-----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, Rdbi8TQ8gKGlAJCmJwunLI9vaYBv6+OYJAWwefqr5luaCH+prczaNyTKEj3NPDhm MU4pRTZgCxvB7YoaVLm5kg== 0001036050-99-000898.txt : 19990430 0001036050-99-000898.hdr.sgml : 19990430 ACCESSION NUMBER: 0001036050-99-000898 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS INTERNATIONAL FUNDS CENTRAL INDEX KEY: 0000923184 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08510 FILM NUMBER: 99604801 BUSINESS ADDRESS: STREET 1: C/O FIRST DATA INVESTOR SERVICE GROUP IN STREET 2: 3200 HORIZON DRIVE BOX 61503 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 MAIL ADDRESS: STREET 1: FIRST DATA INVESTOR SERIVES GROUP INC STREET 2: 3200 HORIZON DRIVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 N-30D 1 MATTHEWS FUND SEMI-ANNUAL REPORT 3/31/1999 - -------------------------------------------------------------------------------- A MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Fellow Shareholders, It is a pleasure to be able to report that in the six months ended February 28, 1999, Asian financial markets enjoyed a healthy recovery from the low levels of last summer. During this period, the Matthews Pacific Tiger Fund gained 57.0%, the Matthews Asian Growth and Income Fund gained 10.4%, the Matthews Dragon Century China Fund gained 18.1%, and the Matthews Korea Fund gained 83.7%. In the same time period, the Morgan Stanley Capital International Far East Asia ex-Japan index, gained 45.4%, the KOSPI (the Korean Index) gained 85.1% and the Credit Lyonnais China World Index gained 29.0%. While some commentators remain skeptical that Asia's economic recovery is for real, we believe there is sufficient evidence to suggest that a sustainable rebound is underway. Given the traumatic conditions faced by many of Asia's Tigers in the last two years, however, the recovery is unlikely to be seamless. Markets will undoubtedly face periods of volatility in the coming months and years, but we firmly believe that the recent rallies portend a more favorable environment for long term investors in Asia's still potentially high growth economies. The impetus for the recent rallies in Asia's financial markets has been a combination of improving confidence and easier monetary policies. This combination has been possible as a result of the generally successful transition by many of Asia's newly industrialized countries from mostly fixed exchange rates to mostly floating exchange rates. This transition, which took place over a period from July 1997 to March 1998, was initially accompanied by very high local interest rates, which, in turn, led to very weak consumer demand in many Asian countries. However, now that the new exchange rate regimes have had some time to stabilize, Asian interest rates have fallen sharply. We consider this transition to floating exchange rates to have been the key to allowing Asia's imbalances in trade and capital flows to have been so dramatically reversed. At the same time many Asian governments, in particular those in Korea and Thailand, have taken dramatic steps to restructure their banking and financial systems. This process is ongoing and has improved investor confidence in these countries. Much remains to be done, but if the current momentum is maintained, Asia's financial markets and regulatory systems will have been significantly strengthened. The crisis has opened the way for many multi-national companies to acquire either assets or whole businesses in Asia, and this infusion of both financial and human capital is in our opinion a critical element in Asia's restructuring. We are pleased to welcome two new members to our investment team, James Bogin and Andrew Foster. James Bogin will be co-managing our most recent fund, the Matthews Japan Fund which will provide investors with a way to participate in Asia's largest economy. While Japan's decade long struggle to pull out of its recession has been well documented, we believe that many Japanese companies have succeeded in spite of the environment, and that many attractive investment opportunities exist in Japan. James Bogin started his investment career in Japan, is fluent in Japanese and believes the current environment is attractive for stock pickers. Andrew Foster is an analyst with particular experience in the Asian banking industry. We are also pleased to announce that Richard Gao, who has been our primary analyst covering Mainland China, has been appointed Assistant Portfolio Manager of the Matthews Dragon Century China Fund. Thank you for your support. Sincerely, [PHOTO APPEARS HERE] [PHOTO APPEARS HERE] /s/ G. Paul Matthews /s/ Mark W. Headley G. Paul Matthews - President Mark W. Headley - Managing Director, Chief Investment Officer Portfolio Manager 1 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- [PHOTO OF G. PAUL MATTHEWS APPEARS HERE] [PHOTO OF MARK W. HEADLEY APPEARS HERE] MATTHEWS PACIFIC TIGER FUND The Matthews Pacific Tiger Fund continues to focus on attractive companies throughout the Asia ex-Japan region. The Fund continues to maintain a bottom-up (company oriented) approach to investing versus the top-down (country oriented) style. We continue to emphasize the importance of understanding the country specific economic, social and political dynamics. However, rather than thinking in terms of "Tiger countries" we think in terms of "Tiger companies", the companies that are driving Asian economies through inventive, professional management. Our regular meetings with top executives throughout Asia provide crucial insight into company and industry dynamics. The Fund has remained fully invested, and well diversified by industry, country and market capitalization. It has out-performed both its relevant indices and the majority of our peer group through both the last half year and from its inception on Sept. 12, 1994. Since inception through Feb. 28, 1999, the Fund is down 34.8% while the MSCI Far East Ex-Japan Index is down 45.5%. For the six months ended Feb. 28, 1999, the Fund has returned +57.0% while the MSCI Far East Ex-Japan Index returned +43.4% for the same period. Although we believe we have seen the worst of the Asian financial crisis, the impact on corporate Asia has been profound. Mergers and acquisitions have increased dramatically. Many companies have successfully reduced debt levels, while others continue to struggle under heavy burdens of bank borrowings. Glimpses of recovery in the real economies can be seen in a number of countries. In Korea, for example, we find a potent combination of corporate restructuring, improved market regulation and economic revival. We also continue to be enthusiastic about the long-term reform process occurring in China. Improvements in corporate governance and financial regulation can be seen throughout the region. We believe the trend towards greater transparency and improving market mechanisms should prove beneficial to our investment philosophy as long term investors. [PHOTO OF G. PAUL MATTHEWS APPEARS HERE] MATTHEWS ASIAN GROWTH and INCOME FUND The Matthews Asian Growth and Income Fund invests in a portfolio of Asian convertible bonds and equities. Historically, convertible bonds have been less volatile than individual equities. The fund seeks bonds that offer both income and capital gains opportunities and equities with an above average yield. The fund seeks to achieve both capital gains and an income component that is higher than the average Asia ex-Japan equity fund. It should be noted that a significant portion of the "income" component of convertible bonds issued by Asian companies is in the form of capital gains paid out at the maturity of the bond and may not generate significant "current" income for the fund. One of the attractions of convertible bonds relative to equities is that, historically, they have been less volatile, falling less in down markets but rising less in up markets. We consider this lower volatility to be a key attraction for investors. During the six month period ended February 28, 1999, the fund gained 10.4%, which is significantly less than the return of the broad equity market (The Morgan Stanley Capital International Far East ex-Japan Index gained 45.4%). While we would not expect to match the upside performance of pure equities during such sharp rallies, we are somewhat disappointed with the recent performance. On a longer time frame, the fund has significantly outperformed the equity markets. The fund has recently been adding to its positions in equities, which now account for 15% of the portfolio. 2 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- [PHOTO OF G. PAUL MATTHEWS APPEARS HERE] [PHOTO OF MARK W. HEADLEY APPEARS HERE] MATTHEWS KOREA FUND The six months ended February 28, 1999 saw the Korean equity market (KOSPI Index) gain 85.1% in US dollar terms. This dramatic recovery followed a sustained decline that took the Korean market to ten-year lows in the summer of 1998. This recovery has so far been driven by a combination of improving confidence in the currency and growing recognition that Korea's new Government, led by President Kim Dae Jung, is engineering an almost complete overhaul of Korea's business practices and financial infrastructure. Most importantly, Korea's new leadership has fully embraced the principles of the free market and opened the Korean market fully to foreign investors. While many of the practices that are being challenged are deeply embedded in Korean society, including the dominance of family controlled industrial groups known as the Chaebol, "lifetime employment", inter-company lending, and the strict involvement of Government in business decisions, all are now considered to be part of the old Korea. For as long as this direction is sustained, Korea's future will be extremely bright. [PHOTO OF G. PAUL MATTHEWS APPEARS HERE] [PHOTO OF MARK W. HEADLEY APPEARS HERE] [PHOTO OF RICHARD GAO APPEARS HERE] MATTHEWS DRAGON CENTURY CHINA FUND The Matthews Dragon Century China Fund invests in Chinese companies that are listed both in China and Hong Kong. Companies listed in China are B shares that are available for foreign investors, while companies listed in Hong Kong include H shares and Red Chips. H shares are mainly state-owned firms with all business done in China, while Red Chips are Chinese conglomerates that diversify their investments around China and Hong Kong. We apply a bottom-up approach to find companies that are leaders in their respective industries and also seek companies that have niche positions within their industry. Frequent company visits play a vital part in our investment process, and provide us with the opportunity to speak directly with management. Chinese stocks have been weak in the past six months ended February 28, 1999, mainly due to concerns of a currency devaluation and a financial crisis. However, we think the concerns are overdone. China is making every effort to clean up its bad debt and recapitalize its banks. Meanwhile, its huge foreign exchange reserves and trade surplus continue to support the currency. The country is heading towards a privatized market economy. During our many trips to China, we have seen widespread reforms and changes in every corner of the economy: the banking sector, the state-owned enterprises, the housing sector and the telecommunications sector, etc. Our portfolio is well-diversified into various industries. We believe the companies in the portfolio expect to be among the long term winners as China moves towards a free market economy. 3 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS' COMMENTS - -------------------------------------------------------------------------------- [PHOTO OF JAMES BOGIN APPEARS HERE] [PHOTO OF MARK W. HEADLEY APPEARS HERE] MATTHEWS JAPAN FUND The Matthews Japan Fund was launched on December 31, 1998 and offers long-term equity investors direct exposure to Japan's large and diverse economy. The Japanese economy is the world's 2nd largest and its stock market is the world's 3rd largest. In recent years, recession, inflation, deflation and poor stock market performance have caused many investors to write off the Japanese market entirely. The result is that there are now many growing companies available for purchase at attractive multiples of earnings, cash flow and book value. The Japan Fund follows the same bottom-up, growth-at-a-reasonable price investment methodology as the other portfolios in the series. We believe that real change is now occurring in Japan at both a governmental and corporate level. The government has instituted a major tax cut. Large companies such as Sony have instituted U.S. style restructuring plans. The Fund has begun its existence with a strong bias towards smaller capitalization stocks due to their superior growth prospects and attractive valuations. However, it is flexible as to the size of companies it owns. The Fund is fully invested. 4 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED) - -------------------------------------------------------------------------------- Market Sector Diversification As a Percentage of Total Value of Investment in Securities as of February 28, 1999
Matthews Matthews Matthews Asian Dragon Pacific Growth & Matthews Century Matthews Tiger Income Korea China Japan Fund Fund Fund Fund Fund ---------- ----------- ----------- ------------ ----------- EQUITIES Automotive 1.74% 0.00% 3.78% 7.89% 0.00% Banking and Finance 8.53 0.00 18.56 0.00 0.00 Beverage 0.00 0.00 0.00 0.00 7.32 Brokers 0.00 0.00 0.00 0.00 6.83 Commercial & Industrial 0.00 0.00 3.11 0.00 0.00 Communications 0.00 0.00 1.90 0.00 0.00 Computer Software & Employer Training 0.00 0.00 0.00 0.00 7.39 Computer, Software & Games 0.00 0.00 0.00 0.00 4.99 Conglomerate 4.85 1.08 0.00 13.63 0.00 Consumer 6.41 2.18 3.97 15.94 0.00 Consumer Electronics 0.00 0.00 0.00 0.00 8.11 Department Store 0.00 0.00 0.00 0.00 3.22 Electronics 12.02 0.47 18.09 0.00 0.00 Food & Beverages 4.90 0.00 5.57 0.00 0.00 Health Care 2.26 0.00 0.00 5.41 0.00 Household 0.00 0.00 1.71 0.00 0.00 Household Goods 0.00 0.00 0.00 0.00 3.41 Indices 0.00 0.00 0.00 0.00 4.76 Industrial 0.27 0.53 0.00 0.00 0.00 Infrastructure 0.00 0.00 0.00 7.09 0.00 Insurance 8.44 0.00 11.31 0.00 0.00 Machinery 0.00 0.00 0.00 0.00 4.88 Machinery & Equipment 2.03 0.00 0.00 0.00 0.00 Manufacturing 0.98 0.00 0.00 0.00 0.00 Media 4.77 1.99 0.00 0.00 0.00 Paper Products 0.00 0.00 0.94 0.00 0.00 Petro-Chemical 0.00 1.73 16.01 0.00 0.00 Pharmaceutical 1.26 0.00 3.17 8.57 3.35 Property 0.00 4.46 0.00 3.32 0.00 Real Estate Rental 0.00 0.00 0.00 0.00 4.35 Retail 4.85 0.00 0.00 0.00 0.00 Security Service 1.56 0.00 1.63 0.00 0.00 Shipping & Steel 0.00 0.00 0.09 0.00 0.00 Software 0.00 0.00 0.00 0.00 13.50 Supermarket 0.00 0.00 0.00 0.00 5.64 Technology 8.58 1.86 0.00 7.62 4.50 Telecommunications 8.08 0.00 2.65 10.63 10.17 Trading 3.86 0.00 0.00 0.00 0.00 Transportation 2.49 0.00 0.00 1.18 0.00
5 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED) - -------------------------------------------------------------------------------- Market Sector Diversification As a Percentage of Total Value of Investment in Securities as of February 28, 1999
Matthews Matthews Matthews Asian Dragon Pacific Growth & Matthews Century Matthews Tiger Income Korea China Japan Fund Fund Fund Fund Fund ---------- ----------- ----------- ------------ ----------- EQUITIES (continued) Utility 11.84 1.89 6.66 18.72 0.00 Watches & Machine Tools 0.00 0.00 0.00 0.00 4.90 Water Heaters, Kitchen & Equipment 0.00 0.00 0.00 0.00 2.68 ---------- ----------- ----------- ------------ ----------- Total Equities 99.72 16.19 99.15 100.00 100.00 BONDS Automotive 0.28 4.16 0.00 0.00 0.00 Banking & Finance 0.00 4.76 0.00 0.00 0.00 Conglomerate 0.00 8.81 0.00 0.00 0.00 Consumer 0.00 0.11 0.00 0.00 0.00 Electrical Appliance 0.00 1.49 0.00 0.00 0.00 Electronics 0.00 18.14 0.41 0.00 0.00 Government Bond 0.00 3.70 0.44 0.00 0.00 Hotels 0.00 7.69 0.00 0.00 0.00 Industrial 0.00 8.10 0.00 0.00 0.00 Infrastructure 0.00 6.77 0.00 0.00 0.00 Petro-Chemical 0.00 4.75 0.00 0.00 0.00 Property 0.00 5.46 0.00 0.00 0.00 Telecommunications 0.00 3.31 0.00 0.00 0.00 Transportation 0.00 3.51 0.00 0.00 0.00 Utility 0.00 3.05 0.00 0.00 0.00 ---------- ----------- ----------- ------------ ----------- Total Bonds 0.28 83.81 0.85 0.00 0.00 ---------- ----------- ----------- ------------ ----------- TOTAL INVESTMENTS 100.00% 100.00% 100.00% 100.00% 100.00% ========== =========== =========== ============ ===========
See accompanying notes to financial statements. 6 - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED) - --------------------------------------------------------------------------------
Shares Value -------- ---------- Equities - 98.86%**** South Korea - 1.09% Hite Brewery Co., Ltd............................ 33,100 $ 484,258 ------------ Hong Kong - 42.02% Asia Satellite Telecommunications Holdings, Ltd. ADR............................ 57,600 957,600 ASM Pacific Technology, Ltd...................... 1,860,000 1,008,292 Axa China Region, Ltd............................ 1,742,000 1,236,617 Beijing Datang Power Generation Co., Ltd......... 1,654,000 362,918 Cafe De Coral Holdings, Ltd...................... 2,292,000 687,799 Cathay Pacific Airways........................... 655,000 731,277 China Hong Kong Photo Products Holdings, Ltd................................ 7,300,000 546,481 China Telecom (Hong Kong), Ltd................... 581,800 1,032,525 Dickson Concepts International, Ltd.**........... 1,000,500 761,892 First Tractor Co., Ltd........................... 2,508,000 456,427 Giordano International, Ltd...................... 5,633,000 1,366,853 Guangdong Electric Power Development Co., Ltd. B Shares................ 2,867,094 736,409 Guangdong Kelon Electrical Holdings Co., Ltd............................. 1,584,000 1,063,121 Guangzhou Pharmaceutical Co., Ltd................ 6,608,000 554,380 Huaneng Power International, Inc. ADR**.......... 48,000 420,000 Hutchison Whampoa, Ltd........................... 145,200 1,007,324 Legend Holdings, Ltd............................. 3,136,000 1,224,407 Li & Fung, Ltd................................... 938,000 1,694,943 Peregrine Investments Holdings, Ltd.............. 1,097,000 0 Qingling Motors Co............................... 2,500,000 309,767 Shanghai Dazhong Taxi Co. B Shares **............ 1,048,000 362,608 Vitasoy International Holdings, Ltd.............. 5,224,500 1,668,954 Wuxi Little Swan Co., Ltd. B Shares.............. 1,112,380 430,724 ------------ Total Hong Kong.................................. 18,621,318 ------------ Indonesia - 0.63% PT Hero Supermarket.............................. 2,521,000 278,130 PT Steady Safe Transportation Service**.......... 6 0 ------------ Total Indonesia.................................. 278,130 ------------ Malaysia - 3.00% Public Bank Berhad............................... 3 2 Star Publications (Malaysia)..................... 616,000 736,768 Telekom Malaysia Berhad.......................... 307,000 592,591 ------------ Total Malaysia................................... 1,329,361 ------------ Philippines - 4.80% Benpres Holdings Corp.**......................... 10,192,000 1,360,676 Philippine Long Distance Telephone Co............ 32,890 764,195 ------------ Total Philippines................................ 2,124,871 ------------ Singapore - 16.18% Avimo Group, Ltd................................. 765,600 1,093,692 Dairy Farm International Holdings, Ltd........... 738,000 789,660 Electronic Resources, Ltd........................ 1,015,000 1,137,579 Keppel Corp., Ltd................................ 484,000 1,124,251 Oversea-Chinese Banking Corp., Ltd............... 130,400 870,830 Parkway Holdings, Ltd............................ 567,000 994,370 Venture Manufacturing (Singapore), Ltd........... 275,800 1,161,155 ------------ Total Singapore.................................. 7,171,537 ------------ South Korea - 23.00% Comtec System Co., Ltd.**........................ 81,000 443,564 Dae Duck Electronics Co.**....................... 12,349 888,199 Hana Bank........................................ 192,674 1,795,246 Korea Electric Power Corp........................ 78,560 1,855,646 S1 Corp.**....................................... 4,443 686,332 Samsung Electronics Co........................... 29,626 2,087,258 Samsung Fire & Marine Insurance.................. 7,585 2,417,776 SK Telecom Co., Ltd.**........................... 36 18,272 ------------ Total South Korea................................ 10,192,293 ------------ Thailand - 8.14% Advanced Info Service Public Co., Ltd.**......... 136,000 947,480 Bangkok Bank Public Co., Ltd.**.................. 640,900 1,081,905 Srithai Superware Public Co., Ltd................ 1,503,000 513,484 Thai Engine Manufacturing Public Co., Ltd........ 595,800 119,735 Thai Reinsurance Public Co., Ltd................. 30,000 54,662 Tipco Asphalt Public Co., Ltd.**................. 500,000 890,942 ------------ Total Thailand................................... 3,608,208 ------------ Total Equities (Cost $47,062,146).............................. 43,809,976 ------------ International Dollar Bonds - 0.27%............... Face Amount Value Hong Kong - 0.27% Qingling Motors Co.*** 3.500%, 01/22/02................................ $ 500,000 117,500 ------------ Total International Dollar Bonds (Cost $169,075)................................. 117,500 ------------ TOTAL INVESTMENTS - 99.13% (Cost $47,231,221*)............................. 43,927,476 ------------ CASH AND OTHER ASSETS, LESS LIABILITIES - 0.87%...................... 383,800 ------------ NET ASSETS - 100%................................ $ 44,311,276 ============ * Cost for Federal income tax purposes is $47,231,221 and net unrealized depreciation consists of: Gross unrealized appreciation................. $ 6,606,747 Gross unrealized depreciation................. (9,910,492) ------------ Net unrealized depreciation................... $ (3,303,745) ============
** Non-income producing security *** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 1999, the value of these securities amounted to $117,500 or 0.27% of net assets. **** As a percentage of net assets as of February 28, 1999. See accompanying notes to financial statements. 7 - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH & INCOME FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value ---------- ---------- Equities - 15.46%**** Hong Kong - 12.29% Amoy Properties, Ltd.*** ............................. 4,500 $ 252,000 ASM Pacific Technology, Ltd. ......................... 194,000 105,166 Cafe De Coral Holdings, Ltd. ......................... 310,000 93,027 China Hong Kong Photo Products Holdings, Ltd. .................................... 3 0 Peregrine Investments Holdings, Ltd. ................. 64,000 0 Shandong Huaneng Power Co., Ltd. ADR ................. 30,000 106,875 South China Morning Post (Holdings), Ltd. ............ 262,000 112,439 Wharf (Holdings), Ltd. ............................... 50,000 57,759 ---------- Total Hong Kong ...................................... 727,266 ---------- Malaysia - 0.05% Renong Berhad Warrants** ............................. 40,000 3,105 ---------- South Korea - 1.65% Ssangyong Oil Refining Co., Ltd. ..................... 6,800 97,818 ---------- Taiwan - 0.96% Ton Yi Industrial Corp.** ............................ 68,652 29,677 Winbond Electronics Corp.** .......................... 2,000 26,800 ---------- Total Taiwan ......................................... 56,477 ---------- Thailand - 0.51% Srithai Superware Public Co., Ltd. ................... 88,000 30,064 ---------- Total Equities (Cost $1,200,352) ................................. 914,730 ---------- International Dollar Bonds - 79.98% Face Amount Value ----------- ---------- Hong Kong - 35.92% Shangri-La Asia Capital, Ltd. 2.875%, 12/16/00 .................................. $ 280,000 242,900 Hong Kong & Shanghai Hotels Overseas Finance, Ltd. 5.000%, 01/06/01 .................................. 150,000 141,750 Paul Y. - ITC Construction Holdings, Ltd. 5.000%, 02/03/01 .................................. 140,000 53,900 Hong Kong Land Co. 4.000%, 02/23/01 .................................. 150,000 138,750 New World Infrastructure, Ltd. 5.000%, 07/15/01 .................................. 250,000 206,875 Qingling Motors, Ltd.*** 3.500%, 01/22/02 .................................. 1,000,000 235,000 First Pacific Capital, Ltd. 2.000%, 03/27/02 .................................. 250,000 225,625 Shanghai Industrial Investment 1.000%, 02/24/03 .................................. 200,000 146,500 Guangdong Investment, Ltd.*** 3.250%, 04/07/03 .................................. 170,000 70,550 Zhenhai Refining & Chemical Co., Ltd. 3.000%, 12/19/03 .................................. 200,000 173,000 Bangkok Bank Public Co. 3.250%, 03/03/04 .................................. 625,000 268,750 Huaneng Power International Public Co., Ltd. 1.750%, 05/21/04 .................................. 200,000 172,500 Regal Hotels International Holdings, Ltd. 5.250%, 12/13/08 .................................. 95,000 49,875 ---------- Total Hong Kong ...................................... 2,125,975 ---------- Indonesia - 4.89% Asia Pulp & Paper Global Finance V, Ltd. 2.000%, 07/25/00 .................................. 150,000 114,000 PT Indocement 2.000%, 02/27/06 .................................. 260,000 175,500 ---------- Total Indonesia ...................................... 289,500 ---------- Philippines - 6.23% Metro Pacific Capital, Ltd. 2.500%, 04/11/03 .................................. 60,000 54,900 JG Summit (Cayman), Ltd. 3.500%, 12/23/03 .................................. 80,000 53,600 International Container Terminal Services, Inc. 1.750%, 03/13/04 .................................. 250,000 198,125 FDC Capital Cayman 2.500%, 05/15/06 .................................. 90,000 61,875 ---------- Total Philippines .................................... 368,500 ---------- Singapore - 3.16% Fullerton Global Corp. 0.000%, 04/02/03 .................................. 200,000 187,000 ---------- South Korea - 12.56% SK Corp. 3.000%, 12/31/01 .................................. 34,000 95,200 Republic of Korea 8.750%, 04/15/03 .................................. 200,000 208,740 Samsung Display Devices Co. 0.250%, 03/12/06 .................................. 200,000 202,000 Samsung Electronics Co. 0.250%, 12/31/06 .................................. 200,000 237,500 ---------- Total South Korea .................................... 743,440 ---------- Taiwan - 12.86% Nan Ya Plastics Corp. 1.750%, 07/19/01 .................................. 80,000 91,400 Winbond Electronics Corp. 1.000%, 11/04/02 .................................. 200,000 200,500 Yageo Corp. 1.250%, 07/24/03 .................................. 80,000 92,000 Compal Electronics, Inc.*** 1.000%, 11/21/03 .................................. 100,000 202,500 8 - -------------------------------------------------------------------------------- MATTHEWS ASIAN GROWTH & INCOME FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Face Amount Value ----------- ----------- Walsin Lihwa Corp. 3.250%, 06/16/04 .............................. $ 120,000 $ 84,000 Acer Peripherals, Inc. 1.250%, 11/27/06 .............................. 80,000 90,400 ----------- Total Taiwan ..................................... 760,800 ----------- Thailand - 4.36% Robinson Department Store Public Co., Ltd. 4.250%, 04/07/04 .............................. 50,000 6,250 Tipco Asphalt, Co. 2.750%, 09/19/06 .............................. 300,000 252,000 ----------- Total Thailand ................................... 258,250 ----------- Total International Dollar Bonds (Cost $5,550,864) ............................. 4,733,465 ----------- TOTAL INVESTMENTS - 95.44% (Cost $6,751,216*) ............................ 5,648,195 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - 4.56% ...................... 269,668 ----------- NET ASSETS - 100% ................................ $ 5,917,863 =========== * Cost for Federal income tax purposes is $6,751,216 and net unrealized depreciation consists of: Gross unrealized appreciation ................. $ 154,171 Gross unrealized depreciation ................. (1,257,192) ----------- Net unrealized depreciation ................... $(1,103,021) =========== ** Non-income producing security *** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 1999, the value of these securities amounted to $760,050 or 12.84% of net assets. **** As a percentage of net assets as of February 28, 1999. See accompanying notes to financial statements. 9 - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value -------- ------------ Equities - South Korea - 97.92%*** Dacom Corp. .................................. 23,750 $ 1,160,809 Dae Duck Electronics Co.** ................... 31,055 2,233,588 Dae Duck Industries** ........................ 22,916 1,404,752 Daehan City Gas Co. .......................... 31,460 758,537 Dongwon Securities Co. ....................... 166,010 2,170,952 Global & Yuasa Battery Co. ................... 32,060 786,105 Han Kuk Carbon Co., Ltd.** ................... 48,734 1,601,239 Han Kuk Paper Manufacturing Co. .............. 90,180 1,112,969 Hana Bank .................................... 439,220 4,092,445 Hanjin Heavy Industries** .................... 24,896 101,739 Hankook Synthetics, Inc. ..................... 21,000 415,365 Hankook Tire Manufacturing Co.** ............. 573,607 2,358,187 Hanmi Pharmaceutical Industrial Co.** ........ 34,914 770,467 Hite Brewery Co., Ltd. ....................... 45,800 670,062 Honam Petrochemical Corp. .................... 140,700 1,690,469 Housing & Commercial Bank, Korea ............. 381,327 5,906,125 Hyundai Motor Co., Ltd. ...................... 97,756 1,350,287 Kolon Chemical Co. ........................... 66,020 1,489,294 Kookmin Bank ................................. 500,333 3,394,167 Korea Electric Power Corp. ................... 308,280 7,281,805 Korea Electric Terminal Co. .................. 24,000 1,088,680 Korea Fine Chemical Co. ...................... 46,520 1,163,475 Korea Telecom Corp.** ........................ 67,700 1,991,989 LG Cable & Machinery ......................... 467,220 3,704,154 LG Chemical, Ltd. ............................ 311,540 3,386,580 LG Electronics, Inc. ......................... 131,984 1,332,245 LG Information & Communication, Ltd. ......... 77,811 2,264,055 LG Insurance Co., Ltd. ....................... 56,874 1,882,629 Lotte Chilsung Beverage Co. .................. 42,070 1,547,323 Lotte Confectionery Co. ...................... 28,810 2,072,153 Medison Co., Ltd. ............................ 190,936 1,794,657 Nong Shim Co., Ltd. .......................... 46,530 2,338,859 Oriental Fire & Marine Insurance ............. 203,640 2,313,523 Pacific Corp. ................................ 147,710 2,040,293 Pusan City Gas Co., Ltd. ..................... 83,800 2,006,816 S1 Corp.** ................................... 12,548 1,938,346 Saehan Precision Co.** ....................... 65,920 991,359 Samsung Display Devices Co. .................. 85,173 3,445,903 Samsung Electronics Co. ...................... 124,859 8,796,765 Samsung Fire & Marine Insurance .............. 29,066 9,265,007 Samsung Securities Co., Ltd. ................. 140,281 3,193,155 Seoul City Gas Co., Ltd. ..................... 31,260 646,406 Shinhan Bank ................................. 544,453 3,337,470 Shinhung Co. ................................. 45,270 703,008 Shinsegae Department Store Co. ............... 229,470 4,726,312 Sindo Ricoh Co. .............................. 70,440 2,245,328 SK Corp.** ................................... 269,680 3,240,127 SK Telecom Co., Ltd.** ....................... 14 7,311 Ssangyong Oil Refining Co., Ltd. ............. 156,300 2,248,369 Suheung Capsule** ............................ 35,050 502,760 Yukong, Ltd.** ............................... 369,000 1,060,875 ------------ Total Equities (Cost $78,416,111) ........................ 118,025,295 ------------ International Dollar Bonds - 0.84% Face Amount Value ----------- ------------ South Korea - 0.84% Republic of Korea 8.750%, 04/15/03 ....................... $ 500,000 521,850 Samsung Electronics Co. 0.250%, 12/31/06 ....................... 410,000 486,875 ------------ Total South Korea ............................ 1,008,725 ------------ Total International Dollar Bonds (Cost $897,263) ........................... 1,008,725 ------------ TOTAL INVESTMENTS - 98.76% (Cost $79,313,374*) ....................... 119,034,020 ------------ CASH AND OTHER ASSETS, LESS LIABILITIES - 1.24% .................. 1,500,097 ------------ NET ASSETS - 100% ............................ $120,534,117 ============ * Cost for Federal income tax purposes is $79,313,374 and net unrealized appreciation consists of: Gross unrealized appreciation ........... $ 40,835,927 Gross unrealized depreciation ........... (1,115,281) ------------ Net unrealized appreciation ............. $ 39,720,646 ============ ** Non-income producing security *** As a percentage of net assets as of February 28, 1999. See accompanying notes to financial statements. 10 - -------------------------------------------------------------------------------- MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value -------- ----------- Equities - Hong Kong - 96.93%*** Beijing Datang Power Generation Co., Ltd. ........ 436,000 $ 95,667 Beijing Enterprises Holdings, Ltd. ............... 40,000 46,723 Beijing North Star Co., Ltd. ..................... 212,000 24,627 Cheung Kong Infrastructure Holdings .............. 31,000 55,616 China Pharmaceutical Enterprise and Investment Corp., Ltd. .................... 908,000 82,037 China Resources Enterprises, Ltd. ................ 38,000 49,782 China Telecom (Hong Kong), Ltd. .................. 70,000 124,230 China Vanke Co., Ltd. B Shares ................... 175,373 39,612 Citic Pacific, Ltd. .............................. 30,000 52,467 Eastern Communications Co., Ltd. B Shares ...................................... 68,000 25,024 First Tractor Co., Ltd. .......................... 499,000 90,812 Founder Hong Kong, Ltd. .......................... 1 0 Guangdong Electric Power Development Co., Ltd. B Shares ................ 376,896 96,805 Guangdong Kelon Electric Holdings Co., Ltd. ............................ 142,000 95,305 Guangzhou Pharmaceutical Co., Ltd. ............... 1,000,000 83,895 Harbin Power Equipment Co., Ltd. ................. 786,000 35,000 Hengan International Group Co., Ltd.** ........... 298,000 104,811 Huaneng Power International, Inc. ADR** .......... 10,100 88,375 Legend Holdings, Ltd. ............................ 378,000 147,585 Nanjing Posts & Telecommunications Equipment Co., Ltd. B Shares .................. 296,000 56,543 New World Infrastructure, Ltd.** ................. 74,000 81,662 Ng Fung Hong, Ltd. ............................... 144,000 108,728 Qingling Motors Co. .............................. 500,000 61,953 Shanghai Dazhong Taxi Co. B Shares ** ............ 66,000 22,836 Shanghai Industrial Holdings, Ltd. ............... 36,000 56,920 Tianjin Development Holdings, Ltd. ............... 106,000 58,146 Want Want Holdings, Ltd. ......................... 35,000 38,850 Wuxi Little Swan Co., Ltd. B Shares .............. 170,400 65,980 Zhejiang Southeast Electric Power Co., Ltd. B Shares ..................................... 281,000 46,646 ----------- Total Equities (Cost $3,055,105) ............................. 1,936,637 ----------- TOTAL INVESTMENTS - 96.93% (Cost $3,055,105*) ............................ 1,936,637 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - 3.07% ...................... 61,410 ----------- NET ASSETS - 100% ................................ $ 1,998,047 =========== * Cost for Federal income tax purposes is $3,055,105 and net unrealized depreciation consists of: Gross unrealized appreciation .............. $ 21,875 Gross unrealized depreciation .............. (1,140,343) ----------- Net unrealized depreciation ................ $(1,118,468) =========== ** Non-income producing security *** As a percentage of net assets as of February 28, 1999. See accompanying notes to financial statements. 11 - -------------------------------------------------------------------------------- MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value -------- ---------- Equities - Japan - 96.46%*** Aucnet, Inc. ..................................... 500 $ 13,780 Citizen Watch Co., Ltd. .......................... 2,000 13,535 Data Communication System Co., Ltd. .............. 400 11,125 Eisai Co., Ltd. ADR .............................. 500 9,250 Hikari Tsushin, Inc. ............................. 100 11,884 Hitachi, Ltd. ADR ................................ 200 12,437 Ito-Yokado Co., Ltd. ADR ......................... 150 8,888 Japan Airport Terminal Co., Ltd. ................. 2,000 12,035 Kokusai Securities Co., Ltd. ..................... 2,000 18,879 MIROKU JYOHO SERVICE Co., Ltd. ................... 2,000 18,542 Nippon System Development Co., Ltd. .............. 200 7,636 Nippon Telegraph & Telephone Corp. ADR ........... 400 16,225 Nitto Kohki Co., Ltd. ............................ 1,600 13,485 Noritz Corp. ..................................... 1,000 7,417 Q'sai Co., Ltd. .................................. 1,000 20,228 Ralse Co., Ltd. .................................. 1,000 15,592 Sony Corp. ADR ................................... 300 22,406 TENMA Corp. ...................................... 1,000 9,431 Webs-Japan Index Series .......................... 1,300 13,163 Wilson Learning Worldwide, Inc. .................. 800 20,430 ---------- Total Equities (Cost $253,488) ................................. 276,368 ---------- TOTAL INVESTMENTS - 96.46% (Cost $253,488*) ................................ 276,368 ---------- CASH AND OTHER ASSETS, LESS LIABILITIES - 3.54% ...................... 10,148 ---------- NET ASSETS - 100% ................................ $ 286,516 ========== Schedule of Forward Foreign Exchange Contracts Expiration Unrealized Forward Foreign Exchange Contracts to Deliver Date Appreciation ----------------- ------------ 23,082,000**** Japanese Yen in exchange for USD $200,000 04/30/99-11/30/99 $5,507 * Cost for Federal income tax purposes is $253,488 and net unrealized appreciation consists of: Gross unrealized appreciation .............. $ 26,785 Gross unrealized depreciation .............. (3,905) ---------- Net unrealized appreciation ................ $ 22,880 ========== ** Non-income producing security *** As a percentage of net assets as of February 28, 1999. **** Principal amount denoted in Japanese Yen. USD United States Dollars See accompanying notes to financial statements. 12 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1999 (UNAUDITED) - --------------------------------------------------------------------------------
Matthews Matthews Matthews Asian Dragon Pacific Growth & Matthews Century Matthews Tiger Income Korea China Japan Fund Fund Fund Fund Fund ------------ ----------- ------------ ----------- --------- Assets Investments, at value (Cost $47,231,221, $6,751,216 $79,313,374, $3,055,105, and $253,488, respectively)...... $ 43,927,476 $ 5,648,195 $119,034,020 $ 1,936,637 $ 276,368 Cash........................................................ 520,663 248,326 591,533 113,436 7,706 Foreign currency, at value (Cost $19,842,$5,076,$0,$494,$0). 19,842 5,076 0 494 0 Dividends and interest receivable........................... 3,359 68,962 17,628 216 177 Receivable for securities sold.............................. 0 0 0 0 23,272 Receivable for capital shares sold.......................... 429,953 13,090 1,264,381 575 0 Deferred organization costs (Note 1-E)...................... 3,618 3,618 2,968 12,280 13,669 Unrealized appreciation on forward foreign exchange contracts......................................... 0 0 0 0 5,507 Other assets................................................ 6,621 417 118,784 2,666 0 ------------ ----------- ------------ ----------- --------- Total assets.............................................. 44,911,532 5,987,684 121,029,314 2,066,304 326,699 ------------ ----------- ------------ ----------- --------- Liabilities Payable for securities purchased............................ 344,768 0 0 0 24,799 Payable for capital shares redeemed......................... 199,724 45,987 392,993 22,518 0 Due to Advisor (Note 2)..................................... 33,060 14,768 97,577 45,739 11,511 Accrued expenses............................................ 22,610 9,066 0 0 3,873 Accrued distribution expense................................ 94 0 4,627 0 0 ------------ ----------- ------------ ----------- --------- Total liabilities......................................... 600,256 69,821 495,197 68,257 40,183 ------------ ----------- ------------ ----------- --------- Net Assets................................................... $ 44,311,276 $ 5,917,863 $120,534,117 $ 1,998,047 $ 286,516 ============ =========== ============ =========== ========= Class I Shares: Net assets (Applicable to 6,910,180, 844,057, 30,357,265, 393,837 and 25,337 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)......................... $ 44,133,638 $ 5,917,863 $113,343,566 $ 1,998,047 $ 286,516 ------------ ----------- ------------ ----------- --------- Net asset value, offering price and redemption price per Class I share.................................... $ 6.39 $ 7.01 $ 3.73 $ 5.07 $ 11.31 ------------ ----------- ------------ ----------- --------- Class A Shares*: Net assets (Applicable to 27,819, 0, 1,938,293, 0 and 0 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value).................................. $ 177,638 $ N/A $ 7,190,551 $ 0 $ N/A ============ =========== ============ =========== ========= Net asset value and redemption price per Class A share....... $ 6.39 N/A $ 3.71 N/A N/A ============ =========== ============ =========== ========= Offering price per Class A share (Net asset value/ 0.9505)... $ 6.72 N/A $ 3.90 N/A N/A ============ =========== ============ =========== ========= Net Assets Consist of: Capital paid-in............................................. $ 66,270,084 $ 8,089,476 $ 88,511,570 $ 3,846,659 $ 253,500 Accumulated undistributed net investment loss............... (141,295) (27,046) (907,118) (8,532) (157) Accumulated net realized gain (loss) on investments......... (18,514,723) (1,041,546) (6,790,981) (721,612) 4,784 Net unrealized appreciation (depreciation) on investments and foreign currency related transactions................. (3,302,790) (1,103,021) 39,720,646 (1,118,468) 28,389 ------------ ----------- ------------ ----------- --------- $ 44,311,276 $ 5,917,863 $120,534,117 $ 1,998,047 $ 286,516 ============ =========== ============ =========== =========
* At February 28, 1999, the Matthews Asian Growth & Income, Matthews Japan and Matthews Dragon Century China Funds did not offer Class A shares. N/A - Not Applicable See accompanying notes to financial statements 13 STATEMENT OF OPERATIONS FEBRUARY 28, 1999 (UNAUDITED)
Matthews Matthews Matthews Asian Dragon Pacific Growth & Matthews Century Matthews Tiger Income Korea China Japan Fund Fund Fund Fund Fund* ----------- ---------- ----------- ---------- ---------- Investment Income Dividends (net of foreign tax withheld of $3,984, $294, $8,309, $0, and $13, respectively) ...... $ 182,864 $ 15,670 $ 37,855 $ 9,901 $ 94 Interest ................................................. 28,197 123,623 35,225 1,855 426 ----------- ---------- ----------- ---------- ---------- Total investment income ............................... 211,061 139,293 73,080 11,756 520 ----------- ---------- ----------- ---------- ---------- Expenses: Investment advisory fees (Note 2) ........................ 224,777 22,444 534,366 11,289 338 Recovery of reimbursed expenses (Note 2) ................. 11,350 0 0 0 0 Distribution expenses .................................... 155 0 7,639 0 0 Transfer agent fees ...................................... 33,704 5,542 84,559 3,598 0 Administration fees ...................................... 30,962 337 67,713 0 2,292 Accounting fees .......................................... 32,844 232 67,792 0 5,466 Professional fees ........................................ 18,130 2,202 42,245 390 104 Custodian fees ........................................... 52,696 5,588 121,839 2,858 972 Directors fees (Note 2) .................................. 2,552 759 5,016 634 17 Insurance expense ........................................ 3,402 450 2,338 26 0 Amortization of organization costs (Note 2) .............. 3,339 3,340 1,549 1,531 4,161 Printing expense ......................................... 6,200 721 13,470 234 57 Registration expenses .................................... 23,761 8,508 31,297 6,676 64 Other expenses ........................................... 779 32 1,924 39 9 ----------- ---------- ----------- ---------- ---------- Total expenses ........................................ 444,651 50,155 981,747 27,275 13,480 ----------- ---------- ----------- ---------- ---------- Expenses reimbursed and waived (Note 2) .................. (17,282) (7,511) (1,549) (4,696) (12,803) ----------- ---------- ----------- ---------- ---------- Net expenses .......................................... 427,369 42,644 980,198 22,579 677 ----------- ---------- ----------- ---------- ---------- Net Investment Income (Loss) .............................. (216,308) 96,649 (907,118) (10,823) (157) ----------- ---------- ----------- ---------- ---------- Realized and Unrealized Loss on Investments and Foreign Currency Related Transactions: Net realized gain (loss) on investments .................. (7,679,573) (238,001) 7,370,517 (459,467) 4,784 Net realized loss on foreign currency related transactions (126,247) (60) (367,874) (46) 0 Net change in unrealized appreciation on investments and foreign currency related transactions ............. 25,247,473 532,348 53,510,445 768,080 28,389 ----------- ---------- ----------- ---------- ---------- Net realized and unrealized gain on investments and foreign currency related transactions ............. 17,441,653 294,287 60,513,088 308,567 33,173 ----------- ---------- ----------- ---------- ---------- Net Increase in Net Assets from Operations ................ $17,225,345 $ 390,936 $59,605,970 $ 297,744 $ 33,017 =========== ========== =========== ========== ==========
* The Fund commenced operations on December 31, 1998. See accompanying notes to financial statements. 14 STATEMENT OF CHANGES IN NET ASSETS
Matthews Pacific Tiger Fund ---------------------------- Six Months Ended Year February 28, Ended 1999 August 31, (unaudited) 1998 ------------ ------------ Operations: Net investment income (loss) ............................... $ (216,308) $ 137,926 Net realized loss on investments and foreign currency related transactions ............................ (7,805,820) (10,655,927) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ............................................. 25,247,473 (27,390,703) ------------- ------------ Net increase (decrease) in net assets from operations ...... 17,225,345 (37,908,704) ------------- ------------ Dividends and Distributions to Shareholders from: Net investment income: Class I .................................................. 0 (109,051) Class A .................................................. 0 (508) Realized gains on investments: Class I .................................................. 0 (490,577) Class A .................................................. 0 (2,286) ------------- ------------ Net decrease in net assets resulting from distributions .... 0 (602,422) ------------- ------------ Capital Share Transactions (net): Class I .................................................. (4,370,826) 26,084,128 Class A .................................................. (7,722) 244,324 ------------- ------------ Increase (decrease) in net assets derived from capital share transactions ............................................. (4,378,548) 26,328,452 ------------- ------------ Total increase (decrease) in net assets .................... 12,846,797 (12,182,674) Net Assets: Beginning of period ........................................ 31,464,479 43,647,153 ------------- ------------ End of period (including undistributed net investment income (loss) of ($141,295) and $75,013, respectively .... $ 44,311,276 $ 31,464,479 ============= ============
See accompanying notes to financial statements. 15 STATEMENT OF CHANGES IN NET ASSETS
Matthews Asian Growth & Income Fund ------------------------- Six Months Ended Year February 28, Ended 1999 August 31, (unaudited) 1998 ----------- ----------- Operations: Net investment income ................................. $ 96,649 $ 72,168 Net realized loss on investments and foreign currency related transactions ....................... (238,061) (548,730) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ........................................ 532,348 (1,847,576) ------------ ----------- Net increase (decrease) in net assets from operations . 390,936 (2,324,138) ------------ ----------- Dividends and Distributions to Shareholders from: Net investment income: Class I ............................................. (137,861) (56,200) Class A ............................................. N/A N/A Realized gains on investments: Class I ............................................. 0 (560,367) Class A ............................................. N/A N/A ------------ ----------- Net decrease in net assets resulting from distributions (137,861) (616,567) ------------ ----------- Capital Share Transactions (net): Class I ............................................. 1,602,091 837,410 Class A ............................................. N/A N/A ------------ ----------- Increase in net assets derived from capital share transactions ........................................ 1,602,091 837,410 ------------ ----------- Total increase (decrease) in net assets ............... 1,855,166 (2,103,295) Net Assets: Beginning of period ................................... 4,062,697 6,165,992 ------------ ----------- End of period (including undistributed net investment income (loss) of ($27,046), and $14,166, respectively $ 5,917,863 $ 4,062,697 ============ ===========
N/A Not Applicable See accompanying notes to financial statements. 16 STATEMENT OF CHANGES IN NET ASSETS
Matthews Korea Fund ------------------------------ Six Months Ended Year February 28, Ended 1999 August 31, (unaudited) 1998 ------------- ------------- Operations Net investment loss ................................... $ (907,118) $ (743,286) Net realized gain (loss) on investments and foreign currency related transactions ....................... 7,002,643 (13,212,349) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions 53,510,445 (13,075,569) ------------- -------------- Net decrease in net assets from operations ............ 59,605,970 (27,031,204) ------------- -------------- Dividends and Distributions to Shareholders from: Net investment income: Class I ............................................. 0 0 Class A ............................................. 0 0 Realized gains on investments: Class I ............................................. 0 0 Class A ............................................. 0 0 ------------- -------------- Net decrease in net assets resulting from distributions 0 0 ------------- -------------- Capital Share Transactions (net): Class I ............................................. (9,493,655) 730,040,728 Class A ............................................. (308,857) 5,365,114 ------------- -------------- Increase (decrease) in net assets derived from capital share transactions .................................. (9,802,512) 78,405,842 ------------- -------------- Total increase in net assets .......................... 49,803,458 51,374,638 Net Assets: Beginning of period ................................... 70,730,659 19,356,021 ------------- -------------- End of period (including undistributed net investment loss of ($907,118) and $0, respectively) ............ $ 120,534,117 $ 70,730,659 ============= ==============
See accompanying notes to financial statements. 17 STATEMENT OF CHANGES IN NET ASSETS
Matthews Dragon Century China Fund Matthews Japan Fund ----------------------- ------------------- Six Months Period Ended Period Ended February 28, Ended February 28, 1999 August 31, 1999** (unaudited) 1998* (unaudited) ----------- ----------- -------------- Operations Net investment income (loss) ......................................... $ (10,823) $ 37,836 $ (157) Net realized gain (loss) on investments and foreign currency related transactions .............................. (459,513) (262,099) 4,784 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ........... 768,080 (1,886,548) 28,389 ----------- ----------- -------------- Net increase (decrease) in net assets from operations ................ 297,744 (2,110,811) 33,016 ----------- ----------- -------------- Dividends and Distributions to Shareholders from: Net investment income: Class I ............................................................ (35,545) 0 -- Class A ............................................................ N/A 0 -- Realized gains on investments: Class I ............................................................ 0 0 -- Class A ............................................................ N/A 0 -- ----------- ----------- -------------- Net decrease in net assets resulting from distributions .............. (35,545) 0 -- ----------- ----------- -------------- Capital Share Transactions (net): Class I ............................................................ 159,854 3,686,805 253,500 Class A ............................................................ N/A 0 -- ----------- ----------- -------------- Increase in net assets derived from capital share transactions ....... 159,854 3,686,805 253,500 ----------- ----------- -------------- Total increase in net assets ......................................... 422,053 1,575,994 286,516 Net Assets: Beginning of period .................................................. 1,575,994 0 0 ----------- ----------- -------------- End of period (including undistributed net investment income (loss) of ($8,532), $37,836 and ($157), respectively) ........................ $ 1,998,047 $ 1,575,994 $ 286,516 =========== =========== ==============
* The Fund commenced operations on February 19, 1998. ** The Fund commenced operations on December 31, 1998. N/A Not Applicable See accompanying notes to financial statements. 18 FINANCIAL HIGHLIGHTS The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Pacific Tiger Fund Class I Shares ----------------------------------------------------------------------- Six Months Ended Year Year Year Period February 28, Ended Ended Ended Ended 1999 August 31, August 31, August 31, August 31, (unaudited) 1998 1997 1996 1995/3/ ----------- ---------- ----------- ----------- ----------- Net Asset Value, beginning of period .......... $ 4.07 $ 11.30 $ 10.81 $ 9.77 $ 10.00 ----------- ---------- ----------- ----------- ----------- Income from Investment Operations Net investment income (loss) ............... (0.03) 0.02/4/ 0.02 0.01 0.02 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions 2.35 (7.18) 0.50 1.03 (0.23) ----------- ---------- ----------- ----------- ----------- Total from investment operations ......... 2.32 (7.16) 0.52 1.04 (0.21) ----------- ---------- ----------- ----------- ----------- Less Distributions from: Net investment income ...................... 0.00 (0.01) (0.01) 0.00 (0.02) Net realized gain on investments ........... 0.00 (0.06) (0.02) 0.00 0.00 Total distributions ...................... 0.00 (0.07) (0.03) 0.00 (0.02) ----------- ---------- ----------- ----------- ----------- Net Asset Value, end of period ................ $ 6.39 $ 4.07 $ 11.30 $ 10.81 $ 9.77 ----------- ---------- ----------- ----------- ----------- Total return ............................... 57.00%/2/ (63.43%) 4.75% 10.64% (2.07%)/2/ =========== ========== =========== =========== =========== Ratios/Supplemental Data Net assets, end of period (in 000's) ....... $ 44,134 $ 31,319 $ 43,647 $ 17,148 $ 1,082 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .... 1.98%/1/ 2.06% 1.97% 4.35% 25.95%/1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ................... 1.90%/1/ 1.90% 1.90% 1.90% 2.17%/1/ Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .... (1.04%)/1/ 0.14% 0.20% (2.13%) (23.41%)/1/ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator .... (0.96%)/1/ 0.30% 0.27% 0.32% 0.36%/1/ Portfolio turnover ......................... 40.41%/2/ 73.09% 70.73% 124.69% 92.53%/2/
1 Annualized 2 Not Annualized 3 Class I commenced operations on September 13, 1994. 4 Calculated using the average shares method. See accompanying notes to financial statements. 19 FINANCIAL HIGHLIGHTS The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Pacific Tiger Fund Class A Shares --------------------------- Six Months Ended Period February 28, Ended 1999 August 31, (unaudited) 1998/4/ ----------- --------- Net Asset Value, beginning of period .................................... $ 4.07 $ 10.84 -------- -------- Income from Investment Operations Net investment income (loss) ......................................... (0.04) 0.03/5/ Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions .............. 2.36 (6.73) -------- -------- Total from investment operations ................................... 2.32 (6.70) -------- -------- Less Distributions from: Net investment income ................................................ 0.00 (0.01) Net realized gain on investments ..................................... 0.00 (0.06) Total distributions ................................................ 0.00 (0.07) -------- -------- Net Asset Value, end of period .......................................... $ 6.39 $ 4.07 -------- -------- Total return ......................................................... 57.00%/2,3/ (61.87%)/2,3/ ======== ======== Ratios/Supplemental Data Net assets, end of period (in 000's) ................................. $ 178 $ 146 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .............................. 2.23%/1/ 11.99/1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ..................... 2.15%/1/ 1.91%/1/ Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator .............................. (1.29%)/1/ (9.61%)/1/ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator .............................. (1.21%)/1/ 0.47%/1/ Portfolio turnover ................................................... 40.41%/2/ 73.09%
1 Annualized 2 Not Annualized 3 Total return calculation does not reflect sales load. 4 Class A commenced operations on October 9, 1997. 5 Calculated using the average shares method. See accompanying notes to financial statements. 20 FINANCIAL HIGHLIGHTS The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Asian Growth & Income Fund ----------------------------------------------------------------- Six Months Ended Year Year Year Period February 28, Ended Ended Ended Ended 1999 August 31, August 31, August 31, August 31, (unaudited) 1998 1997 1996 1995/3/ --------- --------- --------- --------- --------- Net Asset Value, beginning of period .......... $ 6.54 $ 11.71 $ 10.53 $ 9.88 $ 10.00 --------- --------- --------- --------- --------- Income from Investment Operations Net investment income ...................... 0.16 0.13 0.10 0.25 0.23 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions 0.53 (4.15) 1.42 0.75 (0.14) --------- --------- --------- --------- --------- Total from investment operations ......... 0.69 (4.02) 1.52 1.00 0.09 --------- --------- --------- --------- --------- Less Distributions from: Net investment income ...................... (0.22) (0.10) (0.10) (0.26) (0.21) Net realized gains on investments .......... 0.00 (1.05) (0.24) (0.09) 0.00 --------- --------- --------- --------- --------- Total distributions ...................... (0.22) (1.15) (0.34) (0.35) (0.21) --------- --------- --------- --------- --------- Net Asset Value, end of period ................ $ 7.01 $ 6.54 $ 11.71 $ 10.53 $ 9.88 ========= ========= ========= ========= ========= Total Return ............................... 10.43%/2/ (35.27%) 14.67% 10.24% 0.89%/2/ Ratios/Supplemental Data Net assets end of period (in 000's) ........ $ 5,918 $ 4,063 $ 6,166 $ 3,272 $ 863 Ratio of expenses to average net assets before reimbursement and waiver of expenses by advisor and Administrator ........................ 2.24%/1/ 3.76% 4.45% 8.73% 23.11%/1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by advisor and Administrator (Note 2) ............... 1.90%/1/ 1.90% 1.90% 1.85% 2.26%/1/ Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ........................ 3.97%/1/ (0.36%) (1.55%) (4.13%) (18.68%)/1/ Ratio of net investment income to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ........................ 4.31%/1/ 1.50% 1.00% 2.75% 2.17%/1/ Portfolio turnover ......................... 21.87%/2/ 54.67% 50.20% 88.16% 123.63%/2/
1 Annualized 2 Not Annualized 3 The Fund commenced operations on September 13, 1994. See accompanying notes to financial statements. 21 FINANCIAL HIGHLIGHTS The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Korea Fund Class I Shares ---------------------------------------------------------------------- Six Months Ended Year Year Year Period February 28, Ended Ended Ended Ended 1999 August 31, August 31, August 31, August 31, (unaudited) 1998 1997 1996 1995/3/ ----------- ----------- ----------- ----------- ----------- Net Asset Value, beginning of period ........... $ 2.03 $ 6.19 $ 7.23 $ 9.13 $ 10.00 ----------- ----------- ----------- ----------- ----------- Income from Investment Operations Net investment income (loss) ................ (0.03) (0.03) (0.04)/4/ (0.07) 0.08 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions . 1.73 (4.13) (1.00)/4/ (1.75) (0.95) ----------- ----------- ----------- ----------- ----------- Total from investment operations .......... 0.00 (4.16) (1.04) 1.82 (0.87) ----------- ----------- ----------- ----------- ----------- Less Distributions from: Net investment income ....................... 0.00 0.00 0.00 0.00 0.00 Net realized gain on investments ............ 0.00 0.00 0.00 (0.08) 0.00 Total distributions ....................... 0.00 0.00 0.00 (0.08) $ 0.00 ----------- ----------- ----------- ----------- ----------- Net Asset Value, end of period ................. $ 3.73 $ 2.03 $ 6.19 $ 7.23 $ 9.13 ----------- ----------- ----------- ----------- ----------- Total return ................................ 83.74%/2/ (67.21%) (14.38%) (20.11%) (8.70%)/2/ =========== =========== =========== =========== =========== Ratios/Supplemental Data Net assets, end of period (in 000's) ........ $ 113,344 $ 66,607 $ 19,356 $ 2,721 $ 504 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ..... 1.82%/1/ 2.07% 2.90% 11.36% 42.87%/1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ..... 1.82%/1/ 2.06% 2.50% 2.23% 0.24%/1/ Ratio of net investment income (loss) to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ..... (1.68%)/1/ (1.13%) (1.81%) (10.44%) (41.79%)/1/ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ..... (1.68%)/1/ (1.12%) (1.41%) (1.31%) 0.84%/1/ Portfolio turnover .......................... 27.04%/2/ 94.01% 112.68% 139.71% 42.16%/2/
1 Annualized 2 Not Annualized 3 Class I commenced operations on January 3, 1995. 4 Calculated using the average shares method. See accompanying notes to financial statements. 22 FINANCIAL HIGHLIGHTS The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Korea Fund Class A Shares ------------------------- Six Months Ended Period February 28, Ended 1999 August 31, (unaudited) 1998/4/ --------- --------- Net Asset Value, beginning of period ....................................... $ 2.01 $ 5.32 --------- --------- Income from Investment Operations Net investment loss ..................................................... (0.03) (0.04) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions ............. 1.73 (3.27) --------- --------- Total from investment operations ...................................... 1.70 (3.31) --------- --------- Less Distributions from: Net investment income ................................................... 0.00 0.00 Net realized gain on investments ........................................ 0.00 0.00 Total distributions ................................................... 0.00 0.00 --------- --------- Net Asset Value, end of period ............................................. $ 3.71 $ 2.01 --------- --------- Total return ............................................................ 83.66%/2,3/ (62.03%)/2,3/ ========= ========= Ratios/Supplemental Data Net assets, end of period (in 000's) .................................... $ 7,190 $ 4,123 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ................................. 2.07%/1/ 2.97%/1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) ........................ 2.07%/1/ 2.68%/1/ Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ..... (1.93%)/1/ (2.03%)/1/ Ratio of net investment loss to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ..... (1.93%)/1/ (1.74%)/1/ Portfolio turnover ...................................................... 27.04%/2/ 94.01%
1 Annualized 2 Not Annualized 3 Total return calculation does not reflect sales load. 4 Class A commenced operations on October 9, 1997. See accompanying notes to financial statements. 23 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
Matthews Dragon Century China Fund Class I Shares Matthews Japan Fund ------------------------- ------------------- Six Months Period Ended Period Ended February 28, Ended February 28, 1999 August 31, 1999/4/ (unaudited) 1998/3/ (unaudited) ----------- ----------- ------------- Net Asset Value, beginning of period ......................... $ 4.36 $ 10.00 $ 10.00 --------- --------- --------- Income from Investment Operations Net investment income (loss) .............................. (0.03) 0.10 (0.01) Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency related transactions................ 0.84 (5.74) 1.32 --------- --------- --------- Total from investment operations ........................ 0.81 (5.64) 1.31 --------- --------- --------- Less Distributions from: Net investment income ..................................... (0.10) 0.00 0.00 Net realized gain on investments .......................... 0.00 0.00 0.00 Total distributions ..................................... (0.10) 0.00 0.00 --------- --------- --------- Net Asset Value, end of period ............................... $ 5.07 $ 4.36 $ 11.31 --------- --------- --------- Total return .............................................. 18.11%2 (56.40%)2 13.10%2 ========= ========= ========= Ratios/Supplemental Data Net assets, end of period (in 000's) ...................... $ 1,998 $ 1,576 $ 287 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ................... 2.42%1 7.84%1 39.83%1 Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2) .................................. 2.00%1 2.00%1 2.00%1 Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator ................... (1.37%)1 (3.45%)1 (38.29%)1 Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator ................... (0.95%)1 2.38%1 (0.46%)1 Portfolio turnover ........................................ 30.94%2 11.84%2 41.08%2
1 Annualized 2 Not Annualized 3 The Dragon Century China Fund Class I commenced operations on February 19, 1998. 4 The Japan Fund Class I commenced operations on December 31, 1998. See accompanying notes to financial statements. 24 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Matthews International Funds (the "Company") is an open-end investment management company registered under the Investment Company Act of 1940, as amended (the "Act"), as a series company. The Company currently consists of five separate investment series (each a "Fund" and collectively, the "Funds"): Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund. The Matthews Pacific Tiger Fund, Matthews Korea Fund and Matthews Dragon Century Fund are currently authorized to offer two classes of shares: Class I shares and Class A shares. Effective September 1, 1998, the Matthews Dragon Century China Fund does not offer Class A shares to investors at this time. The classes offered have different sales charges and other expenses which may affect performance. The Matthews Pacific Tiger Fund, Matthews Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund seek to maximize capital appreciation by investing, under normal circumstances, at least 65% of their total assets in equity securities of Pacific Tiger economies, South Korean companies, Chinese companies and Japanese companies, respectively. Pacific Tiger economies include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and China. The Matthews Asian Growth and Income Fund seeks capital appreciation and current income by investing, under normal circumstances, at least 65% of its total assets in convertible securities of Asian economies. Asian economies include Hong Kong, Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, China and India. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. A. Security Valuation: Securities listed on any national securities exchange are valued at their last sale price on the exchange where the securities are principally traded or, if there has been no sale on that date, at the mean between the last reported bid and asked prices. Securities traded over-the-counter are priced at the mean of the last bid and asked prices. All other securities are valued through valuations obtained from a commercial pricing service or at the most recent mean of the bid and asked prices provided by investment dealers in accordance with procedures established by the Board of Trustees. The books and records of the Funds are maintained in U.S. dollars. Transactions denominated in foreign currencies are recorded at the current prevailing exchange rates. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the current exchange rate. Translation gains or losses resulting from changes in the exchange rate during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the results of operations for the current period. The Funds do not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rate from that which is due to changes in market prices of equity securities. International dollar bonds are issued offshore, pay interest and principal in U.S. dollars, and are denominated in U.S. dollars. Portfolio securities traded on a foreign exchange are generally valued at the respective current prevailing exchange rates. The securities' values are translated into U.S. dollars using these rates. If subsequent to the time a rate has been established and it has been determined to have materially changed, the fair value of those securities, (considering the changing conditions) will be determined by (or under the direction of) the Funds' Board of Trustees. B. Forward Foreign Exchange Contracts: The Fund may engage in forward foreign exchange contracts for hedging a specific transaction with respect to either the currency in which the transaction is denominated or another currency as deemed appropriate by the Adviser. Forward foreign exchange contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. 25 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying prices of the Fund's portfolio securities, but it does establish a rate of exchange that can be achieved in the future. Although forward foreign exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the couterparties to the contracts are unable to meet the terms of their contracts. C. Risks Associated with Foreign Securities: Investments by the Funds in the securities of foreign issuers may involve investment risks different from those of U.S. issuers including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, the possibility of currency exchange controls, the possible imposition of foreign withholding tax on the interest income payable on such instruments, the possible establishment of foreign controls, the possible seizure or nationalization of foreign deposits or assets, or the adoption of other foreign government restrictions that might adversely affect the foreign securities held by the Funds. Foreign securities may also be subject to greater fluctuations in price than securities of domestic corporations or the U.S. Government. D. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the period ended February 28, 1999. Therefore, no Federal income tax provision is required. E. Determination of Gains or Losses on Sales of Securities: Gains or losses on the sale of securities are determined on the identified cost basis. F. Organization Costs: Organization costs are being amortized on a straight-line basis over five years from each Fund's respective commencement of operations with the exception of the Matthews Japan Fund, which are being amortized on a straight-line basis over one year from the Fund's commencement of operations. In the event that any of the initial shares are redeemed during the period of amortization of the Funds' organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of initial shares being redeemed bears to the number of those shares outstanding at the time of redemption. G. Distributions to Shareholders: It is the policy of Matthews Asian Growth and Income Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. Matthews Pacific Tiger Fund, Matthews Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund distribute net investment income and capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Net investment losses may not be utilized to offset net investment income in future periods for tax purposes. H. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. I. Other: Securities transactions are accounted for on the date the securities are purchased or sold. Interest income is recorded on the accrual basis and dividend income on the exdividend date. J. Capital Share Transactions: Each Fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share. Transactions in shares of beneficial interest were as follows: 26 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999 (UNAUDITED) - --------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND ----------------------------------------------------------------------------------------------------------- Class I Class A -------------------------------------------------------- ---------------------------------------------- Six Months Ended Year Ended Six Months Ended Period Ended February 28, 1999 August 31, 1998 February 28, 1999 August 31, 1998 -------------------------- -------------------------- -------------------- -------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ ---------- ------------ ------- --------- ------ ---------- Shares sold ......... 4,046,293 $ 25,143,139 11,658,573 $ 81,328,869 14,851 $ 98,688 40,296 $ 274,792 Shares issued through reinvestment of dividends ......... 0 0 109,556 563,118 0 0 544 2,794 Shares redeemed ..... (4,825,263) (29,513,965) (7,939,984) (55,807,859) (22,825) (106,410) (5,047) (33,262) ---------- ------------ ---------- ------------ ------- --------- ------ ---------- Net increase ........ (778,970) $ (4,370,826) 3,828,145 $ 26,084,128 (7,974) $ (7,722) 35,793 $ 244,324 ========== ============ ========== ============ ======= ========= ====== ==========
MATTHEWS ASIAN GROWTH AND INCOME FUND ---------------------------------------------------- Class I ---------------------------------------------------- Six Months Ended Year Ended February 28, 1999 August 31, 1998 ---------------------- ---------------------- Shares Amount Shares Amount ------- ----------- ------- ----------- Shares sold ......... 383,755 $ 2,703,975 547,648 $ 4,710,652 Shares issued through reinvestment of dividends ......... 15,361 110,134 66,761 498,935 Shares redeemed ..... (176,195) (1,212,018) (519,724) (4,372,177) ------- ----------- ------- ----------- Net increase ........ 222,921 $ 1,602,091 94,685 $ 837,410 ======= =========== ======= ===========
MATTHEWS KOREA FUND ---------------------------------------------------------------------------------------------------------- Class I Class A ------------------------------------------------------- ------------------------------------------------- Six Months Ended Year Ended Six Months Ended Period Ended February 28, 1999 August 31, 1998 February 28, 1999 August 31, 1998 ------------------------- -------------------------- ----------------------- ----------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ ---------- ------------- -------- ----------- --------- ----------- Shares sold ......... 21,256,256 $ 67,112,992 77,651,372 $ 199,169,372 52,002 $ 178,877 3,061,063 $ 8,324,379 Shares issued through reinvestment of dividends ......... 0 0 0 0 0 0 0 0 Shares redeemed ..... (23,785,355) (76,606,647) (47,890,663) (126,128,644) (160,298) (487,734) (1,014,474) (2,959,265) ---------- ------------ ---------- ------------- -------- ----------- --------- ----------- Net increase ........ (2,529,099) $ (9,493,655) 29,760,709 $ 73,040,728 (108,296) $ (308,857) 2,046,589 $ 5,365,114 ========== ============ ========== ============= ======== =========== ========= ===========
27 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- MATTHEWS DRAGON CENTURY CHINA FUND ---------------------------------------------------- Class I ---------------------------------------------------- Six Months Ended Period Ended February 28, 1999 August 31, 1998 ---------------------- ---------------------- Shares Amount Shares Amount ------- ----------- ------- ----------- Shares sold ......... 100,491 $ 561,671 474,122 $ 4,516,710 Shares issued through reinvestment of dividends ......... 5,474 33,995 0 0 Shares redeemed ..... (73,705) (435,812) (112,545) (829,905) ------- ----------- ------- ----------- Net increase ........ 32,260 $ 159,854 361,577 $ 3,686,805 ======= =========== ======= =========== MATTHEWS JAPAN FUND ------------------------- Class I ------------------------- Period Ended February 28,1999 ------------------------- Shares Amount ------ -------- Shares sold .............................. 25,337 $253,500 Shares issued through reinvestment of dividends .............................. 0 0 Shares redeemed .......................... 0 0 ------ -------- Net increase ............................. 25,337 $253,500 ====== ======== 2. Investment Advisory Fees and Other Transactions with Affiliates Matthews International Capital Management (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Advisor charges the Funds a monthly fee of 1/12 of 1% on each Fund's respective average daily net assets. Certain officers and trustees of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Investment advisory fees and other transactions with affiliates, for the six months ended February 28, 1999, are as follows:
Expenses Investment Voluntary Waived and Advisory Expense Advisory Reimbursed Fee Rate Limitation* Fees by Advisor -------- ----------- ---- ---------- Matthews Pacific Tiger Fund 1.00% 1.90% $224,777 $17,282 Matthews Asian Growth and Income Fund 1.00 1.90 22,444 7,511 Matthews Korea Fund 1.00 2.50 534,366 1,549 Matthews Dragon Century China Fund 1.00 2.00 11,289 4,696 Matthews Japan Fund 1.00 2.00 338 12,803
* For Funds offering Class A shares, the voluntary expense limitation would include an additional 0.25% for Class A Distribution fees. The investment advisory agreements provide that any reductions made by the Advisor in its fees are subject to reimbursement by the Funds within the following three years provided that Funds are able to effect such reimbursement and remain in compliance with applicable expense limitations. During the six months ended February 28, 1999, the Matthews Pacific Tiger Fund reimbursed expenses to the Advisor totaling $11,350. As of February 28, 1999, the total expenses waived and reimbursed by the Advisor that are subject to reimbursement by the Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund totaled $277,343, $236,404, $0, $97,434 and $12,803, respectively. 28 - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- 3. Distributor Fees and Class Specific Expenses Effective January 1, 1999, First Data Distributors, Inc. (the "Distributor") serves as the Funds' Distributor pursuant to an Underwriting Agreement. Prior to January 1, 1999, FPS Broker Services, Inc. served as the Funds' distributor. Pursuant to Rule 12b-1 adopted by the Securities and Exchange Commission under the Act, the Pacific Tiger Fund Class A, Korea Fund Class A and the Dragon Century China Fund Class A have adopted a Plan of Distribution (the "Plan"). The Plan permits the participating Funds to pay certain expenses associated with the distribution of their shares. Under the Plan, each Fund offering Class A shares may pay actual expenses not exceeding, on an annual basis, 0.25% of each participating Fund's Class A average daily net assets. The Class I shares of the Funds do not have a distribution plan. 4. Investment Transactions Investment transactions for the six months ended February 28, 1999, excluding temporary short-term investments, were as follows:
Purchases Proceeds from Sales ------------- --------------------- Matthews Pacific Tiger Fund .................. $17,634,919 $22,170,734 Matthews Asian Growth and Income Fund ........ 2,452,034 936,448 Matthews Korea Fund .......................... 28,084,903 41,825,647 Matthews Dragon Century China Fund ........... 754,607 658,273 Matthews Japan Fund .......................... 347,137 98,434
The Funds invest excess cash in interest bearing deposits at The Bank of New York. 5. Capital Loss Carryover At August 31, 1998, the Funds had capital loss carryovers expiring through 2006 as follows:
Expiring on: 2004 2005 2006 ----------- ----------- ----------- Matthews Pacific Tiger Fund ................ -- -- $1,475,377 Matthews Asian Growth and Income Fund ...... -- -- 51,948 Matthews Korea Fund ........................ $13,794 -- 1,071,846 Matthews Dragon Century China Fund ......... -- -- -- Matthews Japan Fund ........................ -- -- --
These amounts are available to offset possible future capital gains of the Fund. 29 This page intentionally left blank. BOARD OF TRUSTEES Richard K. Lyons Robert K. Connolly David FitzWilliam-Lay Norman W. Berryessa John H. Dracott - Trustee Emeritus OFFICERS G. Paul Matthews Mark W. Headley Brian Stableford INVESTMENT ADVISOR Matthews International Capital Management, LLC 655 Montgomery Street, Suite 1438 San Francisco, CA 94111 (800) 789-2742 UNDERWRITER First Data Distributors, Inc. 4400 Computer Drive Westboro, MA 01581-5108 SHAREHOLDER SERVICES First Data Investor Services Group, Inc. 3200 Horizon Drive P.O. Box 61503 King of Prussia, PA 19406-0903 (800) 892-0382 CUSTODIAN The Bank of New York 90 Washington Street New York, NY 10286 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street San Francisco, CA 94104-2635 [GRAPHIC OF DRAGON APPEARS HERE] For additional information about the Matthews International Funds: 655 Montgomery Street, Suite 1438 San Francisco, CA 94111 1.800.789.2742 www.matthewsfunds.com Distributed by First Data Distributors, Inc. 4400 Computer Drive, Westboro, Massachusetts 01581-5108 MATTHEWS INTERNATIONAL FUNDS MATTHEWS PACIFIC TIGER FUND MATTHEWS ASIAN GROWTH AND INCOME FUND MATTHEWS KOREA FUND MATTHEWS DRAGON CENTURY CHINA FUND MATTHEWS JAPAN FUND [GRAPHIC OF DRAGON APPEARS HERE] SEMI-ANNUAL REPORT FEBRUARY 28, 1999 -----END PRIVACY-ENHANCED MESSAGE-----