<PAGE>
Dear Fellow Shareholder:
I am pleased to enclose the semi-annual report for the Matthews International
Funds for the period which ended on February 28, 1997. With the exception of
Korea, this was a positive period for most of the markets in Asia ex-Japan and
I am pleased to report that the net asset value of the Matthews Pacific Tiger
Fund gained 14.8% during the period and the Matthews Asian Convertible
Securities Fund gained 6.1%. For both the Matthews Pacific Tiger Fund and the
Matthews Asian Convertible Securities Fund, these returns were ahead of their
respective indices. The Matthews Korea Fund continued to perform poorly in the
period, declining by 19.2%, approximately in line with the underlying market.
The South Korean market has remained under pressure due to a combination of
cyclical economic factors, ongoing concerns about the financial health of a
number of major Korean companies, and continued domestic political problems.
While this has been a difficult period for Korea, the efforts to de-regulate
the local economy are ongoing and will, we believe, ultimately lead to a more
competitive Korea with stronger financial institutions.
Although the year to February 1997 has been a relatively positive period for
most Asian markets in which the funds invest, the region has continued to face
a number of challenges, many of which result from the historically high rates
of real growth that these countries have been accustomed to for many years.
While these pressures are apparent in countries such as Thailand and Korea,
other countries in the region, most notably China, appear to be enjoying a
much more favorable period of growth. The coming transition to mainland
sovereignty will undoubtedly keep Hong Kong in the international spotlight in
the coming weeks and months, and while this may lead to periods of
uncertainty, we are encouraged that at this late stage local confidence in
Hong Kong appears robust. Many of the investment opportunities that we are
focusing on for the portfolios involve companies with substantial business
interests in mainland China, where the economic fundamentals appear relatively
positive.
Overall, we are encouraged about the prospects for 1997 and thank you for your
support.
Yours sincerely,
/s/ G. Paul Matthews
G. Paul Matthews
President, Matthews International Funds
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 28, 1997
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
EQUITIES -- 94.29%
HONG KONG -- 44.24%
Chevalier International Holdings.......................... 3,995,525 $ 681,064
China Light & Power Co., Ltd. ............................ 140,000 647,219
China Resources Enterprise, Ltd. ......................... 320,000 719,018
China Travel International Investment Hong Kong, Ltd. .... 2,036,000 1,077,958
Citic Pacific, Ltd. ...................................... 206,000 1,050,762
Dah Sing Financial Group.................................. 207,600 868,586
Dao Heng Bank Group, Ltd. ................................ 184,000 945,673
Dickson Concepts International, Ltd. ..................... 195,000 712,625
Founder Hong Kong, Ltd. **................................ 1,730,000 927,117
Giordano International, Ltd. ............................. 592,000 420,460
Guangdong Investments Co. ................................ 1,032,000 1,006,160
Guangdong Kelon Electric Holding.......................... 465,000 414,326
Guangnan Holdings......................................... 736,000 1,035,964
Guangnan Holdings Warrants**.............................. 105,143 4,763
GZI Transportation, Ltd. **............................... 250,000 149,311
GZI Transportation, Ltd. Warrants**....................... 50,000 10,847
Hon Kwok Land Investment, Ltd. ........................... 1,934,000 705,530
HSBC Holdings PLC......................................... 55,608 1,357,186
Li & Fung, Ltd. .......................................... 856,000 696,393
Moulin International Holding, Ltd. ....................... 813,407 593,467
National Mutual Asia, Ltd. ............................... 940,000 1,025,710
New World Infrastructure, Ltd. **......................... 286,000 849,443
Peregrine Investment Holdings, Ltd. ...................... 500,000 913,622
Qingling Motors Co. **.................................... 1,360,000 825,424
Vitasoy International Holdings, Ltd. ..................... 980,000 363,835
-----------
TOTAL HONG KONG........................................... 18,002,463
-----------
INDONESIA -- 8.41%
Pt Bimantara Citra........................................ 270,000 394,160
Pt Kawasan Industri Jababeka.............................. 375,000 445,777
Pt Kawasan Industri Jababeka Rights**..................... 71,667 85,193
Pt Matahari Putra Prima................................... 585,000 927,216
Pt Modern Photo Film Co. ................................. 206,000 721,752
Pt Telekomunikasi Indonesia............................... 486,500 847,189
-----------
TOTAL INDONESIA........................................... 3,421,287
-----------
KOREA -- 6.72%
Chonggu Housing & Construction**.......................... 19,000 340,718
Keum Kang Development Ind. Co. ........................... 30,840 438,864
Korea Electric Power Corp. **............................. 26,600 763,209
Kyungwon Century Co. **................................... 16,000 425,754
Maxon Electronics Co. .................................... 13,900 350,576
Samsung Securities Co., Ltd. ............................. 25,000 416,498
-----------
TOTAL KOREA............................................... 2,735,619
-----------
MALAYSIA -- 11.89%
Berjaya Sports Toto Berhad................................ 127,000 736,528
DCB Holdings Berhad....................................... 221,000 885,602
Public Bank Berhad........................................ 323,333 755,268
Resorts World Berhad...................................... 200,000 934,354
SAP Holdings.............................................. 150,000 604,108
Star Publications (Malaysia).............................. 210,000 921,869
-----------
TOTAL MALAYSIA............................................ 4,837,729
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
PHILIPPINES -- 5.58%
Manila Electric Co. ................................... 104,600 $ 830,238
Metropolitan Bank & Trust Co. ......................... 34,491 956,209
RFM Corp. ............................................. 1,829,000 486,224
-----------
TOTAL PHILIPPINES...................................... 2,272,671
-----------
SINGAPORE -- 9.73%
Osprey Maritime, Ltd. ................................. 533,500 886,735
Parkway Holdings, Ltd. ................................ 198,000 833,158
Sunright, Ltd. ........................................ 460,000 529,069
Venture Manufacturing (Singapore), Ltd. ............... 360,000 969,493
Wing Tai Holdings, Ltd. ............................... 226,000 741,763
-----------
TOTAL SINGAPORE........................................ 3,960,218
-----------
THAILAND -- 7.72%
Bangkok Bank Public Co., Ltd. ......................... 71,000 625,140
Bank of Ayudhya Public Co., Ltd. ...................... 297,000 676,694
Central Pattana Public Co., Ltd. ...................... 117,000 361,460
Sri Thai Superware Public Co., Ltd. ................... 173,000 808,380
Thai Engine Manufacturing Public Co., Ltd. ............ 81,000 669,396
-----------
TOTAL THAILAND......................................... 3,141,070
-----------
TOTAL EQUITIES
(Cost $34,835,839).................................... 38,371,057
-----------
<CAPTION>
FACE
AMOUNT
---------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 3.67%
Far Eastern Department Stores 3.000%, due 07/06/01..... $590,000 629,825
President Enterprises
0.000%, due 07/22/01**+............................... 260,000 421,850
Samsung Electronics Co.
0.250%, due 12/31/06.................................. 400,000 440,000
-----------
TOTAL INTERNATIONAL DOLLAR BONDS (Cost $1,390,089)..... 1,491,675
-----------
TOTAL INVESTMENTS -- 97.96% (Cost $36,225,928*)........ 39,862,732
-----------
CASH AND OTHER ASSETS, LESS LIABILITIES -- 2.04%....... 829,532
-----------
NET ASSETS -- 100%..................................... $40,692,264
===========
</TABLE>
* Cost for Federal income tax purposes is $36,225,928 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation......... $ 5,373,970
Gross unrealized
depreciation......... (1,737,166)
-----------
Net unrealized
appreciation......... $ 3,636,804
===========
</TABLE>
**Non-income producing security
+ Convertible bond with put option
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 28, 1997
(unaudited)
- --------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- --------
<S> <C> <C>
EQUITIES -- 10.88%
HONG KONG -- 4.44%
China Hong Kong Photo Products Holdings, Ltd.................. 21,387 $ 7,733
Citic Pacific (UBS) Warrants** ............................... 100,000 19,370
CP Pokphand Co.** ............................................ 25,000 9,039
Cross-Harbour Tunnel Co....................................... 20,000 43,776
Peregrine Investment Holdings, Ltd. .......................... 24,000 43,854
Peregrine Investment Holdings, Ltd. Warrants** ............... 1,400 484
South China Morning Post (Holdings), Ltd...................... 56,000 50,621
--------
TOTAL HONG KONG............................................... 174,877
--------
MALAYSIA -- 2.77%
Renong Berhad Warrants** ..................................... 40,000 29,480
United Engineers Berhad....................................... 8,624 79,537
--------
TOTAL MALAYSIA................................................ 109,017
--------
SOUTH KOREA -- 1.29%
Korea Kumho Petrochemical Co.** .............................. 11,000 50,905
--------
TAIWAN -- 2.22%
Acer, Inc..................................................... 7,769 87,401
--------
THAILAND -- 0.16%
Industrial Finance Corp. Warrants** .......................... 15,600 6,175
--------
TOTAL EQUITIES
(COST $406,293).............................................. 428,375
--------
<CAPTION>
FACE
AMOUNT
--------
<S> <C> <C>
INTERNATIONAL DOLLAR BONDS (NOTE 1-A) -- 80.61%
HONG KONG -- 30.57%
China Travel International Investment Overseas Finance
4.250%, due 11/18/98......................................... $160,000 190,400
China Overseas Land & Investment
5.250%, due 12/08/00......................................... 80,000 126,800
New World Development (BVI)
4.375%, due 12/11/00......................................... 60,000 81,150
Shangri-La Asia Capital
2.875%, due 12/16/00......................................... 100,000 87,500
Hong Kong and Shanghai Hotels
5.000%, due 01/06/01......................................... 100,000 110,750
Sino Land
5.000%, due 02/26/01......................................... 100,000 105,500
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ---------
<S> <C> <C>
Hon Kwok Land Capital
5.300%, due 07/05/01....................................... $100,000 $ 113,500
New World Infrastructure, Ltd.
5.000%, due 07/15/01....................................... 60,000 72,375
Bank of East Asia, Ltd.
2.000%, due 07/19/03....................................... 100,000 115,625
Regal Hotels International Holdings
5.250%, due 12/13/08....................................... 95,000 106,875
Amoy Properties, Ltd.
5.500%, due 12/29/49....................................... 100,000 93,500
---------
TOTAL HONG KONG............................................. 1,203,975
---------
INDONESIA -- 2.37%
Pt Indocement
2.000%, due 02/27/06....................................... 100,000 93,500
---------
MALAYSIA -- 2.85%
Commerce Asset Holdings
1.750%, due 09/26/04....................................... 80,000 112,400
---------
PHILIPPINES -- 7.33%
Metro Pacific Capital
2.500%, due 04/11/03....................................... 60,000 69,600
JG Summit (Cayman), Ltd.
3.500%, due 12/23/03....................................... 80,000 63,400
Filinvest Capital
2.500%, due 05/15/06....................................... 90,000 89,100
RFM Capital, Ltd.
2.750%, due 05/30/06....................................... 60,000 66,450
---------
TOTAL PHILIPPINES........................................... 288,550
---------
SINGAPORE -- 9.44%
Far East Levingston Shipping
1.500%, due 05/02/01....................................... 100,000 85,250
Jardine Strategic Holdings
7.500%, due 05/07/49....................................... 90,000 99,450
Dairy Farm International Holdings
6.500%, due 05/10/49....................................... 245,000 187,119
---------
TOTAL SINGAPORE............................................. 371,819
---------
SOUTH KOREA -- 5.94%
Samsung Display Devices
0.250%, due 03/12/06....................................... 60,000 57,900
Samsung Electronics Co.
0.250%, due 12/31/06....................................... 160,000 176,000
---------
TOTAL SOUTH KOREA........................................... 233,900
---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 28, 1997
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND (continued)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
-------- ---------
<S> <C> <C>
TAIWAN--12.57%
Nan Ya Plastic Corp.
1.750%, due 07/19/01....................................... $ 80,000 $ 92,400
President Enterprises
0.000%, due 07/22/01+**.................................... 40,000 64,900
Yangming Marine Transportation
2.000%, due 10/06/01....................................... 70,000 81,200
Winbond Electronics Corp.
2.000%, due 03/13/03....................................... 100,000 99,875
Yageo Corp.
1.250%, due 07/24/03....................................... 80,000 100,800
Walsin Lihwa Corp.
3.250%, due 06/16/04....................................... 70,000 55,825
---------
TOTAL TAIWAN................................................ 495,000
---------
THAILAND--9.54%
Central Pattana Public Co.
2.750%, due 04/10/01....................................... 90,000 91,800
Tanayong Public Co., Ltd.
3.500%, due 03/01/04....................................... 60,000 51,300
Robinson Department Stores
4.250%, due 04/07/04....................................... 50,000 55,125
Sri Thai Superware Public Co., Ltd.
3.250%, due 06/13/06....................................... 60,000 60,150
Bangkok Bank Public Co.
1.500%, due 08/07/06....................................... 120,000 117,450
---------
TOTAL THAILAND.............................................. 375,825
---------
TOTAL INTERNATIONAL DOLLAR BONDS
(COST $2,985,810).......................................... 3,174,969
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<S> <C> <C>
INVESTMENT COMPANY--1.20%
(COST $58,292)
The India Fund............................................... 6,000 $ 47,250
----------
TOTAL INVESTMENTS--92.69%
(COST $3,450,395*).......................................... 3,650,594
----------
CASH AND OTHER ASSETS,
LESS LIABILITIES--7.31%..................................... 287,799
----------
NET ASSETS--100%............................................. $3,938,393
==========
</TABLE>
* Cost for Federal income tax purposes is $3,450,395 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation............ $ 318,700
Gross unrealized
depreciation............ (118,501)
---------
Net unrealized
appreciation............ $ 200,199
=========
</TABLE>
** Non-income producing security
+ Convertible bond with put option
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- SCHEDULE OF INVESTMENTS February 28, 1997
(unaudited)
- -------------------------------------------------------------------------------
MATTHEWS KOREA FUND
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
EQUITIES -- KOREA 98.29%
Commercial Bank of Korea..................................... 79,710 $ 422,366
Comtec System Co., Ltd.**.................................... 900 91,317
Dae Duck Electronics Co...................................... 10,130 519,187
Daewoo Corp.................................................. 28,860 198,666
Daewoo Electronic Components Co.............................. 100 1,238
Daewoo Heavy Industries**.................................... 61,670 210,478
Daewoo Telecom Co............................................ 35,550 312,582
Dong-A Pharmaceutical Co., Ltd............................... 4,584 93,350
Dongwon Securities Co........................................ 38,100 341,615
Haitai Confectionery Co., Ltd................................ 18,000 272,806
Halla Engineering & Construction Corp.**..................... 3,880 87,534
Han Kook Tire Manufacturing Co............................... 9,430 414,577
Hankuk Electric Glass**...................................... 23,140 505,983
Heung-Ah Tire & Rubber Co.**................................. 13,650 434,286
Hyundai Cement Co.**......................................... 9,490 296,442
Hyundai Engineering & Construction Co.**..................... 9,000 196,795
Hyundai Merchant Marine**.................................... 28,100 373,865
Hyosung T & C Co., Ltd....................................... 21,580 514,315
Jungil Industrial**.......................................... 2,500 190,895
Korea Electric Power Corp.**................................. 4,000 114,768
Korea Express Co.**.......................................... 5,000 109,331
Korea Industrial Leasing Co.**............................... 32,000 293,215
Kyung Nam Bank............................................... 34,430 299,149
LG Cable & Machinery......................................... 40,400 532,840
LG Chemical, Ltd............................................. 35,500 386,070
LG Electronics............................................... 5,000 64,210
LG Industrial Systems**...................................... 19,000 347,313
LG Information & Communication, Ltd.......................... 1,000 83,878
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
Medison Co., Ltd............................................ 2,500 $ 234,280
Oriental Fire & Marine Insurance............................ 12,000 263,782
Poongsan Corp............................................... 30,580 349,900
Pusan Bank.................................................. 44,000 335,466
Rocket Electric Co.......................................... 19,080 200,877
Sam Lip Industrial Co.**.................................... 4,020 188,826
Samsung Electro-Mechanics Co................................ 12,570 138,010
Seoul City Gas Co., Ltd.**.................................. 5,000 293,862
Shin Hwa Co.**.............................................. 11,000 227,801
Shin Wha Engineering & Construction Co.**................... 30,535 339,139
Shinsegae Department Store Co............................... 4,580 184,398
Suheung Capsule Co.**....................................... 2,000 112,223
Yoosung Enterprise Co.**.................................... 7,970 236,053
Young Poong Paper Manufacturing Co.**....................... 8,700 362,353
Youngone Corp............................................... 27,000 487,303
-----------
TOTAL EQUITIES
(Cost $12,719,087)......................................... 11,663,344
-----------
TOTAL INVESTMENTS -- 98.29%
(Cost $12,719,087*)........................................ 11,663,344
-----------
CASH AND OTHER ASSETS, LESS LIABILITIES -- 1.71%............ 202,718
-----------
NET ASSETS -- 100%.......................................... $11,866,062
===========
</TABLE>
* Cost for Federal income tax purposes is $12,719,087 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized
appreciation......... $ 368,135
Gross unrealized
depreciation......... (1,423,878)
-----------
Net unrealized
depreciation......... $(1,055,743)
===========
</TABLE>
**Non-income producing security
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES February 28, 1997 (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
$36,225,928, $3,450,395 and
$12,719,087, respectively)............ $39,862,732 $3,650,594 $11,663,344
Cash................................... 1,388,464 247,944 0
Dividends and interest receivable...... 35,570 37,130 4,044
Receivable for securities sold......... 402,815 156,478 412,210
Receivable for capital stock sold...... 189,397 25,000 102,627
Deferred organization costs (Note 1-E). 17,086 17,086 9,216
Due from Advisor (Note 2).............. 0 1,445 0
Other assets........................... 8,083 624 1,322
----------- ---------- -----------
Total assets.......................... 41,904,147 4,136,301 12,192,763
----------- ---------- -----------
LIABILITIES:
Payable for securities purchased....... 1,182,565 197,908 30,716
Payable for capital stock redeemed..... 2,846 0 235,406
Payable to Advisor..................... 26,472 0 16,344
Accrued expenses....................... 0 0 3,607
Other liabilities...................... 0 0 40,628
----------- ---------- -----------
Total liabilities..................... 1,211,883 197,908 326,701
----------- ---------- -----------
NET ASSETS:
Applicable to 3,278,139, 352,736, and
2,030,161 shares outstanding,
respectively.......................... $40,692,264 $3,938,393 $11,866,062
=========== ========== ===========
NET ASSETS CONSIST OF:
Capital paid-in........................ $36,815,583 $3,668,020 $13,663,592
Accumulated undistributed net
investment income (loss).............. (36,204) 5,153 (85,949)
Accumulated undistributed net realized
gain (loss) on investments and foreign
currency related transactions......... 276,084 65,220 (655,701)
Net unrealized appreciation
(depreciation) on investments and
foreign currency related transactions. 3,636,801 200,000 (1,055,880)
----------- ---------- -----------
$40,692,264 $3,938,393 $11,866,062
=========== ========== ===========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE............................. $ 12.41 $ 11.17 $ 5.84
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS For the Six Months Ended February 28, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN
PACIFIC CONVERTIBLE MATTHEWS
TIGER SECURITIES KOREA
FUND FUND FUND
---------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................. $ 161,709 $ 18,860 $ 3,864
Interest............................... 51,389 42,196 8,068
---------- -------- -----------
Total investment income............... 213,098 61,056 11,932
---------- -------- -----------
EXPENSES:
Investment advisory fees (Note 2)...... 138,643 17,806 22,801
Transfer agent fees.................... 15,627 3,209 3,616
Administration fees.................... 10,655 9,898 12,147
Accounting fees........................ 21,663 5,395 4,926
Auditing fees.......................... 4,060 0 0
Custodian fees......................... 41,021 4,503 11,887
Directors fees (Note 2)................ 2,500 2,500 2,500
Legal fees............................. 2,110 0 0
Insurance expense...................... 1,148 155 174
Amortization of organization costs
(Note 1-E)............................ 3,339 3,339 1,549
Printing expense....................... 3,743 456 340
Registration expenses.................. 16,758 6,793 8,874
Other expenses......................... 2,154 360 361
---------- -------- -----------
Total expenses........................ 263,421 54,414 69,175
Expenses reimbursed and waived (Note
2).................................... 0 (20,582) (12,174)
---------- -------- -----------
Net expenses.......................... 263,421 33,832 57,001
---------- -------- -----------
NET INVESTMENT INCOME (LOSS)........... (50,323) 27,224 (45,069)
---------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain (loss) on
investments........................... 206,096 56,301 (457,596)
Net realized loss on foreign currency
related transactions.................. (5,545) (140) (13,527)
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions. 3,448,304 209,657 (517,025)
---------- -------- -----------
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions.................. 3,648,855 265,818 (988,148)
---------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS....................... $3,598,532 $293,042 $(1,033,217)
========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS PACIFIC MATTHEWS ASIAN CONVERTIBLE MATTHEWS KOREA
TIGER FUND SECURITIES FUND FUND
------------------------- ----------------------------- ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
FEBRUARY 28, ENDED FEBRUARY 28, ENDED FEBRUARY 28, ENDED
1997 AUGUST 31, 1997 AUGUST 31, 1997 AUGUST 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
------------ ----------- -------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................. $ (50,323) $ 25,665 $ 27,224 $ 58,981 $ (45,069) $ (20,150)
Net realized gain (loss)
on investments and
foreign currency
related transactions... 200,551 81,306 56,161 81,497 (471,123) (206,210)
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... 3,448,304 179,432 209,657 (11,326) (517,025) (512,998)
----------- ----------- ------------- ------------- ----------- ----------
Increase (Decrease) in
net assets from
operations............. 3,598,532 286,403 293,042 129,152 (1,033,217) (739,358)
----------- ----------- ------------- ------------- ----------- ----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDER FROM:
Net investment income... 0 0 (26,719) (55,874) 0 0
Realized gains on
investments............ 0 0 (68,061) (10,864) 0 (7,128)
----------- ----------- ------------- ------------- ----------- ----------
0 0 (94,780) (66,738) 0 (7,128)
----------- ----------- ------------- ------------- ----------- ----------
CAPITAL SHARE
TRANSACTIONS (NET)--
(NOTE 1-I)............. 19,945,675 15,779,289 467,771 2,347,269 10,177,949 2,963,715
----------- ----------- ------------- ------------- ----------- ----------
Total increase in net
assets................. 23,544,207 16,065,692 666,033 2,409,683 9,144,732 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........... $40,692,264 $17,148,057 $ 3,938,393 $ 3,272,360 $11,866,062 $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
MATTHEWS PACIFIC TIGER FUND CONVERTIBLE SECURITIES FUND
------------------------------------ -----------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR PERIOD ENDED YEAR PERIOD
FEBRUARY 28, ENDED ENDED FEBRUARY 28, ENDED ENDED
1997 AUGUST 31, AUGUST 31, 1997 AUGUST 31, AUGUST 31,
(UNAUDITED) 1996 1995 * (UNAUDITED) 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
(loss)................. (0.02) 0.01 0.02 0.08 0.25 0.23
Net realized and
unrealized gain (loss)
on investments and
foreign currency....... 1.62 1.03 (0.23) 0.84 0.75 (0.14)
------- ------- ------ ------- ------- ------
Total from investment
operations............ 1.60 1.04 (0.21) 0.92 1.00 0.09
------- ------- ------ ------- ------- ------
LESS DISTRIBUTIONS FROM:
Net investment income... 0.00 0.00 (0.02) (0.08) (0.26) (0.21)
Net realized gains on
investments............ 0.00 0.00 0.00 (0.20) (0.09) 0.00
------- ------- ------ ------- ------- ------
Total distributions.... 0.00 0.00 (0.02) (0.28) (0.35) (0.21)
------- ------- ------ ------- ------- ------
Net Asset Value, end of
period................. $ 12.41 $ 10.81 $ 9.77 $ 11.17 $ 10.53 $ 9.88
======= ======= ====== ======= ======= ======
TOTAL RETURN............ 29.85%+ 10.64% (2.07%) 17.63%+ 10.24% 0.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $40,692 $17,148 $1,082 $ 3,938 $ 3,272 $ 863
Ratio of expenses to
average net assets
before reimbursement
and waiver of expenses
by Advisor and
Administrator.......... 1.90%+ 4.35% 25.95%+ 3.05%+ 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.......... (0.36%)+ (2.13%) (23.41%)+ 0.37%+ (4.13%) (18.68%)+
Ratio of net investment
income (loss) to
average net assets
after reimbursement and
waiver of expenses by
Advisor and
Administrator.......... (0.36%)+ 0.32% 0.36%+ 1.52%+ 2.75% 2.17%+
Portfolio turnover...... 35.63% 124.69% 92.53% 22.43% 88.16% 121.63%
Average commission rate
paid................... $0.0070 $0.0064 N/A $0.0042 $0.0020 N/A
</TABLE>
+Annualized
*The Funds commenced operations on September 13, 1994.
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 KOREA FUND
-------------------------------------
SIX MONTHS
ENDED YEAR PERIOD
FEBRUARY 28, ENDED ENDED
1997 AUGUST 31, AUGUST 31,
(UNAUDITED) 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)............. 0.03 (0.07) 0.08**
Net realized and unrealized gain (loss)
on investments and foreign currency..... (1.42) (1.75) (0.95)**
--------- ------- ------
Total from investment operations........ (1.39) (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........... $ 5.84 $ 7.23 $ 9.13
========= ======= ======
TOTAL RETURN............................. (38.77%)+ (20.11%) (8.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)..... $ 11,866 $ 2,721 $ 504
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator... 3.03%+ 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 income (loss) to
average net assets before reimbursement
and waiver of expenses by Advisor and
Administrator........................... (2.51%)+ (10.44%) (41.79%)+
Ratio of net investment income (loss) to
average net assets after reimbursement
and waiver of expenses by Advisor and
Administrator........................... (1.98%)+ (1.31%) 0.84%+
Portfolio turnover....................... 66.89% 139.71% 42.16%
Average commission rate paid............. $ 0.0856 $0.1397 N/A
</TABLE>
+Annualized
*The Fund commenced operations on January 3, 1995.
**Calculated using the average shares method.
See accompanying notes to financial statements.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS February 28,
1997 (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 Matthews Pacific Tiger Fund and Matthews Korea Fund seek to
maximize capital appreciation by investing, under normal circumstances, at
least 65% of their total assets in equity securities of Pacific Tiger
economies and South Korean companies, respectively. Pacific Tiger economies
include Hong Kong, Singapore, South Korea, Taiwan, Indonesia, Malaysia, the
Philippines, Thailand and China. The Matthews Asian Convertible Securities
Fund seeks capital appreciation and current income by investing, under normal
circumstances, at least 65% of its total assets in convertible securities of
Asian economies. Asian economies include Hong Kong, Japan, Singapore, South
Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, China and
India. The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their financial
statements.
A. SECURITY VALUATION: Securities listed on any national securities
exchange are valued at their last sale price on the exchange where the
securities are principally traded or, if there has been no sale on that
date, at the mean between the last reported bid and asked prices.
Securities traded over-the-counter are priced at the mean of the last bid
and asked prices. Securities are valued through valuations obtained from a
commercial pricing service or at the most recent mean of the bid and asked
prices provided by investment dealers in accordance with procedures
established by the Board of Trustees.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars at the current exchange
rate. Translation gains or losses resulting from changes in the exchange
rate during the reporting period and realized gains and losses on the
settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
gains and losses on investments in equity securities which is due to
changes in the foreign exchange rate from that which is due to changes in
market prices of equity securities. International dollar bonds are issued
offshore, pay interest and principal in U.S. dollars, and are denominated
in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at
the respective current prevailing exchange rates. The securities' values
are translated into U.S. dollars using these rates. If subsequent to the
time a rate has been established and it has been determined to have
materially changed, the fair value of those securities, (considering the
changing conditions) will be determined by (or under the direction of) the
Funds' Board of Trustees.
B. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in
the securities of foreign issuers may involve investment risks different
from those of U.S. issuers including possible political or economic
instability of the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of currency exchange
controls, the possible imposition of foreign withholding tax on the
interest income payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign
deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the foreign securities held by the
Funds. Foreign securities may also be subject to greater fluctuations in
price than securities of domestic corporations or the U. S. Government.
C. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Funds have met the requirements of
the Code applicable to regulated investment companies for the six months
ended February 28, 1997. Therefore, no Federal income tax provision is
required.
D. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
E. ORGANIZATION COSTS: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective
commencement of operations. In the event that any of the initial shares are
redeemed during the period of amortization of the Funds organization costs,
the redemption proceeds will be reduced by any such unamortized
organization costs in the same proportion as the number of initial shares
being redeemed bears to the number of those shares outstanding at the time
of redemption.
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS February 28,
1997 (unaudited)
- -------------------------------------------------------------------------------
F. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian
Convertible Securities Fund to distribute net investment income on a semi-
annual basis and capital gains annually. Matthews Pacific Tiger Fund and
Matthews Korea Fund distribute net investment income and capital gains
annually. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
G. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
H. OTHER: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date.
I. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an
unlimited number of shares of beneficial interest with a par value of
$0.001 per share. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS ASIAN CONVERTIBLE
PACIFIC TIGER FUND SECURITIES FUND
------------------ -----------------
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, 1997 YEAR ENDED FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31,1996 (UNAUDITED) AUGUST 31,1996
---------------------- ---------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 2,233,840 $26,424,804 1,657,416 $17,743,189 94,023 $1,036,364 259,782 $2,726,198
Shares issued through
reinvestment of
dividends.............. 0 0 0 0 6,536 72,160 5,283 54,160
Shares redeemed......... (542,330) (6,479,129) (181,523) (1,963,900) (58,733) (640,753) (41,474) (433,089)
--------- ----------- --------- ----------- ------- ---------- ------- ----------
Net Increase............ 1,691,510 $19,945,675 1,475,893 $15,779,289 41,826 $ 467,771 223,591 $2,347,269
========= =========== ========= =========== ======= ========== ======= ==========
<CAPTION>
MATTHEWS KOREA FUND
-------------------
SIX MONTHS ENDED
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31,1996
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold............. 2,275,296 $14,200,529 452,855 $ 3,926,319
Shares issued through
reinvestment of
dividends.............. 0 0 801 6,952
Shares redeemed......... (621,292) (4,022,580) (132,685) (969,556)
--------- ----------- --------- -----------
Net Increase............ 1,654,004 $10,177,949 320,971 $ 2,963,715
========= =========== ========= ===========
</TABLE>
<PAGE>
MATTHEWS INTERNATIONAL FUNDS -- NOTES TO FINANCIAL STATEMENTS February 28,
1997 (unaudited)
- -------------------------------------------------------------------------------
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Matthews International Capital Management (the "Advisor"), a registered
investment advisor, provides the Funds with investment management services. As
compensation for these services, the Advisor charges the Funds a monthly fee
of 1/12 of 1% on each Fund's respective average daily net assets. In
accordance with Blue Sky limitations, the Advisor has agreed to waive its fees
and voluntarily reimburse each Fund to the extent total annualized expenses
exceed permissible limits applicable to each Fund in any state in which its
shares are then qualified for sale. Certain officers and trustees of the Funds
are also officers and directors of the Advisor. All officers serve without
direct compensation from the Funds. Investment advisory fees and other
transactions with affiliates, for the six months ended February 28, 1997, are
as follows:
<TABLE>
<CAPTION>
EXPENSES
INVESTMENT PERMISSIBLE WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED DUE FROM DAEWOO
FEE RATE LIMITATION FEES BY ADVISOR ADVISOR SECURITIES
---------- ----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Matthews Pacific Tiger
Fund................... 1.00% 1.90% $138,643 $ 0 $ 0 --
Matthews Asian
Convertible Securities
Fund................... 1.00 1.90 17,806 20,582 1,445 --
Matthews Korea Fund..... 1.00 2.50 22,801 12,174 0 $36,238+
</TABLE>
+Daewoo Securities is the affiliated broker for the Fund. This amount is the
affiliated brokerage commissions paid.
The investment advisory agreements provide that any reductions made by the
Advisor in its fees are subject to reimbursement by the Funds within the
following three years provided that Funds are able to effect such
reimbursement and remain in compliance with applicable expense limitations.
3. INVESTMENT TRANSACTIONS
Investment transactions for the six months ended February 28, 1997, excluding
temporary short-term investments, are as follows:
<TABLE>
<CAPTION>
PURCHASES PROCEEDS FROM SALES
----------- -------------------
<S> <C> <C>
Matthews Pacific Tiger Fund..................... $29,442,796 $9,512,438
Matthews Asian Convertible Securities Fund...... 1,060,075 763,201
Matthews Korea Fund............................. 13,123,496 3,080,989
</TABLE>
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
4. CAPITAL LOSS CARRYOVER
At August 31, 1996, the Matthews Korea Fund had a capital loss carryover of
$198,919 expiring in 2004 to offset possible future capital gains of the Fund.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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
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
King of Prussia, PA 19406
(800) 892-0382
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
(800) 892-0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Shartsis, Friese & Ginsburg
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
AUDITORS
Ernst & Young LLP
555 California Street, Suite 1700
San Francisco, CA 94104
FOR ADDITIONAL INFORMATION ABOUT THE MATTHEWS INTERNATIONAL FUNDS CALL:
(800) 789-ASIA
This report is submitted for general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in the
Funds unless preceded or accompanied by an effective Prospectus which includes
details regarding the Funds' objectives, policies, expenses and other
information.
- -------------------------------------------------------------------------------
SEMI-ANNUAL
REPORT
FEBRUARY 28, 1997
(ART)
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN CONVERTIBLE SECURITIES FUND
MATTHEWS KOREA FUND
- -------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS
- -------------------------------------------------------------------------------
