between North and South Korea, while improving, remain tense and the possibility of military action still exists. In the event that military action were to take place, the value of the Fund's Korean assets are likely to be adversely affected. The Fund may also be affected by foreign currency fluctuations or exchange controls, differences in accounting procedures and other risks. The Fund is also subject to typical stock and bond market risk. In addition, limitations of foreign ownership currently exist which may impact the price of a Korean security paid by the Fund. In the latter part of 1997, Korea experienced a national financial crisis requiring intervention by the International Monetary Fund ("IMF") and a large infusion of foreign capital. The financial crisis led to a recessionary environment, which had serious consequences for unemployment and domestic business activity. The government has initiated, in conjunction with Matthews Asian Funds Page 8 of 40 the IMF, wide-ranging reform activities. The full impact on corporate Korea cannot be predicted but widespread restructuring and consolidation as well as a continued high rate of bankruptcies can be expected. INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS CHINA FUND The Fund may hold a significant weighting in securities listed on either the Shanghai and/or Shenzhen stock exchanges. Securities listed on these exchanges are divided into two classes, A shares, which are limited to domestic investors, and B shares, which are allocated for Asian investors. The Fund's exposure to securities listed on either the Shanghai and Shenzhen exchanges will initially be through B shares, until the regulatory environment eliminates the share class distinction. In addition to B shares, the Fund may also invest in Hong Kong listed H shares, Hong Kong listed Red chips (which are companies owned by mainland China enterprises, but are listed in Hong Kong), and companies with the majority of their revenues derived from business conducted in China (regardless of the exchange the security is listed on or the country the company is based). The Fund may invest up to 20% of its total assets in equity and other securities of issuers located outside of the China region, including, without limitation, the United States, and in non-convertible bonds and other debt securities issued by foreign issuers and foreign government entities. The Advisor may invest where the Advisor believes the potential for capital growth exists and in companies which have demonstrated the ability to anticipate and adapt to changing markets. The Fund may invest in the securities of all types of issuers, large or small, whose earnings are believed by the Advisor to be in a relatively strong growth trend or whose assets are substantially undervalued. Under normal circumstances, the Advisor expects that the portfolio of the Fund will be comprised of twenty to sixty individual stocks in various countries in the China region. When purchasing portfolio securities for the Fund, the Advisor's philosophy is a buy and hold strategy versus buying for short-term trading. In addition to the risks of investing in China and Hong Kong discussed in the prospectus, investors should know that China's securities markets have less regulation, are substantially smaller, less liquid and more volatile than the securities markets of more developed countries. Financial information on companies listed on these markets is limited and can be inaccurate. Companies listed on these markets may trade at prices not consistent with traditional valuation measures. Management of these companies could have conflicting financial interests or little experience managing a business. INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS JAPAN FUND The Fund may invest in equity and other securities of issuers located outside of Japan, including the United States, and in non-convertible bonds and other debt securities issued by foreign issuers and foreign government entities. The Fund may invest in non-convertible debt securities provided that such securities are rated, at the time of investment, BBB or higher by S&P or Baa or higher by Moody's or rated of equivalent credit quality by an internationally recognized statistical rating organization or, if not rated, are of equivalent credit quality as determined by the Advisor. Securities rated BBB by S&P or Baa by Moody's are considered to have speculative characteristics. Non-convertible debt securities in which the Fund may invest include U.S. dollar or yen-denominated debt securities issued by the Japanese government or Japanese companies and obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Matthews Asian Funds Page 9 of 40 The Fund may invest up to 5% of its total assets in securities rated below investment grade (securities rated Baa or higher by Moody's or BBB or higher by S&P or, if unrated, are comparable in quality). Debt securities rated below investment grade, commonly referred to as junk bonds, have speculative characteristics that result in a greater risk of loss of principal and interest. The Fund may invest its assets in a broad spectrum of securities of Japanese industries which are believed to have attractive long-term growth potential. The Fund has the flexibility to invest in both large and small companies, as deemed appropriate by the Advisor. Smaller companies often have limited product lines, markets or financial resources, and they may be dependent upon one or a few key people for management. The securities of such companies generally are subject to more abrupt or erratic market movements and may be less liquid than securities of larger, more established companies or the market averages in general. In selecting industries and companies for investment, the Advisor considers overall growth prospects, competitive position in export markets, technology, research and development, productivity, labor costs, raw material costs and sources, profit margins, capital resources, government regulation, quality of management and other factors. After evaluation of all factors, the Advisor attempts to identify those companies and industries that are best positioned and managed to take advantage of the varying economic and political factors. Under normal circumstances, the Advisor expects that the portfolio of the Fund will be comprised of 25 to 75 individual stocks in the Japanese economy. When purchasing portfolio securities for the Fund, the Advisor's philosophy is generally a buy and hold strategy versus buying for short-term trading. Concentration in Japanese Securities The Fund concentrates its investments in equity securities of Japanese companies. Consequently, the Fund's share value may be more volatile than that of mutual funds not sharing this geographic concentration. The value of the Fund's shares may vary in response to political and economic factors affecting companies in Japan. The Fund should not be considered a complete investment program, rather it may be used as a vehicle for diversification. Securities in Japan are denominated and quoted in yen. Yen are fully convertible and transferable based on floating exchange rates into all readily convertible currencies, without administrative or legal restrictions for both non-residents and residents of Japan. In determining the net asset value of shares of the Fund, assets or liabilities initially expressed in terms of Japanese yen will be translated into U.S. dollars at the current selling rate of Japanese yen against U.S. dollars. As a result, in the absence of a successful currency hedge, the value of the Fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by fluctuations in the value of Japanese yen relative to the U.S. dollar. The decline in the Japanese securities markets since 1989 has contributed to a weakness in the Japanese economy, and the impact of a further decline cannot be ascertained. The common stocks of many Japanese companies continue to trade at high price-earnings ratios in comparison with those in the United States, even after the recent market decline. Differences in accounting methods make it difficult to compare the earning of Japanese companies with those of companies in other countries, especially the United States. Matthews Asian Funds Page 10 of 40 Japan is largely dependent on foreign economies for raw materials. International trade is important to Japan's economy, as exports provide the means to pay for many of the raw materials it must import. Because of the concentration of the Japanese exports in highly visible products such as automobiles, machine tools and semiconductors, and the large trade surpluses ensuing therefrom, Japan has entered a difficult phase in its relations with its trading partners, particularly with respect to the United States, with whom the trade imbalance is the greatest. INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN TECHNOLOGY FUND Since the Fund's investments are concentrated in the technology sector, the movements in its NAV will follow that sector, as opposed to the general movement of the economies of the countries where the companies are located. This concentration will have a tendency to make the NAV more volatile than a non-concentrated portfolio. RISKS RELATED TO LOWER RATED DEBT SECURITIES Debt securities rated lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation ("S&P") (commonly referred to as "junk bonds") are considered to be of poor standing and predominantly speculative. Such securities are subject to a substantial degree of credit risk. There can be no assurance that the Funds would be protected from widespread bond defaults brought about by a sustained economic downturn or other market and interest rate changes. The value of lower-rated debt securities will be influenced not only by changing interest rates, but also by the bond market's perception of credit quality and the outlook for economic growth. When economic conditions appear to be deteriorating, low and medium-rated bonds may decline in market value due to investors' heightened concern over credit quality, regardless of prevailing interest rates. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity (liquidity refers to the ease or difficulty which the Fund could sell a security at its perceived value) of lower-rated securities held by a Fund, especially in a thinly traded foreign market. To the extent that an established secondary market does not exist and a particular lower-rated debt security is thinly traded, that security's fair value may be difficult to determine because of the absence of reliable objective data. As a result, a Fund's valuation of the security and the price it could obtain upon its disposition could differ. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of lower-rated securities held by the Funds, especially in a thinly traded market. The credit ratings of S&P and Moody's are evaluations of the safety of principal and interest payments, not market value risk, of lower-rated securities. These ratings are provided as an Appendix to this SAI. Also, credit rating agencies may fail to change timely the credit ratings to reflect subsequent events. Therefore, in addition to using recognized rating agencies and other sources, the Advisor may perform its own analysis of issuers in selecting investments for the Funds. The Advisor's analysis of issuers may include, among other things, historic and current financial condition and current and anticipated cash flows. Non-Principal Investment Strategies Matthews Asian Funds Page 11 of 40 The following strategies and specific type of investments are not the principal investment strategies of the Funds, but are reserved by the Advisor for its use in the event that the Advisor deems it appropriate to do so to achieve the Funds' fundamental goals. 1. Loans of Portfolio Securities The Funds may lend portfolio securities to broker-dealers and financial institutions. In return, the broker-dealers and financial institutions pay the Funds money to borrow these securities. The Funds may lend portfolio securities provided: (1) the loan is secured continuously by collateral marked-to-market daily and maintained in an amount at least equal to the current market value of the securities loaned; (2) the Funds may call the loan at any time and receive the securities loaned; (3) the Funds will receive any interest or dividends paid on the loaned securities; and (4) the aggregate market value of securities loaned by a Fund will not at any time exceed 33% of the total assets of such Fund. Collateral will consist of U.S. Government securities, cash equivalents or irrevocable letters of credit. Loans of securities involve a risk that the borrower may fail to return the securities or may fail to maintain the proper amount of collateral. Therefore, the Funds will only enter into portfolio loans after a review by the Advisor, under the supervision of the Board of Trustees, including a review of the creditworthiness of the borrower. Such reviews will be monitored on an ongoing basis. Lending portfolio securities by Matthews Korea Fund is not currently permitted under Korean laws and regulations. In the event that these laws change, the Fund will take advantage of this strategy as it deems appropriate. 2. Repurchase Agreements The Funds may purchase repurchase agreements to earn income. The Funds may also enter into repurchase agreements with financial institutions that are deemed to be creditworthy by the Advisor, pursuant to guidelines established by the Board of Trustees. The repurchase price under the repurchase agreements equals the price paid by each Fund plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the securities underlying the repurchase agreement). Repurchase agreements may be considered to be collateralized loans by the Funds under the 1940 Act. Any collateral will be marked-to-market daily. If the seller of the underlying security under the repurchase agreement should default on its obligation to repurchase the underlying security, a Fund may experience delay or difficulty in exercising its right to realize upon the security and, in addition, may incur a loss if the value of the security should decline, as well as disposition costs in liquidating the security. A Fund will not invest more than 15% of its net assets in repurchase agreements maturing in more than seven days. The Funds must treat each repurchase agreement as a security for tax diversification purposes and not as cash, a cash equivalent or receivable. Matthews Korea Fund is not currently permitted to engage in repurchase transactions in Korea under Korean laws and regulations. The financial institutions with whom the Funds may enter into repurchase agreements are banks and non-bank dealers of U.S. Government securities that are listed on the Federal Reserve Bank of New York's list of reporting dealers and banks, if such banks and non-bank dealers are deemed creditworthy by the Advisor. The Advisor will continue to monitor the creditworthiness of the seller under a repurchase agreement, and will require the seller to maintain during the term of the agreement the value of the securities subject to the agreement at not less than the repurchase Matthews Asian Funds Page 12 of 40 price. The Funds will only enter into a repurchase agreement where the market value of the underlying security, including interest accrued, will be at all times equal to or exceed the value of the repurchase agreement. The Funds may invest in repurchase agreements with foreign parties, or in a repurchase agreement based on securities denominated in foreign currencies. Legal structures in foreign countries, including bankruptcy laws, may offer less protection to investors such as the Funds, and foreign repurchase agreements generally involve greater risks than a repurchase agreement in the United States. 3. Reverse Repurchase Agreements The Funds may enter into reverse repurchase agreements to raise cash on a short-term basis. Reverse repurchase agreements involve the sale of securities held by the Funds pursuant to the Funds' agreement to repurchase the securities at an agreed upon price, date and rate of interest. Such agreements are considered to be borrowings under the 1940 Act, and may be entered into only for temporary or emergency purposes. While reverse repurchase transactions are outstanding, the Funds will maintain in a segregated account of cash, U.S. Government securities or other liquid, high-grade debt securities in an amount at least equal to the market value of the securities, plus accrued interest, subject to the agreement. Reverse repurchase agreements involve the risk that the market value of the securities sold by the Funds may decline below the price of the securities the Funds are obligated to repurchase such securities. 4. Securities of Other Investment Companies The Funds may invest in the securities of other investment companies and currently intend to limit their investments in securities issued by other investment companies so that, as determined immediately after a purchase of such securities is made: (i) not more than 5% of the value of any the individual Funds' total assets will be invested in the securities of any one investment company; (ii) not more than 10% of their total assets will be invested in the aggregate in securities of investment companies as a group; and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the respective Fund. As a shareholder of another investment company, a Fund would bear along with other shareholders, its pro rata portion of the investment company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that the Funds bear directly in connection with their own operations. 5. Illiquid Securities Illiquid Securities are securities that can not be disposed of at the market price within seven days of wanting to do so. The Board of Trustees has delegated the function of making day to day determinations of whether a security is liquid or not to the Advisor, pursuant to guidelines established by the Board of Trustees and subject to it quarterly review. The Advisor will monitor the liquidity of securities held by each Fund and report periodically on such decisions to the Board of Trustees. The Fund may invest up to 15% of its net assets in equity or debt securities for which there is no ready market. The Fund may therefore not be able to readily sell such securities. Such securities are unlike securities that are traded in the open market and which can be expected to be sold immediately. The sale price of securities that are not readily marketable may be lower or higher than the Fund's most recent estimate of their fair value. Generally, less public information is available with respect to the issuers of these securities than with respect to companies whose securities are traded on an exchange. Securities which are not readily marketable are more Matthews Asian Funds Page 13 of 40 likely to be issued by start-up, small or family business and therefore subject to greater economic, business and market risks than the listed securities of more well-established companies. 6. Rule 144A Securities (Restricted Securities) Securities which are not registered with the U.S. Securities and Exchange Commission ("SEC") pursuant to Rule 144A of the Securities Act of 1933, as amended (the "1933 Act"), are only traded among institutional investors. These securities are sometimes called "Restricted Securities" because they are restricted from being sold to the general public because they are not registered with the SEC. Some of these securities are also illiquid because they can not be sold at its market price within 7 days of wanting to do so. The Funds will limit their investments in securities of issuers which are restricted from selling to the public without registration under the 1933 Act. This 15% does not include any restricted securities that have been determined to be liquid by the Funds' Board of Trustees. 7. Convertible Securities Each Fund may purchase convertible securities. While common stock occupies the most junior position in a company's capital structure, convertible securities entitle the holder to exchange the securities for a specified number of shares of common stock, usually of the same company, at specified prices within a certain period of time. In addition, the owner of convertible securities receives interest or dividends until the security is converted. The provisions of any convertible security determine its ranking in a company's capital structure. In the case of subordinated convertible debentures, the holder's claims on assets and earnings are subordinated to the claims of other creditors, and are senior to the claims of preferred and common shareholders. In the case of preferred stock and convertible preferred stock, the holder's claims on assets and earnings are subordinated to the claims of all creditors but are senior to the claims of common shareholders. To the extent that a convertible security's investment value is greater than its conversion value, its price will be primarily a reflection of such investment value and its price will be likely to increase when interest rates fall and decrease when interest rates rise, as with a fixed-income security. If the conversion value exceeds the investment value, the price of the convertible security will rise above its investment value and, in addition, may sell at some premium over its conversion value. At such times the price of the convertible security will tend to fluctuate directly with the price of the underlying equity security. 8. Forward Commitments, When-Issued Securities and Delayed-Delivery Transactions The Funds may purchase securities on a when-issued basis, or purchase or sell securities on a forward commitment basis or purchase securities on a delayed-delivery basis. The Funds will normally realize a capital gain or loss in connection with these transactions. For purposes of determining the Funds' average dollar-weighted maturity, the maturity of when-issued or forward commitment securities will be calculated from the commitment date. When the Funds purchase securities on a when-issued, delayed-delivery or forward commitment basis, the Funds' custodian will maintain in a segregated account: cash, U.S. Government securities or other high grade liquid debt obligations having a value (determined daily) at least equal to the amount of the Funds' purchase commitments. In the case of a forward commitment to sell portfolio securities, the custodian will hold the portfolio securities themselves in a segregated account while the commitment is outstanding. These procedures are designed to ensure that the Funds will maintain sufficient assets at all times Matthews Asian Funds Page 14 of 40 to cover their obligations under when-issued purchases, forward commitments and delayed-delivery transactions. Securities purchased or sold on a when-issued, delayed-delivery or forward commitment basis involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Although the Funds would generally purchase securities on a when-issued, delayed-delivery or a forward commitment basis with the intention of acquiring the securities, the Funds may dispose of such securities prior to settlement if the Advisor deems it appropriate to do so. 9. Fixed-Income Securities (Bonds etc.) All fixed-income securities are subject to two types of risks: credit risk (will the borrower be able to pay back the money) and the interest rate risk. The credit risk relates to the ability of the issuer to meet interest or principal payments or both as they come due. The interest rate risk refers to the fluctuations in the net asset value of any portfolio of fixed-income securities resulting from the inverse relationship between price and yield of fixed-income securities; that is, when the general level of interest rates rises, the prices of outstanding fixed-income securities decline, and when interest rates fall, prices rise. In addition, if the currency in which a security is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a rise in interest rates or a decline in the exchange rate of the currency would adversely affect the value of the security expressed in dollars. Fixed-income securities denominated in currencies other than the U.S. dollar or in multinational currency units are evaluated on the strength of the particular currency against the U.S. dollar as well as on the current and expected levels of interest rates in the country or countries. 10. Short-Selling The Funds may make short sales. A short sale occurs when a Fund borrows stock (usually from a broker) and promises to give it back at some date in the future. If the market price of that stock goes down, the Fund buys the stock at a lower price so that it can pay back the broker for the stock borrowed. The difference between the price of the stock when borrowed, and when later purchased, is a profit. The profit is reduced by a fee paid to the broker for borrowing the stock. A Fund may incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaced the borrowed security. The amount of any loss will be increased, by the amount of any premium, dividends or interest the Fund may be required to pay in connection with a short sale. No securities will be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 10% of the value of the Fund's net assets. The Fund will place in a segregated account with its custodian bank an amount of cash or U.S. Government securities equal to the difference between the market value of the securities sold short at the time they were sold short and any cash or U.S. Government securities required to be deposited as collateral with the broker in connection with the short sale. This segregated account will be marked to market daily, provided that at no time will the amount deposited in it plus the amount deposited with the broker as collateral be less than the market value of the securities at the time they were sold short. 11. Interest Rate Futures Contracts The Funds may enter into contracts for the future delivery of fixed-income securities commonly referred to as "interest rate futures contracts." These futures contracts will be used only as a hedge against anticipated interest rate Matthews Asian Funds Page 15 of 40 changes. The Funds will not enter into an interest rate futures contract if immediately thereafter more than 5% of the value of the respective Fund's total assets will be committed to margin. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments being hedged and in the price of the futures contract or option may be imperfect (the Advisor guessed wrong about how interest rates would change); (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. 12. Futures Transactions The Funds may engage in futures transactions for the purchase or sale for future delivery of securities. While futures contracts provide for the delivery of securities, deliveries usually do not occur. Contracts are generally terminated by entering into offsetting transactions. The Funds may invest in futures transactions for hedging purposes or to maintain liquidity. A Fund may not purchase or sell a futures contract, however, unless immediately after any such transaction the sum of the aggregate amount of margin deposits on its existing futures positions and the amount of premiums paid for related options is 10% or less of its total assets. At maturity, a futures contract obligates the Funds to take or make delivery of certain securities or the cash value of a securities index. A Fund may sell a futures contract in order to offset a decrease in the market value of its portfolio securities that might otherwise result from a market decline. A Fund may do so either to hedge the value of its portfolio of securities as a whole, or to protect against declines, occurring prior to sales of securities, in the value of the securities to be sold. Conversely, a Fund may purchase a futures contract in anticipation of purchases of securities. In addition, a Fund may utilize futures contracts in anticipation of changes in the composition of its portfolio holdings. The Funds may engage in futures transactions on U.S. or foreign exchanges or boards of trade. In the U.S., futures exchanges and trading are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S. Government agency. The Funds may enter into such futures transactions to protect itself against the adverse effects of fluctuations in security prices, or interest rates, without actually buying or selling the securities underlying the contract. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement was made. With respect to options on futures contracts, when the Funds are temporarily not fully invested, they may purchase a call option on a futures contract to hedge against a market advance due to declining interest rates. The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based, or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. The writing of a call option on a futures contract constitutes a partial hedge against the declining price of the security or foreign currency which is deliverable upon exercise of the futures contract. The writing of a put option on a futures contract constitutes a partial hedge against the increasing price of the Matthews Asian Funds Page 16 of 40 security or foreign currency which is deliverable upon exercise of the futures contract. To the extent that market prices move in an unexpected direction, the Funds may not achieve the anticipated benefits of futures contracts or options on futures contracts or may realize a loss. Further, with respect to options on futures contracts, the Funds may seek to close out an option position by writing or buying an offsetting position covering the same securities or contracts and have the same exercise price and expiration date. The ability to establish and close out positions on options will be subject to the maintenance of a liquid secondary market, which cannot be assured. The Funds may purchase and sell call and put options on futures contracts traded on an exchange or board of trade. When a Fund purchases an option on a futures contract, it has the right to assume a position as a purchaser or seller of a futures contract at a specified exercise price at any time during the option period. When a Fund sells an option on a futures contract, it becomes obligated to purchase or sell a futures contract if the option is exercised. In anticipation of a market advance, the Funds may purchase call options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the Funds intend to purchase. Similarly, if the market is expected to decline, the Funds might purchase put options or sell call options on futures contracts rather than sell futures contracts. In connection with the Funds' position in a futures contract or option thereon, the Funds will create a segregated account of liquid assets, such as cash, U.S. Government securities or other liquid high grade debt obligations, or will otherwise cover its position in accordance with applicable requirements of the SEC. a. Restrictions on the Use of Futures Contracts Each Fund may enter into futures contracts provided that such obligations represent no more than 20% of the Fund's net assets. Under the Commodity Exchange Act, each Fund may enter into futures transactions for hedging purposes without regard to the percentage of assets committed to initial margin and for other than hedging purposes provided that assets committed to initial margin do not exceed 5% of the Fund's net assets. To the extent required by law, the Fund will set aside cash and appropriate liquid assets in a segregated account to cover its obligations related to futures contracts. b. Risk Factors of Futures Transactions The primary risks associated with the use of futures contracts and options (commonly referred to as "derivatives") are: (i) imperfect correlation between the change in market value of the securities held by the Funds and the price of futures contracts and options; (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (iii) losses, which are potentially unlimited, due to unanticipated market movements; and (iv) the Advisor's ability to predict correctly the direction of security prices, interest rates and other economic factors. 13. Foreign Currency Hedging Strategies a. Special Considerations The Funds may use options and futures on foreign currencies and forward currency contracts to hedge against movements in the values of the foreign currencies in which the Funds' securities are denominated. Such currency hedges can protect against price movements in a security the Funds own or intend to acquire that are attributable to changes in the value of the currency in which it is denominated. While hedging may limit the detriment when a currency moves against a Fund, the Advisor's ability to anticipate changes in the price of foreign currencies is not always accurate, so the hedge may limit the full Matthews Asian Funds Page 17 of 40 benefit of a currency move in the Fund's favor. In addition, such hedges do not protect against price movements in the securities that are attributable to other causes. The value of hedging instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such hedging instruments, a Fund could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. The Funds might seek to hedge against changes in the value of a particular currency when no hedging instruments on that currency are available or such hedging instruments are more expensive than certain other hedging instruments. In such cases, the Funds may hedge against price movements in that currency by entering into transactions using hedging instruments on other currencies, the values of which the Advisor believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the hedging instrument will not correlate perfectly with movements in the price of the currency being hedged is magnified when this strategy is used. Settlement of hedging transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, the Funds might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. b. Forward Currency Contracts A forward currency contract involves an obligation to purchase or sell a specific currency at a specified future date, which may be any fixed number of days from the contract date agreed upon by the parties, at a price set at the time the contract is entered into. The Funds may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. The Funds also may use forward currency contracts for "cross-hedging." Under this strategy, the Funds would increase their exposure to foreign currencies that the Advisor believes might rise in value relative to the U.S. dollar, or the Funds would shift their exposure to foreign currency fluctuations from one country to another. The cost to each Fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When a Fund enters into a forward currency contract, it relies on the contra party to make or take delivery of the underlying currency at the maturity of the contract. Failure by the contra party to do so would result in the loss of any expected benefit of the transaction. As is the case with futures contracts, holders and writers of forward currency contracts can enter into offsetting closing transactions, similar to closing transactions on futures, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the contra party. Matthews Asian Funds Page 18 of 40 Thus, there can be no assurance that the Funds will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the contra party, the Funds might be unable to close out a forward currency contract at any time prior to maturity. In either event, the Funds would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or securities in a segregated account. The precise matching of forward currency contracts amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the foreign currency contract has been established. Thus, the Funds might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. (i) Limitations on the Use of Forward Currency Contracts: The Funds may enter into forward currency contracts or maintain a net exposure to such contracts only if (1) the consummation of the contracts would not obligate the Funds to deliver an amount of foreign currency in excess of the value of their portfolio securities or other assets denominated in that currency, or (2) the Funds maintain cash, U.S. Government securities or liquid, high-grade debt securities in a segregated account in an amount not less than the value of their total assets committed to the consummation of the contract and not covered as provided in (1) above, as marked to market daily. 14. Options The Funds may buy put and call options and write covered call and secured put options. Such options may relate to particular securities, stock indices, or financial instruments and may or may not be listed on a national securities exchange and issued by the Options Clearing Corporation. Options trading is a highly specialized activity which entails greater than ordinary investment risk. Options on particular securities may be more volatile than the underlying securities, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying securities themselves. a. Writing Call Options The Funds may write covered call options from time to time on portions of its portfolios, without limit, as the Advisor determines is appropriate in pursuing a Funds' investment goals. The advantage to the Funds of writing covered calls is that each Fund receives a premium which is additional income. However, if the security rises in value, the respective Fund may not fully participate in the market appreciation. The Funds will write call options only if they are "covered." In the case of a call option on a security, the option is "covered" if a Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, liquid assets, such as cash, U.S. Government securities or other liquid high-grade debt obligations, in such amount held in a segregated account by its custodian) upon conversion or exchange of other securities held by it. For a call option on an index, the option is covered if a Fund maintains with its custodian a diversified stock portfolio, or liquid assets equal to the contract value. A call option is also covered if a Fund holds a call on the same Matthews Asian Funds Page 19 of 40 security or index as the call written here the exercise price of the call held is (i) equal to or less than the exercise price of the call written; or (ii) greater than the exercise price of the call written provided the difference is maintained by the Fund in liquid assets such as cash, U.S. Government securities and other high-grade debt obligations in a segregated account with its custodian. The Funds' obligation under a covered call option is terminated upon the expiration of the option or upon entering a closing purchase transaction. In a closing purchase transaction, a Fund, as writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable the Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. The Funds may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirely offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. Conversely, a gain resulting from a closing purchase transaction could be offset in whole or in part by a decline in the market value of the underlying security. During the option period, a covered call option writer may be assigned an exercise notice by the broker-dealer through whom such call option was sold, requiring the writer to deliver the underlying security against payment of the exercise price. A closing purchase transaction cannot be effected with respect to an option once the option writer has received an exercise notice for such option. b. Writing Put Options Each Fund may write put options. The Funds will write put options only if they are "secured" at all times by liquid assets of cash or U.S. Government securities maintained in a segregated account by the Funds' custodian in an amount not less than the exercise price of the option at all times during the option period. Secured put options will generally be written in circumstances where the Advisor wishes to purchase the underlying security for a Fund's portfolio at a price lower than the current market price of the security. With regard to the writing of put options, each Fund will limit the aggregate value of the obligations underlying such put options to 50% of its total net assets. Following the writing of a put option, the Fund may wish to terminate the obligation to buy the security underlying the option by effecting a closing purchase transaction. This is accomplished by buying an option of the same series as the option previously written. The Fund may not, however, effect such a closing transaction after it has been notified of the exercise of the option. c. Purchasing Call Options The Funds may purchase call options to the extent that premiums paid by the Funds do not aggregate more than 10% of a Fund's total assets. When the Funds purchase a call option, in return for a premium paid by the Fund to the writer of the option, the Fund obtains the right to buy the security underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium upon writing the option, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. The advantage of purchasing call options is that the Fund may alter portfolio characteristics and Matthews Asian Funds Page 20 of 40 modify portfolio maturities without incurring the cost associated with such transactions. The Funds may, following the purchase of a call option, liquidate their position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. The Funds will realize a profit from a closing sale transaction if the price received on the transaction is more than the premium paid to purchase the original call option; the Funds will realize a loss from a closing sale transaction if the price received on the transaction is less than the premium paid to purchase the original call option. Although the Funds will generally purchase only those call options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange may exist. In such event, it may not be possible to effect closing transactions in particular options, with the result that the Funds would have to exercise their options in order to realize any profit and would incur brokerage commissions upon the exercise of such options and upon the subsequent disposition of the underlying securities acquired through the exercise of such options. Further, unless the price of the underlying security changes sufficiently, a call option purchased by the Funds may expire without any value to the Funds, in which event the Funds would realize a capital loss which will be short-term unless the option was held for more than one year. d. Purchasing Put Options Each Fund may invest up to 10% of its total assets in the purchase of put options. Each Fund will, at all times during which it holds a put option, own the security covered by such option. The purchase of the put options on substantially identical securities held will constitute a short sale for tax purposes, the effect of which is to create short-term capital gain on the sale of the security and to suspend running of its holding period (and treat it as commencing on the date of the closing of the short sale) or that of a security acquired to cover the same if at the time the put was acquired, the security had not been held for more than one year. A put option purchased by a Fund gives it the right to sell one of its securities for an agreed price up to an agreed date. Each Fund intends to purchase put options in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option ("protective puts"). The Funds may sell a put option which they have previously purchased prior to the sale of the securities underlying such option. Such sale will result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold. The Funds may sell a put option purchased on individual portfolio securities. Additionally, the Funds may enter into closing sale transactions. A closing sale transaction is one in which a Fund, when it is the holder of an outstanding option, liquidate its respective position by selling an option of the same series as the option previously purchased. FUNDS' POLICIES The Policies set forth below are fundamental and may not be changed as to a Fund without the approval of a majority of the outstanding voting shares (as defined in the 1940 Act) of the Fund. Unless otherwise indicated, all percentage limitations listed below apply to the Funds and apply only at the time of the transaction. Accordingly, if a percentage restriction is adhered to at the time an investment is made, a later increase or decrease in the percentage which results from a relative change in values or from a change in a Fund's total assets will not be considered a violation. Matthews Asian Funds Page 21 of 40 Except as otherwise set forth herein and in the Prospectus each Fund may not: 1. Issue senior securities or 2. Borrow money, except that each Fund may borrow from banks and enter into reverse repurchase agreements for temporary purposes in amounts up to one-third of the value of its total assets at the time of such borrowing; or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the total assets of the Fund at the time of its borrowing. All borrowing will be done from a bank and asset coverage of at least 300% is required. A Fund will not purchase securities when borrowings exceed 5% of that Fund's total assets; 3. Act as an underwriter of securities, except that, in connection with the disposition of a security, a Fund may be deemed to be an "underwriter" as that term is defined in the 1933 Act; 4. Purchase the securities of issuers conducting their principal business activities in the same industry (other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if immediately after such purchase the value of a Fund's investments in such industry would exceed 25% of the value of the total assets of the Fund. This Policy does not apply to the Technology Fund; 5. Purchase or sell real estate real estate limited partnership interests, interests in oil, gas and/or mineral exploration or development programs or leases. This restriction shall not prevent the Funds from investing directly or indirectly in portfolio instruments secured by real estate or interests therein or acquiring securities of real estate investment trusts or other issuers that deal in real estate.; 6. Make loans, except that this restriction shall not prohibit (a) the purchase and holding of debt instruments in accordance with a Fund's investment objectives and policies, (b) the lending of portfolio securities, or (c) entry into repurchase agreements with banks or broker-dealers; 7. Change its diversification status under the 1940 Act. 8. Purchase or sell commodities or commodity contracts, except that a Fund may purchase or sell currencies, may enter into futures contracts on securities, currencies, or on indexes of such securities or currencies, or any other financial instruments, and may purchase or sell options on such futures contracts; 9. Make investments in securities for the purpose of exercising control; 10. Purchase the securities of any one issuer if, immediately after such purchase, a Fund would own more than 10% of the outstanding voting securities of such issuer; 11. Invest more than 5% of its total assets in securities of companies less than three years old. Such three-year period shall include the operation of any predecessor company or companies. TEMPORARY DEFENSIVE POSITION The Advisor intends to be fully invested in the economies appropriate to each Fund's investment objectives as is practicable, in light of economic and market conditions and the Funds' cash needs. When, in the opinion of the Advisor, a temporary defensive position is warranted, the Funds are permitted to hold cash or invest temporarily and without limitation in U.S. Government securities or money market instruments backed by U.S. Government securities. The Funds' investment objective may not be achieved at such times when a temporary defensive position is taken. Matthews Asian Funds Page 22 of 40 PORTFOLIO TURNOVER The Advisor buys and sells securities for the Funds whenever it believes it is appropriate to do so. The rate of portfolio turnover will not be a limiting factor in making portfolio decisions. It is currently estimated that under normal market conditions the annual portfolio turnover rate for the Funds will not exceed 100%. Portfolio turnover rates may vary greatly from year to year as well as within a particular year. High portfolio turnover rates (i.e. over 100%) will generally result in higher transaction costs to the Fund and also may result in a higher level of taxable gain for a shareholder. Portfolio turnover for the Funds' most recent fiscal period are set forth in "FINANCIAL HIGHLIGHTS" table in the Prospectus. MANAGEMENT OF THE FUNDS Trustees and Officers Information pertaining to the Trustees and executive officers of the Trust is set forth below. Note that neither the Trustees nor the officers of the Trust receive any pension or retirement benefits from the Funds.
Name & Address Total Position(s) Principal Occupation During Compensation Held with Past Five Years from Funds and Registrant Fund Complex Paid to Trustees Norman W. Berryessa $8,000 Trustee Registered Investment Advisor 100 Bush Street Since 1996; Suite 1000 Independent Contractor, San Francisco, CA 94109 Emmett Larkin Co., since Date of Birth 11/11/28 1983. Robert K. Connolly $8,000 Trustee Retired since 8/90. Prior P.O. Box 941990 thereto Institutional Sales Sonoma, CA 95476 Manager and Securities Date of Birth 9/16/32 Analyst for Barrington Research Associates. John H. Dracott* $0 Trustee Asian mutual fund 1795 Vistaza West consultant. P.O. Box 162 Emeritus since 1991. Tiburon, CA 94920 Date of Birth 4/17/28 David FitzWilliam-Lay* $0 Trustee Director, USDC Investment Blosham Trust PLC & Berry Starquest Great Bedwyn PLC. Retired in 1993 after Marlborough 3 yrs. as Chairman of GT Wiltshire SN83NT Management, PLC. United Date of Birth 10/2/31 Kingdom Richard K. Lyons $12,000 Chairman of Professor, Haas School of Haas School of Business, S545 the Business University of University of California
Matthews Asian Funds Page 23 of 40 Board of Berkeley, CA 94720 Trustees California since 1993. Date of Birth 2/10/61 and Trustee G. Paul Matthews* $0 President Chief Executive Officer and 456 Montgomery Street Chief Investment Officer of Suite 1200 Matthews International San Francisco, CA 94104 Capital Management LLC since Date of Birth 4/14/56 1991. Mark W. Headley* $0 Vice President President, Matthews 456 Montgomery Street International Capital Suite 1200 Management LLC since 1999; San Francisco, CA 94104 Portfolio Manager and Date of Birth 2/12/59 Managing Director 1996-1999; Managing Director and Senior Analyst from 1995-1996. Downey L. Hebble* $0 Secretary Senior Vice President, Matthews 456 Montgomery Street International Capital Management, LLC Suite 1200 since 2001; Vice President, 1999-2001; San Francisco, CA 94104 Manager, Montgomery Asset Management, Date of Birth 7/28/70 1997-1999; Marketing Manager, Matthews International Capital Management, LLC, 1995-1997. James E. Walter* $0 Treasurer Head Trader, Matthews 456 Montgomery Street International Capital Suite 1200 Management, LLC since 1996, San Francisco, CA 94104 prior thereto, The Sherwin Date of Birth 4/6/70 Williams Company.
* These Trustees and officers are considered "interested persons" of the Trust as defined under the 1940 Act. The Trust currently does not maintain any pension or retirement benefits plan for the benefit of the Trustees. The Trustees of the Trust receive a retainer of $4,000 per year, plus $1,000 per meeting and expenses for each meeting of the Board of Trustees they attend. (The Chairman of the Board of Trustees receives a retainer of $6,000 per year, plus $1,500 per meeting.) However, no officer or employee of the Advisor receives any compensation from the Funds for acting as a Trustee of the Trust. The officers of the Funds receive no compensation directly from the Funds for performing the duties of their offices. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of November 30, 2001 the Trustees and officers as a group owned less than 1% of the outstanding shares of any of the Funds. As of November 30, 2001 the following persons owned of record or beneficially more than 5% of the outstanding voting shares of the: Matthews Asian Funds Page 24 of 40 Account Holders Name, Address and Percentage of Shares Matthews Pacific Tiger Fund: Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds 101 Montgomery Street San Francisco, CA 94104, 48.9%. National Financial Services Corp., FBO; C/O Sal Vella ATTN: Mutual Funds 200 Liberty St., 5th FL New York, NY 10281-1003, 13.0%. National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY 10041-3299, 6.6%. Matthews Asian Growth and Income Fund: Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, 59.3%. National Financial Services Corp., FBO; C/O Sal Vella, Attn: Mutual Funds, 200 Liberty Street, 5th Floor, New York, NY 10281, 11.8%. National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY 10041-3299, 10.8%. Matthews Korea Fund: Morgan Stanley & Co., FBO Goodness LTD Fee Account; ATTN: Mena Griffiths, P.O. Box N-7776, Lyford Cay, Nassau FF 00000, 20.9%. Merrill Lynch Pierce Fenner & Smith, Inc. for the Sole Benefit of Its Customers; ATTN: Service Team, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246, 19.7%. Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, 19.4%. National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200 Liberty Street, 5th Floor, New York, NY 10281, 17.6%. Matthews China Fund: Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, 46.9%. National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200 Liberty Street, 5th Floor, New York, NY 10281, 17.1%. National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY 10041-3299, 8.4%. Matthews Japan Fund: Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, 47.1%. National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200 Liberty Street, 5th Floor, New York, NY 10281, 16.0%. National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY 10041-3299, 8.9%. Matthews Asian Funds Page 25 of 40 Matthews Asian Technology Fund Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, 44.0%. National Financial Services Corp., FBO; C/O Sal Vella, Attn: Mutual Funds, 200 Liberty Street, 5th Floor, New York, NY 10281, 14.4%. National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY 10041-3299, 10.2%. Donaldson Lufkin Jenrette, P.O. Box 2052, Jersey City, NJ 07304-9998, 10.0%. INVESTMENT ADVISORY AND OTHER SERVICES The Investment Advisor Currently the Trust employs only one investment advisor, Matthews International Capital Management LLC. The Advisor performs its duties and is paid pursuant to a contract. Some of the terms of this contract are set by the 1940 Act such as that it is reviewed each year by the Board of Trustees and that the Board may cancel it without penalty on 60 days' notice. The advisory services provided by the Advisor and the fees received by it for such services are described in the Prospectus. As stated in the Prospectus, the Advisor may from time to time voluntarily waive its advisory fees with respect to any Fund. Under the Advisory Contract, the Advisor is not liable for any error of judgment or mistake of law or for any loss suffered by the Trust or a Fund in connection with the performance of the Advisory Contract, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its duties and obligations thereunder. The terms of the Advisory Contract provide that it will continue from year to year provided that it is approved at least annually by the vote of the holders of at least a majority of the outstanding shares of the respective Fund, or by the Trustees of the respective Fund. The Advisory Contract may be terminated with respect to a Fund by vote of the Board of Trustees or by the holders of a majority of the outstanding voting securities of the Fund, at any time without penalty, on 60 days' written notice to the Advisor. The Advisor may also terminate its advisory relationship with respect to a Fund on 60 days' written notice to the Trust. The Advisory Contract can only be assigned with prior Shareholder approval. In the event that the Advisory Contract is assigned without Shareholder approval, the Advisory Contract automatically terminates. Under its respective Advisory Contract, each Fund pays the following expenses: 1. the fees and expenses of the Trust's disinterested Trustees; 2. the salaries and expenses of any of the Trust's officers or employees who are not affiliated with the Advisor; 3. interest expenses; 4. taxes and governmental fees; 5. brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; 6. the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; 7. accounting and legal costs; Matthews Asian Funds Page 26 of 40 8. insurance premiums; 9. fees and expenses of the Trust's custodian, administrator and transfer agent and any related services; 10. expenses of obtaining quotations of the Funds' portfolio securities and of pricing the Funds' shares; 11. expenses of maintaining the Trust's legal existence and of shareholders' meetings; 12. expenses of preparation and distribution to existing shareholders of reports, proxies and prospectuses; and 13. fees and expenses of membership in industry organizations. The ratio of each Fund's expenses to its relative net assets can be expected to be higher than the expense ratios of funds investing solely in domestic securities, since the cost of maintaining the custody of foreign securities and the rate of investment management fees paid by each Fund generally are higher than the comparable expenses of such other funds. General expenses of the Trust (such as costs of maintaining corporate existence, legal fees, insurance, etc.) and expenses shares by the Funds will be allocated among the Funds on a basis deemed fair and equitable, which may be based on the relative net assets of the Funds or the nature of the services performed and relative applicability to each Fund. Expenses which relate exclusively to a particular Fund, such as certain registration fees, brokerage commissions and other portfolio expenses, will be borne directly by that Fund. During the fiscal years ended August 31, 1999, 2000 and 2001, the aggregate advisory fees earned by the Advisor, before voluntary waivers, totaled $2,401,451, $3,522,268 and $2,526,860, respectively. Matthews Fund Gross Gross Gross Advisory Advisory Advisor Fees Fees Earned Fees Earned Earned During FYE During FYE During FYE 08-31, 2000 08-31, 2001 08-31, 1999 Pacific Tiger $666,384 $1,169,262 $859,562 Growth and Income $65,119 $114,463 $164,505 Korea $1,597,951 $1,783,564 $1,100,527 China $30,128 $77,085 $143,738 Japan $41,869 $260,067 $125,198 Asian Technology N/A $117,827 $133,330 The Trust and the Advisor have adopted a Code of Ethics pursuant to Section 17(j) of the 1940 Act and Rule 17j-1 thereunder. The Code of Ethics conforms to the provisions of Rule 17j-1 as adopted by the SEC on October 29, 1999. Currently, the Code of Ethics prohibits personnel subject to the Code of Ethics from buying or selling securities for their own individual accounts if such securities at the time of such purchase or sale (i) are being considered for purchase or sale by the Trust or (ii) are then being purchased or sold by the Trust. Notwithstanding these prohibitions, there are limited circumstances in which personnel subject to the Code of Ethics may buy or sell securities for their own account (E.G. purchases which are part of an automatic dividend reinvestment plan). Principal Underwriter Effective December 31, 2000, the Trust entered into an Underwriting Agreement (the "Underwriting Agreement") with PFPC Distributors, Inc., 3200 Horizon Drive, King of Prussia, PA ("PFPC Distributors"), the successor by merger to Provident Distributors, Inc. Prior to December 31, 2000, Provident Distributors, Inc. 3200 Horizon Drive, King of Prussia, PA served as the Trust's distributor. PFPC Distributors acts as an underwriter of the Funds' shares for the purpose of facilitating the registration of shares of the Funds under state securities laws and assists in the continuous offering of shares pursuant to the Underwriting Matthews Asian Funds Page 27 of 40 Agreement approved by the Board of Trustees. In this regard, PFPC Distributors has agreed at its own expense to qualify as a broker-dealer under all applicable Federal or state laws in those states which the Trust shall from time to time identify to PFPC Distributors as states in which it wishes to offer its shares for sale, in order that state registrations may be maintained for the Funds. PFPC Distributors is a broker-dealer registered with the SEC and a member in good standing of the National Association of Securities Dealers, Inc. Pursuant to its Underwriter Compensation Agreement with the Trust, PFPC Distributors is paid for certain registration and transaction fees. Service Agreements PFPC Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903, provides certain administrative services to the Trust pursuant to an Investment Company Services Agreement (the "Investment Company Services Agreement"). Under the Investment Company Services Agreement, PFPC: (1) coordinates with the custodian and transfer agent and monitors the services they provide to the Funds; (2) coordinates with and monitors any other third parties furnishing services to the Funds; (3) provides the Funds with necessary office space, telephones and other communications facilities and personnel competent to perform administrative and clerical functions; (4) supervises the maintenance by third parties of such books and records of the Funds as may be required by applicable federal or state law; (5) prepares or supervises the preparation by third parties of all Federal, state and local tax returns and reports of the Funds required by applicable law; (6) prepares and files and arranges for the distribution of proxy materials and periodic reports to shareholders of the Funds as required by applicable law; (7) prepares and arranges for the filing of such registration statements and other documents with the SEC and other Federal and state regulatory authorities as may be required by applicable law; (8) reviews and submits to the officers of the Trust for their approval invoices or other requests for payment of the Funds' expenses and instructs the Custodian to issue checks in payment thereof; and (9) takes such other action with respect to the Trust or the Funds as may be necessary in the opinion of the Administrator to perform its duties under the agreement. During the fiscal years ended August 31, 1999, 2000 and 2001, the aggregate fees paid to the Administrator by the Funds totaled $193,575, $292,263, and $387,038, respectively and are broken down as follows: Matthews Asian Funds Page 28 of 40 Matthews Fund Admin. Fees Admin. Fees Admin. Fees Paid During Paid During Paid During FYE 08-31, FYE 08-31, FYE 08-31, 1999 2000 2001 Pacific Tiger $61,577 $94,411 $133,523 Growth and Income $3,677 $8,834 $26,633 Korea $112,782 $141,042 $167,204 China $0 $5,991 $20,648 Japan $15,359 $25,239 $17,642 Asian Technology N/A $16,746 $21,388 Rule 12b-1 Plan (Distribution Plan) The Funds' 12b-1 Plan (the "Plan") is not currently active. The Plan was active, however, from September 1, 2000 to December 15, 2001 of the fiscal year ended August 31, 2001, when the Matthews Pacific Tiger Fund and the Matthews Korea Fund made distribution payments to the Underwriter pursuant to the Plan in the approximate total amount of $8,623. Such payments made by the Matthews Pacific Tiger Fund consisted of payments of approximately: $0 for printing, postage and stationary, and $0 for compensation to brokers. Such payments made by the Matthews Korea Fund consisted of payments of approximately: $0 for printing, postage and stationary, and $0 for compensation to brokers. The Matthews China Fund made no distribution payments to the Underwriter for the period ended August 31, 2001. Other Service Providers CUSTODIAN The Bank of New York, One Wall Street, New York, New York 10286 is the custodian of the Trust's assets pursuant to a custodian agreement. Under the custodian agreement, The Bank of New York (i) maintains a separate account or accounts in the name of each Fund (ii) holds and transfers portfolio securities on account of each Fund, (iii) accepts receipts and makes disbursements of money on behalf of each Fund, (iv) collects and receives all income and other payments and distributions on account of each Fund's securities and (v) makes periodic reports to the Board of Trustees concerning each Fund's operations. COUNSEL TO THE TRUST Paul, Hastings, Janofsky and Walker LLP, 345 California Street, San Francisco, CA 94104-2635 serves as counsel to the Trust. INDEPENDENT AUDITORS Tait, Weller and Baker, 8 Penn Center, Philadelphia, Pennsylvania 19103 serves as the independent auditors of the Trust. The independent auditors provide audit services and assistance and consultation with respect to regulatory filings with the SEC. The books of each Fund will be audited at least once each year by Tait, Weller and Baker. BROKERAGE ALLOCATION AND OTHER PRACTICES The Advisor is responsible for decisions to buy and sell securities for the Funds and for the placement of its portfolio business and the negotiation of commissions, if any, paid on such transactions. Fixed-income securities and many equity securities in which the Funds invest are traded in over-the-counter markets. These securities are generally traded on a net Matthews Asian Funds Page 29 of 40 basis with dealers acting as principal for their own accounts without a stated commission. In over-the-counter transactions, orders are placed directly with a principal market-maker unless a better price and execution can be obtained by using a broker. Brokerage commissions are paid on transactions in listed securities, futures contracts and options thereon. The Advisor is responsible for effecting portfolio transactions and will do so in a manner deemed fair and reasonable to the Funds. The primary consideration in all portfolio transactions will be prompt execution of orders in an efficient manner at the most favorable price. In selecting and monitoring broker-dealers and negotiating commissions, the Advisor may consider a number of factors, including, for example, net price, reputation, financial strength and stability, efficiency of execution and error resolution, block trading and block positioning capabilities, willingness to execute related or unrelated difficult transactions in the future, order of call, offering to the Advisor on-line access to computerized data regarding the Funds' accounts, and other matters involved in the receipt of brokerage services generally. The Advisor may also purchase from a broker or allow a broker to pay for certain research services, economic and market information, portfolio strategy advice, industry and company comments, technical data, recommendations, general reports, consultations, performance measurement data and on-line pricing and news service and periodical subscription fees. The Advisor may pay a brokerage commission in excess of that which another broker-dealer might charge for effecting the same transaction in recognition of the value of these research services. In such a case, however, the Advisor will determine in good faith that such commission is reasonable in relation to the value of brokerage and research provided by such broker-dealer, viewed in terms of either the specific transaction or the Advisor's overall responsibilities to the portfolios over which Advisor exercises investment authority. Research services furnished by brokers through whom the Advisor intends to effect securities transactions may be used in servicing all of the Advisor's accounts; not all of such services may be used by the Advisor in connection with accounts which paid commissions to the broker providing such services. In conducting all of its soft dollar relationships, the Advisor will seek to take advantage of the safe harbor provided by Section 28(e) of the Securities Exchange Act of 1934, as amended. The Advisor will attempt to equitably allocate portfolio transactions among the Funds and other accounts whenever concurrent decisions are made to purchase or sell securities by the Funds and other accounts. In making such allocations between the Funds and others, the main factors to be considered are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and the opinions of the persons responsible for recommending investments to the Funds and the others. In some cases, this procedure could have an adverse effect on the Funds. In the opinion of the Advisor, however, the results of such procedures will, on the whole, be in the best interests of each of the clients. For the fiscal years ended August 31, 1999, 2000 and 2001, the aggregate brokerage commissions paid by the Trust on behalf of the Funds amounted to $1,579,983, $1,976,298 and $1,471,371, respectively. The total brokerage commissions attributable to each Fund are set forth below. Matthews Asian Funds Page 30 of 40 Matthews Fund Brokerage Brokerage Brokerage Commissions Commissions Commissions Paid During Paid During Paid During FYE 08-31, FYE 08-31, FYE 08-31, 1999 2000 2001 Pacific Tiger $791,439 $525,729 $432,176 Growth and $17,991 $23,471 $ 45,901 Income Korea $711,735 $956,244 $648,648 China $20,865 $60,490 $106,249 Japan $37,953 $229,967 $ 47,475 Asian N/A $180,397 $190,922 Technology There are no brokers which the Advisor uses which are affiliated with the Trust or the Advisor. SHARES OF BENEFICIAL INTEREST Each Fund is authorized to issue an unlimited number of shares of beneficial interest, each with a $0.001 par value. Shares of each Fund represent equal proportionate interests in the assets of that Fund only, and have identical voting, dividend, redemption, liquidation and other rights. All shares issued are fully paid and non-assessable, and shareholders have no preemptive or other right to subscribe to any additional shares and no conversion rights. The validity of shares of beneficial interest offered by this registration statement has been passed on by Paul, Hastings, Janofsky and Walker LLP, 345 California Street, San Francisco, CA 94104-2635. All accounts will be maintained in book entry form and no share certificates will be issued. PURCHASE, REDEMPTION AND PRICING OF SHARES Purchase of Shares Matthews Asian Funds Page 31 of 40 The shares are offered to the public through the Underwriter or through investment professionals who may charge a fee for their services. Determination of Net Asset Value Generally, the net asset value of a Fund will be determined as of the close of trading on each day the New York Stock Exchange ("NYSE") is open for trading. The Funds do not determine net asset value on days that the NYSE is closed and at other times described in the Prospectus. However, the Funds may, under extraordinary circumstances, calculate the NAVs of their respective shares on days in which the NYSE is closed for trading. The NYSE is closed on the day which the following holidays are observed: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned holidays falls on a Saturday, the NYSE will not be open for trading on the preceding Friday and when such holiday falls on a Sunday, the NYSE will not be open for trading on the succeeding Monday, unless unusual business conditions exist, such as the ending of a monthly or the yearly accounting period. Trading in securities on Asian and Pacific Basin securities exchanges and over-the-counter markets is normally completed well before the close of the business day in New York. In addition, Far Eastern securities trading may not take place on all business days in New York. Furthermore, trading takes place in Japanese markets and in various foreign markets on days which are not business days the NYSE is open and therefore the Fund's respective net asset values are not calculated. The calculation of the Funds' net asset values may not take place contemporaneously with the determination of the prices of portfolio securities held by the Funds. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the NYSE will not be reflected in the Funds' calculation of net asset value unless the Board of Trustees deems that the particular event would materially affect the net asset value, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the net asset value of the Funds' shares into U.S. dollars at the prevailing market rates. The fair value of all other assets is added to the value of securities to arrive at the total assets. Portfolio securities for Matthews Korea Fund and Matthews Japan Fund which are traded on the Korean exchange and Japanese exchanges, respectively, are valued at the most recent sale price reported on the exchange. If no sale occurred, the security is then valued at the calculated mean between the most recent bid and asked quotations. If there are no such bid and asked quotations, the most recent bid quotation is used. All other securities are valued at fair value as determined in good faith by the Board of Trustees including certain investments in Korean equity securities and Japanese equity securities that have met the limit for aggregate foreign ownership and for which premiums to the local stock exchange prices are offered by prospective foreign investors. Generally portfolio securities subject to a "foreign share" premium are valued at the local share prices (i.e., without including any foreign share premium) because of the uncertainty of realizing the premium and the recent trend toward the reduction or disappearance of such foreign premiums. Matthews Asian Funds Page 32 of 40 Redemption in Kind At the organizational meeting of the Trust, the Trustees directed that the Trust elect to pay redemptions in cash as consistent with Rule 18f-1 of the 1940 Act. The Trustees further directed that Form N-18F-1 be filed with the SEC on the Trust's behalf committing the Trust to pay in cash all requests for redemption by any shareholder of record, limited in amount with respect to each shareholder during any 90-day period to the lesser of $250,000 or 1 percent of the net asset value of such company at the beginning of such period. This means that the Trust could, if the redemption is larger that $250,000 or 1% of the net asset value of the Trust, pay a redemption with the securities held in the Trust's portfolios. It this occurred, the shareholder receiving these portfolio securities would incur transactions charges if they were to convert the securities into cash. Equalization For any of its fiscal years, each Fund may use the equalization method to allocate taxable income. Equalization allocates a pro-rata share of taxable income to departing shareholders when they redeem shares of a Fund, reducing the amount of the distribution to be made to remaining shareholders of that Fund. This should contribute to the tax-efficiency of a Fund for its long-term shareholders. TAXATION OF THE TRUST In General Each Fund has elected and intends to continue to qualify each year as a regulated investment company under Subchapter M of the Code. In order to so qualify for any taxable year, a fund must, among other things, (i) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) distribute at least 90% of its dividend, interest and certain other taxable income each year; and (iii) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, government securities, securities of other regulated investment companies, and other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of a fund's total assets and 10% of the outstanding voting securities of such issuer, and have no more than 25% of its assets invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar or related trades and businesses. To the extent the Funds qualify for treatment as regulated investment companies, they will not be subject to Federal income tax on income paid to shareholders in the form of dividends or capital gains distributions. An excise tax will be imposed on the excess, if any, of the Funds' "required distributions" over actual distributions in any calendar year. Generally, the "required distribution" is 98% of a fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 plus undistributed amounts from prior years. The Funds intend to make distributions sufficient to avoid imposition of the excise tax. For a distribution to qualify as such with respect to a calendar year under the foregoing rules, it must be declared by a Fund during October, November or December to shareholders of record during such months and paid by January 31 of the following year. Such distributions will be taxable in the year they are declared, rather than the year in which they are received. Matthews Asian Funds Page 33 of 40 Shareholders will be subject to Federal income taxes on distributions made by the Funds whether received in cash or additional shares of the Funds. Distributions of net investment income and net capital gains, if any, will be taxable to shareholders without regard to how long a shareholder has held shares of the Funds. Dividends paid by the Funds may qualify in part for the dividends received deduction for corporations. The Funds will notify shareholders each year of the amount of dividends and distributions, and the portion of their dividends which qualify for the corporate deduction. Taxes Regarding Options, Futures and Foreign Currency Transactions When the Funds write a call, or purchase a put option, an amount equal to the premium received or paid by them is included in the Funds' accounts as an asset and as an equivalent liability. In writing a call, the amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the last sale price on the principal exchange on which such option is traded or, in the absence of a sale, the mean between the last bid and asked prices. If an option which a Fund has written expires on its stipulated expiration date, the Fund recognizes a short-term capital gain. If the Fund enters into a closing purchase transaction with respect to an option which the Fund has written, the Fund realizes a short-term gain (or loss if the cost of the closing transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. The premium paid by the Fund for the purchase of a put option is recorded in the Fund's assets and liabilities as an investment and subsequently adjusted daily to the current market value of the option. For example, if the current market value of the option exceeds the premium paid, the excess would be unrealized appreciation and, conversely, if the premium exceeds the current market value, such excess would be unrealized depreciation. The current market value of a purchased option is the last sale price on the principal exchange on which such option is traded or, in the absence of a sale, the mean between the last bid and asked prices. If an option which the Fund has purchased expires on the stipulated expiration date, the Fund realizes a short-term or long-term capital loss for Federal income tax purposes in the amount of the cost of the option. If the Fund exercises a put option, it realizes a capital gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale which will be decreased by the premium originally paid. Accounting for options on certain stock indices will be in accordance with generally accepted accounting principles. The amount of any realized gain or loss on closing out such a position will result in a realized gain or loss for tax purposes. Such options held by a Fund at the end of each fiscal year on a broad-based stock index will be required to be "marked-to-market" for Federal income tax purposes. Sixty percent of any net gain or loss recognized on such deemed sales or on any actual sales will be treated as long-term capital gain or loss, and the remainder will be treated as short-term capital gain or loss ("60/40 gain or loss"). Certain options, futures contracts and options on futures contracts utilized by the Fund are "Section 1256 contracts." Any gains or losses on Section 1256 contracts held by the Fund at the end of each taxable year (and on October 31 of each year for purposes of the 4% excise tax) are "marked-to-market" with the result that unrealized gains or losses are treated as though Matthews Asian Funds Page 34 of 40 they were realized and the resulting gain or loss is treated as a 60/40 gain or loss. Unique Foreign Tax Issues Under the United States-Korea income tax treaty, as presently in effect, the government of Korea imposes a nonrecoverable withholding tax and resident tax aggregating 16.5% on dividends and 13.2% on interest paid to Matthews Korea Fund by Korean issuers. Under United States-Korea income tax treaty, there is no Korean withholding tax on realized capital gains. The above discussion and the related discussion in the Prospectus are not intended to be complete discussions of all applicable Federal tax consequences of an investment in the Funds. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisors regarding specific questions as to Federal, state and local taxes. The foregoing discussion relates solely to U.S. Federal income tax law. Non-U.S. investors should consult their tax advisors concerning the tax consequences of ownership of shares of the Funds, including the possibility that distributions may be subject to a 30% United States withholding tax (or a reduced rate of withholding provided by treaty). CALCULATION OF PERFORMANCE DATA In General From time to time, the Trust may include general comparative information, such as statistical data regarding inflation, securities indices or the features or performance of alternative investments, in advertisements, sales literature and reports to shareholders. The Trust may also include calculations, such as hypothetical compounding examples or tax-free compounding examples, which describe hypothetical investment results in such communications. Such performance examples will be based on an express set of assumptions and are not indicative of the performance of any Fund. In addition, the yield and total return of a Fund may be quoted in advertisements, shareholder reports or other communications to shareholders. Average Total Return Quotation The Funds compute their average annual total return by determining the average annual compounded rate of return during specified periods that equate the initial amount invested to the ending redeemable value of such investment. This is done by dividing the ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising the quotient to a power equal to one divided by the number of years (or fractional portion thereof) covered by the computation and subtracting one from the result. This calculation can be expressed as follows: P(1+T)n = ERV Matthews Asian Funds Page 35 of 40 ERV = ending redeemable value at the end of the period covered by the computation of a hypothetical $1,000 payment made at the beginning of the period. P = hypothetical initial payment of $1,000. n = period covered by the computation, expressed in terms of years. T = average annual total return. The Funds compute their aggregate total return by determining the aggregate compounded rate of return during specified period that likewise equate the initial amount invested to the ending redeemable value of such investment. The formula for calculating aggregate total return is as follows: Aggregate Total Return = [ ERV - 1 ] P ERV = ending redeemable value at the end of the period covered by the computation of a hypothetical $1,000 payment made at the beginning of the period. P = hypothetical initial payment of $1,000. The average annual total returns for the Funds which quote such performance were as follows for the periods shown: Series *1 Year 5 Years *Inception through through through 8/31/01 8/31/01 8/31/01 Pacific Tiger (27.46%) (2.89%) (0.95%) Growth and Income 1.15% 6.34% 6.12% Korea (13.09%) (7.04%) (9.71%) China (2.23%) N/A (0.01%) Japan (40.92%) N/A 9.03% Asian Technology (51.54%) N/A (44.79%) *Pacific Tiger commenced operations on September 12, 1994; Asian Growth and Income commenced operations on September 12, 1994; Korea commenced operations on January 3, 1995; China commenced operations on February 19, 1998; Japan commenced operations on December 31, 1998; and Asian Technology commenced operations on December 27, 1999. The calculations of average annual total return and aggregate total return assume the reinvestment of all dividends and capital gain distributions on the reinvestment dates during the period. The ending redeemable value (variable "ERV" in each formula) is determined by assuming complete redemption of the hypothetical investment and the deduction of all nonrecurring charges at the end of the period covered by the computations. Since performance will fluctuate, performance data for the Funds should not be used to compare an investment in the Funds' shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed-upon or guaranteed fixed yield for a stated period of time. Shareholders should remember that performance is generally a function of the kind and quality of the instruments held in a portfolio, portfolio maturity, operating expenses and market conditions. Yield Quotation Matthews Asian Funds Page 36 of 40 Yield, in its simplest form, is the ratio of income per share derived from the Fund's investments to a current maximum offering price expressed in terms of percent. The yield is quoted on the basis of earnings after expenses have been deducted. The yield of a Fund is calculated by dividing the net investment income per share earned during a 30-day (or one month) period by the maximum offering price per share on the last day of the period and annualizing the result. The Funds' net investment income per share earned during the period is based on the average daily number of shares outstanding during the period entitled to receive dividends and includes dividends and interest earned during the period minus expenses accrued for the period, net of reimbursements. This calculation can be expressed as follows: YIELD = 2 [(a - b + 1)6 - 1 ] cd Where: a = dividends and interest earned during the period. b= expenses accrued for the period (net of reimbursements). c= the average daily number of shares outstanding during the period that were entitled to receive dividends. d = maximum offering price per share on the last day of the period. For the purpose of determining net investment income earned during the period (variable "a" in the formula), dividend income on equity securities held by a Fund is recognized by accruing 1/360 of the stated dividend rate of the security each day that the security is in the Fund. Except as noted below, interest earned on any debt obligations held by a Fund is calculated by computing the yield to maturity of each obligation held by that Fund based on the market value of the obligation (including actual accrued interest) at the close of business on the last business day of the month, the purchase price (plus actual accrued interest) and dividing the result by 360 and multiplying the quotient by the market value of the obligation (including actual accrued interest) in order to determine the interest income on the obligation for each day of the subsequent month that the obligation is held by that Fund. For purposes of this calculation, it is assumed that each month contains 30 days. The date on which the obligation reasonably may be expected to be called or, if none, the maturity date. With respect to debt obligations purchased at a discount or premium, the formula generally calls for amortization of the discount or premium. The amortization schedule will be adjusted monthly to reflect changes in the market values of such debt obligations. Expenses accrued for the period (variable "b" in the formula) include all recurring fees charged by a Fund to all shareholder accounts in proportion to the length of the base period and the Fund's mean (or median) account size. Undeclared earned income will be subtracted from the offering price per capital share (variable "d" in the formula). Performance and Advertisements The Funds' performance may from time to time be compared, in marketing and other fund literature, to the performance of other mutual funds in general or to the performance of particular types of mutual funds with similar investment goals, as tracked by independent organizations. Among these organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets, may be cited. Lipper performance figures are based on changes in net asset value, with all income and capital gains dividends reinvested. Such calculations do not include the effect of any sales charges imposed by other funds. The Funds will be compared to Lipper's appropriate fund category, that is, by fund objective and portfolio holdings. The Funds' performance Matthews Asian Funds Page 37 of 40 may also be compared to the average performance of their Lipper category. The Funds' performance may also be compared to the performance of other mutual funds by Morningstar, Inc. ("Morningstar") which ranks funds on the basis of historical risk and total return. Morningstar's rankings range from five stars (highest) to one star (lowest) and represent Morningstar's assessment of the historical risk level and total return of a fund as a weighted average for three, five and ten year periods. Ranks are not absolute or necessarily predictive of future performance. Matthews Asian Growth and Income Fund, and Pacific Tiger Fund may compare their performance to a wide variety of indices including the Morgan Stanley All Country Far East ex-Japan Index and the Morgan Stanley All Country Far East Free ex-Japan Index. The Index is expressed in U.S. Dollars to provide a benchmark for U.S. Dollar-denominated investors. The Matthews China Fund may compare its performance to a wide variety of indices including the Credit Lyonnais China World Index, a market capitalization weighted index of Chinese equities which are listed on the Hong Kong, Shanghai, and Shenzen stock exchanges, as well as the Morgan Stanley Capital International China Free Index, a capitalization-weighted index of Chinese stocks that are listed in Hong Kong and are adjusted for the free float. The Matthews Japan Fund may compare its performance to a wide variety of indices including the Tokyo Stock Price Index (TOPIX), a market capitalization weighted index of over 1100 stocks traded in the Japanese market. The Matthews Korea Fund may compare its performance to a wide variety of indices including the South Korea Stock Market Price Index, a market capitalization weighted index of all common stocks traded in the South Korean Market. The Matthews Asian Technology Fund may compare its performance to a wide variety of indices including the MSCI/Matthews Asian Technology Index, a market capitalization weighted index of Asian equities tracking a broad range of technology stocks. In assessing such comparisons of yield, return, or volatility, an investor should keep in mind that the composition of the investments in the reported indices and averages is not identical to those of the Funds, that the averages are generally unmanaged, and that the items included in the calculations of such averages may not be identical to the formula used by a Fund to calculate its figures. Because the Funds' investments primarily are denominated in foreign currencies, the strength or weakness of the U.S. dollar as against these currencies may account for part of the Funds' investment performance. Historical information regarding the value of the dollar versus foreign currencies may be used from time to time in advertisements concerning the Funds. Marketing materials may cite country and economic statistics and historical stock market performance for any of the countries in which the Funds invest. Sources for such statistics may include official publications of various foreign governments, exchanges, or investment research firms. OTHER INFORMATION Statements contained in the Prospectus or in this Statement of Additional Information as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which the Prospectus and this Statement of Additional Information form a part. Each such statement is qualified in all respects by such reference. Reports to Shareholders Matthews Asian Funds Page 38 of 40 Shareholders will receive unaudited semi-annual reports describing the Funds' investment operations and annual financial statements audited by independent certified public accountants. Inquiries regarding the Funds may be directed to the Advisor at (800) 789-2742. Financial Statements The financial statements for the Funds, including the notes thereto as of August 31, 2001 are incorporated by reference from the Funds' 2001 Annual Report to Shareholders and the Funds' 2001 Semi-Annual Report to Shareholders as filed with the SEC. on form N-30D. APPENDIX Bond Ratings Moody's Investors Service, Inc. ("Moody's") describes classifications of corporate bonds as follows: AaaBonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. BaaBonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CaaBonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca represent obligations which are speculative in a high Matthews Asian Funds Page 39 of 40 degree. Such issues are often in default or have other market shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B in its corporate and municipal bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's Corporation ("S&P") describes classification of corporate and municipal debt as follows: AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest-rated issues only in small degree. A Debt rated A has a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher-rated categories. Bonds rated AAA, AA, A and BBB are considered investment grade bonds. BB Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payment. B Debt rated B has a greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest and repay principal. CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayments of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. CC The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC rating. C The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC - debt rating. CI The rating CI is reserved for income bonds on which no interest is being paid. D Debt rated D is in default. The D rating is assigned on the day an interest or principal payment is missed. NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that S&P does not rate a particular type of obligation as a matter of policy. Matthews Asian Funds Page 40 of 40 MATTHEWS INTERNATIONAL FUNDS ---------------------------- Form N-1A Part C - Other Information Item 23. Exhibits - -------- -------- (a) Trust Instrument and Certificate of Trust is incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 5 on December 26, 1996. (b) By-Laws are incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 5 on December 26, 1996. (c) Not Applicable. (d)(1) Form Investment Advisory Agreement between Matthews International Funds and Matthews International Capital Management, LLC, is filed herewith. 1 (e)(1) Underwriting Agreement for MATTHEWS INTERNATIONAL FUNDS with PFPC Distributors, Inc., dated December 31, 2000, is filed herewith. (f) Not Applicable. (g)(1) Custody Agreement with The Bank of New York, dated September 25, 2000 is filed herewith. (h)(1) Investment Company Services Agreement for MATTHEWS INTERNATIONAL FUNDS with FPS Services, Inc., dated October 1, 1997, is incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 8 on December 31, 1997. (h)(1)(i) Amendment to Investment Company Services Agreement dated November 11, 1997, is incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 8 on December 31, 1997. (h)(1)(ii) Amendment to Investment Company Services Agreement, dated July 31, 1998 is filed herewith. (h)(1)(iii) Amendment to Investment Company Services Agreement, dated December 30, 1998, is filed herewith. (h)(1)(iv) Amendment No. 3 to Investment Company Services Agreement dated October 15, 1999, is incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 13 on December 20, 1999. (h)(1)(v) Amendment to Investment Company Services Agreement dated December 1, 1999 is incorporated herein by reference to and was filed electronically with Post-Effective Amendment No. 13 on December 20, 1999. (h)(1)(vi) Amendment to Investment Company Services Agreement dated May 1, 2001 is filed herewith. (h)(2) Shareholder Services Agreement between Matthews International Funds and Matthews International Capital Management, LLC, is incorporated herein by reference to and filed electronically with Post-Effective Amendment No. 13 on December 20, 1999. 2 (i) Legal Opinion and Consent of Counsel is filed herewith. (j) Consent of Independent Auditors is filed herewith. (k) Not Applicable. (l) Not Applicable. (m) 12b-1 Plan is incorporated herein by reference to and filed electronically with Post-Effective Amendment No. 13 on December 20, 1999. (n) Not Applicable. (o) Second Amended and Restated 18f-3 Plan is filed herewith. (p)(1) Code of Ethics of Matthews International Funds is filed herewith. (p)(2) Code of Ethics of Matthews International Capital Management, LLC is incorporated herein by reference to and filed electronically with Post-Effective Amendment No. 14 on October 12, 2000. (q) Powers of Attorney are incorporated herein by reference to and filed electronically with Post-Effective Amendment No. 15 on December 14, 2000. Item 24. Persons Controlled by or Under Common Control With the Registrant - -------- ----------------------------------------------------------------- Not Applicable. Item 25. Indemnification - -------- --------------- Section 10.2 of the Registrant's Trust Instrument provides as follows: 10.2 INDEMNIFICATION. The Trust shall indemnify each of its Trustees against all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties, and as counsel fees) reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involved or with which he may be threatened, while as a Trustee or thereafter, by reason of his being or having been such a Trustee EXCEPT with respect to any matter as to which he shall have been adjudicated to have acted in bad faith, willful misfeasance, gross negligence or reckless disregard of his duties, PROVIDED that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless the Trust shall have received a written opinion from independent legal counsel approved by the Trustees to the effect that if 3 either the matter of willful misfeasance, gross negligence or reckless disregard of duty, or the matter of bad faith had been adjudicated, it would in the opinion of such counsel have been adjudicated in favor of such person. The rights accruing to any person under these provisions shall not exclude any other right to which he may be lawfully entitled, PROVIDED that no person may satisfy any right of indemnity or reimbursement hereunder except out of the property of the Trust. The Trustees may make advance payments in connection with the indemnification under this Section 10.2, PROVIDED that the indemnified person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that he is not entitled to such indemnification. The Trust shall indemnify officers, and shall have the power to indemnify representatives and employees of the Trust, to the same extent that Trustees are entitled to indemnification pursuant to this Section 10.2 Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in that Act and will be governed by the final adjudication of such issue. Section 10.3 of the Registrant's Trust Instrument, incorporated herein by reference as Exhibit 1 to Post-Effective Amendment No. 5, also provides for the indemnification of shareholders of the Registrant. Section 10.3 states as follows: 10.3 SHAREHOLDERS. In case any Shareholder or former Shareholder of any Series shall be held to be personally liable solely by reason of his being or having been a shareholder of such Series and not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense arising from such liability. The Trust, on behalf of the affected Series, shall, upon request by the Shareholder, assume the defense of any claim made against the Shareholder for any act or obligation of the Trust and satisfy any judgment thereon from the assets of the Series. In addition, Registrant currently has a trustees' and officers' liability policy covering certain types of errors and omissions. Item 26. Business and Other Connections of Advisor: - -------- ------------------------------------------ 4 Matthews International Capital Management, LLC provides investment advisory services to individual, mutual funds and institutional investors, and as of October 1, 2000 had approximately $270 million in assets under management. For information as to any other business, vocation or employment of a substantial nature in which each Trustee or officer of the Registrant's investment advisor has been engaged for his own account or in the capacity of Trustee, officer, employee, partner or trustee, reference is made to the Form ADV (File #801-39520) filed by it under the Investment Advisers Act of 1940. Item 27. Principal Underwriter - -------- --------------------- (a) PFPC Distributors, Inc. (the "Distributor") acts as principal underwriter for the following investment companies: AB Funds Trust AFBA 5 Star Funds Columbia Common Stock Fund, Inc. Columbia Growth Fund, Inc. Columbia International Stock Fund, Inc. Columbia Special Fund, Inc. Columbia Small Cap Fund, Inc. Columbia Real Estate Equity Fund, Inc. Columbia Balanced Fund, Inc. Columbia Daily Income Company Columbia U.S. Government Securities Fund, Inc. Columbia Fixed Income Securities Fund, Inc. Columbia Municipal Bond Fund, Inc. Columbia High Yield Fund, Inc. Columbia National Municipal Bond Fund, Inc. Columbia Strategic Value Fund, Inc. Columbia Technology Fund, Inc. Deutsche Asset Management VIT Funds Forward Funds, Inc The Galaxy Fund The Galaxy VIP Fund Galaxy Fund II GAMNA Series Funds, Inc. Harris Insight Funds Trust Hillview Investment Trust II International Dollar Reserve Fund I, Ltd. Kalmar Pooled Investment Trust LKCM Funds McM Funds Metropolitan West Funds New Covenant Funds, Inc. 5 Pictet Funds The RBB Fund, Inc. RS Investment Trust RWB/WPG U.S. Large Stock Fund Stratton Growth Fund, Inc. Stratton Monthly Dividend REIT Shares, Inc. The Stratton Funds, Inc. Tomorrow Funds Retirement Trust Trainer, Wortham First Mutual Funds Undiscovered Managers Funds Weiss, Peck & Greer Funds Trust Weiss, Peck & Greer International Fund Whitehall Funds Trust Wilshire Target Funds, Inc. WPG Growth and Income Fund WPG Tudor Fund WT Investment Trust Distributed by BlackRock Distributors, Inc., a wholly owned subsidiary of PFPC Distributors, Inc.: BlackRock Provident Institutional Funds BlackRock Funds, Inc. Distributed by Northern Funds Distributors, LLC., a wholly owned subsidiary of PFPC Distributors, Inc.: Northern Funds Trust Northern Institutional Funds Trust Distributed by Offit Funds Distributor, Inc., a wholly owned subsidiary of PFPC Distributors, Inc.: The Offit Investment Fund, Inc The Offit Variable Insurance Fund, Inc. Distributed by ABN AMRO Distribution Services (USA), Inc., a wholly owned subsidiary of PFPC Distributors, Inc.: ABN AMRO Funds 6 PFPC Distributors, Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is a member of the National Association of Securities Dealers. PFPC Distributors, Inc. is located at 3200 Horizon Drive, King of Prussia, Pennsylvania 19406. (b) The following is a list of the executive officers, directors, and partners of PFPC Distributors, Inc.:
Michael Denofrio Chairman, Chief Executive Officer and President Bruno DiStefano Vice President Susan K. Moscaritolo Vice President Elizabeth T. Holtsbery Vice President Lisa Colon Vice President Rita G. Adler Chief Compliance Officer Christine A. Ritch Chief Legal Officer, Secretary and Clerk Christopher S. Conner Assistant Secretary and Assistant Clerk Bradley A. Stearns Assistant Secretary and Assistant Clerk John L. Wilson Assistant Secretary and Assistant Clerk Douglas D. Castagna Controller and Assistant Treasurer Craig D. Stokarski Treasurer Robert Crouse Director Susan Keller Director
(c) Not applicable. Item 28. Location of Accounts and Records - -------- -------------------------------- Books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules promulgated thereunder, are maintained as follows: (a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8); (12); and 31a-1(d), the required books and records will be maintained at the offices of Registrant's Custodian: The Bank of New York, 90 Washington Street, New York, N.Y. 10286 (b)/(c) With respect to Rules 31a-1(a); 31a-1(b),(4); (2)(C) and (D); (4); and 31a-1(f), the required books and records are maintained at the offices of Registrant's Administrator, Transfer Agent and Fund Accounting Services Agent: PFPC, Inc., 3200 Horizon Drive, King of Prussia, 19406-0903. (c) With respect to Rules 31a-1(b)(5), (6), (9), (10) and (11) and 31a-1(f), the required books and records are maintained at the principal offices of the Registrant's Adviser: 7 Matthews International Capital Management, LLC, 456 Montgomery Street, Suite 1200, San Francisco, CA 94104 Item 29. Management Services - -------- ------------------- Not Applicable. Item 30. Undertakings - -------- ------------ Not Applicable. 8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant, Matthews International Funds, certifies that this Post-Effective Amendment No. 16 to its Registration Statement meets all of the requirements for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 16 to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Wilmington, and State of Delaware on the 17th day of December 2001. Matthews International Funds Registrant By /s/G. Paul Matthews* -------------------- G. Paul Matthews, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement of Matthews International Funds has been signed below by the following persons on the 17th day of December, 2001 in the capacities indicated.
Signature Capacity - --------- -------- /s/ G. Paul Matthews* President and Principal - ---------------------------------- G. Paul Matthews Executive Officer /s/ James E. Walter Treasurer - ---------------------------------- James E. Walter /s/ Downey L. Hebble* Secretary - ---------------------------------- Downey L. Hebble /s/ Robert K. Connolly* Trustee - ---------------------------------- Robert K. Connolly /s/ Richard K. Lyons* Trustee - ---------------------------------- Richard K. Lyons /s/ David FitzWilliam-Lay* Trustee - ---------------------------------- David FitzWilliam-Lay /s/ Norman W. Berryessa * Trustee - ---------------------------------- Norman W. Berryessa
* By: /s/ Mary Jane Maloney, ----------------------------- as Attorney-in-Fact and Agent pursuant to Power of Attorney 9 MATTHEWS INTERNATIONAL FUNDS N-1A EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- EX-99.d.1 Form of Investment Advisory Agreement EX-99.e.1 Underwriting Agreement with PFPC Distributors, Inc. EX-99.g.1 Custody Agreement EX-99.h.1.ii Amendment to Investment Company Services Agreement EX-99.h.1.iii Amendment to Investment Company Services Agreement EX-99.h.1.vi Amendment to Investment Company Services Agreement EX-99.i Legal Opinion and Consent of Counsel EX-99.j Consent of Auditors EX-99.o Second Amended and Restated 18f-3 Plan EX-99.p.1 Code of Ethics of Matthews International Funds 10 EX-99.D.1 3 l90902aex99-d_1.txt EX-99.D.1 Exhibit EX-99.d.1 FORM OF ------- INVESTMENT ADVISORY AGREEMENT ----------------------------- AGREEMENT made on the dates set forth on Exhibit A hereto by and between Matthews International Funds, a Delaware Business Trust (the "Trust") and Matthews International Capital Management, LLC, a Delaware limited liability company (the "Adviser"). 1. DUTIES OF ADVISER. The Trust hereby appoints the Adviser to act as investment adviser to each of the Funds listed on Exhibit A hereto (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Adviser to manage the investment and reinvestment of the assets of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Adviser's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Adviser's discharge of the foregoing responsibilities. The Adviser shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Adviser accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. 2. PORTFOLIO TRANSACTIONS. The Adviser shall provide the Series with a trading department. The Adviser shall select the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. The Series will bear all expenses associated with its investment activities, including, without limitation, brokerage commissions and custody expenses. Subject to policies established by the Board of Trustees of the Trust and communicated to the Adviser, it is understood that the Adviser will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or dealer would have charged if the Adviser determines in good faith that the commission paid was reasonable in relation to the brokerage or research services provided by such member, broker or dealer, viewed in terms of the particular transaction or the Adviser's overall responsibilities with respect to the accounts, including the Series, as to which it exercises investment discretion. The Adviser will promptly communicate to the officers and directors of the Trust such information relating to Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Section 1 and 2 of this Agreement, the Series shall pay to the Adviser within five business days after the end of each calendar month, a monthly fee of one twelfth of 1.00% of the Series' average daily net assets for the month. The net asset value shall be calculated in the manner provided in the Series' prospectus and statement of additional information then in effect. The Adviser may reduce any portion of the -2- compensation or reimbursement of expenses due to it pursuant to this Agreement. Any fee withheld pursuant to this paragraph from the Adviser shall be reimbursed by the Series to the Adviser in the first, second or third (or any combination thereof) fiscal year next succeeding the fiscal year of the withholding if the aggregate expenses for the next succeeding fiscal year or second succeeding fiscal year or third succeeding fiscal year do not exceed any more restrictive limitation to which the Adviser has agreed. The Adviser generally may request and receive reimbursement for the oldest reductions and waivers before payment for fees and expenses for the current year. 4. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rate basis, based on the number of days when this Agreement was in effect. 5. REPORTS. The Series and the Adviser agree to finish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISER. The services of the Adviser to the Series are not to be deemed exclusive, and the Adviser shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISER. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Adviser of its obligations and duties hereunder, the Adviser shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, -3- without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DURATION AND TERMINATION. This Agreement shall became effective on the dates set forth in Exhibit A attached hereto provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in section 15(c) of the Investment Company Act of 1940, and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until the dates set forth on Exhibit A hereto. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees or, (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in section 15(c) of the Investment Company Act of 1940. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Adviser. This Agreement may be terminated by the Adviser at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. -4- As used in this Section 8, the terms "assignment" "interested person", and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 9. NAME OF ADVISER. The parties agree that the Adviser has a proprietary interest in the name "Matthews," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate name and/or the name of the Series any reference to the name of the Adviser or the name "Matthews," promptly after receipt from the Adviser of a written request therefore. 10. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 11. GOVERNING LAW. This agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California. -5- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates set forth on Exhibit A hereto. ATTEST: MATTHEWS INTERNATIONAL FUNDS ________/s/*_________________ ______________/s/*___________________ ____________, Secretary ____________, President ATTEST: MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC ________/s/*_________________ ______________/s/*___________________ ____________, Secretary _____________, Managing Director * Executed or Attested by the persons indicated on Exhibit A hereto. -6- EXHIBIT A TO Form Investment Advisory Agreement between Matthews International Funds (the "Trust") and Matthews International Capital Management, LLC (the "Adviser")
FUND NAME DATE EXECUTED EXECUTED ATTESTED Matthews Pacific Tiger Fund 12/4/98 Trust: G. Paul Matthews, President Trust: Brian Stableford, Secretary Adviser: Mark W. Headley, Managing Adviser: Brian Stableford, Director Secretary Matthews Asian Growth & Income Fund 12/4/98 Trust: G. Paul Matthews, President Trust: Brian Stableford, Secretary Adviser: Mark W. Headley, Managing Adviser: Brian Stableford, Director Secretary Matthews Korea Fund 12/4/98 Trust: G. Paul Matthews, President Trust: Brian Stableford, Secretary Adviser: Mark W. Headley, Managing Adviser: Brian Stableford, Director Secretary Matthews Dragon Century China Fund 12/4/98 Trust: G. Paul Matthews, President Trust: Brian Stableford, Adviser: Mark W. Headley, Managing Adviser: Brian Stableford, Director Secretary Matthews Japan Fund 12/30/98 Trust: G. Paul Matthews, President Trust: Brian Stableford, Secretary Adviser: Mark W. Headley, Managing Adviser: Brian Stableford, Director Secretary Matthews Asian Technology Fund 10/15/99 Trust: G. Paul Matthews, President Trust: Not Applicable Adviser: Joseph M. O'Donnell, Adviser: Not Applicable Chief Operating Officer
EX-99.E.1 4 l90902aex99-e_1.txt EX-99.E.1 Exhibit EX-99.e.1 UNDERWRITING AGREEMENT This Agreement, dated as of December 31, 2000, is made by and between Matthews International Funds, a Delaware business trust (the "Fund") operating as an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"), and PFPC Distributors, Inc. ("PFPC Distributors"), a corporation duly organized and existing under the laws of the Commonwealth of Massachusetts (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, the Fund is authorized to issue separate series of shares representing interests in separate investment portfolios (the "Series"), which Series are identified on Schedule "A" attached hereto, and which Schedule "A" may be amended from time to time by mutual agreement among the Parties; and WHEREAS, PFPC Distributors is a broker-dealer registered with the U.S. Securities and Exchange Commission (the "SEC") and a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Parties are desirous of entering into an agreement providing for the distribution by PFPC Distributors of the shares of the Fund (the "Shares"). NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and in exchange of good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the Parties hereto, intending to be legally bound, do hereby agree as follows: 1. Appointment ----------- The Fund hereby appoints PFPC Distributors as its principal agent for the distribution of the Shares, and PFPC Distributors hereby accepts such appointment under the terms of this Agreement. The Fund agrees that it will not sell any Shares to any person except to fill orders for the Shares received through PFPC Distributors, provided, however, that the foregoing exclusive right shall not apply to: (a) Shares issued or sold in connection with the merger or consolidation of any other investment company with the Fund or the acquisition by purchase of otherwise of all or substantially all of the assets of any investment company or substantially all of the outstanding shares of any such company by the Fund; (b) Shares which may be offered by the Fund to its stockholders for reinvestment of cash distributed from capital gains or net investment income of the Fund; or (c) Shares which may be issued to shareholders of other funds who exercise any exchange privilege set forth in the Fund's Prospectus. Notwithstanding any other provision hereof, the Fund may terminate, suspend, or withdraw the offering of the Shares whenever, in their sole discretion, they deem such action to be desirable. 2. Sale and Repurchase of Shares ----------------------------- (a) PFPC Distributors is hereby granted the right, as agent for the Fund, to sell Shares to the public against orders received at the public offering price as defined in the Fund's Prospectus and Statement of Additional Information. (b) PFPC Distributors will also have the right to take, as agent for the Fund, all actions which, in PFPC Distributors's judgment, and subject to the Fund's reasonable approval, are necessary to carry into effect the distribution of the Shares. (c) PFPC Distributors will act as agent for the Fund in connection with the repurchase of Shares by the Fund upon the terms set forth in the Fund's Prospectus and Statement of Additional Information. (d) The net asset value of the Shares shall be determined in the manner provided in the then current Prospectus and Statement of Additional Information relating to the Shares, and when determined shall be applicable to all transactions as provided in the Prospectus. The net asset value of the Shares shall be calculated by the Fund or by another entity on behalf of the Fund. PFPC Distributors shall have no duty to inquire into, or liability for, the accuracy of the net asset value per Share as calculated. (e) On every sale, PFPC Distributors shall promptly pay to the Fund the applicable net asset value of the Shares. (f) Upon receipt of purchase instructions, PFPC Distributors will transmit such instructions to the Fund or its transfer agent for registration of the Shares purchased. (g) Nothing in this Agreement shall prevent PFPC Distributors or any affiliated person (as defined in the Act) of PFPC Distributors from acting as underwriter for any other person, firm or corporation (including other investment companies), or in any way limit or restrict PFPC Distributors or such affiliated person from buying, selling or trading any securities for its or their own account or for the account of others for whom it or they may be acting, provided, however, that PFPC Distributors expressly agrees that it will not for its own account purchase any Shares of the Fund except for investment purposes, and that it will not for its own account dispose of any such Shares except by redemption of such Shares with the Fund, and that it will not undertake in any activities which, in its -2- judgment, will adversely affect the performance of its obligations to the Fund under this Agreement. 3. Rules of Sale of Shares ----------------------- PFPC Distributors does not agree to sell any specific number of Shares and serves only in the capacity of Statutory Underwriter. The Fund reserves the right to terminate, suspend or withdraw the sale of its Shares for any reason deemed adequate by it, and the Fund reserves the right to refuse at any time or times to sell any of its Shares to any person for any reason deemed adequate by it. 4. Rules of NASD, etc. ------------------- (a) PFPC Distributors will conform to the Conduct Rules of the NASD and the securities laws of any jurisdiction in which it directly or indirectly sells any Shares. (b) PFPC Distributors will require each dealer with whom PFPC Distributors has a selling agreement to conform to the applicable provisions of the Prospectus, with respect to the public offering price of the Shares, and PFPC Distributors shall not cause the Fund to withhold the placing of purchase orders so as to make a profit thereby. (c) The Fund agrees to furnish PFPC Distributors sufficient copies of any and all: agreements, plans, communications with the public or other materials which the Fund intends to use in connection with any sales of Shares, in adequate time for PFPC Distributors to file and clear such materials with the proper authorities before they are put in use. PFPC Distributors and the Fund may agree that any such material does not need to be filed prior to distribution. In addition, the Fund agrees not to use any such materials until so filed and cleared for use, if required, by appropriate authorities as well as by PFPC Distributors. (d) PFPC Distributors, at its own expense, will qualify as a dealer or broker, or otherwise, under all applicable state or federal laws required in order that the Shares may be sold in such states as may be mutually agreed upon by the Parties. (e) PFPC Distributors shall remain registered with the SEC and a member of the NASD for the term of this Agreement. (f) PFPC Distributors shall not, in connection with any sale or solicitation of a sale of the Shares, make or authorize any representative, service organization, broker or dealer to make any representations concerning the Shares, except those contained in the Prospectus offering the Shares and in -3- communications with the public or sales materials approved by PFPC Distributors as information supplemental to such Prospectus. Copies of the Prospectus will be supplied by the Fund to PFPC Distributors in reasonable quantities upon request. (g) PFPC Distributors shall only be authorized to make representations in respect of the Fund consistent with the then current Prospectus, Statement of Additional Information, and other written information provided by the Fund or its agents to be used explicitly with respect to the sale of Shares. 5. Records to be Supplied by the Fund ---------------------------------- The Fund shall furnish to PFPC Distributors copies of all information, financial statements and other papers which PFPC Distributors may reasonably request for use in connection with the underwriting of the Shares including, but not limited to, one certified copy of all financial statements prepared for the Fund by its independent public accountants. 6. Expenses -------- (a) The Fund will bear the following expenses: (i) preparation, setting in type, and printing of sufficient copies of the Prospectus and Statement of Additional Information for distribution to shareholders, and the cost of distribution of same to the shareholders; (ii) preparation, printing and distribution of reports and other communications to shareholders; (iii) registration of the Shares under the federal securities laws; (iv) qualification of the Shares for sale in the jurisdictions as directed by the Fund; (v) maintaining facilities for the issue and transfer of the Shares; (vi) supplying information, prices and other data to be furnished by the Fund under this Agreement; and (vii) any original issue taxes or transfer taxes applicable to the sale or delivery of the Shares or certificates therefor. (b) PFPC Distributors agrees to pay all of its own expenses in performing its obligations hereunder. -4- 7. Term ---- (a) The term of this Agreement shall commence immediately upon the consummation of the acquisition of Provident Distributors, Inc. by PFPC Inc. (or a similarly structured transaction), which the parties anticipate to occur on or about December 31, 2000 (the "Effective Date"). (b) This Agreement shall remain in effect for one (1) year from the Effective Date. This Agreement shall continue thereafter for periods not exceeding one (1) year, if approved at least annually (i) by a vote of a majority of the outstanding voting securities of each Series, or (ii) by a vote of a majority of the Board Members of the Fund who are not parties to this Agreement (other than as Board Members of the Fund) or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. (c) This Agreement (i) may be terminated at any time without the payment of any penalty, either by a vote of the Trustees of the Fund or by a vote of a majority of the outstanding voting securities of each Series with respect to such Series, on sixty (60) days' written notice to PFPC Distributors; and (ii) may be terminated by PFPC Distributors on sixty (60) days' written notice to the Fund with respect to any Series. (d) This Agreement shall automatically terminate in the event of its assignment, as defined in the Act. 8. Liability of PFPC Distributors ------------------------------ (a) PFPC Distributors, its directors, officers, employees, shareholders and agents shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of PFPC Distributors's obligations pursuant to Section 4 of this Agreement (Rules of NASD), a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of PFPC Distributors in the performance of its obligations and duties or by reason of its reckless disregard of its obligations and duties under this Agreement. PFPC Distributors agrees to indemnify and hold harmless the Fund and each person who has been, is, or may hereafter be a Trustee, officer, or employee of the Fund against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit, or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, on the part of PFPC -5- Distributors or any agent of employee of PFPC Distributors or any of the persons for whose acts PFPC Distributors is responsible or is alleged to be responsible unless such misrepresentation or omission was made in reliance upon written information furnished to PFPC Distributors by the Fund. PFPC Distributors also agrees to indemnify and hold harmless the Fund and each such person in connection with any claim or in connection with any action, suit, or proceeding which arises out of or is alleged to arise out of PFPC Distributors's failure to exercise reasonable care and diligence with respect to its services rendered in connection with the purchase and sale of Shares. The foregoing rights of indemnification shall be in addition to any other rights to which the Fund or any such person shall be entitled to as a matter of law. (b) The Fund agrees to indemnify and hold harmless PFPC Distributors against any and all liability, loss, damages, costs of expenses (including reasonable counsel fees) which PFPC Distributors may incur or be required to pay hereafter, in connection with any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which PFPC Distributors may be involved as a party or otherwise or with which PFPC Distributors may be threatened, by reason of the offer or sale of the Fund's Shares by persons other than PFPC Distributors or its representatives, prior to the execution of this Agreement. If a claim is made against PFPC Distributors as to which PFPC Distributors may seek indemnity under the Section, PFPC Distributors shall notify the Fund promptly after any written assertion of such claim threatening to institute an action or proceeding with respect thereto and shall notify the Fund promptly of any action commenced against PFPC Distributors within 10 days time after PFPC Distributors shall have been served with a summons or other legal process, giving information as to the nature and basis of the claim. Failure to notify the Fund shall not, however, relieve the Fund from any liability which it may have on account of the indemnity under this Section 8(b) if the Fund has not been prejudiced in any material respect by such failure. The Fund shall have the sole right to control the settlement of any such action, suit or proceeding subject to PFPC Distributors approval, which shall not be unreasonably withheld. PFPC Distributors shall have the right to participate in the defense of an action or proceeding and to retain its own counsel, and the reasonable fees and expenses of such counsel shall be borne by the Fund (which shall pay such fees, costs and expenses at least quarterly) if: (i) PFPC Distributors has received an opinion of counsel stating that the use of counsel chosen by the Fund to represent PFPC Distributors would present such counsel with a conflict of interest: -6- (ii) the defendants in, or targets of, any such action or proceeding include both PFPC Distributors and the Fund, and legal counsel to PFPC Distributors shall have reasonably concluded that there are legal defenses available to it which are different from or additional to those available to the trust or which may be adverse to or inconsistent with defenses available to the Fund (in which case the Fund shall not have the right to direct the defense of such action on behalf of PFPC Distributors); or (iii) the Fund shall authorize PFPC Distributors to employ separate counsel at the expense of the Fund. (c) Any person, even though also a director, officer, employee, shareholder or agent of PFPC Distributors who may be or become an officer, director, trustee, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting on any business of the Fund (other than services or business in connection with PFPC Distributors's duties hereunder), to be rendering such services to or acting solely for the Fund and not as a director, officer, employee, shareholder or agent, or one under the control or direction of PFPC Distributors even though receiving a salary from PFPC Distributors. (d) The Fund agrees to indemnify and hold harmless PFPC Distributors, and each person who controls PFPC Distributors within the meaning of Section 15 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the Securities Exchange Act of 1934, s amended (the "Exchange Act"), against any and all losses, claims, damages and liabilities, joint or several (including any reasonable investigative, legal and other expenses incurred in connection therewith) to which they, or any of them, may become subject under the Act, the Securities Act, the Exchange Act or other federal or state law or regulations, at common law or otherwise insofar as such losses, claims, damages or liabilities (or actions, suits or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Prospectus, Statement of Additional Information, supplement thereto, sales literature (or other written information) prepared by the Fund and furnished by the Fund to PFPC Distributors for PFPC Distributors's use hereunder, disseminated by the trust or which arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. -7- Such indemnity shall not, however, inure to the benefit of PFPC Distributors (or any person controlling PFPC Distributors) on account of any losses, claims, damages or liabilities (or actions, suits or proceedings in respect thereof) arising from the sale of the Shares of the Fund to any person by PFPC Distributors (i) if such untrue statement or omission or alleged untrue statement or omission was made in the Prospectus, Statement of Additional Information, or supplement, sales or other literature, in reliance upon and in conformity with information furnished in writing to the Fund by PFPC Distributors specifically for use therein or (ii) if such losses, claims, damages or liabilities arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission found in any Prospectus, Statement of Additional Information, supplement, sales or other literature, subsequently corrected, but negligently distributed by PFPC Distributors and a copy of the corrected Prospectus was not delivered to such person at or before the confirmation of the sale to such person (e) PFPC Distributors shall not be responsible for any damages, consequential or otherwise, which the Fund may experience, due to the disruption of the distribution of Shares caused by any action or inaction of any registered representative or affiliate of PFPC Distributors or of PFPC Distributors itself. (f) Notwithstanding anything in this Agreement to the contrary, in no event shall any party to this Agreement, its affiliates or any of its or their directors, trustees, officers, employees, agents or subcontractors be liable for lost profits, exemplary, punitive, special, incidental, indirect or consequential damages. 9. Amendments ---------- No provision of this Agreement may be amended or modified in any manner whatsoever, except by a written agreement properly authorized and executed by the Parties. 10. Section Headings ---------------- Section and paragraph headings are for convenience only and shall not be construed as part of this Agreement. 11. Reports ------- PFPC Distributors shall prepare reports for the Board of the Fund, on a quarterly basis, showing such information as, from time to time, shall be reasonably requested by the Board. -8- 12. Severability ------------ If any part, term or provision of this Agreement is held by any court to be illegal, in conflict with any law or otherwise invalid, the remaining portion or portions shall be considered severable and not affected, and the rights and obligations of the Parties shall be construed and enforced as if the Agreement did not contain the particular part, term or provision held to be illegal or invalid provided that the basic agreement is not thereby substantially impaired. 13. Governing Law ------------- This Agreement shall be governed by the laws of the State of Delaware and the exclusive venue of any action arising under this Agreement shall be the City of Wilmington, State of Delaware. 14. Authority to Execute -------------------- The Parties represent and warrant to each other that the execution and delivery of this Agreement by the undersigned officer of each Party has been duly and validly authorized; and, when duly executed, this Agreement will constitute a valid and legally binding and enforceable obligation of each Party. -9- IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed by their duly authorized officer, of the day and year first above written. PFPC DISTRIBUTORS, INC. /s/ Lisa Marie Colon - ----------------------------- By: Lisa Marie Colon Title: Vice President MATTHEWS INTERNATIONAL FUNDS /s/ Joseph M. O'Donnell - ----------------------------- By: Joseph M. O'Donnell Title: Secretary -10- SCHEDULE A IDENTIFICATION OF SERIES Below are listed the Series and Classes of Shares to which services under this Agreement are to be performed as of the Effective Date of this Agreement: Matthews Pacific Tiger Fund - Class A & Class I Matthews Asian Growth & Income Fund Matthews Korea Fund - Class A & Class I Matthews Dragon Century China Fund - Class A & I Matthews Japan Fund Matthews Asian Technology Fund This Schedule "A" may be amended from time to time by agreement of the Parties. -11- EX-99.G.1 5 l90902aex99-g_1.txt EX-99.G.1 Exhibit -EX-99.g.1 CUSTODY AGREEMENT AGREEMENT, dated as of September 25, 2000 between Matthews International Funds, a business trust organized and existing under the laws of the State of Delaware (the "Fund") having its principal office and place of business at c/o Matthews International Capital, 456 Montgomery Street, Suite 1200, San Francisco, California 91404-1245 and The Bank of New York, a New York corporation authorized to do a banking business having its principal office and place of business at One Wall Street, New York, New York 10286 ("Custodian"). W I T N E S S E T H: that for and in consideration of the mutual premises hereinafter set forth the Fund and Custodian agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words shall have the meanings set forth below: 1. "AUTHORIZED PERSON" shall be any person, whether or not an officer or employee of the Fund, duly authorized by the Fund's board to execute any Certificate or to give any Oral Instruction with respect to one or more Accounts, such persons to be designated in a Certificate annexed hereto as Schedule I hereto or such other Certificate as may be received by Custodian from time to time. 2. "BNY AFFILIATE" shall mean any office, branch or subsidiary of The Bank of New York Company, Inc. 3. "BOOK-ENTRY SYSTEM" shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering securities, its successors and nominees. 4. "BUSINESS DAY" shall mean any day on which Custodian and relevant Depositories are open for business. 5. "CERTIFICATE" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to Custodian, which is actually received by Custodian by letter or facsimile transmission and signed on behalf of the Fund by an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person. 6. "COMPOSITE CURRENCY UNIT" shall mean the Euro or any other composite currency unit consisting of the aggregate of specified amounts of specified currencies, as such unit may be constituted from time to time. 7. "DEPOSITORY" shall include (a) the Book-Entry System, (b) the Depository Trust Company, (c) any other clearing agency or securities depository registered with the Securities and Exchange Commission identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing. 8. "FOREIGN DEPOSITORY" shall mean (a) Euroclear, (b) Clearstream Banking, societe anonyme, (c) each Eligible Securities Depository as defined in Rule 17f-7 under the Investment Company Act of 1940, as amended, identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing. 9. "INSTRUCTIONS" shall mean communications transmitted by electronic or telecommunications media, including S.W.I.F.T., computer-to-computer interface, or dedicated transmission lines. 10. "ORAL INSTRUCTIONS" shall mean verbal instructions received by Custodian from an Authorized Person or from a person reasonably believed by Custodian to be an Authorized Person. 11. "SERIES" shall mean the various portfolios, if any, of the Fund listed on Schedule II hereto, and if none are listed references to Series shall be references to the Fund. 12. "SECURITIES" shall include, without limitation, any common stock and other equity securities, bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests therein (whether represented by a certificate or held in a Depository or by a Subcustodian). 13. "SUBCUSTODIAN" shall mean a bank (including any branch thereof) or other financial institution (other than a Foreign Depository) located outside the U.S. which is utilized by Custodian in connection with the purchase, sale or custody of Securities hereunder and identified to the Fund from time to time, and their respective successors and nominees. ARTICLE II APPOINTMENT OF CUSTODIAN; ACCOUNTS; REPRESENTATIONS, WARRANTIES, AND COVENANTS 1. (a) The Fund hereby appoints Custodian as custodian of all Securities and cash at any time delivered to Custodian during the term of this Agreement, and authorizes Custodian to hold Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain one or more securities accounts and cash accounts for each Series in which Custodian will hold Securities and cash as provided herein. Custodian shall maintain books and records segregating the assets of each Series from the assets of any other Series. Such accounts (each, an "Account"; collectively, the "Accounts") shall be in the name of the Fund. (b). Custodian may from time to time establish on its books and records such sub-accounts within each Account as the Fund and Custodian may agree upon (each a "Special -2- Account"), and Custodian shall reflect therein such assets as the Fund may specify in a Certificate or Instructions. (c) Custodian may from time to time establish pursuant to a written agreement with and for the benefit of a broker, dealer, future commission merchant or other third party identified in a Certificate or Instructions such accounts on such terms and conditions as the Fund and Custodian shall agree, and Custodian shall transfer to such account such Securities and money as the Fund may specify in a Certificate or Instructions. 2. The Fund hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon each delivery of a Certificate or each giving of Oral Instructions or Instructions by the Fund, that: (a) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement, and to perform its obligations hereunder; (b) This Agreement has been duly authorized, executed and delivered by the Fund, approved by a resolution of its board, constitutes a valid and legally binding obligation of the Fund, enforceable in accordance with its terms, and there is no statute, regulation, rule, order or judgment binding on it, and no provision of its charter or by-laws, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property, which would prohibit its execution or performance of this Agreement; (c) It is conducting its business in substantial compliance with all applicable laws and requirements, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; (d) It will not use the services provided by Custodian hereunder in any manner that is, or will result in, a violation of any law, rule or regulation applicable to the Fund; (e) Its board or its foreign custody manager, as defined in Rule 17f-5 under the Investment Company Act of 1940, as amended (the "`40 Act"), has determined that use of each Subcustodian (including any Replacement Custodian) and each Depository which Custodian or any Subcustodian is authorized to utilize in accordance with Section 1(a) of Article III hereof, satisfies the applicable requirements of the `40 Act and Rules 17f-4 or 17f-5 thereunder, as the case may be; (f) The Fund or its investment adviser has determined that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of Rule 17f-7 under the `40 Act.; (g) It is fully informed of the protections and risks associated with various methods of transmitting Instructions and Oral Instructions and delivering Certificates to Custodian, understands that there may be more secure methods of transmitting or delivering the -3- same than the methods selected by the Fund, agrees that the security procedures (if any) to be utilized provide a commercially reasonable degree of protection in light of its particular needs and circumstances, and acknowledges and agrees that Instructions need not be reviewed by Custodian, may conclusively be presumed by Custodian to have been given by person(s) duly authorized, and may be acted upon as given; (h) It shall manage its borrowings, including, without limitation, any advance or overdraft (including any day-light overdraft) in the Accounts, so that the aggregate of its total borrowings for each Series does not exceed the amount such Series is permitted to borrow under the `40 Act; (i) Its transmission or giving of, and Custodian acting upon and in reliance on, Certificates, Instructions, or Oral Instructions pursuant to this Agreement shall at all times comply with the `40 Act; (j) It shall impose and maintain restrictions on the destinations to which cash may be disbursed by Instructions to ensure that each disbursement is for a proper purpose; and (k) It has the right to make the pledge and grant the security interest and security entitlement to Custodian contained in Section 1 of Article V hereof, free of any right of redemption or prior claim of any other person or entity, such pledge and such grants shall have a first priority subject to no setoffs, counterclaims, or other liens or grants prior to or on a parity therewith, and it shall take such additional steps as Custodian may require to assure such priority. 3. The Fund hereby covenants that it shall from time to time complete and execute and deliver to Custodian upon Custodian's request a Form FR U-1 (or successor form) whenever the Fund borrows from Custodian any money to be used for the purchase or carrying of margin stock as defined in Federal Reserve Regulation U. ARTICLE III CUSTODY AND RELATED SERVICES 1. (a) Subject to the terms hereof, the Fund hereby authorizes Custodian to hold any Securities received by it from time to time for the Fund's account. Custodian shall be entitled to utilize Depositories, Subcustodians, and, subject to subsection(c) of this Section 1, Foreign Depositories, to the extent possible in connection with its performance hereunder. Securities and cash held in a Depository or Foreign Depository will be held subject to the rules, terms and conditions of such entity. Securities and cash held through Subcustodians shall be held subject to the terms and conditions of Custodian's agreements with such Subcustodians. Subcustodians may be authorized to hold Securities in Foreign Depositories in which such Subcustodians participate. Unless otherwise required by local law or practice or a particular subcustodian agreement, Securities deposited with a Subcustodian, a Depositary or a Foreign Depository will be held in a commingled account, in the name of Custodian, holding only Securities held by Custodian as custodian for its customers. Custodian shall identify on its books and records the Securities and cash belonging to the Fund, whether held directly or indirectly through Depositories, Foreign Depositories, or Subcustodians. Custodian shall, directly or -4- indirectly through Subcustodians, Depositories, or Foreign Depositories, endeavor, to the extent feasible, to hold Securities in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for cancellation and/or payment and/or registration, or where such Securities are acquired. Custodian at any time may cease utilizing any Subcustodian and/or may replace a Subcustodian with a different Subcustodian (the "Replacement Subcustodian"). In the event Custodian selects a Replacement Subcustodian, Custodian shall not utilize such Replacement Subcustodian until after the Fund's board or foreign custody manager has determined that utilization of such Replacement Subcustodian satisfies the requirements of the `40 Act and Rule 17f-5 thereunder. (b) Unless Custodian has received a Certificate or Instructions to the contrary, Custodian shall hold Securities indirectly through a Subcustodian only if (i) the Securities are not subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors or operators, including a receiver or trustee in bankruptcy or similar authority, except for a claim of payment for the safe custody or administration of Securities on behalf of the Fund by such Subcustodian, and (ii) beneficial ownership of the Securities is freely transferable without the payment of money or value other than for safe custody or administration. (c) With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence (i) to provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Fund acknowledges and agrees that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, (b) such country's prevailing settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the order execution of securities transactions or affect the value of securities. 2. Custodian shall furnish the Fund with an advice of daily transactions (including a confirmation of each transfer of Securities) and a monthly summary of all transfers to or from the Accounts. 3. With respect to all Securities held hereunder, Custodian shall, unless otherwise instructed to the contrary: (a) Receive all income and other payments and advise the Fund as promptly as practicable of any such amounts due but not paid; (b) Present for payment and receive the amount paid upon all Securities which may mature and advise the Fund as promptly as practicable of any such amounts due but not paid; -5- (c) Forward to the Fund copies of all information or documents that it may actually receive from an issuer of Securities which, in the opinion of Custodian, are intended for the beneficial owner of Securities; (d) Execute, as custodian, any certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons; (e) Hold directly or through a Depository, a Foreign Depository, or a Subcustodian all rights and similar Securities issued with respect to any Securities credited to an Account hereunder; and (f) Endorse for collection checks, drafts or other negotiable instruments. 4. (a) Custodian shall notify the Fund of rights or discretionary actions with respect to Securities held hereunder, and of the date or dates by when such rights must be exercised or such action must be taken, provided that Custodian has actually received, from the issuer or the relevant Depository (with respect to Securities issued in the United States) or from the relevant Subcustodian, Foreign Depository, or a nationally or internationally recognized bond or corporate action service to which Custodian subscribes, timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken. Absent actual receipt of such notice, Custodian shall have no liability for failing to so notify the Fund. (b) Whenever Securities (including, but not limited to, warrants, options, tenders, options to tender or non-mandatory puts or calls) confer discretionary rights on the Fund or provide for discretionary action or alternative courses of action by the Fund, the Fund shall be responsible for making any decisions relating thereto and for directing Custodian to act. In order for Custodian to act, it must receive the Fund's Certificate or Instructions at Custodian's offices, addressed as Custodian may from time to time request, not later than noon (New York time) at least two (2) Business Days prior to the last scheduled date to act with respect to such Securities (or such earlier date or time as Custodian may specify to the Fund). Absent Custodian's timely receipt of such Certificate or Instructions, Custodian shall not be liable for failure to take any action relating to or to exercise any rights conferred by such Securities. 5. All voting rights with respect to Securities, however registered, shall be exercised by the Fund or its designee. For Securities issued in the United States, Custodian's only duty shall be to mail to the Fund any documents (including proxy statements, annual reports and signed proxies) actually received by Custodian relating to the exercise of such voting rights. With respect to Securities issued outside of the United States, Custodian's only duty shall be to provide the Fund with access to a provider of global proxy services at the Fund's request. The Fund shall be responsible for all costs associated with its use of such services. 6. Custodian shall promptly advise the Fund upon Custodian's actual receipt of notification of the partial redemption, partial payment or other action affecting less than all Securities of the relevant class. If Custodian, any Subcustodian, any Depository, or any Foreign -6- Depository holds any Securities in which the Fund has an interest as part of a fungible mass, Custodian, such Subcustodian, Depository, or Foreign Depository may select the Securities to participate in such partial redemption, partial payment or other action in any non-discriminatory manner that it customarily uses to make such selection. 7. Custodian shall not under any circumstances accept bearer interest coupons which have been stripped from United States federal, state or local government or agency securities unless explicitly agreed to by Custodian in writing. 8. The Fund shall be liable for all taxes, assessments, duties and other governmental charges, including any interest or penalty with respect thereto ("Taxes"), with respect to any cash or Securities held on behalf of the Fund or any transaction related thereto. The Fund shall indemnify Custodian and each Subcustodian for the amount of any Tax that Custodian, any such Subcustodian or any other withholding agent is required under applicable laws (whether by assessment or otherwise) to pay on behalf of, or in respect of income earned by or payments or distributions made to or for the account of the Fund (including any payment of Tax required by reason of an earlier failure to withhold). Custodian shall, or shall instruct the applicable Subcustodian or other withholding agent to, withhold the amount of any Tax which is required to be withheld under applicable law upon collection of any dividend, interest or other distribution made with respect to any Security and any proceeds or income from the sale, loan or other transfer of any Security. In the event that Custodian or any Subcustodian is required under applicable law to pay any Tax on behalf of the Fund, Custodian is hereby authorized to withdraw cash from any cash account in the amount required to pay such Tax and to use such cash, or to remit such cash to the appropriate Subcustodian or other withholding agent, for the timely payment of such Tax in the manner required by applicable law. If the aggregate amount of cash in all cash accounts is not sufficient to pay such Tax, Custodian shall promptly notify the Fund of the additional amount of cash (in the appropriate currency) required, and the Fund shall directly deposit such additional amount in the appropriate cash account promptly after receipt of such notice, for use by Custodian as specified herein. In the event that Custodian reasonably believes that Fund is eligible, pursuant to applicable law or to the provisions of any tax treaty, for a reduced rate of, or exemption from, any Tax which is otherwise required to be withheld or paid on behalf of the Fund under any applicable law, Custodian shall, or shall instruct the applicable Subcustodian or withholding agent to, either withhold or pay such Tax at such reduced rate or refrain from withholding or paying such Tax, as appropriate; PROVIDED that Custodian shall have received from the Fund all documentary evidence of residence or other qualification for such reduced rate or exemption required to be received under such applicable law or treaty. In the event that Custodian reasonably believes that a reduced rate of, or exemption from, any Tax is obtainable only by means of an application for refund, Custodian and the applicable Subcustodian shall have no responsibility for the accuracy or validity of any forms or documentation provided by the Fund to Custodian hereunder. The Fund hereby agrees to indemnify and hold harmless Custodian and each Subcustodian in respect of any liability arising from any underwithholding or underpayment of any Tax which results from the inaccuracy or invalidity of any such forms or other documentation, and such obligation to indemnify shall be a continuing obligation of the Fund, its successors and assigns notwithstanding the termination of this Agreement. -7- 9. (a) For the purpose of settling Securities and foreign exchange transactions, the Fund shall provide Custodian with sufficient immediately available funds for all transactions by such time and date as conditions in the relevant market dictate. As used herein, "sufficient immediately available funds" shall mean either (i) sufficient cash denominated in U.S. dollars to purchase the necessary foreign currency, or (ii) sufficient applicable foreign currency, to settle the transaction. Custodian shall provide the Fund with immediately available funds each day which result from the actual settlement of all sale transactions, based upon advices received by Custodian from Subcustodians, Depositories, and Foreign Depositories. Such funds shall be in U.S. dollars or such other currency as the Fund may specify to Custodian. (b) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian or a BNY Affiliate acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate or Instructions with respect to foreign exchange transactions, but Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all risks of investing in Securities or holding cash denominated in a foreign currency. (c) To the extent that Custodian has agreed to provide pricing or other information services in connection with this Agreement, Custodian is authorized to utilize any vendor (including brokers and dealers of Securities) reasonably believed by Custodian to be reliable to provide such information. The Fund understands that certain pricing information with respect to complex financial instruments (E.G., derivatives) may be based on calculated amounts rather than actual market transactions and may not reflect actual market values, and that the variance between such calculated amounts and actual market values may or may not be material. Where vendors do not provide information for particular Securities or other property, an Authorized Person may advise Custodian in a Certificate regarding the fair market value of, or provide other information with respect to, such Securities or property as determined by it in good faith. Custodian shall not be liable for any loss, damage or expense incurred as a result of errors or omissions with respect to any pricing or other information utilized by Custodian hereunder. 10. Custodian shall promptly send to the Fund (a) any reports it receives from a Depository on such Depository's system of internal accounting control, and (b) such reports on its own system of internal accounting control as the Fund may reasonably request from time to time. ARTICLE IV PURCHASE AND SALE OF SECURITIES; CREDITS TO ACCOUNT 1. Promptly after each purchase or sale of Securities by the Fund, the Fund shall deliver to Custodian a Certificate or Instructions, or with respect to a purchase or sale of a Security generally required to be settled on the same day the purchase or sale is made, Oral Instructions specifying all information Custodian may reasonably request to settle such purchase or sale. Custodian shall account for all purchases and sales of Securities on the actual settlement date unless otherwise agreed by Custodian. -8- 2. The Fund understands that when Custodian is instructed to deliver Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. Notwithstanding any provision in this Agreement to the contrary, settlements, payments and deliveries of Securities may be effected by Custodian or any Subcustodian in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction in which the transaction occurs, including, without limitation, delivery to a purchaser or dealer therefor (or agent) against receipt with the expectation of receiving later payment for such Securities. The Fund assumes full responsibility for all risks, including, without limitation, credit risks, involved in connection with such deliveries of Securities. 3. Custodian may, as a matter of bookkeeping convenience or by separate agreement with the Fund, credit the Account with the proceeds from the sale, redemption or other disposition of Securities or interest, dividends or other distributions payable on Securities prior to its actual receipt of final payment therefor. All such credits shall be conditional until Custodian's actual receipt of final payment and may be reversed by Custodian to the extent that final payment is not received. Payment with respect to a transaction will not be "final" until Custodian shall have received immediately available funds which under applicable local law, rule and/or practice are irreversible and not subject to any security interest, levy or other encumbrance, and which are specifically applicable to such transaction. ARTICLE V OVERDRAFTS OR INDEBTEDNESS 1. If Custodian should in its sole discretion advance funds on behalf of any Series which results in an overdraft (including, without limitation, any day-light overdraft) because the money held by Custodian in an Account for such Series shall be insufficient to pay the total amount payable upon a purchase of Securities specifically allocated to such Series, as set forth in a Certificate, Instructions or Oral Instructions, or if an overdraft arises in the separate account of a Series for some other reason, including, without limitation, because of a reversal of a conditional credit or the purchase of any currency, or if the Fund is for any other reason indebted to Custodian with respect to a Series, including any indebtedness to The Bank of New York under the Fund's Cash Management and Related Services Agreement (except a borrowing for investment or for temporary or emergency purposes using Securities as collateral pursuant to a separate agreement and subject to the provisions of Section 2 of this Article), such overdraft or indebtedness shall be deemed to be a loan made by Custodian to the Fund for such Series payable on demand and shall bear interest from the date incurred at a rate per annum ordinarily charged by Custodian to its institutional customers, as such rate may be adjusted from time to time. In addition, the Fund hereby agrees that Custodian shall to the maximum extent permitted by law have a continuing lien, security interest, and security entitlement in and to any property, including, without limitation, any investment property or any financial asset, of such Series at any time held by Custodian for the benefit of such Series or in which such Series may have an interest which is then in Custodian's possession or control or in possession or control of any third party acting in Custodian's behalf. The Fund authorizes Custodian, in its sole discretion, at any -9- time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Series' credit on Custodian's books. 2. If the Fund borrows money from any bank (including Custodian if the borrowing is pursuant to a separate agreement) for investment or for temporary or emergency purposes using Securities held by Custodian hereunder as collateral for such borrowings, the Fund shall deliver to Custodian a Certificate specifying with respect to each such borrowing: (a) the Series to which such borrowing relates; (b) the name of the bank, (c) the amount of the borrowing, (d) the time and date, if known, on which the loan is to be entered into, (e) the total amount payable to the Fund on the borrowing date, (f) the Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities, and (g) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the `40 Act and the Fund's prospectus. Custodian shall deliver on the borrowing date specified in a Certificate the specified collateral against payment by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. Custodian shall deliver such Securities as additional collateral as may be specified in a Certificate to collateralize further any transaction described in this Section. The Fund shall cause all Securities released from collateral status to be returned directly to Custodian, and Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and number of shares or the principal amount of any particular Securities to be delivered as collateral by Custodian, Custodian shall not be under any obligation to deliver any Securities. ARTICLE VI SALE AND REDEMPTION OF SHARES 1. Whenever the Fund shall sell any shares issued by the Fund ("Shares") it shall deliver to Custodian a Certificate or Instructions specifying the amount of money and/or Securities to be received by Custodian for the sale of such Shares and specifically allocated to an Account for such Series. 2. Upon receipt of such money, Custodian shall credit such money to an Account in the name of the Series for which such money was received. 3. Except as provided hereinafter, whenever the Fund desires Custodian to make payment out of the money held by Custodian hereunder in connection with a redemption of any Shares, it shall furnish to Custodian a Certificate or Instructions specifying the total amount to be paid for such Shares. Custodian shall make payment of such total amount to the transfer agent specified in such Certificate or Instructions out of the money held in an Account of the appropriate Series. -10- 4. Notwithstanding the above provisions regarding the redemption of any Shares, whenever any Shares are redeemed pursuant to any check redemption privilege which may from time to time be offered by the Fund, Custodian, unless otherwise instructed by a Certificate or Instructions, shall, upon presentment of such check, charge the amount thereof against the money held in the Account of the Series of the Shares being redeemed, provided, that if the Fund or its agent timely advises Custodian that such check is not to be honored, Custodian shall return such check unpaid. ARTICLE VII PAYMENT OF DIVIDENDS OR DISTRIBUTIONS 1. Whenever the Fund shall determine to pay a dividend or distribution on Shares it shall furnish to Custodian Instructions or a Certificate setting forth with respect to the Series specified therein the date of the declaration of such dividend or distribution, the total amount payable, and the payment date. 2. Upon the payment date specified in such Instructions or Certificate, Custodian shall pay out of the money held for the account of such Series the total amount payable to the dividend agent of the Fund specified therein. ARTICLE VIII CONCERNING CUSTODIAN 1. (a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees (collectively, "Losses"), incurred by or asserted against the Fund, except those Losses arising out of Custodian's own negligence or willful misconduct. Custodian shall have no liability whatsoever for the action or inaction of any Depositories, or, except to the extent such action or inaction is a direct result of the Custodian's failure to fulfill its duties hereunder, of any Foreign Depositories. With respect to any Losses incurred by the Fund as a result of the acts or any failures to act by any Subcustodian (other than a BNY Affiliate), Custodian shall take appropriate action to recover such Losses from such Subcustodian; and Custodian's sole responsibility and liability to the Fund shall be limited to amounts so received from such Subcustodian (exclusive of costs and expenses incurred by Custodian). In no event shall Custodian be liable to the Fund or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement, nor shall BNY or any Subcustodian be liable: (i) for acting in accordance with any Certificate or Oral Instructions actually received by Custodian and reasonably believed by Custodian to be given by an Authorized Person; (ii) for acting in accordance with Instructions without reviewing the same; (iii) for conclusively presuming that all Instructions are given only by person(s) duly authorized; (iv) for conclusively presuming that all disbursements of cash directed by the Fund, whether by a Certificate, an Oral Instruction, or an Instruction, are in accordance with Section 2(i) of Article II hereof; (v) for holding property in any particular country, including, but not limited to, Losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; exchange or currency controls or restrictions, devaluations or -11- fluctuations; availability of cash or Securities or market conditions which prevent the transfer of property or execution of Securities transactions or affect the value of property; (vi) for any Losses due to forces beyond the control of Custodian, including without limitation strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God, or interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; (vii) for the insolvency of any Subcustodian (other than a BNY Affiliate), any Depository, or, except to the extent such action or inaction is a direct result of the Custodian's failure to fulfill its duties hereunder, any Foreign Depository; or (viii) for any Losses arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, including, without limitation, implementation or adoption of any rules or procedures of a Foreign Depository, which may affect, limit, prevent or impose costs or burdens on, the transferability, convertibility, or availability of any currency or Composite Currency Unit in any country or on the transfer of any Securities, and in no event shall Custodian be obligated to substitute another currency for a currency (including a currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected, limited, or prevented by such law, regulation or event, and to the extent that any such law, regulation or event imposes a cost or charge upon Custodian in relation to the transferability, convertibility, or availability of any cash currency or Composite Currency Unit, such cost or charge shall be for the account of the Fund, and Custodian may treat any account denominated in an affected currency as a group of separate accounts denominated in the relevant component currencies. (b) Custodian may enter into subcontracts, agreements and understandings with any BNY Affiliate, whenever and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Custodian from its obligations hereunder. (c) The Fund agrees to indemnify Custodian and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian's performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by the Fund; provided however, that the Fund shall not indemnify Custodian for those Losses arising out of Custodian's own negligence or willful misconduct. This indemnity shall be a continuing obligation of the Fund, its successors and assigns, notwithstanding the termination of this Agreement. 2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for: (a) Any Losses incurred by the Fund or any other person as a result of the receipt or acceptance of fraudulent, forged or invalid Securities, or Securities which are otherwise not freely transferable or deliverable without encumbrance in any relevant market; -12- (b) The validity of the issue of any Securities purchased, sold, or written by or for the Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (c) The legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (d) The legality of the declaration or payment of any dividend or distribution by the Fund; (e) The legality of any borrowing by the Fund; (f) The legality of any loan of portfolio Securities, nor shall Custodian be under any duty or obligation to see to it that any cash or collateral delivered to it by a broker, dealer or financial institution or held by it at any time as a result of such loan of portfolio Securities is adequate security for the Fund against any loss it might sustain as a result of such loan, which duty or obligation shall be the sole responsibility of the Fund. In addition, Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio Securities of the Fund are lent makes payment to it of any dividends or interest which are payable to or for the account of the Fund during the period of such loan or at the termination of such loan, provided, however that Custodian shall promptly notify the Fund in the event that such dividends or interest are not paid and received when due; (g) The sufficiency or value of any amounts of money and/or Securities held in any Special Account in connection with transactions by the Fund; whether any broker, dealer, futures commission merchant or clearing member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, futures commission merchant or clearing member, or whether any payment received by Custodian from any broker, dealer, futures commission merchant or clearing member is the amount the Fund is entitled to receive, or to notify the Fund of Custodian's receipt or non-receipt of any such payment; or (h) Whether any Securities at any time delivered to, or held by it or by any Subcustodian, for the account of the Fund and specifically allocated to a Series are such as properly may be held by the Fund or such Series under the provisions of its then current prospectus and statement of additional information, or to ascertain whether any transactions by the Fund, whether or not involving Custodian, are such transactions as may properly be engaged in by the Fund. 3. Custodian may, with respect to questions of law specifically regarding an Account, obtain the advice of counsel and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice. 4. Custodian shall be under no obligation to take action to collect any amount payable on Securities in default, or if payment is refused after due demand and presentment. -13- 5. Custodian shall have no duty or responsibility to inquire into, make recommendations, supervise, or determine the suitability of any transactions affecting any Account. 6. The Fund shall pay to Custodian the fees and charges as may be specifically agreed upon from time to time and such other fees and charges at Custodian's standard rates for such services as may be applicable. The Fund shall reimburse Custodian for all costs associated with the conversion of the Fund's Securities hereunder and the transfer of Securities and records kept in connection with this Agreement. The Fund shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder. 7. Custodian has the right to debit any cash account for any amount payable by the Fund in connection with any and all obligations of the Fund to Custodian. In addition to the rights of Custodian under applicable law and other agreements, at any time when the Fund shall not have honored any of its obligations to Custodian, Custodian shall have the right without notice to the Fund to retain or set-off, against such obligations of the Fund, any Securities or cash Custodian or a BNY Affiliate may directly or indirectly hold for the account of the Fund, and any obligations (whether matured or unmatured) that Custodian or a BNY Affiliate may have to the Fund in any currency or Composite Currency Unit. Any such asset of, or obligation to, the Fund may be transferred to Custodian and any BNY Affiliate in order to effect the above rights. 8. The Fund agrees to forward to Custodian a Certificate or Instructions confirming Oral Instructions by the close of business of the same day that such Oral Instructions are given to Custodian. The Fund agrees that the fact that such confirming Certificate or Instructions are not received or that a contrary Certificate or contrary Instructions are received by Custodian shall in no way affect the validity or enforceability of transactions authorized by such Oral Instructions and effected by Custodian. If the Fund elects to transmit Instructions through an on-line communications system offered by Custodian, the Fund's use thereof shall be subject to the Terms and Conditions attached as Appendix I hereto, and Custodian shall provide user and authorization codes, passwords and authentication keys only to an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person. 9. The books and records pertaining to the Fund which are in possession of Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the `40 Act and the rules thereunder. The Fund, or its authorized representatives, shall have access to such books and records during Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by Custodian to the Fund or its authorized representative. Upon the reasonable request of the Fund, Custodian shall provide in hard copy or on computer disc any records included in any such delivery which are maintained by Custodian on a computer disc, or are similarly maintained. 10. It is understood that Custodian is authorized to supply any information regarding the Accounts which is required by any law, regulation or rule now or hereafter in effect. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of -14- internal accounting control of a Depository, and with such reports on its own system of internal accounting control as the Fund may reasonably request from time to time. 11. Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against Custodian in connection with this Agreement. ARTICLE IX TERMINATION 1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the board of the Fund, certified by the Secretary or any Assistant Secretary, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice is given by Custodian, the Fund shall, on or before the termination date, deliver to Custodian a copy of a resolution of the board of the Fund, certified by the Secretary or any Assistant Secretary, designating a successor custodian or custodians. In the absence of such designation by the Fund, Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and money then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 2. If a successor custodian is not designated by the Fund or Custodian in accordance with the preceding Section, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by Custodian of all Securities (other than Securities which cannot be delivered to the Fund) and money then owned by the Fund be deemed to be its own custodian and Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement. ARTICLE X MISCELLANEOUS 1. The Fund agrees to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Certificates or Oral Instructions of such present Authorized Persons. -15- 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed to Custodian and received by it at its offices at 100 Church Street, New York, New York 10286, or at such other place as Custodian may from time to time designate in writing. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and received by it at its offices at c/o Matthews International Capital, 456 Montgomery Street, Suite 1200, San Francisco, California 91404-1245,or at such other place as the Fund may from time to time designate in writing. 4. Each and every right granted to either party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of either party to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof or the exercise of any other right. 5. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any exclusive jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties, except that any amendment to the Schedule I hereto need be signed only by the Fund and any amendment to Appendix I hereto need be signed only by Custodian. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the written consent of the other. 6. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. The Fund and Custodian hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. The Fund hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. The Fund and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 7. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. -16- IN WITNESS WHEREOF, the Fund and Custodian have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written. Matthews International Funds By: /s/ Mark W. Headley ------------------------------------ Title: Vice President Tax Identification No: THE BANK OF NEW YORK By: /s/ JORGE E. RAMOS --------------------------------------- Title: Vice President -17- SCHEDULE I CERTIFICATE OF AUTHORIZED PERSONS (THE FUND - ORAL AND WRITTEN INSTRUCTIONS) The undersigned hereby certifies that he/she is the duly elected and acting Secretary of Matthews International Funds (the "Fund"), and further certifies that the following officers or employees of the Fund have been duly authorized in conformity with the Fund's Declaration of Trust and By-Laws to deliver Certificates and Oral Instructions to The Bank of New York ("Custodian") pursuant to the Custody Agreement between the Fund and Custodian dated May 1, 2001, and that the signatures appearing opposite their names are true and correct: G. Paul Matthews President /s/ G. Paul Matthew - -------------------- ------------------------ ---------------------- Name Title Signature Mark W. Headley Vice President /s/ Mark W. Headley - -------------------- ------------------------ ---------------------- Name Title Signature James E. Walter Treasurer /s/ James E. Walter - -------------------- ------------------------ ---------------------- Name Title Signature Downey L. Hebble Secretary /s/ Downey L. Hebble - -------------------- ------------------------ ---------------------- Name Title Signature - -------------------- ------------------------ ---------------------- Name Title Signature - -------------------- ------------------------ ---------------------- Name Title Signature - -------------------- ------------------------ ---------------------- Name Title Signature - -------------------- ------------------------ ---------------------- Name Title Signature - -------------------- ------------------------ ---------------------- Name Title Signature This certificate supersedes any certificate of Authorized Persons you may currently have on file. [seal] By: /s/ Downey L. Hebble ----------------------------------- Title: Secretary Date: June 4, 2001 SCHEDULE II SERIES MATTHEWS INTERNATIONAL FUNDS (the "Trust") Matthews Pacific Tiger Fund Matthews Asian Convertible Securities Fund Matthews Korea Fund Matthews Dragon Century China Fund Matthews Japan Fund Matthews Asian Technology Fund APPENDIX I THE BANK OF NEW YORK ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM") TERMS AND CONDITIONS 1. LICENSE; USE. Upon delivery to an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person the Fund of software enabling the Fund to obtain access to the System (the "Software"), Custodian grants to the Fund a personal, nontransferable and nonexclusive license to use the Software solely for the purpose of transmitting Written Instructions, receiving reports, making inquiries or otherwise communicating with Custodian in connection with the Account(s). The Fund shall use the Software solely for its own internal and proper business purposes and not in the operation of a service bureau. Except as set forth herein, no license or right of any kind is granted to the Fund with respect to the Software. The Fund acknowledges that Custodian and its suppliers retain and have title and exclusive proprietary rights to the Software, including any trade secrets or other ideas, concepts, know-how, methodologies, or information incorporated therein and the exclusive rights to any copyrights, trademarks and patents (including registrations and applications for registration of either), or other statutory or legal protections available in respect thereof. The Fund further acknowledges that all or a part of the Software may be copyrighted or trademarked (or a registration or claim made therefor) by Custodian or its suppliers. The Fund shall not take any action with respect to the Software inconsistent with the foregoing acknowledgments, nor shall you attempt to decompile, reverse engineer or modify the Software. The Fund may not copy, sell, lease or provide, directly or indirectly, any of the Software or any portion thereof to any other person or entity without Custodian's prior written consent. The Fund may not remove any statutory copyright notice or other notice included in the Software or on any media containing the Software. The Fund shall reproduce any such notice on any reproduction of the Software and shall add any statutory copyright notice or other notice to the Software or media upon Custodian's request. 2. EQUIPMENT. The Fund shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize the Software and obtain access to the System, and Custodian shall not be responsible for the reliability or availability of any such equipment or services. 3. PROPRIETARY INFORMATION. The Software, any data base and any proprietary data, processes, information and documentation made available to the Fund (other than which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of Custodian or its suppliers. The Fund shall keep the Information confidential by using the same care and discretion that the Fund uses with respect to its own confidential property and trade secrets, but not less than reasonable care. Upon termination of the Agreement or the Software license granted herein for any reason, the Fund shall return to Custodian any and all copies of the Information which are in its possession or under its control. 4. MODIFICATIONS. Custodian reserves the right to modify the Software from time to time and the Fund shall install new releases of the Software as Custodian may direct. The Fund agrees not to modify or attempt to modify the Software without Custodian's prior written consent. The Fund acknowledges that any modifications to the Software, whether by the Fund or Custodian and whether with or without Custodian's consent, shall become the property of Custodian. 5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL, WHICH THE FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY DATABASE, EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL. 6. SECURITY; RELIANCE; UNAUTHORIZED USE. The Fund will cause all persons utilizing the Software and System to treat all applicable user and authorization codes, passwords and authentication keys with extreme care, and it will establish internal control and safekeeping procedures to restrict the availability of the same to persons duly authorized to give Instructions.. Custodian is hereby irrevocably authorized to act in accordance with and rely on Instructions received by it through the System. The Fund acknowledges that it is its sole responsibility to assure that only persons duly authorized use the System and that Custodian shall not be responsible nor liable for any unauthorized use thereof. 7. SYSTEM ACKNOWLEDGMENTS. Custodian shall acknowledge through the System its receipt of each transmission communicated through the System, and in the absence of such acknowledgment Custodian shall not be liable for any failure to act in accordance with such transmission and the Fund may not claim that such transmission was received by Custodian. 8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED STATES LAW. THE FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO THE FUND OUTSIDE OF THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE EXPORTER ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED. The Fund hereby authorizes Custodian to report its name and address to government agencies to which Custodian is required to provide such information by law. 9. ENCRYPTION. The Fund acknowledges and agrees that encryption may not be available for every communication through the System, or for all data. The Fund agrees that Custodian may deactivate any encryption features at any time, without notice or liability to the Fund, for the purpose of maintaining, repairing or troubleshooting the System or the Software. EX-99.H.1.II 6 l90902aex99-h_1ii.txt EX-99.H.1.II Exhibit EX-99.h.1.ii AMENDMENT TO INVESTMENT COMPANY SERVICES AGREEMENT This Agreement, Dated as of the 31st day of July, 1998 by and between Matthews International Funds, a Delaware business trust (the "Trust") operating as a registered investment company under the Investment Company Act of 1940, as amended, and having its principal place of business at 650 Montgomery Street, Suite 1438, San Francisco, California, 94111 and First Data Investor Services Group, Inc. ("Investor Services Group") a Massachusetts corporation with principal offices at 4400 Computer Drive, Westborough, Massachusetts 01581 (collectively, the "Parties"). WITNESSETH WHEREAS, the Parties originally entered into an Investment Company Services Agreement dated October 1, 1997 as amended November 11, 1997 (the "Agreement"), wherein FPS Services, Inc., now part of Investor Services Group, agreed to provide certain services to the Trust; and WHEREAS, the Parties wish to amend the Agreement to regarding calculation of fees payable under the Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the Parties hereto, intending to be legally bound, do hereby agree as follows: 1. That Schedule B of the Agreement be amended to include a new section VI, to read as follows: "VI. Notwithstanding the foregoing, the total of all of the fees payable under this Agreement shall be prorated on the basis of each series and/or class average net assets." IN WITNESS WHEREOF, the Parties hereto have caused this Amendment consisting of one typewritten page, to be signed by their duly authorized officers as of the day and year first above written. MATTHEWS INTERNATIONAL FUNDS FIRST DATA INVESTOR SERVICES GROUP, INC. /s/ G. Paul Matthews /s/ Kenneth J. Kempf - -------------------------------- ------------------------------------------- By: G. Paul Matthews, President By: Kenneth J. Kempf, Senior Vice President EX-99.H.1.III 7 l90902aex99-h_1iii.txt EX-99.H.1.III Exhibit EX-99.h.1.iii AMENDMENT TO INVESTMENT COMPANY SERVICES AGREEMENT This Agreement, dated as of the 30th day of December, 1998 made by and between Matthews International Funds, a Delaware business trust (the "Trust") operating as a registered investment company under the Investment Company Act of 1940, as amended, and duly organized and existing under the laws of the State of Delaware and First Data Investor Services Group, Inc. ("Investor Services Group"), a Massachusetts corporation (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, the Parties originally entered into an Investment Company Services Agreement dated October 1, 1997 (the "Agreement"), wherein Investor Services Group agreed to provide certain services to the Trust; and WHEREAS, the Parties wish to amend the Agreement to provide of the addition of a separate series of shares; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the Parties hereto, intending to be legally bound, do hereby agree as follows: 1. To the amendment of Schedule "B" as attached; and 2. The addition of the MATTHEWS JAPAN FUND as set forth on the attached amended Schedule "C". IN WITNESS WHEREOF, the Parties hereto have caused this Agreement consisting of one typewritten page, together with amended Schedules "B" and "C", to be signed by their duly authorized officers as of the day and year first above written. Matthews International Funds First Data Investor Services Group, Inc. /s/ G. Paul Matthews /s/ James L. Fox - ----------------------------------- ----------------------------------- By: G. Paul Matthews, President By: James L. Fox, Chief Operating Officer and Executive Vice President Schedule "B" FEE SCHEDULE FOR MATTHEWS INTERNATIONAL FUNDS I. Fees related to Fund Administration, and Portfolio Valuation and Mutual Fund Accounting: (1/12th payable monthly) A. Subject to a minimum fee of $100,000 for each separate series of shares of the Trust (except for the Matthews Japan Fund, which shall be subject to a minimum fee of $40,000 so long as it does not offer multiple classes of shares) and subject to the discount as set forth below, the Trust agrees to pay Investor Services Group for services related to Fund Administration, and Portfolio Valuation and Mutual Fund Accounting at an annual rate of: .00100 on the first $250 million of average net assets of each separate series of shares .00075 on the next $250 million of average net assets of each separate series of shares .00050 on the next $250 million of average net assets of each separate series of shares .00030 on average net assets of each separate series of shares in excess of $750 million During the period October 1, 1997 to July 31, 1998, the annual fees set forth above are discounted on a monthly basis by 90% in the first month, 80% in the second month, 70% in the third month 60% in the fourth month, 50% in the fifth month, 40% in the sixth month, 30% in the seventh month, 20% in the eighth month 10% in the ninth month and the stated fees applying for the remaining term. In the event any separate series of shares= average net assets exceed $100mm, this discount shall no longer apply and the stated fees shall apply. See attachment outlining actual numerical fees. B. Pricing Services Quotation Fee Specific costs will be identified based upon options selected by the Trust and will be billed monthly. Except for the Matthews Japan Fund, Investor Services Group does not currently pass along the charges for the U.S. equity prices supplied by Muller Data. Should the Series invest in security types other than domestic equities supplied by Muller, the following fees would apply.
- ---------------------------------------------------------- -------------------- ------------------ ------------------- Security Types Muller Data Interactive J.J. Kenny Corp.* Data Corp.* Co., Inc.* - ---------------------------------------------------------------------------------------------------------------------- Government Bonds $ .50 $.50 $ .25 (a) - ---------------------------------------------------------------------------------------------------------------------- Mortgage-Backed (evaluated, seasoned, closing) .50 .50 .25(a) - ---------------------------------------------------------------------------------------------------------------------- Corporate Bonds (short and long term) .50 .50 .25(a) - ---------------------------------------------------------------------------------------------------------------------- U.S. Municipal Bonds (short and long term) .55 .80 .50 (b) - ---------------------------------------------------------------------------------------------------------------------- CMO's/ARM's/ABS 1.00 .80 1.00 (a) - ---------------------------------------------------------------------------------------------------------------------- Convertible Bonds .50 .50 1.00 (a) - ---------------------------------------------------------------------------------------------------------------------- High Yield Bonds .50 .50 1.00 (a) - ---------------------------------------------------------------------------------------------------------------------- Mortgage-Backed Factors (per Issue per Month) 1.00 n/a n/a - ---------------------------------------------------------------------------------------------------------------------- U.S. Equities .50 .15 n/a - ---------------------------------------------------------------------------------------------------------------------- U.S. Options n/a .15 n/a - ---------------------------------------------------------------------------------------------------------------------- Domestic Dividends & Capital Changes (per Issue per Month) (d) 3.50 n/a - ---------------------------------------------------------------------------------------------------------------------- Foreign Securities .50 .50 n/a - ---------------------------------------------------------------------------------------------------------------------- Foreign Securities Dividends & Capital Changes (per Issue per Month) 2.00 4.00 n/a - ---------------------------------------------------------------------------------------------------------------------- Set-up Fees n/a n/a (e) .25 (c) - ---------------------------------------------------------------------------------------------------------------------- All Added Items n/a n/a .25 (c) - ----------------------------------------------------------------------------------------------------------------------
* Based on current Vendor costs, subject to change. Costs are quoted based on individual security CUSIP/identifiers and are per issue per day. (a) $35.00 per day minimum (b) $25.00 per day minimum (c) $ 1.00, if no CUSIP (d) At no additional cost except for the Matthews Japan Fund (e) Interactive Data also charges monthly transmission costs and disk storage charges. 1) Futures and Currency Forward Contracts $2.00 per Issue per Day 2) Dow Jones Markets (formerly Telerate Systems, Inc.)* (if applicable) *Based on current vendor costs, subject to change. Specific costs will be identified based upon options selected by the Trust and will be billed monthly. 3) Reuters, Inc.* *Based on current vendor costs, subject to change. Investor Services Group does not currently pass along the charges for the domestic security prices supplied by Reuters, Inc. 4) Municipal Market Data* (if applicable) *Based on current vendor costs, subject to change. Specific costs will be identified based upon options selected by the Trust and will be billed monthly. II. Fees related to Shareholder Servicing Subject to a minimum fee of $36,000 for each separate operating series of shares of the Trust and $16,500 for each additional operating class of shares within each series, and subject to the discount as set forth in section I.A. above, the Trust will be charged for maintenance of and transactions in each shareholder account as follows: A. Account Fee: (1/12th payable monthly) Annual/Semi Annual Dividend Fund: $10.00 Quarterly Dividend Fund 12.00 Monthly Dividend Fund 15.00 Daily Accrual Dividend Fund 18.00 Inactive Account 3.60 B. Transaction Charges for Each Transaction in an Individual Account: Master/Omnibus Subscription or Liquidation $1.00 Wire Order for each Broker Call 4.00 New Account Registration; electronic 0.40 New Account Registration; paper 5.00 Rule 12b-1 Plan Calculation 0.25 C. IRA's, 403(b) Plans, Defined Contribution/Benefit Plans: Annual Maintenance Fee - $12.00/account per year (Normally charged to participants) III. Fees related to Custody of Fund Assets using Bank of New York A. Domestic Securities and ADRs: (1/12th payable monthly) U.S. Dollar Denominated Securities only .00065 On the First $ 10 Million of Average Net Assets .00035 On the Next $ 20 Million of Average Net Assets .00025 On the Next $ 20 Million of Average Net Assets .000175 On the Next $ 50 Million of Average Net Assets .00015 On the Next $150 Million of Average Net Assets .000125 Over $250 Million of Average Net Assets Minimum monthly fee is $50 per portfolio for the Matthews Japan Fund B. Custody Domestic Securities Transactions Charge: (billed monthly) Book Entry DTC, Federal Book Entry, PTC $12.00 Physical/Options/GNMA/RIC's $24.00 Mortgage Backed Securities - Principal Pay Down Per Pool $11.00 A transaction includes buys, sells, maturities or free security movements. C. When Issued, Securities Lending, Index Futures, etc.: Should any investment vehicle require a separate segregated custody account, a fee of $250 per account per month will apply. D. Custody of Foreign Securities per Global Portfolio: (Bank of New York Custody Schedule
- ---------------------------------------- ------------------------------ --------------------- Countries *Safekeeping Charges Transaction Fee (BASIS POINTS) (USD) - ---------------------------------------- ------------------------------ --------------------- Argentina 22 75 - ---------------------------------------- ------------------------------ --------------------- Australia 5 65 - ---------------------------------------- ------------------------------ --------------------- Austria 6 90 - ---------------------------------------- ------------------------------ --------------------- Bangladesh 50 180 - ---------------------------------------- ------------------------------ --------------------- Belgium (reg bds) 3.5 80 - ---------------------------------------- ------------------------------ --------------------- Belgium (equities and Cpn bds) 6 80 - ---------------------------------------- ------------------------------ --------------------- Brazil 35 40 - ---------------------------------------- ------------------------------ --------------------- Canada 3 20 - ---------------------------------------- ------------------------------ --------------------- Chile 35 65 - ---------------------------------------- ------------------------------ --------------------- China 25 30 - ---------------------------------------- ------------------------------ --------------------- Colombia 55 165 - ---------------------------------------- ------------------------------ --------------------- Czech Republic 28 65 - ---------------------------------------- ------------------------------ --------------------- Denmark 4.5 110 - ---------------------------------------- ------------------------------ ---------------------
- ---------------------------------------- ------------------------------ --------------------- Euromarket (Cedel/Euroclear) 4 20 - ---------------------------------------- ------------------------------ --------------------- Finland 16 75 - ---------------------------------------- ------------------------------ --------------------- France 5 75 - ---------------------------------------- ------------------------------ --------------------- Germany 3 40 - ---------------------------------------- ------------------------------ --------------------- Greece 35 150 - ---------------------------------------- ------------------------------ --------------------- Hong Kong 13 75 - ---------------------------------------- ------------------------------ --------------------- Hungary 70 205 - ---------------------------------------- ------------------------------ --------------------- India 55 180** - ---------------------------------------- ------------------------------ --------------------- Indonesia 15 115 - ---------------------------------------- ------------------------------ --------------------- Ireland 4.5 55 - ---------------------------------------- ------------------------------ --------------------- Isreal 80 60 - ---------------------------------------- ------------------------------ --------------------- Italy 5 95 - ---------------------------------------- ------------------------------ --------------------- Japan 5 15 - ---------------------------------------- ------------------------------ --------------------- Luxembourg 10 85 - ---------------------------------------- ------------------------------ --------------------- Malaysia 13 115 - ---------------------------------------- ------------------------------ --------------------- Mexico (bonds) 15 30 - ---------------------------------------- ------------------------------ --------------------- Netherlands 8 17 - ---------------------------------------- ------------------------------ --------------------- New Zealand 4.5 90 - ---------------------------------------- ------------------------------ --------------------- Norway 4 90 - ---------------------------------------- ------------------------------ --------------------- Pakistan 45 170 - ---------------------------------------- ------------------------------ --------------------- Peru 80 195 - ---------------------------------------- ------------------------------ --------------------- Philippines 16.5 125 - ---------------------------------------- ------------------------------ --------------------- Poland 60 155 - ---------------------------------------- ------------------------------ --------------------- Portugal 35 145 - ---------------------------------------- ------------------------------ --------------------- Singapore 10 60 - ---------------------------------------- ------------------------------ --------------------- South Africa 3 40 - ---------------------------------------- ------------------------------ --------------------- South Korea 16 30 - ---------------------------------------- ------------------------------ --------------------- Spain 6 55 - ---------------------------------------- ------------------------------ --------------------- Sweden 4 65 - ---------------------------------------- ------------------------------ --------------------- Switzerland 4.5 105 - ---------------------------------------- ------------------------------ --------------------- Taiwan 21 115 - ---------------------------------------- ------------------------------ --------------------- Thailand 7 50 - ---------------------------------------- ------------------------------ --------------------- Turkey 35 105 - ---------------------------------------- ------------------------------ --------------------- United Kingdom 4 40 - ---------------------------------------- ------------------------------ --------------------- United Kingdom (gilts) 5 55 - ---------------------------------------- ------------------------------ --------------------- Uruguay (Equities) 65 90 - ---------------------------------------- ------------------------------ --------------------- Uruguay (bonds) 45 90 - ---------------------------------------- ------------------------------ --------------------- Venezuela 55 180 - ---------------------------------------- ------------------------------ ---------------------
Chart Notes: * Fee expressed in basis points per annum is calculated based upon month-end market value ** Transaction charge is per 10,000 shares or part thereof A transaction includes buys, sells, maturities or Free Security movements Global Network Usage Fee: $500 per portfolio per month Minimum charges imposed by Agent Banks/Local Administrators: Chile USD 5,000 per annum Columbia USD 600 per month Peru USD 6,000 per annum per account Brazil USD 15 basis points for annual administrative charge Taiwan USD 3,000 account opening charge E. Custody Miscellaneous Fees: Administrative fees incurred in certain local markets will be passed onto the customer with a detailed description of the fees. Fees include income collection, corporate action handling, overdraft charges, funds transfer, special local taxes, stamp duties, registration fees, messenger and courier services and other out-of-pocket expenses. IV. Out-of-Pocket Expenses The Trust will reimburse Investor Services Group monthly for all reasonable out-of-pocket expenses, including telephone, postage, EDGAR filings, Fund/SERV and Networking expenses, incoming wire charges, telecommunications, special reports, record retention, special transportation costs, copying and sending materials to auditors and/or regulatory agencies as incurred and approved. V. Additional Services To the extent the Trust commences investment techniques such as Security Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or foreign currency futures and options, additional fees will apply. Activities of a non-recurring nature such as shareholder in-kinds, fund consolidations, mergers or reorganizations will be subject to negotiation. Any additional/enhanced services, programming requests or reports will be quoted upon request. VI. Allocation of Fees Notwithstanding the foregoing, the total of all fees payable under this Agreement shall be prorated on the basis of each series and/or class average net assets. SCHEDULE "C" IDENTIFICATION OF FUNDS Below are listed the separate funds to which services under this Agreement are to be performed as of the Execution Date of this Agreement: Matthews International Funds Matthews Pacific Tiger Funds - Class A and Class I Matthews Asian Growth and Income Fund Matthews Korea Fund - Class A and Class I Matthews Dragon Century China Fund - Class A and Class I Matthews Japan Fund Class I = Institutional Class (no-load, no 12b-1, no CDSC, redemption fee of 1% on all redemptions made within 90 days of purchase) Class A = Retail Load Class (front-end load, 12b-1, redemption fee of 1% on $1 million or more redemptions made within 90 days of purchase) This Schedule "C" may be amended from time to time by agreement of the Parties. EX-99.H.1.VI 8 l90902aex99-h_1vi.txt EX-99.H.1.VI Exhibit EX-99.h.1.vi AMENDMENT TO INVESTMENT COMPANY SERVICES AGREEMENT This Amendment dated as of May 1, 2001 made by and between Matthews International Funds, a Delaware business trust (the "Trust") operating as a registered investment company under the Investment Company Act of 1940, as amended, and duly organized and existing under the laws of the State of Delaware and PFPC Inc., f/k/a First Data Investor Services Group, Inc. ("PFPC"), a Massachusetts corporation (the "Parties"). WITNESSETH THAT: WHEREAS, the Parties originally entered into an Investment Company Services Agreement dated October 1, 1997 (as amended and supplemented, the "Agreement"), wherein PFPC agreed to provide certain services to the Trust; and WHEREAS, the Parties wish to amend certain terms of the Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the Parties hereto, intending to be legally bound, do hereby agree as follows: 1. All references in the Agreement (including any Exhibits and Schedules thereto) to "First Data Investor Services Group, Inc." and "Investor Services Group" are hereby deleted and replaced with "PFPC Inc." and "PFPC" respectively. 2. Schedule A of the Agreement "Services to be Provided by PFPC" is hereby amended by deleting Section 4 "Services Related to Custody Administration" thereof in its entirety. 3. Schedule B of the Agreement "Fee Schedule for Matthews International Funds" is hereby deleted in its entirety and replaced with the attached Schedule B. 4. Except as specifically amended herein, and except as necessary to conform to the intention of the parties hereinabove set forth, the Agreement shall remain unaltered and in full force and effect and is hereby ratified and confirmed. In the event of a conflict between the terms hereof and the Agreement this Amendment shall control. 5. This Amendment constitutes the complete understanding and agreement of the parties with respect to the subject matter hereof and supercedes all prior communications with respect thereto. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be signed by their duly authorized officers as of the day and year first written above. Matthews International Funds PFPC Inc. By: /s/ Mark W. Headley By: /s/ Stephen M. Wynn -------------------------------- ------------------------------ Title: Vice President Title: Executive Vice President ----------------------------- ---------------------------- Schedule B FEE SCHEDULE FOR MATTHEWS INTERNATIONAL FUNDS I. Accounting and Financial Administration Services A. ASSET BASED FEES: The following annual fee will be calculated based upon each portfolio's average net assets and payable monthly: .1000% of first $250 million of average net assets; .0750% of next $250 million of average net assets; .0500% of next $250 million of average net assets; and, .03% of average net assets in excess of $750 million. B. MINIMUM MONTHLY FEE: $8,333 for each portfolio assuming no more than two classes per portfolio. For each class in excess of two classes additional minimum monthly fees of $250 per month per class shall paid by the Trust. The monthly minimum fee excludes out-of-pocket expenses. C. VOLUNTARY WAIVER OF MINIMUM MONTHLY FEE: $4,167 waiver of the minimum monthly fee for the Japan Fund and Asia Technology Fund for a period of one year from the agreement date such that the minimum monthly fee is reduced to $4,166. The greater of the reduced minimum monthly or asset based fee will be charged. II. Transfer Agency Services A. ACCOUNT FEE: Annual, semi-annual dividend $10.00 per account per annum Quarterly dividend $12.00 per account per annum Monthly dividend $15.00 per account per annum Daily accrual dividend $18.00 per account per annum Inactive account $ 3.60 per account per annum An inactive account is defined as having a zero balance with no dividend payable. Inactive accounts are purged annually after year-end tax reporting. B. MONTHLY MINIMUM FEE: $3,000 for the first class of each portfolio; $1,375 for each additional class. The monthly minimum fee is exclusive of transaction charges, Fund/SERV\Networking charges, and out-of-pocket expenses. C. TRANSACTION CHARGES: Master/Omnibus Account: $ 1.00 per purchase/redemption Wire order desk: $ 4.00 per broker call to place transactions New Account Opening: $ .40 per account (electronic interface) $ 5.00 per account (paper) 12b-1 calculation: $ .25 per account per calculation IRA/Qualified Plan processing: $12.00 per account, per annum
D. FUNDSERV/NETWORKING: NSCC Services include any or all of the following FundSERV, Networking, Commission Settlement, ACATS and Mutual Fund Profile. PFPC SETUP FEE: $2,000.00 ONE TIME SETUP CHARGE PER FUND FAMILY
PFPC Transaction Fees: FundSERV $ No charge Networking No charge Commission Settlement No charge ACATS No charge Mutual Fund Profile Service $10.00 Per month per fund/class ($100 maximum per month)
NOTE: NSCC will deduct its monthly fee (out-of-pocket expense for settlement; wire charges, etc.) on the 15th of each month from PFPC's cash settlement that day. PFPC will include these charges on its next bill as out-of-pocket expenses. **PLUS: out-of-pocket expense for settlements; wire charges; NSCC pickup charges; hardware, CRT's, modems; line (if required); etc. E. SHAREHOLDER EXPENSES (Which May be Incurred by the Fund): Billed as incurred. Shareholder expenses include but are not limited to: IRA/Keogh processing; exchange fees between funds; request for account transcript; returned checks; lost certificate bonding; overnight delivery as requested by the shareholder; wire fee for disbursement if requested by the shareholder, etc. III. Blue Sky Services A. ANNUAL FEE: $75 per permit, per state IV. Out-of-Pocket Expenses The Trust will reimburse PFPC monthly for all reasonable out-of-pocket expenses, including telephone, postage, duplicating charges, forms, envelopes, overnight delivery, Federal Express, mailgrams, EDGAR filings, Blue Sky Filing fees, Fund/SERV and Networking expenses, incoming wire charges, telecommunications, special reports, record retention, special transportation costs, copying and sending materials to auditors and/or regulatory agencies as incurred and approved, hardware/phone lines for transmissions, microfilm/microfiche, wire fees, ACH charges, exchange fee, proxies, record retention, b/c notices, consolidated statements, account transcripts, audio response, ad hoc reports/labels/user tapes, conversion expenses, development/programming costs, travel expenses, training expenses and expenses incurred at the direction of the fund, cost to obtain independent security market quotes, cost of access to data warehouse system, travel to/from Board meetings, NASD review fees, etc. V. Additional Services To the extent the Trust commences investment techniques such as Security Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or foreign currency futures and options, additional fees will apply. Activities of a non-recurring nature such as shareholder in-kinds, fund consolidations, mergers or reorganizations will be subject to negotiation. Any additional/enhanced services, programming requests, or reports will be quoted upon request. VI. Allocation of Fees Notwithstanding the foregoing, the total of all fees payable under this Agreement shall be prorated on the basis of each series and/or class average net assets. EX-99.I 9 l90902aex99-i.txt EX-99.I EXHIBIT EX-99.i Law Offices of Paul, Hastings, Janofsky & Walker LLP A Limited Liability Partnership Including Professional Corporations 345 California Street San Francisco, California 94104-2635 Telephone (415) 835-1600 Facsimile (415) 217-5333 INTERNET: www.paulhastings.com November 27, 2001 Matthews International Capital Management, LLC 456 Montgomery Street, Suite 1200 San Francisco, California 94104-1245 Re: Matthews Asian Funds (the "Registrant") Ladies and Gentlemen: We hereby consent to the continued use in the Registrant's Registration Statement, until its withdrawal, of our opinion (the "Prior Opinion") respecting the legality of the shares of beneficial interest for the following series of Matthews Asian Funds: Matthews Growth and Income Fund, Matthews Asian Technology Fund, Matthews China Fund (formerly named Matthews Dragon Century China Fund), Matthews Japan Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund. The Prior Opinion was filed as an exhibit to Post-Effective Amendment No. 13 filed with the Securities and Exchange Commission on December 20, 1999. Very truly yours, Paul, Hastings, Janofsky & Walker LLP EX-99.J 10 l90902aex99-j.txt EX-99.J Exhibit EX-99.j CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the references to our firm in the Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A of Matthews International Funds comprising, respectively, 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 and to the use of our report dated October 5, 2001 on the financial statements and financial highlights. Such financial statements and financial highlights are incorporated by reference in the Statement of Additional Information, which is a part of such Registration Statement. TAIT, WELLER & BAKER PHILADELPHIA, PENNSYLVANIA DECEMBER 20, 2001 EX-99.O 11 l90902aex99-o.txt EX-99.O Exhibit EX-99.o SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN OF MATTHEWS INTERNATIONAL FUNDS This Second Amended and Restated Multiple Class Plan (this "Plan") amends and restates in its entirety the Multiple Class Plan of Matthews International Funds (the "Trust") originally adopted by a majority of the Board of Trustees (the "Board"), including a majority of the independent Trustees, of the Trust on April 18, 1997, first amended on April 18, 1998 and second amended and restated on February 9, 2001. This Plan shall govern the terms and conditions under which the Trust may issue separate classes of shares representing interests in the series of the Trusts (the "Funds"). 1. The Trust may offer two classes of shares: the Class I Shares and a currently undesignated class of shares (the "Undesignated Class Shares"). The Trust currently offers only the Class I shares of the Funds. 2. The Undesignated Class Shares shall be sold with a front-end charge and a redemption fee shall be charged against the redemption proceeds. The terms of the front end charge and the redemption fee shall be determined by the Trust. The Undesignated Class Shares shall be subject to Rule 12b-1 charges. The Rule 12b-1 Plan associated with the Undesignated Class Shares has the following two components: (a) the first component shall be paid to Matthews International Capital Management, LLC (the "Advisor") and the distributor of the Funds (the "Distributor") or others for expenses incurred in distributing and promoting sales of the Undesignated Class Shares. These expenses include, but are not limited to, preparing and distributing advertisements and sales literature, printing prospectuses and reports used for sales purposes, and paying distribution, maintenance and continuing commissions to broker dealers or others in accordance with a selling agreement with the Distributor on behalf of the Trust's Undesignated Class Shares; (b) the second component is a shareholder servicing fee charged pursuant to a Shareholder Servicing Plan. The shareholder servicing fee shall be paid to the Advisor and others who have executed a servicing or similar agreement with the Trust (or, in the case of other service providers, with the Advisor) on behalf of the Undesignated Class Shares of the Trust, for among other things, furnishing personal services and maintaining customer accounts and records; assisting with purchases and redemption requests; arranging for bank wires; monitoring dividend payments from the series on behalf of customers, forwarding certain shareholder communications from the Trust to customers; receiving and answering correspondences; and aiding in maintaining the investment of their respective customers in the Undesignated Class Shares. In no event shall the Undesignated Class Shares be charged a shareholder servicing fee in excess of 0.25% per annum of its average daily net assets. 3. The Trust's Rule 12b-1 Plans relating to Undesignated Class Shares shall operate in accordance with the Section 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. 4. Class I Shares shall be sold with a shareholder servicing fee pursuant to a Shareholder Servicing Plan. The shareholder servicing fee shall be paid to the Advisor and others who have executed a servicing or similar agreement with the Trust (or, in the case of other service providers, with the Advisor) on behalf of the Class I Shares, for among other things, furnishing personal services and maintaining customer accounts and records; assisting with purchases and redemption requests; arranging for bank wires; monitoring dividend payments from the series on behalf of customers, forwarding certain shareholder communications from the Trust to customers; receiving and answering correspondences; and aiding in maintaining the investment of their respective customers in Class I Shares. In no event shall the Class I Shares be charged a shareholder servicing fee in excess of 0.25% per annum of its average daily net assets. 5. There shall be no conversion features associated with the Class I Shares. 6. The Undesignated Class Shares will vote separately with respect to any Rule 12b-1 Plan related to that class of shares. 7. On an ongoing basis, the Trustees pursuant to their fiduciary responsibilities under the Investment Company Act of 1940, as amended, (the "Act"), and otherwise, will monitor the Trust for the existence of any material conflicts between the interests of the classes of shares. The Trustees, including a majority of the independent trustees, shall take such action as is reasonably necessary to eliminate any such conflict that may develop. The Advisor and the Distributor shall be responsible for alerting the Board to any material conflicts that arise. 8. All material amendments to this Plan must be approved by a majority of the Trustees of the Trust, including a majority of the Trustees who are not "interested persons." 2 EX-99.P.1 12 l90902aex99-p_1.txt EXHIBIT 99.P.1 Exhibit EX-99.p.1 =============================================================================== MATTHEWS INTERNATIONAL FUNDS CODE OF ETHICS =============================================================================== GENERAL This Code of Ethics is adopted on August 12, 1994 pursuant to the requirements of Section 17(j) of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and Rule 17j-1 thereunder. This Code of Ethics shall apply to each series of shares of Matthews International Funds (the "Trust"). Each reference to "Trust" in this Code of Ethics shall be deemed to apply to each of the existing and all future separate series of shares of the Trust (each, a "Fund"). 1. DEFINITIONS (1) "Access Person" means any officer, trustee, director or general partner of a Fund or the Trust and any employee of these organizations, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and any natural person in a control relationship to a Fund or the Trust who obtains information with respect to a Fund and/or the Trust with regard to the purchase or sale of a security. (2) "Security" shall have the meaning set forth in Section 2(a)(36) of the Investment Company Act except securities issued by the Government of the United States or by federal agencies and which are direct obligations of the United States, bankers' acceptances, certificates of deposit, commercial paper and shares of registered open-end investment companies. (3) A "security held or to be acquired" means a security which, within the most recent 15 days (i) is or has been held by a Fund; or (ii) is being or has been considered by a Fund for purchase by a Fund, and includes the writing of an option to purchase or sell a security. (4) "Beneficial Ownership" shall have the meaning ascribed thereto under Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. (5) "Investment Personnel" means any person who is involved in the investment decisions for a Fund and who may have significant opportunities to influence 1 investment decisions for such Fund to his or her benefit. 2. PROHIBITIONS A. No Access Person: (a) In connection with the purchase or sale by such person of a security held or to be acquired by a Fund: (i) shall employ any device, scheme or artifice to defraud a Fund and/or the Trust; (ii) make to the a Fund and/or Trust any untrue statement of a material fact or omit to state to a Fund and/or the Trust a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (iii) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Fund and/or the Trust; or (iv) engage in any manipulative practice with respect to a Fund and/or the Trust. (b) Shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to his/her actual knowledge at the time of such purchase or sale: (i) is being considered for purchase or sale by a Fund; or (ii) is then being purchased or sold by a Fund. B. All Investment Personnel must obtain approval from the General Counsel or his or her designee BEFORE investing in initial public offerings ("IPO") and private placements. In addition to maintaining a record of all such requests, a record of each approval of each such request must also be maintained, including the rationale behind the approval of Investment Personnel investing directly or indirectly in an IPO or private placement. 3. EXEMPTED TRANSACTIONS The prohibitions of Section 2 of this Code of Ethics shall not apply to: 2 (a) Purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control. (b) Purchases or sales of securities which are not eligible for purchase or sale by the a Fund. (c) Purchases or sales which are non-volitional on the part of either the Access Person or a Fund. (d) Purchases which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 4. PROCEDURAL MATTERS (a) The Secretary of the Trust shall: (i) Furnish a copy of this Code of Ethics to each Access Person. (ii) Notify each such Access Person of his or her obligation to file reports as provided by Section 5 of this Code of Ethics. (iii) Report to the Board of Trustees the facts contained in any reports filed with the Secretary pursuant to Section 5 of this Code of Ethics when any such report indicates that an Access Person engaged in a transaction in a security held or to be acquired by a Fund. Additionally, an annual written report will be provided to the Board of Trustees, describing any material issues that arose during the previous year under this Code of Ethics. (iv) Maintain the records required by paragraph (d) of Rule 17j-1. (b) On annual basis, the Board of Trustees will certify that the Trust has adopted procedures reasonably necessary to prevent Access Persons from violating this Code of Ethics. 5. REPORTING (a) Every Access Person shall report to the Trust the information described in Section 5(c) of this Code of Ethics with respect to transactions in any security in which such Access Person has, or by reason of such transaction acquires, any direct or 3 indirect beneficial ownership in the security; provided, however, that an Access Person shall not be required to make a report with respect to transactions effected for any account over which such person does not have any direct or indirect influence. (b) While a disinterested Trustee is exempt from the reporting requirements of this Section 5, such Trustee may voluntarily file a report representing that he or she did not engage in any securities transactions which, to his or her knowledge, involved securities that were being purchased or sold or considered for purchase by any Fund during the 15-day period immediately preceding the date(s) of any transaction(s) by such Trustee. Any failure to regularly file such a report, however, shall not be considered a violation of this Code of Ethics. (c) An initial report shall be made within 10 days from the date in which a person was deemed an Access Person. Thereafter, every report shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) the date of the transaction, the title and the number of shares, and the principal amount of each security involved; (ii) the nature of the transaction (I.E., purchase, sale or any other type of acquisition or disposition); (iii) the price at which the transaction was effected; and (iv) the name of the broker, dealer or bank with or through whom the transaction was effected. (d) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. (e) Each Access Person shall re-certify his or her familiarity with this Code of Ethics and report all security holdings annually. Access Persons are required to complete and sign the annual certification and security report is required to be completed and signed within 30 days of the end of the calendar year. 6. BOARD OVERSIGHT The Board of Trustees must initially approve the Code of Ethics for the Trust, and the Board of Trustees must approve any material changes to the Code of Ethics within six (6) months of such change. The General Counsel or his or her designee shall provide to the 4 Board of Trustees a written report outlining any material issues that arose during the previous year and annually certify that the Trust has adopted procedures in compliance with this Code of Ethics. 7. VIOLATIONS Upon being apprised of facts which indicate that a violation of this Code of Ethics may have occurred, the Board of Trustees of the Trust shall determine whether, in their judgment, the conduct being considered did in fact violate the provisions of this Code of Ethics. If the Board of Trustees determines that a violation of this Code of Ethics has occurred, the Board of Trustees may impose such sanctions as it deems appropriate in the circumstances. If the person whose conduct is being considered by the Board is a Trustee of the Trust, he/she shall not be eligible to participate in the judgment of the Board of Trustees as to whether a violation exists or in whether, or to what extent, sanctions should be imposed. Originally Adopted: August 12, 1994 Last Reviewed: May 25, 2001 5 MATTHEWS INTERNATIONAL FUNDS Securities Transactions Report For the Calendar Quarter/Year Ended: Month/Day/Year To the Secretary of the Trust: During the quarter referred to above, the following transactions were effected in securities in which I had, or by reason of such transaction acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to this Code of Ethics adopted by the Trust.
===================== ================ ============== ==================== ==================== ======== ====================== Number of Nature of Shares or Transaction Broker/Dealer Date of Principal Dollar Amount (Purchase, Sale, or Bank through Security Transaction Amount of Transaction Other) Price Whom Effected - --------------------- ---------------- -------------- -------------------- -------------------- -------- ---------------------- - --------------------- ---------------- -------------- -------------------- -------------------- -------- ---------------------- - --------------------- ---------------- -------------- -------------------- -------------------- -------- ---------------------- - --------------------- ---------------- -------------- -------------------- -------------------- -------- ---------------------- - --------------------- ---------------- -------------- -------------------- -------------------- -------- ---------------------- ===================== ================ ============== ==================== ==================== ======== ======================
This report (i) excludes transactions with respect to which I had no direct or indirect influence, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above. NOTE: Do NOT report transactions in U.S. Government securities, bankers' acceptances, bank certificates of deposit, commercial paper and registered open-end investment Companies. Disinterested director are not required to make a report except where such director knew or should have known that during the 15-day period immediately preceding the date of the transaction by the director, such security was purchased or sold by a Fund or was being considered for purchase by its investment adviser. Date: Signature: -------------- ------------------------------------- Print Name: ------------------------------------ Title: ----------------------------------------- Employer's Name: ------------------------------- 6 -----END PRIVACY-ENHANCED MESSAGE-----