-----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, BKxlJhe7Ilezr17GQNjnNNKltZAJpvwaH9xlyz5qJU85h6Ja2X2XKmYBCF7RT92T S0Vf/zqLlJ9Q7ZyETbRy1w== 0001036050-98-001809.txt : 19981030 0001036050-98-001809.hdr.sgml : 19981030 ACCESSION NUMBER: 0001036050-98-001809 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981029 SROS: NONE 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: 98732907 BUSINESS ADDRESS: STREET 1: 2 W ELM ST STREET 2: C/O FUND/PLAN SERVICES INC CITY: CONSHOHOCKEN STATE: PA ZIP: 19428 N-30D 1 MATTHEWS ANNUAL REPORT DATED AUGUST 31, 1998 - -------------------------------------------------------------------------------- A MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Fellow Shareholders, The fiscal year ending August 31, 1998 will go down in history as one of the most challenging periods faced by Asian investors in the last fifty years. Currency devaluations, stalling economic growth, rising unemployment and wholesale bankruptcies have contributed to an overall environment that has proved extremely negative for financial markets. Towards the end of the fiscal year, it became apparent that the issues that have now dominated many Asian economies for over twelve months are being felt in other parts of the globe. The leaders of the G7 and G22 countries are now discussing changes to the global financial system to guard against either a repetition or extension of what has been described as the Asian Financial Crisis. We believe that some Asian economies offer hope that those countries that were amongst the "first in" will be the "first out". The two countries, Thailand and South Korea, that seem most likely to offer the prospect of economic recovery in the near future are two of Asia's three recipients of significant International Monetary Fund aid. While Indonesia remains highly unstable, the economies and currencies of both South Korea and Thailand are showing signs that the worst may be over, and there are tentative forecasts of renewed growth as soon as the first half of 1999. The underlying reason for optimism that the economic health of Asia may start to show signs of improvement by the first half of 1999 lies in the favorable swing towards overall trade and current account surpluses that have been experienced by most of the region. While this has largely been achieved through a sharp reduction in the level of imports, it has nevertheless reversed the trends which preceded the crisis of July 1997. Combined with obvious efforts in many Asian countries to adopt the reform measures prescribed by the West, particularly in areas such as financial sector re-structuring and increased access to overseas companies acquiring existing Asian businesses, a number of countries (Thailand, South Korea, Singapore) have seen their currencies stabilize and interest rates drop significantly. It remains encouraging that the economy of Mainland China has so far weathered the storm created by the instability of its neighbors and may prove to be Asia's most stable economy in this difficult and volatile period. If the first phase of Asia's crisis was led by the currency devaluations that swept the region (July 1997), then it may be safe to assume that the first phase is behind us and that the primary challenge now facing most of the region is a restoration of confidence and renewal of growth. While evidence of recession is dominant throughout the region, the pace of decline has slowed. In the immediate - -------------------------------------------------------------------------------- A MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- aftermath of the crisis, most Asian countries were compelled to tighten monetary policy to stabilize their currencies which led to extremely high domestic interest rates and tight lending. With currency markets exhibiting more stability, interest rates are coming down which should help increase money supply growth around the region in the coming quarters. Forecasting an end to the current recessions that are afflicting many Asian economies is not an exact science, but financial markets should provide the best indicator of any incipient recovery in Asia's real economies. In the current environment we plan to remain focused on identifying the most attractive companies in Asia ex-Japan. Those that have the business franchise, management experience, and balance sheet strength to both weather this recession and participate in the recovery when it comes. There is no shortage of candidates selling at historically attractive valuations. Our portfolios remain essentially fully invested and we have great confidence in the future. We would like to thank our shareholders for their recent approval of the items presented in the proxy statement. We welcome Mr. William R. Hambrecht as a significant new shareholder in the Investment Advisor. Thank you for your continued support, Sincerely, /s/ G. PAUL MATTHEWS [PHOTO OF G. PAUL MATTHEWS APPEARS HERE] G. PAUL MATTHEWS - PRESIDENT, CHIEF INVESTMENT OFFICER [PHOTO OF MARK W. HEADLEY APPEARS HERE] /s/ MARK W. HEADLEY MARK W. HEADLEY - MANAGING DIRECTOR, PORTFOLIO MANAGER - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S COMMENTS - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND The Matthews Pacific Tiger Fund has weathered some of the most severe financial turbulence of recent decades without changing its investment philosophy or process. The Fund has maintained a well-diversified and fully invested stance throughout the crisis. We refrained from building a large cash position due to our strong belief that market timing is not a viable long-term investment approach. Our focus throughout the year has been on researching and monitoring attractive companies throughout the region. The Fund began the fiscal year in September 1997 at the early stages of the meltdown. There are significant signs that the end of the fiscal year has signaled a calmer period in Asian financial markets. The Fund is well positioned to take advantage of the many positive trends that have either remained intact or evolved out of the financial crisis and accompanying recessionary environment. Our investment focus has included the significant restructuring process in both the Korean and Thai economies and the on-going shift to a free market economy in China. The many unique and exciting companies that can be found across the nine Asian Tiger markets continue to be, in our opinion, an outstanding opportunity for diversification and long-term capital appreciation. MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND The Matthews Asian Convertible Securities Fund invests primarily in US Dollar denominated convertible bonds issued by Asia ex-Japan corporations. The portfolio is broadly diversified both by country of issue and by industry. Over the past twelve months ending August 31, 1998, such issues declined in value as the underlying equity markets fell and interest rates rose. The rise in local interest rates in various Asian countries, together with a rise in the "premium" that international investors expect from financial instruments issued by companies domiciled in emerging Asia, caused an overall decline in the value of such securities. The extent of the decline was less, however, than that of the underlying equity markets as the income component of convertible bonds provided a "floor" for overall valuations. Many Asian countries are now in the grip of a severe domestic economic recession, which has caused severe dislocation in the financial markets. Most of these countries have introduced reforms and engaged in significant restructuring of their financial systems to guard against a repeat of the recent financial crisis. With economic growth slowing, interest rates are starting to fall again in some Asian countries which, if continued, should bode well for Asian bonds and convertibles. We would like to acknowledge the change in the name of the Matthews Asian Convertible Securities Fund to the Matthews Asian Growth and Income Fund. Its investment objective, however, remains unchanged. - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S COMMENTS - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND The Matthews Korea Fund invests in a broad range of Korean equities listed on the domestic Korean stock exchange. The portfolio consists of approximately 50 Korean companies, including some of the largest capitalization blue chips and a range of smaller companies. The portfolio is generally unhedged, and is therefore exposed to both the potential movement of the Korean currency and to fluctuations in the Korean Stock Market. The second half of the fiscal year ended August 31, 1998 saw the Korean market fall to new 12 year lows. The domestic recession, combined with increased volatility in all emerging markets and their currencies, caused the Korean equity market to give up its early year gains. While the local equity market reached new lows, the Korean Won remained above the levels of earlier this year, allowing the net asset value per share of the Matthews Korea Fund to hold above the levels reached in December of 1997. The International Monetary Fund has reported favorably on Korea's imposition of measures to further reform and deregulate its economy, and many forecasters are suggesting that the South Korean economy will be showing an improving trend in 1999. The fund has maintained its exposure to Korean blue chips, with a particular emphasis on electronics and petro-chemical companies, whose competitiveness has been improved by the relative weakness in the Korean Won over the last twelve months. MATTHEWS DRAGON CENTURY CHINA FUND Launched in February 1998, the Matthews Dragon Century China Fund has faced an extremely challenging period in its first partial year. The Fund is highly focused on companies that are either based in China or have their primary interests in China but are based in Hong Kong. It does not generally invest in the large Hong Kong property and finance companies typically found in international portfolios. The Fund's severe down draft is indicative of the destructive nature of the financial forces in Asia. Market concerns that China would devalue its currency, combined with the general atmosphere of regional panic, led to a massive sell-off in Chinese related equities. The Fund invests in what we believe to be some of the highest quality companies available in the Hong Kong and Chinese equity markets. Our many trips to China over the last year continue to convince us that the move to a free market economy is ongoing and dramatic. The Fund is invested across a range of industries from telecommunications to manufacturing. We would like to acknowledge the tireless efforts of our research analyst, Richard Gao, who has provided many unique insights into the tremendous changes occurring in China. We remain very optimistic about the long-term potential of China and the companies operating in its economy. - -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 - -------------------------------------------------------------------------------- The graph below compares the change in value of a $10,000 investment in Matthews Pacific Tiger Fund Class I Shares and Matthews Asian Convertible Securities Fund with the performance of the Morgan Stanley All Country Far East ex Japan Index with gross dividends in U.S. dollars. The total returns of the Matthews Pacific Tiger Fund Class I Shares, Matthews Asian Convertible Securities Fund and the Morgan Stanley All Country Far East ex Japan Index for one year was (63.43%), (35.27%) and (57.88%), respectively, and the average annual total return since inception was (19.87%), (4.71%) and (23.24%), respectively. [LINE GRAPH APPEARS HERE] PACIFIC TIGER/1/ & ASIAN CONV. SEC. FUNDS (Assuming $10,000 invested at inception) Matthews Pacific Tiger Morgan Stanley All Country Matthews Asian Fund Class I Shares Far East ex Japan Index/2/ Conv. Sec. Fund ------------------- -------------------------- --------------- 9/12/94 10,000 10,000 10,000 Nov-94 9,720 9,329 9,930 Feb-95 9,241 8,879 9,722 May-95 9,723 9,447 10,284 Aug-95 9,793 8,873 10,089 Nov-95 9,432 8,784 10,191 Feb-96 10,965 9,563 11,124 May-96 11,186 10,185 11,228 Aug-96 10,835 9,658 11,122 Nov-96 11,908 10,174 11,978 Feb-97 12,439 10,326 12,095 May-97 12,920 10,118 12,268 Aug-97 11,349 9,017 12,754 Nov-97 8,075 6,298 9,758 Feb-98 7,693 6,839 9,873 May-98 6,046 5,141 9,411 Aug-98 4,151 3,837 8,256 Past performance is not indicative of future results. The graph below compares the change in value of a $10,000 investment in Matthews Korea Fund Class I Shares with the performance of the Korea Stock Price Index. The total return of the Matthews Korea Fund Class I Shares and the Korea Stock Price Index for one year was (67.21%) and (70.51%), respectively, and the average annual total return since inception was (35.16%) and (37.83%), respectively. [LINE GRAPH APPEARS HERE] KOREA FUND/1/ (Assuming $10,000 invested at inception) Matthews Korea Fund Class I Shares Korea Stock Price Index/3/ -------------- -------------------------- 1/2/95 10,000 10,000 Feb-95 9,000 8,626 8,960 8,855 Aug-95 9,130 9,008 9,230 9,237 Feb-96 8,404 8,397 8,636 8,779 Aug-96 7,294 7,328 6,820 6,794 Feb-97 5,892 6,031 6,416 6,412 Aug-97 6,245 5,954 3,047 2,748 Feb-98 3,047 2,595 2,280 1,832 Aug-98 2,048 1,756 Past performance is not indicative of future results. /1/Class A shares are available on Matthews Pacific Tiger Fund and Matthews Korea Fund. Total return will differ due to sales charges and 12b-1 fees. /2/The MSCI All Country Far East ex Japan Index is an unmanaged capitalization- weighted index of stock markets in the Pacific region excluding Japan. /3/The Korea Stock Price Index is a capitalization-weighted index of all common stocks listed on the Korea Stock Exchange. - -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 - -------------------------------------------------------------------------------- The graph below compares the change in value of a $10,000 investment in Matthews Dragon Century China Fund with the performance of the Credit Lyonnais China World Index. The unannualized total return of the Matthews Dragon Century China Fund and the Credit Lyonnais China World Index for the period February 19, 1998 (inception of Fund) to August 31, 1998 was (56.40%) and (59.69%). [LINE GRAPH APPEARS HERE] DRAGON CENTURY CHINA FUND (Assuming $10,000 invested at inception) Matthews Dragon Credit Lyonnais Century China Fund China World Index/1/ ------------------ ----------------- 2/19/98 10,000 10,000 Feb-98 10,610 11,372 Mar-98 10,550 10,877 Apr-98 9,880 9,607 May-98 8,570 8,109 Jun-98 7,100 6,669 Jul-98 5,340 5,261 Aug-98 4,360 4,031 Past performance is not indicative of future results. /1/The Credit Lyonnais China World Index is an unmanaged capitalization- weighted index of Chinese equities which are listed on the Hong Kong, Shanghai, and Shenzhen stock exchanges. - -------------------------------------------------------------------------------- GENERAL MARKET AND ECONOMIC INFORMATION - -------------------------------------------------------------------------------- [LINE GRAPH APPEARS HERE] ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS DECEMBER 1987 - SEPTEMBER 1998 MSCI All Country Far East MSCI Europe Australia (ex Japan) Index/1/ S&P 500 Index/2/ Far East Index/3/ ---------------- ------------- -------------- 0 0 0 11.88 4.04 6.96 18.56 8.39 14.41 Mar-88 21.83 4.78 17.35 33.42 5.77 19.57 39.65 6.1 16.49 47.03 10.69 20.58 63.59 10.09 24.17 70.7 5.84 18.7 Sep-88 79.54 10.05 22.63 66.08 12.91 24.66 76.67 10.77 28.47 66.65 12.4 31.99 83.77 20.39 39.08 93.01 16.91 37.27 Mar-89 102.81 19.34 39.89 112.54 25.32 41.36 127.93 29.13 42.89 115.13 28.7 40.1 121.61 40.07 50.09 129.87 42.24 50.52 Sep-89 138.06 41.31 52.01 132.43 37.75 47.68 125.13 40.03 54.4 133.5 43.03 58.4 160.02 33.19 51.58 153.72 34.32 43.37 Mar-90 139.08 37.58 32.93 114.15 33.88 31.59 109.81 46.19 42.77 89.86 44.9 39.4 96.35 44.14 35.59 59.28 30.55 20.24 Sep-90 36.58 23.87 1.31 52.9 23.04 11.96 58.71 30.41 6.51 63.33 33.65 9.32 59.97 39.2 10.19 82.81 48.56 23.49 Mar-91 87.53 51.86 24.83 94.96 51.91 25.19 92.4 57.77 27.01 91.72 50.22 19.98 96.13 56.96 23.66 85.38 60.04 20.61 Sep-91 87.8 56.98 22.86 83.9 58.84 24.25 84.66 51.86 16.6 89.16 68.81 16.78 109.41 65.44 17.02 106.85 67.03 15.21 Mar-92 101.53 63.38 9.25 104.85 67.94 9.46 112.5 68.1 12.65 116.06 65.19 4.01 106.31 71.69 0.29 100.63 67.57 2.87 Sep-92 99.34 69.1 2.13 116.06 69.45 3.05 112.59 74.58 6.59 105.8 76.34 7.43 109.37 77.59 7.57 126.86 79.45 9.92 Mar-93 131.55 82.8 16.02 146.1 78.16 22.84 155.18 82.2 23.58 147.09 82.34 23.21 146.34 81.37 28.48 157.29 87.62 34.14 Sep-93 166.65 85.74 30.61 205.87 89.34 37.04 212.21 86.9 25.95 291.08 88.79 36.62 276.6 94.92 45.84 255.11 89.06 41.86 Mar-94 221.53 80.41 33.96 238.98 82.5 37.85 251.21 84.76 38.46 241.44 79.81 34.86 263.29 85.47 36.98 288.62 92.45 39.72 Sep-94 293.38 87.27 33.06 292.54 91.17 34.27 262.55 83.62 31.23 262.13 85.88 31.93 223.16 90.39 25.37 245.04 97.26 22.88 Mar-95 250.32 102.65 21.15 241.78 108.32 24.55 267.13 115.88 24.12 261.36 120.48 21.22 263.93 127.48 29.85 244.83 127.41 33.35 Sep-95 255.15 136.53 34.24 249.49 135.35 31.96 241.37 145.01 36.76 255.52 149.28 42.13 272.22 157.41 47.17 271.64 159.2 45.42 Mar-96 278.2 161.25 49.19 306.11 164.76 54.12 295.81 170.81 52.08 293.3 171.42 53.36 265.74 159.01 45.65 275.32 163.88 46.65 Sep-96 284.32 178.18 53.23 276.59 185.44 51.17 295.29 206.39 57.02 290.96 199.8 55.64 297.6 218.18 57.78 301.27 220.07 61.35 Mar-97 283.39 206.43 61.87 277.77 224.32 66.45 293.17 243.32 71.08 307.24 258.24 80.1 310.89 286.23 89.2 250.38 264.04 75.17 Sep-97 239.93 283.39 83.88 157.16 270.17 66.31 142.24 286.68 68.97 130.99 292.76 74.1 116 296.75 82.13 163.05 324.7 92.24 Mar-98 156.72 345.91 101.8 131.85 349.96 100.12 97.73 341.48 101.71 78.2 358.9 103.72 75.19 353.57 106.66 47.59 287.44 78.52 Sep-98 61.98 311.61 66.46 ECONOMIC STATISTICS (as of 9/30/98)
- ------------------------------------------------------------------------------------------------------------------------------------ 1997e 98e 98e Real 97 Real 97 Real GPD Prime Current Population GDP GDP (US$ per capita 1998e 1997 Lending A/C(% of Market (millions) Growth Growth billions) (US$) inflation inflation Rates GDP - ------------------------------------------------------------------------------------------------------------------------------------ Japan 126.00 -2.2% 0.8% 5,088 40,347 0.5% 1.7% 1.5% 3.0% - ------------------------------------------------------------------------------------------------------------------------------------ China 1,215.00 6.0% 8.8% 902 723 0.0% 2.8% 8.6% 2.4% - ------------------------------------------------------------------------------------------------------------------------------------ Hong Kong 7.00 -5.5% 5.3% 171 26,476 3.0% 5.7% 9.8% -3.6% - ------------------------------------------------------------------------------------------------------------------------------------ Indonesia 198.00 -17.2% 4.8% 209 983 80.0% 6.6% 30.0% 8.1% - ------------------------------------------------------------------------------------------------------------------------------------ Malaysia 21.00 -5.7% 7.8% 97 4,591 7.0% 2.7% 12.2% 4.2% - ------------------------------------------------------------------------------------------------------------------------------------ Philippines 69.00 -2.2% 5.1% 82 1,113 10.0% 5.1% 20.0% 0.8% - ------------------------------------------------------------------------------------------------------------------------------------ Singapore 3.00 0.3% 7.8% 95 30,503 0.2% 2.0% 8.0% 14.9% - ------------------------------------------------------------------------------------------------------------------------------------ South Korea 45.00 -8.0% 5.6% 434 9,493 8.9% 4.4% 18.0% 12.7% - ------------------------------------------------------------------------------------------------------------------------------------ Taiwan 22.00 4.8% 6.7% 282 12,949 1.8% 0.9% 8.0% 1.5% - ------------------------------------------------------------------------------------------------------------------------------------ Thailand 61.00 -11.1% 3.7% 157 2,491 9.0% 5.6% 15.0% 13.7% - ------------------------------------------------------------------------------------------------------------------------------------
Source: Warburg Dillion Read /1/The MSCI AC Far East ex Japan Index is an unmanaged capitalization-weighted index of stock markets in the Pacific region excluding Japan. /2/The S&P 500 Index is a capitalization-weighted index of 500 U.S. stocks. /3/The MSCI Europe, Australia, Far East Index is an unmanaged capitalization- weighted index of stock markets in Europe, Australia and the Far East. - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities as of August 31, 1998
MATTHEWS MATTHEWS MATTHEWS ASIAN DRAGON PACIFIC CONVERTIBLE MATTHEWS CENTURY TIGER SECURITIES KOREA CHINA FUND FUND FUND FUND -------- ----------- -------- -------- EQUITIES Automotive............................ 1.09 % 0.00 % 3.76 % 7.00 % Banking and Finance................... 4.84 0.00 6.38 0.00 Commercial & Industrial............... 0.00 0.00 1.57 0.00 Communications........................ 0.00 0.00 2.37 0.00 Conglomerate.......................... 4.51 1.23 0.00 14.69 Construction.......................... 0.00 0.00 0.59 0.00 Consumer.............................. 4.68 0.26 2.41 13.84 Electronics........................... 12.95 0.00 26.76 0.00 Financial............................. 2.20 0.00 0.00 0.00 Food & Beverages...................... 5.50 0.00 6.66 0.00 Gaming................................ 0.90 0.00 0.00 0.00 Health Care........................... 0.05 0.00 0.00 0.00 Hotels................................ 0.97 0.00 0.00 0.00 Hotels/Tourism........................ 0.00 0.00 0.00 4.04 Household............................. 0.00 0.00 1.98 0.00 Industrial............................ 0.23 0.74 0.00 2.98 Infrastructure........................ 1.83 0.00 0.00 8.87 Insurance............................. 3.97 0.00 7.05 0.00 Machinery & Equipment................. 0.89 0.00 0.00 0.00 Manufacturing......................... 1.20 0.00 0.00 0.00 Media................................. 3.81 0.80 0.00 0.00 Paper Products........................ 0.00 0.00 0.98 0.00 Petro-Chemical........................ 0.00 0.00 14.43 0.00 Pharmaceutical........................ 1.52 0.00 4.28 8.69 Property.............................. 0.00 0.00 0.00 6.45 Retail................................ 0.92 0.00 0.00 0.00 Security Service...................... 3.42 0.00 3.11 0.00 Shipping & Steel...................... 0.00 0.00 7.64 0.00 Software.............................. 1.54 0.00 0.00 0.00 Technology............................ 8.40 0.00 0.00 8.46 Telecommunications.................... 8.82 0.00 0.21 9.32 Trading............................... 3.97 0.00 0.00 0.00 Transportation........................ 4.34 0.00 1.24 2.00 Utility............................... 17.45 0.92 8.33 13.66 ------ ---- ----- ------ Total Equities...................... 100.00 % 3.95 % 99.75 % 100.00 %
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- MARKET SECTOR DIVERSIFICATION (CONTINUED) As a Percentage of Total Value of Investment in Securities as of August 31, 1998
MATTHEWS MATTHEWS MATTHEWS ASIAN DRAGON PACIFIC CONVERTIBLE MATTHEWS CENTURY TIGER SECURITIES KOREA CHINA FUND FUND FUND FUND -------- ----------- -------- -------- BONDS Automotive........................... 0.00 % 2.17 % 0.00 % 0.00 % Conglomerate......................... 0.00 9.32 0.00 0.00 Consumer............................. 0.00 3.82 0.00 0.00 Electrical........................... 0.00 9.74 0.00 0.00 Electrical Appliance................. 0.00 2.22 0.00 0.00 Electronics.......................... 0.00 15.62 0.25 0.00 Government Bond...................... 0.00 7.79 0.00 0.00 Hotels............................... 0.00 7.96 0.00 0.00 Industrial........................... 0.00 8.21 0.00 0.00 Infrastructure....................... 0.00 5.72 0.00 0.00 Petro-Chemical....................... 0.00 5.78 0.00 0.00 Property............................. 0.00 7.74 0.00 0.00 Transportation....................... 0.00 3.04 0.00 0.00 Utility.............................. 0.00 6.92 0.00 0.00 ------ ------ ------ ------ Total Bonds........................ 0.00 96.05 0.25 0.00 ------ ------ ------ ------ TOTAL INVESTMENTS..................... 100.00 % 100.00 % 100.00 % 100.00 % ====== ====== ====== ======
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
SHARES VALUE --------- ----------- EQUITIES - 98.15%*** HONG KONG - 48.74% Asia Satellite Telecommunications Holdings, Ltd. ADR 54,800 $ 585,675 ASM Pacific Technology, Ltd. 1,030,000 244,568 Cathay Pacific Airways 1,399,000 1,020,024 China Telecom (Hong Kong), Ltd.** 546,800 719,736 Cheung Kong Infrastructure Holdings 325,000 566,189 Citic Pacific, Ltd. 465,000 594,063 Dickson Concepts International, Ltd. 305,000 184,003 Giordano International Ltd. 966,000 99,727 Founder Hong Kong, Ltd. 2,765,599 474,663 Guangdong Electric Power Development Co., Ltd. B Shares 2,412,084 675,455 Guangdong Kelon Electrical Holdings Co., Ltd. 2,161,000 1,087,586 Guangzhou Pharmaceutical Co., Ltd.** 5,782,000 470,070 Hong Kong Telecommunications, Ltd. 602,279 1,064,787 HSBC Holdings PLC 31,959 678,427 Huaneng Power International, Inc. ADR** 48,000 312,000 Hutchison Whampoa, Ltd. 184,000 797,814 Legend Holdings, Ltd. 3,676,000 659,378 Li & Fung, Ltd. 1,044,000 1,225,988 Nanjing Posts & Telecommunications Equipment Co., Ltd. B Shares 1,500,000 222,604 National Mutual Asia, Ltd. 1,624,000 628,712 Peregrine Investments Holdings, Ltd. 1,097,000 0 Qingling Motors Co. 2,764,000 335,282 Shanghai Dazhong Taxi Co. B Shares** 850,000 321,300 Shanghai New Asia Group Co., Ltd. B Shares** 2,340,000 299,520 Vitasoy International Holdings, Ltd. 5,262,500 1,697,760 Wuxi Little Swan Co., Ltd. B Shares 902,400 371,479 ----------- TOTAL HONG KONG 15,336,810 ----------- INDONESIA - 0.75% PT Hero Supermarket** 2,521,000 219,461 PT Tempo Scan Pacific** 885,000 15,804 ----------- TOTAL INDONESIA 235,265 ----------- MALAYSIA - 3.12% Berjaya Sports Toto Berhad 426,000 276,854
SHARES VALUE --------- ----------- Public Bank Berhad 3 $ 1 Star Publications (Malaysia) 821,000 706,184 ----------- TOTAL MALAYSIA 983,039 ----------- PHILIPPINES - 6.52% Benpres Holdings Corp.** 5,718,000 469,972 Music Corp.** 1,426,000 55,347 Philippine Long Distance Telephone Co. 55,990 926,774 RFM Corp. 4,950,000 598,972 ----------- TOTAL PHILIPPINES 2,051,065 ----------- SINGAPORE - 10.10% Avimo Group, Ltd. 960,000 1,026,997 Dairy Farm International Holdings, Ltd. 480,000 456,000 Electronic Resources, Ltd. 1,025,000 349,159 Sunright, Ltd. 1,579,000 280,051 Venture Manufacturing (Singapore), Ltd. 420,000 1,064,157 ----------- TOTAL SINGAPORE 3,176,364 ----------- SOUTH KOREA - 22.25% Dae Duck Electronics Co. 19,490 981,355 Hana Bank 231,974 713,700 Korea Electric Power Corp. 102,740 1,323,713 Mirae Co. 425,465 606,457 S1 Corp. 9,500 1,055,164 Samsung Electronics Co. 39,872 1,325,622 Samsung Fire & Marine Insurance 3,230 597,926 SK Telecom Co., Ltd. 1,215 397,333 ----------- TOTAL SOUTH KOREA 7,001,270 ----------- THAILAND - 6.67% Advanced Info Service Public Co., Ltd. 197,000 799,283 Bangkok Bank Public Co., Ltd. 766,000 539,308 Bank of Ayudhya Public Co., Ltd.** 642,000 68,950 Srithai Superware Public Co., Ltd.** 1,503,000 172,181 Thai Engine Manufacturing Public Co., Ltd.** 595,800 71,098 Thai Farmers Bank Public Co., Ltd.** 403,000 173,126 Tipco Asphalt Public Co., Ltd.** 500,000 274,463 Tipco Asphalt Public Co., Ltd. Warrants** 30,600 73 ----------- TOTAL THAILAND 2,098,482 ----------- TOTAL EQUITIES (Cost $59,432,558) 30,882,295 -----------
- -------------------------------------------------------------------------------- MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
SHARES VALUE --------- ----------- TOTAL INVESTMENTS - 98.15% (Cost $59,432,558*) $30,882,295 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - 1.85% 582,184 ----------- NET ASSETS - 100% $31,464,479 ===========
* Cost for Federal income tax purposes is $59,432,558 and net unrealized depreciation consists of: Gross unrealized appreciation......................... $ 89,664 Gross unrealized depreciation......................... (28,639,927) ------------ Net unrealized depreciation......................... $(28,550,263) ============
** Non-income producing security *** As a percentage of net assets as of August 31, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ----------- ---------- EQUITIES - 3.83%**** HONG KONG - 2.85% Peregrine Investments Holdings, Ltd. 64,000 $ 0 Shandong Huaneng Power Co., Ltd. ADR 10,000 36,250 South China Morning Post (Holdings), Ltd. 96,000 31,590 Wharf (Holdings), Ltd. 50,000 47,747 ---------- TOTAL HONG KONG 115,587 ---------- MALAYSIA - 0.06% Renong Berhad Warrants** 40,000 765 United Engineers (Malaysia) Berhad** 8,624 1,813 ---------- TOTAL MALAYSIA 2,578 ---------- THAILAND - 0.25% Srithai Superware Public Co., Ltd.** 88,000 10,081 Tipco Asphalt Co., Ltd. Warrants** 3,500 9 ---------- TOTAL THAILAND 10,090 ---------- TAIWAN - 0.67% Ton Yi Industrial Corp.** 59,183 27,338 ---------- TOTAL EQUITIES (Cost $874,844) 155,593 ---------- FACE AMOUNT ----------- INTERNATIONAL DOLLAR BONDS - 93.09% HONG KONG - 34.55% Goldlion Capital (B.V.I.) 4.875%, 02/01/99 $ 150,000 141,750 Shangri-La Asia Capital, Ltd. 2.875%, 12/16/00 180,000 131,850 Hong Kong & Shanghai Hotels Overseas Finance, Ltd. 5.000%, 01/06/01 150,000 131,250 Paul Y. - ITC Construction Holdings, Ltd. 5.000%, 02/03/01 140,000 65,800 Hong Kong Land Co. 4.000%, 02/23/01 150,000 132,750 New World Infrastructure, Ltd. 5.000%, 07/15/01 150,000 96,375 Qingling Motors, Ltd.*** 3.500%, 01/22/02 300,000 85,500 First Pacific Capital, Ltd. 2.000%, 03/27/02 250,000 208,125 Guangdong Investment, Ltd.*** 3.250%, 04/07/03 70,000 37,800 Zhenhai Refining & Chemical Co., Ltd. 3.000%, 12/19/03 200,000 181,000
FACE AMOUNT VALUE ----------- ---------- Huaneng Power International Public Co., Ltd. 1.750%, 05/21/04 $ 200,000 $ 141,000 Regal Hotels International Holdings, Ltd. 5.250%, 12/13/08 95,000 50,350 ---------- TOTAL HONG KONG 1,403,550 ---------- INDONESIA - 5.45% Asia Pulp & Paper Global Finance V, Ltd. 2.000%, 07/25/00 150,000 93,000 PT Indocement 2.00%, 02/27/06 260,000 128,700 ---------- TOTAL INDONESIA 221,700 ---------- PHILIPPINES - 9.94% Metro Pacific Capital, Ltd. 2.500%, 04/11/03 60,000 46,500 JG Summit (Cayman), Ltd. 3.500%, 12/23/03 80,000 39,800 International Container Terminal Services, Inc. 1.750%, 03/13/04 150,000 119,625 FDC Capital Cayman 2.500%, 05/15/06 90,000 66,375 Philippine Long Distance Telephone Co. 3.500%, 12/31/49 290,000 131,587 ---------- TOTAL PHILIPPINES 403,887 ---------- SOUTH KOREA - 16.44% SK Corp. 3.000%, 12/31/01 34,000 46,750 Republic of Korea 8.750%, 04/15/03 200,000 163,260 Samsung Display Devices Co. 0.250%, 03/12/06 100,000 82,500 Samsung Electronics Co. 0.250%, 12/31/06 160,000 137,200 Daewoo Corp.** 0.000%, 12/31/07 100,000 74,500 LG Electronics, Inc. 0.250%, 12/31/07 250,000 163,750 ---------- TOTAL SOUTH KOREA 667,960 ---------- TAIWAN - 19.42% Nan Ya Plastics Corp. 1.750%, 07/19/01 80,000 86,200 Yageo Corp. 1.250%, 07/24/03 80,000 96,000 Compal Electronics, Inc.*** 1.000%, 11/21/03 100,000 247,500
- -------------------------------------------------------------------------------- MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ----------- ----------- Walsin Lihwa Corp. 3.250%, 06/16/04 $ 120,000 $ 87,600 Ritek Corp. 0.250%, 03/27/05 200,000 181,500 Acer Peripherals, Inc. 1.250%, 11/27/06 80,000 90,000 ----------- TOTAL TAIWAN 788,800 ----------- THAILAND - 7.29% Robinson Department Store Public Co., Ltd. 4.250%, 04/07/04 50,000 8,750 Tipco Asphalt, Co. 2.750%, 09/19/06 200,000 144,000 Kingdom of Thailand 7.750%, 04/15/07 210,000 143,493 ----------- TOTAL THAILAND 296,243 ----------- TOTAL INTERNATIONAL DOLLAR BONDS (Cost $4,698,259) 3,782,140 ----------- TOTAL INVESTMENTS - 96.92% (Cost $5,573,103*) 3,937,733 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - 3.08% 124,964 ----------- NET ASSETS - 100% $ 4,062,697 ===========
* Cost for Federal income tax purposes is $5,573,103 and net unrealized depreciation consists of: Gross unrealized appreciation............................... $ 126,484 Gross unrealized depreciation............................... (1,761,854) ----------- Net unrealized depreciation............................... $(1,635,370) ===========
** Non-income producing security *** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At August 31, 1998, the value of these securities amounted to $370,800 or 9.13% of net assets. **** As a percentage of net assets as of August 31, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
SHARES VALUE -------- ------------ EQUITIES - SOUTH KOREA - 101.38%*** Dae Duck Electronics Co. 45,050 $ 2,268,344 Dae Duck Industries 40,000 1,629,025 Daehan City Gas Co. 31,460 510,162 Dongwon Securities Co. 173,880 641,186 Global & Yuasa Battery Co. 35,060 1,056,602 Han Kuk Carbon Co., Ltd. 45,916 1,030,173 Han Kuk Paper Manufacturing Co. 90,180 704,479 Hanjin Heavy Industries 700,910 2,600,190 Hankook Synthetics, Inc.** 21,000 368,530 Hankook Tire Manufacturing Co. 400,900 733,227 Hanmi Pharmaceutical Industrial Co. 30,024 552,459 Honam Petrochemical Corp. 145,200 887,004 Housing & Commercial Bank, Korea 350,087 933,219 Hyundai Heavy Industries 87,004 1,497,847 Hyundai Merchant Marine 100,800 742,658 Hyundai Motor Co., Ltd. 90,380 910,157 Keum Kang, Ltd. 48,150 427,841 Kolon Chemical Co. 66,020 840,832 Kookmin Bank** 500,333 1,378,184 Korea Electric Power Corp. 397,100 5,116,280 Korea Electric Terminal Co. 24,000 657,534 Korea Fine Chemical Co. 17,520 377,513 Korean Air** 300,775 893,082 LG Cable & Machinery 420,170 1,129,372 LG Chemical, Ltd. 450,640 2,669,469 LG Electronics, Inc. 365,950 2,926,514 LG Information & Communication, Ltd. 100,295 1,700,670 LG Insurance Co., Ltd. 37,000 808,219 Lotte Chilsung Beverage Co. 35,290 972,075 Lotte Confectionery Co. 34,010 1,636,911 Medison Co., Ltd. 216,270 1,745,533 Mirae Co. 700,227 998,102 Nong Shim Co., Ltd. 42,470 1,663,578 Oriental Fire & Marine Insurance 176,640 553,921 Ottogi Corp. 44,000 518,030 Pacific Corp. 157,710 1,424,703 Pohang Iron & Steel Co., Ltd. 19,690 648,800 Pusan City Gas Co., Ltd. 110,000 1,629,025 S1 Corp. 20,099 2,232,416 Saehan Precision Co. 64,000 706,108
SHARES VALUE ----------- ------------ Samsung Display Devices Co. 120,782 $ 3,130,224 Samsung Electronics Co. 150,059 4,989,001 Samsung Fire & Marine Insurance 20,002 3,702,701 Samsung Securities Co., Ltd. 300,081 1,633,169 Seoul City Gas Co., Ltd. 60,160 873,110 Shinhung Co. 45,270 362,026 Shinsegae Department Store Co. 145,260 1,328,367 Sindo Ricoh Co. 84,440 1,932,021 SK Corp. 280,550 1,717,991 SK Telecom Co., Ltd. 464 151,525 Suheung Capsule 35,050 417,849 Youngone Corp. 14,650 401,370 Yukong, Ltd.** 250,000 343,750 ------------ TOTAL EQUITIES (Cost $85,474,060) 71,703,078 ------------ FACE AMOUNT ----------- INTERNATIONAL DOLLAR BONDS (NOTE 1-A) - 0.25% Samsung Electronics Co. 0.25%, 12/31/06 $210,000 180,075 ------------ TOTAL INTERNATIONAL DOLLAR BONDS (Cost $198,892) 180,075 ------------ TOTAL INVESTMENTS - 101.63% (Cost $85,672,952*) 71,883,153 ------------ LIABILITIES, LESS CASH AND OTHER ASSETS - (1.63%) (1,152,494) ------------ NET ASSETS - 100% $ 70,730,659 ============
* Cost for Federal income tax purposes is $85,672,952 and net unrealized depreciation consists of: Gross unrealized appreciation.................................. $ 2,410,832 Gross unrealized depreciation.................................. (16,200,631) ------------ Net unrealized depreciation.................................. $(13,789,799) ============
** Non-income producing security *** As a percentage of net assets as of August 31, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
SHARES VALUE --------- ----------- EQUITIES - HONG KONG - 97.19%*** Beijing Datang Power Generation Co., Ltd. 302,000 $ 47,546 Beijing Enterprises Holdings, Ltd. 40,000 32,778 Beijing North Star Co., Ltd. 212,000 25,716 CATIC Shenzhen Holdings, Ltd. 958,000 46,978 Cheung Kong Infrastructure Holdings 50,000 87,106 China Pharmaceutical Enterprise and Investment Corp., Ltd. 834,000 51,660 China Resources Enterprises, Ltd. 70,000 50,586 China Telecom (Hong Kong), Ltd.** 56,000 73,711 China Vanke Co., Ltd. B Shares 257,373 73,068 Citic Pacific, Ltd. 36,000 45,992 Eastern Communications Co., Ltd. B Shares 68,000 24,888 First Tractor Co., Ltd. 247,000 43,987 Founder Hong Kong, Ltd. 139,542 23,950 Guangdong Electric Power Development Co., Ltd. B Shares 305,396 85,520 Guangdong Kelon Electric Holdings Co., Ltd. 171,000 86,061 Guangzhou Pharmaceutical Co., Ltd.** 1,000,000 81,299 Huaneng Power International, Inc. ADR** 4,700 30,550 Huangshan Tourism Development Co., Ltd. B Shares 84,000 18,648 Legend Holdings, Ltd. 338,000 60,628 Nanjing Posts & Telecommunications Equipment Co., Ltd. B Shares 296,000 43,927 New World Infrastructure, Ltd.** 85,000 48,537
SHARES VALUE --------- ----------- Ng Fung Hong, Ltd. 102,000 $ 55,612 Qingling Motors Co. 520,000 63,078 Shanghai Industrial Holdings, Ltd. 37,000 49,657 Shanghai New Asia Group Co., Ltd. B Shares** 337,480 43,197 Shenzhen Chiwan Wharf Holdings, Ltd. B Shares 226,000 30,623 Stone Electronic Technology 710,000 44,895 Tianjin Development Holdings, Ltd.** 106,000 45,824 Wuxi Little Swan Co., Ltd. B Shares 170,400 70,146 Zhejiang Southeast Electric Power Co., Ltd. B Shares 281,000 45,522 ----------- TOTAL EQUITIES (Cost $3,418,238) 1,531,690 ----------- TOTAL INVESTMENTS - 97.19% (Cost $3,418,238*) 1,531,690 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - 2.81% 44,304 ----------- NET ASSETS - 100% $ 1,575,994 ===========
* Cost for Federal income tax purposes is $3,418,238 and net unrealized depreciation consists of: Gross unrealized appreciation................................... $ 0 Gross unrealized depreciation................................... (1,886,548) ----------- Net unrealized depreciation................................... $(1,886,548) ===========
** Non-income producing security *** As a percentage of net assets as of August 31, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1998 - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS ASIAN DRAGON PACIFIC CONVERTIBLE MATTHEWS CENTURY TIGER SECURITIES KOREA CHINA FUND FUND FUND FUND ------------ ----------- ------------ ----------- ASSETS: Investments, at value (Cost $59,432,558, $5,573,103, $85,672,952 and $3,418,238, respectively).......... $ 30,882,295 $ 3,937,733 $ 71,883,153 $ 1,531,690 Cash.................... 253,240 129,835 2,475,618 78,723 Dividends and interest receivable............. 132,014 59,473 10,093 3,190 Receivable for securities sold........ 1,365,880 0 0 0 Receivable for capital shares sold............ 108,380 500 357,600 0 Deferred organization costs (Note 1-E)....... 6,957 6,957 4,517 13,812 Due from Advisor (Note 2)..................... 25,349 8,400 0 0 Other assets............ 2,845 400 25,039 0 ------------ ----------- ------------ ----------- Total assets............ 32,776,960 4,143,298 74,756,020 1,627,415 ------------ ----------- ------------ ----------- LIABILITIES: Payable for securities purchased.............. 185,563 0 952,579 0 Payable for capital shares redeemed........ 1,089,470 68,125 2,934,577 6,696 Due to Advisor (Note 2)..................... 0 0 72,488 29,819 Accrued expenses........ 37,414 12,476 64,755 14,906 Accrued distribution expense................ 34 0 962 0 ------------ ----------- ------------ ----------- Total liabilities....... 1,312,481 80,601 4,025,361 51,421 ------------ ----------- ------------ ----------- NET ASSETS............... $ 31,464,479 $ 4,062,697 $ 70,730,659 $ 1,575,994 ============ =========== ============ =========== CLASS I SHARES: Net assets (Applicable to 7,689,150, 621,136, 32,886,364 and 361,577 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)...... $ 31,318,715 $ 4,062,697 $ 66,607,277 $ 1,575,994 ============ =========== ============ =========== Net asset value, offering price and redemption price per Class I share.......... $ 4.07 $ 6.54 $ 2.03 $ 4.36 ============ =========== ============ =========== CLASS A SHARES:* Net assets (Applicable to 35,793, 0, 2,046,589 and 0 shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)...... $ 145,764 N/A $ 4,123,382 $ 0 ============ =========== ============ =========== Net asset value and redemption price per Class A share.......... $ 4.07 N/A $ 2.01 N/A ============ =========== ============ =========== Offering price per Class A share (Net asset value / 0.9505)........ $ 4.28 N/A $ 2.11 N/A ============ =========== ============ =========== NET ASSETS CONSIST OF: Capital paid-in.......... $ 70,648,632 $ 6,487,385 $ 98,314,082 $ 3,686,805 Accumulated undistributed net investment income... 75,013 14,166 0 37,836 Accumulated net realized loss on investments..... (10,708,903) (803,484) (13,793,624) (262,099) Net unrealized depreciation on investments and foreign currency related transactions............ (28,550,263) (1,635,370) (13,789,799) (1,886,548) ------------ ----------- ------------ ----------- $ 31,464,479 $ 4,062,697 $ 70,730,659 $ 1,575,994 ============ =========== ============ ===========
* At August 31, 1998, the Matthews Asian Convertible Securities Fund did not offer Class A shares. N/A -- Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS for the year ended AUGUST 31, 1998 - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS MATTHEWS ASIAN DRAGON PACIFIC CONVERTIBLE MATTHEWS CENTURY TIGER SECURITIES KOREA CHINA FUND FUND FUND FUND* ------------ ----------- ------------ ----------- INVESTMENT INCOME: Dividends (net of foreign tax withheld of $47,559, $1,658, $94,038 and $0, respectively).......... $ 922,436 $ 60,218 $ 477,155 $ 63,016 Interest................ 72,641 103,455 95,884 6,606 ------------ ----------- ------------ ----------- Total investment income............... 995,077 163,673 573,039 69,622 ------------ ----------- ------------ ----------- EXPENSES: Investment advisory fees (Note 2).......... 451,119 48,161 640,716 15,893 Recovery of reimbursed expenses (Note 2)...... 56,770 0 237,854 0 Distribution expenses... 352 0 8,665 0 Transfer agent fees..... 60,286 27,476 70,119 16,683 Administration fees..... 34,566 30,649 39,772 22,432 Accounting fees......... 46,585 30,833 32,796 21,354 Professional fees....... 26,502 2,745 48,594 1,700 Custodian fees.......... 170,327 10,781 157,594 11,460 Directors fees (Note 2)..................... 4,375 4,375 4,375 1,880 Insurance expense....... 10,018 1,312 3,044 0 Amortization of organization costs (Note 1-E)............. 6,734 6,734 3,124 1,397 Printing expense........ 15,535 1,432 19,358 1,499 Registration expenses... 61,501 15,927 64,003 29,976 Other expenses.......... 1,500 400 1,000 250 ------------ ----------- ------------ ----------- Total expenses........ 946,170 180,825 1,331,014 124,524 Expenses reimbursed and waived (Note 2)........ (89,019) (89,320) (14,689) (92,738) ------------ ----------- ------------ ----------- Net expenses.......... 857,151 91,505 1,316,325 31,786 ------------ ----------- ------------ ----------- NET INVESTMENT INCOME (LOSS).................. 137,926 72,168 (743,286) 37,836 ------------ ----------- ------------ ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS: Net realized loss on investments............ (10,221,266) (547,729) (12,068,659) (261,226) Net realized loss on foreign currency related transactions... (434,661) (1,001) (1,143,690) (873) Net change in unrealized depreciation on investments and foreign currency related transactions... (27,390,703) (1,847,576) (13,075,569) (1,886,548) ------------ ----------- ------------ ----------- Net realized and unrealized loss on investments and foreign currency related transactions... (38,046,630) (2,396,306) (26,287,918) (2,148,647) ------------ ----------- ------------ ----------- NET DECREASE IN NET ASSETS FROM OPERATIONS.. $(37,908,704) $(2,324,138) $(27,031,204) $(2,110,811) ============ =========== ============ ===========
* The Fund commenced operations on February 19, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS ASIAN MATTHEWS PACIFIC CONVERTIBLE TIGER FUND SECURITIES FUND ------------------------- ----------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1998 1997 1998 1997 ------------ ----------- ----------- ---------- OPERATIONS: Net investment income..... $ 137,926 $ 109,773 $ 72,168 $ 44,739 Net realized gain (loss) on investments and foreign currency related transactions............. (10,655,927) 376,659 (548,730) 308,176 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions............. (27,390,703) (1,348,057) (1,847,576) 221,863 ------------ ----------- ----------- ---------- Net increase (decrease) in net assets from operations............... (37,908,704) (861,625) (2,324,138) 574,778 ------------ ----------- ----------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I................... (109,051) (19,824) (56,200) (44,739) Class A................... (508) N/A N/A N/A Realized gains on investments: Class I................... (490,577) (69,727) (560,367) (86,133) Class A................... (2,286) N/A N/A N/A ------------ ----------- ----------- ---------- Net decrease in net assets resulting from distributions............ (602,422) (89,551) (616,567) (130,872) ------------ ----------- ----------- ---------- CAPITAL SHARE TRANSACTIONS (NET): Class I................... 26,084,128 27,450,272 837,410 2,449,726 Class A................... 244,324 N/A N/A N/A ------------ ----------- ----------- ---------- Increase in net assets derived from capital share transactions....... 26,328,452 27,450,272 837,410 2,449,726 ------------ ----------- ----------- ---------- Total increase (decrease) in net assets............ (12,182,674) 26,499,096 (2,103,295) 2,893,632 NET ASSETS: Beginning of period....... 43,647,153 17,148,057 6,165,992 3,272,360 ------------ ----------- ----------- ---------- End of period (including undistributed net investment income of $75,013, $109,395, $14,166 and $0, respectively)............ $ 31,464,479 $43,647,153 $ 4,062,697 $6,165,992 ============ =========== =========== ==========
N/A -- Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MATTHEWS MATTHEWS KOREA DRAGON CENTURY FUND CHINA FUND ------------------------- -------------- YEAR YEAR PERIOD ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, 1998 1997 1998 * ------------ ----------- -------------- OPERATIONS: Net investment income (loss)........ $ (743,286) $ (106,541) $ 37,836 Net realized loss on investments and foreign currency related transactions....................... (13,212,349) (449,242) (262,099) Net change in unrealized depreciation on investments and foreign currency related transactions....................... (13,075,569) (175,375) (1,886,548) ------------ ----------- ----------- Net decrease in net assets from operations......................... (27,031,204) (731,158) (2,110,811) ------------ ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class I............................. 0 0 0 Class A............................. 0 N/A 0 Realized gains on investments: Class I............................. 0 0 0 Class A............................. 0 N/A 0 ------------ ----------- ----------- Net decrease in net assets resulting from distributions................. 0 0 0 ------------ ----------- ----------- CAPITAL SHARE TRANSACTIONS (NET): Class I............................. 73,040,728 17,365,849 3,686,805 Class A............................. 5,365,114 N/A 0 ------------ ----------- ----------- Increase in net assets derived from capital share transactions......... 78,405,842 17,365,849 3,686,805 ------------ ----------- ----------- Total increase in net assets........ 51,374,638 16,634,691 1,575,994 NET ASSETS: Beginning of period................. 19,356,021 2,721,330 0 ------------ ----------- ----------- End of period (including undistributed net investment income of $0, $0 and $37,836, respectively)...................... $ 70,730,659 $19,356,021 $ 1,575,994 ============ =========== ===========
* The Fund commenced operations on February 19, 1998. N/A -- Not Applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS PACIFIC TIGER FUND --------------------------------------------------------------- PERIOD YEAR YEAR YEAR PERIOD ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1998/5/ 1998 1997 1996 1995/4/ CLASS A CLASS I CLASS I CLASS I CLASS I ---------- ---------- ---------- ---------- ---------- Net Asset Value, beginning of period.... $ 10.84 $ 11.30 $ 10.81 $ 9.77 $ 10.00 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income.. 0.03/6/ 0.02/6/ 0.02 0.01 0.02 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency...... (6.73) (7.18) 0.50 1.03 (0.23) ------- ------- ------- ------- ------- Total from investment operations.......... (6.70) (7.16) 0.52 1.04 (0.21) ------- ------- ------- ------- ------- LESS DISTRIBUTIONS FROM: Net investment income.. (0.01) (0.01) (0.01) 0.00 (0.02) Net realized gains on investments........... (0.06) (0.06) (0.02) 0.00 0.00 ------- ------- ------- ------- ------- Total distributions.. (0.07) (0.07) (0.03) 0.00 (0.02) ------- ------- ------- ------- ------- Net Asset Value, end of period................. $ 4.07 $ 4.07 $ 11.30 $ 10.81 $ 9.77 ======= ======= ======= ======= ======= TOTAL RETURN............ (61.87%)/2/,/3/ (63.43%) 4.75% 10.64% (2.07%)/2/ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)..... $ 146 $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......... 11.99%/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).................... 1.91%/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......... (9.61%)/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......... 0.47%/1/ 0.30% 0.27% 0.32% 0.36%/1/ Portfolio turnover..... 73.09% 73.09% 70.73% 124.69% 92.53%/2/
/1/Annualized /2/Not annualized /3/Total return calculation does not reflect sales load. /4/Class I commenced operations on September 13, 1994. /5/Class A commenced operations on October 9, 1997. /6/Calculated using the average shares method. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND -------------------------------------------- YEAR YEAR YEAR PERIOD ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1998 1997 1996 1995/3/ ---------- ---------- ---------- ----------- Net Asset Value, beginning of period.......................... $ 11.71 $10.53 $ 9.88 $ 10.00 ------- ------ ------ ----------- INCOME FROM INVESTMENT OPERATIONS Net investment income........... 0.13 0.10 0.25 0.23 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency........... (4.15) 1.42 0.75 (0.14) ------- ------ ------ ----------- Total from investment operations................... (4.02) 1.52 1.00 0.09 ------- ------ ------ ----------- LESS DISTRIBUTIONS FROM: Net investment income........... (0.10) (0.10) (0.26) (0.21) Net realized gains on investments.................... (1.05) (0.24) (0.09) 0.00 ------- ------ ------ ----------- Total distributions........... (1.15) (0.34) (0.35) (0.21) ------- ------ ------ ----------- Net Asset Value, end of period... $ 6.54 $11.71 $10.53 $ 9.88 ======= ====== ====== =========== TOTAL RETURN..................... (35.27%) 14.67% 10.24% 0.89%/2/ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)......................... $ 4,063 $6,166 $3,272 $ 863 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator.............. 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% 1.90% 1.85% 2.26%/1/ Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator.................. (0.36%) (1.55%) (4.13%) (18.68%)/1/ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator.................. 1.50% 1.00% 2.75% 2.17%/1/ Portfolio turnover.............. 54.67% 50.20% 88.16% 121.63%/2/
/1/Annualized /2/Not annualized /3/The Fund commenced operations on September 13, 1994. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
MATTHEWS DRAGON MATTHEWS KOREA CENTURY CHINA FUND FUND ---------------------------------------------------------------- --------------- PERIOD YEAR YEAR YEAR PERIOD PERIOD ENDED ENDED ENDED ENDED ENDED ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, 1998/6/ 1998 1997 1996 1995/5/ 1998/7/ ---------- ---------- ---------- ---------- ---------- ---------- CLASS A CLASS I CLASS I CLASS I CLASS I CLASS I ---------- ---------- ---------- ---------- ---------- --------------- Net Asset Value, beginning of period.... $ 5.32 $ 6.19 $ 7.23 $ 9.13 $ 10.00 $ 10.00 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)................ (0.04) (0.03) (0.04)/4/ (0.07) 0.08 0.10 Net realized gain (loss) and unrealized appreciation (depreciation) on investments and foreign currency...... (3.27) (4.13) (1.00)/4/ (1.75) (0.95) (5.74) -------- -------- -------- -------- -------- -------- Total from investment operations.......... (3.31) (4.16) (1.04) (1.82) (0.87) (5.64) -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS FROM: Net investment income.. 0.00 0.00 0.00 0.00 0.00 0.00 Net realized gains on investments........... 0.00 0.00 0.00 (0.08) 0.00 0.00 -------- -------- -------- -------- -------- -------- Total distributions.. 0.00 0.00 0.00 (0.08) 0.00 0.00 -------- -------- -------- -------- -------- -------- Net Asset Value, end of period................. $ 2.01 $ 2.03 $ 6.19 $ 7.23 $ 9.13 $ 4.36 ======== ======== ======== ======== ======== ======== TOTAL RETURN............ (62.03%)/2/,/3/ (67.21%) (14.38%) (20.11%) (8.70%)/2/ (56.40%)/2/ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000's)..... $ 4,123 $ 66,607 $ 19,356 $ 2,721 $ 504 $ 1,576 Ratio of expenses to average net assets before reimbursement and waiver of expenses by Advisor and Administrator......... 2.97% /1/ 2.07% 2.90% 11.36% 42.87% /1/ 7.84% /1/ Ratio of expenses to average net assets after reimbursement and waiver of expenses by Advisor and Administrator (Note 2).................... 2.68% /1/ 2.06% 2.50% 2.23% 0.24% /1/ 2.00% /1/ Ratio of net investment loss to average net assets before reimbursement and waiver of expenses by Advisor and Administrator......... (2.03%)/1/ (1.13%) (1.81%) (10.44%) (41.79%)/1/ (3.45%)/1/ Ratio of net investment income (loss) to average net assets after reimbursement and waiver of expenses by Advisor and Administrator......... (1.74%)/1/ (1.12%) (1.41%) (1.31%) 0.84% /1/ 2.38% /1/ Portfolio turnover..... 94.01% 94.01% 112.68% 139.71% 42.16% /2/ 11.84% /2/
/1/Annualized /2/Not annualized /3/Total return calculation does not reflect sales load. /4/Calculated using the average shares method. /5/The Korea Fund Class I commenced operations on January 3, 1995. /6/The Korea Fund Class A commenced operations on October 9, 1997. /7/The Dragon Century China Fund Class I commenced operations on February 19, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- 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, as a series company. The Company currently consists of four separate investment series (each a "Fund" and collectively, the "Funds"): Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund, Matthews Korea Fund and Matthews Dragon Century China Fund. The Matthews Pacific Tiger Fund, Matthews Korea Fund and Matthews Dragon Century China Fund currently offer two classes of shares: Class I shares and Class A shares. Effective September 1, 1998, the Matthews Dragon Century China Fund will not offer Class A shares to investors at this time. The classes offered have different sales charges and other expenses which may affect performance. At August 31, 1998, the Matthews Dragon Century China Fund Class A shares had no assets. The Matthews Pacific Tiger Fund, Matthews Korea Fund and Matthews Dragon Century China 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 and Chinese companies, respectively. Pacific Tiger economies include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and China. The Matthews Asian Convertible Securities 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. - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- Discounts and premiums on securities purchased are accreted and amortized over the life of the respective securities. B. 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. C. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended August 31, 1998. Therefore, no Federal income tax provision is required. D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses on the sale of securities are determined on the identified cost basis. E. ORGANIZATION COSTS: Organization costs are being amortized on a straight- line basis over five years from each Fund's respective 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. F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Convertible Securities Fund to distribute net investment income on a semi- annual basis and capital gains, if any, annually. Matthews Pacific Tiger Fund, Matthews Korea Fund and Matthews Dragon Century China 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. On August 31, 1998 the Matthews Pacific Tiger Fund reclassified $62,749 from accumulated net investment income to accumulated net realized loss, the Matthews Asian Convertible Securities Fund reclassified $1,802 from accumulated net investment income to accumulated net realized loss, and the Matthews Korea Fund reclassified $743,286 from accumulated net investment loss, and $64,077 from accumulated net realized loss, to paid-in capital. These reclassifications had no effect on net assets. G. FUND AND CLASS ALLOCATIONS: The Fund accounts separately for the assets, liabilities and operations of each Fund. Direct expenses of each Fund are charged to the Fund while general expenses are allocated pro-rata among the Funds based on net asset value. Income, expenses (other - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- than class specific expenses), and realized and unrealized gains (losses) are calculated at the Fund level and allocated daily to each class of shares based on the relative proportion of net assets of each class. 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 ex-dividend 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. Class A Shares are sold with a front-end sales charge of 4.95%. Transactions in shares of beneficial interest were as follows:
MATTHEWS PACIFIC TIGER FUND ----------------------------------------------------------------------------- CLASS I CLASS A ---------------------------------------------------- ----------------------- YEAR ENDED YEAR ENDED PERIOD ENDED AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1998 -------------------------- ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------ ---------- ----------- Shares sold............. 11,658,573 $ 81,328,869 3,849,789 $ 46,641,829 40,296 $ 274,792 Shares issued through reinvestment of dividends.............. 109,556 563,118 6,471 82,965 544 2,794 Shares redeemed......... (7,939,984) (55,807,859) (1,581,884) (19,274,522) (5,047) (33,262) ----------- ------------- ---------- ------------ ---------- ----------- Net increase............ 3,828,145 $ 26,084,128 2,274,376 $ 27,450,272 35,793 $ 244,324 =========== ============= ========== ============ ========== =========== MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND ---------------------------------------------------- CLASS I ---------------------------------------------------- YEAR ENDED YEAR ENDED AUGUST 31, 1998 AUGUST 31, 1997 -------------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------ Shares sold............. 547,648 $ 4,710,652 348,345 $ 3,949,981 Shares issued through reinvestment of dividends.............. 66,761 498,935 8,922 99,805 Shares redeemed......... (519,724) (4,372,177) (141,726) (1,600,060) ----------- ------------- ---------- ------------ Net increase............ 94,685 $ 837,410 215,541 $ 2,449,726 =========== ============= ========== ============ MATTHEWS KOREA FUND ----------------------------------------------------------------------------- CLASS I CLASS A ---------------------------------------------------- ----------------------- YEAR ENDED YEAR ENDED PERIOD ENDED AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1998 -------------------------- ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------ ---------- ----------- Shares sold............. 77,651,372 $ 199,169,372 4,805,699 $ 30,420,501 3,061,063 $ 8,324,379 Shares issued through reinvestment of dividends.............. 0 0 0 0 0 0 Shares redeemed......... (47,890,663) (126,128,644) (2,056,201) (13,054,652) (1,014,474) (2,959,265) ----------- ------------- ---------- ------------ ---------- ----------- Net increase............ 29,760,709 $ 73,040,728 2,749,498 $ 17,365,849 2,046,589 $ 5,365,114 =========== ============= ========== ============ ========== ===========
- -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 - --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND -------------------- CLASS I -------------------- PERIOD ENDED AUGUST 31,1998 -------------------- SHARES AMOUNT -------- ---------- Shares sold............................................... 474,122 $4,516,710 Shares issued through reinvestment of dividends........... 0 0 Shares redeemed........................................... (112,545) (829,905) -------- ---------- Net increase.............................................. 361,577 $3,686,805 ======== ==========
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. The Funds pay the Advisor a service fee at an annual rate of up to 0.25% of the Funds' average daily net assets to the extent that shareholder service-related expenses are incurred by the Advisor. Certain officers and trustees of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Investment advisory fees and other transactions with affiliates, for the year ended August 31, 1998, are as follows:
SHAREHOLDER EXPENSES SERVICE-RELATED INVESTMENT VOLUNTARY WAIVED AND EXPENSES DUE FROM ADVISORY EXPENSE ADVISORY REIMBURSED REIMBURSED (TO) DAEWOO DAEYU FEE RATE LIMITATION* FEES BY ADVISOR TO ADVISOR ADVISOR SECURITIES SECURITIES CO. ---------- ----------- -------- ---------- --------------- -------- ---------- -------------- Matthews Pacific Tiger Fund................... 1.00% 1.90% $451,119 $89,019 $0 $25,349 -- -- Matthews Asian Convertible Securities Fund................... 1.00 1.90 48,161 89,320 0 8,400 -- -- Matthews Korea Fund..... 1.00 2.50 640,716 14,689 0 (72,488) $134,128+ $21,290+ Matthews Dragon Century China Fund............. 1.00 2.00 15,893 92,738 0 (29,819) -- --
+ Daewoo Securities and Daeyu Securities Co. are affiliated brokers for the Fund. These amounts are the affiliated brokerage commissions paid. * For Funds offering Class A shares, the voluntary expense limitation would include an additional 0.25% for Class A Distributor fees. The investment advisory agreements provide that any reductions made by the Advisor in its fees are subject to reimbursement by the Funds within the following three years provided that Funds are able to effect such reimbursement and remain in compliance with applicable expense limitations. During the year ended August 31, 1998, the Matthews Pacific Tiger Fund and the Matthews Korea Fund reimbursed expenses to the Advisor totaling $56,770 and $237,854, respectively. As of August 31, 1998, the total expenses waived and reimbursed by the Advisor that are subject to reimbursement by - -------------------------------------------------------------------------------- MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 - -------------------------------------------------------------------------------- the Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund, Matthews Korea Fund and Matthews Dragon Century China Fund totaled $292,149, $285,250, $0, $92,738, respectively. 3. DISTRIBUTOR FEES AND CLASS SPECIFIC EXPENSES FPS Broker Services, Inc. (the "Distributor") serves as the Funds' Distributor pursuant to an Underwriting Agreement. Pursuant to Rule 12b-1 adopted by the Securities and Exchange Commission under the Act, the Pacific Tiger Fund Class A and the Korea Fund Class A 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 Pacific Tiger Fund Class I, the Asian Convertible Securities Fund, the Korea Fund Class I and the Dragon Century China Fund Class I do not have a distribution plan. For the year ended August 31, 1998, the class specific expenses were as follows:
MATTHEWS MATTHEWS DRAGON PACIFIC MATTHEWS CENTURY TIGER FUND KOREA FUND CHINA FUND --------------- --------------- --------------- CLASS I CLASS A CLASS I CLASS A CLASS I CLASS A ------- ------- ------- ------- ------- ------- Transfer Agent fees............. $51,348 $8,938 $60,631 $9,488 $16,683 $ 0 Registration expenses........... N/A N/A 48,757 15,246 N/A N/A Printing expenses............... 10,630 4,905 9,774 9,584 1,499 0
4. INVESTMENT TRANSACTIONS Investment transactions for the year ended August 31, 1998, excluding temporary short-term investments, were as follows:
PURCHASES PROCEEDS FROM SALES ------------ ------------------- Matthews Pacific Tiger Fund................... $ 59,140,061 $31,444,167 Matthews Asian Convertible Securities Fund.... 2,619,368 2,487,082 Matthews Korea Fund........................... 135,501,630 57,725,141 Matthews Dragon Century China Fund............ 4,007,723 328,261
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 Convertible Securities Fund.............. -- -- 51,948 Matthews Korea Fund..................................... $13,794 -- 1,071,846 Matthews Dragon Century China Fund...................... -- -- --
These amounts are available to offset possible future capital gains of the Fund. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of Matthews International Funds: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Matthews International Funds (comprised of the Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund, Matthews Korea Fund and Matthews Dragon Century China Fund, collectively referred to as the "Funds") as of August 31, 1998, and the related statements of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the three years in the period then ended of the Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities Fund and Matthews Korea Fund, and the related statements of operations, changes in net assets and financial highlights for the period from February 19, 1998 (commencement of operations) to August 31, 1998 of Matthews Dragon Century China Fund. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Funds for the period ended August 31, 1995 were audited by other auditors whose report dated September 29, 1995 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 1998, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Matthews International Funds as of August 31, 1998, the results of their operations, changes in their net assets and the financial highlights for each of the periods indicated above, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Francisco, California October 9, 1998 - -------------------------------------------------------------------------------- DIRECTORS AND OFFICERS - -------------------------------------------------------------------------------- BOARD OF TRUSTEES Richard K. Lyons Robert K. Connolly David FitzWilliam-Lay Norman W. Berryessa OFFICERS G. Paul Matthews John H. Dracott Brian B. Stableford INVESTMENT ADVISOR* Matthews International Capital Management, LLC 655 Montgomery Street, Suite 1438 San Francisco, CA 94111 (800) 789-ASIA UNDERWRITER FPS Broker Services, Inc. 3200 Horizon Drive P.O. Box 61503 King of Prussia, PA 19406 (800) 892-0382 * Matthews International Capital Management, LLC serves as Investment Advisor to the funds. Daewoo Capital Management Co. Ltd. acts as Research Advisor to the Matthews Korea Fund. SHAREHOLDER SERVICES First Data Investor Services Group, Inc. 3200 Horizon Drive King of Prussia, PA 19406 (800) 892-0382 CUSTODIAN The Bank of New York 90 Washington Street New York, NY 10286 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 AUDITORS Ernst & Young LLP 555 California Street, Suite 1700 San Francisco, CA 94104 For additional information about the Matthews International Funds call: (800) 789-ASIA This report is submitted for general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund's objectives, policies, expenses, and other information. INVESTING IN THE DRAGON CENTURY... MATTHEWS PACIFIC TIGER FUND Seeking long-term growth through a diversified portfolio of Asian Tiger companies. With an emphasis on research intensive, "bottom-up" stock selection, the portfolio focuses on quality companies with superior earnings growth and below-average market valuations. MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND Introducing a new asset class, the Fund seeks to participate in the Tiger equity markets with the reduced volatility historically found in convertible bonds. MATTHEWS KOREA FUND A unique, open-ended, single-country fund allowing focused participation in the world's 11th largest economy. MATTHEWS DRAGON CENTURY CHINA FUND This single country fund allows investors to participate in one of the fastest growing economies in the world. The fund seeks to identify quality companies that are well-positioned to participate in China's emergence into the global marketplace. [LOGO OF MATTHEWS INTERNATIONAL FUNDS APPEARS HERE] 655 Montgomery Street, Suite 1438 San Francisco, CA 94111 1.800.789.ASIA (2742) www.matthewsfunds.com Distributed by FPSBroker Services, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania 19406 ------------ MATTHEWS ------------ INTERNATIONAL FUNDS MATTHEWS PACIFIC TIGER FUND MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND MATTHEWS DRAGON CENTURY CHINA FUND MATTHEWS KOREA FUND [GRAPHIC OF DRAGON APPEARS HERE] -------------------------------- AUGUST 31, 1998 ANNUAL REPORT -------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----