<PAGE>
Dear Fellow Shareholder:
I am pleased to enclose the annual report for the Matthews International Funds
for the year ended August 31, 1996. The last twelve months has been an
eventful period for the Tiger markets of Asia, reflecting both the
considerable progress made by these young economies and the many challenges
common to countries developing at such a rapid pace. Many of the region's
stock markets have showed strong returns in this period, while a few have
suffered from a combination of slowing exports and structural challenges. In
general we are pleased with the performance of two of the funds in the series,
with Matthews Pacific Tiger Fund showing a total return of 10.64% in the
period and Matthews Asian Convertible Securities Fund 10.24%, but we are
disappointed with the performance of the Korean market in this period and the
Matthews Korea Fund's decline of 20.11%.
The economic performance of the Asian Tigers remains impressive, in spite of
slowing export growth in general, and weaker demand for electronics exports in
particular. The long term attractions of the region continue to be reflected
in inward capital investment and Asia's role on the world stage is a growing
one. Throughout the region, the current year will see real economic growth
after adjusting for inflation of between 5 and 7 percent. While this reflects
a generally slower period of growth than many of these countries are
accustomed to, it is still substantially higher than that achieved by the
majority of developed nations. The economy of mainland China has shown marked
signs of slowing to more sustainable levels of growth, while the reported
inflation numbers have also shown considerable improvement. In general the
stabilization of the mainland economy is one of the most encouraging
developments over the last year, as China's potential as a trading partner
remains one of the key attractions of the surrounding Tiger countries.
For all three of the portfolios in the series we continue our focus on
identifying high quality growth companies that will benefit from the long-term
growth trends in the region.
Thank you for your support.
Sincerely,
/s/ G. Paul Matthews
G. Paul Matthews
President, Matthews International Funds
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
- -------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in
Matthews Pacific Tiger Fund and Matthews Asian Convertible Securities Fund
with the performance of the MSCI AC Far East ex Japan Index with gross
dividends in U.S. dollars. The average annual total return of Matthews Pacific
Tiger Fund and Matthews Asian Convertible Fund for one year was 10.64% and
10.24%, respectively, and from inception, 4.27% and 5.70%, respectively.
Pacific Tiger & Asian Conv. Sec. Funds
(Assuming $10,000 invested at inception)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Matthews Pacific MSCI AC Far East Matthews Asian
Tiger Fund ex Japan Index Conv. Sec. Fund
---------------- ---------------- ---------------
<S> <C> <C> <C>
9/12/94 10000 10000 10000
11/94 9720 9329 9930
2/95 9241 8879 9722
5/95 9723 9447 10284
8/95 9793 8873 10089
11/95 9432 8784 10191
2/96 10965 9563 11124
5/96 11186 10185 11228
8/96 10835 9658 11122
</TABLE>
The graph below compares the increase in value of a $10,000 investment in
Matthews Korea Fund with the performance of the Korea Stock Price Index. The
average annual total return of Matthews Korea Fund for one year was (20.11%)
and from inception was (18.08%).
Korea Fund
(Assuming $10,000 invested at inception)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Matthews Korea Korea Stock
Fund Price Index
-------------- -------------
<S> <C> <C>
1/2/95 10000 10000
2/95 9000 8621
5/95 8960 8590
9/95 9130 8897
11/95 9230 9061
2/96 8404 8301
5/96 8636 8790
8/96 7294 7620
</TABLE>
<PAGE>
GENERAL MARKET AND ECONOMIC INFORMATION
- --------------------------------------------------------------------------------
Asia ex-Japan vs. US and International Stock Markets
December 1987 - August 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MSCI All MSCI All
Country Far Country Far
East (ex East Free
Japan) (ex Japan) S&P 500
Index Index Index
-----------------------------------------------
<S> <C> <C> <C>
Dec-87 100.000 100.000 247.08
Jan-88 111.875 104.964 257.07
Feb-88 118.556 105.719 267.82
Mar-88 121.832 111.196 258.89
Apr-88 133.423 115.877 261.33
May-88 139.647 114.918 262.16
Jun-88 147.028 124.809 273.50
Jul-88 163.590 127.023 272.02
Aug-88 170.696 116.102 261.52
Sep-88 179.540 116.601 271.91
Oct-88 166.082 122.346 278.97
Nov-88 176.672 123.616 273.70
Dec-88 166.649 125.844 277.72
Jan-89 183.769 140.637 297.47
Feb-89 193.006 139.497 288.86
Mar-89 202.814 141.885 294.87
Apr-89 212.544 150.758 309.64
May-89 227.925 143.780 319.05
Jun-89 215.129 133.152 317.98
Jul-89 221.614 144.729 346.08
Aug-89 229.873 141.955 351.45
Sep-89 238.061 151.023 349.15
Oct-89 232.432 148.167 340.36
Nov-89 225.130 154.084 345.99
Dec-89 233.500 161.086 353.40
Jan-90 260.016 160.572 329.08
Feb-90 253.721 166.625 331.89
Mar-90 239.080 167.037 339.94
Apr-90 214.150 159.666 330.80
May-90 209.808 175.043 361.20
Jun-90 189.862 178.792 358.02
Jul-90 196.345 189.255 356.15
Aug-90 159.277 161.669 322.56
Sep-90 136.582 136.631 306.05
Oct-90 152.898 144.822 304.00
Nov-90 158.707 139.158 322.22
Dec-90 163.328 145.503 330.22
Jan-91 159.965 153.079 343.93
Feb-91 182.808 171.604 367.07
Mar-91 187.534 179.033 375.22
Apr-91 194.959 176.564 375.34
May-91 192.401 178.636 389.83
Jun-91 191.723 173.389 371.16
Jul-91 196.134 178.807 387.81
Aug-91 185.375 174.227 395.43
Sep-91 187.801 168.907 387.86
Oct-91 183.901 171.045 392.45
Nov-91 184.664 176.083 375.22
Dec-91 189.158 184.445 417.09
Jan-92 209.405 197.051 408.78
Feb-92 206.851 203.598 412.70
Mar-92 201.532 201.430 403.69
Apr-92 204.854 208.239 414.95
May-92 212.495 222.082 415.35
Jun-92 216.059 225.783 408.14
Jul-92 206.309 219.426 424.22
Aug-92 200.634 211.730 414.03
Sep-92 199.335 215.564 417.80
Oct-92 216.062 234.484 418.68
Nov-92 212.593 225.580 431.35
Dec-92 205.798 218.483 435.71
Jan-93 209.367 225.016 438.78
Feb-93 226.861 237.865 443.38
Mar-93 231.548 237.368 451.67
Apr-93 246.103 257.741 440.19
May-93 255.182 272.184 450.19
Jun-93 247.089 264.651 450.53
Jul-93 246.342 265.800 448.13
Aug-93 257.286 287.582 463.56
Sep-93 266.650 298.129 458.93
Oct-93 305.869 352.642 467.83
Nov-93 312.210 349.753 461.79
Dec-93 391.081 434.341 466.45
Jan-94 376.602 404.280 481.61
Feb-94 355.114 380.620 467.14
Mar-94 321.529 338.337 445.76
Apr-94 338.982 353.451 450.91
May-94 351.207 368.099 456.51
Jun-94 341.442 351.122 444.27
Jul-94 363.292 370.226 458.26
Aug-94 388.622 399.772 475.50
Sep-94 393.384 392.665 462.71
Oct-94 392.537 399.837 472.35
Nov-94 362.554 361.197 453.69
Dec-94 362.133 351.775 459.27
Jan-95 323.158 313.633 470.42
Feb-95 345.043 344.902 487.38
Mar-95 350.315 345.545 500.71
Apr-95 341.778 341.572 514.71
May-95 367.134 382.626 533.40
Jun-95 361.356 376.384 544.75
Jul-95 363.929 381.723 562.06
Aug-95 344.831 362.973 561.88
Sep-95 355.151 368.787 584.41
Oct-95 349.486 362.609 581.50
Nov-95 341.365 358.386 605.37
Dec-95 355.519 375.729 615.93
Jan-96 372.221 409.658 636.02
Feb-96 371.641 407.665 640.43
Mar-96 378.199 410.176 645.50
Apr-96 406.109 420.916 654.17
May-96 395.812 416.105 669.12
Jun-96 393.298 407.157 670.63
</TABLE>
Economic Statistics (as of 6/30/96)
<TABLE>
<CAPTION>
Population '96e Real '97e Real '95 GDP 1995 GDP per 1996e
Market (millions) GDP Growth GDP Growth (US$ billions) capital (US$) inflation
<S> <C> <C> <C> <C> <C> <C>
U.S 263 2.0% 1.9% 7,248 27,528 3.0%
Japan 125 1.8% 2.3% 5,027 40,072 0.5%
China 1,208 10.5% 10.5% 655 533 10.5%
Hong Kong 7 5.0% 5.0% 144 23,207 7.8%
Indonesia 203 7.4% 7.3% 198 1,014 8.8%
Malaysia 21 8.0% 7.5% 86 4,279 3.8%
Philippines 68 6.9% 7.5% 74 1,083 8.1%
Singapore 3 7.8% 7.3% 84 12,287 1.9%
South Korea 45 6.8% 7.3% 456 10,182 5.0%
Taiwan 21 5.0% 5.5% 261 12,365 3.1%
Thailand 60 8.0% 7.5% 166 2,759 5.8%
</TABLE>
<TABLE>
<CAPTION>
1997e Prime Lending '96e Current A/C
inflation rates (% of GDP)
<S> <C> <C> <C>
U.S 3.2% 8.5% (2.1%)
Japan 1.0% 1.6% 1.7%
China 9.4% 12.1% 0.3%
Hong Kong 8.0% 8.8% (1.1%)
Indonesia 8.4% 19.3% (4.4%)
Malaysia 3.5% 8.2% (7.6%)
Philippines 6.4% 14.6% (2.9%)
Singapore 2.5% 6.3% 12.4%
South Korea 5.0% 10.8% (2.2%)
Taiwan 3.4% 7.8% 1.7%
Thailand 4.9% 13.8% (8.0%)
</TABLE>
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS August 31, 1996
- -------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
EQUITIES -- 90.53%
HONG KONG -- 48.08%
Chen Hsong Holdings...................................... 704,000 $ 405,137
Cheung Kong Holdings, Ltd. .............................. 69,000 484,081
Cheung Kong Infrastructure Holdings**.................... 132,000 215,940
Chevalier International Holdings......................... 1,920,000 335,200
China Resources Enterprises, Ltd. ....................... 520,000 467,366
China Travel International Investment, Ltd. ............. 2,064,000 593,894
Citic Pacific, Ltd. ..................................... 106,000 466,073
Dah Sing Financial Group................................. 99,600 325,873
Giordano International, Ltd. ............................ 402,000 332,717
HSBC Holdings PLC........................................ 31,200 538,648
JCG Holdings, Ltd. ...................................... 470,000 401,153
Joyce Boutique Holdings.................................. 1,066,000 282,605
Li & Fung, Ltd. ......................................... 446,000 403,740
Moulin International Holdings, Ltd. ..................... 800,000 434,518
New Asia Realty & Trust Co. ............................. 120,000 441,502
New World Development Co., Ltd. ......................... 100,000 484,953
New World Infrastructure, Ltd.**......................... 150,000 353,046
Qingling Motors Co. ..................................... 1,154,000 443,978
Sino Hotels Holdings, Ltd. .............................. 1,450,000 421,909
Tingyi Holdings Co.**.................................... 1,764,000 412,901
-----------
TOTAL HONG KONG.......................................... 8,245,234
-----------
INDONESIA -- 2.74%
Pt Lippo Life Insurance.................................. 60,000 51,238
Pt Kawasan Industri Jababeka............................. 215,000 282,291
Pt Steady Safe Transportation............................ 162,695 135,463
-----------
TOTAL INDONESIA.......................................... 468,992
-----------
KOREA -- 6.62%
Chonggu Housing & Construction........................... 14,000 328,105
Housing & Commercial Bank**.............................. 5,100 110,186
Hyundai Engineering & Construction Co.**................. 3,000 113,885
Kyung Won Century Co.**.................................. 8,000 274,397
Samsung Electronics Co. ................................. 10 779
Samsung Electronics Co. (New)**.......................... 108 8,028
Samsung Securities Co., Ltd. ............................ 10,000 278,303
Samsung Securities Co., Ltd. (New)....................... 800 21,996
-----------
TOTAL KOREA.............................................. 1,135,679
-----------
MALAYSIA -- 13.37%
Berjaya Sports Toto Berhad............................... 97,000 359,807
Cycle & Carriage Bintang Berhad, Ltd. ................... 62,000 397,803
DCB Holdings Berhad...................................... 57,000 173,718
Public Bank Berhad....................................... 133,330 255,571
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
Resorts World Berhad.................................. 65,000 $ 354,493
Shah Alam Properties Berhad**......................... 80,000 394,594
Talam Corp. Berhad.................................... 250,000 356,899
-----------
TOTAL MALAYSIA........................................ 2,292,885
-----------
PHILIPPINES -- 2.30%
Manila Electric Co. .................................. 15,600 119,702
Metropolitan Bank & Trust Co. ........................ 11,492 274,206
-----------
TOTAL PHILIPPINES..................................... 393,908
-----------
SINGAPORE -- 5.79%
Osprey Maritime, Ltd. ................................ 257,500 347,625
Parkway Holdings, Ltd. ............................... 110,000 345,509
Wing Tai Holdings, Ltd. .............................. 140,000 300,455
-----------
TOTAL SINGAPORE....................................... 993,589
-----------
THAILAND -- 11.63%
Bank of Ayudhya Public Co., Ltd. ..................... 85,250 384,055
Central Pattana Public Co., Ltd. ..................... 99,000 410,788
Industrial Finance Corp. ............................. 100,067 407,307
Siam Cement Public Co., Ltd. ......................... 9,500 364,908
Thai Engine Manufacturing............................. 45,000 426,793
-----------
TOTAL THAILAND........................................ 1,993,851
-----------
TOTAL EQUITIES
(Cost $15,401,785)................................... 15,524,138
-----------
<CAPTION>
FACE MARKET
AMOUNT VALUE
--------- -----------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 4.41%
Far Eastern Department Stores
3.000%, due 07/06/01................................. $350,000 348,250
President Enterprises
0.000%, due 07/22/01**+.............................. 260,000 407,550
-----------
TOTAL INTERNATIONAL DOLLAR BONDS
(Cost $689,666)...................................... 755,800
-----------
TOTAL INVESTMENTS -- 94.94%*
(Cost $16,091,451)................................... 16,279,938
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES -- 5.06%............................ 868,119
-----------
NET ASSETS -- 100%.................................... $17,148,057
===========
</TABLE>
* Cost for Federal income tax purposes is $16,091,451 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation........... $1,026,801
Gross unrealized
depreciation........... (838,314)
----------
Net unrealized
appreciation........... $ 188,487
==========
</TABLE>
**Non-income producing securities
+ Convertible bond with put option
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS August 31, 1996
- --------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
EQUITIES -- 9.03%
HONG KONG -- 5.95%
China Hong Kong Photo Products, Ltd........................ 21,387 $ 10,095
Citic Pacific (UBS) Warrants**............................. 140,000 29,330
CP Pokphand Co............................................. 25,000 8,487
Cross-Harbour Tunnel Co.................................... 20,000 43,840
HSBC Holdings PLC Warrants** .............................. 4,000 69,057
Peregrine Investment Holdings, Ltd......................... 24,000 33,830
Peregrine Investment Holdings, Ltd. Warrants**............. 1,400 228
----------
TOTAL HONG KONG............................................ 194,867
----------
MALAYSIA -- 0.50%
Renong Berhad Warrants**................................... 40,000 16,522
----------
SOUTH KOREA -- 1.90%
Korea Kumho Petrochemical.................................. 5,000 31,736
Samsung Electronics Co..................................... 330 25,699
Samsung Electronics Co. (New)**............................ 63 4,683
----------
TOTAL SOUTH KOREA.......................................... 62,118
----------
THAILAND -- 0.68%
Industrial Finance Corp. Warrants**........................ 11,200 22,130
----------
TOTAL EQUITIES
(Cost $306,109)........................................... 295,637
----------
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 83.73%
CHINA -- 2.36%
China Overseas Land & Investment
5.250%, due 12/08/00...................................... $ 80,000 77,200
----------
HONG KONG -- 27.51%
Hysan Development Finance
6.750%, due 06/01/00...................................... 80,000 90,500
New World Development (BVI)
4.375%, due 12/11/00...................................... 60,000 64,575
Shangri-La Asia Capital
2.875%, due 12/16/00...................................... 70,000 57,750
Hong Kong and Shanghai Hotels
5.000%, due 01/06/01...................................... 100,000 109,000
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
Hong Kong Land Co.
4.000%, due 02/23/01....................................... $ 35,000 $ 30,056
Sino Land
5.000%, due 02/26/01....................................... 100,000 98,500
Hon Kwok Land Capital
5.300%, due 07/05/01....................................... 100,000 100,625
New World Infrastructure, Ltd.
5.000%, due 07/15/01....................................... 60,000 61,425
Bank of East Asia, Ltd.
2.000%, due 07/19/03....................................... 100,000 103,500
Regal Hotels International Holdings
5.250%, due 12/13/08....................................... 95,000 92,863
Amoy Properties, Ltd.
5.500%, due 12/29/49....................................... 100,000 91,625
----------
TOTAL HONG KONG............................................. 900,419
----------
INDONESIA -- 2.76%
Pt Indocement
2.000%, due 02/27/06....................................... 100,000 90,250
----------
MALAYSIA -- 4.86%
United Engineers Berhad
2.000%, due 03/01/04....................................... 50,000 61,500
Commerce Asset Holdings
1.750%, due 09/26/04....................................... 80,000 97,600
----------
TOTAL MALAYSIA.............................................. 159,100
----------
PHILIPPINES -- 4.84%
JG Summit (Cayman), Ltd.
3.500%, due 12/23/03....................................... 80,000 64,400
Filinvest Capital
2.500%, due 05/15/06....................................... 90,000 93,938
----------
TOTAL PHILIPPINES........................................... 158,338
----------
SINGAPORE -- 7.62%
Far East Levingston Shipping
1.500%, due 05/02/01....................................... 60,000 53,550
Jardine Strategic Holdings
7.500%, due 05/07/49....................................... 90,000 98,325
Dairy Farm International Holdings
6.500%, due 05/10/49....................................... 135,000 97,369
----------
TOTAL SINGAPORE............................................. 249,244
----------
SOUTH KOREA -- 1.75%
Samsung Display Devices
0.250%, due 03/12/06....................................... 60,000 57,150
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS August 31, 1996
- -------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND (continued)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
TAIWAN -- 15.59%
Acer, Inc.
4.000%, due 06/10/01....................................... $ 20,000 $ 47,100
Far Eastern Department Stores
3.000%, due 07/06/01....................................... 70,000 69,650
Nan Ya Plastic Corp.
1.750%, due 07/19/01....................................... 80,000 86,400
President Enterprises
0.000%, due 07/22/01**+.................................... 40,000 62,700
Yangming Marine Transportation
2.000%, due 10/06/01....................................... 70,000 84,000
Winbond Electronics Corp.
2.000%, due 03/13/03....................................... 100,000 98,500
Walsin Lihwa Corp.
3.250%, due 06/16/04....................................... 70,000 61,950
----------
TOTAL TAIWAN................................................ 510,300
----------
THAILAND -- 16.44%
Central Pattana Public Co.
2.750%, due 04/10/01....................................... 90,000 94,950
Banpu Public Co., Ltd.
2.750%, due 04/10/03....................................... 110,000 112,750
Hemaraj Land Development
3.500%, due 09/09/03....................................... 40,000 39,000
MDX Public Co., Ltd.
4.750%, due 09/17/03....................................... 65,000 25,350
Sino-Thai Engineering & Construction PLC
1.750%, due 12/17/03....................................... 30,000 32,625
Tanayong Public Co., Ltd.
3.500%, due 03/01/04....................................... 60,000 54,300
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
Robinson Department Stores
4.250%, due 04/07/04...................................... $ 50,000 $ 58,875
Bangkok Bank Public Co.
1.500%, due 08/07/06...................................... 120,000 120,000
----------
TOTAL THAILAND............................................. 537,850
----------
TOTAL INTERNATIONAL DOLLAR BONDS
(Cost $2,728,744)......................................... 2,739,851
----------
<CAPTION>
MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
INVESTMENT COMPANY -- 1.47%
(Cost $58,292)
The India Fund............................................. 6,000 48,000
----------
TOTAL INVESTMENTS -- 94.23%*
(Cost $3,093,145)......................................... 3,083,488
----------
CASH AND OTHER ASSETS, LESS LIABILITIES -- 5.77%........... 188,872
----------
NET ASSETS -- 100%......................................... $3,272,360
==========
</TABLE>
* Cost for Federal income tax purposes is $3,093,145 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation............. $ 122,062
Gross unrealized
depreciation............. (131,719)
---------
Net unrealized
depreciation............. $ (9,657)
=========
</TABLE>
**Non-income producing securities
+Convertible bond with put option
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS August 31, 1996
- -------------------------------------------------------------------------------
MATTHEWS KOREA FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
EQUITIES -- KOREA 95.37%
Dae Duck Electronics Co. .................................... 3,500 $ 160,207
Daewoo Heavy Industries...................................... 15,000 74,153
Dong-A Pharmaceutical Co., Ltd. ............................. 4,524 108,786
Dong Won Metal Industries**.................................. 4,000 156,729
Halla Engineering & Construction............................. 3,500 101,678
Hankuk Electric Glass........................................ 2,500 68,660
Hyundai Motor Service Co.**.................................. 3,500 120,903
Inchon Iron & Steel Co. (New)**.............................. 2,343 51,479
Keyang Electric Machinery Co. ............................... 1,000 21,971
Keyang Electric Machinery Co. (New).......................... 912 19,370
Korea Industrial Leasing**................................... 8,000 113,274
Korea Reinsurance (New)...................................... 479 13,331
Kun Sul Chemical Industry**.................................. 2,000 124,504
Kyung Nam Bank............................................... 10,000 128,166
Kyung Won Century Co.**...................................... 3,000 102,899
L.G. Securities**............................................ 4,000 34,471
Oriental Chemical Industries Co., Ltd. ...................... 2,000 70,308
Sam Lip Industrial Co.**..................................... 3,140 118,433
Samsung Corp. (New)**........................................ 299 4,329
Samsung Display Devices Co. ................................. 37 2,484
Samsung Electro-Mechanics Co. ............................... 6,000 106,195
Samsung Electronics Co. ..................................... 906 70,556
Samsung Electronics Co. (New)**.............................. 477 35,458
Samsung Securities Co., Ltd. ................................ 4,000 111,321
Samsung Securities Co., Ltd. (New)........................... 560 15,397
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
Seoul Bank**................................................. 6,000 $ 38,670
Shin Wha Engineering &
Construction Co. ........................................... 5,000 85,444
Shin Wha Engineering &
Construction Co. (New) ..................................... 759 12,855
Shindaeyang Paper............................................ 4,670 117,997
Shinhung Co. ................................................ 2,000 69,820
Shinsegae Department Stores (New)**.......................... 2,000 118,401
Suheung Capsule.............................................. 2,000 107,415
Tongyang Merchant Bank**..................................... 7,187 109,666
----------
TOTAL EQUITIES
(Cost $3,134,176)........................................... 2,595,330
----------
TOTAL INVESTMENTS -- 95.37%
(Cost $3,134,176)........................................... 2,595,330
----------
CASH AND OTHER ASSETS,
LESS LIABILITIES -- 4.63%................................... 126,000
----------
NET ASSETS -- 100%........................................... $2,721,330
==========
</TABLE>
* Cost for Federal income tax purposes is $3,134,176 and net unrealized
depreciation consists of:
Gross unrealized
appreciation........... $ 48,388
Gross unrealized
depreciation........... (587,234)
---------
Net unrealized
depreciation .......... $(538,846)
=========
**Non-income producing securities
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investments, at market value (Cost
$16,091,451, $3,093,145 and $3,134,176,
respectively)............................ $16,279,938 $3,083,488 $2,595,330
Cash...................................... 664,772 202,677 37,825
Dividends and interest receivable......... 37,193 34,478 713
Receivable for securities sold............ 326,027 0 26,224
Receivable for capital stock sold......... 231,348 25,000 35,851
Deferred organization costs (Note 1-E).... 20,426 20,426 10,766
Due from Advisor (Note 2)................. 40,417 47,524 28,717
Other assets.............................. 50 32 9
----------- ---------- ----------
Total assets............................. 17,600,171 3,413,625 2,735,435
----------- ---------- ----------
LIABILITIES:
Payable for securities purchased.......... 403,297 126,918 0
Payable for capital stock redeemed........ 7,167 0 0
Accrued expenses.......................... 41,650 14,347 14,105
----------- ---------- ----------
Total liabilities........................ 452,114 141,265 14,105
----------- ---------- ----------
NET ASSETS:
Applicable to 1,586,629, 310,910 and
376,157 shares outstanding, respectively. $17,148,057 $3,272,360 $2,721,330
=========== ========== ==========
NET ASSETS CONSIST OF:
Capital paid-in........................... $16,869,908 $3,200,249 $3,485,643
Accumulated undistributed net investment
income (loss)............................ 19,664 4,788 (27,353)
Accumulated undistributed net realized
gain (loss) on investments and foreign
currency related transactions............ 69,988 76,980 (198,105)
Net unrealized appreciation (depreciation)
on investments and foreign currency
related transactions..................... 188,497 (9,657) (538,855)
----------- ---------- ----------
$17,148,057 $3,272,360 $2,721,330
=========== ========== ==========
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE.................................... $10.81 $10.53 $7.23
====== ====== =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS For the Year Ended August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
--------- ----------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................... $ 150,524 $ 38,085 $ 6,954
Interest.................................... 27,620 60,529 7,195
--------- --------- ---------
Total investment income.................... 178,144 98,614 14,149
--------- --------- ---------
EXPENSES:
Investment advisory fees (Note 2)........... 80,273 21,475 15,406
Transfer agent fees......................... 37,495 33,559 31,526
Administration fees......................... 29,671 28,154 27,558
Accounting fees............................. 60,455 51,146 48,000
Auditing fees............................... 21,926 5,676 5,147
Custodian fees.............................. 81,566 17,317 19,235
Directors fees (Note 2)..................... 4,583 4,583 4,583
Legal fees.................................. 1,249 981 651
Insurance expense........................... 1,076 843 492
Amortization of organization costs (Note 1-
E)......................................... 6,753 6,753 3,133
Printing expense............................ 2,315 2,125 2,836
Registration expenses....................... 21,458 14,634 16,423
Miscellaneous expenses...................... 253 7 7
--------- --------- ---------
Total expenses............................. 349,073 187,253 174,997
Expenses reimbursed and waived (Note 2)..... (196,594) (147,620) (140,698)
--------- --------- ---------
Net expenses............................... 152,479 39,633 34,299
--------- --------- ---------
NET INVESTMENT INCOME (LOSS)................ 25,665 58,981 (20,150)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS:
Net realized gain (loss) on investments..... 87,110 81,718 (199,001)
Net realized loss on foreign currency
related transactions....................... (5,804) (221) (7,209)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions.............. 179,432 (11,326) (512,998)
--------- --------- ---------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions............................... 260,738 70,171 (719,208)
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................. $ 286,403 $ 129,152 $(739,358)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS PACIFIC MATTHEWS ASIAN CONVERTIBLE MATTHEWS KOREA
TIGER FUND SECURITIES FUND FUND
---------------------- ----------------------------- ----------------------
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995* 1996 1995* 1996 1995**
----------- ---------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................. $ 25,665 $ 2,361 $ 58,981 $ 14,571 $ (20,150) $ 2,219
Net realized gain (loss)
on investments and
foreign currency
related transactions... 81,306 (18,241) 81,497 6,074 (206,210) 5,811
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... 179,432 9,065 (11,326) 1,669 (512,998) (25,857)
----------- ---------- -------------- ------------ ---------- --------
Increase (Decrease) in
net assets from
operations............. 286,403 (6,815) 129,152 22,314 (739,358) (17,827)
----------- ---------- -------------- ------------ ---------- --------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income... 0 (1,439) (55,874) (12,617) 0 0
Realized gains on
investments............ 0 0 (10,864) 0 (7,128) 0
----------- ---------- -------------- ------------ ---------- --------
0 (1,439) (66,738) (12,617) (7,128) 0
----------- ---------- -------------- ------------ ---------- --------
CAPITAL SHARE
TRANSACTIONS (NET) --
(NOTE 1-I)............ 15,779,289 1,040,619 2,347,269 802,980 2,963,715 421,928
----------- ---------- -------------- ------------ ---------- --------
Total increase in net
assets................. 16,065,692 1,032,365 2,409,683 812,677 2,217,229 404,101
NET ASSETS:
Beginning of period..... 1,082,365 50,000 862,677 50,000 504,101 100,000
----------- ---------- -------------- ------------ ---------- --------
End of period........... $17,148,057 $1,082,365 $ 3,272,360 $ 862,677 $2,721,330 $504,101
=========== ========== ============== ============ ========== ========
</TABLE>
* The Funds commenced operations on September 13, 1994.
**The Fund commenced operations on January 3, 1995.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS PACIFIC MATTHEWS ASIAN CONVERTIBLE MATTHEWS KOREA
TIGER FUND SECURITIES FUND FUND
---------------------- ------------------------------- ----------------------
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995* 1996 1995* 1996 1995**
---------- ---------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period..... $ 9.77 $10.00 $ 9.88 $ 10.00 $ 9.13 $10.00
------- ------ ------------- ------------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss).................. 0.01 0.02 0.25 0.23 (0.07) 0.08 ***
Net realized and
unrealized gain (loss)
on investments and
foreign currency........ 1.03 (0.23) 0.75 (0.14) (1.75) (0.95)***
------- ------ ------------- ------------ ------- ------
Total from investment
operations............. 1.04 (0.21) 1.00 0.09 (1.82) (0.87)
------- ------ ------------- ------------ ------- ------
LESS DISTRIBUTIONS FROM:
Net investment income.... 0.00 (0.02) (0.26) (0.21) 0.00 0.00
Net realized gains on
investments............. 0.00 0.00 (0.09) 0.00 (0.08) 0.00
------- ------ ------------- ------------ ------- ------
Total distributions..... 0.00 (0.02) (0.35) (0.21) (0.08) 0.00
------- ------ ------------- ------------ ------- ------
Net Asset Value, end of
period.................. $ 10.81 $ 9.77 $ 10.53 $ 9.88 $ 7.23 $ 9.13
======= ====== ============= ============ ======= ======
TOTAL RETURN............. 10.64% (2.07)% 10.24% 0.89% (20.11)% (8.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's).............. $17,148 $1,082 $ 3,272 $ 863 $ 2,721 $ 504
Ratio of expenses to
average net assets
before reimbursement and
waiver of expenses by
Advisor and
Administrator........... 4.35% 25.95%+ 8.73% 23.11%+ 11.36% 42.87%+
Ratio of expenses to
average net assets after
reimbursement and waiver
of expenses by Advisor
and Administrator (Note
2)...................... 1.90% 2.17%+ 1.85% 2.26%+ 2.23% 0.24%+
Ratio of net investment
loss to average net
assets before
reimbursement and waiver
of expenses by Advisor
and Administrator....... (2.13)% (23.41)%+ (4.13)% (18.68)%+ (10.44)% (41.79)%+
Ratio of net investment
income (loss) to average
net assets after
reimbursement and waiver
of expenses by Advisor
and Administrator....... 0.32% 0.36%+ 2.75% 2.17%+ (1.31)% 0.84%+
Portfolio turnover....... 124.69% 92.53% 88.16% 121.63% 139.71% 42.16%
Average commission rate
paid.................... $0.0064 N/A $ 0.0020 N/A $0.1397 N/A
</TABLE>
+ Annualized
* The Funds commenced operations on September 13, 1994.
** The Fund commenced operations on January 3, 1995.
*** Calculated using the average shares method.
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS August 31, 1996
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Matthews International Funds (the "Company") is a no-load, open-end investment
management company registered under the Investment Company Act of 1940, as
amended, as a series company. The Company currently consists of three separate
investment series (each a "Fund" and collectively, the "Funds"): Matthews
Pacific Tiger Fund, Matthews Asian Convertible Securities Fund and Matthews
Korea Fund. The Matthews Pacific Tiger Fund and Matthews Korea Fund seek to
maximize capital appreciation by investing, under normal circumstances, at
least 65% of their total assets in equity securities of Pacific Tiger
economies and South Korean companies, respectively. Pacific Tiger economies
include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the
Philippines, Thailand and China. The Matthews Asian Convertible Securities
Fund seeks capital appreciation and current income by investing, under normal
circumstances, at least 65% of its total assets in convertible securities of
Asian economies. Asian economies include Hong Kong, Japan, Singapore, South
Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, China and
India. The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their financial
statements.
A. SECURITY VALUATION: Securities listed on any national securities
exchange are valued at their last sale price on the exchange where the
securities are principally traded or, if there has been no sale on that
date, at the mean between the last reported bid and asked prices.
Securities traded over-the-counter are priced at the mean of the last bid
and asked prices. Securities are valued through valuations obtained from a
commercial pricing service or at the most recent mean of the bid and asked
prices provided by investment dealers in accordance with procedures
established by the Board of Trustees.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars at the current exchange
rate. Translation gains or losses resulting from changes in the exchange
rate during the reporting period and realized gains and losses on the
settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
gains and losses on investments in equity securities which is due to
changes in the foreign exchange rate from that which is due to changes in
market prices of equity securities. International dollar bonds are issued
offshore, pay interest and principal in U.S. dollars, and are denominated
in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at
the respective current prevailing exchange rates. The securities' values
are translated into U.S. dollars using these rates. If subsequent to the
time a rate has been established and it has been determined to have
materially changed, the fair value of those securities, (considering the
changing conditions) will be determined by (or under the direction of) the
Funds' Board of Trustees.
B. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in
the securities of foreign issuers may involve investment risks different
from those of U.S. issuers including possible political or economic
instability of the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of currency exchange
controls, the possible imposition of foreign withholding tax on the
interest income payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign
deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the foreign securities held by the
Funds. Foreign securities may also be subject to greater fluctuations in
price than securities of domestic corporations or the U. S. Government.
C. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Funds have met the requirements of
the Code applicable to regulated investment companies for the year ended
August 31, 1996. Therefore, no federal income tax provision is required.
D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
E. ORGANIZATION COSTS: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective
commencement of operations. In the event that any of the initial shares are
redeemed during the period of amortization of the Funds organization costs,
the redemption proceeds will be reduced by any such unamortized
organization costs in the same proportion as the number of initial shares
being redeemed bears to the number of those shares outstanding at the time
of redemption.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS August 31, 1996
(continued)
- -------------------------------------------------------------------------------
F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian
Convertible Securities Fund to distribute net investment income on a semi-
annual basis and capital gains annually. Matthews Pacific Tiger Fund and
Matthews Korea Fund distribute net investment income and capital gains
annually. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
G. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
H. OTHER: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date.
I. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an
unlimited number of shares of beneficial interest with a par value of
$0.001 per share. Transactions in shares of beneficial interest from the
commencement of investment operations were as follows:
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN CONVERTIBLE
PACIFIC TIGER FUND SECURITIES FUND
------------------------------------------- ----------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
---------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 1,657,416 $17,743,189 138,867 $1,365,306 259,782 $2,726,198 126,985 $1,254,801
Shares issued through
reinvestment of
dividends.............. 0 0 144 1,365 5,283 54,160 1,196 11,927
Shares redeemed......... (181,523) (1,963,900) (28,275) (276,052) (41,474) (433,089) (40,862) (413,748)
--------- ----------- ------- ---------- ------- ---------- ------- ----------
Net Increase............ 1,475,893 $15,779,289 110,736 $1,090,619* 223,591 $2,347,269 87,319 $ 852,980*
========= =========== ======= ========== ======= ========== ======= ==========
<CAPTION>
MATTHEWS
KOREA FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1996 AUGUST 31,1995
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
Shares sold............. 452,855 $ 3,926,319 59,910 $ 565,969
Shares issued through
reinvestment of
dividends.............. 801 6,952 0 0
Shares redeemed......... (132,685) (969,556) (4,724) (44,041)
--------- ----------- ------- ----------
Net Increase............ 320,971 $ 2,963,715 55,186 $ 521,928*
========= =========== ======= ==========
</TABLE>
* Included in these amounts are $50,000, $50,000 and $100,000 in seed money
for the Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities
Fund and Matthews Korea Fund, respectively.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS August 31, 1996
(continued)
- -------------------------------------------------------------------------------
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Matthews International Capital Management (the "Advisor"), a registered
investment advisor, provides the Funds with investment management services. As
compensation for these services, the Advisor charges the Funds a monthly fee
of 1/12 of 1% on each Fund's respective average daily net assets. In
accordance with Blue Sky limitations, the Advisor has agreed to waive its fees
and voluntarily reimburse each Fund to the extent total annualized expenses
exceed permissible limits applicable to each Fund in any state in which its
shares are then qualified for sale. Certain officers and trustees of the Funds
are also officers and directors of the Advisor. All officers serve without
direct compensation from the Funds. Investment advisory fees and other
transactions with affiliates, for the year ended August 31, 1996, are as
follows:
<TABLE>
<CAPTION>
EXPENSES
INVESTMENT PERMISSIBLE WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED DUE FROM DAEWOO
FEE RATE LIMITATION FEES BY ADVISOR ADVISOR SECURITIES
---------- ----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Matthews Pacific Tiger
Fund................... 1.00% 1.90% $80,273 $196,594 $40,417 --
Matthews Asian
Convertible Securities
Fund................... 1.00 1.90 21,475 147,620 47,524 --
Matthews Korea Fund..... 1.00 2.50 15,406 140,698 28,717 $11,584**
</TABLE>
**Daewoo Securities is the affiliated broker for the Fund. This amount is the
affiliated brokerage commissions paid.
The investment advisory agreements provide that any reductions made by the
Advisor in its fees are subject to reimbursement by the Funds within the
following three years provided that Funds are able to effect such
reimbursement and remain in compliance with applicable expense limitations.
3. INVESTMENT TRANSACTIONS
Investment transactions for the year ended August 31, 1996, excluding
temporary short-term investments, are as follows:
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
----------- ----------
<S> <C> <C>
Matthews Pacific Tiger Fund............................. $24,647,949 $9,633,492
Matthews Asian Convertible Securities Fund.............. 3,974,785 1,744,459
Matthews Korea Fund..................................... 4,745,280 1,866,463
</TABLE>
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
4. CAPITAL LOSS CARRYOVER
At August 31, 1996, the Matthews Korea Fund had a capital loss carryover of
$198,919 expiring in 2004 to offset possible future capital gains of the Fund.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
To The Shareholders and Board of Trustees of Matthews International Funds:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Matthews International Funds
(comprising Matthews Pacific Tiger Fund, Matthews Asian Convertible Securities
Fund and Matthews Korea Fund, collectively referred to as the "Funds") as of
August 31, 1996, and the related statements of operations, changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statement of
changes in net assets, and the financial highlights, of the Funds for the
periods ended August 31, 1995 were audited by other auditors whose report
dated September 29, 1995 expressed an unqualified opinion on those financial
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 1996, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1996 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Matthews International Funds as of August 31, 1996, the
results of their operations, the changes in their net assets and financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
San Francisco, California
October 4, 1996
<PAGE>
BOARD OF TRUSTEES
G. Paul Matthews
John H. Dracott
Richard K. Lyons
Robert K. Connolly
Dong Wook Park
David FitzWilliam-Lay
Norman J. Berryessa
OFFICERS
G. Paul Matthews
John H. Dracott
INVESTMENT ADVISOR
Matthews International Capital Management
655 Montgomery Street, Suite 1438
San Francisco, CA 94111
(800) 789-ASIA
KOREAN ADVISOR
Daewoo Capital Management Co., Ltd.
34-3, Yoido-dong, Yungdungpo-gu
Seoul, 150-010 Korea
UNDERWRITER
Fund/Plan Broker Services, Inc.
2 W. Elm Street
Conshohocken, PA 19428
(800) 892-0382
SHAREHOLDER SERVICES
Fund/Plan Services, Inc.
2 W. Elm Street
Conshohocken, PA 19428
(800) 892-0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Shartsis, Friese & Ginsburg
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
AUDITORS
Ernst & Young LLP
555 California Street, Suite 1700
San Francisco, CA 94104
FOR ADDITIONAL INFORMATION ABOUT THE MATTHEWS INTERNATIONAL FUNDS CALL:
(800) 789-ASIA
This report is submitted for general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective Prospectus which includes
details regarding the Funds' objectives, policies, expenses and other
information.
- -------------------------------------------------------------------------------
ANNUAL REPORT
AUGUST 31, 1996
(ART)
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
MATTHEWS KOREA FUND
- -------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
- -------------------------------------------------------------------------------
