<PAGE>
Dear Fellow Shareholder,
This report is the second semi-annual report for the Matthews International
Funds and covers the six month period which ended on February 29, 1996. I am
pleased to be able to report that the Matthews Pacific Tiger Fund and the
Matthews Asian Convertible Securities Fund have provided positive returns in
this six month period, gaining 12% and 10%, respectively. The third fund in
the series, the Matthews Korea Fund, fared less well, declining by 8% during
the first half of our fiscal year, reflecting continued weakness in the Korean
stock market. I am also pleased to report that the assets in all three funds
have been growing steadily during the period. The Matthews Pacific Tiger Fund
has now qualified for inclusion in the mutual fund listings in the major
newspapers and can be found in the Wall Street Journal under the heading Matth
Tigr.
Asia's Tiger economies have continued to grow at rates that are the envy of
developed countries. Living standards throughout the region are rising at a
rapid rate and we believe that this environment remains highly favorable for
companies doing business in the region. The emergence of mainland China as a
major economic power is adding to the dynamism of the region, with the nine
Tiger countries in which we invest now representing 12% of global economic
output. While China's emergence as an economic power is clearly very positive
for the region, the recent escalation of tensions between China and Taiwan is
a cause for concern. Following the elections in Taiwan it seems both countries
are now intent on defusing the situation and we remain convinced that China's
main priority is to increase domestic living standards through continued
economic reforms. To achieve this goal, China is highly dependent on foreign
capital, 60% of which has been provided by Hong Kong and Taiwanese business
interests. Any further attempts to unsettle Taiwan are likely to affect this
flow of capital and it would seem both Taiwan and China have every incentive
to resolve their differences peacefully.
We remain very optimistic for the Tiger region and thank you for your support.
Yours sincerely,
[ART]
G. Paul Matthews
President, Matthews International Funds
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 29, 1996
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- ----------
<S> <C> <C>
EQUITIES -- 93.39%
HONG KONG -- 40.07%
ABC Communications Holdings Ltd............................. 494,000 $ 98,401
C P Pokphand Co. ........................................... 440,000 231,917
Cheung Kong................................................. 28,000 194,666
China Merchants Hai Hong Holdings........................... 640,000 217,301
China Travel International.................................. 490,000 108,379
Citic Pacific Ltd........................................... 40,000 155,733
Dao Heng Bank Group Ltd..................................... 31,500 129,159
Giordano International Ltd.................................. 242,000 258,239
Harbour Centre Development.................................. 135,000 169,379
Hopewell Holdings........................................... 362,025 264,570
HSBC Holdings PLC........................................... 12,000 192,467
JCG Holdings Ltd. .......................................... 196,000 191,406
Joyce Boutique.............................................. 750,000 269,201
Shangri-La Asia Ltd. ....................................... 124,000 169,210
Sun Hung Kai Properties..................................... 17,000 151,723
Tingyi Holdings Co. **...................................... 804,000 220,988
Varitronix International Ltd. .............................. 106,000 204,289
Wharf Holdings.............................................. 45,000 174,326
----------
TOTAL HONG KONG............................................. 3,401,354
----------
INDONESIA -- 8.15%
Pt Bakrie & Brothers........................................ 43,000 75,642
Pt Bank Bali................................................ 57,000 141,485
Pt Bank International Indonesia............................. 17,000 71,368
Pt Hero Supermarket......................................... 35,000 80,078
Pt Semen Cibinong........................................... 20,000 62,379
Pt Steady Safe Transportation............................... 208,000 260,393
----------
TOTAL INDONESIA............................................. 691,345
----------
KOREA -- 4.87%
Dae Han City Gas Co. ....................................... 2,100 160,207
Hanil Bank.................................................. 2,000 24,382
Samsung Electronics Co.**................................... 363 59,767
Samsung Securities Co. Ltd. ................................ 5,000 169,318
----------
TOTAL KOREA................................................. 413,674
----------
MALAYSIA -- 13.73%
Arab Malaysian Finance...................................... 42,000 194,445
Berjaya Sports Toto Berhad.................................. 57,000 157,662
Cycle & Carriage Bintang Berhad............................. 40,000 227,558
DCB Holdings Berhad......................................... 54,000 164,195
Kedah Cement Berhad......................................... 50,000 99,066
Star Publications**......................................... 85,000 205,097
Tenaga Nasional Berhad...................................... 29,000 117,192
----------
TOTAL MALAYSIA.............................................. 1,165,215
----------
PHILIPPINES -- 3.96%
Filinvest Land, Inc. **..................................... 172,500 74,197
Metropolitan Bank & Trust................................... 4,194 94,607
Republic Glass Holdings Corp. **............................ 240,000 86,255
Southeast Asia Cement Holdings**............................ 550,000 80,960
----------
TOTAL PHILIPPINES........................................... 336,019
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
SINGAPORE -- 11.08%
Courts Ltd. ............................................... 32,000 $ 57,106
DBS Land................................................... 31,000 121,840
Far East Levingston Shipbuilding........................... 35,000 208,201
Osprey Maritime Ltd. **.................................... 105,000 246,750
Overseas Union Bank........................................ 15,000 109,412
Wing Tai Holdings.......................................... 82,000 197,436
----------
TOTAL SINGAPORE............................................ 940,745
----------
THAILAND -- 11.53%
Bank Of Ayudhya............................................ 24,900 170,873
Banpu Public Co. Ltd. ..................................... 3,000 82,348
Central Pattana Public Co. ................................ 54,000 214,201
Hemaraj Land Development Co. .............................. 28,000 165,490
Industrial Finance Corp. **................................ 40,066 139,857
MDX Public Co. Ltd. ....................................... 39,000 67,295
Precious Shipping PLC...................................... 24,900 138,278
----------
TOTAL THAILAND............................................. 978,342
----------
TOTAL EQUITIES
(Cost $7,407,594)......................................... 7,926,694
----------
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 5.86%
Acer, Inc.
4.000%, due 06/10/01...................................... $ 50,000 136,750
President Enterprises
0.000%, due 07/22/01**.................................... 120,000 157,500
Yangming Marine Transportation 2.000%, due 10/06/01........ 130,000 139,750
Banpu Coal Co. Ltd.
3.500%, due 08/25/04...................................... 45,000 63,450
----------
TOTAL INTERNATIONAL DOLLAR BONDS (Cost $499,857)........... 497,450
----------
TOTAL INVESTMENTS -- 99.25%*
(Cost $7,907,451)......................................... 8,424,144
----------
CASH AND OTHER ASSETS,
LESS LIABILITIES -- 0.75%................................. 63,573
----------
NET ASSETS -- 100%......................................... $8,487,717
==========
</TABLE>
* Cost for Federal income tax purposes is $7,907,451 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation........... $ 623,471
Gross unrealized
depreciation........... (106,778)
---------
Net unrealized
appreciation .......... $ 516,693
=========
</TABLE>
** Non-income producing securities
See accompanying notes to financial statements
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 29, 1996
(unaudited)
- --------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- --------
<S> <C> <C>
EQUITIES -- 11.83%
HONG KONG -- 7.71%
China Hong Kong Photo Products............................... 41,387 $ 24,223
Citic Pacific (UBS) Warrants**............................... 140,000 24,265
Cross-Harbour Tunnel Co. .................................... 20,000 39,192
Merrill Lynch-HSBC Holdings Warrants**....................... 40,000 20,437
Peregrine Investment Holdings................................ 14,000 23,903
South China Morning Post..................................... 42,000 29,607
Swire Pacific Class "A" Warrants**........................... 100,000 19,143
--------
TOTAL HONG KONG.............................................. 180,770
--------
SOUTH KOREA -- 3.25%
JP Morgan Jersey Warrants**.................................. 300 10,050
Korea Kumho Petrochemical-Preferred**........................ 5,000 31,627
Samsung Electronics Co. **................................... 210 34,618
--------
TOTAL SOUTH KOREA............................................ 76,295
--------
THAILAND -- 0.87%
Industrial Finance Corp. Warrants**.......................... 12,000 20,349
--------
TOTAL EQUITIES
(COST $263,514)............................................. 277,414
--------
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- --------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 82.38%
HONG KONG -- 29.13%
Goldlion Capital (BVI)
4.875%, due 02/01/99........................................ $ 30,000 40,575
Hysan Development Finance
6.750%, due 06/01/00........................................ 80,000 90,600
Wharf Capital International, Ltd.
5.000%, due 07/15/00........................................ 30,000 36,150
New World Development (BVI)
4.375%, due 12/11/00........................................ 60,000 66,225
Hon Kwok Land Treasury
4.875%, due 12/15/00........................................ 40,000 37,000
Shangri-La Asia Capital
2.875%, due 12/16/00........................................ 70,000 61,075
Hong Kong and Shanghai Hotels
5.000%, due 01/06/01........................................ 40,000 41,500
Hong Kong Land Co.
4.000%, due 02/23/01........................................ 35,000 30,363
Sino Land
5.000%, due 02/26/01........................................ 60,000 59,250
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- --------
<S> <C> <C>
China Resources Enterprises
3.000%, due 11/24/05........................................ $ 50,000 $ 57,750
Regal Hotels International Holdings
5.250%, due 12/13/08........................................ 75,000 72,375
Amoy Properties, Ltd.
5.500%, due 12/29/49........................................ 100,000 90,375
--------
TOTAL HONG KONG.............................................. 683,238
--------
INDONESIA -- 2.54%
Pt Indocement
2.000%, due 02/27/06........................................ 60,000 59,550
--------
MALAYSIA -- 7.91%
United Engineers Berhad
2.000%, due 03/01/04........................................ 50,000 58,250
Commerce Asset Holdings
1.750%, due 09/26/04........................................ 60,000 69,900
Renong Berhad
2.500%, due 01/15/05........................................ 50,000 57,375
--------
TOTAL MALAYSIA............................................... 185,525
--------
SINGAPORE -- 8.61%
Jardine Strategic Holdings
7.500%, due 05/07/49........................................ 90,000 106,200
Dairy Farm International Holdings
6.500%, due 05/10/49........................................ 115,000 95,881
--------
TOTAL SINGAPORE.............................................. 202,081
--------
SOUTH KOREA -- 3.07%
Samsung Display Devices
0.500%, due 04/12/02........................................ 40,000 47,200
Daewoo Electronics Co.
3.500%, due 12/31/07........................................ 20,000 24,800
--------
TOTAL SOUTH KOREA............................................ 72,000
--------
TAIWAN -- 11.85%
Acer, Inc.
4.000%, due 06/10/01........................................ 10,000 27,350
Far Eastern Department Stores
3.000%, due 07/06/01........................................ 50,000 43,500
President Enterprises
0.000%. due 07/22/01**...................................... 70,000 91,875
Yangming Marine Transportation
2.000%, due 10/06/01........................................ 50,000 53,750
Walsin Lihwa Corp.
3.250%, due 06/16/04........................................ 70,000 61,600
--------
TOTAL TAIWAN................................................. 278,075
--------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 29, 1996
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND (continued)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
------- ----------
<S> <C> <C>
THAILAND -- 19.27%
Finance One PLC
2.000%, due 08/31/01....................................... $40,000 $ 41,950
Hemaraj Land Development
3.500%, due 09/09/03....................................... 40,000 38,200
MDX Public Co., Ltd.
4.750%, due 09/17/03....................................... 65,000 35,913
Sino-Thai Engineering & Construction PLC
1.750%, due 12/17/03....................................... 30,000 31,050
Siam Commercial Bank Co.
3.250%, due 01/24/04....................................... 40,000 51,600
Tanayong Public Co., Ltd.
3.500%, due 03/01/04....................................... 60,000 47,700
Bangkok Bank Public Co.
3.250%, due 03/03/04....................................... 70,000 79,625
Banpu Coal Co., Ltd.
3.500%, due 08/25/04....................................... 60,000 84,600
Loxley Public Co.
3.500%, due 04/20/05....................................... 30,000 33,225
NTS Steel Group Public
4.000%, due 12/16/08....................................... 15,000 8,250
----------
TOTAL THAILAND.............................................. 452,113
----------
TOTAL INTERNATIONAL DOLLAR BONDS
(Cost $1,866,575).......................................... 1,932,582
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
INVESTMENT COMPANY -- 1.68%
(Cost $39,673)
The India Fund............................................... 4,000 $ 39,500
----------
TOTAL INVESTMENTS -- 95.89%*
(Cost $2,169,762)........................................... 2,249,496
----------
CASH AND OTHER ASSETS, LESS LIABILITIES -- 4.11%............. 96,310
----------
NET ASSETS -- 100%........................................... $2,345,806
==========
</TABLE>
* Cost for Federal income tax purposes is $2,169,762 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation............ $115,201
Gross unrealized
depreciation............ (35,467)
--------
Net unrealized
appreciation............ $ 79,734
========
</TABLE>
**Non-income producing securities
See accompanying notes to financial statements
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 29, 1996
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS KOREA FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
EQUITIES -- KOREA 89.03%
Asia Paper Manufacturing Co. ................................. 1,433 $ 31,130
Commercial Bank of Korea...................................... 4,000 46,259
Dae Duck Electronics Co.**.................................... 1,200 41,710
Dae Won Kang Up Co.**......................................... 36 653
Dae Han Paint and Ink Co.**................................... 923 34,087
Dong-A Pharmaceutical Co.**................................... 1,224 32,064
Dong-Ah Construction Ind Co. ................................. 885 32,797
Han Il Cement Mfg. Co. ....................................... 700 38,464
Hanjin Shipping**............................................. 1,085 29,117
Hankook New .................................................. 74 3,470
Hankook Tire Mfg. Co. ........................................ 800 38,234
Hotel Shilla Co. ............................................. 3,000 37,761
Hyundai Precision Industry**.................................. 2,200 41,889
Hyundai Motor Service Co.**................................... 700 27,104
Inchon Iron & Steel Co.**..................................... 800 26,375
Inchon Iron & Steel Co. Rights**.............................. 800 0
Keyang Electric Machinery Co.**............................... 1,250 32,586
Kookmin Bank.................................................. 1,312 28,166
Korea Electronics Co.**....................................... 700 23,615
Korea Industrial Leasing...................................... 2,200 44,138
Korea Reinsurance............................................. 1,000 43,064
LG Chemical Co. Ltd. ......................................... 1,000 16,996
Namkwang Engineering & Construction**......................... 3,000 42,937
Oriental Fire & Marine Insurance**............................ 800 28,318
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
Sam Lip Industrial Co. ...................................... 170 $ 6,952
Samsung Electronics Co.**.................................... 255 42,036
Samsung Heavy Industries..................................... 1,000 20,574
Samsung Moolsan Corp.**...................................... 1,500 38,336
Samsung Securities Co. Ltd. ................................. 1,200 40,636
Seoul Bank**................................................. 6,000 51,600
Tongyang Investment & Finance**.............................. 2,500 47,601
----------
968,669
----------
TOTAL EQUITIES
(Cost $1,078,218)........................................... 968,669
----------
TOTAL INVESTMENTS -- 89.03% (Cost $1,078,218)................ 968,669
----------
CASH AND OTHER ASSETS, LESS LIABILITIES -- 10.97%............ 119,369
----------
NET ASSETS -- 100%........................................... $1,088,038
==========
</TABLE>
* Cost for Federal income tax purposes is $1,078,218 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation........... $ 28,995
Gross unrealized
depreciation........... (138,544)
---------
Net unrealized
depreciation........... $(109,549)
=========
</TABLE>
**Non-income producing securities
See accompanying notes to financial statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investments, at market value (Cost
$7,907,451, $2,169,762 and $1,078,218,
respectively).......................... $8,424,144 $2,249,496 $ 968,669
Cash.................................... 1,132,044 69,331 95,175
Dividends and interest receivable....... 13,588 17,358 3,306
Receivable for securities sold.......... 145,761 27,420 4,288
Receivable for capital stock sold....... 72,008 0 0
Deferred organization costs (Note 1-E).. 23,821 23,821 12,341
Due from Advisor........................ 20,409 20,319 6,831
Other assets............................ 670 552 260
---------- ---------- ----------
Total assets........................... 9,832,445 2,408,297 1,090,870
---------- ---------- ----------
LIABILITIES:
Payable for securities purchased........ 1,344,728 60,000 2,832
Payable for capital stock redeemed...... 0 2,491 0
---------- ---------- ----------
Total liabilities...................... 1,344,728 62,491 2,832
---------- ---------- ----------
NET ASSETS:
Applicable to 775,963, 219,656 and
130,616 shares outstanding,
respectively........................... $8,487,717 $2,345,806 $1,088,038
========== ========== ==========
NET ASSETS CONSIST OF:
Capital paid-in......................... $7,979,562 $2,250,745 $1,206,385
Undistributed net investment income
(loss)................................. (1,890) 3,637 67
Accumulated realized gain (loss) on
investments and foreign currency
related transactions................... (6,648) 11,690 (8,865)
Net unrealized appreciation
(depreciation) on investments and
foreign currency related transactions.. 516,693 79,734 (109,549)
---------- ---------- ----------
$8,487,717 $2,345,806 $1,088,038
========== ========== ==========
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE.................................. $ 10.94 $ 10.68 $ 8.33
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS For the Six Months Ended February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
-------- ----------- --------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................................... $ 18,092 $ 6,247 $ 3,460
Interest...................................... 7,268 21,972 2,422
-------- -------- --------
Total investment income...................... 25,360 28,219 5,882
-------- -------- --------
EXPENSES:
Investment advisory fees (Note 2)............. 15,210 6,672 3,907
Transfer agent fees........................... 13,996 13,047 12,521
Administration fees........................... 11,827 11,402 11,161
Accounting fees............................... 21,320 20,017 17,250
Custodian fees................................ 25,010 6,675 6,540
Directors fees (Note 2)....................... 2,083 2,083 2,083
Insurance expense............................. 412 323 188
Amortization of organization costs (Note 1-E). 3,358 3,358 1,558
Printing expense.............................. 715 604 1,343
Registration expenses......................... 8,709 6,112 9,465
Miscellaneous expenses........................ 7 7 7
-------- -------- --------
Total expenses............................... 102,647 70,300 66,023
Expenses reimbursed and waived (Note 2)....... (74,474) (57,237) (57,989)
-------- -------- --------
Net expenses................................. 28,173 13,063 8,034
-------- -------- --------
NET INVESTMENT INCOME (LOSS).................. (2,813) 15,156 (2,152)
-------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on investments....... 14,021 16,668 (3,234)
Net realized loss on foreign currency related
transactions................................. (2,486) (187) (4,314)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions................ 507,687 78,064 (83,691)
-------- -------- --------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions................................. 519,222 94,545 (91,239)
-------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................... $516,409 $109,701 $(93,391)
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS PACIFIC MATTHEWS ASIAN CONVERTIBLE MATTHEWS KOREA
TIGER FUND SECURITIES FUND FUND
----------------------- ----------------------------- -----------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD ENDED PERIOD
FEBRUARY 29, ENDED FEBRUARY 29, ENDED FEBRUARY 29, ENDED
1996 AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31,
(UNAUDITED) 1995 * (UNAUDITED) 1995 * (UNAUDITED) 1995 **
------------ ---------- -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................. $ (2,813) $ 2,361 $ 15,156 $ 14,571 $ (2,152) $ 2,219
Net realized gain (loss)
on investments and
foreign currency
related transactions... 11,535 (18,241) 16,481 6,074 (7,548) 5,811
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... 507,687 9,065 78,064 1,669 (83,691) (25,857)
---------- ---------- -------------- ------------ ---------- --------
Increase (Decrease) in
net assets from
operations............. 516,409 (6,815) 109,701 22,314 (93,391) (17,827)
---------- ---------- -------------- ------------ ---------- --------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................. 0 (1,439) (13,473) (12,617) 0 0
From realized gains on
investments............ 0 0 (10,864) 0 (7,128) 0
---------- ---------- -------------- ------------ ---------- --------
0 (1,439) (24,337) (12,617) (7,128) 0
---------- ---------- -------------- ------------ ---------- --------
CAPITAL SHARE
TRANSACTIONS (NET)--
NOTE 1-H............... 6,888,943 1,040,619 1,397,765 802,980 684,456 421,928
---------- ---------- -------------- ------------ ---------- --------
Total increase in net
assets................. 7,405,352 1,032,365 1,483,129 812,677 583,937 404,101
NET ASSETS:
Beginning of period..... 1,082,365 50,000 862,677 50,000 504,101 100,000
---------- ---------- -------------- ------------ ---------- --------
End of period........... $8,487,717 $1,082,365 $ 2,345,806 $ 862,677 $1,088,038 $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
----------------------- --------------------------------- -----------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD ENDED PERIOD
FEBRUARY 29, ENDED FEBRUARY 29, ENDED FEBRUARY 29, ENDED
1996 AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31,
(UNAUDITED) 1995* (UNAUDITED) 1995* (UNAUDITED) 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.... 0.38 0.02 0.28 0.23 0.32 0.08
Net realized and
unrealized gain (loss)
on investments and
foreign currency........ 0.79 (0.23) 0.72 (0.14) (1.04) (0.95)
------ ------ ------------- ------------- ------ ------
Total from investment
operations............. 1.17 (0.21) 1.00 0.09 (0.72) (0.87)
------ ------ ------------- ------------- ------ ------
LESS DISTRIBUTIONS:
From net investment
income.................. 0.00 (0.02) (0.11) (0.21) 0.00 0.00
From realized gains on
investments............. 0.00 0.00 (0.09) 0.00 (0.08) 0.00
------ ------ ------------- ------------- ------ ------
Total distributions..... 0.00 (0.02) (0.20) (0.21) (0.08) 0.00
------ ------ ------------- ------------- ------ ------
Net Asset Value, end of
period.................. $10.94 $ 9.77 $ 10.68 $ 9.88 $ 8.33 $ 9.13
====== ====== ============= ============= ====== ======
TOTAL RETURN............. 24.02%+ (2.07)% 20.58%+ 0.89% (15.95)%+ (8.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's).............. $8,488 $1,082 $ 2,346 $ 863 $1,088 $ 504
Ratio of expenses to
average net assets
before reimbursement and
waiver of expenses by
Advisor and
Administrator........... 6.74%+ 25.95% 10.52%+ 23.11% 16.88%+ 42.87%
Ratio of expenses to
average net assets after
reimbursement and waiver
of expenses by Advisor
and Administrator (Note
5)...................... 1.85%+ 2.17% 1.96%+ 2.26% 2.05%+ 0.24%
Ratio of net investment
loss to average net
assets before
reimbursement and waiver
of expenses by Advisor
and Administrator....... (5.07)%+ (23.41)% (6.30)%+ (18.68)% (15.38)%+ (41.79)%
Ratio of net investment
income to average net
assets after
reimbursement and waiver
of expenses by Advisor
and Administrator....... (0.18)%+ 0.36% 2.26%+ 2.17% (0.55)%+ 0.84%
Portfolio turnover....... 52.68% 92.53% 36.31% 121.63% 85.06% 42.16%
</TABLE>
+ Annualized
* The Funds commenced operations on September 13, 1994.
** The Fund commenced operations on January 3, 1995.
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS February 29, 1996
(unaudited)
- -------------------------------------------------------------------------------
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 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. Options, futures and options on
futures are valued at the price as determined by the appropriate clearing
corporation.
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
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 six months
ended February 29, 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.
F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian
Convertible Securities Fund to distribute their respective 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. 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.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS February 29, 1996
(unaudited) (continued)
- -------------------------------------------------------------------------------
H. 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>
PACIFIC TIGER FUND ASIAN CONVERTIBLE SECURITIES FUND
------------------ ---------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29,1996 PERIOD ENDED FEBRUARY 29,1996 PERIOD ENDED
(UNAUDITED) AUGUST 31,1995 (UNAUDITED) AUGUST 31,1995
------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 682,047 $7,061,718 138,867 $1,365,306 151,026 $1,592,938 126,985 $1,254,801
Shares issued through
reinvestment of
dividends.............. 0 0 144 1,365 2,309 22,935 1,196 11,927
Shares redeemed......... (16,820) (172,775) (28,275) (276,052) (20,998) (218,108) (40,862) (413,748)
------- ---------- ------- ---------- ------- ---------- ------- ----------
Net Increase............ 665,227 $6,888,943 110,736 $1,090,619* 132,337 $1,397,765 87,319 $ 852,980*
======= ========== ======= ========== ======= ========== ======= ==========
<CAPTION>
KOREA FUND
----------
SIX MONTHS ENDED
FEBRUARY 29,1996 PERIOD ENDED
(UNAUDITED) AUGUST 31,1995
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold............. 76,007 $ 689,108 59,910 $ 565,969
Shares issued through
reinvestment of
dividends.............. 801 6,952 0 0
Shares redeemed......... (1,378) (11,604) (4,724) (44,041)
------- ---------- ------- ----------
Net Increase............ 75,430 $ 684,456 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.
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 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 six months ended February 29, 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>
Pacific Tiger Fund...... 1.00% 1.90% $15,210 $74,474 $20,409 --
Asian Convertible
Securities Fund........ 1.00 1.90 6,672 57,237 20,319 --
Korea Fund.............. 1.00 2.50 3,907 57,989 6,831 $2,384+
</TABLE>
+Daewoo Securities is the affiliated broker for the Fund. This amount is the
affiliated brokerage commissions paid.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS--NOTES TO FINANCIAL STATEMENTS February 29, 1996
(unaudited) (continued)
- -------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions for the six months ended February 29, 1996, excluding
temporary short-term investments, are as follows:
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
---------- ----------
<S> <C> <C>
Pacific Tiger Fund....................................... $8,627,398 $1,732,246
Asian Convertible Securities Fund........................ 1,830,668 455,748
Korea Fund............................................... 1,216,268 589,177
</TABLE>
4. CAPITAL LOSS CARRYOVER
At August 31, 1995, the Matthews Pacific Tiger Fund had a capital loss
carryover of $17,122 expiring in 2003 to offset possible future capital gains
of the Fund.
5. EXPENSE RATIOS
The ratio of expenses to average net assets after reimbursement and waiver of
expenses by Advisor at February 29, 1996 is 1.96% for the Matthews Asian
Convertible Securities Fund. This amount is greater than the 1.90% limitation
indicated in Note 2. The Fund was accruing expenses at a 2.50% limitation at
year-end August 31, 1995. At November 20, 1995, the Fund began accruing at a
ratio of 1.77%. This expense ratio was calculated using the current expense
ratios (commencing September 1, 1995) to determine the necessary amount to
reflect an annual expense ratio of 1.90% for the fiscal year ending August 31,
1996.
<PAGE>
BOARD OF TRUSTEES
G. Paul Matthews
John H. Dracott
Richard K. Lyons
Robert K. Connolly
Dong Wook Park
OFFICERS
G. Paul Matthews
John H. Dracott
Carol Chuang
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
Coopers & Lybrand L.L.P
2400 Eleven Penn Center
Philadelphia, PA 19103
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.
- -------------------------------------------------------------------------------
SEMI-ANNUAL
REPORT
FEBRUARY 29, 1996
(ART)
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
MATTHEWS KOREA FUND
- -------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
- -------------------------------------------------------------------------------
