As filed with the Securities and Exchange Commission on April 28, 2023
Securities Act of 1933 File No. 033‑78960
Investment Company Act of 1940 File No. 811‑08510
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
| THE SECURITIES ACT OF 1933 | ☒ | |||
| Pre‑Effective Amendment No. | ☐ | |||
| Post-Effective Amendment No. 104 | ☒ |
and/or
REGISTRATION STATEMENT
UNDER
| THE INVESTMENT COMPANY ACT OF 1940 | ☒ | |||
| Amendment No. 107 |
(Exact Name of Registrant as Specified in Charter)
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (415) 788‑7553
James Cooper Abbott, President
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
(Name and Address of Agent for Service)
Copies To:
Deepa Damre Smith, Vice President
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
David A. Hearth, Esq.
Paul Hastings LLP
101 California Street, 48th Floor
San Francisco, CA 94111
It is proposed that this filing will become effective (check appropriate box)
| ☒ | immediately upon filing pursuant to paragraph (b) |
| ☐ | on |
| ☐ | 60 days after filing pursuant to paragraph (a)(1) |
| ☐ | on ____________ pursuant to paragraph (a)(1) |
| ☐ | 75 days after filing pursuant to paragraph (a)(2) |
| ☐ | on ____________ pursuant to paragraph (a)(2) of rule 485. |
If appropriate, check the following box:
| ☐ | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Matthews Asia Funds | Prospectus
 |
Matthews Emerging Markets Equity Fund | MEMGX (Investor), MIEFX (Institutional) Matthews Emerging Markets Sustainable Future Fund | MASGX (Investor), MISFX (Institutional) Matthews Emerging Markets Small Companies Fund | MSMLX (Investor), MISMX (Institutional) Matthews Asia Growth Fund | MPACX (Investor), MIAPX (Institutional) Matthews Pacific Tiger Fund | MAPTX (Investor), MIPTX (Institutional) Matthews Asia Innovators Fund | MATFX (Investor), MITEX (Institutional) Matthews China Fund | MCHFX (Investor), MICFX (Institutional) Matthews China Small Companies Fund | MCSMX (Investor), MICHX (Institutional) Matthews India Fund | MINDX (Investor), MIDNX (Institutional) Matthews Japan Fund | MJFOX (Investor), MIJFX (Institutional) Matthews Korea Fund | MAKOX (Investor), MIKOX (Institutional) Matthews Asian Growth and Income Fund | MACSX (Investor), MICSX (Institutional) Matthews Asia Dividend Fund | MAPIX (Investor), MIPIX (Institutional) Matthews China Dividend Fund | MCDFX (Investor), MICDX (Institutional) The U.S. Securities and Exchange Commission (the “SEC”) has not approved or disapproved the Funds. Also, the SEC has not passed upon the adequacy or accuracy of this prospectus. Anyone who informs you otherwise is committing a crime. |
Matthews Asia Funds
matthewsasia.com
Contents
| FUND SUMMARIES |
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| GLOBAL EMERGING MARKETS STRATEGIES |
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| ASIA GROWTH STRATEGIES |
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| ASIA GROWTH AND INCOME STRATEGIES |
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| Additional Fund Information |
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Please read this document carefully before you make any investment decision. If you have any questions, do not hesitate to contact a Matthews Asia Funds representative at 800.789.ASIA (2742) or visit matthewsasia.com.
Please keep this prospectus with your other account documents for future reference.
Matthews Emerging Markets Equity Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses1 | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
| Fee Waiver and Expense Reimbursement2 | ( |
( |
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| Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement | ||||||||||||||||
| 1 | |
| 2 | Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b‑1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non‑class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the fee waiver for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
| MATTHEWS EMERGING MARKETS EQUITY FUND | 1 |
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 63 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Emerging Markets Equity Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time. The Fund may also invest in companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies. The Fund has concentrated its investments (meaning more than 25% of its assets) from time to time in a single country, including China.
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an emerging market (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI Emerging Markets Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an emerging market country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts that are treated as emerging markets investments, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Matthews may also take into consideration environmental, social and governance (ESG) characteristics of companies in selecting portfolio investments as part of the investment process for this Fund in an effort to reduce what it regards as the sustainability risks of its investments. Not all of the Fund’s investments will demonstrate those ESG characteristics, and there could be instances where Matthews is unable to assess the ESG characteristics of a company. Matthews’ investment process in this regard is carried out through a combination of exclusionary ESG screens and the use of both external and proprietary ESG data. Matthews uses various sources of information, including but not limited to third-party ESG rating firms and Matthews’ own analysis, in assessing a company’s ESG characteristics, which include, but are not limited to, an issuer’s use of natural resources and its impact on the natural environment; the impacts of an issuer on human and social capital, including employee welfare, human rights, health and safety, and product quality; and how an issuer’s board of directors ensures accountability, fairness and transparency in the issuer’s relationship with its stakeholders. Matthews will also employ a screening process utilizing third party data to help it exclude investments in corporate issuers that have a material exposure to certain business activities. As an example, this screening process may use various thresholds based on the percentage of revenue derived from (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including thermal coal. The screening process is also used to help Matthews exclude companies that are in direct conflict with the goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises. The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time. Once invested in a company, Matthews may engage with its portfolio companies on sustainability and governance matters through active dialogue, exercising shareholder rights and by encouraging enhanced ESG disclosure and implementation.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Foreign Investing Risk: Investments in foreign securities may involve greater risks than investing in U.S. securities. As compared to U.S. companies, foreign issuers generally disclose less financial and other information publicly and are subject
| 2 | matthewsasia.com | 800.789.ASIA |
to less stringent and less uniform accounting, auditing and financial reporting standards. Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, corporate insiders and listed companies than does the U.S., and foreign securities markets may be less liquid and more volatile than U.S. markets. Investments in foreign securities generally involve higher costs than investments in U.S. securities, including higher transaction and custody costs as well as additional taxes imposed by foreign governments. In addition, security trading practices abroad may offer less protection to investors such as the Fund. Political or social instability, civil unrest, acts of terrorism, regional economic volatility, and the imposition of sanctions, confiscations, trade restrictions (including tariffs) and other government restrictions by the U.S. and/or other governments are other potential risks that could impact an investment in a foreign security. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of the Fund’s portfolio.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, emerging market countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Emerging and frontier markets are often less stable politically and economically than developed markets such as the U.S. and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many emerging market countries, and the stock exchanges and brokerage industries in many emerging market countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many emerging market countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally,
investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of emerging market securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares
| MATTHEWS EMERGING MARKETS EQUITY FUND | 3 |
to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Country Concentration Risk: The Fund may invest a significant portion of its total net assets in the securities of issuers located in a single country. An investment in the Fund therefore may entail greater risk than an investment in a fund that does not concentrate its investments in a single or small number of countries because these securities may be more sensitive to adverse social, political, economic or regulatory developments affecting that country or countries. As a result, events affecting a single or small number of countries may have a significant and potentially adverse impact on the Fund’s investments, and the Fund’s performance may be more volatile than that of funds that invest globally. The Fund has concentrated or may concentrate its investments in China.
Risks Associated with China: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles.
Risks Associated with Europe: The economies of countries in Europe are in different stages of economic development and are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Efforts by the member countries of the European Union (“EU”) to continue to unify their economic and monetary policies may increase the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. However, the substance of these policies may not address the needs of all European economies. European financial markets have in recent years experienced increased volatility due to concerns with some countries’ high levels of sovereign debt, budget deficits and unemployment. Markets have also been affected by the decision by the UK to withdraw from the EU (an event commonly known as “Brexit”). There is uncertainty surrounding the ultimate impact of Brexit on the UK, the EU and the broader global economy. An exit by any member countries from the EU or the Economic and Monetary Union of the EU, or even the prospect of such an exit, could lead to increased volatility in European markets and negatively affect investments both in issuers in the exiting country and throughout Europe. In addition, while many countries in western Europe are considered to have developed markets, many eastern European countries are less developed, and investments in eastern European countries, even if denominated in Euros, may involve special risks associated with investments in emerging markets. See “Risks Associated with Emerging and Frontier Markets” above. In addition, Russia’s recent military incursions in Ukraine have led to sanctions being levied against Russia by the United States, EU and other countries, which has adversely affected and may continue to
adversely affect European and global energy and financial markets, which in turn could affect the value of the Fund’s investments.
Risks Associated with Latin America: The economies of Latin American countries have in the past experienced considerable difficulties, including high inflation rates, high interest rates, high unemployment, government overspending and political instability. Similar conditions in the present or future could impact the Fund’s performance. Many Latin American countries are highly reliant on the exportation of commodities and their economies may be significantly impacted by fluctuations in commodity prices and the global demand for certain commodities. Investments in Latin American countries may be subject to currency risks, such as restrictions on the flow of money in and out of a country, extreme volatility relative to the U.S. dollar, and devaluation, all of which could decrease the value of the Fund’s investments. Other Latin American investment risks may include inadequate investor protection, less developed regulatory, accounting, auditing and financial standards, unfavorable changes in laws or regulations, natural disasters, corruption and military activity. The governments of many Latin American countries may also exercise substantial influence over many aspects of the private sector, and any such exercise could have a significant effect on companies in which the Fund invests. Securities of companies in Latin American countries may be subject to significant price volatility, which could impact Fund performance.
ESG Investing Risk: Because the Fund may take into consideration the environmental, social and governance characteristics of portfolio companies in which it may invest, the Fund may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of ESG characteristics in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize these considerations. Consideration of ESG characteristics is qualitative and subjective by nature, and there is no guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more ESG and sustainability factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG factors. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks
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particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Information Technology Sector Risk: As of December 31, 2022, 22% of the Fund’s assets were invested in the information technology sector. Information technology companies may be significantly affected by aggressive pricing as a result of intense competition and by rapid product obsolescence due to rapid development of technological innovations and frequent new product introduction. Other factors, such as short product cycle, possible loss or impairment of intellectual property rights, and changes in government regulations, may also adversely impact information technology companies. |
| – | Financial Sector Risk: As of December 31, 2022, 25% of the Fund’s assets were invested in the financial sector. Financial companies are subject to extensive government regulation and can be significantly affected by the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, price competition and other sector-specific factors. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS EMERGING MARKETS EQUITY FUND | 5 |
Past Performance
INVESTOR CLASS:
ANNUAL RETURN FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | Since Inception ( |
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| Matthews Emerging Markets Equity Fund—Investor Class |
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| Return before taxes |
- |
|||||||
| Return after taxes on distributions1 |
- |
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| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||
| Matthews Emerging Markets Equity Fund—Institutional Class |
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| Return before taxes |
- |
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| MSCI Emerging Markets Index |
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| (reflects no deduction for fees, expenses or taxes) | - |
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| 1 | |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: John Paul Lech has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since its inception in 2020.
Lead Manager: Alex Zarechnak has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since 2022.
Co‑Manager: Andrew Mattock, CFA, has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since 2023.
Co‑Manager: Peeyush Mittal, CFA, has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
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Matthews Emerging Markets Sustainable Future Fund
(formerly known as the Matthews Asia ESG Fund)
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses1 | ||||||||||||||||
| 1 | “Total Annual Fund Operating Expenses” do not reflect the expense reimbursement the Fund was providing the Advisor during the fiscal year ended December 31, 2022, which increased the Fund’s net expense ratio for that year. Those expense reimbursements were made pursuant to an operating expenses agreement (the “Operating Expenses Agreement”) and related to fees previously waived and/or expenses previously reimbursed by the Advisor. Matthews does not anticipate that the Fund will provide such reimbursement during fiscal year 2023. The Operating Expenses Agreement is described under “Management of the Funds.” |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the expense limitation for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 32 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Emerging Markets Sustainable Future Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks
| MATTHEWS EMERGING MARKETS SUSTAINABLE FUTURE FUND | 7 |
of companies of any market capitalization located in emerging market countries that satisfy one or more of the Fund’s environmental, social and governance (“ESG”) standards. Up to 20% of the Fund’s net assets may be invested in companies that do not satisfy these ESG standards. The Fund may also invest in companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies.
Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time.
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an emerging market (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI Emerging Markets Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an emerging market country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an ssuer should be included within a region or country. The Fund may also invest in depositary receipts that are treated as emerging markets investments, including American, European and Global Depositary Receipts, and in convertible securities and fixed-income securities, of any duration or quality, including high yield securities (also known as “junk bonds”).
In implementing its strategy for this Fund, Matthews will use any one or more of the Fund’s following key ESG standards to evaluate potential investments: whether the issuer has adopted and followed (i) sustainable environmental practices, responsible resource management and energy efficiency practices, (ii) policies related to social responsibility, employee welfare, diversity and inclusion, or (iii) sound governance practices that align interests of shareholders and management and demonstrate a commitment to integration of sustainability or ESG considerations. Businesses that meet one or more of the Fund’s ESG standards are generally businesses that
currently engage in practices or have business objectives that, in the judgment of Matthews, if continued to be followed or if successfully implemented would make human or business activity less destructive to the environment or businesses that promote positive environmental, social and economic developments. Matthews uses various sources of information, including non‑governmental organizations (NGOs), primary research, and third-party data sources such as negative news monitoring services and ESG data and research providers, in analyzing whether a company satisfies the Fund’s ESG standards. However, it is Matthews’ determination, based on its own analysis, as to whether a company satisfies those standards and is eligible for investment by the Fund.
In addition to traditional financial data, the stock selection process takes into consideration the Fund’s ESG standards that help identify companies that Matthews believes contribute (or have the potential to contribute) to a sustainable future by addressing global environmental and social challenges. Matthews will use these standards to help identify companies that are contributing (or have the potential to contribute) to positive outcomes in environmental, social and governance focus areas including, for example, climate change mitigation and adaptation, clean environment (such as pollution alleviation), sustainable production and consumption (such as energy efficiency), health and well-being (such as food security), human capital developments (such as training and equality), sustainable and inclusive development, or corporate governance practices that demonstrate a strong commitment to the integration of the Fund’s ESG standards. Matthews will also employ a negative screening process using data and ratings from various third-party data providers and Matthews’ own internal analysis to exclude, in the ultimate determination of Matthews, companies that Matthews believes do not meet the Fund’s ESG standards. This screening process may use various thresholds based on the percentage of revenue derived from certain sectors, including (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production of or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including thermal coal. The screening process is also used to help Matthews exclude companies that are in severe breach of the goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises. The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time.
The Fund engages its portfolio companies on sustainability matters primarily through active dialogue and proxy voting, which will be voted according to the Fund’s ESG standards, and by encouraging enhanced ESG disclosure. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
The Fund’s primary focus is long-term capital appreciation. In achieving this objective, the Fund seeks to invest in companies that Matthews believes to be undervalued but of high quality and run by management teams with good operating and governance track records. While the Fund may invest in companies across the market capitalization spectrum, it has in the past invested, and may continue to invest, a substantial portion of Fund assets in smaller companies.
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Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Risks Associated with Emerging and Frontier Markets: Emerging and frontier markets are often less stable politically and economically than developed markets such as the U.S., and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many emerging market countries, and the stock exchanges and brokerage industries in many emerging market countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many emerging market countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of
the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Sustainable and ESG Investing Risk: The Fund’s sustainability and ESG strategy may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of its ESG standards in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize a sustainability or ESG strategy. Sustainability and ESG investing is qualitative and subjective by nature, and there is no guarantee that the standards used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more of the Fund’s ESG standards in the view of the portfolio managers, there is no guarantee that such company will actually conduct its affairs in a manner that is less destructive to the environment, or that will actually promote positive social and economic developments or otherwise contribute to a sustainable future, and that same company may also fail to satisfy other ESG standards, in some cases even egregiously. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with sustainability investment strategies are generally suited for long-term rather than short-term investors.
There are no universally agreed upon objective standards for assessing ESG standards for companies. Rather, the Fund’s standards tend to have many subjective characteristics, can be difficult to analyze, and frequently involve a balancing of a company’s business plans, objectives, actual conduct and other factors. The Fund’s ESG standards can vary over different periods, can evolve over time and tend to be stated broadly and applied flexibly. They may also be difficult to apply consistently across regions, countries, industries or sectors. In some cases, Matthews will consider an investment to be eligible for the Fund where a company has expressed a goal or objective and has started to take actions that, if successful, would satisfy the Fund’s ESG standards in the judgment of Matthews.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The
| MATTHEWS EMERGING MARKETS SUSTAINABLE FUTURE FUND | 9 |
value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit risk may be greater for the Fund than for other funds in higher-grade securities. These securities are also subject to greater liquidity risk than many other securities.
Credit Risk: Credit risk refers to the risk that an issuer may default in the payment of principal and/or interest on an instrument.
Interest Rate Risk: Fixed-income securities may decline in value because of changes in interest rates. Bond prices generally rise when interest rates decline and generally decline when interest rates rise.
High Yield Securities Risk: High yield securities or unrated securities of similar credit quality (commonly known as “junk bonds”) are more likely to default than higher rated securities. These securities typically entail greater potential price volatility and are considered predominantly speculative. Issuers of high yield securities may also be more susceptible to adverse economic and competitive industry conditions than those of higher-rated securities.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial
resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Country Concentration Risk: The Fund may invest a significant portion of its total net assets in the securities of issuers located in a single country. An investment in the Fund therefore may entail greater risk than an investment in a fund that does not concentrate its investments in a single or small number of countries because these securities may be more sensitive to adverse social, political, economic or regulatory developments affecting that country or countries. As a result, events affecting a single or small number of countries may have a significant and potentially adverse impact on the Fund’s investments, and the Fund’s performance may be more volatile than that of funds that invest globally.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Risks Associated with India: Government actions, bureaucratic obstacles and inconsistent economic reform within the Indian government have had a significant effect on the Indian economy and could adversely affect market conditions, economic growth and the profitability of private enterprises in India. Global factors and foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. Large portions of many Indian companies remain in the hands of their founders (including members of their families). Corporate governance standards of family-controlled companies may be weaker and less transparent, which increases the potential for loss and unequal treatment of investors. India experiences many of the risks associated with developing economies, including relatively low levels of liquidity, which may result in extreme volatility in the prices of Indian securities.
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Religious, cultural and military disputes persist in India and between India and Pakistan (as well as sectarian groups within each country). Both India and Pakistan have tested nuclear arms, and the threat of deployment of such weapons could hinder development of the Indian economy, and escalating tensions could impact the broader region, including China.
Risks Associated with Europe: The economies of countries in Europe are in different stages of economic development and are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Efforts by the member countries of the European Union (“EU”) to continue to unify their economic and monetary policies may increase the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. However, the substance of these policies may not address the needs of all European economies. European financial markets have in recent years experienced increased volatility due to concerns with some countries’ high levels of sovereign debt, budget deficits and unemployment. Markets have also been affected by the decision by the UK to withdraw from the EU (an event commonly known as “Brexit”). There is uncertainty surrounding the ultimate impact of Brexit on the UK, the EU and the broader global economy. An exit by any member countries from the EU or the Economic and Monetary Union of the EU, or even the prospect of such an exit, could lead to increased volatility in European markets and negatively affect investments both in issuers in the exiting country and throughout Europe. In addition, while many countries in western Europe are considered to have developed markets, many eastern European countries are less developed, and investments in eastern European countries, even if denominated in Euros, may involve special risks associated with investments in emerging markets. See “Risks Associated with Emerging and Frontier Markets” above. In addition, Russia’s recent military incursions in Ukraine have led to sanctions being levied against Russia by the United States, EU and other countries, which has adversely affected and may continue to affect European and global energy and financial markets, which in turn could affect the value of the Fund’s investments.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select secu-
rities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Industrial Sector Risk: As of December 31, 2022, 25% of the Fund’s assets were invested in the industrial sector. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. |
| – | Financial Sector Risk: As of December 31, 2022, 20% of the Fund’s assets were invested in the financial sector. : Financial companies are subject to extensive government regulation and can be significantly affected by the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, price competition and other sector-specific factors. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS EMERGING MARKETS SUSTAINABLE FUTURE FUND | 11 |
Past Performance
ANNUAL RETURNS FOR YEARS ENDED 12/31
INVESTOR CLASS:
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | Since Inception ( |
||||||||||
| Matthews Emerging Markets Sustainable Future Fund—Investor Class |
||||||||||||
| Return before taxes |
- |
|||||||||||
| Return after taxes on distributions1 |
- |
|||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||
| Matthews Emerging Markets Sustainable Future Fund—Institutional Class |
||||||||||||
| Return before taxes |
- |
|||||||||||
| MSCI Emerging Markets Index2 |
||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
||||||||||
| MSCI All Country Asia ex Japan Index2 |
||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
||||||||||
| 1 | |
| 2 | |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Manager
Lead Manager: Vivek Tanneeru has been a Portfolio Manager of the Matthews Emerging Markets Sustainable Future Fund since its inception in 2015.
Co‑Manager: Inbok Song has been a Portfolio Manager of the Matthews Emerging Markets Sustainable Future Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Manager.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
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Matthews Emerging Markets Small Companies Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
| Fee Waiver and Expense Reimbursement1 | ( |
) | ( |
) | ||||||||||||
| Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement | ||||||||||||||||
| 1 | Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b‑1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.15%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non‑class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.15% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.15%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the expense limitation for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
| MATTHEWS EMERGING MARKETS SMALL COMPANIES FUND | 13 |
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 28 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Emerging Markets Small Companies Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of Small Companies (defined below) located in emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time. The Fund may also invest in Small Companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies. The Fund has concentrated its investments (meaning more than 25% of its assets) from time to time in a single country, including China.
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an emerging market (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI Emerging Markets Small Cap Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an emerging market country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts that
are treated as emerging market investments, including American, European and Global Depositary Receipts.
The Fund seeks to invest in smaller companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews generally determines whether a company should be considered to be a small company based on its market capitalization (the number of the company’s shares outstanding times the market price per share for such securities). Under normal circumstances, the Fund invests at least 80% of its net assets in any company that has a market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark index (each, a “Small Company” and together, “Small Companies”). The largest company in the Fund’s primary benchmark, the MSCI Emerging Markets Small Cap Index, had a market capitalization of $6.33 billion on December 31, 2022. Companies in which the Fund invests typically operate in growth industries and possess the potential to expand their scope of business over time. A company may grow to a market capitalization that is higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark after the Fund has purchased its securities; nevertheless, the existing holdings of securities of such a company will continue to be considered a Small Company. If additional purchases of a security are made, all holdings (including prior purchases) of that security will be re‑classified with respect to its market capitalization at the time of the last purchase. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Matthews may also take into consideration environmental, social and governance (ESG) characteristics of companies in selecting portfolio investments as part of the investment process for this Fund in an effort to reduce what it regards as the sustainability risks of its investments. Not all of the Fund’s investments will demonstrate those ESG characteristics, and there could be instances where Matthews is unable to assess the ESG characteristics of a company. Matthews’ investment process in this regard is carried out through a combination of exclusionary ESG screens and the use of both external and proprietary ESG data. Matthews uses various sources of information, including but not limited to third-party ESG rating firms and Matthews’ own analysis, in assessing a company’s ESG characteristics, which include, but are not limited to, an issuer’s use of natural resources and its impact on the natural environment; the impacts of an issuer on human and social capital, including employee welfare, human rights, health and safety, and product quality; and how an issuer’s board of directors ensures accountability, fairness and transparency in the issuer’s relationship with its stakeholders. Matthews will also employ a screening process utilizing third party data to help it exclude investments in corporate issuers that have a material exposure to certain business activities. As an example, this screening process may use various thresholds based on the percentage of revenue derived from (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including thermal coal. The screening process is also used to help Matthews exclude companies that are in direct conflict with the
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goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises.The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time. Once invested in a company, Matthews may engage with its portfolio companies on sustainability and governance matters through active dialogue, exercising shareholder rights and by encouraging enhanced ESG disclosure and implementation.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Foreign Investing Risk: Investments in foreign securities may involve greater risks than investing in U.S. securities. As compared to U.S. companies, foreign issuers generally disclose less financial and other information publicly and are subject to less stringent and less uniform accounting, auditing and financial reporting standards. Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, corporate insiders and listed companies than does the U.S., and foreign securities markets may be less liquid and more volatile than U.S. markets. Investments in foreign securities generally involve higher costs than investments in U.S. securities, including higher transaction and custody costs as well as additional taxes imposed by foreign governments. In addition, security trading practices abroad may offer less protection to investors such as the Fund. Political or social instability, civil unrest, acts of terrorism, regional economic volatility, and the imposition of sanctions, confiscations, trade restrictions (including tariffs) and other government restrictions by the U.S. and/or other governments are other potential risks that could impact an investment in a foreign security. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of the Fund’s portfolio.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, emerging market countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Emerging and frontier markets are often less stable politically and economically than developed markets such as the U.S., and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many emerging market countries, and the stock exchanges and brokerage industries in many emerging market countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many emerging market countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Smaller companies may be more dependent on one or few key persons and may lack depth of management. Larger portions of their stock may be held by a small number of investors (including founders and management) than is typical of larger companies. Credit may be more difficult to obtain (and on less advantageous terms) than for larger companies. As a result, the influence of creditors (and the impact of financial or operating restrictions associated with debt financing) on smaller companies may be greater than that of larger or more established companies. The Fund may have more difficulty obtaining information about smaller companies, making it more difficult to evaluate the impact of market, economic, regulatory and other factors on them. Informational difficulties may also make valuing or disposing of their securities more difficult than it would for larger companies. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the
| MATTHEWS EMERGING MARKETS SMALL COMPANIES FUND | 15 |
securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general. The value of securities of smaller companies may react differently to political, market and economic developments than the markets as a whole or than other types of stocks.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of emerging market securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Country Concentration Risk: The Fund may invest a significant portion of its total net assets in the securities of issuers located in a single country. An investment in the Fund therefore may entail greater risk than an investment in a fund that does not concentrate its investments in a single or small number of countries because these securities may be more sensitive to adverse social, political, economic or regulatory developments affecting that country or countries. As a result,
events affecting a single or small number of countries may have a significant and potentially adverse impact on the Fund’s investments, and the Fund’s performance may be more volatile than that of funds that invest globally. The Fund has concentrated or may concentrate its investments in China.
Risks Associated with China: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles.
Risks Associated with India: Government actions, bureaucratic obstacles and inconsistent economic reform within the Indian government have had a significant effect on the Indian economy and could adversely affect market conditions, economic growth and the profitability of private enterprises in India. Global factors and foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. Large portions of many Indian companies remain in the hands of their founders (including members of their families). Corporate governance standards of family-controlled companies may be weaker and less transparent, which increases the potential for loss and unequal treatment of investors. India experiences many of the risks associated with developing economies, including relatively low levels of liquidity, which may result in extreme volatility in the prices of Indian securities.
Religious, cultural and military disputes persist in India and between India and Pakistan (as well as sectarian groups within each country). Both India and Pakistan have tested nuclear arms, and the threat of deployment of such weapons could hinder development of the Indian economy, and escalating tensions could impact the broader region, including China.
Risks Associated with Europe: The economies of countries in Europe are in different stages of economic development and are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Efforts by the member countries of the European Union (“EU”) to continue to unify their economic and monetary policies may increase the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. However, the substance of these policies may not address the needs of all European economies. European financial markets have in recent years experienced increased volatility due to concerns with some countries’ high levels of sovereign debt, budget deficits and unemployment. Markets have also been affected by the decision by the UK to withdraw from the EU (an event commonly known as “Brexit”). There is uncertainty surrounding the ultimate impact of Brexit on the UK, the EU and the broader global economy. An exit by any member countries from the EU or the Economic and Monetary Union of the EU, or even the prospect of such an exit, could lead to increased volatility in European markets and negatively affect investments both in issuers in the exiting
| 16 | matthewsasia.com | 800.789.ASIA |
country and throughout Europe. In addition, while many countries in western Europe are considered to have developed markets, many eastern European countries are less developed, and investments in eastern European countries, even if denominated in Euros, may involve special risks associated with investments in emerging markets. See “Risks Associated with Emerging and Frontier Markets” above. In addition, Russia’s recent military incursions in Ukraine have led to sanctions being levied against Russia by the United States, EU and other countries, which has adversely affected and could continue to adversely affect European and global energy and financial markets, which in turn could affect the value of the Fund’s investments.
Risks Associated with Latin America: The economies of Latin American countries have in the past experienced considerable difficulties, including high inflation rates, high interest rates, high unemployment, government overspending and political instability. Similar conditions in the present or future could impact the Fund’s performance. Many Latin American countries are highly reliant on the exportation of commodities and their economies may be significantly impacted by fluctuations in commodity prices and the global demand for certain commodities. Investments in Latin American countries may be subject to currency risks, such as restrictions on the flow of money in and out of a country, extreme volatility relative to the U.S. dollar, and devaluation, all of which could decrease the value of the Fund’s investments. Other Latin American investment risks may include inadequate investor protection, less developed regulatory, accounting, auditing and financial standards, unfavorable changes in laws or regulations, natural disasters, corruption and military activity. The governments of many Latin American countries may also exercise substantial influence over many aspects of the private sector, and any such exercise could have a significant effect on companies in which the Fund invests. Securities of companies in Latin American countries may be subject to significant price volatility, which could impact Fund performance.
ESG Investing Risk: Because the Fund may take into consideration the environmental, social and governance characteristics of portfolio companies in which it may invest, the Fund may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of ESG characteristics in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize these considerations. Consideration of ESG characteristics is qualitative and subjective by nature, and there is no
guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more ESG and sustainability factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG factors. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Industrial Sector Risk: As of December 31, 2022, 27% of the Fund’s assets were invested in the industrial sector. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS EMERGING MARKETS SMALL COMPANIES FUND | 17 |
Past Performance
INVESTOR CLASS
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews Emerging Markets Small Companies Fund–Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
|||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews Emerging Markets Small Companies Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
n.a. | 2 | |||||||||||||
| MSCI Emerging Markets Small Cap Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
3 | ||||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Vivek Tanneeru has been a Portfolio Manager of the Matthews Emerging Markets Small Companies Fund since 2020.
Co‑Manager: Jeremy Sutch, CFA, has been a Portfolio Manager of the Matthews Emerging Markets Small Companies Fund since 2021.
Co‑Manager: Alex Zarechnak has been a Portfolio Manager of the Matthews Emerging Markets Small Companies Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| 18 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Growth Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b-1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 47 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Asia Growth Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia. The Fund may also invest in convertible securities, of any duration or quality, including those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated, of Asian companies. Asia consists of all countries and markets in Asia, and includes developed, emerging, and frontier countries and markets in the Asian region. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam.
| MATTHEWS ASIA GROWTH FUND | 19 |
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included the MSCI All Country Asia Pacific Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation,
capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Many Asian countries are considered emerging or frontier markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
| 20 | matthewsasia.com | 800.789.ASIA |
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit risk may be greater for the Fund than for other funds in higher-grade securities. These securities are also subject to greater liquidity risk than many other securities.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks
not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with Japan: The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. The Japanese economy is characterized by an aging demographic, declining population, large government debt and highly regulated labor market. Economic growth in Japan is dependent on domestic consumption, deregulation and consistent government policy. International trade, particularly with the U.S., also impacts growth of the Japanese economy, and adverse economic conditions in the U.S. or other trade partners may affect Japan.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Health Care Sector Risk: As of December 31, 2022, 31% of the Fund’s assets were invested in the health care sector. Companies in the health care sector may be affected by various factors, including extensive government regulations, heavy dependence on patent protection, pricing pressure, increased cost of medical products and services, and product liability claims. Health care companies may be thinly capitalized and may be susceptible to product obsolescence. |
| MATTHEWS ASIA GROWTH FUND | 21 |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability
of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 22 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews Asia Growth Fund—Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Asia Growth Fund—Institutional Class |
||||||||||||||||
| Return before taxes |
- |
- |
2 | |||||||||||||
| MSCI All Country Asia Pacific Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
3 | ||||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Taizo Ishida has been a Portfolio Manager of the Matthews Asia Growth Fund since 2007.
Co‑Manager: Michael J. Oh, CFA, has been a Portfolio Manager of the Matthews Asia Growth Fund since 2020.
Co‑Manager: Peeyush Mittal, CFA, has been a Portfolio Manager of the Matthews Asia Growth Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS ASIA GROWTH FUND | 23 |
Matthews Pacific Tiger Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b-1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
| Fee Waiver and Expense Reimbursement1 | ( |
( |
||||||||||||||
| Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement |
||||||||||||||||
| 1 | Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the fee waiver for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 6 % of the average value of its portfolio.
| 24 | matthewsasia.com | 800.789.ASIA |
Principal Investment Strategy
Under normal circumstances, the Matthews Pacific Tiger Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia ex Japan, which consists of all countries and markets in Asia excluding Japan, but including all other developed, emerging, and frontier countries and markets in the Asian region. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI All Country Asia ex Japan Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Matthews may also take into consideration environmental, social and governance (ESG) characteristics of companies in selecting portfolio investments as part of the investment proc-
ess for this Fund in an effort to reduce what it regards as the sustainability risks of its investments. Not all of the Fund’s investments will demonstrate those ESG characteristics, and there could be instances where Matthews is unable to assess the ESG characteristics of a company. Matthews’ investment process in this regard is carried out through a combination of exclusionary ESG screens and the use of both external and proprietary ESG data. Matthews uses various sources of information, including but not limited to third-party ESG rating firms and Matthews’ own analysis, in assessing a company’s ESG characteristics, which include, but are not limited to, an issuer’s use of natural resources and its impact on the natural environment; the impacts of an issuer on human and social capital, including employee welfare, human rights, health and safety, and product quality; and how an issuer’s board of directors ensures accountability, fairness and transparency in the issuer’s relationship with its stakeholders. Matthews will also employ a screening process utilizing third party data to help it exclude investments in corporate issuers that have a material exposure to certain business activities. As an example, this screening process may use various thresholds based on the percentage of revenue derived from (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including thermal coal. The screening process is also used to help Matthews exclude companies that are in direct conflict with the goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises. The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time. Once invested in a company, Matthews may engage with its portfolio companies on sustainability and governance matters through active dialogue, exercising shareholder rights and by encouraging enhanced ESG disclosure and implementation.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-
| MATTHEWS PACIFIC TIGER FUND | 25 |
related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Many Asian countries are considered emerging or frontier markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
ESG Investing Risk: Because the Fund may take into consideration the environmental, social and governance characteristics of portfolio companies in which it may invest, the Fund may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of ESG characteristics in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to
| 26 | matthewsasia.com | 800.789.ASIA |
forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize these considerations. Consideration of ESG characteristics is qualitative and subjective by nature, and there is no guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more ESG and sustainability factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG factors. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Consumer Discretionary Sector Risk: As of December 31, 2022, 22% of the Fund’s assets were invested in the consumer dis- |
| cretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. |
| – | Information Technology Sector Risk: As of December 31, 2022, 20% of the Fund’s assets were invested in the information technology sector. Information technology companies may be significantly affected by aggressive pricing as a result of intense competition and by rapid product obsolescence due to rapid development of technological innovations and frequent new product introduction. Other factors, such as short product cycle, possible loss or impairment of intellectual property rights, and changes in government regulations, may also adversely impact information technology companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS PACIFIC TIGER FUND | 27 |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews Pacific Tiger Fund—Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Pacific Tiger Fund—Institutional Class |
||||||||||||||||
| Return before taxes |
- |
- |
2 | |||||||||||||
| MSCI All Country Asia ex Japan Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
3 | |||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from . |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Sharat Shroff, CFA, has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2008.
Lead Manager: Inbok Song has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2019.
Co‑Manager: Winnie Chwang has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2021.
Co‑Manager: Andrew Mattock has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2022.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| 28 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Innovators Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b-1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 118 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Asia Innovators Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia ex Japan that Matthews believes are innovators in their products, services, processes, business models, management, use of technology, or approach to creating, expanding or servicing their markets. Asia ex Japan consists of all countries and markets in Asia excluding Japan, but including other developed, emerging, and frontier countries and markets in the Asian region. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam.
| MATTHEWS ASIA INNOVATORS FUND | 29 |
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI All Country Asia ex Japan Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
It is important to note that there are no universally agreed upon objective standards for assessing innovators. Innovative companies can be both old and new companies. Innovative companies can exist in any industries, old and new, and in any countries, emerging or developed. Companies perceived as innovators in one country or one industry might not be perceived as innovators in another country or another industry. For these reasons, the term innovators may be aspirational and tend to be stated broadly and applied flexibly.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. The Fund may invest in companies of any size, including smaller size companies. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector. The implementation of the Fund’s principal investment strategies may also result in high portfolio turnover rates.
The Fund has a fundamental policy to invest at least 25% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies that
derive more than 50% of their revenues from the sale of products or services in science- and technology-related industries and services, which Matthews considers to be the following, among others: telecommunications, telecommunications equipment, computers, semiconductors, semiconductor capital equipment, networking, Internet and online service companies, media, office automation, server hardware producers, software companies (e.g., design, consumer and industrial), biotechnology and medical device technology companies, pharmaceuticals and companies involved in the distribution and servicing of these products.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Many Asian countries are considered emerging or frontier markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks due to, among other factors, different
| 30 | matthewsasia.com | 800.789.ASIA |
accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Risks Associated with Investing in Innovative Companies: The standards for assessing innovative companies tend to have many subjective characteristics, can be difficult to analyze, and frequently involve a balancing of a company’s business plans, objectives, actual conduct and other factors. The definition of innovators can vary over different periods and can evolve over time. They may also be difficult to apply consistently across regions, countries, industries or sectors.
High Portfolio Turnover Risk: The Fund’s principal investment strategies may result in high portfolio turnover rates, which may increase the Fund’s brokerage commission costs and negatively impact the Fund’s performance. Such portfolio turnover also may generate higher taxable gains for shareholders of the Fund.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Science and Technology Companies Risk: As a fund that invests in science and technology companies, the Fund is subject to the risks associated with these industries. This makes the Fund more vulnerable to the price changes of securities issuers in science- and technology-related industries and to factors that affect these industries, relative to a broadly diversified fund. Certain science- and technology-related companies may face special risks because their products or services may not prove to be commercially successful. Many science and technology companies have limited operating histories and experience in managing adverse market conditions, and are also strongly affected by worldwide scientific or technological developments and global demand cycles. As a result, their products may rapidly become obsolete, which could cause a dramatic decrease in the value of their stock. Such companies are also often subject to governmental regulation and may therefore be adversely affected by changes in governmental policies. The possible loss or impairment of intellectual property rights may also negatively impact science and technology companies.
Concentration Risk: By focusing on a group of industries, the Fund carries much greater risks of adverse developments and price movements in such industries than a fund that invests in a wider variety of industries. Because the Fund concentrates in a group of industries, there is also the risk that the Fund will perform poorly during a slump in demand for securities of companies in such industries.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely
| MATTHEWS ASIA INNOVATORS FUND | 31 |
impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or
financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Consumer Discretionary Sector Risk: As of December 31, 2022, 35% of the Fund’s assets were invested in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 32 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews Asia Innovators Fund–Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
|||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews Asia Innovators Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
n.a. | 2 | |||||||||||||
| MSCI All Country Asia ex Japan Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
3 | |||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from . |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Michael J. Oh, CFA, has been a Portfolio Manager of the Matthews Asia Innovators Fund since 2006.
Co‑Manager: Taizo Ishida has been a Portfolio Manager of the Matthews Asia Innovators Fund since 2022.
Co‑Manager: Inbok Song has been a Portfolio Manager of the Matthews Asia Innovators Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS ASIA INNOVATORS FUND | 33 |
Matthews China Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b-1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 49 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews China Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in China. China includes its administrative and other districts, such as Hong Kong. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is
| 34 | matthewsasia.com | 800.789.ASIA |
otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI China Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Matthews may also take into consideration environmental, social and governance (ESG) characteristics of companies in selecting portfolio investments as part of the investment process for this Fund in an effort to reduce what it regards as the sustainability risks of its investments. Not all of the Fund’s investments will demonstrate those ESG characteristics, and there could be instances where Matthews is unable to assess the ESG characteristics of a company. Matthews’ investment process in this regard is carried out through a combination of exclusionary ESG screens and the use of both external and proprietary ESG data. Matthews uses various sources of information, including but not limited to third-party ESG rating firms and Matthews’ own analysis, in assessing a company’s ESG characteristics, which include, but are not limited to, an issuer’s use of natural resources and its impact on the natural environment; the impacts of an issuer on human and social capital, including employee welfare, human rights, health and safety, and product quality; and how an issuer’s board of directors ensures accountability, fairness and transparency in the issuer’s relationship with its stakeholders. Matthews will also employ a screening process utilizing third party data to help it exclude investments in corporate issuers that have a material exposure to certain business activities. As an example, this screening process may use various thresholds based on the percentage of revenue derived from (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including
thermal coal. The screening process is also used to help Matthews exclude companies that are in direct conflict with the goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises. The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time. Once invested in a company, Matthews may engage with its portfolio companies on sustainability and governance matters through active dialogue, exercising shareholder rights and by encouraging enhanced ESG disclosure and implementation.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, China may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in
| MATTHEWS CHINA FUND | 35 |
many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the United States. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies (e.g., allocation of resources and other preferential treatment), monetary policy, management of currency exchange rates, and management of the payment of foreign currency- denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, deposi-
tary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
ESG Investing Risk: Because the Fund may take into consideration the environmental, social and governance characteristics of portfolio companies in which it may invest, the Fund may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of ESG characteristics in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize these considerations. Consideration of ESG characteristics is qualitative and subjective by nature, and there is no guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more ESG and sustainability factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG factors. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Consumer Discretionary Sector Risk: As of December 31, 2022, 38% of the Fund’s assets were invested in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. |
| 36 | matthewsasia.com | 800.789.ASIA |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s abil-
ity to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS CHINA FUND | 37 |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews China Fund–Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews China Fund–Institutional Class |
||||||||||||||||
| Return before taxes | - |
2 | ||||||||||||||
| MSCI China Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
3 | |||||||||||||
| MSCI China All Shares Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
n.a. | n.a. | 4 | |||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from . |
| 4 | Index performance data prior to 11/25/08 is not available. |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Andrew Mattock, CFA, has been a Portfolio Manager of the Matthews China Fund since 2015.
Co‑Manager: Winnie Chwang has been a Portfolio Manager of the Matthews China Fund since 2014.
Co‑Manager: Sherwood Zhang, CFA, has been a Portfolio Manager of the Matthews China Fund since 2022.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| 38 | matthewsasia.com | 800.789.ASIA |
Matthews China Small Companies Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
| Fee Waiver and Expense Reimbursement1 | ( |
( |
) | |||||||||||||
| Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement | ||||||||||||||||
| 1 | Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b‑1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non‑class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the expense limitation for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the
| MATTHEWS CHINA SMALL COMPANIES FUND | 39 |
example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 59 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews China Small Companies Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of Small Companies (defined below) located in China. China includes its administrative and other districts, such as Hong Kong. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI China Small Cap Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in smaller companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews generally determines whether a company should be considered to be a small company based on its market capitalization (the number of the company’s shares outstanding times the market price per share for such securities). Under normal circumstances, the Fund invests at least 80% of its net assets in any company that has a market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark index (each, a “Small Company” and together, “Small Companies”). The largest company in the Fund’s primary benchmark, the MSCI China Small Cap Index, had a market capitalization of $4.63 billion on December 31, 2022. Companies in which the Fund invests typically operate in growth industries and possess the potential to expand their scope of business over time. A company may grow to a market capitalization that is higher than the
greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark after the Fund has purchased its securities; nevertheless, the existing holdings of securities of such a company will continue to be considered a Small Company. If additional purchases of a security are made, all holdings (including prior purchases) of that security will be re‑classified with respect to its market capitalization at the time of the last purchase. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, China may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks. There may be less
| 40 | matthewsasia.com | 800.789.ASIA |
publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the United States. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Smaller companies may be more dependent on one or few key persons and may lack depth of management. Larger portions of their stock may be held by a small number of investors (including founders and management) than is typical of larger companies. Credit may be more difficult to obtain (and on less advantageous terms) than for larger companies. As a result, the influence of creditors (and the impact of financial or operating restrictions associated with debt financing) on smaller companies may be greater than on larger or more established companies. The Fund may have more difficulty obtaining information about smaller companies, making it more difficult to evaluate the impact of market, economic, regulatory and other factors on them. Informational difficulties may also make valuing or disposing of their securities more difficult than it would for larger companies. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general. The value of securities of smaller companies may react differently to political, market and economic developments than the markets as a whole or than other types of stocks.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies (e.g., allocation of resources and other preferential treatment), monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in
Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| MATTHEWS CHINA SMALL COMPANIES FUND | 41 |
| – | Industrial Sector Risk: As of December 31, 2022, 28% of the Fund’s assets were invested in the industrial sector. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 42 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews China Small Companies Fund–Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
|||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews China Small Companies Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
n.a. | 2 | |||||||||||||
| MSCI China Small Cap Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
‑ |
‑ |
3 | ||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Winnie Chwang has been a Portfolio Manager of the Matthews China Small Companies Fund since 2020.
Lead Manager: Andrew Mattock, CFA, has been a Portfolio Manager of the Matthews China Small Companies Fund since 2020.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS CHINA SMALL COMPANIES FUND | 43 |
Matthews India Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 41 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities, of any duration or quality, including those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated, of companies located in India. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets
| 44 | matthewsasia.com | 800.789.ASIA |
for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50 % of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the S&P Bombay Stock Exchange 100 Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. While the Fund may invest in companies across the market capitalization spectrum, it has in the past invested, and may continue to invest, a substantial portion of Fund assets in smaller companies. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-
related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, India may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the United States. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Risks Associated with India: Government actions, bureaucratic obstacles and inconsistent economic reform within the Indian government have had a significant effect on the Indian economy and could adversely affect market conditions, economic growth and the profitability of private enterprises in India. Global factors and foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. Large portions of many Indian companies remain in the hands of their founders (including members of their families). Corporate governance standards of family-controlled companies may be weaker and less transparent, which increases the potential for loss and unequal treatment of investors. India experiences many of the risks associated with developing economies, including relatively low levels of liquidity, which may result in extreme volatility in the prices of Indian securities.
Religious, cultural and military disputes persist in India, and between India and Pakistan (as well as sectarian groups within each country). Both India and Pakistan have tested nuclear arms, and the threat of deployment of such weapons could hinder development of the Indian economy, and escalating tensions could impact the broader region, including China.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an
| MATTHEWS INDIA FUND | 45 |
ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit risk may be greater for the Fund than for other funds that invest in higher-grade securities. These securities are also subject to greater liquidity risk than many other securities.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital
growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Financial Sector Risk: As of December 31, 2022, 41% of the Fund’s assets were invested in the financial sector. Financial companies are subject to extensive government regulation and can be significantly affected by the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, price competition and other sector-specific factors. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 46 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews India Fund-Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
‑ |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews India Fund–Institutional Class |
||||||||||||||||
| Return before taxes | - |
2 | ||||||||||||||
| S&P Bombay Stock Exchange 100 Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | ‑ |
3 | ||||||||||||||
| MSCI India Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | 3 | |||||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Peeyush Mittal, CFA, has been a Portfolio Manager of the Matthews India Fund since 2018.
Co‑Manager: Sharat Shroff, CFA, has been a Portfolio Manager of the Matthews India Fund since 2006.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Manager is supported by and consults with the Co‑Manager.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS INDIA FUND | 47 |
Matthews Japan Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b-1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 83 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Japan Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Japan. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or
| 48 | matthewsasia.com | 800.789.ASIA |
is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI Japan Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. The Fund may invest in companies of any market capitalization. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Matthews may also take into consideration environmental, social and governance (ESG) characteristics of companies in selecting portfolio investments as part of the investment process for this Fund in an effort to reduce what it regards as the sustainability risks of its investments. Not all of the Fund’s investments will demonstrate those ESG characteristics, and there could be instances where Matthews is unable to assess the ESG characteristics of a company. Matthews’ investment process in this regard is carried out through a combination of exclusionary ESG screens and the use of both external and proprietary ESG data. Matthews uses various sources of information, including but not limited to third-party ESG rating firms and Matthews’ own analysis, in assessing a company’s ESG characteristics, which include, but are not limited to, an issuer’s use of natural resources and its impact on the natural environment; the impacts of an issuer on human and social capital, including employee welfare, human rights, health and safety, and product quality; and how an issuer’s board of directors ensures accountability, fairness and transparency in the issuer’s relationship with its stakeholders. Matthews will also employ a screening process utilizing third party data to help it exclude investments in corporate issuers that have a material exposure to certain business activities. As an example, this screening process may use various thresholds based on the percentage of revenue derived from (1) the production or sale of tobacco products, (2) controversial weapons (e.g., cluster munitions) or the production or military contracting for weapons, and (3) the exploration, extraction, or production of energy using certain fossil fuels, including thermal coal. The screening process is also used to help
Matthews exclude companies that are in direct conflict with the goals of the UN Global Compact or the OECD Guidelines for Multinational Enterprises. The ESG characteristics used by Matthews to identify or exclude potential investments may change from time to time. Once invested in a company, Matthews may engage with its portfolio companies on sustainability and governance matters through active dialogue, exercising shareholder rights and by encouraging enhanced ESG disclosure and implementation.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time.
Risks Associated with Japan: The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. The Japanese economy is characterized by an aging demographic, declining population, large government debt and highly regulated labor market. Economic growth in Japan is dependent on domestic consumption, deregulation and consistent government policy. International trade, particularly with the U.S., also impacts growth of the Japanese economy and adverse economic conditions in the U.S. or other trade partners may affect Japan. Japan also has a growing economic relationship with China and other Southeast
| MATTHEWS JAPAN FUND | 49 |
Asian countries, and thus Japan’s economy may also be affected by economic, political or social instability in those countries (whether resulting from local or global events). Other factors, such as the occurrence of natural disasters and relations with neighboring countries (including China, South Korea, North Korea and Russia), may also negatively impact the Japanese economy.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
ESG Investing Risk: Because the Fund may take into consideration the environmental, social and governance character-
istics of portfolio companies in which it may invest, the Fund may select or exclude securities of certain issuers for reasons other than potential performance. The Fund’s consideration of ESG characteristics in making its investment decisions may reduce or increase the Fund’s exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego certain investment opportunities which may lower the performance of the Fund as compared to funds that do not utilize these considerations. Consideration of ESG characteristics is qualitative and subjective by nature, and there is no guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by the Fund in a company may satisfy one or more ESG and sustainability factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG factors. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Industrial Sector Risk: As of December 31, 2022, 21% of the Fund’s assets were invested in the industrial sector. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 50 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews Japan Fund-Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Japan Fund–Institutional Class |
||||||||||||||||
| Return before taxes | - |
- |
2 | |||||||||||||
| MSCI Japan Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
3 | ||||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from . |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Taizo Ishida has been a Portfolio Manager of the Matthews Japan Fund since 2006.
Lead Manager: Shuntaro Takeuchi has been a Portfolio Manager of the Matthews Japan Fund since 2019.
Co‑Manager: Donghoon Han has been a Portfolio Manager of the Matthews Japan Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Manager.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS JAPAN FUND | 51 |
* The Matthews Korea Fund is expected to be reorganized into the Matthews Korea Active ETF on or around July 14, 2023.
Matthews Korea Fund*
FUND SUMMARY
Investment Objective
Long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 57 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Korea Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in South Korea. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of
| 52 | matthewsasia.com | 800.789.ASIA |
business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the Korea Composite Stock Price Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-
related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, South Korea may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the United States. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Risks Associated with South Korea: Investing in South Korean securities has special risks, including those related to political, economic and social instability in South Korea, and the potential for increased militarization in North Korea. Securities trading on South Korean securities markets are concentrated in a relatively small number of issuers, which results in potentially fewer investment opportunities for the Fund. South Korea’s financial sector has shown certain signs of systemic weakness and illiquidity, which, if exacerbated, could prove to be a material risk for investments in South Korea. South Korea is dependent on foreign sources for its energy needs. A significant increase in energy prices could have an adverse impact on South Korea’s economy. The South Korean government has historically exercised and continues to exercise substantial influence over many aspects of the private sector. The South Korean government from time to time has informally influenced the prices of certain products, encouraged companies to invest or to concentrate in particular industries and induced mergers between companies in industries experiencing excess capacity.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds
| MATTHEWS KOREA FUND | 53 |
and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Information Technology Sector Risk: As of December 31, 2022, 44% of the Fund’s assets were invested in the information technology sector. Information technology companies may be significantly affected by aggressive pricing as a result of intense competition and by rapid product obsolescence due to rapid development of technological innovations and frequent new product introduction. Other factors, such as short product cycle, possible loss or impairment of intellectual property rights, and changes in government regulations, may also adversely impact information technology companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 54 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews Korea Fund – Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Korea Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
- |
2 | |||||||||||||
| Korea Composite Stock Price Index3 |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
4 | |||||||||||||
| MSCI Korea Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
4 | ||||||||||||||
| 1 | |
| 2 | |
| 3 | |
| 4 | Calculated from . |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Michael J. Oh, CFA, has been a Portfolio Manager of the Matthews Korea Fund since 2007.
Lead Manager: Elli Lee has been a Portfolio Manager of the Matthews Korea Fund since 2019.
Co‑Manager: Sojung Park has been a Portfolio Manager of the Matthews Korea Fund since 2022.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Manager.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS KOREA FUND | 55 |
Matthews Asian Growth and Income Fund
FUND SUMMARY
Investment Objective
Long-term capital appreciation. The Fund also seeks to provide some current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) |
$ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 13 % of the average value of its
portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Asian Growth and Income Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying common stock, preferred stock and other equity securities, and convertible securities as well as fixed-income securities, of any duration or quality, including high yield securities (also known as “junk bonds”), of companies located in Asia, which consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam.
| 56 | matthewsasia.com | 800.789.ASIA |
A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI All Country Asia ex Japan Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund attempts to offer investors a relatively stable means of participating in a portion of the Asian region’s growth prospects, while providing some downside protection, in comparison to a portfolio that invests purely in common stocks. The strategy of owning convertible bonds and dividend-paying equities is designed to help the Fund to meet its investment objective while helping to reduce the volatility of its portfolio. Matthews expects that the companies in which the Fund invests typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many
Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Many Asian countries are considered emerging or frontier markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the U. S. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount
| MATTHEWS ASIAN GROWTH AND INCOME FUND | 57 |
(or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit risk may be greater for the Fund than for other funds that invest in higher-grade securities. These securities are also subject to greater liquidity risk than many other securities.
Growth Stock Risk: Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
Dividend-Paying Securities Risk: The Fund may invest in dividend-paying equity securities. There can be no guarantee that companies that have historically paid dividends will continue to pay them or pay them at the current rates in the future. The prices of dividend-paying equity securities (and particularly of those issued by Asian companies) can be highly volatile. In addition, dividend-paying equity securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity to interest rate changes. The Fund’s investment in such securities may also limit its potential for appreciation during a broad market advance.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Preferred Stock Risk: Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline.
Credit Risk: Credit risk refers to the risk that an issuer may default in the payment of principal and/or interest on an instrument.
Interest Rate Risk: Fixed-income securities may decline in value because of changes in interest rates. Bond prices generally rise when interest rates decline and generally decline when interest rates rise.
High Yield Securities Risk: High yield securities or unrated securities of similar credit quality (commonly known as “junk bonds”) are more likely to default than higher rated securities. These securities typically entail greater potential price volatility and are considered predominantly speculative. Issuers of high yield securities may also be more susceptible to adverse economic and competitive industry conditions than those of higher-rated securities.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
| 58 | matthewsasia.com | 800.789.ASIA |
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Information Technology Sector Risk: As of December 31, 2022, 21% of the Fund’s assets were invested in the information technology sector. Information technology companies may be significantly affected by aggressive pricing as a result of intense competition and by rapid product obsolescence due to rapid development of technological innovations and frequent new product introduction. Other factors, such as |
| short product cycle, possible loss or impairment of intellectual property rights, and changes in government regulations, may also adversely impact information technology companies. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| MATTHEWS ASIAN GROWTH AND INCOME FUND | 59 |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( Investor) ( |
|||||||||||||
| Matthews Asian Growth and Income Fund – Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Asian Growth and Income Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
- |
2 | |||||||||||||
| MSCI All Country Asia ex Japan Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
3 | |||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from . |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Robert Horrocks, PhD, is Chief Investment Officer at Matthews and has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2009.
Lead Manager: Kenneth Lowe, CFA, has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2011.
Co‑Manager: Siddharth Bhargava has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2021.
Co‑Manager: Elli Lee has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| 60 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Dividend Fund
FUND SUMMARY
Investment Objective
Total return with an emphasis on providing current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses |
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The example reflects the fee waiver for the one year period only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 51 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews Asia Dividend Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying equity securities of companies located in Asia. The Fund may also invest in convertible debt and equity securities of any maturity and quality, including those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated, of companies located in Asia. Asia consists of all countries and markets in Asia, and includes developed, emerging, and frontier countries and markets in the Asian region. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as
| MATTHEWS ASIA DIVIDEND FUND | 61 |
Sri Lanka and Vietnam. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI All Country Asia Pacific Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to provide a level of current income that is higher than the yield generally available in Asian equity markets over the long term. The Fund intends to distribute its realized income, if any, regularly (typically quarterly in March, June, September and December). There is no guarantee that the Fund will be able to distribute its realized income, if any, regularly. If the value of the Fund’s investments declines, the net asset value of the Fund will decline and investors may lose some or all of the value of their investments.
The Fund’s objective is total return with an emphasis on providing current income. Total return includes current income (dividends and distributions paid to shareholders) and capital gains (share price appreciation). The Fund measures total return over longer periods. Because of this objective, under normal circumstances, the Fund primarily invests in companies that exhibit attractive dividend yields and the propensity (in Matthews’ judgment) to pay increasing dividends. Matthews believes that in addition to providing current income, growing dividend payments by portfolio companies are an important component supporting capital appreciation. Matthews expects that such companies typically will be of medium or large size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, Asian countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging and Frontier Markets: Many Asian countries are considered emerging or frontier markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks due to, among other factors, different accounting standards; variable quality and reliability of financial information and related audits of companies; higher brokerage costs and thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the U.S. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities
| 62 | matthewsasia.com | 800.789.ASIA |
markets in the U.S. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss. Frontier markets, a subset of emerging markets, generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes, which could lead to greater price volatility and illiquidity.
Dividend-Paying Securities Risk: The Fund will invest in dividend-paying equity securities. There can be no guarantee that companies that have historically paid dividends will continue to pay them or pay them at the current rates in the future. The prices of dividend-paying equity securities (and particularly of those issued by Asian companies) can be highly volatile. In addition, dividend-paying equity securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity to interest rate changes. The Fund’s investment in such securities may also limit its potential for appreciation during a broad market advance.
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit risk may be greater for the Fund than for other funds that invest in higher-grade securities. These securities are also subject to greater liquidity risk than many other types of securities.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies, monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Risks Associated with Japan: The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. The Japanese economy is characterized by an aging demographic, declining population, large government debt and highly regulated labor market. Economic growth in Japan is dependent on domestic consumption, deregulation and consistent government policy. International trade, particularly with the U.S., also impacts growth of the Japanese economy, and adverse economic conditions in the U.S. or other trade partners may affect Japan.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or
| MATTHEWS ASIA DIVIDEND FUND | 63 |
financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Consumer Discretionary Risk: As of December 31, 2022, 31% of the Fund’s assets were invested in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 64 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews Asia Dividend Fund – Investor Class |
||||||||||||||||
| Return before taxes |
- |
- |
||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
- |
||||||||||||||
| Matthews Asia Dividend Fund–Institutional Class |
||||||||||||||||
| Return before taxes |
- |
- |
2 | |||||||||||||
| MSCI All Country Asia Pacific Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
3 | ||||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Robert Horrocks, PhD, is Chief Investment Officer at Matthews and has been a Portfolio Manager of the Matthews Asia Dividend Fund since 2013.
Lead Manager: Kenneth Lowe, CFA, has been a Portfolio Manager of the Matthews Asia Dividend Fund since 2022.
Co‑Manager: Siddharth Bhargava has been a Portfolio Manager of the Matthews Asia Dividend Fund since 2022.
Co‑Manager: Ellie Lee has been a Portfolio Manager of the Matthews Asia Dividend Fund since 2022.
Co‑Manager: Winnie Chwang has been a Portfolio Manager of the Matthews Asia Dividend Fund since 2023.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS ASIA DIVIDEND FUND | 65 |
Matthews China Dividend Fund
FUND SUMMARY
Investment Objective
Total return with an emphasis on providing current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of this Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
SHAREHOLDER FEES
(fees paid directly from your investment)
| Investor Class | Institutional Class | |||||||
| Maximum Account Fee on Redemptions (for wire redemptions only) | $ |
$ |
||||||
ANNUAL OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
| Management Fees | ||||||||||||||||
| Distribution (12b‑1) Fees | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Administration and Shareholder Servicing Fees |
||||||||||||||||
| Total Annual Fund Operating Expenses | ||||||||||||||||
EXAMPLE OF FUND EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| One year | Three years | Five years | Ten years | |||||
| Investor Class | $ |
$ |
$ |
$ | ||||
| Institutional Class | $ |
$ |
$ |
$ | ||||
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example of fund expenses, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 67 % of the average value of its portfolio.
Principal Investment Strategy
Under normal circumstances, the Matthews China Dividend Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying equity securities of companies located in China. The Fund may also invest in convertible debt and equity securities of any maturity and quality, including those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated, of companies located in China. China also includes its administrative and other districts, such as Hong Kong. A company or other issuer is considered to be “located” in a country or a region, and a security or instrument is deemed to be an Asian (or specific country) security or instrument, if it has substantial ties to that country or region. Matthews currently makes that determination based primarily on one or more of the following criteria: (A) with respect to a company
| 66 | matthewsasia.com | 800.789.ASIA |
or issuer, whether (i) it is organized under the laws of that country or any country in that region; (ii) it derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region; (iii) it has the primary trading markets for its securities in that country or region; (iv) it has its principal place of business in or is otherwise headquartered in that country or region; or (v) it is a governmental entity or an agency, instrumentality or a political subdivision of that country or any country in that region; and (B) with respect to an instrument or issue, whether (i) its issuer is headquartered or organized in that country or region; (ii) it is issued to finance a project that has at least 50% of its assets or operations in that country or region; (iii) it is at least 50% secured or backed by assets located in that country or region; (iv) it is a component of or its issuer is included in the MSCI China Index, the Fund’s primary benchmark index; or (v) it is denominated in the currency of an Asian country and addresses at least one of the other above criteria. The term “located” and the associated criteria listed above have been defined in such a way that Matthews has latitude in determining whether an issuer should be included within a region or country. The Fund may also invest in depositary receipts, including American, European and Global Depositary Receipts.
The Fund seeks to provide a level of current income that is higher than the yield generally available in Chinese equity markets over the long term. The Fund intends to distribute its realized income, if any, regularly (typically semi-annually in June and December). There is no guarantee that the Fund will be able to distribute its realized income, if any, regularly. If the value of the Fund’s investments declines, the net asset value of the Fund will decline and investors may lose some or all of the value of their investments.
The Fund’s objective is total return with an emphasis on providing current income. Total return includes current income (dividends and distributions paid to shareholders) and capital gains (share price appreciation). The Fund measures total return over longer periods. Because of this objective, under normal circumstances, the Fund primarily invests in companies that exhibit attractive dividend yields and the propensity (in Matthews’ judgment) to pay increasing dividends. Matthews believes that in addition to providing current income, growing dividend payments by portfolio companies are an important component supporting capital appreciation. Matthews expects that such companies typically will be of small or medium size, but the Fund may invest in companies of any size. Matthews measures a company’s size with respect to fundamental criteria such as, but not limited to, market capitalization, book value, revenues, profits, cash flow, dividends paid and number of employees. The implementation of the principal investment strategies of the Fund may result in a significant portion of the Fund’s assets being invested from time to time in one or more sectors, but the Fund may invest in companies in any sector.
Principal Risks of Investment
There is no guarantee that your investment in the Fund will increase in value. The value of your investment in the Fund could go down, meaning you could lose money. The principal risks of investing in the Fund are:
Political, Social and Economic Risks of Investing in Asia: The value of the Fund’s assets may be adversely affected by
political, economic, social and religious instability; inadequate investor protection; changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region); international relations with other nations; natural disasters; corruption and military activity. The economies of many Asian countries differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade.
Geopolitical Events Risk: The interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, international conflicts, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years may result in market volatility and may have long term effects on the global financial markets.
Currency Risk: When the Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While the Fund is permitted to hedge currency risks, Matthews does not anticipate doing so at this time. Additionally, China may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of the Fund’s holdings.
Risks Associated with Emerging Markets: Many Asian countries are considered emerging markets. Such markets are often less stable politically and economically than developed markets such as the United States, and investing in these markets involves different and greater risks. There may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also substantially smaller, less liquid and more volatile than securities markets in the United States. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
Dividend-Paying Securities Risk: The Fund will invest in dividend-paying equity securities. There can be no guarantee that companies that have historically paid dividends will continue to pay them or pay them at the current rates in the future. The prices of dividend-paying equity securities (and particularly of those issued by Asian companies) can be highly volatile. In addition, dividend-paying equity securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity to interest rate changes.
The Fund’s investment in such securities may also limit its potential for appreciation during a broad market advance.
| MATTHEWS CHINA DIVIDEND FUND | 67 |
Equity Securities Risk: Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry.
Risks Associated with China and Hong Kong: The Chinese government exercises significant control over China’s economy through its industrial policies (e.g., allocation of resources and other preferential treatment), monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. Changes in these policies could adversely impact affected industries or companies in China. China’s economy, particularly its export-oriented industries, may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S. In addition, as its consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. As demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected and have an adverse effect on the Fund’s investments.
Depositary Receipts Risk: Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Volatility Risk: The smaller size and lower levels of liquidity, as well as other factors, may result in changes in the prices of securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of the Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Convertible Securities Risk: The Fund may invest in convertible preferred stocks, and convertible bonds and debentures. The risks of convertible bonds and debentures include repayment risk and interest rate risk. Many Asian convertible securities are not rated by rating agencies. The Fund may invest in convertible debt securities of any maturity and in those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Therefore, credit
risk may be greater for the Fund than for other funds that invest in higher-grade securities. These securities are also subject to greater liquidity risk than many other types of securities.
Risks Associated with Smaller Companies: Smaller companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and the securities of smaller companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general.
Risks Associated with Medium‑Size Companies: Medium‑size companies may be subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss.
Active Management Risk: The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Sector Concentration Risk: To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sector described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.
| – | Consumer Discretionary Risk: As of December 31, 2022, 30% of the Fund’s assets were invested in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. |
Cybersecurity Risk: With the increased use of technologies such as the internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
| 68 | matthewsasia.com | 800.789.ASIA |
Past Performance
INVESTOR CLASS:
ANNUAL RETURNS FOR YEARS ENDED 12/31
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2022
| 1 year | 5 years | 10 years | Since Inception ( ( |
|||||||||||||
| Matthews China Dividend Fund—Investor Class |
||||||||||||||||
| Return before taxes |
- |
|||||||||||||||
| Return after taxes on distributions1 |
- |
- |
||||||||||||||
| Return after taxes on distributions and sale of Fund shares1 |
- |
|||||||||||||||
| Matthews China Dividend Fund—Institutional Class |
||||||||||||||||
| Return before taxes |
- |
2 | ||||||||||||||
| MSCI China Index |
||||||||||||||||
| (reflects no deduction for fees, expenses or taxes) | - |
- |
3 | |||||||||||||
| 1 | |
| 2 | Because the inception date of the Institutional Class is later than that of the Index returns shown, the since-inception performance of the Institutional Class is not directly comparable to the performance of the Index. |
| 3 | Calculated from |
Investment Advisor
Matthews International Capital Management, LLC (“Matthews”)
Portfolio Managers
Lead Manager: Sherwood Zhang, CFA, has been a Portfolio Manager of the Matthews China Dividend Fund since 2014.
Lead Manager: Winnie Chwang has been a Portfolio Manager of the Matthews China Dividend Fund since 2022.
Co‑Manager: Ellie Lee has been a Portfolio Manager of the Matthews China Dividend Fund since 2022.
Co-Manager: Andrew Mattock, CFA, has been a Portfolio Manager of the Matthews China Dividend Fund since 2022.
The Portfolio Managers are primarily responsible for the Fund’s day‑to‑day investment management decisions. The Lead Managers are supported by and consult with the Co‑Managers.
For important information about the Purchase and Sale of Fund Shares; Tax Information; and Payments to Broker-Dealers and Other Financial Intermediaries, please turn to page 70.
| MATTHEWS CHINA DIVIDEND FUND | 69 |
Important Information
Purchase and Sale of Fund Shares
You may purchase and sell Fund shares directly through the Funds’ transfer agent by calling 800.789.ASIA (2742) or online at matthewsasia.com. Fund shares may also be purchased and sold through various securities brokers and benefit plan administrators or their sub‑agents. You may purchase and redeem Fund shares by electronic bank transfer, check, or wire. The minimum initial and subsequent investment amounts for various types of accounts offered by the Funds are shown below.
INVESTOR CLASS SHARES
| Type of Account | Minimum Initial Investment |
Minimum Subsequent Investments | ||
| Non‑retirement | $2,500 | $100 | ||
| Retirement and Coverdell | $500 | $50 |
INSTITUTIONAL CLASS SHARES
| Type of Account | Minimum Initial Investment |
Minimum Subsequent Investments | ||
| All accounts | $100,000 | $100 |
Minimum amount for Institutional Class Shares may be lower for purchases through certain financial intermediaries and different minimums may apply for retirement plans and other arrangements subject to criteria set by Matthews.
The minimum investment requirements for both the Investor and Institutional Classes do not apply to Trustees, officers and employees of the Funds and Matthews, and their immediate family members.
Tax Information
The Funds’ distributions are taxable, and will be taxed as ordinary income or capital gains, unless you are investing through a tax‑deferred arrangement, such as a 401(k) plan or an individual retirement account. Tax‑deferred arrangements may be taxed later upon withdrawal from those accounts.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase Fund shares through a broker-dealer or other financial intermediary (such as a bank), Matthews may pay the intermediary for certain activities related to the sale or promotion of Fund shares. Matthews makes these payments from its own resources and not from the assets of the Funds. Shareholders who purchase or hold Fund shares through an intermediary may inquire about such payments from that intermediary. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
| 70 | matthewsasia.com | 800.789.ASIA |
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Financial Highlights
The financial highlights tables are intended to help you understand the Funds’ financial performance for the past 5 years or, if shorter, the period of the applicable Fund’s operations. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers, LLP, the Funds’ independent registered public accounting firm, whose report, along with the Funds’ financial statements, are included in the Funds’ annual report, which is available upon request.
Matthews Emerging Markets Equity Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | Period Ended Dec. 31, 20201 |
|||||||||||
| INVESTOR CLASS | 2022 | 2021 | ||||||||||
| Net Asset Value, beginning of period | $14.34 | $15.76 | $10.00 | |||||||||
| Income (loss) from investment operations: | ||||||||||||
| Net investment income (loss)2 |
0.20 | 0.19 | 0.04 | |||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(3.20) | (0.31) | 6.08 | |||||||||
| Total from investment operations |
(3.00) | (0.12) | 6.12 | |||||||||
| Less distributions from: | ||||||||||||
| Net investment income |
(0.20) | (0.18) | — | |||||||||
| Net realized gains on investments |
— | (1.12) | (0.36) | |||||||||
| Total distributions |
(0.20) | (1.30) | (0.36) | |||||||||
| Net Asset Value, end of period | $11.14 | $14.34 | $15.76 | |||||||||
| Total return* |
(20.94%) | (0.60%) | 61.23% | 3 | ||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||
| Net assets, end of period (in 000s) | $10,111 | $13,317 | $9,851 | |||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
1.58% | 1.52% | 2.76% | 4 | ||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
1.08% | 1.13% | 1.08% | 4 | ||||||||
| Ratio of net investment income (loss) to average net assets | 1.46% | 1.15% | 0.45% | 4 | ||||||||
| Portfolio turnover5 | 63.08% | 88.45% | 62.30% | 3 | ||||||||
1 Commenced operations on April 30, 2020.
2 Calculated using the average daily shares method.
3 Not annualized.
4 Annualized.
5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 72 | matthewsasia.com | 800.789.ASIA |
Matthews Emerging Markets Equity Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | Period Ended Dec. 31, 20201 |
|||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | ||||||||||
| Net Asset Value, beginning of period | $14.34 | $15.77 | $10.00 | |||||||||
| Income (loss) from investment operations: | ||||||||||||
| Net investment income (loss)2 |
0.23 | 0.22 | 0.04 | |||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(3.21) | (0.31) | 6.11 | |||||||||
| Total from investment operations |
(2.98) | (0.09) | 6.15 | |||||||||
| Less distributions from: | ||||||||||||
| Net investment income |
(0.23) | (0.22) | (0.02) | |||||||||
| Net realized gains on investments |
— | (1.12) | (0.36) | |||||||||
| Total distributions |
(0.23) | (1.34) | (0.38) | |||||||||
| Net Asset Value, end of period | $11.13 | $14.34 | $15.77 | |||||||||
| Total return* |
(20.81%) | (0.43%) | 61.55% | 3 | ||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||
| Net assets, end of period (in 000s) | $23,353 | $36,240 | $34,941 | |||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
1.47% | 1.38% | 2.65% | 4 | ||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
0.90% | 0.90% | 0.90% | 4 | ||||||||
| Ratio of net investment income (loss) to average net assets | 1.70% | 1.33% | 0.44% | 4 | ||||||||
| Portfolio turnover5 | 63.08% | 88.45% | 62.30% | 3 | ||||||||
1 Commenced operations on April 30, 2020.
2 Calculated using the average daily shares method.
3 Not annualized.
4 Annualized.
5 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 73 |
Matthews Emerging Markets Sustainable Future Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 |
|||||||||||||||
| Net Asset Value, beginning of year | $15.37 | $14.94 | $11.08 | $9.98 | $11.56 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.05) | (0.07) | (0.01) | 0.04 | 0.03 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(2.14) | 1.85 | 4.72 | 1.21 | (1.16) | |||||||||||||||
| Total from investment operations |
(2.19) | 1.78 | 4.71 | 1.25 | (1.13) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.04) | — | (0.01) | (0.03) | (0.02) | |||||||||||||||
| Net realized gains on investments |
(0.63) | (1.35) | (0.84) | (0.12) | (0.43) | |||||||||||||||
| Total distributions |
(0.67) | (1.35) | (0.85) | (0.15) | (0.45) | |||||||||||||||
| Net Asset Value, end of year | $12.51 | $15.37 | $14.94 | $11.08 | $9.98 | |||||||||||||||
| Total return* |
(14.38%) | 11.76% | 42.87% | 12.55% | (9.73%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $,32,249 | $39,612 | $37,385 | $19,291 | $9,283 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.24% | 1.20% | 1.42% | 1.54% | 2.20% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.30% | 1.40% | 1.38% | 1.42% | 1.50% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.41%) | (0.41%) | (0.08%) | 0.41% | 0.27% | |||||||||||||||
| Portfolio turnover2 | 31.53% | 65.56% | 84.60% | 29.67% | 22.93% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 74 | matthewsasia.com | 800.789.ASIA |
Matthews Emerging Markets Sustainable Future Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $15.38 | $14.92 | $11.06 | $9.96 | $11.50 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.04) | (0.04) | 0.01 | 0.06 | 0.06 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(2.14) | 1.85 | 4.72 | 1.21 | (1.16) | |||||||||||||||
| Total from investment operations |
(2.18) | 1.81 | 4.73 | 1.27 | (1.10) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.06) | — | (0.03) | (0.05) | (0.01) | |||||||||||||||
| Net realized gains on investments |
(0.63) | (1.35) | (0.84) | (0.12) | (0.43) | |||||||||||||||
| Total distributions |
(0.69) | (1.35) | (0.87) | (0.17) | (0.44) | |||||||||||||||
| Net Asset Value, end of year | $12.51 | $15.38 | $14.92 | $11.06 | $9.96 | |||||||||||||||
| Total return* |
(14.32%) | 11.98% | 43.13% | 12.74% | (9.52%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $140,059 | $87,241 | $50,642 | $36,008 | $23,249 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.11% | 1.07% | 1.29% | 1.41% | 2.01% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.17% | 1.20% | 1.20% | 1.24% | 1.25% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.29%) | (0.25%) | 0.09% | 0.54% | 0.55% | |||||||||||||||
| Portfolio turnover2 | 31.53% | 65.56% | 84.60% | 29.67% | 22.93% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 75 |
Matthews Emerging Markets Small Companies Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $29.92 | $25.93 | $18.10 | $15.50 | $22.89 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.06) | (0.17) | (0.02) | 0.12 | 0.12 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(4.92) | 5.90 | 7.92 | 2.57 | (4.20) | |||||||||||||||
| Total from investment operations |
(4.98) | 5.73 | 7.90 | 2.69 | (4.08) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.09) | — | (0.05) | (0.09) | (0.08) | |||||||||||||||
| Net realized gains on investments |
(1.77) | (1.74) | (0.02) | — | (3.23) | |||||||||||||||
| Total distributions |
(1.86) | (1.74) | (0.07) | (0.09) | (3.31) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | — | 2 | — | 3 | |||||||||||||
| Net Asset Value, end of year | $23.08 | $29.92 | $25.93 | $18.10 | $15.50 | |||||||||||||||
| Total return* |
(16.84%) | 22.14% | 43.68% | 17.38% | (18.05%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $141,254 | $176,723 | $99,573 | $96,229 | $111,456 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.49% | 1.51% | 1.57% | 1.60% | 1.51% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.37% | 1.36% | 1.39% | 1.45% | 1.46% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.24%) | (0.55%) | (0.11%) | 0.72% | 0.53% | |||||||||||||||
| Portfolio turnover4 | 27.85% | 50.82% | 111.87% | 59.10% | 69.79% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The Fund charged redemption fees through October 31, 2019.
3 Less than $0.01 per share.
4 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| 76 | matthewsasia.com | 800.789.ASIA |
Matthews Emerging Markets Small Companies Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $29.87 | $25.87 | $18.06 | $15.46 | $22.86 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
— | 3 | (0.10) | 0.01 | 0.15 | 0.16 | ||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(4.92) | 5.88 | 7.91 | 2.58 | (4.19) | |||||||||||||||
| Total from investment operations |
(4.92) | 5.78 | 7.92 | 2.73 | (4.03) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.14) | (0.04) | (0.09) | (0.13) | (0.14) | |||||||||||||||
| Net realized gains on investments |
(1.77) | (1.74) | (0.02) | — | (3.23) | |||||||||||||||
| Total distributions |
(1.91) | (1.78) | (0.11) | (0.13) | (3.37) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | — | 2 | — | 3 | |||||||||||||
| Net Asset Value, end of year | $23.04 | $29.87 | $25.87 | $18.06 | $15.46 | |||||||||||||||
| Total return* |
(16.66%) | 22.39% | 43.90% | 17.65% | (17.86%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $228,194 | $221,286 | $107,569 | $85,006 | $74,935 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.37% | 1.38% | 1.47% | 1.46% | 1.37% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.15% | 1.16% | 1.20% | 1.24% | 1.25% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.01%) | (0.34%) | 0.08% | 0.85% | 0.73% | |||||||||||||||
| Portfolio turnover4 | 27.85% | 50.82% | 111.87% | 59.10% | 69.79% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The Fund charged redemption fees through October 31, 2019.
3 Less than $0.01 per share.
4 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 77 |
Matthews Asia Growth Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $31.99 | $39.44 | $28.10 | $22.49 | $27.25 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.08) | (0.24) | (0.11) | (0.03) | — | 2 | ||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(10.49) | (5.56) | 13.16 | 5.91 | (4.41) | |||||||||||||||
| Total from investment operations |
(10.57) | (5.80) | 13.05 | 5.88 | (4.41) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | — | (0.15) | — | (0.03) | |||||||||||||||
| Net realized gains on investments |
(0.58) | (1.65) | (1.56) | (0.27) | (0.32) | |||||||||||||||
| Total distributions |
(0.58) | (1.65) | (1.71) | (0.27) | (0.35) | |||||||||||||||
| Net Asset Value, end of year | $20.84 | $31.99 | $39.44 | $28.10 | $22.49 | |||||||||||||||
| Total return* |
(33.12%) | (14.65%) | 46.76% | 26.18% | (16.25%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $225,923 | $568,001 | $784,085 | $504,538 | $463,600 | |||||||||||||||
| Ratio of expenses to average net assets | 1.13% | 1.07% | 1.08% | 1.09% | 1.10% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.32%) | (0.62%) | (0.35%) | (0.14%) | —% | 3 | ||||||||||||||
| Portfolio turnover4 | 47.48% | 42.37% | 42.78% | 38.05% | 12.12% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 Less than 0.01%.
4 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 78 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Growth Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $32.33 | $39.82 | $28.34 | $22.65 | $27.45 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.04) | (0.19) | (0.07) | — | 2 | 0.05 | ||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(10.60) | (5.63) | 13.30 | 5.96 | (4.45) | |||||||||||||||
| Total from investment operations |
(10.64) | (5.82) | 13.23 | 5.96 | (4.40) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.02) | (0.19) | — | (0.08) | |||||||||||||||
| Net realized gains on investments |
(0.58) | (1.65) | (1.56) | (0.27) | (0.32) | |||||||||||||||
| Total distributions |
(0.58) | (1.67) | (1.75) | (0.27) | (0.40) | |||||||||||||||
| Net Asset Value, end of year | $21.11 | $32.33 | $39.82 | $28.34 | $22.65 | |||||||||||||||
| Total return* |
(32.99%) | (14.55%) | 47.01% | 26.34% | (16.10%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $406,155 | $1,186,769 | $1,269,702 | $698,797 | $466,733 | |||||||||||||||
| Ratio of expenses to average net assets | 0.98% | 0.92% | 0.95% | 0.94% | 0.93% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.15%) | (0.47%) | (0.23%) | —% | 3 | 0.17% | ||||||||||||||
| Portfolio turnover4 | 47.48% | 42.37% | 42.78% | 38.05% | 12.12% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 Less than 0.01%.
4 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 79 |
Matthews Pacific Tiger Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $27.54 | $34.94 | $28.74 | $26.86 | $31.66 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.09 | 0.06 | 0.10 | 0.19 | 0.24 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(5.75) | (1.60) | 8.10 | 2.68 | (3.75) | |||||||||||||||
| Total from investment operations |
(5.66) | (1.54) | 8.20 | 2.87 | (3.51) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | — | (0.08) | (0.15) | (0.21) | |||||||||||||||
| Net realized gains on investments |
(1.72) | (5.86) | (1.92) | (0.84) | (1.08) | |||||||||||||||
| Total distributions |
(1.72) | (5.86) | (2.00) | (0.99) | (1.29) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | — | 2 | — | ||||||||||||||
| Net Asset Value, end of year | $20.16 | $27.54 | $34.94 | $28.74 | $26.86 | |||||||||||||||
| Total return* |
(20.73%) | (4.41%) | 28.83% | 10.72% | (11.11%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $1,081,347 | $1,835,266 | $2,585,654 | $2,536,844 | $2,618,155 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator | 1.10% | 1.06% | 1.08% | 1.08% | 1.07% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator | 1.09% | 1.03% | 1.06% | 1.05% | 1.04% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.37% | 0.17% | 0.35% | 0.66% | 0.79% | |||||||||||||||
| Portfolio turnover3 | 5.61% | 46.64% | 38.11% | 17.08% | 11.48% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 80 | matthewsasia.com | 800.789.ASIA |
Matthews Pacific Tiger Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $27,50 | $34.90 | $28.71 | $26.83 | $31.63 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.11 | 0.11 | 0.13 | 0.23 | 0.28 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(5.73) | (1.60) | 8.11 | 2.68 | (3.74) | |||||||||||||||
| Total from investment operations |
(5.62) | (1.49) | 8.24 | 2.91 | (3.46) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.05) | (0.13) | (0.19) | (0.26) | |||||||||||||||
| Net realized gains on investments |
(1.72) | (5.86) | (1.92) | (0.84) | (1.08) | |||||||||||||||
| Total distributions |
(1.72) | (5.91) | (2.05) | (1.03) | (1.34) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | — | 2 | — | ||||||||||||||
| Net Asset Value, end of year | $20.16 | $27.50 | $34.90 | $28.71 | $26.83 | |||||||||||||||
| Total return* |
(20.62%) | (4.29%) | 28.98% | 10.90% | (10.94%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $2,607,437 | $5,357,198 | $6,172,995 | $6,189,015 | $5,689,079 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement or waiver or recapture of expenses by Advisor and Administrator | 0.97% | 0.92% | 0.94% | 0.93% | 0.90% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement or waiver or recapture of expenses by Advisor and Administrator | 0.96% | 0.90% | 0.92% | 0.91% | 0.88% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.48% | 0.30% | 0.46% | 0.80% | 0.95% | |||||||||||||||
| Portfolio turnover3 | 5.61% | 46.64% | 38.11% | 17.08% | 11.48% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 81 |
Matthews Asia Innovators Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $18.86 | $26.70 | $14.55 | $11.26 | $14.19 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.06) | (0.16) | (0.11) | (0.01) | (0.01) | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(4.49) | (3.34) | 12.71 | 3.34 | (2.62) | |||||||||||||||
| Total from investment operations |
(4.55) | (3.50) | 12.60 | 3.33 | (2.63) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.04) | |||||||||||||||
| Net realized gains on investments |
(3.00) | (4.34) | (0.45) | (0.04) | (0.26) | |||||||||||||||
| Total distribution |
(3.00) | (4.34) | (0.45) | (0.04) | (0.30) | |||||||||||||||
| Net Asset Value, end of year | $11.31 | $18.86 | $26.70 | $14.55 | $11.26 | |||||||||||||||
| Total return* |
(24.80%) | (13.10%) | 86.72% | 29.60% | (18.62%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $272,950 | $465,207 | $631,101 | $177,639 | $152,449 | |||||||||||||||
| Ratio of expenses to average net assets | 1.18% | 1.09% | 1.10% | 1.19% | 1.19% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.40%) | (0.59%) | (0.60%) | (0.04%) | (0.07%) | |||||||||||||||
| Portfolio turnover2 | 118.08% | 220.45% | 119.81% | 80.10% | 85.73% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| 82 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Innovators Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $ | 19.08 | $ | 26.91 | $ | 14.64 | $ | 11.32 | $ | 14.26 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.04) | (0.11) | (0.09) | 0.01 | 0.01 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(4.55) | (3.38) | 12.81 | 3.35 | (2.62) | |||||||||||||||
| Total from investment operations |
(4.59) | (3.49) | 12.72 | 3.36 | (2.61) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.07) | |||||||||||||||
| Net realized gains on investments |
(3.00) | (4.34) | (0.45) | (0.04) | (0.26) | |||||||||||||||
| Total distributions |
(3.00) | (4.34) | (0.45) | (0.04) | (0.33) | |||||||||||||||
| Net Asset Value, end of year | $ | 11.49 | $ | 19.08 | $ | 26.91 | $ | 14.64 | $ | 11.32 | ||||||||||
| Total return* |
(24.73%) | (12.97%) | 87.01% | 29.71% | (18.40%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $ | 199,368 | $ | 930,562 | $ | 1,094,356 | $ | 126,911 | $ | 91,769 | ||||||||||
| Ratio of expenses to average net assets | 1.04% | 0.93% | 0.95% | 1.05% | 1.02% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.27%) | (0.43%) | (0.44%) | 0.10% | 0.07% | |||||||||||||||
| Portfolio turnover2 | 118.08% | 220.45% | 119.81% | 80.10% | 85.73% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 83 |
Matthews China Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $20.58 | $27.00 | $19.12 | $14.37 | $22.20 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
— | 2 | 0.03 | 0.05 | 0.16 | 0.21 | ||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(4.99) | (3.25) | 8.17 | 4.80 | (4.84) | |||||||||||||||
| Total from investment operations |
(4.99) | (3.22) | 8.22 | 4.96 | (4.63) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.05) | (0.06) | (0.21) | (0.29) | |||||||||||||||
| Net realized gains on investments |
(1.09) | (3.15) | (0.28) | — | (2.91) | |||||||||||||||
| Total distributions |
(1.09) | (3.20) | (0.34) | (0.21) | (3.20) | |||||||||||||||
| Net Asset Value, end of year | $14.50 | $20.58 | $27.00 | $19.12 | $14.37 | |||||||||||||||
| Total return* |
(24.40%) | (12.26%) | 43.05% | 34.56% | (21.42%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $448,623 | $710,844 | $962,714 | $718,633 | $566,456 | |||||||||||||||
| Ratio of expenses to average net assets | 1.12% | 1.06% | 1.09% | 1.09% | 1.10% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.01%) | 0.13% | 0.22% | 0.96% | 1.00% | |||||||||||||||
| Portfolio turnover3 | 49.38% | 92.28% | 52.64% | 68.93% | 96.98% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 84 | matthewsasia.com | 800.789.ASIA |
Matthews China Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $20.53 | $26.94 | $19.08 | $14.33 | $22.17 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.01 | 0.10 | 0.09 | 0.20 | 0.33 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(4.97) | (3.26) | 8.15 | 4.80 | (4.93) | |||||||||||||||
| Total from investment operations |
(4.96) | (3.16) | 8.24 | 5.00 | (4.60) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.10) | (0.10) | (0.25) | (0.33) | |||||||||||||||
| Net realized gains on investments |
(1.09) | (3.15) | (0.28) | — | (2.91) | |||||||||||||||
| Total distributions |
(1.09) | (3.25) | (0.38) | (0.25) | (3.24) | |||||||||||||||
| Net Asset Value, end of year | $14.48 | $20.53 | $26.94 | $19.08 | $14.33 | |||||||||||||||
| Total return* |
(24.31%) | (12.07%) | 43.23% | 34.90% | (21.32%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $297,165 | $630,966 | $546,157 | $183,762 | $46,657 | |||||||||||||||
| Ratio of expenses to average net assets | 0.98% | 0.91% | 0.93% | 0.91% | 0.91% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.07% | 0.38% | 0.40% | 1.17% | 1.53% | |||||||||||||||
| Portfolio turnover3 | 49.38% | 92.28% | 52.64% | 68.93% | 96.98% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 85 |
Matthews China Small Companies Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $16.44 | $19.86 | $12.84 | $9.58 | $11.89 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.02 | 0.09 | (0.03) | 0.14 | 0.09 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions |
(5.15) | (0.80) | 10.42 | 3.24 | (2.23) | |||||||||||||||
| Total from investment operations |
(5.13) | (0.71) | 10.39 | 3.38 | (2.14) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.20) | (0.12) | (0.13) | (0.13) | (0.05) | |||||||||||||||
| Net realized gain on investments |
— | (2.59) | (3.24) | — | (0.16) | |||||||||||||||
| Total distributions |
(0.20) | (2.71) | (3.37) | (0.13) | (0.21) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | 0.01 | 2 | 0.04 | ||||||||||||||
| Net Asset Value, end of year | $11.11 | $16.44 | $19.86 | $12.84 | $9.58 | |||||||||||||||
| Total return* |
(31.26%) | (3.59%) | 82.52% | 35.41% | (17.68%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $114,440 | $218,398 | $285,717 | $63,432 | $41,740 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.55% | 1.48% | 1.52% | 1.62% | 1.97% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.41% | 1.43% | 1.43% | 1.42% | 1.50% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.17% | 0.44% | (0.14%) | 1.25% | 0.78% | |||||||||||||||
| Portfolio turnover3 | 59.00% | 119.65% | 152.86% | 68.17% | 76.67% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The Fund charged redemption fees through October 31, 2019.
3 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| 86 | matthewsasia.com | 800.789.ASIA |
Matthews China Small Companies Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $16.47 | $19.90 | $12.86 | $9.59 | $11.87 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.06 | 0.13 | 0.04 | 0.15 | 0.11 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions |
(5.17) | (0.80) | 10.42 | 3.26 | (2.21) | |||||||||||||||
| Total from investment operations |
(5.11) | (0.67) | 10.46 | 3.41 | (2.10) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.24) | (0.17) | (0.18) | (0.15) | (0.05) | |||||||||||||||
| Net realized gain on investments |
— | (2.59) | (3.24) | — | (0.16) | |||||||||||||||
| Total distributions |
(0.24) | (2.76) | (3.42) | (0.15) | (0.21) | |||||||||||||||
| Paid‑in capital from redemption fees | — | — | — | 0.01 | 2 | 0.03 | ||||||||||||||
| Net Asset Value, end of year | $11.12 | $16.47 | $19.90 | $12.86 | $9.59 | |||||||||||||||
| Total return* |
(31.08%) | (3.35%) | 82.89% | 35.68% | (17.48%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $40,322 | $162,770 | $98,052 | $32,376 | $20,740 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.38% | 1.31% | 1.37% | 1.51% | 1.79% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.20% | 1.20% | 1.20% | 1.24% | 1.25% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.47% | 0.63% | 0.20% | 1.34% | 1.05% | |||||||||||||||
| Portfolio turnover3 | 59.00% | 119.65% | 152.86% | 68.17% | 76.67% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The Fund charged redemption fees through October 31, 2019.
3 The portfolio turnover rate is calculated on the Fund as a whole for the entire year without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 87 |
Matthews India Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $28.17 | $26.29 | $23.27 | $26.32 | $34.31 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.12) | (0.11) | 0.01 | (0.01) | (0.05) | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(2.58) | 4.81 | 3.81 | (0.24) | (3.60) | |||||||||||||||
| Total from investment operations |
(2.70) | 4.70 | 3.82 | (0.25) | (3.65) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net realized gains on investments |
(3.38) | (2.82) | (0.80) | (2.80) | (4.34) | |||||||||||||||
| Net Asset Value, end of year | $22.09 | $28.17 | $26.29 | $23.27 | $26.32 | |||||||||||||||
| Total return* |
(9.92%) | 18.11% | 16.51% | (0.88%) | (10.09%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $505,764 | $635,067 | $617,908 | $786,881 | $1,077,990 | |||||||||||||||
| Ratio of expenses to average net assets | 1.15% | 1.10% | 1.15% | 1.11% | 1.09% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.45%) | (0.38%) | 0.05% | (0.03%) | (0.16%) | |||||||||||||||
| Portfolio turnover2 | 41.35% | 42.50% | 57.38% | 24.00% | 20.87% | |||||||||||||||
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $28.64 | $26.65 | $23.55 | $26.56 | $34.51 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
(0.08) | (0.06) | 0.05 | 0.02 | 0.01 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions and foreign capital gains taxes |
(2.64) | 4.87 | 3.85 | (0.23) | (3.62) | |||||||||||||||
| Total from investment operations |
(2.72) | 4.81 | 3.90 | (0.21) | (3.61) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net realized gains on investments |
(3.38) | (2.82) | (0.80) | (2.80) | (4.34) | |||||||||||||||
| Net Asset Value, end of year | $22.54 | $28.64 | $26.65 | $23.55 | $26.56 | |||||||||||||||
| Total return* |
(9.83%) | 18.28% | 16.65% | (0.76%) | (9.92%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $97,018 | $128,708 | $90,053 | $177,526 | $463,790 | |||||||||||||||
| Ratio of expenses to average net assets | 1.01% | 0.96% | 1.03% | 0.94% | 0.90% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | (0.31%) | (0.19%) | 0.24% | 0.09% | 0.02% | |||||||||||||||
| Portfolio turnover2 | 41.35% | 42.50% | 57.38% | 24.00% | 20.87% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 88 | matthewsasia.com | 800.789.ASIA |
Matthews Japan Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $22.09 | $25.27 | $21.51 | $18.53 | $24.12 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.07 | 0.09 | 0.07 | 0.11 | 0.09 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(6.19) | (0.52) | 6.25 | 4.73 | (4.91) | |||||||||||||||
| Total from investment operations |
(6.12) | (0.43) | 6.32 | 4.84 | (4.82) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.24) | (0.13) | (0.12) | (0.06) | |||||||||||||||
| Net realized gains on investments |
(1.07) | (2.51) | (2.43) | (1.74) | (0.71) | |||||||||||||||
| Total distributions |
(1.07) | (2.75) | (2.56) | (1.86) | (0.77) | |||||||||||||||
| Net Asset Value, end of year | $14.90 | $22.09 | $25.27 | $21.51 | $18.53 | |||||||||||||||
| Total return* |
(27.85%) | (1.92%) | 29.82% | 26.08% | (20.18%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $208,329 | $373,739 | $1,101,820 | $1,466,194 | $1,704,102 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.05% | 0.95% | 0.95% | 0.93% | 0.91% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.05% | 0.95% | 0.95% | 0.93% | 0.91% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.41% | 0.38% | 0.31% | 0.51% | 0.40% | |||||||||||||||
| Portfolio turnover2 | 83.38% | 70.30% | 62.03% | 25.42% | 46.11% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 89 |
Matthews Japan Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $22.13 | $25.32 | $21.55 | $18.57 | $24.16 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.09 | 0.05 | 0.05 | 0.11 | 0.11 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(6.22) | (0.46) | 6.29 | 4.74 | (4.91) | |||||||||||||||
| Total from investment operations |
(6.13) | (0.41) | 6.34 | 4.85 | (4.80) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.27) | (0.14) | (0.13) | (0.08) | |||||||||||||||
| Net realized gains on investments |
(1.07) | (2.51) | (2.43) | (1.74) | (0.71) | |||||||||||||||
| Total distributions |
(1.07) | (2.78) | (2.57) | (1.87) | (0.79) | |||||||||||||||
| Net Asset Value, end of year | $14.93 | $22.13 | $25.32 | $21.55 | $18.57 | |||||||||||||||
| Total return* |
(27.84) | (1.83%) | 29.85% | 26.10% | (20.08%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $413,807 | $1,170,380 | $548,968 | $840,476 | $1,167,472 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
0.97% | 0.89% | 0.91% | 0.88% | 0.85% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
0.97% | 0.89% | 0.91% | 0.88% | 0.84% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.55% | 0.22% | 0.25% | 0.53% | 0.46% | |||||||||||||||
| Portfolio turnover2 | 83.38% | 70.30% | 62.03% | 25.42% | 46.11% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 90 | matthewsasia.com | 800.789.ASIA |
Matthews Korea Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $5.70 | $6.12 | $4.38 | $4.58 | $6.91 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.05 | 0.04 | 0.02 | 0.01 | 0.06 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(1.49) | (0.06) | 1.76 | 0.16 | (1.61) | |||||||||||||||
| Total from investment operations |
(1.44) | (0.02) | 1.78 | 0.17 | (1.55) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.10) | (0.04) | — | (0.13) | |||||||||||||||
| Net realized gains on investments |
(0.44) | (0.30) | — | (0.37) | (0.65) | |||||||||||||||
| Total distributions |
(0.44) | (0.40) | (0.04) | (0.37) | (0.78) | |||||||||||||||
| Net Asset Value, end of year | $3.82 | $5.70 | $6.12 | $4.38 | $4.58 | |||||||||||||||
| Total return* |
(25.42%) | (0.33%) | 40.77% | 3.80% | (22.21%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $70,857 | $117,940 | $141,931 | $113,388 | $127,080 | |||||||||||||||
| Ratio of expenses to average net assets | 1.22% | 1.13% | 1.19% | 1.15% | 1.14% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 1.02% | 0.70% | 0.50% | 0.28% | 1.01% | |||||||||||||||
| Portfolio turnover2 | 56.94% | 40.18% | 39.62% | 36.63% | 35.60% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 91 |
Matthews Korea Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $5.75 | $6.17 | $4.42 | $4.61 | $6.95 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.06 | 0.06 | 0.01 | 0.01 | 0.04 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments and foreign currency related transactions |
(1.51) | (0.07) | 1.79 | 0.17 | (1.60) | |||||||||||||||
| Total from investment operations |
(1.45) | (0.01) | 1.80 | 0.18 | (1.56) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
— | (0.11) | (0.05) | — | (0.13) | |||||||||||||||
| Net realized gains on investments |
(0.44) | (0.30) | — | (0.37) | (0.65) | |||||||||||||||
| Total distributions |
(0.44) | (0.41) | (0.05) | (0.37) | (0.78) | |||||||||||||||
| Net Asset Value, end of year | $3.86 | $5.75 | $6.17 | $4.42 | $4.61 | |||||||||||||||
| Total return* |
(25.39%) | (0.16%) | 40.76% | 4.01% | (22.15%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $9,166 | $14,998 | $12,192 | $23,426 | $19,377 | |||||||||||||||
| Ratio of expenses to average net assets | 1.08% | 0.98% | 1.05% | 1.05% | 1.02% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 1.20% | 0.93% | 0.28% | 0.29% | 0.67% | |||||||||||||||
| Portfolio turnover2 | 56.94% | 40.18% | 39.62% | 36.63% | 35.60% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 92 | matthewsasia.com | 800.789.ASIA |
Matthews Asian Growth and Income Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $16.07 | $18.05 | $15.73 | $13.92 | $17.46 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.22 | 0.17 | 0.21 | 0.25 | 0.32 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions, and foreign capital gains taxes |
(3.17) | (0.17) | 2.27 | 2.13 | (2.20) | |||||||||||||||
| Total from investment operations |
(2.95) | — | 2.48 | 2.38 | (1.88) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.21) | (0.20) | (0.16) | (0.35) | (0.32) | |||||||||||||||
| Net realized gains on investments |
(0.41) | (1.78) | — | 2 | (0.22) | (1.34) | ||||||||||||||
| Total distributions |
(0.62) | (1.98) | (0.16) | (0.57) | (1.66) | |||||||||||||||
| Net Asset Value, end of year | $12.50 | $16.07 | $18.05 | $15.73 | $13.92 | |||||||||||||||
| Total return* |
(18.43%) | 0.04% | 16.00% | 17.26% | (10.96%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $339,756 | $541,744 | $673,576 | $723,815 | $799,328 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
1.13% | 1.07% | 1.09% | 1.08% | 1.08% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 1.58% | 0.91% | 1.38% | 1.67% | 1.95% | |||||||||||||||
| Portfolio turnover3 | 13.16% | 37.85% | 36.27% | 21.89% | 32.24% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 93 |
Matthews Asian Growth and Income Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $16.04 | $18.02 | $15.70 | $13.89 | $17.43 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.24 | 0.20 | 0.23 | 0.27 | 0.35 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions, and foreign capital gains taxes |
(3.16) | (0.17) | 2.27 | 2.14 | (2.20) | |||||||||||||||
| Total from investment operations |
(2.92) | 0.03 | 2.50 | 2.41 | (1.85) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.23) | (0.23) | (0.18) | (0.38) | (0.35) | |||||||||||||||
| Net realized gains on investments |
(0.41) | (1.78) | — | 2 | (0.22) | (1.34) | ||||||||||||||
| Total distributions |
(0.64) | (2.01) | (0.18) | (0.60) | (1.69) | |||||||||||||||
| Net Asset Value, end of year | $12.48 | $16.04 | $18.02 | $15.70 | $13.89 | |||||||||||||||
| Total return* |
(18.31%) | 0.18% | 16.18% | 17.46% | (10.84%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $270,259 | $551,740 | $822,179 | $743,951 | $596,364 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator |
1.01% | 0.94% | 0.96% | 0.94% | 0.93% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 1.71% | 1.10% | 1.51% | 1.80% | 2.14% | |||||||||||||||
| Portfolio turnover3 | 13.16% | 37.85% | 36.27% | 21.89% | 32.24% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 94 | matthewsasia.com | 800.789.ASIA |
Matthews Asia Dividend Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $18.94 | $22.63 | $17.47 | $16.05 | $19.74 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.13 | 0.18 | 0.15 | 0.28 | 0.37 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions, and foreign capital gains taxes |
(5.72) | (0.81) | 5.23 | 1.50 | (2.83) | |||||||||||||||
| Total from investment operations |
(5.59) | (0.63) | 5.38 | 1.78 | (2.46) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.11) | (0.19) | (0.22) | (0.36) | (0.31) | |||||||||||||||
| Net realized gains on investments |
— | (2.87) | — | — | (0.92) | |||||||||||||||
| Total distributions |
(0.11) | (3.06) | (0.22) | (0.36) | (1.23) | |||||||||||||||
| Net Asset Value, end of year | $13.24 | $18.94 | $22.63 | $17.47 | $16.05 | |||||||||||||||
| Total return* |
(29.57%) | (2.83%) | 31.25% | 11.17% | (12.72%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $602,694 | $1,586,460 | $2,292,262 | $2,312,560 | $2,728,599 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.10% | 1.03% | 1.03% | 1.03% | 1.02% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.10% | 1.02% | 1.02% | 1.02% | 1.01% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.84% | 0.80% | 0.85% | 1.68% | 1.97% | |||||||||||||||
| Portfolio turnover3 | 50.75% | 47.41% | 37.73% | 30.32% | 39.75% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 95 |
Matthews Asia Dividend Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $18.94 | $22.62 | $17.47 | $16.04 | $19.73 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.14 | 0.21 | 0.16 | 0.30 | 0.39 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/ depreciation on investments, foreign currency related transactions, and foreign capital gains taxes |
(5.72) | (0.80) | 5.22 | 1.50 | (2.83) | |||||||||||||||
| Total from investment operations |
(5.58) | (0.59) | 5.38 | 1.80 | (2.44) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.13) | (0.22) | (0.23) | (0.37) | (0.33) | |||||||||||||||
| Net realized gains on investments |
— | (2.87) | — | — | (0.92) | |||||||||||||||
| Total distributions |
(0.13) | (3.09) | (0.23) | (0.37) | (1.25) | |||||||||||||||
| Net Asset Value, end of year | $13.23 | $18.94 | $22.62 | $17.47 | $16.04 | |||||||||||||||
| Total return* |
(29.55%) | (2.67%) | 31.29% | 11.35% | (12.64%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $1,248,676 | $3,154,407 | $2,908,674 | $3,057,896 | $3,039,226 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 0.99% | 0.92% | 0.93% | 0.93% | 0.91% | |||||||||||||||
| Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 0.99% | 0.91% | 0.93% | 0.92% | 0.90% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 0.95% | 0.93% | 0.91% | 1.80% | 2.09% | |||||||||||||||
| Portfolio turnover3 | 50.75% | 47.41% | 37.73% | 30.32% | 39.75% | |||||||||||||||
1 Calculated using the average daily shares method.
2 Less than $0.01 per share.
3 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 96 | matthewsasia.com | 800.789.ASIA |
Matthews China Dividend Fund
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INVESTOR CLASS | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||
| Net Asset Value, beginning of year | $17.73 | $19.64 | $16.20 | $14.32 | $17.61 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.31 | 0.41 | 0.30 | 0.34 | 0.41 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions |
(3.27) | (0.48) | 3.54 | 1.80 | (2.09) | |||||||||||||||
| Total from investment operations |
(2.96) | (0.07) | 3.84 | 2.14 | (1.68) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.52) | (0.49) | (0.40) | (0.26) | (0.40) | |||||||||||||||
| Net realized gains on investments |
(0.25) | (1.35) | — | — | (1.21) | |||||||||||||||
| Total distributions |
(0.77) | (1.84) | (0.40) | (0.26) | (1.61) | |||||||||||||||
| Net Asset Value, end of year | $14.00 | $17.73 | $19.64 | $16.20 | $14.32 | |||||||||||||||
| Total return* |
(16.75%) | (0.49%) | 24.22% | 15.00% | (9.98%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $137,066 | $218,766 | $269,192 | $258,111 | $196,626 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.20% | 1.12% | 1.15% | 1.15% | 1.15% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 2.12% | 2.05% | 1.79% | 2.14% | 2.33% | |||||||||||||||
| Portfolio turnover2 | 67.08% | 68.25% | 81.79% | 65.69% | 66.47% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| FINANCIAL HIGHLIGHTS | 97 |
Matthews China Dividend Fund (continued)
The table below sets forth financial data for a share of beneficial interest outstanding throughout each period presented.
| Year Ended Dec. 31, | ||||||||||||||||||||
| INSTITUTIONAL CLASS | 2022 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||
| Net Asset Value, beginning of year | $17.72 | $19.64 | $16.20 | $14.32 | $17.61 | |||||||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)1 |
0.31 | 0.53 | 0.31 | 0.35 | 0.42 | |||||||||||||||
| Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions |
(3.24) | (0.58) | 3.55 | 1.81 | (2.07) | |||||||||||||||
| Total from investment operations |
(2.93) | (0.05) | 3.86 | 2.16 | (1.65) | |||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(0.54) | (0.52) | (0.42) | (0.28) | (0.43) | |||||||||||||||
| Net realized gains on investments |
(0.25) | (1.35) | — | — | (1.21) | |||||||||||||||
| Total distributions |
(0.79) | (1.87) | (0.42) | (0.28) | (1.64) | |||||||||||||||
| Net Asset Value, end of year | $14.00 | $17.72 | $19.64 | $16.20 | $14.32 | |||||||||||||||
| Total return* |
(16.59%) | (0.38%) | 24.37% | 15.16% | (9.83%) | |||||||||||||||
| *The total return represents the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. | | |||||||||||||||||||
| RATIOS/SUPPLEMENTAL DATA | | |||||||||||||||||||
| Net assets, end of year (in 000s) | $84,220 | $131,395 | $115,451 | $122,630 | $73,033 | |||||||||||||||
| Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator | 1.06% | 0.97% | 1.02% | 1.01% | 1.01% | |||||||||||||||
| Ratio of net investment income (loss) to average net assets | 2.12% | 2.65% | 1.85% | 2.25% | 2.44% | |||||||||||||||
| Portfolio turnover2 | 67.08% | 68.25% | 81.79% | 65.69% | 66.47% | |||||||||||||||
1 Calculated using the average daily shares method.
2 The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.
| 98 | matthewsasia.com | 800.789.ASIA |
Matthews has long-term investment goals, and its process aims to identify potential portfolio investments that can be held over an indefinite time horizon.
Investment Objectives of the Funds
Matthews Asia Funds (the “Trust” or “Matthews Asia Funds”) offers a range of global, regional and country-specific funds (each, a “Fund,” and collectively, the “Funds”) with the following objectives:
| GLOBAL EMERGING MARKETS STRATEGIES | ||
| Matthews Emerging Markets Equity Fund | Long-term capital appreciation | |
| Matthews Emerging Markets Sustainable Future Fund | Long-term capital appreciation | |
| Matthews Emerging Markets Small Companies Fund | Long-term capital appreciation | |
| ASIA GROWTH STRATEGIES | ||
| Matthews Asia Growth Fund | Long-term capital appreciation | |
| Matthews Pacific Tiger Fund | Long-term capital appreciation | |
| Matthews Asia Innovators Fund | Long-term capital appreciation | |
| Matthews China Fund | Long-term capital appreciation | |
| Matthews China Small Companies Fund | Long-term capital appreciation | |
| Matthews India Fund | Long-term capital appreciation | |
| Matthews Japan Fund | Long-term capital appreciation | |
| Matthews Korea Fund | Long-term capital appreciation | |
| ASIA GROWTH AND INCOME STRATEGIES | ||
| Matthews Asian Growth and Income Fund | Long-term capital appreciation with some current income | |
| Matthews Asia Dividend Fund | Total return with an emphasis on providing current income | |
| Matthews China Dividend Fund | Total return with an emphasis on providing current income | |
The investment objective of each Fund is fundamental. This means that it cannot be changed without a vote of a majority of the voting securities of each respective Fund.
Non-Fundamental Investment Policies
The manner in which Matthews International Capital Management, LLC, the investment advisor to each Fund (“Matthews”), attempts to achieve each Fund’s investment objective is not fundamental and may be changed without shareholder approval. While an investment policy or restriction may be changed by the Board of Trustees of the Trust (the “Board” or “Board of Trustees”) (which oversees the management of the Funds) without shareholder approval, you will be notified before we make any material change.
Matthews’ Investment Approach
Principal Investment Strategies
The principal investment strategies for each Fund are described in the Fund Summary for each Fund.
In seeking to achieve the investment objectives for the Funds, Matthews also employs the investment approach and other principal investment strategies as described below.
Matthews invests primarily in the Asia Pacific region and Emerging Markets (as defined on page 100) for those Funds and other advisory clients with such an investment focus based on its assessment of the future development and growth prospects of companies located in those markets.
| MATTHEWS’ INVESTMENT APPROACH | 99 |
Matthews believes that the countries in these markets are on paths toward economic development and, in general, deregulation and greater openness to market forces. Matthews believes in the potential for these economies, and that the intersection of development and deregulation will give rise to new opportunities for further growth. Matthews attempts to capitalize on its beliefs by investing in companies it considers to be well-positioned to participate in the economic evolution of these markets. Matthews uses a range of approaches to participate in the anticipated growth of Asian and Emerging Markets to suit clients’ differing needs and investment objectives.
Matthews researches the fundamental characteristics of individual companies to help to understand the foundation of a company’s long-term growth, and to assess whether it is generally consistent with Matthews’ expectations for the economic evolution of the countries and markets in which the Funds invest. Matthews evaluates potential portfolio holdings on the basis of their individual merits, and invests in those companies that it believes are positioned to help a Fund achieve its investment objective.
Matthews has long-term investment goals, and its process aims to identify potential portfolio investments that can be held over an indefinite time horizon. Matthews regularly tests its beliefs and adjusts portfolio holdings in light of prevailing market conditions and other factors, including, among other things, economic, political or market events (e.g., changes in credit conditions or military action), changes in relative valuation (of a company’s growth prospects relative to other issuers), liquidity requirements and corporate governance.
Matthews Seeks to Invest in the Long-Term Growth Potential of Asian and Emerging Markets
| T | Matthews believes that the countries in which the Funds invest will continue to benefit from economic development over longer investment horizons. |
| T | Matthews seeks to invest in those companies that it believes will benefit from the long-term economic evolution of Asian and Emerging Markets, and that will help each Fund achieve its investment objective. |
| T | Matthews generally does not hedge currency risks. |
Matthews and the Funds Believe in Investing for the Long Term
| T | Matthews constructs portfolios with long investment horizons—typically five years or longer. |
Matthews Is an Active Investor with Strong Convictions
| T | Matthews uses an active approach to investment management (rather than relying on passive or index strategies) because it believes that the current composition of the stock markets and indices may not be the best guide to the most successful industries and companies of the future. |
| T | Matthews invests in individual companies based on fundamental analysis that aims to develop an understanding of a company’s long-term business prospects. |
| T | Matthews monitors the composition of benchmark indices but is not constrained by their composition or weightings, and constructs portfolios independently of indices. |
| T | Matthews believes that investors benefit in the long term when the Funds are fully invested, subject to market conditions and a Fund’s particular investment objective. |
Matthews Is a Fundamental Investor
| T | Matthews believes that fundamental investing is based on identifying, analyzing and understanding basic information about a company or security. These factors may include matters such as balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. |
THE ASIA PACIFIC REGION IS DIVIDED INTO THE FOLLOWING GROUPS:
ASIA
Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region
ASIA EX JAPAN
Includes all countries and markets in Asia excluding Japan
ASIA PACIFIC
Includes all countries and markets in Asia plus all countries and markets in the Pacific region, including Australia and New Zealand
EMERGING MARKETS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:
AMERICAS
Argentina, Brazil, Chile, Colombia, Mexico and Peru
AFRICA
Egypt, Kenya, Nigeria and South Africa
ASIA
Bangladesh, China, India, Indonesia, Malaysia, Philippines, Pakistan, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam
EUROPE
Czech Republic, Greece, Hungary, Poland, Romania, Russia and Turkey
MIDDLE EAST
Kuwait, Qatar, Saudi Arabia and the United Arab Emirates
| 100 | matthewsasia.com | 800.789.ASIA |
| T | Matthews may also consider factors such as: |
| – | Management: Does management exhibit integrity? Is there a strong corporate governance culture? What is the business strategy? Does management exhibit the ability to adapt to change and handle risk appropriately? |
| – | Evolution of Industry: Can company growth be sustained as the industry and environment evolve? |
| T | Following this fundamental analysis, Matthews seeks to invest in companies and securities that it believes are positioned to help a Fund achieve its investment objective. |
Matthews Focuses on Individual Companies
| T | Matthews develops views about the course of growth in a region over the long term. |
| T | Matthews then seeks to combine these beliefs with its analysis of individual companies and their fundamental characteristics. |
| T | Matthews then seeks to invest in companies and securities that it believes are positioned to help a Fund achieve its investment objective. |
| T | Each of the Funds may invest in companies of any equity market capitalization (the number of shares outstanding times the market price per share). Except with respect to the Matthews Emerging Markets Small Companies Fund and Matthews China Small Companies Fund, a company’s size (including its market capitalization) is not a primary consideration for Matthews when it decides whether to include that company’s securities in one or more of the Funds. Please note the Matthews Emerging Markets Small Companies Fund and Matthews China Small Companies Fund invest at least 80% of their assets in Small Companies, as defined in each respective Fund Summary. |
Non‑Principal Investment Strategies
In extreme market conditions, Matthews may sell some or all of a Fund’s securities and temporarily invest that Fund’s money in U.S. government securities or money-market instruments backed by U.S. government securities, if it believes it is in the best interest of Fund shareholders to do so. When a Fund takes a temporary defensive position, the Fund may not achieve its investment objective.
| MATTHEWS’ INVESTMENT APPROACH | 101 |
Risks of Investing in the Funds
The main risks associated with investing in the Funds are described below and are in addition to, or describe further, the risks stated in the Fund Summaries at the front of this prospectus. Additional information is also included in the Funds’ Statement of Additional Information (“SAI”).
General Risks
There is no guarantee that a Fund’s investment objective will be achieved or that the value of the investments of any Fund will increase. If the value of a Fund’s investments declines, the net asset value per share (“NAV”) of that Fund will decline, and investors may lose some or all of the value of their investments.
Foreign securities held by the Funds may be traded on days and at times when the New York Stock Exchange (the “NYSE”) is closed, and the NAVs of the Funds are therefore not calculated. Accordingly, the NAVs of the Funds may be significantly affected on days when shareholders are not able to buy or sell shares of the Funds. For additional information on the calculation of the Funds’ NAVs, see page 126.
Your investment in the Funds is exposed to different risks, many of which are described below. Because of these risks, your investment in a Fund should constitute only a portion of your overall investment portfolio, not all of it. We recommend that you invest in a Fund only for the long term (typically five years or longer), so that you can better manage volatility in the Fund’s NAV (as described below). Investing in regionally concentrated, single-country or small company funds, such as the Funds, may not be appropriate for all investors.
Risks Associated with Matthews’ Investment Approach
Matthews is an active manager, and its investment process does not rely on passive or index strategies. For this reason, you should not expect that the composition of the Funds’ portfolios will closely track the composition or weightings of market indices (including a Fund’s benchmark index) or of the broader markets generally. As a result, investors should expect that changes in the Funds’ NAVs and performance (over short and longer periods) will vary from the performance of such indices and of broader markets. Differences in the performance of the Funds and any index (or the markets generally) may also result from the Funds’ fair valuation procedures, which the Funds use to value their holdings for purposes of determining each Fund’s NAV (see page 126).
Principal Risks
Risks Associated with Developments in Global Credit and Equity Markets
Developments in global credit and equity markets, such as the credit and valuation problems experienced by the global capital markets in 2008 and 2009, may adversely and significantly impact the Funds’ investments. Although market conditions may start to improve relatively quickly, many difficult conditions may remain for an extended period of time or may return. Because the scope of these conditions may be, and in the past have been, expansive, past investment strategies and models may not be able to identify all significant risks that the Funds may encounter, or to predict the duration of these events. These conditions could prevent the Funds from successfully executing their investment strategies, result in future declines in the market values of the investment assets held by the Funds, or require the Funds to dispose of investments at a loss while such adverse market conditions prevail.
Risks Associated with Foreign Investments
Investments in foreign securities may involve greater risks than investing in U.S. securities. As compared to U.S. companies, foreign issuers generally disclose less financial and other information publicly and are subject to less stringent and less uniform accounting, auditing and financial reporting standards. Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, corporate
There is no guarantee that your investment in a Fund will increase in value. The value of your investment in a Fund could go down, meaning you could lose some or all of your investment.
For additional information about strategies and risks, see individual Fund descriptions in the Fund Summary for each Fund and the Funds’ SAI. The SAI is available to you free of charge. To receive an SAI, please call 800.789.ASIA (2742), visit the Funds’ website at matthewsasia.com, or visit the website of the Securities and Exchange Commission (the “SEC”) at sec.gov and access the EDGAR database.
| 102 | matthewsasia.com | 800.789.ASIA |
insiders and listed companies than does the United States, and foreign securities markets may be less liquid and more volatile than U.S. markets. Investments in foreign securities generally involve higher costs than investments in U.S. securities, including higher transaction and custody costs as well as additional taxes imposed by foreign governments. In addition, security trading practices abroad may offer less protection to investors such as the Funds. Political or social instability, civil unrest, acts of terrorism, regional economic volatility, and the imposition of sanctions, confiscations, trade restrictions (including tariffs) and other government restrictions by the U.S. and/or other governments are other potential risks that could impact an investment in a foreign security. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the United States, which could affect the liquidity of the Funds’ portfolios.
In addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of the Funds’ investments in certain foreign countries. Governments of many countries have exercised and continue to exercise substantial influence over many aspects of the private sector through the ownership or control of many companies, including some of the largest in these countries. As a result, government actions in the future could have a significant effect on economic conditions which may adversely affect prices of certain portfolio securities. There is also generally less government supervision and regulation of stock exchanges, brokers, and listed companies than in the United States. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to foreign withholding taxes, and special U.S. tax considerations may apply. Moreover, foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
Many foreign countries are heavily dependent upon exports and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the United States and other countries with which they trade. These economies also have been and may continue to be negatively impacted by economic conditions in the United States and other trading partners, which can lower the demand for goods produced in those countries.
Currency Risk
When a Fund conducts securities transactions in a foreign currency, there is the risk of the value of the foreign currency increasing or decreasing against the value of the U.S. dollar. The value of an investment denominated in a foreign currency will decline in U.S. dollar terms if that currency weakens against the U.S. dollar. While each Fund is permitted to hedge
currency risks, Matthews does not anticipate doing so at this time.
Additionally, Asian and emerging market countries may utilize formal or informal currency-exchange controls or “capital controls.” Capital controls may impose restrictions on the Fund’s ability to repatriate investments or income. Such controls may also affect the value of a Fund’s holdings.
Emerging and Frontier Market Country Risk
Investing in emerging and frontier market countries involves substantial risk due to, among other factors, different accounting standards; thinner trading markets as compared to those in developed countries; the possibility of currency transfer restrictions; and the risk of expropriation, nationalization or other adverse political, economic or social developments. Political and economic structures in some emerging and frontier market countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristics of developed countries. Some of these countries have in the past failed to recognize private property rights and have nationalized or expropriated the assets of private companies.
Among other risks of investing in less developed markets are the variable quality and reliability of financial information and related audits of companies. In some cases, financial information and related audits can be unreliable and not subject to verification. Auditing firms in some of these markets are not subject to independent inspection or oversight of audit quality. This can result in investment decisions being made based on flawed or misleading information. Additionally, investors may have substantial difficulties bringing legal actions to enforce or protect investors’ rights, which can increase the risks of loss.
The securities markets of emerging and frontier market countries can be substantially smaller, less developed, less liquid and more volatile than the major securities markets in the United States and other developed nations. The limited size of many securities markets in emerging and frontier market countries and limited trading volume in issuers compared to the volume in U.S. securities or securities of issuers in other developed countries could cause prices to be erratic for reasons other than factors that affect the quality of the securities. In addition, emerging and frontier market countries’ exchanges and broker-dealers are generally subject to less regulation than their counterparts in developed countries. Brokerage commissions, custodial expenses and other transaction costs are generally higher in emerging and frontier market countries than in developed countries. As a result, funds that invest in emerging and frontier market countries generally have operating expenses that are higher than funds investing in other securities markets. Securities markets in emerging markets may also be susceptible to manipulation or other fraudulent trade practices, which could disrupt the functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. The Funds’
| RISKS OF INVESTING IN THE FUNDS | 103 |
rights with respect to their investments in emerging markets will generally be governed by local law, which may make it difficult or impossible for the Funds to pursue legal remedies or to obtain and enforce judgments in local courts.
Many emerging and frontier market countries have a greater degree of economic, political and social instability than the United States and other developed countries. Such social, political and economic instability could disrupt the financial markets in which the Funds invest and adversely affect the value of their investment portfolios. In addition, currencies of emerging and frontier market countries experience devaluations relative to the U.S. dollar from time to time. A devaluation of the currency in which investment portfolio securities are denominated will negatively impact the value of those securities in U.S. dollar terms. Emerging and frontier market countries have and may in the future impose foreign currency controls and repatriation controls.
The emerging and frontier market countries in which the Funds invest may become subject to economic and trade sanctions or embargoes imposed by the United States, foreign governments or the United Nations. These sanctions or other actions could result in the devaluation of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In addition, sanctions could result in a freeze on an issuer’s securities, which would prevent the Funds from selling securities they hold or alternatively could force the Funds to sell securities they hold at a time Matthews otherwise believes to be unattractive. The value of the securities issued by companies that operate in, or have dealings with, these countries may be negatively impacted by any such sanction or embargo and may reduce Fund returns.
Frontier markets are a subset of emerging markets and generally have smaller economies and even less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Frontier markets are more susceptible to having abrupt changes in currency values, less mature markets and settlement practices, and lower trading volumes that could lead to greater price volatility and illiquidity.
Volatility Risk
The smaller size and lower levels of liquidity in emerging markets, as well as other factors, may result in changes in the prices of Asian and emerging market securities that are more volatile than those of companies in more developed regions. This volatility can cause the price of a Fund’s shares to go up or down dramatically. Because of this volatility, this Fund is better suited for long-term investors (typically five years or longer).
Geopolitical Events Risk
The increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global
demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world, territorial invasions and global economic sanctions implemented in response, natural disasters, social and political discord or debt crises and downgrades, among others, may result in market volatility and may have long term effects on the global financial markets. It is difficult to predict when similar events affecting the global financial markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. The novel coronavirus (COVID‑19) global pandemic and the aggressive responses taken by many governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar restrictions, as well as the forced or voluntary closure of, or operational changes to, many retail and other businesses, had negative impacts, and in many cases severe negative impacts, on markets worldwide. It is not known how long such impacts, or any future impacts of other significant events described above, will or would last, but there could be a prolonged period of global economic slowdown, which may impact your investment in the Funds, Therefore, the Funds could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns. During a general market downturn, multiple asset classes may be negatively affected. Changes in market conditions and interest rates can have the same impact on all types of securities and instruments. In times of severe market disruptions, you could lose your entire investment.
Equity Securities Risk
Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the right to acquire an ownership interest in an issuer. Equity risk is the risk that stocks and other equity securities generally fluctuate in value more than bonds and may decline in value over short or extended periods. The value of stocks and other equity securities may be affected by changes in an issuer’s financial condition, factors that affect a particular industry or industries, such as labor shortages or an increase in production costs and competitive conditions within an industry, or as a result of changes in overall market, economic and political conditions that are not specifically related to a company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or generally adverse investor sentiment.
Preferred Stock Risk
Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event a company is liquidated or declares bankruptcy, the claims of
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owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the dividend on preferred stocks may be less attractive, causing the price of such stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which common stock and debt securities are subject.
Depositary Receipts Risk
Although depositary receipts have risks similar to the securities that they represent, they may also involve higher expenses and may trade at a discount (or premium) to the underlying security. In addition, depositary receipts may not pass through voting and other shareholder rights, and may be less liquid than the underlying securities listed on an exchange.
Convertible Securities Risk
As part of their investment strategies, the Funds may invest in convertible preferred stocks and bonds and debentures of any maturity and quality, including those that are unrated, or would be below investment grade (referred to as “junk bonds”) if rated. Convertible securities may, under specific circumstances, be converted into the common or preferred stock of the issuing company and may be denominated in U.S. dollars, euros or a local currency. The value of convertible securities varies with a number of factors, including the value and volatility of the underlying stock, the level and volatility of interest rates, the passage of time, dividend policy and other variables.
The risks of convertible bonds and debentures include repayment risk and interest rate risk. Repayment risk is the risk that a borrower does not repay the amount of money that was borrowed (or “principal”) when the bond was issued. This failure to repay the amount borrowed is called a “default” and could result in losses for a Fund. Interest rate risk is the risk that market rates of interest may increase over the rate paid by a bond held by a Fund. When interest rates increase, the market value of a bond paying a lower rate generally will decrease. If a Fund were to sell such a bond, the Fund might receive less than it originally paid for it.
Investing in a convertible security denominated in a currency different from that of the security into which it is convertible may expose the Fund to currency risk as well as risks associated with the level and volatility of the foreign exchange rate between the security’s currency and the underlying stock’s currency. Convertible securities are subject to greater liquidity risk than many other securities and may trade less frequently and in lower volumes, or have periods of less frequent trading. Lower trading volume may also make it more difficult for the Funds to value such securities.
Dividend-Paying Securities Risk
Each of the Funds, including the Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund and Matthews
China Dividend Fund (each of which seek to provide current income), may invest in dividend-paying equity securities.
There can be no guarantee that companies that have historically paid dividends will continue to pay them or pay them at the current rates in the future. A reduction or discontinuation of dividend payments may have a negative impact on the value of a Fund’s holdings in these companies. The prices of dividend-paying equity securities (and particularly of those issued by Asian and emerging market companies) can be highly volatile. Investors should not assume that a Fund’s investments in these securities will necessarily reduce the volatility of the Fund’s NAV or provide “protection,” compared to other types of equity securities, when markets perform poorly. In addition, dividend-paying equity securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity to interest rate changes. During periods of rising interest rates, such securities may decline. A Fund’s investment in such securities may also limit its potential for appreciation during a broad market advance.
The inclusion of Passive Foreign Investment Companies (“PFICs”) in a portfolio can result in higher variability—both negatively and positively—in the income distribution.
Risks Associated with Smaller and Medium‑Size Companies
The Matthews Emerging Markets Small Companies Fund and Matthews China Small Companies Fund invest in securities of smaller companies, and each of the other Funds may invest in securities of smaller and medium‑size companies. Smaller and medium‑size companies may offer substantial opportunities for capital growth; they also involve substantial risks, and investments in smaller and medium‑size companies may be considered speculative. Such companies often have limited product lines, markets or financial resources. Smaller and medium‑size companies may be more dependent on one or few key persons and may lack depth of management. Larger portions of their stock may be held by a small number of investors (including founders and management) than is typical of larger companies. Credit may be more difficult to obtain (and on less advantageous terms) than for larger companies. As a result, the influence of creditors (and the impact of financial or operating restrictions associated with debt financing) may be greater on such companies than that on larger or more established companies. Both of these factors may dilute the holdings, or otherwise adversely impact the rights of a Fund and smaller shareholders in corporate governance or corporate actions. Smaller and medium‑size companies also may be unable to generate funds necessary for growth or development, or may be developing or marketing new products or services for which markets are not yet established and may never become established. The Funds may have more difficulty obtaining information about smaller and medium‑size companies, making it more difficult to evaluate the impact of market, economic, regulatory and other factors on them. Informational difficulties may also make valuing or disposing of their securities more difficult than it would for
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larger companies. Securities of smaller and medium‑size companies may trade less frequently and in lesser volume than more widely held securities, and securities of smaller and medium‑size companies generally are subject to more abrupt or erratic price movements than more widely held or larger, more established companies or the market indices in general. Among the reasons for the greater price volatility are the less certain growth prospects of smaller and medium‑size companies, the lower degree of liquidity in the markets for securities of such companies, and the greater sensitivity of such companies to changing economic conditions. For these and other reasons, the value of securities of smaller and medium‑size companies may react differently to political, market and economic developments than the markets as a whole or than other types of stocks.
High Portfolio Turnover Risk
Certain Funds’ investment strategies may result in high portfolio turnover rates. Generally, portfolio turnover over 100% is considered high. High portfolio turnover may increase a Fund’s brokerage commission costs. The performance of a Fund could be negatively impacted by the increased brokerage commission cost incurred by that Fund. Rapid portfolio turnover also exposes shareholders to a higher current realization of short-term capital gains, distributions of which would generally be taxed to shareholders as ordinary income and thus cause shareholders to pay higher taxes.
Certain Risks of Fixed-Income Securities
The Matthews Asian Growth and Income Fund and Matthews Emerging Markets Sustainable Future Fund may invest in fixed-income securities (including high-yield securities) as a principal strategy. The other Funds may invest in fixed-income securities to a lesser extent.
The prices of fixed-income securities respond to economic developments, particularly interest rate changes, as well as to changes in an issuer’s credit rating or market perceptions about the creditworthiness of an issuer. Generally fixed-income securities decrease in value if interest rates rise and increase in value if interest rates fall, and longer-term and lower rated securities are more volatile than shorter-term and higher rated securities.
Credit Risk
Credit risk refers to the risk that an issuer may default in the payment of principal and/or interest on an instrument. Financial strength and solvency of an issuer are the primary factors influencing credit risk. In addition, lack or inadequacy of collateral or credit enhancement for a debt instrument may affect its credit risk. Credit risk may change over the life of an investment and securities that are rated by rating agencies are often reviewed periodically and may be subject to downgrade.
Interest Rate Risk
Interest rate risk refers to the risks associated with market changes in interest rates. Interest rate changes may affect the value of a debt instrument indirectly (especially in the case of
fixed-rate securities) and directly (especially in the case of instruments whose rates are adjustable). In general, rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive effect on price. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including, without limitation, the index chosen, frequency of reset and reset caps or floors). Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules.
High Yield Securities Risk
Securities rated lower than Baa by Moody’s Investors Service, Inc. (“Moody’s”), or equivalently rated by S&P Global (“S&P”) or Fitch Ratings, Inc. (“Fitch”), and unrated securities of similar credit quality, are referred to as “high yield securities” or “junk bonds.” Investing in these securities involves special risks in addition to the risks associated with investments in higher-rated fixed-income securities. High yield securities typically entail greater potential price volatility, entail greater levels of credit and repayment risks and may be less liquid than higher- rated securities.
High yield securities are considered predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. They may also be more susceptible to adverse economic and competitive industry conditions than higher-rated securities. An economic downturn or a period of rising interest rates could adversely affect the market for these securities and reduce a Fund’s ability to sell these securities (liquidity risk). Issuers of securities in default may fail to resume principal and interest payments, in which case a Fund may lose its entire investment. Funds that invest in junk bonds may also be subject to greater levels of credit and liquidity risk than funds that do not invest in such securities.
Growth Stock Risk
Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. Growth stocks may go in and out of favor over time and may perform differently than the market as a whole.
ESG and Sustainable Investing Risk
The Matthews Emerging Markets Sustainable Future Fund takes into consideration ESG factors in making its investment decisions. The Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Small Companies Fund, Matthews Pacific Tiger Fund, Matthews China Fund and Matthews Japan Fund may also take into consideration ESG characteristics in their investment decisions. As a result, these Funds may choose to sell, or not purchase, investments that are otherwise consistent with their investment objective. Generally, a Fund’s consideration of ESG standards or factors may reduce or increase its exposure to certain issuers, industries, sectors, regions or countries or cause the Fund to forego
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certain investment opportunities which may lower the performance of the Fund. A Fund’s use of ESG standards or factors as part of its investment process will likely make it perform differently from a fund that relies solely or primarily on financial metrics. ESG investing is qualitative and subjective by nature, and there is no guarantee that the criteria used by Matthews or any judgment exercised by Matthews will reflect the opinions of any particular investor. Although an investment by a Fund in a company may satisfy one or more ESG standards or factors in the view of the portfolio managers, there is no guarantee that such company actually promotes positive environmental, social or economic developments, and that same company may also fail to satisfy other ESG standards or factors, in some cases even egregiously. In addition, Matthews may utilize third party data to evaluate ESG factors which may be incomplete or inaccurate and cause Matthews to incorrectly assess the ESG characteristics a security or issuer. Funds with ESG investment strategies are generally suited for long-term rather than short-term investors.
Risks Associated with Investing in Innovative Companies
The standards for assessing innovative companies in which the Matthews Asia Innovators Fund invests tend to have many subjective characteristics, can be difficult to analyze, and frequently involve a balancing of a company’s business plans, objectives, actual conduct and other factors. The definition of innovators can vary over different periods and can evolve over time. They may also be difficult to apply consistently across regions, countries, industries or sectors.
Risks of Investing in Science and Technology Companies
Each of the Funds may, and the Matthews Asia Innovators Fund will, invest in securities of science and technology companies. Such companies may face special risks because their products or services may not prove to be commercially successful and may be affected by rapid product changes and associated developments. These companies also face the risks that new services, equipment or technologies will not be accepted by consumers or businesses or will become rapidly obsolete. Many science and technology companies have limited operating histories and experience in managing adverse market conditions and are also strongly affected by worldwide scientific or technological developments and global demand cycles. Such companies are also often subject to governmental regulation and greater competitive pressures, such as new market entrants, aggressive pricing and competition for market share, and potential for falling profit margins. The possible loss or impairment of intellectual property rights may also negatively impact science and technology companies. As a result, the price movements of science and technology company stocks can be abrupt or erratic (especially over the short term), and historically have been more volatile than stocks of other types of companies. These factors may also affect the profitability of science and technology companies and therefore the value of their securities. Accordingly, the NAV of a Fund may be more volatile, especially over the short term, as a result of such Fund’s investments in science and technology
companies. These risks are especially important when considering an investment in the Matthews Asia Innovators Fund, which focuses on the science and technology sectors. The Matthews Asia Innovators Fund is less diversified than stock funds investing in a broader range of sectors and, therefore, could experience significant volatility, and the movements in its NAV may follow the science and technology sectors, as opposed to the general movement of the economies of the countries where the companies are located under certain circumstances.
By focusing on the science and technology industries, the Matthews Asia Innovators Fund carries much greater risks of adverse developments and price movements in such industries than a fund that invests in a wider variety of industries. Because the Matthews Asia Innovators Fund concentrates in a group of industries, there is also the risk that it will perform poorly during a slump in demand for securities of companies in such industries.
Sector Concentration Risk
From time to time as a result of the implementation of a Fund’s investment strategies, a Fund may invest a significant portion of its assets in a particular sector. To the extent that a Fund emphasizes investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, a Fund may face more risks than if it were diversified broadly over numerous sectors.
Financial Sector Risk
Certain of the Funds may invest a significant portion of their assets in the financial sector, and therefore the performance of those Funds could be negatively impacted by events affecting this sector. Companies in the financial sector are subject to extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the scope of their activities, the prices they can charge and the amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change or due to increased competition. In addition, deterioration of the credit markets generally may cause an adverse impact on a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. Certain events in the financial sector may cause an unusually high degree of volatility in the financial markets, both domestic and foreign, and cause certain financial companies to incur large losses. Securities of financial companies may experience a dramatic decline in value when such companies experience substantial declines in the valuations of their assets, take actions to raise capital (such as the issuance of debt or equity securities), or cease operations. Credit losses resulting from financial difficulties of borrowers and financial losses asso-
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ciated with investment activities can negatively impact the sector. Adverse economic, business or political developments affecting real estate could have a major effect on the value of real estate securities (which include real estate investment trusts (REITs)). Declining real estate values could adversely affect financial institutions engaged in mortgage finance or other lending or investing activities directly or indirectly connected to the value of real estate.
Industrial Sector Risk
Certain of the Funds may invest a significant portion of their assets in the industrial sector, and therefore the performance of those Funds could be negatively impacted by events affecting this sector. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies.
Consumer Discretionary Sector Risk
Certain of the Funds may invest a significant portion of their assets in the consumer discretionary sector, and therefore the performance of those Funds could be negatively impacted by events affecting this sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall local and international economies, interest rates, competition and consumer confidence. Success of companies in the consumer discretionary sector depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace.
Health Care Sector Risk
Certain of the Funds may invest a significant portion of their assets in the health care sector, and therefore the performance of those Funds could be negatively impacted by events affecting this sector. Companies in the health care sector may be affected by various factors, including extensive government regulations, heavy dependence on patent protection, pricing pressure, increased cost of medical products and services, and product liability claims. Health care companies may be thinly capitalized and may be susceptible to product obsolescence.
Information Technology Sector Risk
Certain of the Funds may invest a significant portion of their assets in the information technology sector, and therefore the performance of those Funds could be negatively impacted by events affecting this sector. Information technology companies may be significantly affected by aggressive pricing as a result of intense competition and by rapid product obsolescence due to rapid development of technological innovations and frequent new product introduction. Other factors, such as short product cycle, possible loss or impairment of intellectual property rights, and changes in government regulations, may also adversely impact information technology companies.
Active Management Risk
The Fund is actively managed by Matthews. There is the risk that Matthews may select securities that underperform the relevant stock market(s), the Fund’s benchmark index or other funds with similar investment objectives and investment strategies.
Cybersecurity Risk
Information and technology systems relied upon by the Funds, Matthews, the Funds’ service providers (including, but not limited to, Fund accountants, custodians, transfer agents, administrators, distributors and other financial intermediaries) and/or the issuers of securities in which a Fund invests may be vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons, security breaches, usage errors, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Although Matthews has implemented measures to manage risks relating to these types of events, if these systems are compromised, become inoperable for extended periods of time or cease to function properly, significant investment may be required to fix or replace them. The failure of these systems and/or of disaster recovery plans could cause significant interruptions in the operations of the Funds, Matthews, the Funds’ service providers and/or issuers of securities in which a Fund invests and may result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to investors (and the beneficial owners of investors). Such a failure could also harm the reputation of the Funds, Matthews, the Funds’ service providers and/or issuers of securities in which a Fund invests, subject such entities and their respective affiliates to legal claims or otherwise affect their business and financial performance.
Asia Pacific Region—Regional and Country Risks
In addition to the risks discussed above and elsewhere in this prospectus, there are specific risks associated with investing in the Asia Pacific region, including the risk of severe economic, political or military disruption. The Asia Pacific region comprises countries in all stages of economic development. Some Asia Pacific economies may experience overextension of credit, currency devaluations and restrictions, rising unemployment, high inflation, underdeveloped financial services sectors, heavy reliance on international trade and prolonged economic recessions. Deflationary factors could also reemerge in certain Asian markets, the potential effects of which are difficult to forecast. While certain Asian governments will have the ability to offset deflationary conditions through fiscal or budgetary measures, others will lack the capacity to do so. Many Asia Pacific countries are dependent on foreign supplies of energy. A significant increase in energy prices could have an adverse impact on these economies and the region as a whole. In addition, some countries in the region are competing to claim or develop regional supplies of energy or other natural resources. This competition could lead to economic, political or military instability or disruption.
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Any military action or other instability could adversely impact the ability of a Fund to achieve its investment objective.
The economies of many Asia Pacific countries (especially those whose development has been export-driven) are dependent on the economies of the United States, Europe and other Asian countries, and, as seen in the developments in global credit and equity markets in 2008 and 2009, events in any of these economies could negatively impact the economies of Asia Pacific countries.
Currency fluctuations, devaluations and trading restrictions in any one country can have a significant effect on the entire Asia Pacific region. Increased political and social instability in any Asia Pacific country could cause further economic and market uncertainty in the region, or result in significant downturns and volatility in the economies of Asia Pacific countries. As an example, in the late 1990s, the economies in the Asian region suffered significant downturns and increased volatility in their financial markets.
The development of Asia Pacific economies, and particularly those of China, Japan and South Korea, may also be affected by political, military, economic and other factors related to North Korea. Negotiations to ease tensions and resolve the political division of the Korean peninsula have been carried on from time to time producing sporadic and inconsistent results. There have also been efforts to increase economic, cultural and humanitarian contacts among North Korea, South Korea, Japan and other nations. There can be no assurance that such negotiations or efforts will continue or will ease tensions in the region. Any military action or other instability could adversely impact the ability of a Fund to achieve its investment objective. Lack of available information regarding North Korea is also a significant risk factor.
Some companies in the region may have less established shareholder governance and disclosure standards than in the U.S. Some companies are controlled by family and financial institutional investors whose investment decisions may be hard to predict based on standard U.S.-based equity analysis. Consequently, investments may be vulnerable to unfavorable decisions by the management or shareholders. Corporate protectionism (e.g., the adoption of poison pills and restrictions on shareholders seeking to influence management) appears to be increasing, which could adversely impact the value of affected companies. Many Asian countries are considered emerging or frontier markets (newer or less developed emerging markets are also sometimes referred to as frontier markets), and the governments of these countries may be more unstable and more likely to impose controls on market prices (including, for example, limitations on daily price movements), which may negatively impact a Fund’s ability to acquire or dispose of a position in a timely manner. Emerging market countries may also impose capital controls, nationalize a company or industry, place restrictions on foreign ownership and on withdrawing sale proceeds of securities from the country, and/or impose punitive taxes that could adversely
affect the prices of securities. Additionally, there may be less publicly available information about companies in many Asian countries, and the stock exchanges and brokerage industries in many Asian countries typically do not have the level of government oversight as do those in the United States. Securities markets of many Asian countries are also less mature, substantially smaller, less liquid and more volatile than securities markets in the U.S., and as a result, there may be increased settlement risks for transactions in local securities.
Economies in this region may also be more susceptible to natural disasters (including earthquakes and tsunamis), or adverse changes in climate or weather. The risks of such phenomena and resulting social, political, economic and environmental damage (including nuclear pollution) cannot be quantified. These events can exacerbate market volatility as well as impair economic activity, which can have both short- and immediate-term effects on the valuations of the companies and issuers in which a Fund invests. Economies in which agriculture occupies a prominent position, and countries with limited natural resources (such as oil and natural gas), may be especially vulnerable to natural disasters and climatic changes.
There are specific risks associated with a Fund’s concentration of its investments in a country or group of countries within the Asia Pacific region. Provided below are risks of investing in various countries within the Asia Pacific region and are principal risks of a Fund to the extent such Fund’s portfolio is concentrated in such country or countries.
Risks Associated with China, Hong Kong and Macau
China. The Chinese government exercises significant control over China’s economy through its industrial policies (e.g., allocation of resources and other preferential treatment), monetary policy, management of currency exchange rates, and management of the payment of foreign currency-denominated obligations. For over three decades, the Chinese government has been reforming economic and market practices, providing a larger sphere for private ownership of property, and interfering less with market forces. While currently contributing to growth and prosperity, these reforms could be altered or discontinued at any time. Changes in these policies could adversely impact affected industries or companies in China. In addition, the Chinese government may actively attempt to influence the operation of Chinese markets through currency controls, direct investments, limitations on specific types of transactions (such as short selling), limiting or prohibiting investors (including foreign institutional investors) from selling holdings in Chinese companies, or other similar actions. Such actions could adversely impact the Funds’ ability to achieve their investment objectives and could result in the Funds limiting or suspending shareholder redemptions privileges (as legally permitted, see Selling (Redeeming) Shares, page 130).
Military conflicts, either in response to internal social unrest or conflicts with other countries, could disrupt the economic
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development in China. China’s long-running conflict over Taiwan remains unresolved and political tensions with Hong Kong have recently increased, while territorial border disputes persist with several neighboring countries. While economic relations with Japan have deepened, the political relationship between the two countries has become more strained in recent years, which could weaken economic ties. There is also a greater risk involved in currency fluctuations, currency convertibility, interest rate fluctuations and higher rates of inflation. The Chinese government also sometimes takes actions intended to increase or decrease the values of Chinese stocks. China’s economy, particularly its export-oriented sectors may be adversely impacted by trade or political disputes with China’s major trading partners, including the U.S.
U.S. governmental orders and sanctions with respect to Chinese military-related companies not only restrict the companies eligible for investment but also may apply to existing holdings and thus force the Funds to sell those holdings at a time Matthews otherwise finds unattractive. In addition, any perceived actions by China to assist Russia in evading sanctions imposed as a result of the Ukraine invasion may result in new or expanded sanctions against China and Chinese-related companies. New or existing sanctions may be complex and difficult to interpret and could adversely affect the liquidity and value of the Funds’ holdings.
In addition, as China’s consumer class continues to grow, China’s domestically oriented industries may be especially sensitive to changes in government policy and investment cycles. Social cohesion in China is being tested by growing income inequality and larger scale environmental degradation. Social instability could threaten China’s political system and economic growth, which could decrease the value of the Funds’ investments.
After many years of steady growth, the growth rate of China’s economy slowed prior to 2020, including the once rapidly growing Chinese real estate market, and left local governments with high debts with few viable means to raise revenue, especially with the fall in demand for housing. Although these trends reversed and demand grew within the real estate market during China’s initial recovery from the COVID‑19 pandemic, it remains unclear whether these trends will continue given global economic uncertainties caused by the pandemic and trade relations and fears that the Chinese real estate market may be overheating. Any further stresses in the Chinese real estate sector could adversely affect the value of a Fund’s holdings.
Accounting, auditing, financial, and other reporting standards, practices and disclosure requirements in China are different, sometimes in fundamental ways, from those in the U.S. and certain Western European countries. Although the Chinese government adopted a new set of Accounting Standards for Business Enterprises effective January 1, 2007, which are similar to the International Financial Reporting Standards, the accounting practices in China continue to be frequently
criticized and challenged. In addition, China does not allow the Public Company Accounting Oversight Board to inspect the work that auditors perform in China for Chinese companies in which the Funds may invest. That inspection organization conducts on‑going reviews of audits by U.S. accounting firms. As a result, financial reporting by Chinese companies do not have the same degree of transparency and regulatory oversight as reporting by companies in the U.S. Because of Chinese governmental disagreements with the Public Company Accounting Oversight Board concerning the inspection of audits of U.S.-listed Chinese companies, it is possible those companies could be delisted from trading in the U.S. if those disagreements are not resolved. Delisting would likely adversely affect the liquidity and values of those shares.
Hong Kong. Hong Kong has been governed by the Basic Law, which provides a high degree of autonomy from China in certain matters until 2047. However, as demonstrated by Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response to them, considerable political uncertainty continues to exist within Hong Kong. Due to the interconnected nature of the Hong Kong and Chinese economies, this instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese markets. If China were to exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance and have an adverse effect on the Funds’ investments. In addition, the Hong Kong dollar trades within a fixed trading band rate to (or is “pegged” to) the U.S. dollar. This fixed exchange rate has contributed to the growth and stability of the Hong Kong economy. However, some market participants have questioned the continued viability of the currency peg. It is uncertain what effect any discontinuance of the currency peg and the establishment of an alternative exchange rate system would have on capital markets generally and the Hong Kong economy.
Macau. Although Macau is a Special Administrative Region (SAR) of China, it maintains a high degree of autonomy from China in economic matters. Macau’s economy is heavily dependent on the gaming sector and tourism industries, and its exports are dominated by textiles and apparel. Accordingly, Macau’s growth and development are highly dependent upon external economic conditions, particularly those in China.
Variable Interest Entities. Certain of the Funds (currently including the Matthews Asia Growth Fund, Matthews Asia Innovators Fund and Matthews China Fund) invest a substantial portion of their assets, and the other Funds may invest to a lesser extent, in certain operating companies in China through legal structures known as variable interest entities (“VIEs”). In China, ownership of companies in certain sectors by foreign individuals and entities (including U.S. persons and entities such as the Funds) is prohibited. In order to facilitate foreign investment in these businesses, many
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Chinese companies have created VIEs. In such an arrangement, a China-based operating company typically establishes an offshore shell company in another jurisdiction, such as the Cayman Islands. That shell company enters into service and other contracts with the China-based operating company, then issues shares on a foreign exchange, such as the New York Stock Exchange. Foreign investors hold stock in the shell company rather than directly in the China-based operating company. This arrangement allows U.S. investors to obtain economic exposure to the China-based company through contractual means rather than through formal equity ownership.
VIEs are a longstanding industry practice and well known to officials and regulators in China; however, VIEs are not formally recognized under Chinese law. Recently, the government of China provided new guidance to and placed restrictions on China-based companies raising capital offshore, including through VIE structures. Investors face uncertainty about future actions by the government of China that could significantly affect an operating company’s financial performance and the enforceability of the shell company’s contractual arrangements. It is uncertain whether Chinese officials or regulators will withdraw their implicit acceptance of the VIE structure, or whether any new laws, rules or regulations relating to VIE structures will be adopted or, if adopted, what impact they would have on the interests of foreign shareholders. Under extreme circumstances, China might prohibit the existence of VIEs, or sever their ability to transmit economic and governance rights to foreign individuals and entities; if so, the market value of the Funds’ associated portfolio holdings would likely suffer significant, detrimental, and possibly permanent effects, which could result in substantial investment losses.
Risks Associated with Taiwan
The political reunification of China and Taiwan, over which China continues to claim sovereignty, is a highly complex issue and is unlikely to be settled in the near future. Although the relationship between China and Taiwan has been improving, there is the potential for future political or economic disturbances that may have an adverse impact on the values of investments in either China or Taiwan, or make investments in China and Taiwan impractical or impossible. Any escalation of hostility between China and Taiwan would likely distort Taiwan’s capital accounts, as well as have a significant adverse impact on the value of investments in both countries and the region, which could negatively affect the value and liquidity of a Fund’s investments.
Risks Associated with Other Asian Countries
India. In India, the government has exercised and continues to exercise significant influence over many aspects of the economy. Government actions, bureaucratic obstacles and inconsistent economic reform within the Indian government have had a significant effect on its economy and could adversely affect market conditions, economic growth and the profitability of private enterprises in India. Global factors and
foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. Large portions of many Indian companies remain in the hands of their founders (including members of their families). Corporate governance standards of family-controlled companies may be weaker and less transparent, which increases the potential for loss and unequal treatment of investors. India experiences many of the risks associated with developing economies, including relatively low levels of liquidity, which may result in extreme volatility in the prices of Indian securities.
Religious, cultural and military disputes persist in India, and between India and Pakistan (as well as sectarian groups within each country). The longstanding border dispute with Pakistan remains unresolved. Terrorists believed to be based in Pakistan have struck Mumbai (India’s financial capital) in the past, further damaging relations between the two countries. If the Indian government is unable to control the violence and disruption associated with these tensions (including both domestic and external sources of terrorism), the result may be military conflict, which could destabilize the economy of India. Both India and Pakistan have tested nuclear arms, and the threat of deployment of such weapons could hinder development of the Indian economy, and escalating tensions could impact the broader region, including China.
Japan. The Japanese yen has shown volatility over the past two decades and such volatility could affect returns in the future. The yen may also be affected by currency volatility elsewhere in Asia, especially Southeast Asia. Depreciation of the yen, and any other currencies in which the Funds’ securities are denominated, will decrease the value of the Funds’ holdings. Japan’s economy could be negatively impacted by many factors, including rising interest rates, tax increases and budget deficits.
In the longer term, Japan will have to address the effects of an aging population, such as a shrinking workforce and higher welfare costs. To date, Japan has had restrictive immigration policies that, combined with other demographic concerns, appear to be having a negative impact on the economy. Japan’s growth prospects appear to be dependent on its export capabilities. Japan’s neighbors, in particular China, have become increasingly important export markets. Despite a deepening in the economic relationship between Japan and China, the countries’ political relationship has at times been strained in recent years. Should political tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy. Japan is located in a region that is susceptible to natural disasters, which could also negatively impact the Japanese economy.
South Korea. Investing in South Korean securities has special risks, including those related to political, economic and social instability in South Korea and the potential for increased
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militarization in North Korea (see Regional and Country Risks above). Securities trading on South Korean securities markets are concentrated in a relatively small number of issuers, which results in potentially fewer investment opportunities for the Funds. South Korea’s financial sector has shown certain signs of systemic weakness and illiquidity, which, if exacerbated, could prove to be a material risk for investments in South Korea. South Korea is dependent on foreign sources for its energy needs. A significant increase in energy prices could have an adverse impact on South Korea’s economy. There are also a number of risks to the Funds associated with the South Korean government. The South Korean government has historically exercised and continues to exercise substantial influence over many aspects of the private sector. The South Korean government from time to time has informally influenced the prices of certain products, encouraged companies to invest or to concentrate in particular industries and induced mergers between companies in industries experiencing excess capacity.
Vietnam. In 1992, Vietnam initiated the process of privatization of state-owned enterprises, and expanded that process in 1996. However, some Vietnamese industries, including commercial banking, remain dominated by state-owned enterprises, and for most of the private enterprises, a majority of the equity is owned by employees and management boards and on average more than one‑third of the equity is owned by the government with only a small percentage of the equity being owned by investors. In addition, Vietnam continues to impose limitations on foreign ownership of Vietnamese companies and has in the past imposed arbitrary repatriation taxes on foreign owners. Although Vietnam has experienced significant economic growth in the past three decades, Vietnam continues to face various challenges, including corruption, lack of transparency, uniformity and consistency in governmental regulations, heavy dependence on exports, a growing population, and increasing pollution. Inflation threatens long-term economic growth and may deter foreign investment in the country. In addition, foreign currency reserves in Vietnam may not be sufficient to support conversion into the U.S. dollar (or other more liquid currencies). Vietnamese markets have relatively low levels of liquidity, which may result in extreme volatility in the prices of Vietnamese securities. Market volatility may also be heightened by the actions of a small number of investors.
Risks Associated with Other Regions
Europe
Investing in Europe involves risks not typically associated with investments in the United States. A majority of western European countries and a number of eastern European countries are members of the European Union (“EU”), an intergovernmental union aimed at developing economic and political coordination and cooperation among its member states. European countries that are members of the Economic and Monetary Union of the European Union (“EMU”) are subject to restrictions on inflation rates, interest rates, deficits,
and debt levels. The EMU sets out different stages and commitments for member states to follow in an effort to achieve greater coordination of economic, fiscal and monetary policies. A member state that participates in the third (and last) stage is permitted to adopt a common currency, the Euro. EMU member states that have adopted the Euro are referred to as the “Eurozone.” As a condition to adopting the Euro, EMU member states must also relinquish control of their monetary policies to the European Central Bank and become subject to certain monetary and fiscal controls imposed by the EMU. As economic conditions across member states may vary widely, it is possible that these controls may not adequately address the needs of all EMU member states from time to time. These controls remove EMU member states’ flexibility in implementing monetary policy measures to address regional economic conditions, which may impair their ability to respond to crises. In addition, efforts by the EU and the EMU to unify economic and monetary policies may also increase the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. Conversely, any failure of these efforts may increase volatility and uncertainty in European financial markets and negatively affect the value of the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s investments in European issuers.
European financial markets are vulnerable to volatility and losses arising from concerns about the potential exit of member countries from the EU and/or the Eurozone and, in the latter case, the reversion of those countries to their national currencies. Defaults by EMU member countries on sovereign debt, as well as any future discussions about exits from the Eurozone, may negatively affect the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s investments in the defaulting or exiting country, in issuers, both private and governmental, with direct exposure to that country, and in European issuers generally. The United Kingdom (“UK”) formally withdrew from the EU on January 31, 2020 (a process commonly referred to as “Brexit”). The full extent of the political, economic and legal consequences of Brexit are not yet fully known, and the long-term impact of Brexit on the UK, the EU and the broader global economy may be significant. As a result of the political divisions within the UK and between the UK and the EU that the referendum vote has highlighted and the uncertain consequences of Brexit, the UK and European economies and the broader global economy could be significantly impacted, which may result in increased volatility and illiquidity and potentially lower economic growth on markets in the UK, Europe and globally. The consequences of the UK’s or another country’s exit from the EU and/or Eurozone could also threaten the stability of the Euro for remaining countries and could negatively affect the financial markets of other countries in the European region and beyond.
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Emerging Market Countries in Europe. While many countries in western Europe are considered to have developed markets, many eastern European countries are less developed. Investments in eastern European countries, even if denominated in Euros, may involve special risks associated with investments in emerging markets. Economic and political structures in many emerging European countries are in the early stages of economic development and developing rapidly, and these countries may lack the social, political, and economic stability characteristics of many more developed countries. In addition, the small size and inexperience of the securities markets in emerging European countries and the limited volume of trading in securities in those markets may make the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s investments in these countries illiquid and more volatile than investments in more developed countries and may make obtaining prices on portfolio securities from independent sources more difficult than in other, more developed markets. In the past, certain emerging European countries have failed to recognize private property rights and at times have nationalized or expropriated the assets of private companies. There may also be little financial or accounting information available with respect to companies located in certain eastern European countries, which, as a result, may make it difficult to assess the value or prospects of an investment in those companies.
The European financial markets have been experiencing volatility and adverse trends due to concerns about economic downturns or rising government debt levels in both emerging and developed European countries. These events have adversely affected currency exchange rates and may continue to significantly affect every country in Europe, including countries that do not use the Euro. Defaults or restructurings by governments could have adverse effects on economies, financial markets, and asset valuations throughout Europe and lead to additional countries abandoning the Euro or withdrawing from the European Union. During periods of instability or upheaval, a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. In addition, at certain times, the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, and the Matthews Emerging Markets Small Companies Fund may have to “fair value” certain securities by determining value on the basis of factors other than market quotations. Portfolio holdings that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation than if market quotations had been used, and there is no assurance that the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, or the Matthews Emerging Markets Small Companies Fund could sell or close out a portfolio position for the value established for it at any time.
In addition, Russia’s recent military incursions in Ukraine have led to, and may lead to additional, sanctions being levied against Russia by the United States, European Union and other countries. Russia’s military incursion and the resulting sanctions has adversely affected and may continue to advserly affect European and global energy and financial markets and thus could affect the value of a Fund’s investments, even beyond any direct exposure the Fund may have to Russian issuers or the adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial.
Latin America
Latin American economies are generally considered emerging markets and have in the past experienced considerable difficulties, including high inflation rates, high interest rates, high unemployment, government overspending and political instability. Similar conditions in the present or future could impact the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s performance. Because Latin American countries are highly reliant on the exportation of commodities such as oil and gas, minerals, and metals, their economies may be significantly impacted by fluctuations in commodity prices and the global demand for certain commodities. Investments in Latin American countries may be subject to currency risks, such as restrictions on the flow of money in and out of a country, extreme volatility relative to the U.S. dollar, and devaluation, all of which could decrease the value of the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s investments. Other Latin American investment risks may include inadequate investor protection, less developed regulatory, accounting, auditing and financial standards, unfavorable changes in laws or regulations, natural disasters, corruption and military activity. The governments of many Latin American countries may also exercise substantial influence over many aspects of the private sector, and any such exercise could have a significant effect on companies in which the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, and the Matthews Emerging Markets Small Companies Fund invest. A relatively small number of Latin American companies represents a large portion of Latin America’s total market and thus may be more sensitive to adverse political or economic circumstances and market movements. Securities of companies in Latin American countries may be subject to significant price volatility, which could impact the Matthews Emerging Markets Equity Fund’s, Matthews Emerging Markets Sustainable Future Fund’s, and the Matthews Emerging Markets Small Companies Fund’s performance. During periods of instability or upheaval, a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. In addition, at certain times, the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable
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Future Fund, and the Matthews Emerging Markets Small Companies Fund may have to “fair value” certain securities by assigning a value on the basis of factors other than market quotations. Portfolio holdings that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation than if market quotations had been used, and there is no assurance that the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, or the Matthews Emerging Markets Small Companies Fund could sell or close out a portfolio position for the value established for it at any time.
Additional Risks
The following additional or non‑principal risks also apply to investments in the Funds.
Risks Associated with Other Asia Pacific and Emerging Market Countries
Australia. The Australian economy is dependent, in particular, on the price and demand for agricultural products and natural resources. The United States and China are Australia’s largest trade and investment partners, which may make the Australian markets sensitive to economic and financial events in those two countries. Australian markets may also be susceptible to sustained increases in oil prices as well as weakness in commodity and labor markets.
Bangladesh. Bangladesh is facing many economic hurdles, including weak political institutions, poor infrastructure, lack of privatization of industry and a labor force that has outpaced job growth in the country. High poverty and inflationary tensions may cause social unrest, which could weigh negatively on business sentiment and capital investment. Bangladesh’s developing capital markets rely primarily on domestic investors. The recent overheating of the stock market and subsequent correction underscored weakness in capital markets and regulatory oversight. Corruption remains a serious impediment to investment and economic growth in Bangladesh, and the country’s legal system makes debt collection unpredictable, dissuading foreign investment. Bangladesh is geographically located in a part of the world that is historically prone to natural disasters and is economically sensitive to environmental events.
Brazil. Brazilian issuers are subject to possible regulatory and economic interventions by the Brazilian government, including the imposition of wage and price controls and the limitation of imports. In addition, the market for Brazilian securities is directly influenced by the flow of international capital and economic and market conditions of certain countries, especially other emerging market countries in Central and South America. The Brazilian economy historically has been exposed to high rates of inflation and a high level of debt, each of which may reduce and/or prevent economic growth. Brazil also has suffered from chronic structural public sector deficits. Such challenges have contributed to a high degree of price volatility in both the Brazilian equity and
foreign currency markets. A rising unemployment rate could also have the same effect.
Cambodia. Cambodia is experiencing a period of political stability and relative peace following years of violence under the Khmer Rouge regime. Despite its recent growth and stability, Cambodia faces risks from a weak infrastructure (particularly power generation capacity and the high cost of electric power), a poorly developed education system, inefficient bureaucracy and charges of government corruption. Very low foreign exchange reserves make Cambodia vulnerable to sudden capital flight, and the banking system suffers from a lack of oversight and very high dollarization. Further, destruction of land-ownership records during the Khmer Rouge regime has resulted in numerous land disputes, which strain the country’s institutional capacity and threaten violence and demonstrations.
Indonesia. Indonesia’s political institutions and democracy have a relatively short history, increasing the risk of political instability. Indonesia has in the past faced political and militant unrest within several of its regions, and further unrest could present a risk to the local economy and stock markets. The country has also experienced acts of terrorism, predominantly targeted at foreigners, which has had a negative impact on tourism. Corruption and the perceived lack of a rule of law in dealings with international companies in the past may have discouraged much needed foreign direct investment. Should this issue remain, it could negatively impact the long-term growth of the economy. In addition, many economic development problems remain, including high unemployment, a developing banking sector, endemic corruption, inadequate infrastructure, a poor investment climate and unequal resource distribution among regions.
Laos. Laos is a poor, developing country ruled by an authoritarian, Communist, one‑party government. It is politically stable, with political power centralized in the Lao People’s Revolutionary Party. Laos’ economic growth is driven largely by the construction, mining and hydroelectric sectors. However, the increased development of natural resources could lead to social imbalances, particularly in light of Laos’ underdeveloped health care and education systems. Laos is a poorly regulated economy with limited rule of law. Corruption, patronage and a weak legal system threaten to slow economic development. Another major risk for Laos is the stability of its banks, which, despite the significant credit growth since 2009, are under-capitalized and inadequately supervised.
Malaysia. Malaysia has previously imposed currency controls and a 10% “exit levy” on profits repatriated by foreign entities such as the Funds and has limited foreign ownership of Malaysian companies (which may artificially support the market price of such companies). The Malaysian capital controls have been changed in significant ways since they were first adopted without prior warning on September 1, 1998. Malaysia has also abolished the exit levy. However, there can be no assurance that the Malaysian capital controls will not be
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changed adversely in the future or that the exit levy will not be re‑established, possibly to the detriment of the Funds and their shareholders. In addition, Malaysia is currently exhibiting political instability which could have an adverse impact on the country’s economy.
Mexico. The Mexican economy is dependent upon external trade with other economies, specifically with the United States and certain Latin American countries. As a result, Mexico is dependent on the U.S. economy, and any change in the price or demand for Mexican exports may have an adverse impact on the Mexican economy. Recently, Mexico has experienced an outbreak of violence related to drug trafficking. Incidents involving Mexico’s security may have an adverse effect on the Mexican economy and cause uncertainty in its financial markets. In the past, Mexico has experienced high interest rates, economic volatility, and high unemployment rates. In addition, one political party dominated its government until the elections of 2000, when political reforms were put into place to improve the transparency of the electoral process. Since then, competition among political parties has increased, resulting in elections that have been contentious, and this continued trend could lead to greater market volatility.
Mongolia. Mongolia has experienced political instability in conjunction with its election cycles. Mongolian governments have had a history of cycling favorable treatment among China, Russia, Japan, the United States and Europe and may at any time abruptly change current policies in a manner adverse to investors. In addition, assets in Mongolia may be subject to nationalization, requisition or confiscation (whether legitimate or not) by any government authority or body. Government corruption and inefficiencies are also a problem. Mongolia’s unstable economic policies and regulations towards foreign investors threaten to impede necessary growth of production capacity. Additionally, the Mongolian economy is extremely dependent on the price of minerals and Chinese demand for Mongolian exports.
Myanmar. Myanmar (formerly Burma) is emerging from nearly half a century of isolation under military rule and from the gradual suspension of sanctions imposed for human-rights violations. However, Myanmar struggles with rampant corruption, poor infrastructure (including basic infrastructure, such as transport, telecoms and electricity), ethnic tensions, a shortage of technically proficient workers and a dysfunctional bureaucratic system. Myanmar has no established corporate bond market or stock exchange and has a limited banking system. Additionally, despite democratic trends and progress on human rights, Myanmar’s political situation remains fluid, and there remains the possibility of reinstated sanctions.
New Zealand. New Zealand is generally considered to be a developed market, and investments in New Zealand generally do not have risks associated with them that are present with investments in developing or emerging markets. New Zealand is a country heavily dependent on free trade, particularly in agricultural products. This makes New Zealand particularly
vulnerable to international commodity prices and global economic slowdowns. Its principal export industries are agriculture, horticulture, fishing and forestry.
Pakistan. Changes in the value of investments in Pakistan and in companies with significant economic ties to that country largely depend on continued economic growth and reform in Pakistan, which remains uncertain and subject to a variety of risks. Pakistan has faced, and continues to face, high levels of political instability and social unrest at both the regional and national levels. Ongoing border disputes with India may result in armed conflict between the two nations, and Pakistan’s geographic location and its shared borders with Afghanistan and Iran increase the risk that it will be involved in, or otherwise affected by, international conflict. Pakistan’s economic growth is in part attributable to high levels of international support, which may be significantly reduced or terminated in response to changes in the political leadership of Pakistan. Pakistan faces a wide range of other economic problems and risks, such as the uncertainty over the privatization efforts, the substantial natural resource constraints it is subject to, its large budgetary and current account deficits as well as trade deficits, its judicial system that is still developing and widely perceived as lacking transparency, and inflation.
Papua New Guinea. Papua New Guinea is a small country that faces challenges in maintaining political stability. The government intrudes in many aspects of the economy through state ownership and regulation. Despite promises from the government to address rampant corruption, corruption and nepotism remain pervasive and often go unpunished. Other challenges facing Papua New Guinea include providing physical security for foreign investors, regaining investor confidence, restoring integrity to state institutions, privatizing state institutions, improving its legal system and maintaining good relations with Australia. Exploitation of Papua New Guinea’s natural resources is limited by terrain, land tenure issues and the high cost of developing infrastructure. Papua New Guinea has several thousand distinct and heterogeneous indigenous communities, which create additional challenges in dealing with tribal conflicts, some of which have been going on for millennia.
Philippines. Philippines’ consistently large budget deficit has produced a high debt level and has forced the country to spend a large portion of its national government budget on debt service. Large, unprofitable public enterprises, especially in the energy sector, contribute to the government’s debt because of slow progress on privatization.
Singapore. As a small open economy, Singapore is particularly vulnerable to external economic influences, such as the Asian economic crisis of the late 1990s. Singapore has been a leading manufacturer of electronics goods. However, competition from other countries in this and related industries, and adverse Asian economic influences generally, may negatively affect Singapore’s economy.
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Sri Lanka. Civil war and terrorism have disrupted the economic, social and political stability of Sri Lanka for decades. While these tensions appear to have lessened, there is the potential for continued instability resulting from ongoing ethnic conflict. Sri Lanka faces severe income inequality, high inflation and a sizable public debt load. Sri Lanka relies heavily on foreign assistance in the form of grants and loans from a number of countries and international organizations such as the World Bank and the Asian Development Bank. Changes in international political sentiment may have significant adverse effects on the Sri Lankan economy.
Thailand. In recent years Thailand has experienced increased political, social and militant unrest, negatively impacting tourism and the broader economy. Thailand’s political institutions remain unseasoned, increasing the risk of political instability. Since 2005, Thailand has experienced several rounds of political turmoil, including a military coup in September 2006 that replaced Thailand’s elected government with new leadership backed by a military junta. Political and social unrest have continued following the 2006 coup and have resulted in disruptions, violent protests and clashes between citizens and the government. In May 2014, after months of large-scale anti-government protests, another military coup was staged, and a new military junta was established to govern the nation. In March 2019, after many rounds of delays, the first general election since the 2014 coup was held in Thailand. The election has been widely considered a contest between the pro‑military and pro‑democracy forces, and the outcome of the election could lead to further political instability in Thailand. These events have negatively impacted the Thai economy, and the long-term effect of these developments remains unclear. The Thai government has historically imposed investment controls apparently designed to control volatility in the Thai baht and to support certain export-oriented Thai industries. These controls have largely been suspended, although there is no guarantee that such controls will not be re‑imposed. However, partially in response to these controls, an offshore market for the exchange of Thai baht developed. The depth and transparency of this market have been uncertain.
Risks Associated with Other Regions
Africa and the Middle East
The economies of certain African and Middle Eastern countries are in the earliest stages of economic development, which may result in a high concentration of trading volume and market capitalization in a small number of issuers or a limited number of industries. There are typically fewer brokers in African and Middle Eastern countries, and they are typically less well capitalized than brokers in the United States or other developed markets. Many African nations have a history of military intervention, dictatorship, civil war, and corruption, which all limit the effectiveness of markets in those countries. Many Middle Eastern countries are facing political and economic uncertainty, with little or no democratic tradition or free market history, which could result in significant economic downturn.
During periods of instability or upheaval, a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. Portfolio holdings that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation than if market quotations had been used, and there is no assurance that the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, or the Matthews Emerging Markets Small Companies Fund could sell or close out a portfolio position for the value established for it at any time. Further, the economies of many Middle Eastern and African countries are largely dependent on, and linked together by, certain commodities (such as gold, silver, copper, diamonds, and oil). As a result, African and Middle Eastern economies are vulnerable to changes in commodity prices, and fluctuations in demand for these commodities could significantly impact economies in these regions. A downturn in one country’s economy could have a disproportionally large effect on others in the region.
U.S. Securities Risk
Certain Funds invest to a limited extent in stocks issued by U.S. companies. U.S. stocks have certain risks similar to equity securities issued in other countries, such as declines in value over short or extended periods as a result of changes in a company’s financial condition or the overall market as well as economic and political conditions. Although U.S. stocks have enjoyed many years of favorable returns, they have more recently experienced volatility based on political and economic events such as trade disputes. In addition, interest rate increases in the U.S. may adversely affect stocks.
Risks Associated with Investment in a Smaller Number of Companies or Industries
From time to time, a relatively small number of companies and industries may represent a large portion of the total stock market in a particular country or region, and these companies and industries may be more sensitive to adverse social, political, economic or regulatory developments than funds whose portfolios are more diversified. Events affecting a small number of companies or industries may have a significant and potentially adverse impact on your investment in the Funds, and the Funds’ performance may be more volatile than that of funds that invest globally.
Credit Ratings Risk
In this prospectus, references are made to credit ratings of debt securities, which measure an issuer’s expected ability to pay principal and interest over time (but not other risks, including market risks). Credit ratings are determined by rating organizations, such as Moody’s, S&P, and Fitch, based on their view of past and potential developments related to an issuer (or security). Such potential developments may not reflect actual developments and a rating organization’s evaluation may be incomplete or inaccurate. For a further description of credit ratings, see “Appendix: Bond Ratings” in the Funds’ SAI.
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Passive Foreign Investment Companies Risk
The Funds may invest in PFICs. Investments in PFICs may subject the Funds to taxes and interest charges that cannot be avoided, or that can be avoided only through complex methods that may have the effect of imposing a less favorable tax rate or accelerating the recognition of gains and payment of taxes.
Initial Public Offerings (“IPOs”) Risk
IPOs of securities issued by unseasoned companies with little or no operating history are risky, and their prices are highly volatile, but they can result in very large gains in their initial trading. Attractive IPOs are often oversubscribed and may not be available to the Funds or may be available only in very limited quantities. Thus, when a Fund’s size is smaller, any gains or losses from IPOs may have an exaggerated impact on the Fund’s performance than when it is larger. The Funds’ portfolio managers are permitted to engage in short-term trading of IPOs. Although IPO investments have had a positive impact on the performance of some Funds, there can be no assurance that a Fund will have favorable IPO investment opportunities in the future or that a Fund’s investments in IPOs will have a positive impact on its performance.
Market Timing and Other Short-Term Trading Risk
The Funds are not intended for short-term trading by investors. Investors who hold shares of the Funds for the short term, including market-timers, may harm the Funds and other shareholders by diluting the value of their shares, disrupting management of a Fund’s portfolio and causing a Fund to incur additional costs, which are borne by non‑redeeming shareholders. The Funds attempt to discourage time-zone arbitrage and similar market-timing activities, which seek to benefit from any differences between a Fund’s NAV and the fair value of its holdings that may occur between the closing times of foreign and U.S. markets, with the latter generally used to determine when each Fund’s NAV is calculated. See page 131 for additional information on the Funds’ policies and procedures related to short-term trading and market-timing activity.
Risks Associated with Investment in China A Shares
Matthews has applied for and received a license as a Qualified Foreign Investor (“QFI”) from the China Securities Regulatory Commission and has been registered with the State Administration of Foreign Exchange of China for the inward and outward remittance of funds in foreign currencies and/or offshore renminbi (the “QFI Status”), by which Matthews may invest in stocks of Chinese companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange and traded and denominated in the currency of China, the renminbi (“China A Shares”) on behalf of clients whose portfolios it manages, including for this purpose any series, sub‑fund, sleeve, or other sub‑account of such client (each an “A Share Investor”). For a further discussion of China A Shares and risks associated with investing in China A Shares, see “Risks Associated with Investing in China A Shares” in the Funds’ SAI.
Matthews, as a QFI license holder, maintains custody of China A Share assets with a local custodian in its own name for the
benefit of the A Share Investors (the “A Share Account”). In addition, the local Chinese custodian will maintain, on its books and records, a sub‑account on behalf of each A Share Investor with respect to the China A Share assets held by each individual A Share Investor.
Matthews has agreed with each A Share Investor that Matthews has and shall have no beneficial interest in such China A Share assets and that they belong exclusively to the individual A Share Investors in whose name they are held on the books and records of the Chinese custodian. In addition, each A Share Investor has agreed that such A Share Investor has an interest solely in the China A Share assets held through the QFI Status of Matthews that are registered in its name on the books and records of the Chinese custodian, and that they have no interest in any China A Share assets held on the books and records of the Chinese custodian in the name of any other A Share Investor.
A Share Investors, including the Funds, bear the costs of maintaining their sub‑account on the books and records of the Chinese custodian, as well as their share of the costs of maintaining the A Share Account.
Although China A Shares generally trade in liquid markets, because of the repatriation requirements imposed by the Chinese government, a Fund’s investment in China A Shares may be illiquid and subject to the Fund’s policy of investing no more than 15% of its net assets in illiquid securities.
Investing in China A Shares through Stock Connect. A Fund may purchase China A Shares through the Shanghai and Shenzhen - Hong Kong Stock Connect (“Stock Connect”). The Stock Connect program is a mutual market access program designed to enable foreign investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong. There are significant risks inherent in investing in China A Shares through Stock Connect. Specifically, trading can be affected by market or bank closures, quota limits, and certain pre‑delivery and pre-validation requirements, such that a Fund may not be able to purchase or dispose of its shares in a timely manner. In addition, a Fund’s purchase of China A Shares through Stock Connect may only be subsequently sold through Stock Connect and is not otherwise transferable. A Fund’s shares will be registered in its custodian’s name on the Hong Kong Central Clearing and Settlement System, which may limit Matthews’ ability to effectively manage a Fund’s holdings, including the potential enforcement of equity owner rights.
General Risks Associated with Public Health Emergencies; Impact of the Coronavirus (COVID‑19)
Pandemics and other local, national, and international public health emergencies, including outbreaks of infectious diseases such as SARS, H1N1/09 Flu, the Avian Flu, Ebola and the recent novel coronavirus (“COVID‑19”) pandemic, can result, and in the case of COVID‑19 has resulted and may continue to result, in market volatility and disruption, and any similar future emergencies may materially and adversely impact
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economic production and activity in ways that cannot be predicted, all of which could result in substantial investment losses.
The extent of the ongoing impact of COVID‑19 (and the resulting decline and disruption in economic and commercial activity across many of the world’s economies), including new strains of the underlying virus, on global economic conditions, and on the operations, financial condition, and per-
formance of any particular market, industry or business, is impossible to predict. However, ongoing and potential additional materially adverse effects, including further global, regional and local economic downturns (including recessions) of indeterminate duration and severity, are possible.
The ongoing COVID‑19 crisis and any other public health emergency could have a significant adverse impact on the Funds’ investments and result in significant investment losses.
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Management of the Funds
Matthews International Capital Management, LLC is the investment advisor to the Funds. Matthews is located at Four Embarcadero Center, Suite 550, San Francisco, California 94111 and can be reached toll free by telephone at 800.789.ASIA (2742). Matthews was founded in 1991 by G. Paul Matthews. Since its inception, Matthews has specialized in managing portfolios of Asian securities. Matthews invests the Funds’ assets, manages the Funds’ business affairs, supervises the Funds’ overall day‑to‑day operations, and provides the personnel needed by the Funds with respect to Matthews’ responsibilities pursuant to an Investment Advisory Agreement dated as of February 1, 2016 between Matthews and the Trust, on behalf of the Funds (as amended from time to time, the “Advisory Agreement”). Matthews also furnishes the Funds with office space and provides certain administrative, clerical and shareholder services to the Funds pursuant to the Services Agreement (as defined below).
Pursuant to the Advisory Agreement, the Funds, other than the Matthews Emerging Markets Small Companies Fund and Matthews China Small Companies Fund (such Funds collectively, the “Family-Priced Funds”), in the aggregate, pay Matthews 0.75% of the aggregate average daily net assets of the Family-Priced Funds up to $2 billion, 0.6834% of the aggregate average daily net assets of the Family-Priced Funds over $2 billion up to $5 billion, 0.65% of the aggregate average daily net assets of the Family-Priced Funds over $5 billion up to $25 billion, 0.64% of the aggregate average daily net assets of the Family-Priced Funds over $25 billion up to $30 billion, 0.63% of the aggregate average daily net assets of the Family-Priced Funds over $30 billion up to $35 billion, 0.62% of the aggregate average daily net assets of the Family-Priced Funds over $35 billion up to $40 billion, 0.61% of the aggregate average daily net assets of the Family-Priced Funds over $40 billion up to $45 billion, and 0.60% of the aggregate average daily net assets of the Family-Priced Funds over $45 billion. The Family-Priced Funds shall pay to Matthews a monthly fee at the annual rate using the applicable management fee calculated based on the actual number of days of that month and based on the Funds’ average daily net assets for the month.
Pursuant to the Advisory Agreement, each of the Matthews Emerging Markets Small Companies Fund and Matthews China Small Companies Fund pays Matthews a fee equal to 1.00% of its average daily net assets up to $1 billion and 0.95% of its average daily net assets over $1 billion. Each of the Matthews Emerging Markets Small Companies Fund and the Matthews China Small Companies Fund shall pay to Matthews a monthly fee at the annual rate using the applicable management fee calculated based on the actual number of days of that month and based on such Fund’s average daily net assets for the month.
A discussion regarding the basis for the Board’s approval of the Advisory Agreement with respect to the Funds is available in the Funds’ Annual Report to Shareholders for the fiscal year ended December 31, 2022.
For the fiscal year ended December 31, 2022, the Funds paid investment management fees to Matthews as follows (as a percentage of average net assets):
| Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund, Matthews China Dividend Fund, Matthews Asia Growth Fund, Matthews Pacific Tiger Fund, Matthews Asia Innovators Fund, Matthews China Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund | 0.67% | |||
| Matthews Emerging Markets Small Companies Fund, Matthews China Small Companies Fund | 1.00% | |||
Matthews may delegate certain portfolio management activities with respect to one or more Funds to a wholly owned subsidiary based outside of the United States. Any such participating affiliate would enter into a participating affiliate agreement with Matthews related to the affected Fund, and Matthews would remain fully responsible for the participating affiliate’s services as if Matthews had performed the services directly. Any delegation of services in this manner would not increase the fees or expenses paid by the Fund, and would normally be used only where a portfolio manager or other key professional is located in the country where the subsidiary is based.
Pursuant to an administration and shareholder services agreement dated as of August 13, 2004 (as amended from time to time, the “Services Agreement”), the Matthews Asia Funds in the aggregate pay Matthews 0.25% of the aggregate average daily net assets of the Matthews Asia Funds up to $2 billion, 0.1834% of the aggregate average daily net assets of the Matthews Asia Funds over $2 billion up to $5 billion, 0.15% of the aggregate average daily net assets of the Matthews Asia Funds over $5 billion up to $7.5 billion, 0.125% of the aggregate average daily net assets of the Matthews Asia Funds over $7.5 billion up to $15 billion, 0.11% of the aggregate average daily net assets of the Matthews Asia Funds over $15 billion up to $22.5 billion, 0.10% of the aggregate average daily net assets of the Matthews Asia Funds over $22.5 billion up to $25 billion, 0.09% of the aggregate average daily net assets of the Matthews Asia Funds over $25 billion up to $30 billion, 0.08% of the aggregate average daily net assets of the Matthews Asia Funds over $30 billion up to $35 billion, 0.07% of the aggregate average daily net assets of the Matthews Asia Funds over $35 billion up to $40 billion, 0.06% of the aggregate average daily net assets of the Matthews Asia Funds over $40 billion up to $45 billion, and 0.05% of the aggregate average daily net assets of the Matthews Asia Funds over
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$45 billion. Matthews receives this compensation for providing certain administrative and shareholder services to the Matthews Asia Funds and current shareholders of the Matthews Asia Funds, including overseeing the activities of the Matthews Asia Funds’ transfer agent, accounting agent, custodian and administrator; assisting with the daily calculation of the Matthews Asia Funds’ net asset values; overseeing each Matthews Asia Fund’s compliance with its legal, regulatory and ethical policies and procedures; assisting with the preparation of agendas and other materials drafted by the Matthews Asia Funds’ third-party administrator and other parties for Board meetings; coordinating and executing fund launches and closings (as applicable); general oversight of the vendor community at large as well as industry trends to ensure that shareholders are receiving quality service and technology; responding to shareholder communications including coordinating shareholder mailings, ordinary proxy statements, annual reports, prospectuses and other correspondence from the Matthews Asia Funds to shareholders; providing regular communications and investor education materials to shareholders, which may include communications via electronic means, such as electronic mail; providing certain shareholder services not handled by the Matthews Asia Funds’ transfer agent or other intermediaries (such as fund supermarkets); communicating with investment advisors whose clients own or hold shares of the Matthews Asia Funds; and providing such other information and assistance to shareholders as may be reasonably requested by such shareholders.
Pursuant to an operating expenses agreement, dated as of November 4, 2003 (as amended from time to time, the “Operating Expenses Agreement”), for all Funds other than the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, and the Matthews Emerging Markets Small Companies Fund, Matthews has agreed (i) to waive fees and reimburse expenses to the extent needed to limit total annual operating expenses (excluding Rule 12b‑1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non‑class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any non‑class specific expenses of the Institutional Class are waived for the Institutional Class, Matthews has also agreed to waive an equal amount of non‑class specific expenses for the Investor Class. Because certain expenses of the Investor Class may be higher than those of the Institutional Class and because no class specific expenses will be waived for the Investor Class, the total annual operating expenses after fee waiver and expense reimbursement for the
Investor Class would be 1.20% plus the sum of (i) the amount (in annual percentage terms) of the class specific expenses incurred by the Investor Class that exceed those incurred by the Institutional Class; and (ii) the amount (in annual percentage terms) of the class specific expenses reduced for the Institutional Class and not the Investor Class. For the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Sustainable Future Fund, and the Matthews Emerging Markets Small Companies Fund, Matthews has agreed to reduce this expense limitation to 0.90%, 1.15% and 1.15%, respectively, for the Institutional Class.
In turn, if a Fund’s expenses fall below the expense limitation within three years after Matthews has made such a waiver or reimbursement, the Fund may reimburse Matthews up to an amount not to cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. For each Fund, this agreement will continue through April 30, 2024 and may be extended for additional periods not exceeding one year, and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.
Pursuant to a fee waiver letter agreement (the “Fee Waiver Agreement”), effective as of September 1, 2014, as amended, between the Trust, on behalf of the Family-Priced Funds, and Matthews, for each Family-Priced Fund, Matthews has contractually agreed to waive a portion of the fee payable under the Advisory Agreement and a portion of the fee payable under the Services Agreement, if any Family-Priced Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of a Family-Priced Fund that are over $3 billion, the fee rates under the Advisory Agreement and the Services Agreement for such Family-Priced Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Matthews may not recoup fees waived pursuant to the Fee Waiver Agreement. The Board has approved the Fee Waiver Agreement for an additional one‑year term through April 30, 2024 and may terminate the agreement at any time upon 60 days’ written notice to Matthews. Matthews may decline to renew the Fee Waiver Agreement by providing written notice to the Trust at least 60 days before its annual expiration date.
Each Fund offers Investor and Institutional Class shares to eligible investors. Investor Class shares and Institutional Class shares have different expenses, which will result in different performance for each class of shares. Shares of the two classes of each Fund otherwise have identical rights and vote together except for matters affecting only a specific class.
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Portfolio Managers
Each of the Funds is managed by one or more Portfolio Managers. A Portfolio Manager of a Fund is primarily responsible for its day‑to‑day investment management decisions. Lead Managers are supported by and consult with Co-Managers.
| ROBERT J. HORROCKS, PhD | ||
| Robert Horrocks is Chief Investment Officer and a Portfolio Manager at Matthews and has been a Matthews Asia Funds Trustee since 2018. He manages the firm’s Asian Growth and Income Strategy and co‑manages the Asia Dividend and Asia ex Japan Dividend Strategies. As Chief Investment Officer, Robert oversees the firm’s investment process and investment professionals and sets the research agenda for the investment team. Before joining Matthews in 2008, Robert was Head of Research at Mirae Asset Management in Hong Kong. From 2003 to 2006, Robert served as Chief Investment Officer for Everbright Pramerica in China, establishing its quantitative investment process. He started his career as a Research Analyst with WI Carr Securities in Hong Kong before moving on to spend eight years working in several different Asian jurisdictions for Schroders, including stints as Country General Manager in Taiwan, Deputy Chief Investment Officer in Korea and Designated Chief Investment Officer in Shanghai. Robert earned his PhD in Chinese Economic History from Leeds University in the United Kingdom and is fluent in Mandarin. Robert has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2009 and of the Matthews Asia Dividend Fund since 2013. | Lead Manager Matthews Asian Growth and Income Fund Matthews Asia Dividend Fund | |
| SIDDHARTH BHARGAVA | ||
| Siddharth Bhargava is a Portfolio Manager at Matthews and co‑manages the firm’s Asian Growth and Income and Asia Dividend Strategies. Prior to joining the firm in 2011, he was an Investment Analyst at Navigator Capital. Siddharth also served as a credit and debt market research assistant to Dr. Edward Altman at the New York University Salomon Center. From 2005 to 2008, he was a Credit Analyst at Sandell Asset Management. Siddharth received a B.A. in Economics from the University of Virginia and an MBA from the Stern School of Business at New York University. He is fluent in Hindi and conversational in German. Siddharth has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2021 and the Matthews Asia Dividend Fund since 2022 | Co‑Manager Matthews Asian Growth and Income Fund Matthews Asia Dividend Fund | |
| WINNIE CHWANG | ||
| Winnie Chwang is a Portfolio Manager at Matthews and manages the firm’s China Small Companies and China Dividend Strategies and co‑manages the firm’s China, Pacific Tiger and Asia Dividend Strategies. She joined the firm in 2004 and has built her investment career at the firm. Winnie earned an M.B.A. from the Haas School of Business and received her B.A. in Economics with a minor in Business Administration from the University of California, Berkeley. She is fluent in Mandarin and conversational in Cantonese. Winnie has been a Portfolio Manager of the Matthews China Fund since 2014, of the Matthews China Small Companies Fund since 2020, of the Matthews Pacific Tiger Fund since 2021, of the Matthews Asia Dividend Fund since 2022 and of the Matthews China Active ETF since its inception in 2022. | Lead Manager Matthews China Small Companies Fund Matthews China Dividend Fund Co‑Manager Matthews China Fund Matthews Pacific Tiger Fund Matthews Asia Dividend Fund Matthews China Active ETF | |
| DONGHOON HAN | ||
| Donghoon Han is a Portfolio Manager at Matthews and co‑manages the firm’s Japan Strategy. Prior to joining the firm in 2020, Donghoon was Vice President and portfolio manager at Goldman Sachs Asset Management in Tokyo, responsible for investments in technology, automotive and transportation sectors in Japan. From 2014 to 2016, he worked as a Senior Associate at Citadel Global Equities covering technology and industrial sectors in Japan. From 2010 to 2014, he also worked as a Senior Associate at Dodge & Cox covering global technology sector with a focus on semiconductors and electronic components. Donghoon is fluent in Japanese and Korean. He received his B.A. in International Liberal Arts from Waseda University in Tokyo. Donghoon is a Chartered Member of the Securities Analysts Association of Japan. Donghoon has been a Portfolio Manager of the Matthews Japan Fund since 2023. | Co‑Manager Matthews Japan Fund | |
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| TAIZO ISHIDA | ||
| Taizo Ishida is a Portfolio Manager at Matthews and manages the firm’s Asia Growth and Japan Strategies, and co‑manages the firm’s Asia Innovators Strategy. Prior to joining Matthews in 2006, Taizo spent six years on the global and international teams at Wellington Management Company as a Vice President and Portfolio Manager. From 1997 to 2000, he was a Senior Securities Analyst and a member of the international investment team at USAA Investment Management Company. From 1990 to 1997, he was a Principal and Senior Research Analyst at Sanford Bernstein & Co. Prior to beginning his investment career at Yamaichi International (America), Inc. as a Research Analyst, he spent two years in Dhaka, Bangladesh as a Program Officer with the United Nations Development Program. Taizo received a B.A. in Social Science from International Christian University in Tokyo and an M.A. in International Relations from The City College of New York. He is fluent in Japanese. Taizo has been a Portfolio Manager of the Matthews Asia Growth Fund since 2007, of the Matthews Japan Fund since 2006, and of the Matthews Asia Innovators Fund and Matthews Asia Innovators Active ETF since 2022. | Lead Manager Matthews Asia Growth Fund Matthews Japan Fund Co‑Manager Matthews Asia Innovators Fund Matthews Asia Innovators Active ETF | |
| JOHN PAUL LECH | ||
| John Paul Lech is a Portfolio Manager at Matthews and manages the firm’s Emerging Markets Equity and Emerging Markets ex China Strategies. Prior to joining the firm in 2018, he spent most of his 10 years at OppenheimerFunds as an Analyst and Portfolio Manager on a diversified emerging market equity strategy. John Paul started his career as an Analyst and Associate at Citigroup Global Markets, Inc. He is fluent in Spanish and conversational in French and Portuguese. John Paul earned both an M.A. and a B.S.F.S. from the Walsh School of Foreign Service at Georgetown University. John Paul has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since its inception in 2020, of the Matthews Emerging Markets Equity Active ETF since its inception in 2022 and of the Matthews Emerging Market ex China Active ETF since its inception in 2023. | Lead Manager Matthews Emerging Markets Equity Fund Matthews Emerging Markets Equity Active ETF Matthews Emerging Markets ex China Active ETF | |
| ELLI LEE | ||
| Elli Lee is a Portfolio Manager at Matthews and manages the firm’s Korea Strategy and co‑manages the firm’s Asia Dividend and China Dividend, and Asian Growth and Income Strategies. Prior to joining the firm in 2016, Elli worked at Bank of America Merrill Lynch for 10 years, most recently in Korean Equity Sales and previously as an Equity Research Analyst covering South Korea’s engineering, construction, steel and education sectors. From 2003 to 2005, Elli was an Investor Relations Specialist at Hana Financial Group in Seoul. She earned a Master of Science in Global Finance from the Hong Kong University of Science and Technology Business School and New York University Stern School of Business, and received a B.A. in Economics from Bates College. Elli is fluent in Korean. Elli has been a Portfolio Manager of the Matthews Korea Fund since 2019, of the Matthews Asia Dividend Fund since 2022, of the Matthews Asian Growth and Income Fund since 2023, and of the Matthews Korea Active ETF since its inception in 2023. | Lead Manager Matthews Korea Fund Matthews Korea Active ETF Co‑Manager Matthews Asia Dividend Fund Matthews China Dividend Fund Matthews Asian Growth and Income Fund | |
| KENNETH LOWE, CFA | ||
| Kenneth Lowe is a Portfolio Manager at Matthews and manages the firm’s Asian Growth and Income and Asia Dividend Strategies. Prior to joining Matthews in 2010, he was an Investment Manager on the Asia and Global Emerging Market Equities Team at Martin Currie Investment Management in Edinburgh, Scotland. Kenneth received an M.A. in Mathematics and Economics from the University of Glasgow. Kenneth has been a Portfolio Manager of the Matthews Asian Growth and Income Fund since 2011 and of the Matthews Asia Dividend Fund since 2022. | Lead Manager Matthews Asian Growth and Income Fund Matthews Asia Dividend Fund | |
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| ANDREW MATTOCK, CFA | ||
| Andrew Mattock is a Portfolio Manager at Matthews and manages the firm’s China and China Small Companies Strategies, and co‑manages the firm’s Pacific Tiger, China Dividend, and Emerging Markets Equity Strategies. Prior to joining the firm in 2015, he was a Fund Manager at Henderson Global Investors for 15 years, first in London and then in Singapore, managing Asia Pacific equities. Andrew holds a Bachelor of Business majoring in Accounting from ACU. He began his career at PricewaterhouseCoopers and qualified as a Chartered Accountant. Andrew has been a Portfolio Manager of the Matthews China Fund since 2015, of the Matthews China Small Companies Fund since 2020, of the Matthews China Dividend Fund and Matthews Pacific Tiger Fund since 2022, of the Matthews China Active ETF since its inception in 2022, and of the Matthews Emerging Markets Equity Fund and Matthews Emerging Markets Equity Active ETF since 2023. | Lead Manager Matthews China Fund Matthews China Small Companies Fund Matthews China Active ETF Co‑Manager Matthews Pacific Tiger Fund Matthews China Dividend Fund Matthews Emerging Markets Equity Fund Matthews Emerging Markets Equity Active ETF | |
| PEEYUSH MITTAL, CFA | ||
| Peeyush Mittal is a Portfolio Manager at Matthews and manages the firm’s India Strategy and co‑manages the firm’s Emerging Markets Equity, Emerging Markets ex China, and Asia Growth Strategies. Prior to joining the firm in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi. Peeyush has been a Portfolio Manager of the Matthews India Fund since 2018, and of the Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Equity Active ETF, Matthews Emerging Markets ex China Active ETF, and Matthews Asia Growth Fund since 2023. | Lead Manager Matthews India Fund Co‑Manager Matthews Emerging Markets Equity Fund Matthews Emerging Markets Equity Active ETF Matthews Emerging Markets ex China Active ETF Matthews Asia Growth Fund | |
| MICHAEL J. OH, CFA | ||
| Michael Oh is a Portfolio Manager at Matthews and manages the firm’s Asia Innovators and Korea Strategies and co‑manages the Asia Growth Strategy. Michael joined Matthews in 2000 and has built his investment career at the firm. Michael received a B.A. in Political Economy of Industrial Societies from the University of California, Berkeley. He is fluent in Korean. Michael has been a Portfolio Manager of the Matthews Korea Fund since 2007, of the Matthews Asia Innovators Fund since 2006, of the Matthews Asia Growth Fund since 2020,of the Matthews Asia Innovators Active ETF since its inception in 2022, and of the Matthews Korea Active ETF since its inception in 2023. | Lead Manager Matthews Korea Fund Matthews Korea Active ETF Matthews Asia Innovators Fund Matthews Asia Innovators Active ETF Co‑Manager Matthews Asia Growth Fund | |
| SOJUNG PARK | ||
| Sojung Park is a Portfolio Manager at Matthews Asia and co‑manages the firm’s Korea Strategy. Prior to joining the firm in 2016, she earned an MBA from the University of Chicago’s Booth School of Business. From 2010 to 2013, Sojung worked as an Equity Research Analyst at HSBC Securities as primary analyst for mid‑cap companies in the Korean financial services sector, and from 2009 to 2010, was an Equity Research Associate at E*Trade Securities. She received a Bachelor of Business Administration from Seoul National University and is fluent in Korean. Sojung has been a Portfolio Manager of the Matthews Korea Fund since 2022 and of the Matthews Korea Active ETF since its inception in 2023. | Co‑Manager Matthews Korea Fund Matthews Korea Active ETF | |
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| SHARAT SHROFF, CFA | ||
| Sharat Shroff is a Portfolio Manager at Matthews and manages the firm’s Pacific Tiger Strategy and co‑manages the India Strategy. Prior to joining Matthews in 2005, Sharat worked in the San Francisco and Hong Kong offices of Morgan Stanley as an Equity Research Associate. Sharat received a Bachelor of Technology from the Institute of Technology in Varanasi, India and an M.B.A. from the Indian Institute of Management, in Calcutta, India. He is fluent in Hindi and Bengali. Sharat has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2008 and of the Matthews India Fund since 2006. | Lead Manager Matthews Pacific Tiger Fund Co‑Manager Matthews India Fund | |
| INBOK SONG | ||
| Inbok Song is a Portfolio Manager at Matthews and manages the firm’s Pacific Tiger Strategy and co‑manages the firm’s Emerging Markets Sustainable Future and Asia Innovators Strategies. Prior to rejoining the firm in 2019, Inbok spent three years at Seafarer Capital Partners as a portfolio manager, the firm’s Director of Research and chief data scientist. Previously she was at Thornburg Investment Management as an associate portfolio manager. From 2007 to 2015, she was at Matthews, most recently as a portfolio manager. From 2005 to 2006, Inbok served as an Analyst and Technology Specialist at T. Stone Corp., a private equity firm in Seoul, South Korea. From 2004 to 2005, she was a research engineer for Samsung SDI in Seoul. Inbok received both a B.A. and Masters in Materials Science and Engineering from Seoul National University. She received a Masters in International Management from the University of London, King’s College, and also an M.A. in Management Science and Engineering, with a concentration in finance from Stanford University. Inbok is fluent in Korean. Inbok has been a Portfolio Manager of the Matthews Pacific Tiger Fund since 2019, and of the Matthews Emerging Markets Sustainable Future Fund, Matthews Asia Innovators Fund, and Matthews Asia Innovators Active ETF since 2023. | Lead Manager Matthews Pacific Tiger Fund Co‑Manager Matthews Emerging Markets Sustainable Future Fund Matthews Asia Innovators Fund Matthews Asia Innovators Active ETF | |
| JEREMY SUTCH, CFA | ||
| Jeremy Sutch, CFA, is a Portfolio Manager at Matthews and co‑manages the firm’s Emerging Markets Small Companies Strategy. Prior to joining the firm in 2015, he was Director and Global Head of Emerging Companies at Standard Chartered Bank in Hong Kong from 2012 to 2015, responsible for the fundamental analysis of companies in Asia, with a particular focus on small- and mid‑capitalization companies. From 2009 to 2012, he was Managing Director at MJP Capital in Hong Kong, which he co‑founded. His prior experience has included managing small‑cap equities at Indus Capital Advisors and serving as Head of Hong Kong Research for ABN AMRO Asia Securities. Jeremy earned an M.A. in French and History from the University of Edinburgh. Jeremy has been a Portfolio Manager of the Matthews Emerging Markets Small Companies Fund since 2021. | Co‑Manager Matthews Emerging Markets Small Companies Fund | |
| SHUNTARO TAKEUCHI | ||
| Shuntaro Takeuchi is Head of Research and a Portfolio Manager at Matthews and manages the firm’s Japan Strategy. Prior to joining the firm in 2016, he was an Executive Director for Japan Equity Sales at UBS Securities LLC in New York. Beginning in 2003, he worked on both Japanese Equity and International Equity Sales at UBS Japan Securities, based in Tokyo, and held the position of Special Situations Analyst from 2006 to 2008, and Head of International Equity Sales from 2009 to 2013. Before that, he worked at Merrill Lynch Japan from 2001 to 2003 in U.S. Equity Sales. Shuntaro received a B.A. in Commerce and Management from Hitotsubashi University in Tokyo. He is fluent in Japanese. Shuntaro has been a Portfolio Manager of the Matthews Japan Fund since 2019. | Lead Manager Matthews Japan Fund | |
| VIVEK TANNEERU | ||
| Vivek Tanneeru is a Portfolio Manager at Matthews and manages the firm’s Emerging Markets Sustainable Future and Emerging Markets Small Companies Strategies. Prior to joining Matthews in 2011, Vivek was an Investment Manager on the Global Emerging Markets team of Pictet Asset Management in London. While at Pictet, he also worked on the firm’s Global Equities team, managing Japan and Asia ex Japan markets. Before earning his M.B.A. from the London Business School in 2006, Vivek was a Business Systems Officer at The World Bank and served as a Consultant at Arthur Andersen Business Consulting and Citicorp Infotech Industries. He interned at Generation Investment Management while studying for his M.B.A. Vivek received his Master’s in Finance from the Birla Institute on Technology & Science in India. He is fluent in Hindi and Telugu. Vivek has been a Portfolio Manager of the Matthews Emerging Markets Sustainable Future Fund since its inception in 2015 and of the Matthews Emerging Markets Small Companies Fund since 2020. | Lead Manager Matthews Emerging Markets Sustainable Future Fund Matthews Emerging Markets Small Companies Fund | |
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| ALEX ZARECHNAK | ||
| Alex Zarechnak is a Portfolio Manager at Matthews Asia and manages the firm’s Emerging Markets Equity and Emerging Markets ex China Strategies and co-manages the firm’s Emerging Markets Small Companies Strategy. Prior to joining the firm in 2020, he spent a total of 15 years (1998 – 2006 and 2012 – 2019) at Wellington Management as an analyst for the firm’s flagship Emerging Markets Equity Fund as a generalist first covering CEEMEA, then Latin America. From 2006-2012, he was a regional equity analyst at Capital Group, covering Emerging Markets with a focus on energy, telecoms and consumer sectors in Latin America and CEEMEA. Alex began his Emerging Markets career as a Russia equity analyst with Templeton Emerging Markets, based in Moscow. He earned a B.A. in Economics and Government from the College of William and Mary. Alex is fluent in Russian. Alex has been a Portfolio Manager of the Matthews Emerging Markets Equity Fund since 2022, of the Matthews Emerging Markets Equity Active ETF since its inception in 2022, of the Matthews Emerging Markets ex China Active ETF since its inception in 2023, and of the Matthews Emerging Markets Small Companies Fund since 2023. | Lead Manager Matthews Emerging Markets Equity Fund Matthews Emerging Markets Equity Active ETF Matthews Emerging Markets ex China Active ETF Co‑Manager Matthews Emerging Markets Small Companies Fund | |
| SHERWOOD ZHANG, CFA | ||
| Sherwood Zhang is a Portfolio Manager at Matthews and manages the firm’s China Dividend Strategy and co-manages the firm’s Asia ex Japan Total Return Equity and China Strategies. Prior to joining Matthews in 2011, Sherwood was an analyst at Passport Capital from 2007 to 2010, where he focused on such industries as property and basic materials in China as well as consumer-related sectors. Before earning his M.B.A. in 2007, Sherwood served as a Senior Treasury Officer for Hang Seng Bank in Shanghai and Hong Kong, and worked as a Foreign Exchange Trader at Shanghai Pudong Development Bank in Shanghai. He received his M.B.A. from the University of Maryland and his Bachelor of Economics in Finance from Shanghai University. Sherwood is fluent in Mandarin and speaks conversational Cantonese. Sherwood has been a Portfolio Manager of the Matthews China Dividend Fund since 2014, of the Matthews China Fund since 2022 and of the Matthews China Active ETF since its inception in 2022. | Lead Manager Matthews China Dividend Fund Co‑Manager Matthews China Fund Matthews China Active ETF | |
Except in times of restricted travel such as during the COVID-19 pandemic, the investment team travels extensively to Asian and emerging market countries to conduct research relating to those markets. The Funds’ SAI provides additional information about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers’ ownership of securities in each Fund.
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Investing in the Matthews Asia Funds
Pricing of Fund Shares
The price at which the Funds’ shares are bought or sold is called the net asset value per share, or NAV. The NAV is computed once daily as of the close of regular trading on the NYSE, generally 4:00 PM Eastern Time, on each day that the exchange is open for trading. In addition to Saturday and Sunday, the NYSE is closed on the days that the following holidays are observed: New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV is computed by adding the value of all securities and other assets of the Fund attributable to the relevant class, deducting any liabilities, and dividing by the total number of outstanding shares of the relevant class. A Fund’s expenses are generally accounted for by estimating the total expenses for the year and applying each day’s estimated expense when the NAV calculation is made.
The value of the Funds’ exchange-traded securities is based on market quotations for those securities, or on their fair value determined by or under the direction of the Board of Trustees (as described below). Market quotations are provided by pricing services that are independent of the Funds and Matthews. Foreign exchange-traded securities are valued as of the close of trading of the primary exchange on which they trade. Securities that trade in over‑the‑counter markets, including most debt securities (bonds), may be valued using indicative bid quotations from bond dealers or market makers, or other available market information, or on their fair value as determined by or under the direction of the Board of Trustees (as described below). The Funds may also utilize independent pricing services to assist it in determining a current market value for each security based on sources believed to be reliable.
Foreign values of the Funds’ securities are converted to U.S. dollars using exchange rates determined as of the close of trading on the NYSE and in accordance with the Funds’ Pricing and Valuation Policy and Procedures. The Funds generally use the foreign currency exchange rates deemed to be most appropriate by a foreign currency pricing service that is independent of the Funds and Matthews.
The Funds value any exchange-traded security for which market quotations are unavailable (e.g., when trading of a security is suspended) or have become unreliable, and any over‑the‑counter security for which indicative quotes are unavailable, at that security’s fair market value. In general, the fair value of such securities is determined, in accordance with the Funds’ Pricing and Valuation Policy and Procedures and subject to the Board’s oversight, by a pricing service retained by the Funds that is independent of the Funds and Matthews.
There may be circumstances in which the Funds’ independent pricing service is unable to provide a reliable price of a security.
In addition, when establishing a security’s fair value, the independent pricing service may not take into account events that occur after the close of Asian and other foreign markets but prior to the time the Funds calculate their NAVs. Similarly, there may be circumstances in which a foreign currency exchange rate is deemed inappropriate for use by the Funds or multiple appropriate rates exist. In such circumstances, the Board of Trustees has delegated the responsibility of making fair-value determinations to a Valuation Committee composed of employees of Matthews (some of whom may also be officers of the Funds). In these circumstances, the Valuation Committee will determine the fair value of a security, or a fair exchange rate, in good faith, in accordance with the Funds’ Pricing and Valuation Policy and Procedures and subject to the oversight of the Board. When fair value pricing is employed (whether through the Funds’ independent pricing service or the Valuation Committee), the prices of a security used by a Fund to calculate its NAV typically differ from quoted or published prices for the same security for that day. The Funds generally fair value securities daily to avoid, among other things, the use of stale prices. In addition, changes in a Fund’s NAV may not track changes in published indices of, or benchmarks for, Asia Pacific and other foreign market securities. Similarly, changes in a Fund’s NAV may not track changes in the value of closed‑end investment companies, exchange-traded funds or other similar investment vehicles.
Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed, and the NAVs are therefore not calculated. Accordingly, the NAVs of the Funds may be significantly affected on days when shareholders have no access to the Funds. For valuation purposes, quotations of foreign portfolio securities, other assets and liabilities, and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates.
Indian securities in the Funds may be subject to a short-term capital gains tax in India on gains realized upon disposition of securities lots held less than one year. The Funds accrue for this potential expense, which reduces their net asset values. For further information regarding this tax, please see page 134.
Purchasing Shares
The Funds are open for business each day the NYSE is open. You may purchase shares directly from the Funds by mail, by telephone, online or by wire without paying any sales charge. The price for each share you buy will be the NAV calculated after your order is received in good order by the Fund. “In good order” means that payment for your purchase and all the information needed to complete your order must be received by the Fund before your order is processed. If your order is received before the close of regular trading on the NYSE
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INDIVIDUAL RETIREMENT ACCOUNTS
The Funds offer Individual Retirement Accounts (IRAs). Applications for IRAs may be obtained by calling 800.789.ASIA (2742) or by visiting matthewsasia.com.
Traditional IRA
A Traditional IRA is an IRA with contributions that may or may not be deductible depending on your circumstances. Assets grow tax‑deferred; withdrawals and distributions are taxable in the year made.
Spousal IRA
A Spousal IRA is an IRA funded by a working spouse in the name of a non‑working spouse.
Roth IRA
A Roth IRA is an IRA with non‑deductible contributions and tax‑free growth of assets and distributions to pay retirement expenses, provided certain conditions are met.
OTHER ACCOUNTS
Coverdell Education Savings Account
Similar to a non‑deductible IRA, a Coverdell Education Savings Account (ESA) allows you to make non‑deductible contributions that can grow tax‑free and if used for qualified educational expenses can be withdrawn free of federal income taxes.
For more complete IRA or Coverdell ESA information or to request applications, please call 800.789.ASIA (2742) to speak with a Fund representative or visit matthewsasia.com.
(generally 4:00 PM Eastern Time) on a day the Funds’ NAVs are calculated, the price you pay will be that day’s NAV. If your order is received after the close of regular trading on the NYSE, the price you pay will be the next NAV calculated.
You may purchase shares of the Funds directly through the Funds’ transfer agent by calling 800.789.ASIA (2742). Shares of the Funds may also be purchased through various securities brokers and benefit plan administrators or their sub‑agents (“Third-Party Intermediaries”). These Third-Party Intermediaries may charge you a commission or other service or transaction fee for their services. Each share class may have a different or no such commission or fee. You should contact them directly for information regarding how to invest or redeem through them. If you purchase or redeem shares through the Funds’ transfer agent or a Third-Party Intermediary, you will receive the NAV calculated after receipt of the order by it on any day the NYSE is open. A Fund’s NAV is calculated as of the close of regular trading on the NYSE (generally, 4:00 PM Eastern Time) on each day that the NYSE is open. If your order is received by the Fund or a Third-Party Intermediary after that time, it will be purchased or redeemed at the next-calculated NAV.
The Funds may reject for any reason, or cancel as permitted or required by law, any purchase order at any time.
Brokers and benefit plan administrators who perform transfer agency and shareholder servicing for the Funds may receive fees from the Funds for these services. Brokers and benefit plan administrators who also provide distribution services to the Funds may be paid by Matthews (out of its own resources) for providing these services. For further information, please see Additional Information about Shareholder Servicing and Other Compensation to Intermediaries on page 133.
You may purchase shares of the Funds by mail, by telephone, online or by wire. New accounts may be opened online or by mailing a completed application. Please see Opening an Account on page 128, and Telephone and Online Transactions on page 131. Call 800.789.ASIA (2742) or visit matthewsasia.com for details.
The Funds do not accept third-party checks, temporary (or starter) checks, bank checks, cash, credit card checks, traveler’s checks, cashier’s checks, official checks or money orders. If the Funds receive notice of insufficient funds for a purchase made by check, the purchase will be cancelled and you will be liable for any related losses or fees the Fund or its transfer agent incurs. The Funds may reject any purchase order or stop selling shares of the Funds at any time. Also, the Funds may vary or waive the initial investment minimum and minimums for additional investments.
Additionally, if any transaction is deemed to have the potential to adversely impact any of the Funds, the Funds reserve the right to, among other things, reject any purchase order or exchange request, limit the amount of any exchange, or revoke a shareholder’s privilege to purchase Fund shares (including exchanges).
MINIMUM INVESTMENTS IN SHARES OF THE FUNDS
(U.S. RESIDENTS*)
| Type of Account | Investor Class | Institutional Class** | ||
| Non‑retirement plan accounts | ||||
| Initial investment: | $2,500 | $100,000 | ||
| Subsequent investments: | $100 | $100 | ||
| Retirement and Coverdell plan accounts† | ||||
| Initial investment: | $500 | $100,000 | ||
| Subsequent investments: | $50 | $100 |
* Generally, non‑U.S. residents may not invest in the Funds. Please contact a Fund representative at 800.789.ASIA (2742) for information and assistance.
** Minimum amount for Institutional Class Shares may be lower for purchases through certain financial intermediaries and different minimums may apply for retirement plans and other arrangements subject to criteria set by Matthews.
† Retirement plan accounts include IRAs and 401(k) plans. Speak with a Fund representative for information about the retirement plans available.
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If you invest in Institutional Class shares through a financial intermediary, the minimum initial investment requirement may be met if that financial intermediary aggregates investments of multiple clients to meet the minimum. Additionally, different minimums may apply for retirement plans and model-based programs that invest through a single account, subject to criteria set by Matthews. Financial intermediaries or plan recordkeepers may require retirement plans to meet certain other conditions, such as plan size or a minimum level of assets per participant, in order to be eligible to purchase Institutional Class shares.
The minimum investment requirements for both the Investor Class and Institutional Class do not apply to Trustees, officers and employees of the Funds and Matthews, and their immediate family members.
OPENING AN ACCOUNT (Initial Investment)
| By Mail | You can obtain an account application by calling 800.789.ASIA (2742) between 9:00 AM–4:30 PM ET, Monday through Friday, or by downloading an application at matthewsasia.com. Mail your check payable to Matthews Asia Funds and a completed application to: | |||||
| Regular Mail: Matthews Asia Funds P.O. Box 534475 Pittsburgh, PA 15253-4475 |
Overnight Mail: Matthews Asia Funds Attention: 534475 500 Ross Street, 154‑0520 Pittsburgh, PA 15262 | |||||
| Online (Investor Class Only) | You may establish a new account by visiting matthewsasia.com, selecting “Open an Account” and following the instructions. | |||||
| Through Broker/ Intermediary | You may contact your broker or intermediary, who may charge you a fee for their services. | |||||
| By Wire | To open an account and make an initial investment by wire, a completed application is required before your wire can be accepted. After a completed account application is received by mail at one of the addresses listed above, you will receive an account number. Please be sure to inform your bank of this account number as part of the instructions. For specific wiring instructions, please visit matthewsasia.com or call 800.789.ASIA (2742) between 9:00 AM–4:30 PM ET, Monday through Friday. Note that wire fees are charged by most banks. | |||||
Please note that when opening your account the Funds follow identity verification procedures outlined on page 136.
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ADDING TO AN ACCOUNT (Subsequent Investment)
Existing shareholders may purchase additional shares of the relevant class for all authorized accounts through the methods described below.
| By Mail | Please send your check payable to Matthews Asia Funds and a statement stub indicating your fund(s) selection via: | |||||
| Regular Mail: Matthews Asia Funds P.O. Box 534475 Pittsburgh, PA 15253-4475 |
Overnight Mail: Matthews Asia Funds Attention: 534475 500 Ross Street, 154‑0520 Pittsburgh, PA 15262 | |||||
| By Phone | Call 800.789.ASIA (2742). When you open your account, you will automatically have the ability to purchase shares by telephone unless you specify otherwise on your New Account Application. | |||||
| Online | As a first time user, you will need your Fund account number and your Tax Identification Number to establish online account access. Visit matthewsasia.com and select Account Login, where you will be able to create a login ID and password. | |||||
| Via Automatic Investment Plan (Investor Class Only) | You may establish an Automatic Investment Plan when you open your account. To do so, please complete the Automatic Investment Plan section of the application. Additionally, you may establish an Automatic Investment Plan by completing an Automatic Investment Plan form or visiting matthewsasia.com. | |||||
| Through Broker/ Intermediary | You may contact your broker or intermediary, who may charge you a fee for their services. | |||||
| By Wire | Please call us at 800.789.ASIA (2742) between 9:00 AM–4:30 PM ET, Monday through Friday, and inform us that you will be wiring funds. Please also be sure to inform your bank of your Matthews account number as part of the instructions. Note that wire fees are charged by most banks. | |||||
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Exchanging Shares
You may exchange your shares of one Matthews Asia Fund for another Matthews Asia Fund of the same class. If you exchange your shares, minimum investment requirements apply. To receive that day’s NAV, any request must be received by the close of regular trading on the NYSE that day (generally, 4:00 PM Eastern Time). Such exchanges may be made by telephone or online if you have so authorized on your application. Please see Telephone and Online Transactions on page 131 or call 800.789.ASIA (2742) for more information. Because excessive exchanges can harm a Matthews Asia Fund’s performance, the exchange privilege may be terminated if the Matthews Asia Funds believe it is in the best interest of all shareholders to do so.
The Matthews Asia Funds may reject for any reason, or cancel as permitted or required by law, any purchase order or exchange request at any time. Additionally, if any transaction is deemed to have the potential to adversely impact any of the Matthews Asia Funds, the Matthews Asia Funds reserve the right to, among other things, reject any exchange request or limit the amount of any exchange. In the event that a shareholder’s exchange privilege is terminated, the share-
holder may still redeem his, her or its shares. An exchange is treated as a taxable event on which gain or loss may be recognized.
Selling (Redeeming) Shares
You may redeem shares of a Fund on any day the NYSE is open for business. To receive a specific day’s NAV, your request must be received by the Fund’s agent before the close of regular trading on the NYSE that day (generally, 4:00 PM Eastern Time). If your request is received after the close of regular trading on the NYSE, you will receive the next NAV calculated.
In extreme circumstances, such as the imposition of capital controls that substantially limit repatriation of the proceeds of sales of portfolio holdings, the Funds may suspend shareholders’ redemption privileges for a period of not more than seven days unless otherwise permitted by applicable law.
If you are redeeming shares of a Fund recently purchased by check, the Fund may delay sending your redemption proceeds until your check has cleared. This may take up to 15 calendar days after we receive your check.
SELLING (REDEEMING) SHARES
| By Mail | Send a letter to the Funds via: | |||||
| Regular Mail: Matthews Asia Funds P.O. Box 534475 Pittsburgh, PA 15253-4475 |
Overnight Mail: Matthews Asia Funds Attention: 534475 500 Ross Street, 154‑0520 Pittsburgh, PA 15262 | |||||
| The letter must include your name and account number, the name of the Fund and the amount you want to sell in dollars or shares. This letter must be signed by each owner of the account. For security purposes, a medallion signature guarantee will be required if (among others): T Your written request is for an amount over $100,000; or T A change of address was received by the Funds’ transfer agent within the last 30 days; or T The money is to be sent to an address that is different from the registered address or to a bank account other than the account that was preauthorized. | ||||||
| By Phone | Call 800.789.ASIA (2742). When you open your account you will automatically have the ability to exchange and redeem shares by telephone unless you specify otherwise on your New Account Application. | |||||
| By Wire | If you have wiring instructions already established on your account, contact us at 800.789.ASIA (2742) to request a redemption form. Please note that the Funds charge $9.00 for wire redemptions, in addition to a wire fee that may be charged by your bank. Note: When you opened your account you must have provided the wiring instructions for your bank with your application.* * If your account has already been opened, you may send us a written request to add wiring instructions to your account. Please complete the Banking Instructions Form available on matthewsasia.com or call 800.789.ASIA (2742). | |||||
| Online (Investor Class Only) | As a first time user, you will need your Fund account number and your Tax Identification Number to establish online account access. Visit matthewsasia.com and select Account Login, where you will be able to create a login ID and password. | |||||
| Through Broker/ Intermediary |
Contact your broker or intermediary, who may charge you a fee for their services. | |||||
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If any transaction is deemed to have the potential to adversely impact any of the Matthews Asia Funds, the Matthews Asia Funds reserve the right to, among other things, delay payment of immediate cash redemption proceeds for up to seven calendar days.
You may redeem your shares by telephone or online. Please see Telephone and Online Transactions below, or call 800.789.ASIA (2742) for more information.
Telephone and Online Transactions
Investors can establish new accounts online via matthewsasia.com by selecting Open an Account and following the instructions. Shareholders with existing accounts may purchase additional shares, or exchange or redeem shares, directly with a Fund by calling 800.789.ASIA (2742), or through an online order at the Funds’ website at matthewsasia.com. Only bank accounts held at domestic institutions that are Automated Clearing House (ACH) members may be used for online transactions.
Telephone or online orders to purchase or redeem shares of a Fund, if received in good order before 4:00 PM Eastern Time (your “placement date”), will be processed at the Fund’s NAV calculated as of 4:00 PM Eastern Time on your placement date.
In times of extreme market conditions or heavy shareholder activity, you may have difficulty getting through to the Funds, and in such event, you may still purchase or redeem shares of the Funds using a method other than telephone or online. If the Funds believe that it is in the best interest of all shareholders, it may modify or discontinue telephone and/or online transactions without notice.
The convenience of using telephone and/or online transactions may result in decreased security. The Funds employ certain security measures as they process these transactions. If such security procedures are used, the Funds or their agents will not be responsible for any losses that you incur because of a fraudulent telephone or online transaction.
Market Timing Activities
The Board of Trustees has approved policies and procedures applicable to most purchases, exchanges and redemptions of Fund shares to discourage market timing by shareholders (the “Market Timing Procedures”). Market timing can harm other shareholders because it may dilute the value of their shares. Market timing may also disrupt the management of a Fund’s investment portfolio and cause the targeted Fund to incur costs, which are borne by non‑redeeming shareholders.
The Funds, because they invest in overseas securities markets, are particularly vulnerable to market timers who may take advantage of time zone differences between the close of the foreign markets on which each Fund’s portfolio securities trade and the U.S. markets that generally determine the time as of which the Fund’s NAV is calculated (this is sometimes
referred to as “time zone arbitrage”). The Funds also can be the targets of market timers if they invest in small‑cap securities and other types of investments that are not frequently traded, including high-yield bonds.
The Funds deem market timing activity to refer to purchase and redemption transactions in shares of the Funds that have the effect of (i) diluting the interests of long-term shareholders; (ii) harming the performance of the Funds by compromising portfolio management strategies or increasing Fund expenses for non‑redeeming shareholders; or (iii) otherwise disadvantaging the Funds or their shareholders. Market timing activity includes time zone arbitrage (i.e., seeking to take advantage of differences between the closing times of foreign markets on which portfolio securities of each Fund may trade and the U.S. markets that generally determine when each Fund’s NAV is calculated), market cycle trading (i.e., buying on market down days and selling on market up days); and other types of trading strategies.
The Funds and their agents have adopted procedures to assist them in identifying and limiting market timing activity. The Funds have also adopted and implemented a Pricing and Valuation Policy and Procedures, which the Funds believe may reduce the opportunity for certain market timing activity by fair valuing the Funds’ portfolios. However, there is no assurance that such practices will eliminate the opportunity for time zone arbitrage or prevent or discourage market timing activity.
The Funds may reject for any reason, or cancel as permitted or required by law, any purchase order or exchange request, including transactions deemed to represent excessive trading, at any time.
Identification of Market Timers
The Funds have adopted procedures to identify transactions that appear to involve market timing. However, the Funds do not receive information on all transactions in their shares and may not be able to identify market timers. Moreover, investors may elect to invest in a Fund through one or more financial intermediaries that use a combined or omnibus account. Such accounts obscure, and may be used to facilitate, market timing transactions. The Funds or their agents request representations or other assurances related to compliance with the Market Timing Procedures from parties involved in the distribution of Fund shares and administration of shareholder accounts. In addition, the Funds have entered into agreements with intermediaries that permit the Funds to request greater information from intermediaries regarding transactions. These arrangements may assist the Funds in identifying market timing activities. However, the Funds will not always know of, or be able to detect, frequent trading (or other market timing activity).
Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple investors, are a common form of holding shares among retirement plans and
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financial intermediaries such as brokers, investment advisors and third-party administrators. Individual trades in omnibus accounts are often not disclosed to the Funds, making it difficult to determine whether a particular shareholder is engaging in excessive trading. Excessive trading in omnibus accounts may not be detected by the Funds and may increase costs to the Funds and disrupt their portfolio management.
Under policies approved by the Board of Trustees, the Funds may rely on intermediaries to apply the Funds’ Market Timing Procedures and, if applicable, their own similar policies. In these cases, the Funds will typically not request or receive individual account data but will rely on the intermediary to monitor trading activity in good faith in accordance with its or the Funds’ policies. Reliance on intermediaries increases the risk that excessive trading may go undetected. For some intermediaries, the Funds will generally monitor trading activity at the omnibus account level to attempt to identify disruptive trades. The Funds may request transaction information, as frequently as daily, from any intermediary at any time, and may apply the Funds’ Market Timing Procedures to such transactions. The Funds may prohibit purchases of Fund shares by an intermediary or request that the intermediary prohibit the purchase of Fund shares by some or all of its clients. There is no assurance that the Funds will request data with sufficient frequency, or that the Funds’ analysis of such data will enable them to detect or deter market timing activity effectively.
The Funds (or their agents) attempt to contact shareholders whom the Funds (or their agents) believe have violated the Market Timing Procedures and notify them that they will no longer be permitted to buy (or exchange) shares of the Funds. When a shareholder has purchased shares of the Funds through an intermediary, the Funds may not be able to notify the shareholder of a violation of the Funds’ policies or that the Funds have taken steps to address the situation (for example, the Funds may be unable to notify a shareholder that his or her privileges to purchase or exchange shares of the Funds have been terminated). Nonetheless, additional purchase and exchange orders for such investors will not be accepted by the Funds.
Many intermediaries have adopted their own market timing policies. These policies may result in a shareholder’s privileges to purchase or exchange the Matthews Asia Funds’ shares being terminated or restricted independently of the Matthews Asia Funds. Such actions may be based on other factors or standards that are different than or in addition to the Funds’ standards. For additional information, please contact your intermediary.
Redemption in Kind and Funding Redemptions
The Funds generally pay redemption proceeds in cash. The Funds typically expect to satisfy redemption requests by selling portfolio assets or by using holdings of cash or cash equivalents. In some circumstances, it may be necessary for a Fund to borrow in order to pay redemption proceeds. The Funds may use these methods during both normal and stressed market conditions.
During conditions that make the payment of cash unwise and/or in order to protect the interests of a Fund’s remaining shareholders, you could receive your redemption proceeds as a combination of cash and securities. Receiving securities instead of cash is called “redemption in kind.” The Funds may redeem shares in kind during both normal and stressed market conditions. Generally, in‑kind redemptions will be effected through a pro rata distribution of the Fund’s portfolio securities. Note that if you receive securities as part of your redemption proceeds, you will bear any market risks associated with investments in these securities, and you will incur transaction charges if you sell the securities to convert them to cash.
After the Funds have received your redemption request and all proper documents, payment for shares tendered will generally be made within (i) one to three business days for redemptions made by wire, and (ii) three to five business days for ACH redemptions. Redemption payments by check will generally be issued on the business day following the redemption date; however, your actual receipt of the check will be subject to postal delivery schedules and timing. If you are redeeming shares of a Fund recently purchased by check, the Fund may delay sending your redemption proceeds until your check has cleared, which may take up to 15 calendar days after we receive your check. It may take up to several weeks for the initial portion of the in‑kind securities to be delivered to you, and substantially longer periods for the remainder of the in‑kind securities to be delivered to you, in payment of your redemption in kind.
Medallion Signature Guarantees
The Funds require a medallion signature guarantee on any written redemption of the Investor Class shares over $100,000 (but may require additional documentation or a medallion signature guarantee on any redemption request to help protect against fraud); the redemption of corporate, partnership or fiduciary accounts; or for certain types of transfer requests or account registration changes. A medallion signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution that is participating in a medallion program recognized by the Securities Transfer Association. The three “recognized” medallion programs are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP), and NYSE, Inc. Medallion Signature Program (NYSE MSP). Please call 800.789.ASIA (2742) for information on obtaining a signature guarantee.
Other Shareholder Information
Disclosure of Portfolio Holdings
A description of the Funds’ policies and procedures with respect to the disclosure of the Funds’ portfolio securities is available in the Funds’ SAI, which is available on the Matthews Asia Funds website at matthewsasia.com.
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Minimum Size of an Account
The Funds reserve the right to redeem small Investor Class accounts (excluding IRAs) that fall below $2,500, or Institutional Class accounts that fall below $100,000, due to redemption activity. If this happens to your account, you may receive a letter from the Funds giving you the option of investing more money into your account or closing it. Investor Class accounts that fall below $2,500 and Institutional Class accounts that fall below $100,000 due to market volatility will not be affected.
Confirming Your Transactions
The Funds will send you a written confirmation following each purchase, sale and exchange of Fund shares, except for systematic purchases and redemptions.
Additional Information about Shareholder Servicing
The operating expenses of each Fund include the cost of maintaining shareholder accounts, generating shareholder statements, providing taxpayer information, and performing related recordkeeping and administrative services. For shareholders who open accounts directly with the Funds, BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”), the Funds’ transfer agent, performs these services as part of the various services it provides to the Funds under an agreement between the Trust, on behalf of the Funds, and BNY Mellon. For shareholders who purchase shares through a broker or other financial intermediary, some or all of these services may be performed by that intermediary. For performing these services, the intermediary seeks compensation from the Funds or Matthews. In some cases, the services for which compensation is sought may be bundled with services not related to shareholder servicing, and may include distribution fees. The Board of Trustees has made a reasonable allocation of the portion of bundled fees, and Matthews pays from its own resources that portion of the fees that the Board of Trustees determines may represent compensation to intermediaries for distribution services.
Other Compensation to Intermediaries
Matthews, out of its own resources and without additional cost to a Fund or its shareholders, may provide additional cash payments or non‑cash compensation to intermediaries who sell shares of the Fund. Such payments and compensation are in addition to service fees or sub‑transfer agency fees paid by the Fund. The level of payments will vary for each particular intermediary. These additional cash payments generally represent some or all of the following: (a) payments to intermediaries to help defray the costs incurred to educate and train personnel about the Fund; (b) marketing support fees for providing assistance in promoting the sale of Fund shares; (c) access to sales meetings, sales representatives and management representatives of the intermediary; and (d) inclusion of the Fund on the sales list, including a preferred or select sales list, or other sales program of the intermediary. A number of factors will be considered in determining the level of payments, including the inter-
mediary’s sales, assets and redemption rates, as well as the nature and quality of the intermediary’s relationship with Matthews. Aggregate payments may change from year to year and Matthews will, on an annual basis, determine the advisability of continuing these payments. Shareholders who purchase or hold shares through an intermediary may inquire about such payments from that intermediary.
Rule 12b‑1 Plan
The Trust’s 12b‑1 Plan (the “Plan”) is inactive. The Plan authorizes the use of the Funds’ assets to compensate parties that provide distribution assistance or shareholder services, including, but not limited to, printing and distributing prospectuses to persons other than shareholders, printing and distributing advertising and sales literature and reports to shareholders used in connection with selling shares of the Funds, and furnishing personnel and communications equipment to service shareholder accounts and prospective shareholder inquiries. Although the Plan currently is not active, it is reviewed by the Board annually in case the Board decides to re‑activate the Plan. The Plan would not be re‑activated without prior notice to shareholders. If the Plan were re‑activated, the fee would be up to 0.25% for each of the Investor Class and Institutional Class, respectively, and because these fees would be paid out of the Fund’s assets on an on‑going basis, over time these fees would increase the cost of your investment and could cost you more than paying other types of sales charges.
Distributions
All of the Funds, except the Matthews Asia Dividend Fund, Matthews China Dividend Fund, and the Matthews Asian Growth and Income Fund, generally distribute their net investment income once annually in December. The Matthews Asia Dividend Fund generally distributes net investment income quarterly in March, June, September and December. The Matthews China Dividend Fund and Matthews Asian Growth and Income Fund generally distribute net investment income semi-annually in June and December. Any net realized gain from the sale of portfolio securities and net realized gains from foreign currency transactions are distributed at least once each year unless they are used to offset losses carried forward from prior years. All such distributions are reinvested automatically in additional shares at the current NAV, unless you elect to receive them in cash. If you hold the shares directly with the Funds, the manner in which you receive distributions may be changed at any time by writing to the Funds. Additionally, details of distribution-related transactions will be reported on quarterly account statements. You may not receive a separate confirmation statement for these transactions.
Any check in payment of dividends or other distributions that cannot be delivered by the post office or that remains uncashed for a period of more than one year will be reinvested in your account.
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Distributions are treated the same for tax purposes whether received in cash or reinvested. If you buy shares when a Fund has realized but not yet distributed ordinary income or capital gains, you will be “buying a dividend” by paying the full price of the shares and then receiving a portion of the price back in the form of a taxable dividend.
Taxes
This section summarizes certain income tax considerations that may affect your investment in the Funds. You are urged to consult your tax advisor regarding the tax effects to you of an investment in the Funds based on your individual tax situation. The tax consequences of an investment in the Funds depend on the type of account that you have and your particular tax circumstances. Distributions are subject to federal income tax and may also be subject to state and local income taxes. The Funds intend to make distributions that may be taxed as ordinary income and capital gains (which may be taxable at different rates depending on the length of time the Funds hold their assets). Distributions are generally taxable when they are paid, whether in cash or by reinvestment. Distributions declared in October, November or December and paid the following January are taxable as if they were paid on December 31.
The exchange of one Matthews Asia Fund for another is a taxable event, which means that if you have a gain, you may be obligated to pay tax on it. If you have a qualified retirement account, taxes are generally deferred until distributions are made from the retirement account.
Part of a distribution may include realized capital gains, which may be taxed at different rates depending on how long a Fund has held specific securities.
You must have an accurate Social Security Number or taxpayer I.D. number on file with the Funds. If you do not, you may be subject to backup withholding on your distributions.
In mid‑February, if applicable, you will be sent a Form 1099‑DIV or other Internal Revenue Service (“IRS”) forms, as required, indicating the tax status of any distributions made to you. This information will be reported to the IRS. If the total distributions you received for the year are less than $10, you may not receive a Form 1099‑DIV. Please note retirement account shareholders will not receive a Form 1099‑DIV.
Speak with your tax advisor concerning state and local tax laws, which may produce different consequences than those under federal income tax laws.
In addition, the Funds may be subject to short-term capital gains tax in India on gains realized upon disposition of Indian securities held less than one year. The tax is computed on net realized gains; any realized losses in excess of gains may be carried forward for a period of up to eight years to offset future gains. Any net taxes payable must be remitted to the Indian government prior to repatriation of sales proceeds. The Funds accrue a deferred tax liability for net unrealized short-term gains in excess of available carryforwards on Indian securities. This accrual may reduce a Fund’s net asset value.
You should read the tax information in the Statement of Additional information, which supplements the information above and is a part of this prospectus. The Funds do not expect to request an opinion of counsel or rulings from the IRS regarding their tax status or the tax consequences to investors in the Funds.
Cost Basis Reporting
As part of the Emergency Economic Stabilization Act of 2008, the Funds are responsible for tracking and reporting cost basis information to the IRS on the sale or exchange of shares acquired on or after January 1, 2012 (“Covered Shares”). Cost basis is the cost of the shares you purchased, including reinvested dividends and capital gains distributions. Where applicable, the cost is adjusted for sales charges or transaction fees. When you sell Covered Shares in a taxable account, the cost basis accounting method you choose determines how your gain or loss is calculated. Matthews’ default cost basis accounting method is Average Cost. If you and your financial or tax advisor determine another method to be more beneficial to your situation, you will be able to change your default setting to another IRS‑accepted cost basis method by notifying the Funds’ transfer agent in writing or by phone at 800.789.ASIA (2742), Monday through Friday, 9:00 AM to 4:30 PM ET. When you redeem Covered Shares from your account, we will calculate the cost basis on those shares according to your cost basis method election. Again, please consult your tax professional to determine which method should be considered for your individual tax situation.
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Index Definitions
It is not possible to invest directly in an index. The performance of foreign indices may be based on different exchange rates than those used by a Fund and, unlike the Fund’s NAV, is not adjusted to reflect fair value at the close of regular trading on the NYSE (generally 4:00 PM Eastern Time) on each day that the exchange is open for trading.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization–weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI All Country Asia Pacific Index is a free float-adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia ex Japan Index is a free float-adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g., ADRs).
The MSCI China All Shares Index captures large and mid‑cap representation across China A shares, B shares, H shares, Red Chips (issued by entities owned by national or local governments in China), P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong, Shanghai, Shenzhen and outside of China.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float-adjusted market capitalization-weighted index of 100 stocks listed on the Bombay Stock Exchange.
MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
The MSCI Japan Index is a free float-adjusted market capitalization-weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization-weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI Korea Index is a free float-adjusted market capitalization-weighted index of Korean equities listed in Korea.
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General Information
Identity Verification Procedures Notice
The USA PATRIOT Act requires financial institutions, including mutual funds, to adopt certain policies and programs to prevent money laundering activities, including procedures to verify the identity of customers opening new accounts. When completing the New Account Application, you will be required to supply the Funds with information, such as your taxpayer identification number, that will assist the Funds in verifying your identity. Until such verification is made, the Funds may limit additional share purchases. In addition, the Funds may limit additional share purchases or close an account if they are unable to verify a customer’s identity. As required by law, the Funds may employ various procedures, such as comparing the information to fraud databases or requesting additional information or documentation from you, to ensure that the information supplied by you is correct. Your information will be handled by us as discussed in our Privacy Statement below.
Privacy Statement
Matthews Asia Funds will never sell your personal information and will only share it for the limited purposes described below. While it is necessary for us to collect certain non‑public personal information about you when you open an account (such as your address and Social Security Number), we protect this information and use it only for communication purposes or to assist us in providing the information and services necessary to address your financial needs. We respect your privacy and are committed to ensuring that it is maintained.
As permitted by law, it is sometimes necessary for us to share your information with companies that perform administrative or marketing services on our behalf, such as transfer agents and/or mail facilities that assist us in shareholder servicing or distribution of investor materials. These companies are not permitted to use or share this information for any other purpose.
We restrict access to non‑public personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to protect your personal information.
When using Matthews Asia Funds’ Online Account Access, you will be required to provide personal information to gain access to your account. For your protection, the login screen resides on a secure server.
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Investment Advisor
Matthews International Capital Management, LLC
800.789.ASIA (2742)
Account Services
BNY Mellon Investment Servicing (US) Inc.
P.O. Box 534475
Pittsburgh, PA 15253-4475
800.789.ASIA (2742)
Custodian
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
Administrator and Transfer Agent
BNY Mellon
301 Bellevue Parkway
Wilmington, DE 19809
Shareholder Service Representatives are available
from 9:00 AM to 4:30 PM ET, Monday through Friday.
For additional information about
Matthews Asia Funds:
matthewsasia.com
800.789.ASIA (2742)
Matthews Asia Funds
P.O. Box 534475
Pittsburgh, PA 15253-4475
Shareholder Reports
Additional information about the Funds’ investments is available in the Funds’ annual reports (audited by independent accountants) and semi-annual reports. These reports contain a discussion of the market conditions and investment strategies that significantly affected each Fund’s performance during its reporting period. To reduce the Funds’ expenses, we try to identify related shareholders in a household and send only one copy of the Funds’ prospectus and annual and semi-annual reports to that address. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. At any time you may view the Funds’ current prospectus and annual and semi-annual reports, free of charge, on the Funds’ website at matthewsasia.com. The Funds’ current prospectus and annual and semi-annual reports are also available to you, without charge, upon request.
Statement of Additional Information (SAI)
The SAI, which is incorporated into this prospectus by reference and dated April 28, 2023, is available to you, without charge, upon request or through the Funds’ website at matthewsasia.com. It contains additional information about the Funds.
HOW TO OBTAIN ADDITIONAL INFORMATION
| Contacting Matthews Asia Funds | You can obtain free copies of the publications described above by visiting the Funds’ website at matthewsasia.com. To request the SAI, the Funds’ annual and semi-annual reports and other information about the Funds or to make shareholder inquiries, contact the Funds at: Matthews Asia Funds P.O. Box 534475 Pittsburgh, PA 15253-4475 800.789.ASIA (2742) | |
| Obtaining Information from the SEC | Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplication fee, by electronic request at the following E‑mail address: publicinfo@sec.gov. | |
Investment Company Act File Number: 811‑08510
Distributed in the United States by Foreside Funds Distributors LLC
Distributed in Latin America by Picton S.A.
P.O. Box 534475 | Pittsburgh, PA 15253‑4475 | matthewsasia.com | 800.789.ASIA (2742)
PS‑0423