ANNUAL REPORT
AUGUST 31, 1997
[LOGO]
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN
CONVERTIBLE SECURITIES FUND
MATTHEWS KOREA FUND
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
<PAGE>
DEAR FELLOW SHAREHOLDER:
I HAVE PLEASURE IN ENCLOSING THE ANNUAL FINANCIAL STATEMENTS FOR THE MATTHEWS
INTERNATIONAL FUNDS FOR THE 12 MONTHS ENDED AUGUST 31, 1997.
DURING THIS PERIOD THE NET ASSET VALUE OF THE MATTHEWS PACIFIC TIGER FUND GAINED
4.75%, THE MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND GAINED 14.67%, AND THE
MATTHEWS KOREA FUND DECLINED 14.38%. A BROAD BENCHMARK OF ASIAN TIGER MARKETS,
THE MORGAN STANLEY ALL COUNTRIES FAR EAST EX-JAPAN INDEX DECLINED 6.6% OVER THE
SAME PERIOD. WE ATTRIBUTE THE OUT-PERFORMANCE OF OUR TWO DIVERSIFIED FUNDS TO
OUR EMPHASIS ON "BOTTOM-UP" STOCK SELECTION.
SINCE INCEPTION THE MATTHEWS PACIFIC TIGER FUND GAINED 13.49% AND THE
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND GAINED 27.54%. THE MORGAN STANLEY ALL
COUNTRIES FAR EAST EX-JAPAN INDEX DECLINED 9.84% OVER THE SAME PERIOD. THE
MATTHEWS KOREA FUND DECLINED 37.55% AND OVER THE SAME PERIOD THE KOSPI INDEX
DECLINED 40.42%.
ASIAN ECONOMIES IN GENERAL CONTINUED TO EXHIBIT STRONG GROWTH DURING THE YEAR,
ALTHOUGH CONDITIONS VARIED CONSIDERABLY AROUND THE REGION. THE BEST PERFORMANCE
CAME FROM CHINA AND HONG KONG, WHILE THAILAND AND OTHER SOUTH-EAST ASIAN
COUNTRIES SAW THEIR ECONOMIES SLOW. THE TIGER REGION HAS FACED THE CHALLENGE OF
A MORE COMPETITIVE EXPORT ENVIRONMENT AT A TIME WHEN EXTERNAL DEMAND FOR ITS
PRODUCTS HAS BEEN FLAT. THE RAPID EMERGENCE OF A HIGHLY COMPETITIVE MAINLAND
CHINESE ECONOMY IS CREATING BOTH ENORMOUS OPPORTUNITIES AND INCREASED CHALLENGES
FOR COMPANIES ELSEWHERE IN ASIA. RECENT CURRENCY WEAKNESS IN SOUTH-EAST ASIA HAS
AFFECTED SENTIMENT THROUGHOUT THE REGION AND A NUMBER OF MARKETS ARE DOWN
CONSIDERABLY FROM THEIR HIGHS.
IN SPITE OF THESE CHALLENGES, WE REMAIN OPTIMISTIC THAT ASIA'S LONG TERM
ATTRACTIONS AS GROWTH ECONOMIES REMAIN INTACT, UNDERPINNED BY HIGH RATES OF
SAVINGS AND A COMMITMENT TO FREE MARKET PRINCIPLES. WE ARE FOCUSED ON
IDENTIFYING TIGER BASED COMPANIES WITH THE NECESSARY ATTRIBUTES TO CONTINUE
THEIR HISTORIC ABOVE AVERAGE EARNINGS GROWTH. WITH MARKETS AT CURRENT LEVELS,
THESE COMPANIES APPEAR TO US TO OFFER EXCEPTIONAL LONG TERM VALUE.
THANK YOU FOR YOUR SUPPORT.
SINCERELY,
/S/ SIGNATURE
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 total returns of the Matthews Pacific Tiger Fund and the
Matthews Asian Convertible Securities Fund for one year was 4.75% and 14.67%,
respectively, and the average annual total return was 4.35% and 8.53%,
respectively.
[LINE GRAPH DEPICTING PACIFIC TIGER & ASIAN CONV. SEC. FUNDS
ASSUMING $10,000 INVESTED AT INCEPTION]
Matthews MSCI AC Matthews
Pacific Far East Asian Conv.
Tiger ex Japan Sec.
Fund Index Fund
09/12/94 10,000 10,000 10,000
11/94 9,720 9,329 9,930
02/95 9,241 8,879 9,722
05/95 9,723 9,447 10,284
08/95 9,793 8,873 10,089
11/95 9,432 8,784 10,191
02/96 10,965 9,563 11,124
05/96 11,186 10,185 11,228
08/96 10,835 9,658 11,122
11/96 11,908 10,174 11,978
02/97 12,439 10,326 12,095
05/97 12,920 10,118 12,268
08/97 11,349 9,017 12,754
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
total return of the Matthews Korea Fund for one year was (14.38%) and the
average annual total return was (16.21%).
[LINE GRAPH DEPICTING KOREA FUND
ASSUMING $10,000 INVESTED AT INCEPTION]
Matthews Korea
Korea Stock
Fund Price
Index
01/02/95 10,000 10,000
02/95 9,000 8,621
05/95 8,960 8,590
08/95 9,130 8,897
11/95 9,230 9,061
02/96 8,404 8,301
05/96 8,636 8,790
08/96 7,294 7,620
11/96 6,820 6,990
02/97 5,892 6,245
05/97 6,416 6,767
08/97 6,245 6,124
<PAGE>
GENERAL MARKET AND ECONOMIC INFORMATION
================================================================================
[LINE GRAPH DEPICTING ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS
DECEMBER 1987 - AUGUST 1997]
MSCI ALL S&P 500 MSCI EUROPE
COUNTRY FAR INDEX AUSTRALIA FAR
EAST (EX EAST INDEX
JAPAN) INDEX
DEC-87 0 0 0
JAN-88 11.88 4.04 6.96
FEB-88 18.56 8.39 14.41
MAR-88 21.83 4.78 17.35
APR-99 33.42 5.77 19.57
MAY-88 39.65 6.1 16.49
JUN-88 47.03 10.69 20.58
JUL-88 63.59 10.09 24.17
AUG-88 70.7 5.84 18.7
SEP-88 79.54 10.05 22.63
OCT-88 66.08 12.91 24.66
NOV-88 76.67 10.77 28.47
DEC-88 66.65 12.4 31.99
JAN-89 83.77 20.39 39.08
FEB-89 93.01 16.91 37.27
MAR-89 102.81 19.34 39.89
APR-89 112.54 25.32 41.36
MAY-89 127.93 29.13 42.89
JUN-89 115.13 28.7 40.1
JUL-89 121.61 40.07 50.09
AUG-89 129.87 42.24 50.52
SEP-89 138.06 41.31 52.01
OCT-89 132.43 37.75 47.68
NOV-89 125.13 40.03 54.4
DEC-89 133.5 43.03 58.4
JAN-90 160.02 33.19 51.58
FEB-90 153.72 34.32 43.37
MAR-90 139.08 37.58 32.93
APR-90 114.15 33.88 31.59
MAY-90 109.81 46.19 42.77
JUN-90 89.86 44.9 39.4
JUL-90 96.35 44.14 35.59
AUG-90 59.28 30.55 20.24
SEP-90 36.58 23.87 1.31
OCT-90 52.9 23.04 11.96
NOV-90 58.71 30.41 6.51
DEC-90 63.33 33.65 9.32
JAN-91 59.97 39.2 10.19
FEB-91 82.81 48.56 23.49
MAR-91 87.53 51.86 24.83
APR-91 94.96 51.91 25.19
MAY-91 92.4 57.77 27.01
JUN-91 91.72 50.22 19.98
JUL-91 96.13 56.96 23.66
AUG-91 85.38 60.04 20.61
SEP-91 87.8 56.98 22.86
OCT-91 83.9 58.84 24.25
NOV-91 84.66 51.86 16.6
DEC-91 89.16 68.81 16.78
JAN-92 109.41 65.44 17.02
FEB-92 106.85 67.03 15.21
MAR-92 101.53 63.38 9.25
APR-92 104.85 67.94 9.46
MAY-92 112.5 68.1 12.65
JUN-92 116.06 65.19 4.01
JUL-92 106.31 71.69 0.29
AUG-92 100.63 67.57 2.87
SEP-92 99.34 69.1 2.13
OCT-92 116.06 69.45 3.05
NOV-92 112.59 74.58 6.59
DEC-92 105.8 76.34 7.43
JAN-93 109.37 77.59 7.57
FEB-93 126.86 79.45 9.92
MAR-93 131.55 82.8 16.02
APR-93 146.1 78.16 22.84
MAY-93 155.18 82.2 23.58
JUN-93 147.09 82.34 23.21
JUL-93 146.34 81.37 28.48
AUG-93 157.29 87.62 34.14
SEP-93 166.65 85.74 30.61
OCT-93 205.87 89.34 37.04
NOV-93 212.21 86.9 25.95
DEC-93 291.08 88.79 36.62
JAN-94 276.6 94.92 45.84
FEB-94 255.11 89.06 41.86
MAR-94 221.53 80.41 33.96
APR-94 238.98 82.5 37.85
MAY-94 251.21 84.76 38.46
JUN-94 241.44 79.81 34.86
JUL-94 263.29 85.47 36.98
AUG-94 288.62 92.45 39.72
SEP-94 293.38 87.27 33.06
OCT-94 292.54 91.17 34.27
NOV-94 262.55 83.62 31.23
DEC-94 262.13 85.88 31.93
JAN-95 223.16 90.39 25.37
FEB-95 245.04 97.26 22.88
MAR-95 250.32 102.65 21.15
APR-95 241.78 108.32 24.55
MAY-95 267.13 115.88 24.12
JUN-95 261.36 120.48 21.22
JUL-95 263.93 127.48 29.85
AUG-95 244.83 127.41 33.35
SEP-95 255.15 136.53 34.24
OCT-95 249.49 135.35 31.96
NOV-95 241.37 145.01 36.76
DEC-95 255.52 149.28 42.13
JAN-96 272.22 157.41 47.17
FEB-96 271.64 159.2 45.42
MAR-96 278.2 161.25 49.19
APR-96 306.11 164.76 54.12
MAY-96 295.81 170.81 52.08
JUN-96 293.3 171.42 53.36
JUL-96 265.74 159.01 45.65
AUG-96 275.32 163.88 46.65
SEP-96 284.32 178.18 53.23
OCT-96 276.59 185.44 51.17
NOV-96 295.29 206.39 57.02
DEC-96 290.96 199.8 55.64
JAN-97 297.6 218.18 57.78
FEB-97 301.27 220.07 61.35
MAR-97 283.39 206.43 61.87
APR-97 277.77 224.32 66.45
MAY-97 293.17 243.32 71.08
JUN-97 307.24 258.24 80.1
JUL-97 310.89 286.23 89.2
AUG-97 250.38 264.04 75.17
ECONOMIC STATISTICS (AS OF 6/30/97)
<TABLE>
<CAPTION>
POPULATION 1997E REAL 1996 REAL 1996E GDP 1996 GDP
MARKET (MILLIONS) GDP GROWTH GDP GROWTH (US$ BILLIONS) PER CAPITA (US$)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. 264 3.7% 2.4% 7,447 28,060
- ---------------------------------------------------------------------------------------
Japan 126 1.3% 3.5% 4,506 35,842
- ---------------------------------------------------------------------------------------
China 1,215 10.5% 9.7% 846 684
- ---------------------------------------------------------------------------------------
Hong Kong 7 5.4% 4.8% 155 24,489
- ---------------------------------------------------------------------------------------
Indonesia 198 7.3% 7.8% 220 1,120
- ---------------------------------------------------------------------------------------
Malaysia 21 7.8% 8.2% 99 4,821
- ---------------------------------------------------------------------------------------
Philippines 69 6.5% 5.5% 83 1,197
- ---------------------------------------------------------------------------------------
Singapore 3 6.8% 7.0% 94 31,510
- ---------------------------------------------------------------------------------------
South Korea 45 4.1% 6.7% 490 10,852
- ---------------------------------------------------------------------------------------
Taiwan 22 6.2% 5.7% 273 12,755
- ---------------------------------------------------------------------------------------
Thailand 61 5.3% 6.8% 183 3,047
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997E 1996 PRIME 96E CURRENT A/C
MARKET INFLATION INFLATION LENDING RATES (% OF GDP)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. 2.6% 2.9% 8.5% (2%)
- -------------------------------------------------------------------
Japan 1.1% 0.0% 2.5% 1.5%
- -------------------------------------------------------------------
China 8.6% 8.3% 10.0% (0.1%)
- -------------------------------------------------------------------
Hong Kong 6.5% 6.0% 8.5% (1.9%)
- -------------------------------------------------------------------
Indonesia 6.7% 7.9% 21.5% (3.3%)
- -------------------------------------------------------------------
Malaysia 4.0% 3.5% 9.1% (6.3%)
- -------------------------------------------------------------------
Philippines 5.9% 8.4% 14.5% (4.6%)
- -------------------------------------------------------------------
Singapore 2.5% 1.4% 6.4% 8.8%
- -------------------------------------------------------------------
South Korea (4.5%) (4.5%) 12.5% (4.8%)
- -------------------------------------------------------------------
Taiwan 2.5% 3.1% 7.6% 3.4%
- -------------------------------------------------------------------
Thailand 4.1% 5.8% 13.3% (8.2%)
- -------------------------------------------------------------------
</TABLE>
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES AS OF AUGUST 31, 1997
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
----------- ----------- ---------
EQUITIES
Agricultural Equipment ...... 1.38% 0.00% 0.00%
Automotive .................. 1.88 0.00 6.65
Banking ..................... 3.79 0.01 0.00
Building Materials .......... 0.00 1.14 0.00
Chemical .................... 0.00 0.00 7.00
Commercial & Industrial ..... 10.39 1.35 16.04
Communications .............. 0.00 0.00 7.83
Conglomerate ................ 4.49 0.00 0.00
Construction ................ 0.00 0.76 5.46
Consumer .................... 0.81 0.00 0.00
Department Stores ........... 1.01 0.00 0.00
Electrical .................. 0.00 0.00 12.88
Electronics ................. 8.79 0.00 0.00
Financial ................... 9.65 1.92 13.10
Food ........................ 1.01 0.00 0.00
Food & Beverages ............ 6.47 0.00 0.91
Gaming ...................... 0.85 0.00 0.00
Health Care ................. 1.83 0.00 0.00
Hotels ...................... 2.02 0.00 0.00
Infrastructure .............. 0.00 1.98 0.00
Insurance ................... 2.29 0.00 4.34
Investments ................. 1.46 1.36 0.00
Machinery & Equipment ....... 0.44 0.00 0.00
Manufacturing ............... 5.50 0.00 0.00
Media ....................... 1.59 1.45 0.00
Paper Products .............. 0.00 0.00 4.33
Petro-Chemical .............. 0.00 1.06 0.00
Pharmaceutical .............. 0.00 0.00 1.91
Property .................... 1.53 0.00 0.00
Retail ...................... 2.84 0.00 0.00
Road Construction ........... 0.00 0.33 0.00
Rubber Manufacturer ......... 0.00 0.00 3.99
Shipping .................... 2.04 0.00 0.00
Software .................... 5.26 0.00 0.00
Trading ..................... 6.75 0.00 0.00
Transportation .............. 0.00 0.00 0.59
Utility ..................... 11.35 1.22 3.22
Wholesale & Retail Trade .... 0.00 0.00 11.75
----- ----- ------
Total Equities .......... 95.42 12.58 100.00
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MARKET SECTOR DIVERSIFICATION (CONTINUED)
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES AS OF AUGUST 31, 1997
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
--------- ------------ --------
BONDS
Automotive .................... 0.00 3.23 0.00
Banking ....................... 0.00 2.49 0.00
Basic Industry ................ 0.00 2.01 0.00
Commercial & Industrial ....... 0.00 7.81 0.00
Conglomerate .................. 0.00 5.42 0.00
Department Stores ............. 1.52 0.82 0.00
Electrical .................... 0.00 6.56 0.00
Electrical Appliance .......... 0.00 1.27 0.00
Electronics ................... 1.87 10.24 0.00
Financial ..................... 0.00 5.18 0.00
Food .......................... 0.00 1.09 0.00
Hotels ........................ 0.00 7.53 0.00
Industrial .................... 1.19 3.89 0.00
Infrastructure ................ 0.00 2.80 0.00
Petro-Chemical ................ 0.00 7.95 0.00
Plastics ...................... 0.00 1.81 0.00
Property ...................... 0.00 5.57 0.00
Retail ........................ 0.00 4.35 0.00
Transportation ................ 0.00 4.09 0.00
Utility ....................... 0.00 2.51 0.00
------- ------ ------
Total Bonds ............... 4.58 86.62 0.00
MUTUAL FUND ........................ 0.00 0.80 0.00
------- ------ ------
TOTAL INVESTMENTS .................. 100.00% 100.00% 100.00%
======= ====== ======
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MATTHEWS PACIFIC TIGER FUND
SHARES VALUE
-------- ---------
EQUITIES -- 89.20%***
HONG KONG -- 49.67%
China Light & Power Co., Ltd. .. 190,000 $ 880,238
China Resources Enterprise, Ltd. 220,000 922,694
China Travel International
Investment Hong Kong, Ltd. .1,226,000 909,725
Dickson Concepts
International, Ltd. ........ 305,000 1,157,175
Founder Hong Kong, Ltd. ........2,426,954 2,145,379
Guangdong Brewery
Holdings, Ltd.** ........... 129,000 45,364
Guangdong Electric Power
Development Co.,
Ltd. B Shares .............. 699,990 509,475
Guangdong Investment, Ltd. .....1,032,000 1,245,212
Guangdong Investment, Ltd.
Warrants** ................. 103,200 59,930
Guangdong Kelon Electric
Holding ....................1,230,000 1,531,737
Guangnan Holdings .............. 736,000 987,786
Hong Kong Telecommunications,
Ltd. ....................... 491,907 1,034,719
HSBC Holdings PLC .............. 55,608 1,693,562
Li & Fung, Ltd. ................1,402,000 1,429,312
National Mutual Asia, Ltd. .....1,150,000 934,954
Peregrine Investments
Holdings, Ltd. ............. 650,000 1,207,891
Qingling Motors, Ltd. ..........1,360,000 767,837
Shanghai New Asia Group Co.,
Ltd. B Shares ..............1,800,000 824,400
Swire Pacific, Ltd. A Shares ... 140,000 1,070,455
Vitasoy International
Holdings, Ltd. .............3,172,000 1,606,663
Wuxi Little Swan Co.,
Ltd. B Shares .............. 425,000 712,991
----------
TOTAL HONG KONG ................ 21,677,499
----------
INDONESIA -- 4.80%
PT Bimantara Citra ............. 555,000 498,559
PT Matahari Putra Prima ........ 705,000 370,423
PT Modern Photo Film Co. ....... 192,000 455,593
PT Telekomunikasi Indonesia .... 486,500 441,148
PT Tempo Scan Pacific .......... 295,000 330,000
----------
TOTAL INDONESIA ................ 2,095,723
----------
MALAYSIA -- 3.98%
Arab Malaysian Finance Berhad .. 382,000 360,312
Berjaya Sports Toto Berhad ..... 127,000 348,479
Public Bank Berhad ............. 3 3
RHB Capital Berhad ............. 221,000 379,005
Star Publications (Malaysia) ... 307,000 647,585
----------
TOTAL MALAYSIA ................. 1,735,384
----------
SHARES VALUE
-------- --------
PHILIPPINES -- 5.26%
Manila Electric Co. B Shares ... 203,980 $ 691,115
Philippine Long Distance
Telephone Co. .............. 35,300 894,110
RFM Corp. ......................2,229,000 410,605
Security Bank Corp.** .......... 348,000 297,631
----------
TOTAL PHILIPPINES .............. 2,293,461
----------
SINGAPORE -- 11.20%
Avimo Group, Ltd. .............. 515,000 653,745
Osprey Maritime, Ltd. .......... 717,000 834,318
Parkway Holdings, Ltd. ......... 198,000 746,173
Sunright, Ltd. ................. 495,000 719,992
Venture Manufacturing
(Singapore), Ltd. .......... 360,000 1,309,076
Wing Tai Holdings, Ltd. ........ 296,000 626,241
----------
TOTAL SINGAPORE ................ 4,889,545
----------
SOUTH KOREA -- 9.68%
Keum Kang Development Ind. Co. . 30,840 410,061
Korea Electric Power Corp. ..... 33,300 870,781
Kyung Nam Bank ................. 80,000 695,844
Kyungwon Century Co. ........... 16,000 416,620
LG Cable & Machinery ........... 46,000 749,252
Maxon Electronics Co. .......... 18,900 487,944
Samsung Securities Co., Ltd.** . 39,000 596,343
----------
TOTAL SOUTH KOREA .............. 4,226,845
----------
THAILAND -- 4.61%
Bangkok Bank Public Co., Ltd. .. 71,000 350,950
Bank of Ayudhya Public Co., Ltd. 321,000 497,601
Srithai Superware
Public Co., Ltd. ........... 223,000 423,954
Thai Engine Manufacturing Public
Co., Ltd.** ................ 100,000 561,567
Tipco Asphalt Public Co., Ltd.
Warrants** ................. 30,600 178,105
----------
TOTAL THAILAND ................. 2,012,177
----------
TOTAL EQUITIES
(Cost $40,119,667) ......... 38,930,634
----------
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MATTHEWS PACIFIC TIGER FUND (CONTINUED)
FACE
AMOUNT VALUE
-------- ----------
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 4.28%
Far Eastern Department Stores
3.000%, 07/06/01 ........... $590,000 $ 622,450
Samsung Electronics Co.
0.250%, 12/31/06 ........... 600,000 763,500
Jardine Strategic Holdings, Ltd.
7.500%, 05/07/49 ........... 400,000 484,000
-----------
TOTAL INTERNATIONAL DOLLAR BONDS
(Cost $1,838,208) .......... 1,869,950
-----------
TOTAL INVESTMENTS -- 93.48%
(Cost $41,957,875*) ........ 40,800,584
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES -- 6.52% ... 2,846,569
-----------
NET ASSETS -- 100% .............. $43,647,153
===========
* Cost for Federal income tax purposes is $41,957,875 and net
unrealized depreciation consists of:
Gross unrealized appreciation .. $ 5,939,417
Gross unrealized depreciation .. (7,096,708)
-----------
Net unrealized depreciation .... $(1,157,291)
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 1997.
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
SHARES VALUE
---------- ---------
EQUITIES -- 12.69%***
HONG KONG -- 5.40%
Cross-Harbour Tunnel Co. ........ 60,000 $ 123,112
Peregrine Investments
Holdings, Ltd. .............. 64,000 118,931
Peregrine Investments Holdings,
Ltd. Warrants** ............. 1,400 695
South China Morning Post
(Holdings), Ltd. ............ 112,000 90,334
-----------
TOTAL HONG KONG ................. 333,072
-----------
MALAYSIA -- 0.77%
Renong Berhad Warrants** ........ 40,000 12,348
United Engineers (Malaysia), Ltd. 8,624 35,200
-----------
TOTAL MALAYSIA .................. 47,548
-----------
SOUTH KOREA -- 4.82%
Korea Electric Power Corp. ...... 2,900 75,834
Korea Kumho Petrochemical Co.
Preferred ................... 16,000 65,595
Tong Yang Cement Co. Preferred .. 11,450 70,920
Tong Yang Securities Co.
Preferred** ................. 27,300 84,698
-----------
TOTAL SOUTH KOREA ............... 297,047
-----------
THAILAND -- 1.70%
Industrial Finance Corp. of Thailand
Warrants** .................. 15,600 867
Srithai Superware Public Co., Ltd. 44,000 83,650
Tipco Asphalt Public Co., Ltd.
Warrants** .................. 3,500 20,371
-----------
TOTAL THAILAND .................. 104,888
-----------
TOTAL EQUITIES
(Cost $984,995) ............. 782,555
-----------
FACE
AMOUNT VALUE
--------- --------
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 87.36%
HONG KONG -- 34.69%
China Travel International Investment
Overseas Finance, Ltd.
4.250%, 11/18/98 ............$150,000 223,500
Goldlion Capital (B.V.I.)
4.875%, 02/01/99 ............ 150,000 127,500
Shangri-La Asia Capital, Ltd.
2.875%, 12/16/00 ............ 200,000 170,000
FACE
AMOUNT VALUE
--------- --------
Hong Kong & Shanghai Overseas
Finance, Ltd.
5.000%, 01/06/01 ............$200,000 $ 186,000
Sino Land
5.000%, 02/26/01 ............ 100,000 94,500
New World Infrastructure, Ltd.
5.000%, 07/15/01 ............ 150,000 174,000
Qingling Motors, Ltd.P.
3.500%, 01/22/02 ............ 200,000 201,000
First Pacific Capital, Ltd.
2.000%, 03/27/02 ............ 250,000 243,750
Bank of East Asia, Ltd.
2.000%, 07/19/03 ............ 200,000 229,500
Zhenhai Refining & Chemical Co., Ltd.
3.000%, 12/19/03 ............ 200,000 295,000
Regal Hotels International Holdings, Ltd.
5.250%, 12/13/08 ............ 95,000 112,575
Amoy Properties, Ltd.
5.500%, 12/29/49 ............ 100,000 81,500
-----------
TOTAL HONG KONG ................. 2,138,825
-----------
INDONESIA -- 2.03%
PT Indocement
2.000%, 02/27/06 ............ 150,000 125,250
-----------
MALAYSIA -- 1.50%
Commerce Asset Holdings
1.750%, 09/26/04 ............ 80,000 92,600
-----------
PHILIPPINES -- 7.89%
Metro Pacific Capital, Ltd.
2.500%, 04/11/03 ............ 60,000 53,250
JG Summit (Cayman), Ltd.
3.500%, 12/23/03 ............ 80,000 53,000
International Container Terminal
Services, Inc.
1.750%, 03/13/04 ............ 100,000 88,500
FDC Capital Cayman
2.500%, 05/15/06 ............ 90,000 74,925
RFM Capital, Ltd.
2.750%, 05/30/06 ............ 60,000 60,900
Philippine Long Distance Telephone Co.
3.500%, 12/31/49 ............ 290,000 155,875
-----------
TOTAL PHILIPPINES ............... 486,450
-----------
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND (CONTINUED)
FACE
AMOUNT VALUE
-------- ---------
SINGAPORE -- 8.32%
Jardine Strategic Holdings, Ltd.
7.500%, 05/07/49 ............$200,000 $ 242,000
Dairy Farm International Holdings, Ltd.
6.500%, 05/10/49 ............ 345,000 270,825
-----------
TOTAL SINGAPORE ................. 512,825
-----------
SOUTH KOREA -- 11.70%
Yukong, Ltd.
3.000%, 12/31/01 ...........3,400,000 199,580
Samsung Display Devices Co.
0.250%, 03/12/06 ........... 100,000 98,750
Samsung Electronics Co.
0.250%, 12/31/06 ........... 160,000 203,600
Daewoo Corp.**
0.000%, 12/31/07 ........... 100,000 113,750
LG Electronics, Inc.
0.250%, 12/31/07 ........... 100,000 105,750
-----------
TOTAL SOUTH KOREA .............. 721,430
-----------
TAIWAN -- 17.21%
Nan Ya Plastic Corp.
1.750%, 07/19/01 ........... 80,000 112,400
President Enterprises+**
0.000%, 07/22/01 ........... 40,000 67,500
Yangming Marine Transport Corp.
2.000%, 10/06/01 ........... 150,000 166,125
Yageo Corp.
1.250%, 07/24/03 ........... 80,000 258,000
Compal Electronics, Inc.P.
1.000%, 11/21/03 ........... 100,000 252,500
Walsin Lihwa Corp.
3.250%, 06/16/04 ........... 70,000 78,750
Acer Peripherals, Inc.
1.250%, 11/27/06 ........... 80,000 126,000
-----------
TOTAL TAIWAN ................... 1,061,275
-----------
THAILAND -- 4.02%
Tanayong Public Co., Ltd.
3.500%, 03/01/04 ........... 110,000 42,350
Robinson Department Store
Public Co., Ltd.
4.250%, 04/07/04 ........... 50,000 50,875
FACE
AMOUNT VALUE
-------- ----------
Bangkok Bank Public Co., Ltd.
1.500%, 08/07/06 ........... $160,000 $ 154,600
-----------
TOTAL THAILAND ................. 247,825
-----------
TOTAL INTERNATIONAL DOLLAR BONDS
(Cost $4,963,419) .......... 5,386,480
-----------
SHARES VALUE
-------- ----------
INVESTMENT COMPANY -- 0.81%
(Cost $58,293)
The India Fund, Inc. ........... 6,000 49,878
-----------
TOTAL INVESTMENTS -- 100.86%
(Cost $6,006,707*) ......... 6,218,913
-----------
LIABILITIES, LESS CASH AND
OTHER ASSETS -- (0.86%) ..... (52,921)
-----------
NET ASSETS -- 100% .............. $6,165,992
===========
* Cost for Federal income tax purposes is $6,006,707 and net
unrealized appreciation consists of:
Gross unrealized appreciation .....$ 656,110
Gross unrealized depreciation ..... (443,904)
---------
Net unrealized appreciation .......$ 212,206
=========
** Non-income producing security
+ Convertible bond with put option
P. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31, 1997,
the value of these securities amounted to $453,500 or 7.35% of net assets.
***As a percentage of net assets as of August 31, 1997.
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS AUGUST 31, 1997
================================================================================
MATTHEWS KOREA FUND
SHARES VALUE
---------- -----------
EQUITIES -- SOUTH KOREA -- 99.51%***
Dae Duck Electronics Co. ........ 9,130 $ 688,923
Daewoo Corp. .................... 50,860 400,117
Daewoo Heavy Industries
Preferred** ................. 140,550 537,282
Daewoo Telecom Co. .............. 40,550 485,252
Dong-A Pharmaceutical Co., Ltd. . 13,584 367,270
Dongwon Securities Co. .......... 50,100 610,637
Halla Climate Control ........... 6,980 198,766
Handsome Co., Ltd. .............. 16,010 713,132
Hankook Tire Manufacturing Co. .. 11,030 438,755
Hankuk Electric Glass ........... 27,730 497,757
Hansol Paper Co. ................ 19,000 467,368
Heung-Ah Tire & Rubber Co. ...... 14,050 330,039
Hyosung T & C Co., Ltd. ......... 28,080 793,396
Hyundai Cement Co.** ............ 2,690 116,840
Hyundai Engineering &
Construction Co.** .......... 25,380 534,315
Keumkang, Ltd. .................. 17,000 858,947
Kookmin Bank .................... 6,795 85,079
Korea Electric Power Corp. ...... 15,000 392,244
Korea Exchange Bank ............. 95,000 542,105
Korea Express Co. ............... 15,210 328,637
Korea Industrial Leasing Co. .... 38,570 241,890
Korean Air** .................... 7,550 113,773
Kyung Nam Bank .................. 66,430 577,812
LG Cable & Machinery ............ 54,440 886,723
LG Chemical, Ltd. ............... 20,500 338,449
LG Electronics .................. 40,000 859,833
LG Industrial Systems ........... 25,000 531,856
LG Information & Communication,
Ltd. ........................ 9,722 1,023,368
Lotte Chilsung Beverage Co. ..... 1,500 175,346
SHARES VALUE
---------- -----------
Mando Machinery Corp. ........... 6,000 $ 222,715
Medison Co., Ltd. ............... 8,580 741,540
Namhae Chemical ................. 7,530 321,224
Oriental Fire & Marine Insurance 23,000 468,919
Pohang Iron & Steel Co., Ltd. ... 980 62,872
Pusan Bank ...................... 80,000 465,374
Rocket Electric Co. Preferred ... 22,640 180,618
Samsung Electro-Mechanics Co.
Preferred ................... 21,850 254,210
Samsung Fire & Marine Insurance . 920 366,980
Seoul City Gas Co., Ltd. ........ 5,570 228,354
Shinsegae Department Store Co. .. 11,080 387,953
Young Poong Paper Manufacturing
Co.** ....................... 10,290 367,133
Youngone Corp. .................. 18,000 368,975
Yukong, Ltd. .................... 30,000 688,088
-----------
TOTAL EQUITIES
(Cost $19,975,252) .......... 19,260,866
-----------
TOTAL INVESTMENTS -- 99.51%
(Cost $19,975,252*) ......... 19,260,866
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES -- 0.49% .... 95,155
-----------
NET ASSETS -- 100% ............... $19,356,021
===========
*Cost for Federal income tax purposes is $19,975,252 and net
unrealized depreciation consists of:
Gross unrealized appreciation ...$ 1,076,312
Gross unrealized depreciation ... (1,790,698)
-----------
Net unrealized depreciation .......$ (714,386)
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 1997.
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1997
================================================================================
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
------------ ------------ -----------
ASSETS:
<S> <C> <C> <C>
Investments, at value (Cost $41,957,875, $6,006,707
and $19,975,252, respectively) .................................. $40,800,584 $6,218,913 $19,260,866
Cash .............................................................. 2,843,264 371,118 344,758
Dividends and interest receivable ................................. 120,627 45,906 1,782
Receivable for capital shares sold ................................ 439,220 12,817 91,273
Deferred organization costs (Note 1-E) ............................ 13,691 13,692 7,641
Due from Advisor (Note 2) ......................................... 9,788 8,320 1,631
Other assets ...................................................... 87 227 630
----------- ---------- -----------
Total assets .................................................... 44,227,261 6,670,993 19,708,581
----------- ---------- -----------
LIABILITIES:
Payable for securities purchased .................................. 286,755 0 56,878
Payable for capital shares redeemed ............................... 230,287 493,288 255,502
Accrued expenses .................................................. 63,066 11,713 40,180
----------- ---------- -----------
Total liabilities ............................................... 580,108 505,001 352,560
----------- ---------- -----------
NET ASSETS:
Applicable to 3,861,005, 526,451, and 3,125,655 shares of
beneficial interest issued and outstanding, respectively, unlimited
number of shares authorized with a $0.001 par value ............. $43,647,153 $6,165,992 $19,356,021
=========== ========== ===========
NET ASSETS CONSIST OF:
Capital paid-in ................................................... $44,320,180 $5,649,975 $20,715,603
Accumulated undistributed net investment income ................... 109,395 0 0
Accumulated undistributed net realized gain (loss) on
investments ..................................................... 377,138 303,811 (645,352)
Net unrealized appreciation (depreciation) on investments and
foreign currency related transactions ........................... (1,159,560) 212,206 (714,230)
----------- ---------- -----------
$43,647,153 $6,165,992 $19,356,021
=========== ========== ===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ....................... $11.30 $11.71 $6.19
====== ====== =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1997
================================================================================
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
---------- ----------- --------
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividends (net of foreign withholding taxes of
$58,937, $1,725 and $18,213, respectively) ...................... $ 685,401 $ 53,993 $ 94,735
Interest .......................................................... 90,721 74,208 18,842
Other ............................................................. 13,956 450 40,671
----------- --------- ---------
Total investment income ......................................... 790,078 128,651 154,248
----------- --------- ---------
EXPENSES:
Investment advisory fees (Note 2) ................................. 358,055 44,164 104,316
Transfer agent fees ............................................... 42,158 31,751 35,519
Administration fees ............................................... 30,932 28,801 30,046
Accounting fees ................................................... 67,208 45,218 45,000
Professional fees ................................................. 38,589 4,784 14,086
Custodian fees .................................................... 107,178 12,334 41,442
Directors fees (Note 2) ........................................... 5,000 5,000 5,000
Insurance expense ................................................. 7,278 791 1,283
Amortization of organization costs (Note 1-E) ..................... 6,734 6,734 3,124
Printing expense .................................................. 13,702 2,433 4,571
Registration expenses ............................................. 27,252 14,186 17,742
Other expenses .................................................... 1,921 360 660
----------- --------- ---------
Total expenses .................................................. 706,007 196,556 302,789
Expenses reimbursed and waived (Note 2) ........................... (25,702) (112,644) (42,000)
----------- --------- ---------
Net expenses .................................................... 680,305 83,912 260,789
----------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................................... 109,773 44,739 (106,541)
----------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on investments ........................... 382,226 309,419 (393,866)
Net realized loss on foreign currency related transactions ........ (5,567) (1,243) (55,376)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions ........... (1,348,057) 221,863 (175,375)
----------- --------- ---------
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions ........................... (971,398) 530,039 (624,617)
----------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................ $ (861,625) $ 574,778 $(731,158)
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS PACIFIC ASIAN CONVERTIBLE MATTHEWS KOREA
TIGER FUND SECURITIES FUND FUND
------------------------- ----------------------- -----------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1997 1996 1997 1996
------------ ---------- ---------- ---------- ---------- ----------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ........... $ 109,773 $ 25,665 $ 44,739 $ 58,981 $ (106,541) $ (20,150)
Net realized gain (loss) on investments
and foreign currency related
transactions ......................... 376,659 81,306 308,176 81,497 (449,242) (206,210)
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions (1,348,057) 179,432 221,863 (11,326) (175,375) (512,998)
----------- ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
from operations ...................... (861,625) 286,403 574,778 129,152 (731,158) (739,358)
----------- ----------- ---------- ---------- ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income .................. (19,824) 0 (44,739) (55,874) 0 0
Realized gains on investments .......... (69,727) 0 (86,133) (10,864) 0 (7,128)
----------- ----------- ---------- ---------- ----------- ----------
(89,551) 0 (130,872) (66,738) 0 (7,128)
----------- ----------- ---------- ---------- ----------- ----------
CAPITAL SHARE TRANSACTIONS (NET)
(NOTE 1-I) ............................. 27,450,272 15,779,289 2,449,726 2,347,269 17,365,849 2,963,715
----------- ----------- ---------- ---------- ----------- ----------
Total increase in net assets ........... 26,499,096 16,065,692 2,893,632 2,409,683 16,634,691 2,217,229
NET ASSETS:
Beginning of period .................... 17,148,057 1,082,365 3,272,360 862,677 2,721,330 504,101
----------- ----------- ---------- ---------- ----------- ----------
End of period (including undistributed
net investment income of $109,395,
$0 and $0, respectively) ............. $43,647,153 $17,148,057 $6,165,992 $3,272,360 $19,356,021 $2,721,330
=========== =========== ========== ========== =========== ==========
</TABLE>
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 ASIAN CONVERTIBLE
MATTHEWS PACIFIC TIGER FUND SECURITIES FUND
---------------------------------- ----------------------------------
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995* 1997 1996 1995*
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ................ $ 10.81 $ 9.77 $ 10.00 $ 10.53 $ 9.88 $ 10.00
------- ------- ------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................ 0.02 0.01 0.02 0.10 0.25 0.23
Net realized and unrealized gain (loss) on
investments and foreign currency ............... 0.50 1.03 (0.23) 1.42 0.75 (0.14)
------- ------- ------ ------- ------- ------
Total from investment operations ............... 0.52 1.04 (0.21) 1.52 1.00 0.09
------- ------- ------ ------- ------- ------
LESS DISTRIBUTIONS FROM:
Net investment income ............................ (0.01) 0.00 (0.02) (0.10) (0.26) (0.21)
Net realized gains on investments ................ (0.02) 0.00 0.00 (0.24) (0.09) 0.00
------- ------- ------ ------- ------- ------
Total distributions ............................ (0.03) 0.00 (0.02) (0.34) (0.35) (0.21)
------- ------- ------ ------- ------- ------
Net Asset Value, end of period ...................... $ 11.30 $ 10.81 $ 9.77 $ 11.71 $ 10.53 $ 9.88
======= ======= ====== ======= ======= ======
TOTAL RETURN ........................................ 4.75% 10.64% (2.07)%** 14.67% 10.24% 0.89%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ............. $43,647 $17,148 $ 1,082 $ 6,166 $ 3,272 $ 863
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ...................... 1.97% 4.35% 25.95%+ 4.45% 8.73% 23.11%+
Ratio of expenses to average net assets after
reimbursement and waiver of expenses by
Advisor and Administrator (Note 2) ............. 1.90% 1.90% 2.17%+ 1.90% 1.85% 2.26%+
Ratio of net investment income (loss) to average
net assets before reimbursement and waiver of
expenses by Advisor and Administrator .......... 0.20% (2.13)% (23.41)%+ (1.55)% (4.13)% (18.68)%+
Ratio of net investment income (loss) to average
net assets after reimbursement and waiver of
expenses by Advisor and Administrator .......... 0.27% 0.32% 0.36%+ 1.00% 2.75% 2.17%+
Portfolio turnover ............................... 70.73% 124.69% 92.53% 50.20% 88.16% 121.63%
Average commission rate paid ..................... $0.0065 $0.0064 N/A $0.0077 $0.0020 N/A
<FN>
+ Annualized
* The Funds commenced operations on September 13, 1994.
** Not annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND
----------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995*
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of period .......................................... $ 7.23 $ 9.13 $ 10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) ............................................... (0.04)** (0.07) 0.08**
Net realized and unrealized loss on investments and foreign currency ....... (1.00)** (1.75) (0.95)**
------ ------ ------
Total from investment operations ......................................... (1.04) (1.82) (0.87)
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ...................................................... 0.00 0.00 0.00
Net realized gains on investments .......................................... 0.00 (0.08) 0.00
------ ------ ------
Total distributions ...................................................... 0.00 (0.08) 0.00
------ ------ ------
Net Asset Value, end of period ................................................ $ 6.19 $ 7.23 $ 9.13
====== ====== ======
TOTAL RETURN .................................................................. (14.38)% (20.11)% (8.70)%***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ....................................... $19,356 $ 2,721 $ 504
Ratio of expenses to average net assets before reimbursement
and waiver of expenses by Advisor and Administrator ...................... 2.90% 11.36% 42.87%+
Ratio of expenses to average net assets after reimbursement
and waiver of expenses by Advisor and Administrator (Note 2) ............. 2.50% 2.23% 0.24%+
Ratio of net investment loss to average net assets before
reimbursement and waiver of expenses by Advisor and Administrator ........ (1.81)% (10.44)% (41.79)%+
Ratio of net investment income (loss) to average net assets after
reimbursement and waiver of expenses by Advisor and Administrator ........ (1.41)% (1.31)% 0.84%+
Portfolio turnover ......................................................... 112.68% 139.71% 42.16%
Average commission rate paid ............................................... $0.0911 $0.1397 N/A
<FN>
+ Annualized
* The Funds commenced operations on January 3, 1995.
** Calculated using the average shares method.
*** Not annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1997
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Matthews International Funds (the "Company") is an open-end investment
management company registered under the Investment Company Act of 1940, as
amended, as a series company. The Company currently consists of 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 are
organized to offer separate classes of shares and currently offer one class
(Class I). 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. All other securities are valued through valuations
obtained from a commercial pricing service or at the most recent mean of
the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Trustees. The books and records of
the Funds are maintained in U.S. dollars. Transactions denominated in
foreign currencies are recorded at the current prevailing exchange rates.
All assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the current exchange rate. Translation gains or losses
resulting from changes in the exchange rate during the reporting period and
realized gains and losses on the settlement of foreign currency
transactions are reported in the results of operations for the current
period. The Funds do not isolate that portion of gains and losses on
investments in equity securities which is due to changes in the foreign
exchange rate from that which is due to changes in market prices of equity
securities. International dollar bonds are issued offshore, pay interest
and principal in U.S. dollars, and are denominated in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at
the respective current prevailing exchange rates. The securities' values
are translated into U.S. dollars using these rates. If subsequent to the
time a rate has been established and it has been determined to have
materially changed, the fair value of those securities, (considering the
changing conditions) will be determined by (or under the direction of) the
Funds' Board of Trustees.
B. 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, 1997. Therefore, no Federal income tax provision is required.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 (CONTINUED)
================================================================================
D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses on
the sale of securities are determined on the identified cost basis.
E. ORGANIZATION COSTS: Organization costs are being amortized on a straight-line
basis over five years from each Fund's respective commencement of operations. In
the event that any of the initial shares are redeemed during the period of
amortization of the Funds organization costs, the redemption proceeds will be
reduced by any such unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of those shares
outstanding at the time of redemption.
F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Convertible
Securities Fund to distribute net investment income on a semi-annual basis and
capital gains annually, if any. Matthews Pacific Tiger Fund and Matthews Korea
Fund distribute net investment income and capital gains annually, if any.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. Net
investment losses may not be utilized to offset net investment income in future
periods for tax purposes. At August 31, 1997 the Matthews Korea Fund
reclassified $135,889 from accumulated net investment loss to additional paid-in
capital. This reclassification had no effect on net assets.
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 were as follows:
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS ASIAN CONVERTIBLE
PACIFIC TIGER FUND SECURITIES FUND
------------------ -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1996
----------------------- ---------------------- --------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- ----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ................ 3,849,789 $46,641,829 1,657,416 $17,743,189 348,345 $ 3,949,981 259,782 $2,726,198
Shares issued through
reinvestment of dividends 6,471 82,965 0 0 8,922 99,805 5,283 54,160
Shares redeemed ............ (1,581,884) (19,274,522) (181,523) (1,963,900) (141,726) (1,600,060) (41,474) (433,089)
---------- ----------- --------- ----------- -------- ----------- ------- ----------
Net increase ............... 2,274,376 $27,450,272 1,475,893 $15,779,289 215,541 $ 2,449,726 223,591 $2,347,269
========== =========== ========= =========== ======== =========== ======= ==========
</TABLE>
MATTHEWS KOREA FUND
-------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- ----------
Shares sold ................ 4,805,699 $ 30,420,501 452,855 $3,926,319
Shares issued through
reinvestment of dividends 0 0 801 6,952
Shares redeemed ............ (2,056,201) (13,054,652) (132,685) (969,556)
---------- ------------ -------- ----------
Net increase ............... 2,749,498 $ 17,365,849 320,971 $2,963,715
========== ============ ======== ==========
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 (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. 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, 1997,
are as follows:
<TABLE>
<CAPTION>
EXPENSES
INVESTMENT VOLUNTARY WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED DUE FROM DAEWOO
FEE RATE LIMITATION FEES BY ADVISOR ADVISOR SECURITIES
---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Matthews Pacific Tiger Fund ................... 1.00% 1.90% $358,055 $ 25,702 $9,788 --
Matthews Asian Convertible Securities Fund .... 1.00 1.90 44,164 112,644 8,320 --
Matthews Korea Fund ........................... 1.00 2.50 104,316 42,000 1,631 $73,436+
<FN>
+Daewoo Securities is the affiliated broker for the Fund. This amount is the
affiliated brokerage commissions paid.
</FN>
</TABLE>
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, 1997, excluding temporary
short-term investments, are as follows:
<TABLE>
<CAPTION>
PURCHASES PROCEEDS FROM SALES
----------- -------------------
<S> <C> <C>
Matthews Pacific Tiger Fund ................................. $49,364,880 $23,871,174
Matthews Asian Convertible Securities Fund .................. 4,894,927 2,278,319
Matthews Korea Fund ......................................... 28,709,972 11,475,029
</TABLE>
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
4. CAPITAL LOSS CARRYOVER
At August 31, 1997, the Matthews Korea Fund had a capital loss carryover of
$78,721, which expires 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,
respectively, the Matthews Pacific Tiger Fund, Matthews Asian Convertible
Securities Fund and Matthews Korea Fund, collectively referred to as the
"Funds") as of August 31, 1997, and the related statements of operations for the
year then ended, and the statements of changes in net assets and financial
highlights for each of the two years in the period 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 financial
highlights of the Funds for the periods ended August 31, 1995 were audited by
other auditors whose report dated September 29, 1995 expresses an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers or applying
alternative procedures when replies from brokers were not received. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Matthews International Funds as of August 31, 1997, the results of their
operations for the year then ended, and the changes in their net assets and
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
/S/ SIGNATURE
ERNST & YOUNG LLP
San Francisco, California
October 9, 1997
<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
Brian B. Stableford
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
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
FPS Broker Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406
(800) 892-0382
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406
(800) 892-0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
AUDITORS
Ernst & Young LLP
555 California Street, Suite 1700
San Francisco, CA 94104
FOR ADDITIONAL INFORMATION ABOUT THE MATTHEWS
INTERNATIONAL FUNDS CALL:
(800) 789-ASIA
This report is submitted for general information of the
shareholders of the Funds. It is not authorized for distribution to prospective
investors in the Funds unless preceded or accompanied by an effective Prospectus
which includes details regarding the Funds' objectives, policies, expenses and
other information.
