<PAGE>
- --------------------------------------------------------------------------------
A MESSAGE TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Fellow Shareholders,
It is a pleasure to be able to report that in the six months ended February 28,
1999, Asian financial markets enjoyed a healthy recovery from the low levels of
last summer. During this period, the Matthews Pacific Tiger Fund gained 57.0%,
the Matthews Asian Growth and Income Fund gained 10.4%, the Matthews Dragon
Century China Fund gained 18.1%, and the Matthews Korea Fund gained 83.7%. In
the same time period, the Morgan Stanley Capital International Far East Asia
ex-Japan index, gained 45.4%, the KOSPI (the Korean Index) gained 85.1% and the
Credit Lyonnais China World Index gained 29.0%. While some commentators remain
skeptical that Asia's economic recovery is for real, we believe there is
sufficient evidence to suggest that a sustainable rebound is underway. Given the
traumatic conditions faced by many of Asia's Tigers in the last two years,
however, the recovery is unlikely to be seamless. Markets will undoubtedly face
periods of volatility in the coming months and years, but we firmly believe that
the recent rallies portend a more favorable environment for long term investors
in Asia's still potentially high growth economies.
The impetus for the recent rallies in Asia's financial markets has been a
combination of improving confidence and easier monetary policies. This
combination has been possible as a result of the generally successful transition
by many of Asia's newly industrialized countries from mostly fixed exchange
rates to mostly floating exchange rates. This transition, which took place over
a period from July 1997 to March 1998, was initially accompanied by very high
local interest rates, which, in turn, led to very weak consumer demand in many
Asian countries. However, now that the new exchange rate regimes have had some
time to stabilize, Asian interest rates have fallen sharply. We consider this
transition to floating exchange rates to have been the key to allowing Asia's
imbalances in trade and capital flows to have been so dramatically reversed.
At the same time many Asian governments, in particular those in Korea and
Thailand, have taken dramatic steps to restructure their banking and financial
systems. This process is ongoing and has improved investor confidence in these
countries. Much remains to be done, but if the current momentum is maintained,
Asia's financial markets and regulatory systems will have been significantly
strengthened. The crisis has opened the way for many multi-national companies to
acquire either assets or whole businesses in Asia, and this infusion of both
financial and human capital is in our opinion a critical element in Asia's
restructuring.
We are pleased to welcome two new members to our investment team, James Bogin
and Andrew Foster. James Bogin will be co-managing our most recent fund, the
Matthews Japan Fund which will provide investors with a way to participate in
Asia's largest economy. While Japan's decade long struggle to pull out of its
recession has been well documented, we believe that many Japanese companies have
succeeded in spite of the environment, and that many attractive investment
opportunities exist in Japan. James Bogin started his investment career in
Japan, is fluent in Japanese and believes the current environment is attractive
for stock pickers. Andrew Foster is an analyst with particular experience in the
Asian banking industry. We are also pleased to announce that Richard Gao, who
has been our primary analyst covering Mainland China, has been appointed
Assistant Portfolio Manager of the Matthews Dragon Century China Fund.
Thank you for your support.
Sincerely,
[PHOTO APPEARS HERE] [PHOTO APPEARS HERE]
/s/ G. Paul Matthews /s/ Mark W. Headley
G. Paul Matthews - President Mark W. Headley - Managing Director,
Chief Investment Officer Portfolio Manager
1
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
[PHOTO OF G. PAUL MATTHEWS APPEARS HERE]
[PHOTO OF MARK W. HEADLEY APPEARS HERE]
MATTHEWS PACIFIC TIGER FUND
The Matthews Pacific Tiger Fund continues to focus on attractive companies
throughout the Asia ex-Japan region. The Fund continues to maintain a bottom-up
(company oriented) approach to investing versus the top-down (country oriented)
style. We continue to emphasize the importance of understanding the country
specific economic, social and political dynamics. However, rather than thinking
in terms of "Tiger countries" we think in terms of "Tiger companies", the
companies that are driving Asian economies through inventive, professional
management. Our regular meetings with top executives throughout Asia provide
crucial insight into company and industry dynamics. The Fund has remained fully
invested, and well diversified by industry, country and market capitalization.
It has out-performed both its relevant indices and the majority of our peer
group through both the last half year and from its inception on Sept. 12, 1994.
Since inception through Feb. 28, 1999, the Fund is down 34.8% while the MSCI Far
East Ex-Japan Index is down 45.5%. For the six months ended Feb. 28, 1999, the
Fund has returned +57.0% while the MSCI Far East Ex-Japan Index returned +43.4%
for the same period.
Although we believe we have seen the worst of the Asian financial crisis, the
impact on corporate Asia has been profound. Mergers and acquisitions have
increased dramatically. Many companies have successfully reduced debt levels,
while others continue to struggle under heavy burdens of bank borrowings.
Glimpses of recovery in the real economies can be seen in a number of countries.
In Korea, for example, we find a potent combination of corporate restructuring,
improved market regulation and economic revival. We also continue to be
enthusiastic about the long-term reform process occurring in China. Improvements
in corporate governance and financial regulation can be seen throughout the
region. We believe the trend towards greater transparency and improving market
mechanisms should prove beneficial to our investment philosophy as long term
investors.
[PHOTO OF G. PAUL MATTHEWS APPEARS HERE]
MATTHEWS ASIAN GROWTH and INCOME FUND
The Matthews Asian Growth and Income Fund invests in a portfolio of Asian
convertible bonds and equities. Historically, convertible bonds have been less
volatile than individual equities. The fund seeks bonds that offer both income
and capital gains opportunities and equities with an above average yield. The
fund seeks to achieve both capital gains and an income component that is higher
than the average Asia ex-Japan equity fund. It should be noted that a
significant portion of the "income" component of convertible bonds issued by
Asian companies is in the form of capital gains paid out at the maturity of the
bond and may not generate significant "current" income for the fund. One of the
attractions of convertible bonds relative to equities is that, historically,
they have been less volatile, falling less in down markets but rising less in up
markets. We consider this lower volatility to be a key attraction for investors.
During the six month period ended February 28, 1999, the fund gained 10.4%,
which is significantly less than the return of the broad equity market (The
Morgan Stanley Capital International Far East ex-Japan Index gained 45.4%).
While we would not expect to match the upside performance of pure equities
during such sharp rallies, we are somewhat disappointed with the recent
performance. On a longer time frame, the fund has significantly outperformed the
equity markets. The fund has recently been adding to its positions in equities,
which now account for 15% of the portfolio.
2
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
[PHOTO OF G. PAUL MATTHEWS APPEARS HERE]
[PHOTO OF MARK W. HEADLEY APPEARS HERE]
MATTHEWS KOREA FUND
The six months ended February 28, 1999 saw the Korean equity market (KOSPI
Index) gain 85.1% in US dollar terms. This dramatic recovery followed a
sustained decline that took the Korean market to ten-year lows in the summer of
1998. This recovery has so far been driven by a combination of improving
confidence in the currency and growing recognition that Korea's new Government,
led by President Kim Dae Jung, is engineering an almost complete overhaul of
Korea's business practices and financial infrastructure.
Most importantly, Korea's new leadership has fully embraced the principles of
the free market and opened the Korean market fully to foreign investors. While
many of the practices that are being challenged are deeply embedded in Korean
society, including the dominance of family controlled industrial groups known as
the Chaebol, "lifetime employment", inter-company lending, and the strict
involvement of Government in business decisions, all are now considered to be
part of the old Korea. For as long as this direction is sustained, Korea's
future will be extremely bright.
[PHOTO OF G. PAUL MATTHEWS APPEARS HERE]
[PHOTO OF MARK W. HEADLEY APPEARS HERE]
[PHOTO OF RICHARD GAO APPEARS HERE]
MATTHEWS DRAGON CENTURY CHINA FUND
The Matthews Dragon Century China Fund invests in Chinese companies that are
listed both in China and Hong Kong. Companies listed in China are B shares that
are available for foreign investors, while companies listed in Hong Kong include
H shares and Red Chips. H shares are mainly state-owned firms with all business
done in China, while Red Chips are Chinese conglomerates that diversify their
investments around China and Hong Kong. We apply a bottom-up approach to find
companies that are leaders in their respective industries and also seek
companies that have niche positions within their industry. Frequent company
visits play a vital part in our investment process, and provide us with the
opportunity to speak directly with management.
Chinese stocks have been weak in the past six months ended February 28, 1999,
mainly due to concerns of a currency devaluation and a financial crisis.
However, we think the concerns are overdone. China is making every effort to
clean up its bad debt and recapitalize its banks. Meanwhile, its huge foreign
exchange reserves and trade surplus continue to support the currency. The
country is heading towards a privatized market economy. During our many trips to
China, we have seen widespread reforms and changes in every corner of the
economy: the banking sector, the state-owned enterprises, the housing sector and
the telecommunications sector, etc. Our portfolio is well-diversified into
various industries. We believe the companies in the portfolio expect to be among
the long term winners as China moves towards a free market economy.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS' COMMENTS
- --------------------------------------------------------------------------------
[PHOTO OF JAMES BOGIN APPEARS HERE]
[PHOTO OF MARK W. HEADLEY APPEARS HERE]
MATTHEWS JAPAN FUND
The Matthews Japan Fund was launched on December 31, 1998 and offers long-term
equity investors direct exposure to Japan's large and diverse economy. The
Japanese economy is the world's 2nd largest and its stock market is the world's
3rd largest. In recent years, recession, inflation, deflation and poor stock
market performance have caused many investors to write off the Japanese market
entirely. The result is that there are now many growing companies available for
purchase at attractive multiples of earnings, cash flow and book value. The
Japan Fund follows the same bottom-up, growth-at-a-reasonable price investment
methodology as the other portfolios in the series.
We believe that real change is now occurring in Japan at both a governmental and
corporate level. The government has instituted a major tax cut. Large companies
such as Sony have instituted U.S. style restructuring plans. The Fund has begun
its existence with a strong bias towards smaller capitalization stocks due to
their superior growth prospects and attractive valuations. However, it is
flexible as to the size of companies it owns. The Fund is fully invested.
4
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED)
- --------------------------------------------------------------------------------
Market Sector Diversification
As a Percentage of Total Value of Investment in Securities as of
February 28, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth & Matthews Century Matthews
Tiger Income Korea China Japan
Fund Fund Fund Fund Fund
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
EQUITIES
Automotive 1.74% 0.00% 3.78% 7.89% 0.00%
Banking and Finance 8.53 0.00 18.56 0.00 0.00
Beverage 0.00 0.00 0.00 0.00 7.32
Brokers 0.00 0.00 0.00 0.00 6.83
Commercial & Industrial 0.00 0.00 3.11 0.00 0.00
Communications 0.00 0.00 1.90 0.00 0.00
Computer Software &
Employer Training 0.00 0.00 0.00 0.00 7.39
Computer, Software & Games 0.00 0.00 0.00 0.00 4.99
Conglomerate 4.85 1.08 0.00 13.63 0.00
Consumer 6.41 2.18 3.97 15.94 0.00
Consumer Electronics 0.00 0.00 0.00 0.00 8.11
Department Store 0.00 0.00 0.00 0.00 3.22
Electronics 12.02 0.47 18.09 0.00 0.00
Food & Beverages 4.90 0.00 5.57 0.00 0.00
Health Care 2.26 0.00 0.00 5.41 0.00
Household 0.00 0.00 1.71 0.00 0.00
Household Goods 0.00 0.00 0.00 0.00 3.41
Indices 0.00 0.00 0.00 0.00 4.76
Industrial 0.27 0.53 0.00 0.00 0.00
Infrastructure 0.00 0.00 0.00 7.09 0.00
Insurance 8.44 0.00 11.31 0.00 0.00
Machinery 0.00 0.00 0.00 0.00 4.88
Machinery & Equipment 2.03 0.00 0.00 0.00 0.00
Manufacturing 0.98 0.00 0.00 0.00 0.00
Media 4.77 1.99 0.00 0.00 0.00
Paper Products 0.00 0.00 0.94 0.00 0.00
Petro-Chemical 0.00 1.73 16.01 0.00 0.00
Pharmaceutical 1.26 0.00 3.17 8.57 3.35
Property 0.00 4.46 0.00 3.32 0.00
Real Estate Rental 0.00 0.00 0.00 0.00 4.35
Retail 4.85 0.00 0.00 0.00 0.00
Security Service 1.56 0.00 1.63 0.00 0.00
Shipping & Steel 0.00 0.00 0.09 0.00 0.00
Software 0.00 0.00 0.00 0.00 13.50
Supermarket 0.00 0.00 0.00 0.00 5.64
Technology 8.58 1.86 0.00 7.62 4.50
Telecommunications 8.08 0.00 2.65 10.63 10.17
Trading 3.86 0.00 0.00 0.00 0.00
Transportation 2.49 0.00 0.00 1.18 0.00
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED)
- --------------------------------------------------------------------------------
Market Sector Diversification
As a Percentage of Total Value of Investment in Securities as of
February 28, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth & Matthews Century Matthews
Tiger Income Korea China Japan
Fund Fund Fund Fund Fund
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
EQUITIES (continued)
Utility 11.84 1.89 6.66 18.72 0.00
Watches & Machine Tools 0.00 0.00 0.00 0.00 4.90
Water Heaters, Kitchen
& Equipment 0.00 0.00 0.00 0.00 2.68
---------- ----------- ----------- ------------ -----------
Total Equities 99.72 16.19 99.15 100.00 100.00
BONDS
Automotive 0.28 4.16 0.00 0.00 0.00
Banking & Finance 0.00 4.76 0.00 0.00 0.00
Conglomerate 0.00 8.81 0.00 0.00 0.00
Consumer 0.00 0.11 0.00 0.00 0.00
Electrical Appliance 0.00 1.49 0.00 0.00 0.00
Electronics 0.00 18.14 0.41 0.00 0.00
Government Bond 0.00 3.70 0.44 0.00 0.00
Hotels 0.00 7.69 0.00 0.00 0.00
Industrial 0.00 8.10 0.00 0.00 0.00
Infrastructure 0.00 6.77 0.00 0.00 0.00
Petro-Chemical 0.00 4.75 0.00 0.00 0.00
Property 0.00 5.46 0.00 0.00 0.00
Telecommunications 0.00 3.31 0.00 0.00 0.00
Transportation 0.00 3.51 0.00 0.00 0.00
Utility 0.00 3.05 0.00 0.00 0.00
---------- ----------- ----------- ------------ -----------
Total Bonds 0.28 83.81 0.85 0.00 0.00
---------- ----------- ----------- ------------ -----------
TOTAL INVESTMENTS 100.00% 100.00% 100.00% 100.00% 100.00%
========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUNDS SCHEDULE OF INVESTMENTS FEBRUARY 28,1999(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
-------- ----------
<S> <C>
Equities - 98.86%****
South Korea - 1.09%
Hite Brewery Co., Ltd............................ 33,100 $ 484,258
------------
Hong Kong - 42.02%
Asia Satellite Telecommunications
Holdings, Ltd. ADR............................ 57,600 957,600
ASM Pacific Technology, Ltd...................... 1,860,000 1,008,292
Axa China Region, Ltd............................ 1,742,000 1,236,617
Beijing Datang Power Generation Co., Ltd......... 1,654,000 362,918
Cafe De Coral Holdings, Ltd...................... 2,292,000 687,799
Cathay Pacific Airways........................... 655,000 731,277
China Hong Kong Photo Products
Holdings, Ltd................................ 7,300,000 546,481
China Telecom (Hong Kong), Ltd................... 581,800 1,032,525
Dickson Concepts International, Ltd.**........... 1,000,500 761,892
First Tractor Co., Ltd........................... 2,508,000 456,427
Giordano International, Ltd...................... 5,633,000 1,366,853
Guangdong Electric Power
Development Co., Ltd. B Shares................ 2,867,094 736,409
Guangdong Kelon Electrical
Holdings Co., Ltd............................. 1,584,000 1,063,121
Guangzhou Pharmaceutical Co., Ltd................ 6,608,000 554,380
Huaneng Power International, Inc. ADR**.......... 48,000 420,000
Hutchison Whampoa, Ltd........................... 145,200 1,007,324
Legend Holdings, Ltd............................. 3,136,000 1,224,407
Li & Fung, Ltd................................... 938,000 1,694,943
Peregrine Investments Holdings, Ltd.............. 1,097,000 0
Qingling Motors Co............................... 2,500,000 309,767
Shanghai Dazhong Taxi Co. B Shares **............ 1,048,000 362,608
Vitasoy International Holdings, Ltd.............. 5,224,500 1,668,954
Wuxi Little Swan Co., Ltd. B Shares.............. 1,112,380 430,724
------------
Total Hong Kong.................................. 18,621,318
------------
Indonesia - 0.63%
PT Hero Supermarket.............................. 2,521,000 278,130
PT Steady Safe Transportation Service**.......... 6 0
------------
Total Indonesia.................................. 278,130
------------
Malaysia - 3.00%
Public Bank Berhad............................... 3 2
Star Publications (Malaysia)..................... 616,000 736,768
Telekom Malaysia Berhad.......................... 307,000 592,591
------------
Total Malaysia................................... 1,329,361
------------
Philippines - 4.80%
Benpres Holdings Corp.**......................... 10,192,000 1,360,676
Philippine Long Distance Telephone Co............ 32,890 764,195
------------
Total Philippines................................ 2,124,871
------------
Singapore - 16.18%
Avimo Group, Ltd................................. 765,600 1,093,692
Dairy Farm International Holdings, Ltd........... 738,000 789,660
Electronic Resources, Ltd........................ 1,015,000 1,137,579
Keppel Corp., Ltd................................ 484,000 1,124,251
Oversea-Chinese Banking Corp., Ltd............... 130,400 870,830
Parkway Holdings, Ltd............................ 567,000 994,370
Venture Manufacturing (Singapore), Ltd........... 275,800 1,161,155
------------
Total Singapore.................................. 7,171,537
------------
South Korea - 23.00%
Comtec System Co., Ltd.**........................ 81,000 443,564
Dae Duck Electronics Co.**....................... 12,349 888,199
Hana Bank........................................ 192,674 1,795,246
Korea Electric Power Corp........................ 78,560 1,855,646
S1 Corp.**....................................... 4,443 686,332
Samsung Electronics Co........................... 29,626 2,087,258
Samsung Fire & Marine Insurance.................. 7,585 2,417,776
SK Telecom Co., Ltd.**........................... 36 18,272
------------
Total South Korea................................ 10,192,293
------------
Thailand - 8.14%
Advanced Info Service Public Co., Ltd.**......... 136,000 947,480
Bangkok Bank Public Co., Ltd.**.................. 640,900 1,081,905
Srithai Superware Public Co., Ltd................ 1,503,000 513,484
Thai Engine Manufacturing Public Co., Ltd........ 595,800 119,735
Thai Reinsurance Public Co., Ltd................. 30,000 54,662
Tipco Asphalt Public Co., Ltd.**................. 500,000 890,942
------------
Total Thailand................................... 3,608,208
------------
Total Equities
(Cost $47,062,146).............................. 43,809,976
------------
International Dollar Bonds - 0.27%............... Face Amount Value
Hong Kong - 0.27%
Qingling Motors Co.***
3.500%, 01/22/02................................ $ 500,000 117,500
------------
Total International Dollar Bonds
(Cost $169,075)................................. 117,500
------------
TOTAL INVESTMENTS - 99.13%
(Cost $47,231,221*)............................. 43,927,476
------------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.87%...................... 383,800
------------
NET ASSETS - 100%................................ $ 44,311,276
============
* Cost for Federal income tax purposes
is $47,231,221 and net unrealized
depreciation consists of:
Gross unrealized appreciation................. $ 6,606,747
Gross unrealized depreciation................. (9,910,492)
------------
Net unrealized depreciation................... $ (3,303,745)
============
</TABLE>
** Non-income producing security
*** 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 February 28,
1999, the value of these securities amounted to $117,500 or 0.27% of net
assets.
**** As a percentage of net assets as of February 28, 1999.
See accompanying notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH & INCOME FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Shares Value
---------- ----------
Equities - 15.46%****
Hong Kong - 12.29%
Amoy Properties, Ltd.*** ............................. 4,500 $ 252,000
ASM Pacific Technology, Ltd. ......................... 194,000 105,166
Cafe De Coral Holdings, Ltd. ......................... 310,000 93,027
China Hong Kong Photo Products
Holdings, Ltd. .................................... 3 0
Peregrine Investments Holdings, Ltd. ................. 64,000 0
Shandong Huaneng Power Co., Ltd. ADR ................. 30,000 106,875
South China Morning Post (Holdings), Ltd. ............ 262,000 112,439
Wharf (Holdings), Ltd. ............................... 50,000 57,759
----------
Total Hong Kong ...................................... 727,266
----------
Malaysia - 0.05%
Renong Berhad Warrants** ............................. 40,000 3,105
----------
South Korea - 1.65%
Ssangyong Oil Refining Co., Ltd. ..................... 6,800 97,818
----------
Taiwan - 0.96%
Ton Yi Industrial Corp.** ............................ 68,652 29,677
Winbond Electronics Corp.** .......................... 2,000 26,800
----------
Total Taiwan ......................................... 56,477
----------
Thailand - 0.51%
Srithai Superware Public Co., Ltd. ................... 88,000 30,064
----------
Total Equities
(Cost $1,200,352) ................................. 914,730
----------
International Dollar Bonds - 79.98% Face Amount Value
----------- ----------
Hong Kong - 35.92%
Shangri-La Asia Capital, Ltd.
2.875%, 12/16/00 .................................. $ 280,000 242,900
Hong Kong & Shanghai Hotels Overseas Finance, Ltd.
5.000%, 01/06/01 .................................. 150,000 141,750
Paul Y. - ITC Construction Holdings, Ltd.
5.000%, 02/03/01 .................................. 140,000 53,900
Hong Kong Land Co.
4.000%, 02/23/01 .................................. 150,000 138,750
New World Infrastructure, Ltd.
5.000%, 07/15/01 .................................. 250,000 206,875
Qingling Motors, Ltd.***
3.500%, 01/22/02 .................................. 1,000,000 235,000
First Pacific Capital, Ltd.
2.000%, 03/27/02 .................................. 250,000 225,625
Shanghai Industrial Investment
1.000%, 02/24/03 .................................. 200,000 146,500
Guangdong Investment, Ltd.***
3.250%, 04/07/03 .................................. 170,000 70,550
Zhenhai Refining & Chemical Co., Ltd.
3.000%, 12/19/03 .................................. 200,000 173,000
Bangkok Bank Public Co.
3.250%, 03/03/04 .................................. 625,000 268,750
Huaneng Power International Public Co., Ltd.
1.750%, 05/21/04 .................................. 200,000 172,500
Regal Hotels International Holdings, Ltd.
5.250%, 12/13/08 .................................. 95,000 49,875
----------
Total Hong Kong ...................................... 2,125,975
----------
Indonesia - 4.89%
Asia Pulp & Paper Global Finance V, Ltd.
2.000%, 07/25/00 .................................. 150,000 114,000
PT Indocement
2.000%, 02/27/06 .................................. 260,000 175,500
----------
Total Indonesia ...................................... 289,500
----------
Philippines - 6.23%
Metro Pacific Capital, Ltd.
2.500%, 04/11/03 .................................. 60,000 54,900
JG Summit (Cayman), Ltd.
3.500%, 12/23/03 .................................. 80,000 53,600
International Container Terminal Services, Inc.
1.750%, 03/13/04 .................................. 250,000 198,125
FDC Capital Cayman
2.500%, 05/15/06 .................................. 90,000 61,875
----------
Total Philippines .................................... 368,500
----------
Singapore - 3.16%
Fullerton Global Corp.
0.000%, 04/02/03 .................................. 200,000 187,000
----------
South Korea - 12.56% SK Corp.
3.000%, 12/31/01 .................................. 34,000 95,200
Republic of Korea
8.750%, 04/15/03 .................................. 200,000 208,740
Samsung Display Devices Co.
0.250%, 03/12/06 .................................. 200,000 202,000
Samsung Electronics Co.
0.250%, 12/31/06 .................................. 200,000 237,500
----------
Total South Korea .................................... 743,440
----------
Taiwan - 12.86%
Nan Ya Plastics Corp.
1.750%, 07/19/01 .................................. 80,000 91,400
Winbond Electronics Corp.
1.000%, 11/04/02 .................................. 200,000 200,500
Yageo Corp.
1.250%, 07/24/03 .................................. 80,000 92,000
Compal Electronics, Inc.***
1.000%, 11/21/03 .................................. 100,000 202,500
8
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH & INCOME FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Face Amount Value
----------- -----------
Walsin Lihwa Corp.
3.250%, 06/16/04 .............................. $ 120,000 $ 84,000
Acer Peripherals, Inc.
1.250%, 11/27/06 .............................. 80,000 90,400
-----------
Total Taiwan ..................................... 760,800
-----------
Thailand - 4.36%
Robinson Department Store Public Co., Ltd.
4.250%, 04/07/04 .............................. 50,000 6,250
Tipco Asphalt, Co.
2.750%, 09/19/06 .............................. 300,000 252,000
-----------
Total Thailand ................................... 258,250
-----------
Total International Dollar Bonds
(Cost $5,550,864) ............................. 4,733,465
-----------
TOTAL INVESTMENTS - 95.44%
(Cost $6,751,216*) ............................ 5,648,195
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 4.56% ...................... 269,668
-----------
NET ASSETS - 100% ................................ $ 5,917,863
===========
* Cost for Federal income tax purposes is $6,751,216 and net unrealized
depreciation consists of:
Gross unrealized appreciation ................. $ 154,171
Gross unrealized depreciation ................. (1,257,192)
-----------
Net unrealized depreciation ................... $(1,103,021)
===========
** Non-income producing security
*** 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 February 28,
1999, the value of these securities amounted to $760,050 or 12.84% of net
assets.
**** As a percentage of net assets as of February 28, 1999.
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Value
-------- ------------
Equities - South Korea - 97.92%***
Dacom Corp. .................................. 23,750 $ 1,160,809
Dae Duck Electronics Co.** ................... 31,055 2,233,588
Dae Duck Industries** ........................ 22,916 1,404,752
Daehan City Gas Co. .......................... 31,460 758,537
Dongwon Securities Co. ....................... 166,010 2,170,952
Global & Yuasa Battery Co. ................... 32,060 786,105
Han Kuk Carbon Co., Ltd.** ................... 48,734 1,601,239
Han Kuk Paper Manufacturing Co. .............. 90,180 1,112,969
Hana Bank .................................... 439,220 4,092,445
Hanjin Heavy Industries** .................... 24,896 101,739
Hankook Synthetics, Inc. ..................... 21,000 415,365
Hankook Tire Manufacturing Co.** ............. 573,607 2,358,187
Hanmi Pharmaceutical Industrial Co.** ........ 34,914 770,467
Hite Brewery Co., Ltd. ....................... 45,800 670,062
Honam Petrochemical Corp. .................... 140,700 1,690,469
Housing & Commercial Bank, Korea ............. 381,327 5,906,125
Hyundai Motor Co., Ltd. ...................... 97,756 1,350,287
Kolon Chemical Co. ........................... 66,020 1,489,294
Kookmin Bank ................................. 500,333 3,394,167
Korea Electric Power Corp. ................... 308,280 7,281,805
Korea Electric Terminal Co. .................. 24,000 1,088,680
Korea Fine Chemical Co. ...................... 46,520 1,163,475
Korea Telecom Corp.** ........................ 67,700 1,991,989
LG Cable & Machinery ......................... 467,220 3,704,154
LG Chemical, Ltd. ............................ 311,540 3,386,580
LG Electronics, Inc. ......................... 131,984 1,332,245
LG Information & Communication, Ltd. ......... 77,811 2,264,055
LG Insurance Co., Ltd. ....................... 56,874 1,882,629
Lotte Chilsung Beverage Co. .................. 42,070 1,547,323
Lotte Confectionery Co. ...................... 28,810 2,072,153
Medison Co., Ltd. ............................ 190,936 1,794,657
Nong Shim Co., Ltd. .......................... 46,530 2,338,859
Oriental Fire & Marine Insurance ............. 203,640 2,313,523
Pacific Corp. ................................ 147,710 2,040,293
Pusan City Gas Co., Ltd. ..................... 83,800 2,006,816
S1 Corp.** ................................... 12,548 1,938,346
Saehan Precision Co.** ....................... 65,920 991,359
Samsung Display Devices Co. .................. 85,173 3,445,903
Samsung Electronics Co. ...................... 124,859 8,796,765
Samsung Fire & Marine Insurance .............. 29,066 9,265,007
Samsung Securities Co., Ltd. ................. 140,281 3,193,155
Seoul City Gas Co., Ltd. ..................... 31,260 646,406
Shinhan Bank ................................. 544,453 3,337,470
Shinhung Co. ................................. 45,270 703,008
Shinsegae Department Store Co. ............... 229,470 4,726,312
Sindo Ricoh Co. .............................. 70,440 2,245,328
SK Corp.** ................................... 269,680 3,240,127
SK Telecom Co., Ltd.** ....................... 14 7,311
Ssangyong Oil Refining Co., Ltd. ............. 156,300 2,248,369
Suheung Capsule** ............................ 35,050 502,760
Yukong, Ltd.** ............................... 369,000 1,060,875
------------
Total Equities
(Cost $78,416,111) ........................ 118,025,295
------------
International Dollar Bonds - 0.84% Face Amount Value
----------- ------------
South Korea - 0.84%
Republic of Korea
8.750%, 04/15/03 ....................... $ 500,000 521,850
Samsung Electronics Co.
0.250%, 12/31/06 ....................... 410,000 486,875
------------
Total South Korea ............................ 1,008,725
------------
Total International Dollar Bonds
(Cost $897,263) ........................... 1,008,725
------------
TOTAL INVESTMENTS - 98.76%
(Cost $79,313,374*) ....................... 119,034,020
------------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 1.24% .................. 1,500,097
------------
NET ASSETS - 100% ............................ $120,534,117
============
* Cost for Federal income tax purposes is $79,313,374 and net unrealized
appreciation consists of:
Gross unrealized appreciation ........... $ 40,835,927
Gross unrealized depreciation ........... (1,115,281)
------------
Net unrealized appreciation ............. $ 39,720,646
============
** Non-income producing security
*** As a percentage of net assets as of February 28, 1999.
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Shares Value
-------- -----------
Equities - Hong Kong - 96.93%***
Beijing Datang Power Generation Co., Ltd. ........ 436,000 $ 95,667
Beijing Enterprises Holdings, Ltd. ............... 40,000 46,723
Beijing North Star Co., Ltd. ..................... 212,000 24,627
Cheung Kong Infrastructure Holdings .............. 31,000 55,616
China Pharmaceutical Enterprise
and Investment Corp., Ltd. .................... 908,000 82,037
China Resources Enterprises, Ltd. ................ 38,000 49,782
China Telecom (Hong Kong), Ltd. .................. 70,000 124,230
China Vanke Co., Ltd. B Shares ................... 175,373 39,612
Citic Pacific, Ltd. .............................. 30,000 52,467
Eastern Communications Co., Ltd.
B Shares ...................................... 68,000 25,024
First Tractor Co., Ltd. .......................... 499,000 90,812
Founder Hong Kong, Ltd. .......................... 1 0
Guangdong Electric Power
Development Co., Ltd. B Shares ................ 376,896 96,805
Guangdong Kelon Electric
Holdings Co., Ltd. ............................ 142,000 95,305
Guangzhou Pharmaceutical Co., Ltd. ............... 1,000,000 83,895
Harbin Power Equipment Co., Ltd. ................. 786,000 35,000
Hengan International Group Co., Ltd.** ........... 298,000 104,811
Huaneng Power International, Inc. ADR** .......... 10,100 88,375
Legend Holdings, Ltd. ............................ 378,000 147,585
Nanjing Posts & Telecommunications
Equipment Co., Ltd. B Shares .................. 296,000 56,543
New World Infrastructure, Ltd.** ................. 74,000 81,662
Ng Fung Hong, Ltd. ............................... 144,000 108,728
Qingling Motors Co. .............................. 500,000 61,953
Shanghai Dazhong Taxi Co. B Shares ** ............ 66,000 22,836
Shanghai Industrial Holdings, Ltd. ............... 36,000 56,920
Tianjin Development Holdings, Ltd. ............... 106,000 58,146
Want Want Holdings, Ltd. ......................... 35,000 38,850
Wuxi Little Swan Co., Ltd. B Shares .............. 170,400 65,980
Zhejiang Southeast Electric Power Co., Ltd.
B Shares ..................................... 281,000 46,646
-----------
Total Equities
(Cost $3,055,105) ............................. 1,936,637
-----------
TOTAL INVESTMENTS - 96.93%
(Cost $3,055,105*) ............................ 1,936,637
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 3.07% ...................... 61,410
-----------
NET ASSETS - 100% ................................ $ 1,998,047
===========
* Cost for Federal income tax purposes is $3,055,105 and net unrealized
depreciation consists of:
Gross unrealized appreciation .............. $ 21,875
Gross unrealized depreciation .............. (1,140,343)
-----------
Net unrealized depreciation ................ $(1,118,468)
===========
** Non-income producing security
*** As a percentage of net assets as of February 28, 1999.
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Value
-------- ----------
Equities - Japan - 96.46%***
Aucnet, Inc. ..................................... 500 $ 13,780
Citizen Watch Co., Ltd. .......................... 2,000 13,535
Data Communication System Co., Ltd. .............. 400 11,125
Eisai Co., Ltd. ADR .............................. 500 9,250
Hikari Tsushin, Inc. ............................. 100 11,884
Hitachi, Ltd. ADR ................................ 200 12,437
Ito-Yokado Co., Ltd. ADR ......................... 150 8,888
Japan Airport Terminal Co., Ltd. ................. 2,000 12,035
Kokusai Securities Co., Ltd. ..................... 2,000 18,879
MIROKU JYOHO SERVICE Co., Ltd. ................... 2,000 18,542
Nippon System Development Co., Ltd. .............. 200 7,636
Nippon Telegraph & Telephone Corp. ADR ........... 400 16,225
Nitto Kohki Co., Ltd. ............................ 1,600 13,485
Noritz Corp. ..................................... 1,000 7,417
Q'sai Co., Ltd. .................................. 1,000 20,228
Ralse Co., Ltd. .................................. 1,000 15,592
Sony Corp. ADR ................................... 300 22,406
TENMA Corp. ...................................... 1,000 9,431
Webs-Japan Index Series .......................... 1,300 13,163
Wilson Learning Worldwide, Inc. .................. 800 20,430
----------
Total Equities
(Cost $253,488) ................................. 276,368
----------
TOTAL INVESTMENTS - 96.46%
(Cost $253,488*) ................................ 276,368
----------
CASH AND OTHER ASSETS,
LESS LIABILITIES - 3.54% ...................... 10,148
----------
NET ASSETS - 100% ................................ $ 286,516
==========
Schedule of Forward Foreign Exchange Contracts Expiration Unrealized
Forward Foreign Exchange Contracts to Deliver Date Appreciation
----------------- ------------
23,082,000**** Japanese Yen in exchange for USD
$200,000 04/30/99-11/30/99 $5,507
* Cost for Federal income tax purposes is $253,488 and net unrealized
appreciation consists of:
Gross unrealized appreciation .............. $ 26,785
Gross unrealized depreciation .............. (3,905)
----------
Net unrealized appreciation ................ $ 22,880
==========
** Non-income producing security
*** As a percentage of net assets as of February 28, 1999.
**** Principal amount denoted in Japanese Yen.
USD United States Dollars
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth & Matthews Century Matthews
Tiger Income Korea China Japan
Fund Fund Fund Fund Fund
------------ ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at value (Cost $47,231,221, $6,751,216
$79,313,374, $3,055,105, and $253,488, respectively)...... $ 43,927,476 $ 5,648,195 $119,034,020 $ 1,936,637 $ 276,368
Cash........................................................ 520,663 248,326 591,533 113,436 7,706
Foreign currency, at value (Cost $19,842,$5,076,$0,$494,$0). 19,842 5,076 0 494 0
Dividends and interest receivable........................... 3,359 68,962 17,628 216 177
Receivable for securities sold.............................. 0 0 0 0 23,272
Receivable for capital shares sold.......................... 429,953 13,090 1,264,381 575 0
Deferred organization costs (Note 1-E)...................... 3,618 3,618 2,968 12,280 13,669
Unrealized appreciation on forward foreign
exchange contracts......................................... 0 0 0 0 5,507
Other assets................................................ 6,621 417 118,784 2,666 0
------------ ----------- ------------ ----------- ---------
Total assets.............................................. 44,911,532 5,987,684 121,029,314 2,066,304 326,699
------------ ----------- ------------ ----------- ---------
Liabilities
Payable for securities purchased............................ 344,768 0 0 0 24,799
Payable for capital shares redeemed......................... 199,724 45,987 392,993 22,518 0
Due to Advisor (Note 2)..................................... 33,060 14,768 97,577 45,739 11,511
Accrued expenses............................................ 22,610 9,066 0 0 3,873
Accrued distribution expense................................ 94 0 4,627 0 0
------------ ----------- ------------ ----------- ---------
Total liabilities......................................... 600,256 69,821 495,197 68,257 40,183
------------ ----------- ------------ ----------- ---------
Net Assets................................................... $ 44,311,276 $ 5,917,863 $120,534,117 $ 1,998,047 $ 286,516
============ =========== ============ =========== =========
Class I Shares:
Net assets (Applicable to 6,910,180, 844,057, 30,357,265,
393,837 and 25,337 shares of beneficial interest issued and
outstanding, respectively, unlimited number of shares
authorized with a $0.001 par value)......................... $ 44,133,638 $ 5,917,863 $113,343,566 $ 1,998,047 $ 286,516
------------ ----------- ------------ ----------- ---------
Net asset value, offering price and redemption
price per Class I share.................................... $ 6.39 $ 7.01 $ 3.73 $ 5.07 $ 11.31
------------ ----------- ------------ ----------- ---------
Class A Shares*:
Net assets (Applicable to 27,819, 0, 1,938,293, 0 and
0 shares of beneficial interest issued and outstanding,
respectively, unlimited number of shares authorized
with a $0.001 par value).................................. $ 177,638 $ N/A $ 7,190,551 $ 0 $ N/A
============ =========== ============ =========== =========
Net asset value and redemption price per Class A share....... $ 6.39 N/A $ 3.71 N/A N/A
============ =========== ============ =========== =========
Offering price per Class A share (Net asset value/ 0.9505)... $ 6.72 N/A $ 3.90 N/A N/A
============ =========== ============ =========== =========
Net Assets Consist of:
Capital paid-in............................................. $ 66,270,084 $ 8,089,476 $ 88,511,570 $ 3,846,659 $ 253,500
Accumulated undistributed net investment loss............... (141,295) (27,046) (907,118) (8,532) (157)
Accumulated net realized gain (loss) on investments......... (18,514,723) (1,041,546) (6,790,981) (721,612) 4,784
Net unrealized appreciation (depreciation) on investments
and foreign currency related transactions................. (3,302,790) (1,103,021) 39,720,646 (1,118,468) 28,389
------------ ----------- ------------ ----------- ---------
$ 44,311,276 $ 5,917,863 $120,534,117 $ 1,998,047 $ 286,516
============ =========== ============ =========== =========
</TABLE>
* At February 28, 1999, the Matthews Asian Growth & Income, Matthews Japan and
Matthews Dragon Century China Funds did not offer Class A shares.
N/A - Not Applicable
See accompanying notes to financial statements
13
<PAGE>
STATEMENT OF OPERATIONS FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth & Matthews Century Matthews
Tiger Income Korea China Japan
Fund Fund Fund Fund Fund*
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividends (net of foreign tax withheld of
$3,984, $294, $8,309, $0, and $13, respectively) ...... $ 182,864 $ 15,670 $ 37,855 $ 9,901 $ 94
Interest ................................................. 28,197 123,623 35,225 1,855 426
----------- ---------- ----------- ---------- ----------
Total investment income ............................... 211,061 139,293 73,080 11,756 520
----------- ---------- ----------- ---------- ----------
Expenses:
Investment advisory fees (Note 2) ........................ 224,777 22,444 534,366 11,289 338
Recovery of reimbursed expenses (Note 2) ................. 11,350 0 0 0 0
Distribution expenses .................................... 155 0 7,639 0 0
Transfer agent fees ...................................... 33,704 5,542 84,559 3,598 0
Administration fees ...................................... 30,962 337 67,713 0 2,292
Accounting fees .......................................... 32,844 232 67,792 0 5,466
Professional fees ........................................ 18,130 2,202 42,245 390 104
Custodian fees ........................................... 52,696 5,588 121,839 2,858 972
Directors fees (Note 2) .................................. 2,552 759 5,016 634 17
Insurance expense ........................................ 3,402 450 2,338 26 0
Amortization of organization costs (Note 2) .............. 3,339 3,340 1,549 1,531 4,161
Printing expense ......................................... 6,200 721 13,470 234 57
Registration expenses .................................... 23,761 8,508 31,297 6,676 64
Other expenses ........................................... 779 32 1,924 39 9
----------- ---------- ----------- ---------- ----------
Total expenses ........................................ 444,651 50,155 981,747 27,275 13,480
----------- ---------- ----------- ---------- ----------
Expenses reimbursed and waived (Note 2) .................. (17,282) (7,511) (1,549) (4,696) (12,803)
----------- ---------- ----------- ---------- ----------
Net expenses .......................................... 427,369 42,644 980,198 22,579 677
----------- ---------- ----------- ---------- ----------
Net Investment Income (Loss) .............................. (216,308) 96,649 (907,118) (10,823) (157)
----------- ---------- ----------- ---------- ----------
Realized and Unrealized Loss on Investments and Foreign
Currency Related Transactions:
Net realized gain (loss) on investments .................. (7,679,573) (238,001) 7,370,517 (459,467) 4,784
Net realized loss on foreign currency related transactions (126,247) (60) (367,874) (46) 0
Net change in unrealized appreciation on investments
and foreign currency related transactions ............. 25,247,473 532,348 53,510,445 768,080 28,389
----------- ---------- ----------- ---------- ----------
Net realized and unrealized gain on investments
and foreign currency related transactions ............. 17,441,653 294,287 60,513,088 308,567 33,173
----------- ---------- ----------- ---------- ----------
Net Increase in Net Assets from Operations ................ $17,225,345 $ 390,936 $59,605,970 $ 297,744 $ 33,017
=========== ========== =========== ========== ==========
</TABLE>
* The Fund commenced operations on December 31, 1998.
See accompanying notes to financial statements.
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Pacific Tiger Fund
----------------------------
Six Months
Ended Year
February 28, Ended
1999 August 31,
(unaudited) 1998
------------ ------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................... $ (216,308) $ 137,926
Net realized loss on investments and foreign
currency related transactions ............................ (7,805,820) (10,655,927)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions ............................................. 25,247,473 (27,390,703)
------------- ------------
Net increase (decrease) in net assets from operations ...... 17,225,345 (37,908,704)
------------- ------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I .................................................. 0 (109,051)
Class A .................................................. 0 (508)
Realized gains on investments:
Class I .................................................. 0 (490,577)
Class A .................................................. 0 (2,286)
------------- ------------
Net decrease in net assets resulting from distributions .... 0 (602,422)
------------- ------------
Capital Share Transactions (net):
Class I .................................................. (4,370,826) 26,084,128
Class A .................................................. (7,722) 244,324
------------- ------------
Increase (decrease) in net assets derived from capital share
transactions ............................................. (4,378,548) 26,328,452
------------- ------------
Total increase (decrease) in net assets .................... 12,846,797 (12,182,674)
Net Assets:
Beginning of period ........................................ 31,464,479 43,647,153
------------- ------------
End of period (including undistributed net investment
income (loss) of ($141,295) and $75,013, respectively .... $ 44,311,276 $ 31,464,479
============= ============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Asian Growth &
Income Fund
-------------------------
Six Months
Ended Year
February 28, Ended
1999 August 31,
(unaudited) 1998
----------- -----------
<S> <C> <C>
Operations:
Net investment income ................................. $ 96,649 $ 72,168
Net realized loss on investments and foreign
currency related transactions ....................... (238,061) (548,730)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions ........................................ 532,348 (1,847,576)
------------ -----------
Net increase (decrease) in net assets from operations . 390,936 (2,324,138)
------------ -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I ............................................. (137,861) (56,200)
Class A ............................................. N/A N/A
Realized gains on investments:
Class I ............................................. 0 (560,367)
Class A ............................................. N/A N/A
------------ -----------
Net decrease in net assets resulting from distributions (137,861) (616,567)
------------ -----------
Capital Share Transactions (net):
Class I ............................................. 1,602,091 837,410
Class A ............................................. N/A N/A
------------ -----------
Increase in net assets derived from capital share
transactions ........................................ 1,602,091 837,410
------------ -----------
Total increase (decrease) in net assets ............... 1,855,166 (2,103,295)
Net Assets:
Beginning of period ................................... 4,062,697 6,165,992
------------ -----------
End of period (including undistributed net investment
income (loss) of ($27,046), and $14,166, respectively $ 5,917,863 $ 4,062,697
============ ===========
</TABLE>
N/A Not Applicable
See accompanying notes to financial statements.
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Korea Fund
------------------------------
Six Months
Ended Year
February 28, Ended
1999 August 31,
(unaudited) 1998
------------- -------------
<S> <C> <C>
Operations
Net investment loss ................................... $ (907,118) $ (743,286)
Net realized gain (loss) on investments and foreign
currency related transactions ....................... 7,002,643 (13,212,349)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions 53,510,445 (13,075,569)
------------- --------------
Net decrease in net assets from operations ............ 59,605,970 (27,031,204)
------------- --------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I ............................................. 0 0
Class A ............................................. 0 0
Realized gains on investments:
Class I ............................................. 0 0
Class A ............................................. 0 0
------------- --------------
Net decrease in net assets resulting from distributions 0 0
------------- --------------
Capital Share Transactions (net):
Class I ............................................. (9,493,655) 730,040,728
Class A ............................................. (308,857) 5,365,114
------------- --------------
Increase (decrease) in net assets derived from capital
share transactions .................................. (9,802,512) 78,405,842
------------- --------------
Total increase in net assets .......................... 49,803,458 51,374,638
Net Assets:
Beginning of period ................................... 70,730,659 19,356,021
------------- --------------
End of period (including undistributed net investment
loss of ($907,118) and $0, respectively) ............ $ 120,534,117 $ 70,730,659
============= ==============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Dragon Century
China Fund Matthews Japan Fund
----------------------- -------------------
Six Months Period
Ended Period Ended
February 28, Ended February 28,
1999 August 31, 1999**
(unaudited) 1998* (unaudited)
----------- ----------- --------------
<S> <C> <C> <C>
Operations
Net investment income (loss) ......................................... $ (10,823) $ 37,836 $ (157)
Net realized gain (loss) on investments and
foreign currency related transactions .............................. (459,513) (262,099) 4,784
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related transactions ........... 768,080 (1,886,548) 28,389
----------- ----------- --------------
Net increase (decrease) in net assets from operations ................ 297,744 (2,110,811) 33,016
----------- ----------- --------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I ............................................................ (35,545) 0 --
Class A ............................................................ N/A 0 --
Realized gains on investments:
Class I ............................................................ 0 0 --
Class A ............................................................ N/A 0 --
----------- ----------- --------------
Net decrease in net assets resulting from distributions .............. (35,545) 0 --
----------- ----------- --------------
Capital Share Transactions (net):
Class I ............................................................ 159,854 3,686,805 253,500
Class A ............................................................ N/A 0 --
----------- ----------- --------------
Increase in net assets derived from capital share transactions ....... 159,854 3,686,805 253,500
----------- ----------- --------------
Total increase in net assets ......................................... 422,053 1,575,994 286,516
Net Assets:
Beginning of period .................................................. 1,575,994 0 0
----------- ----------- --------------
End of period (including undistributed net investment income (loss) of
($8,532), $37,836 and ($157), respectively) ........................ $ 1,998,047 $ 1,575,994 $ 286,516
=========== =========== ==============
</TABLE>
* The Fund commenced operations on February 19, 1998.
** The Fund commenced operations on December 31, 1998.
N/A Not Applicable
See accompanying notes to financial statements.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Matthews Pacific Tiger Fund
Class I Shares
-----------------------------------------------------------------------
Six Months
Ended Year Year Year Period
February 28, Ended Ended Ended Ended
1999 August 31, August 31, August 31, August 31,
(unaudited) 1998 1997 1996 1995/3/
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .......... $ 4.07 $ 11.30 $ 10.81 $ 9.77 $ 10.00
----------- ---------- ----------- ----------- -----------
Income from Investment Operations
Net investment income (loss) ............... (0.03) 0.02/4/ 0.02 0.01 0.02
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency related transactions 2.35 (7.18) 0.50 1.03 (0.23)
----------- ---------- ----------- ----------- -----------
Total from investment operations ......... 2.32 (7.16) 0.52 1.04 (0.21)
----------- ---------- ----------- ----------- -----------
Less Distributions from:
Net investment income ...................... 0.00 (0.01) (0.01) 0.00 (0.02)
Net realized gain on investments ........... 0.00 (0.06) (0.02) 0.00 0.00
Total distributions ...................... 0.00 (0.07) (0.03) 0.00 (0.02)
----------- ---------- ----------- ----------- -----------
Net Asset Value, end of period ................ $ 6.39 $ 4.07 $ 11.30 $ 10.81 $ 9.77
----------- ---------- ----------- ----------- -----------
Total return ............................... 57.00%/2/ (63.43%) 4.75% 10.64% (2.07%)/2/
=========== ========== =========== =========== ===========
Ratios/Supplemental Data
Net assets, end of period (in 000's) ....... $ 44,134 $ 31,319 $ 43,647 $ 17,148 $ 1,082
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator .... 1.98%/1/ 2.06% 1.97% 4.35% 25.95%/1/
Ratio of expenses to average net assets
after reimbursement and waiver of
expenses by Advisor and
Administrator (Note 2) ................... 1.90%/1/ 1.90% 1.90% 1.90% 2.17%/1/
Ratio of net investment income
(loss) to average net assets before
reimbursement and waiver of
expenses by Advisor and Administrator .... (1.04%)/1/ 0.14% 0.20% (2.13%) (23.41%)/1/
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and Administrator .... (0.96%)/1/ 0.30% 0.27% 0.32% 0.36%/1/
Portfolio turnover ......................... 40.41%/2/ 73.09% 70.73% 124.69% 92.53%/2/
</TABLE>
1 Annualized
2 Not Annualized
3 Class I commenced operations on September 13, 1994.
4 Calculated using the average shares method.
See accompanying notes to financial statements.
19
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Matthews Pacific Tiger Fund
Class A Shares
---------------------------
Six Months
Ended Period
February 28, Ended
1999 August 31,
(unaudited) 1998/4/
----------- ---------
<S> <C> <C>
Net Asset Value, beginning of period .................................... $ 4.07 $ 10.84
-------- --------
Income from Investment Operations
Net investment income (loss) ......................................... (0.04) 0.03/5/
Net realized gain (loss) and unrealized appreciation (depreciation) on
investments and foreign currency related transactions .............. 2.36 (6.73)
-------- --------
Total from investment operations ................................... 2.32 (6.70)
-------- --------
Less Distributions from:
Net investment income ................................................ 0.00 (0.01)
Net realized gain on investments ..................................... 0.00 (0.06)
Total distributions ................................................ 0.00 (0.07)
-------- --------
Net Asset Value, end of period .......................................... $ 6.39 $ 4.07
-------- --------
Total return ......................................................... 57.00%/2,3/ (61.87%)/2,3/
======== ========
Ratios/Supplemental Data
Net assets, end of period (in 000's) ................................. $ 178 $ 146
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator .............................. 2.23%/1/ 11.99/1/
Ratio of expenses to average net assets
after reimbursement and waiver of
expenses by Advisor and Administrator (Note 2) ..................... 2.15%/1/ 1.91%/1/
Ratio of net investment loss
to average net assets before
reimbursement and waiver of
expenses by Advisor and Administrator .............................. (1.29%)/1/ (9.61%)/1/
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and Administrator .............................. (1.21%)/1/ 0.47%/1/
Portfolio turnover ................................................... 40.41%/2/ 73.09%
</TABLE>
1 Annualized
2 Not Annualized
3 Total return calculation does not reflect sales load.
4 Class A commenced operations on October 9, 1997.
5 Calculated using the average shares method.
See accompanying notes to financial statements.
20
<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 Growth & Income Fund
-----------------------------------------------------------------
Six Months
Ended Year Year Year Period
February 28, Ended Ended Ended Ended
1999 August 31, August 31, August 31, August 31,
(unaudited) 1998 1997 1996 1995/3/
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .......... $ 6.54 $ 11.71 $ 10.53 $ 9.88 $ 10.00
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income ...................... 0.16 0.13 0.10 0.25 0.23
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency related transactions 0.53 (4.15) 1.42 0.75 (0.14)
--------- --------- --------- --------- ---------
Total from investment operations ......... 0.69 (4.02) 1.52 1.00 0.09
--------- --------- --------- --------- ---------
Less Distributions from:
Net investment income ...................... (0.22) (0.10) (0.10) (0.26) (0.21)
Net realized gains on investments .......... 0.00 (1.05) (0.24) (0.09) 0.00
--------- --------- --------- --------- ---------
Total distributions ...................... (0.22) (1.15) (0.34) (0.35) (0.21)
--------- --------- --------- --------- ---------
Net Asset Value, end of period ................ $ 7.01 $ 6.54 $ 11.71 $ 10.53 $ 9.88
========= ========= ========= ========= =========
Total Return ............................... 10.43%/2/ (35.27%) 14.67% 10.24% 0.89%/2/
Ratios/Supplemental Data
Net assets end of period (in 000's) ........ $ 5,918 $ 4,063 $ 6,166 $ 3,272 $ 863
Ratio of expenses to average net
assets before reimbursement and
waiver of expenses by advisor
and Administrator ........................ 2.24%/1/ 3.76% 4.45% 8.73% 23.11%/1/
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by advisor
and Administrator (Note 2) ............... 1.90%/1/ 1.90% 1.90% 1.85% 2.26%/1/
Ratio of net investment income (loss)
to average net assets before
reimbursement and waiver of
expenses by Advisor
and Administrator ........................ 3.97%/1/ (0.36%) (1.55%) (4.13%) (18.68%)/1/
Ratio of net investment income
to average net assets after
reimbursement and waiver of
expenses by Advisor
and Administrator ........................ 4.31%/1/ 1.50% 1.00% 2.75% 2.17%/1/
Portfolio turnover ......................... 21.87%/2/ 54.67% 50.20% 88.16% 123.63%/2/
</TABLE>
1 Annualized
2 Not Annualized
3 The Fund commenced operations on September 13, 1994.
See accompanying notes to financial statements.
21
<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
Class I Shares
----------------------------------------------------------------------
Six Months
Ended Year Year Year Period
February 28, Ended Ended Ended Ended
1999 August 31, August 31, August 31, August 31,
(unaudited) 1998 1997 1996 1995/3/
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ........... $ 2.03 $ 6.19 $ 7.23 $ 9.13 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from Investment Operations
Net investment income (loss) ................ (0.03) (0.03) (0.04)/4/ (0.07) 0.08
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency related transactions . 1.73 (4.13) (1.00)/4/ (1.75) (0.95)
----------- ----------- ----------- ----------- -----------
Total from investment operations .......... 0.00 (4.16) (1.04) 1.82 (0.87)
----------- ----------- ----------- ----------- -----------
Less Distributions from:
Net investment income ....................... 0.00 0.00 0.00 0.00 0.00
Net realized gain on investments ............ 0.00 0.00 0.00 (0.08) 0.00
Total distributions ....................... 0.00 0.00 0.00 (0.08) $ 0.00
----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period ................. $ 3.73 $ 2.03 $ 6.19 $ 7.23 $ 9.13
----------- ----------- ----------- ----------- -----------
Total return ................................ 83.74%/2/ (67.21%) (14.38%) (20.11%) (8.70%)/2/
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........ $ 113,344 $ 66,607 $ 19,356 $ 2,721 $ 504
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator ..... 1.82%/1/ 2.07% 2.90% 11.36% 42.87%/1/
Ratio of expenses to average net assets after
reimbursement and waiver of expenses
by Advisor and Administrator (Note 2) ..... 1.82%/1/ 2.06% 2.50% 2.23% 0.24%/1/
Ratio of net investment income
(loss) to average net assets before
reimbursement and waiver of
expenses by Advisor and Administrator ..... (1.68%)/1/ (1.13%) (1.81%) (10.44%) (41.79%)/1/
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and Administrator ..... (1.68%)/1/ (1.12%) (1.41%) (1.31%) 0.84%/1/
Portfolio turnover .......................... 27.04%/2/ 94.01% 112.68% 139.71% 42.16%/2/
</TABLE>
1 Annualized
2 Not Annualized
3 Class I commenced operations on January 3, 1995.
4 Calculated using the average shares method.
See accompanying notes to financial statements.
22
<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
Class A Shares
-------------------------
Six Months
Ended Period
February 28, Ended
1999 August 31,
(unaudited) 1998/4/
--------- ---------
<S> <C> <C>
Net Asset Value, beginning of period ....................................... $ 2.01 $ 5.32
--------- ---------
Income from Investment Operations
Net investment loss ..................................................... (0.03) (0.04)
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments and foreign currency related transactions ............. 1.73 (3.27)
--------- ---------
Total from investment operations ...................................... 1.70 (3.31)
--------- ---------
Less Distributions from:
Net investment income ................................................... 0.00 0.00
Net realized gain on investments ........................................ 0.00 0.00
Total distributions ................................................... 0.00 0.00
--------- ---------
Net Asset Value, end of period ............................................. $ 3.71 $ 2.01
--------- ---------
Total return ............................................................ 83.66%/2,3/ (62.03%)/2,3/
========= =========
Ratios/Supplemental Data
Net assets, end of period (in 000's) .................................... $ 7,190 $ 4,123
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator ................................. 2.07%/1/ 2.97%/1/
Ratio of expenses to average net assets after reimbursement and waiver of
expenses by Advisor and Administrator (Note 2) ........................ 2.07%/1/ 2.68%/1/
Ratio of net investment loss to average net assets before
reimbursement and waiver of expenses by Advisor and Administrator ..... (1.93%)/1/ (2.03%)/1/
Ratio of net investment loss to average net assets after
reimbursement and waiver of expenses by Advisor and Administrator ..... (1.93%)/1/ (1.74%)/1/
Portfolio turnover ...................................................... 27.04%/2/ 94.01%
</TABLE>
1 Annualized
2 Not Annualized
3 Total return calculation does not reflect sales load.
4 Class A commenced operations on October 9, 1997.
See accompanying notes to financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Matthews Dragon Century
China Fund
Class I Shares Matthews Japan Fund
------------------------- -------------------
Six Months Period
Ended Period Ended
February 28, Ended February 28,
1999 August 31, 1999/4/
(unaudited) 1998/3/ (unaudited)
----------- ----------- -------------
<S> <C> <C> <C>
Net Asset Value, beginning of period ......................... $ 4.36 $ 10.00 $ 10.00
--------- --------- ---------
Income from Investment Operations
Net investment income (loss) .............................. (0.03) 0.10 (0.01)
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency related transactions................ 0.84 (5.74) 1.32
--------- --------- ---------
Total from investment operations ........................ 0.81 (5.64) 1.31
--------- --------- ---------
Less Distributions from:
Net investment income ..................................... (0.10) 0.00 0.00
Net realized gain on investments .......................... 0.00 0.00 0.00
Total distributions ..................................... (0.10) 0.00 0.00
--------- --------- ---------
Net Asset Value, end of period ............................... $ 5.07 $ 4.36 $ 11.31
--------- --------- ---------
Total return .............................................. 18.11%2 (56.40%)2 13.10%2
========= ========= =========
Ratios/Supplemental Data
Net assets, end of period (in 000's) ...................... $ 1,998 $ 1,576 $ 287
Ratio of expenses to average net assets
before reimbursement and waiver of
expenses by Advisor and Administrator ................... 2.42%1 7.84%1 39.83%1
Ratio of expenses to average net assets
after reimbursement and waiver
of expenses by Advisor and
Administrator (Note 2) .................................. 2.00%1 2.00%1 2.00%1
Ratio of net investment loss
to average net assets before
reimbursement and waiver of
expenses by Advisor and Administrator ................... (1.37%)1 (3.45%)1 (38.29%)1
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and Administrator ................... (0.95%)1 2.38%1 (0.46%)1
Portfolio turnover ........................................ 30.94%2 11.84%2 41.08%2
</TABLE>
1 Annualized
2 Not Annualized
3 The Dragon Century China Fund Class I commenced operations on February 19,
1998.
4 The Japan Fund Class I commenced operations on December 31, 1998.
See accompanying notes to financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
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 (the "Act"), as a series company. The Company currently consists of five
separate investment series (each a "Fund" and collectively, the "Funds"):
Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews
Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund. The
Matthews Pacific Tiger Fund, Matthews Korea Fund and Matthews Dragon Century
Fund are currently authorized to offer two classes of shares: Class I shares and
Class A shares. Effective September 1, 1998, the Matthews Dragon Century China
Fund does not offer Class A shares to investors at this time. The classes
offered have different sales charges and other expenses which may affect
performance. The Matthews Pacific Tiger Fund, Matthews Korea Fund, Matthews
Dragon Century China Fund and Matthews Japan 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, South Korean
companies, Chinese companies and Japanese companies, respectively. Pacific Tiger
economies include Hong Kong, Singapore, South Korea, Taiwan, Indonesia,
Malaysia, the Philippines, Thailand and China. The Matthews Asian Growth and
Income 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. Forward Foreign Exchange Contracts: The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either
the currency in which the transaction is denominated or another currency as
deemed appropriate by the Adviser. Forward foreign exchange contracts are
valued at the forward rate and are marked-to-market daily. The change in
market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
25
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
The use of forward foreign exchange contracts does not eliminate fluctuations
in the underlying prices of the Fund's portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the Fund
could be exposed to risks if the couterparties to the contracts are unable to
meet the terms of their contracts.
C. 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.
D. 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 period ended
February 28, 1999. Therefore, no Federal income tax provision is required.
E. Determination of Gains or Losses on Sales of Securities: Gains or losses
on the sale of securities are determined on the identified cost basis.
F. Organization Costs: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective commencement
of operations with the exception of the Matthews Japan Fund, which are being
amortized on a straight-line basis over one year from the Fund's 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.
G. Distributions to Shareholders: It is the policy of Matthews Asian Growth
and Income Fund to distribute net investment income on a semi-annual basis
and capital gains, if any, annually. Matthews Pacific Tiger Fund, Matthews
Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund
distribute net investment income and capital gains, if any, 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.
Net investment losses may not be utilized to offset net investment income in
future periods for tax purposes.
H. 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.
I. 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 exdividend date.
J. 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:
26
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS PACIFIC TIGER FUND
-----------------------------------------------------------------------------------------------------------
Class I Class A
-------------------------------------------------------- ----------------------------------------------
Six Months Ended Year Ended Six Months Ended Period Ended
February 28, 1999 August 31, 1998 February 28, 1999 August 31, 1998
-------------------------- -------------------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ......... 4,046,293 $ 25,143,139 11,658,573 $ 81,328,869 14,851 $ 98,688 40,296 $ 274,792
Shares issued through
reinvestment of
dividends ......... 0 0 109,556 563,118 0 0 544 2,794
Shares redeemed ..... (4,825,263) (29,513,965) (7,939,984) (55,807,859) (22,825) (106,410) (5,047) (33,262)
---------- ------------ ---------- ------------ ------- --------- ------ ----------
Net increase ........ (778,970) $ (4,370,826) 3,828,145 $ 26,084,128 (7,974) $ (7,722) 35,793 $ 244,324
========== ============ ========== ============ ======= ========= ====== ==========
</TABLE>
MATTHEWS ASIAN GROWTH AND INCOME FUND
----------------------------------------------------
Class I
----------------------------------------------------
Six Months Ended Year Ended
February 28, 1999 August 31, 1998
---------------------- ----------------------
Shares Amount Shares Amount
------- ----------- ------- -----------
Shares sold ......... 383,755 $ 2,703,975 547,648 $ 4,710,652
Shares issued through
reinvestment of
dividends ......... 15,361 110,134 66,761 498,935
Shares redeemed ..... (176,195) (1,212,018) (519,724) (4,372,177)
------- ----------- ------- -----------
Net increase ........ 222,921 $ 1,602,091 94,685 $ 837,410
======= =========== ======= ===========
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND
----------------------------------------------------------------------------------------------------------
Class I Class A
------------------------------------------------------- -------------------------------------------------
Six Months Ended Year Ended Six Months Ended Period Ended
February 28, 1999 August 31, 1998 February 28, 1999 August 31, 1998
------------------------- -------------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ......... 21,256,256 $ 67,112,992 77,651,372 $ 199,169,372 52,002 $ 178,877 3,061,063 $ 8,324,379
Shares issued through
reinvestment of
dividends ......... 0 0 0 0 0 0 0 0
Shares redeemed ..... (23,785,355) (76,606,647) (47,890,663) (126,128,644) (160,298) (487,734) (1,014,474) (2,959,265)
---------- ------------ ---------- ------------- -------- ----------- --------- -----------
Net increase ........ (2,529,099) $ (9,493,655) 29,760,709 $ 73,040,728 (108,296) $ (308,857) 2,046,589 $ 5,365,114
========== ============ ========== ============= ======== =========== ========= ===========
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND
----------------------------------------------------
Class I
----------------------------------------------------
Six Months Ended Period Ended
February 28, 1999 August 31, 1998
---------------------- ----------------------
Shares Amount Shares Amount
------- ----------- ------- -----------
Shares sold ......... 100,491 $ 561,671 474,122 $ 4,516,710
Shares issued through
reinvestment of
dividends ......... 5,474 33,995 0 0
Shares redeemed ..... (73,705) (435,812) (112,545) (829,905)
------- ----------- ------- -----------
Net increase ........ 32,260 $ 159,854 361,577 $ 3,686,805
======= =========== ======= ===========
MATTHEWS JAPAN FUND
-------------------------
Class I
-------------------------
Period Ended
February 28,1999
-------------------------
Shares Amount
------ --------
Shares sold .............................. 25,337 $253,500
Shares issued through
reinvestment of
dividends .............................. 0 0
Shares redeemed .......................... 0 0
------ --------
Net increase ............................. 25,337 $253,500
====== ========
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 six months ended February
28, 1999, are as follows:
<TABLE>
<CAPTION>
Expenses
Investment Voluntary Waived and
Advisory Expense Advisory Reimbursed
Fee Rate Limitation* Fees by Advisor
-------- ----------- ---- ----------
<S> <C> <C> <C> <C>
Matthews Pacific Tiger Fund 1.00% 1.90% $224,777 $17,282
Matthews Asian Growth and Income Fund 1.00 1.90 22,444 7,511
Matthews Korea Fund 1.00 2.50 534,366 1,549
Matthews Dragon Century China Fund 1.00 2.00 11,289 4,696
Matthews Japan Fund 1.00 2.00 338 12,803
</TABLE>
* For Funds offering Class A shares, the voluntary expense limitation would
include an additional 0.25% for Class A Distribution fees.
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. During the six
months ended February 28, 1999, the Matthews Pacific Tiger Fund reimbursed
expenses to the Advisor totaling $11,350. As of February 28, 1999, the total
expenses waived and reimbursed by the Advisor that are subject to reimbursement
by the Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund,
Matthews Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund
totaled $277,343, $236,404, $0, $97,434 and $12,803, respectively.
28
<PAGE>
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL FUNDS - NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
3. Distributor Fees and Class Specific Expenses
Effective January 1, 1999, First Data Distributors, Inc. (the "Distributor")
serves as the Funds' Distributor pursuant to an Underwriting Agreement. Prior to
January 1, 1999, FPS Broker Services, Inc. served as the Funds' distributor.
Pursuant to Rule 12b-1 adopted by the Securities and Exchange Commission under
the Act, the Pacific Tiger Fund Class A, Korea Fund Class A and the Dragon
Century China Fund Class A have adopted a Plan of Distribution (the "Plan"). The
Plan permits the participating Funds to pay certain expenses associated with the
distribution of their shares. Under the Plan, each Fund offering Class A shares
may pay actual expenses not exceeding, on an annual basis, 0.25% of each
participating Fund's Class A average daily net assets. The Class I shares of the
Funds do not have a distribution plan.
4. Investment Transactions
Investment transactions for the six months ended February 28, 1999, excluding
temporary short-term investments, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds from Sales
------------- ---------------------
<S> <C> <C>
Matthews Pacific Tiger Fund .................. $17,634,919 $22,170,734
Matthews Asian Growth and Income Fund ........ 2,452,034 936,448
Matthews Korea Fund .......................... 28,084,903 41,825,647
Matthews Dragon Century China Fund ........... 754,607 658,273
Matthews Japan Fund .......................... 347,137 98,434
</TABLE>
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
5. Capital Loss Carryover
At August 31, 1998, the Funds had capital loss carryovers expiring through 2006
as follows:
<TABLE>
<CAPTION>
Expiring on: 2004 2005 2006
----------- ----------- -----------
<S> <C> <C> <C>
Matthews Pacific Tiger Fund ................ -- -- $1,475,377
Matthews Asian Growth and Income Fund ...... -- -- 51,948
Matthews Korea Fund ........................ $13,794 -- 1,071,846
Matthews Dragon Century China Fund ......... -- -- --
Matthews Japan Fund ........................ -- -- --
</TABLE>
These amounts are available to offset possible future capital gains of the Fund.
29
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<PAGE>
BOARD OF TRUSTEES
Richard K. Lyons
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott - Trustee Emeritus
OFFICERS
G. Paul Matthews
Mark W. Headley
Brian Stableford
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
655 Montgomery Street, Suite 1438
San Francisco, CA 94111
(800) 789-2742
UNDERWRITER
First Data Distributors, Inc.
4400 Computer Drive
Westboro, MA 01581-5108
SHAREHOLDER SERVICES
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(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
San Francisco, CA 94104-2635
[GRAPHIC OF DRAGON APPEARS HERE]
For additional information about the
Matthews International Funds:
655 Montgomery Street, Suite 1438
San Francisco, CA 94111
1.800.789.2742
www.matthewsfunds.com
Distributed by First Data Distributors, Inc.
4400 Computer Drive, Westboro, Massachusetts 01581-5108
MATTHEWS
INTERNATIONAL FUNDS
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS KOREA FUND
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS JAPAN FUND
[GRAPHIC OF DRAGON APPEARS HERE]
SEMI-ANNUAL REPORT
FEBRUARY 28, 1999
