<PAGE>
A MESSAGE TO SHAREHOLDERS
Dear Fellow Shareholders,
We are pleased to present to you the Matthews International Funds' Annual Report
for the fiscal year ended August 31, 1999. This fiscal year for the Funds has
coincided with a period of dramatic recovery for many of the financial markets
in which the Funds invest. From their lows of last year, markets such as South
Korea, Hong Kong, and Singapore have rebounded strongly, reflecting significant
improvements in underlying economic activity throughout the region. In the
aftermath to 1997's currency crisis, many Asian countries have undertaken
sweeping reforms designed to overcome the problems that led to the "Crisis." For
most countries in Asia, the current calendar year is proving to be a year of
renewed economic expansion following the severe recessions that affected almost
all of them in 1998. This cyclical recovery is providing a strong underpinning
for the improved performance of Asian financial markets. Financial markets are
being aided by the ongoing efforts of many Asian governments to strengthen the
regulatory structure of their markets and by corporations' commitment to
improved governance and transparency.
During this fiscal year, the launch of the Matthews Japan Fund added a very
significant component to our series of Funds, which prior to January 1, 1999 had
focused primarily on the markets of non-Japan Asia. The Matthews Japan Fund got
off to fine start, gaining 117.00% in its first eight months of operation as
signs of stability in the Japanese economy and evidence of genuine corporate
restructuring encouraged renewed attention from both international and domestic
investors. Please see the Fund Managers' report on this Fund in the pages that
follow. The driving force behind the changes that we believe are underway in
Japan, and that we are certain are underway in the rest of Asia is the
continuing move towards open and free markets. This long-term trend, which over
the last twenty years has seen barriers to trade and investment gradually
lowered throughout the region, is forcing corporate management to compete with
multinational corporations. As foreign owned businesses enter Japan,
particularly in areas that have traditionally been totally closed to them such
as financial services, they are bringing with them business practices that are
forcing change. Lifetime employment is one of the first principles that Japanese
corporations must sacrifice if they are to compete successfully in the "new
economy."
The impact of technology in Asia has not been widely reported in recent years as
so much attention has been focused on the "Financial Crisis." For many years,
Asia's role in the new economy has been as the low cost producer of electronics
for export overseas. In the last two years, however, the application of
technology to improve productivity has become an urgent priority domestically,
and the adoption of new technologies is sweeping across Asia at a rapid rate. In
the height of the worst recession since the end of World War II, individuals
across the region accelerated their purchases of items such as cell phones and
PC's, even as they were shunning new purchases of cars, fashion goods and beer.
This same pattern is now being repeated at the corporate level as economic
conditions improve. China is now the world's fastest growing market for PC's and
a recent Gallup Poll showed that 48% of the population have heard of Motorola
versus 36% who have heard of McDonalds. The Internet is accelerating these
trends in ways that nobody had anticipated. Japan remains a technology leader
and Taiwan, Singapore and Korea are very significant technology centers.
1
<PAGE>
Matthews International Funds are designed to provide a full range of investment
alternatives for those seeking ways to invest in Asia's future. The series now
incorporates three single country funds and two that are diversified across a
variety of markets. As of September 12, 1999, our two oldest funds, Matthews
Pacific Tiger and Matthews Asian Growth and Income have achieved five-year track
records that standout relative to the relevant indices and the competition.
The combination of new technology, more open markets, and improving financial
supervision is laying a strong framework for Asia in the 21st century. We look
forward to the coming year with great optimism.
Thank you for your continued support.
Sincerely,
/s/ G. Paul Matthews /s/ Mark W. Headley
- ---------------------------- ----------------------
G. Paul Matthews Mark W. Headley
President, Managing Director,
Chief Investment Officer Portfolio Manager
2
<PAGE>
MATTHEWS INVESTMENT MANAGEMENT TEAM
G. Paul Matthews
President,
Chief Investment Officer
Mark W. Headley
Managing Director,
Portfolio Manager
James Bogin
Portfolio Manager
Richard Gao
Assistant Portfolio Manager
Andrew Foster
Research Analyst
3
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
MATTHEWS PACIFIC TIGER FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The Matthews Pacific Tiger Fund continues to participate in the revival of the
Asia ex-Japan financial markets. The Fund is diversified across the Asian region
excluding Japan, with the largest segments invested in Hong Kong, Korea, China
and Singapore. It is important to understand that the focus of the Fund is on
stock selection rather than top-down country selection. The Portfolio Managers
are constantly searching through several thousand companies to find the
approximately fifty stocks found in the portfolio. Our process is based on the
belief that Asia's more open market environment and growing financial
sophistication will bring many benefits to the region. With more open markets,
increased foreign competition, less government interference, and improved
banking systems, successful companies in Asia are becoming highly focused on
increased profitability. Such companies should be competitive in their local
economy, in the region and even globally. We continue to search for the
long-term corporate winners across the region through fundamental analysis and
on-site company visits.
Despite many years of experience in Asia - every member of our team has lived
and worked there - the Asian crisis of 1997/98 was a brutal surprise. As
investment professionals, we can point to the fact that our investment process
and discipline was maintained throughout this wrenching bear market. When the
markets bottomed out in September 1998, market commentators were almost
universally negative, and many portfolio managers had large cash positions. The
positive signs that we noticed in the early stages of the recovery were
reflected in our stock selection process, but we remained fully invested
throughout the crisis. We believe it is our core discipline of avoiding market
timing and focusing on company fundamentals that explains the Fund's
outperformance of both relevant indices and the majority of comparable funds
over the last year and since the Fund's inception in September 1994.
For the fiscal year ending August 31, 1999, the Matthews Pacific Tiger Fund had
a total return of 156.28% versus the Morgan Stanley Capital International All
Country Far East ex-Japan Index return of 121.97%. We continue to see a wide
range of opportunities across Asia's diverse economic environments. As Asia
becomes a more open economic environment, its regulatory systems should improve
rapidly, and we already see significant evidence of improved corporate
governance. We believe the Matthews Pacific Tiger Fund is well positioned to
continue participating in the positive changes occurring across the markets of
the Asian Tiger countries.
4
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
MATTHEWS ASIAN GROWTH AND INCOME FUND
Portfolio Manager: G. Paul Matthews
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.
In the fiscal year ended August 31, 1999, the Matthews Asian Growth and Income
Fund gained 52.65%, as regional equity markets performed strongly. An index of
regional equity markets, the Morgan Stanley Capital International All Country
Far East Ex-Japan Index gained 121.97% over the same period. During periods of
weak equity market performance, convertible bonds often fall less than equities,
and conversely during periods of strong equity market performance, convertible
bonds often rise less than their underlying equities. The Fund invests at least
65% of its assets in convertible bonds. The portfolio at August 31, 1999, was
comprised of 32 positions in convertible securities issued by Asian companies
and 14 positions in individual Asian equities which have historically high
dividend yields; as a percentage of the total assets in the portfolio
convertibles accounted for 74% of the portfolio and equities 21%, with 5% in
cash. The portfolio was diversified in ten Asian countries. The equity portion
of the portfolio was invested primarily in Hong Kong, Singapore and Korea.
Asia's financial markets have been notoriously volatile in recent years.
Although we believe that the restructuring efforts that are underway in Asia
will have the long term effect of improving overall regulatory standards,
transparency, and market efficiency, we believe that the equity markets in the
region will continue to be more volatile than more developed markets. This is,
in part, because the underlying economies are less mature than developed
countries and in part due to a lack of institutional investors in many of these
markets. For this and other reasons, we believe the convertible bond markets
offers an attractive alternative to equities to investors who are concerned
about short term price fluctuations.
5
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
MATTHEWS KOREA FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
The South Korean economy and stock market have enjoyed a remarkable
transformation in the twelve months which ended August 31, 1999. During that
period, the primary index of Korean equities, the KOSPI, gained 252.14% while
the Matthews Korea Fund Class I Shares appreciated by 268.97% in U.S. Dollar
terms. This extraordinary recovery has been underpinned by a rapid improvement
in Korea's trade, current account, and foreign exchange reserves. These
improvements have occurred far faster than most commentators had expected and
have allowed Korea to return to positive economic growth in record time.
Behind the overall improvement is a concerted effort on behalf of the Korean
government to transition Korea towards an open market economy, reduce the
influence of Government in business, and curtail the role of the largest
conglomerates or Chaebols. This process is ongoing and tumultuous, involving
significant debt restructuring, asset sales, and employee layoffs. During this
process, there will be winners and losers and identifying the long-term winners
in Korea is our primary goal. Because the Korean stock market is still dominated
by individual investors, who currently account for 75% of daily turnover, the
market will undoubtedly remain one of Asia's most volatile. Overall, we are
greatly encouraged by the progress that has been made under President Kim Dae
Jung's leadership.
The Matthews Korea Fund is currently focused on three primary sectors in Korea,
technology, consumer and finance. Korea's rapid return to export growth has been
led by its leadership position in a number of key technology areas, in
particular, memory chips and LCD screens. Historically, the valuations of many
Korean technology companies have been depressed because of their relationships
with the large Chaebol and their competing capital needs. As long as the
restructuring that is now underway in Korea is sustained, such concerns will
abate over time, and we believe the Korean technology sector is well positioned.
In the finance area, we have focused on companies that have leadership positions
in areas such as insurance and domestic brokerage, as well as those banks that
have secured new capital from international banks. In the consumer area, we
believe that there is a particular opportunity for established companies to
benefit from renewed consumption as confidence gradually returns at the consumer
level.
The Fund has maintained a policy of being as close to fully invested as is
practicable with an ongoing focus on individual stock selection.
6
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
MATTHEWS DRAGON CENTURY CHINA FUND
Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard Gao
The Matthews Dragon Century China Fund is focused primarily on investments in
companies known as H shares, Red Chips and B shares. These are all Chinese
companies that are listed in Hong Kong or China's two stock markets located in
Shanghai and Shenzhen. During the fiscal year ended August 31, 1999, the Fund
participated in the rally seen across most Asian markets. During this
twelve-month period, the Fund had a total return of 97.79% versus the Credit
Lyonnais China World Index's return of 125.47%. A significant increase in fixed
asset investments by the government helped stabilize the economy. Meanwhile, a
strong recovery in neighboring Asian economies and a weaker U.S. Dollar lifted
concerns regarding the possibility of a devaluation of China's currency, the
Renminbi.
Reform is at the center stage of economic development in China. During the last
fiscal year, we have seen reform in every sector of the economy. As a
significant move towards a free market economy, China's government announced for
the first time that the private sector is "an important part of the economy."
State-owned-enterprises (SOE) now account for less than one third of the
nation's GDP. As a key part of the SOE reform, China is also developing its
stock market. In the banking sector, the government set up the Asset Management
Company ("AMC") to help banks solve the burdens of non-performing loans. The AMC
is also using debt-for-equity measures to lessen the debt burden for the SOEs.
While China's economic growth over the last twenty years has been extremely
rapid, we believe that the country's investment potential will be recognized in
the coming decade. The efforts by the government to establish the basic rules of
law necessary for a flourishing private economy should benefit all investors in
China. The commitment to reducing the state sector and strengthening the banking
system will have many positive implications for the investment environment.
In the portfolio, we remain well diversified among various sectors. Our goal is
to find the companies in a variety of sectors that will be the long-term leaders
of the country's economic growth and development. Company visits are an
important part of our investment process. Every company in the portfolio has
been visited at least once in the last year. Our close contact with the
management of companies held by the Fund has given us first hand information
about corporate operations and helped us to understand local business
conditions.
7
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
MATTHEWS JAPAN FUND
Co-Portfolio Managers: James M. Bogin and Mark W. Headley
Launched on December 31, 1998, the Matthews Japan Fund has more than doubled in
value over its first eight months. It seems the Fund was begun within two months
of the bottom of the ten-year Japanese bear market. The Fund has maintained a
focused portfolio of approximately 35 to 45 companies, and has been concentrated
in the small and mid capitalization sectors of the Japanese stocks market. This
smaller cap concentration was born out during the first eight months of 1999,
with small cap stocks rising more than twice as much as the large capitalization
stock market indices. The Fund is flexible in its stock selection process, and
large caps remain a significant component of the portfolio. By sector, the Fund
had large weightings in brokerage and brokerage-related stocks, technology,
chain stores, broadcasting, industrials and pharmaceuticals. The Fund has been
close to fully invested at all times, and strategy has focused on finding
attractive individual companies through fundamental research and company visits.
Japan appears to be rising from a long, dull recession. Corporate restructuring
is now taking place in earnest, with firms selling off divisions, laying-off
workers, and focusing on shareholder value. These concepts, taken for granted in
the United States, have been long awaited by investors in Japan and represent a
sea of change in the collective corporate mentality. At the same time, the
government, though less dynamic than the corporate side, is lowering corporate
and personal taxes, and is encouraging the shift to a pension scheme not unlike
401(k) plans common in the United States.
Just a year ago, only a few firms had announced restructuring plans. By spring
of this year, the number had risen to several hundred, and now it seems that
every firm intends to restructure. A pundit remarked that if only half of the
firms do half of what they say they will do, Japan will undergo a magnificent
positive change. Japan has massive over-capacity in steel, textiles, rubber,
petro-chemicals, and other smokestack industries. Return on equity hovers at
around 2%, a fraction of the 17% achieved in the United States. If this number
is to rise, assets must be written off, i.e., equity must fall. At the same
time, unemployment, which has doubled to almost 5%, must surely rise more as
this restructuring takes place. We shall be keeping a keen eye on these items
and others as we witness and invest in what we hope will be the beginning of the
long awaited Japanese recovery.
8
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the change in value of a $10,000 investment in Matthews
Pacific Tiger Fund Class I Shares and Matthews Asian Growth and Income Fund with
the performance of the Morgan Stanley All Country Far East ex-Japan Index with
gross dividends in U.S. dollars. The total returns of the Matthews Pacific Tiger
Fund Class I Shares, Matthews Asian Growth and Income Fund and the Morgan
Stanley All Country Far East ex-Japan Index and for one year was 156.28%, 52.65%
and 121.97%, respectively, and the average annual total return since inception
was 1.25%, 4.76% and (3.38%), respectively.
PACIFIC TIGER(1) & ASIAN GROWTH AND INCOME FUNDS (Assuming
$10,000 invested at inception)
Matthews MSCI
Matthews Pacific Tiger All Country
Asian Growth Fund Class Far East
and Income Fund I Shares ex-Japan Index(2)
--------------- ------------- -----------------
Value (In Thousands)
09/12/94 $10,000 $10,000 $10,000
02/95 9,722 9,241 8,879
08/95 10,089 9,793 8,873
02/96 11,124 10,965 9,563
08/96 11,122 10,835 9,658
02/97 12,095 12,439 10,326
08/97 12,754 11,349 9,017
02/98 9,873 7,693 6,769
08/98 8,256 4,151 3,798
02/99 9,117 6,517 5,520
08/99 12,603 10,638 8,430
Past performance is not indicative of future results.
<PAGE>
- --------------------------------------------------------------------------------
The graph below compares the change in value of a $10,000 investment in Matthews
Korea Fund Class I Shares with the performance of the Korea Stock Price Index.
The total return of the Matthews Korea Fund Class I Shares and the Korea Stock
Price Index for one year was 268.97% and 252.14%, respectively, and the average
annual return since inception was (5.84%) and (8.90%), respectively.
KOREA FUND(1)
(Assuming $10,000 invested at inception)
Matthews Korea
Korea Fund Stock Price
Class I Shares Index(3)
-------------- -----------
Value (In Thousands)
01/03/95 10,000 10,000
02/95 8,960 8,855
08/95 9,230 9,237
02/96 8,636 8,779
08/96 6,820 6,794
02/97 6,416 6,412
08/97 3,047 2,748
02/98 2,280 1,832
08/98 3,107 2,748
02/99 6,013 4,733
08/99 7,566 6,031
Past performance is not indicative of future results.
- -------------------
(1) Class A shares are available on Matthews Pacific Tiger Fund and Matthews
Korea Fund. Total return will differ due to sales charges and 12b-1 fees.
(2) The MSCI All Country Far East ex-Japan Index in an unmanaged
capitalization-weighted index of stock markets in the Pacific region
excluding Japan.
(3) The Korea Stock Price Index is a capitalization-weighted index of all common
stocks listed on the Korea Stock Exchange.
9
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the change in value of a $10,000 investment in Matthews
Dragon Century China Fund with the performance of the Credit Lyonnais China
World Index. The total return of the Matthews Dragon Century China Fund and the
Credit Lyonnais China World Index for one year was 97.79% and 125.47%,
respectively, and the average annual total return since inception was (9.23%)
and (6.05%), respectively.
DRAGON CENTURY CHINA FUND
(Assuming $10,000 invested at inception)
Matthews Credit
Dragon Century Lyonnais China
China Fund World Index(1)
-------------- --------------
Value (In Thousands)
02/19/98 10,000 10,000
02/98 10,610 11,360
03/98 10,550 10,865
04/98 9,880 9,597
05/98 8,570 8,100
06/98 7,100 6,662
07/98 5,340 5,256
08/98 4,360 4,027
11/98 6,650 6,573
02/99 5,150 5,200
05/99 6,734 7,107
08/99 8,624 9,090
Past performance is not indicative of future results.
<PAGE>
- --------------------------------------------------------------------------------
The graph below compares the change in value of a $10,000 investment in Matthews
Japan Fund with the performance of the Topix Index (Tokyo). The unannualized
total return of the Matthews Japan Fund and the Topix Index (Tokyo) for the
period December 31, 1998 to August 31, 1999, was 117.00% and 40.80%,
respectively.
JAPAN FUND
(Assuming $10,000 invested at inception)
Matthews TOPIX
Japan Fund Index(2)
---------- --------
Value (In Thousands)
12/31/98 10,000 10,000
02/99 11,310 9,937
05/99 15,370 11,258
08/99 21,700 14,080
Past performance is not indicative of future results.
- -------------------
(1) The Credit Lyonnais China World Index is an unmanaged
capitalization-weighted index of Chinese equities which are listed on the
Hong Kong, Shanghai, and Shenzhen stock exchanges.
(2) The TOPIX, also known as the Tokyo Price Index, is a capitalization-weighted
index of all companies listed on the First Section of the Tokyo Stock
Exchange.
10
<PAGE>
GENERAL MARKET AND ECONOMIC INFORMATION
ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS
DECEMBER 1987 - SEPTEMBER 1999
MSCI
All Country MSCI Europe
Far East Australia
ex-Japan Index(2) S&P 500(1) Far East Index(3)
----------------- ---------- -----------------
Cumulative Return
12/31/87 -- -- --
03/31/88 21.83% 5.68% 15.32%
06/30/88 47.03% 12.42% 10.33%
09/30/88 79.54% 12.80% 11.11%
12/31/88 66.65% 16.27% 28.59%
03/31/89 102.81% 24.50% 29.02%
06/30/89 115.13% 35.47% 21.13%
09/30/89 138.06% 49.95% 36.22%
12/31/89 133.50% 51.77% 42.47%
03/31/90 139.08% 45.99% 14.38%
06/30/90 89.86% 53.76% 25.40%
09/30/90 36.58% 31.44% -1.09%
12/31/90 63.33% 48.22% 9.42%
03/31/91 87.53% 69.72% 17.66%
06/30/91 91.72% 69.31% 11.33%
09/30/91 87.80% 78.35% 20.97%
12/31/91 89.16% 93.28% 23.10%
03/31/92 101.53% 88.51% 8.59%
06/30/92 116.06% 92.08% 10.98%
09/30/92 99.34% 98.14% 12.76%
12/31/92 105.80% 108.09% 8.51%
03/31/93 131.55% 117.18% 21.62%
06/30/93 147.09% 118.27% 33.95%
09/30/93 166.65% 123.85% 42.93%
12/31/93 291.08% 129.04% 44.26%
03/31/94 221.53% 120.37% 49.40%
06/30/94 241.44% 121.29% 57.13%
09/30/94 293.38% 132.03% 57.39%
12/31/94 262.13% 131.98% 55.89%
03/31/95 250.32% 154.54% 58.92%
06/30/95 261.36% 178.81% 60.20%
09/30/95 255.15% 200.95% 67.00%
12/31/95 255.52% 219.28% 73.90%
03/31/96 278.20% 234.61% 79.05%
06/30/96 293.30% 247.63% 82.02%
09/30/96 284.32% 256.28% 81.93%
12/31/96 290.96% 283.98% 84.96%
03/31/97 283.39% 303.13% 82.20%
06/30/97 307.24% 373.45% 105.98%
09/30/97 239.93% 408.91% 104.66%
12/31/97 130.99% 423.52% 88.77%
03/31/98 156.72% 496.50% 116.68%
06/30/98 78.20% 516.59% 119.13%
09/30/98 61.98% 455.37% 88.12%
12/31/98 119.84% 573.56% 127.15%
03/31/99 136.16% 607.12% 130.47%
06/30/99 229.66% 656.95% 136.48%
09/30/99 201.56% 610.43% 147.03%
Past performance is not indicative of future results.
- -------------------
(1) The S&P 500 Index is a capitalization-weighted index of 500 U.S. stocks.
(2) The MCSI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the Pacific region
excluding Japan.
(3) The MCSI Europe, Australia, Far East Index is an unmanaged
capitalization-weighted index of stock markets in Europe, Australia and the
Far East.
<PAGE>
- --------------------------------------------------------------------------------
Economic Statistics (as of 9/30/99)
<TABLE>
<CAPTION>
99e Real 98 Real 98 GDP 1998 GDP Prime 99e
Population GDP GDP (US$ per capita 1999e 1998 Lending Current A/C
Market (millions) Growth Growth billions) (US$) Inflation Inflation Rates (% of GDP)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Japan ......... 126 0.4% -2.9% 5,003 39,526 -0.2% 0.7% 1.7% 2.4%
China ......... 1,215 7.1% 7.8% 961 766 -2.3% -0.8% 4.6% 1.7%
Hong Kong ..... 7 0.9% -5.1% 166 24,812 -3.4% 2.6% 8.5% 1.2%
Indonesia...... 198 -1.0% -13.2% 97 469 18.0% 58.0% 34.0% 2.8%
Malaysia ...... 21 4.7% -7.5% 71 3,214 2.9% 5.3% 7.5% 12.7%
Philippines ... 69 3.0% -0.8% 66 872 6.4% 9.7% 12.3% 3.5%
Singapore ..... 3 5.8% 1.5% 85 21,875 0.2% -0.3% 5.8% 20.5%
South Korea ... 45 8.1% -5.8% 329 7,080 1.3% 7.5% 8.5% 4.8%
Taiwan ........ 22 5.9% 4.8% 262 12,016 1.0% 1.7% 7.8% 3.5%
Thailand ...... 61 3.5% -9.4% 113 1,835 1.5% 8.1% 10.2% 7.4%
</TABLE>
Source: Warburg Dillon Read
11
<PAGE>
MARKET SECTOR DIVERSIFICATION AUGUST 31, 1999
As a Percentage of Total Value of Investment in Securities as of August 31, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth Matthews Century Matthews
Tiger and Income Korea China Japan
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITIES
Agricultural Equipment ............................. 0.11% 0.00% 0.00% 0.00% 0.00%
Automotive ......................................... 0.00 0.00 4.51 8.76 0.00
Banking and Finance ................................ 11.90 0.00 14.72 1.85 17.42
Brokers ............................................ 0.00 0.00 0.00 0.00 2.59
Commercial Service ................................. 0.00 1.25 0.00 0.00 0.24
Commercial & Industrial ............................ 0.82 0.00 2.75 0.00 0.00
Communications ..................................... 0.00 0.00 3.72 0.00 0.00
Conglomerate ....................................... 2.09 0.04 0.00 13.87 0.00
Consumer ........................................... 10.79 6.12 6.43 13.88 12.30
Consumer Electronics ............................... 0.00 0.00 0.00 0.00 0.05
Electronics ........................................ 14.39 0.37 19.63 0.00 3.91
Food & Beverages ................................... 5.01 0.00 7.08 0.00 0.50
Health Care ........................................ 4.58 0.00 0.00 2.27 0.00
Hotels ............................................. 2.34 0.00 0.00 0.00 0.00
Household .......................................... 0.00 0.00 1.24 0.00 0.00
Industrial ......................................... 0.00 1.09 0.00 0.00 4.84
Infrastructure ..................................... 0.00 0.00 0.00 6.27 0.00
Insurance .......................................... 6.46 0.00 8.82 1.79 0.00
Machinery & Equipment .............................. 0.00 0.00 0.44 0.00 7.43
Manufacturing ...................................... 1.47 0.00 0.00 0.00 2.18
Media .............................................. 1.69 2.66 0.00 0.00 3.45
Paper Products ..................................... 0.00 0.00 0.51 0.00 0.00
Petro-Chemical ..................................... 0.00 4.25 13.17 8.04 0.41
Pharmaceutical ..................................... 0.00 0.00 2.14 7.48 6.43
Printing ........................................... 0.00 0.00 0.00 0.00 8.22
Property ........................................... 0.00 0.00 0.00 3.74 1.27
Real Estate Rental ................................. 0.00 0.00 0.00 0.00 1.43
Retail ............................................. 6.30 0.00 0.00 0.00 7.57
Security Service ................................... 0.04 0.00 0.92 0.00 0.00
Shipping & Steel ................................... 0.00 0.00 0.88 0.00 0.00
Software ........................................... 0.00 0.00 0.00 0.00 3.15
Supermarket ........................................ 0.00 0.00 0.00 0.00 1.49
Technology ......................................... 5.67 1.74 0.28 5.70 6.89
Telecommunications ................................. 8.38 1.46 5.91 8.17 6.61
Textile ............................................ 0.00 1.43 0.00 0.00 0.00
Toys ............................................... 0.00 0.00 0.00 0.00 1.62
Trading ............................................ 4.41 0.00 0.00 0.00 0.00
Transportation ..................................... 0.00 0.00 0.00 6.40 0.00
Utility ............................................ 10.73 2.06 6.06 11.78 0.00
----- ---- ---- ----- ----
Total Equities ................................ 97.18% 22.47% 99.21% 100.00% 100.00%
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
MARKET SECTOR DIVERSIFICATION SCHEDULE OF INVESTMENTS AUGUST 31, 1999
As a Percentage of Total Value of Investment in Securities as of August 31, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Matthews Asian Dragon
Pacific Growth Matthews Century Matthews
Tiger and Income Korea China Japan
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BONDS
Automotive ......................................... 0.00% 3.73% 0.00% 0.00% 0.00%
Banking and Finance ................................ 2.82 10.67 0.00 0.00 0.00
Conglomerate ....................................... 0.00 5.68 0.00 0.00 0.00
Consumer ........................................... 0.00 0.11 0.00 0.00 0.00
Electrical Appliance ............................... 0.00 0.87 0.00 0.00 0.00
Electronics ........................................ 0.00 22.10 0.79 0.00 0.00
Food & Beverages ................................... 0.00 3.86 0.00 0.00 0.00
Hotels ............................................. 0.00 3.96 0.00 0.00 0.00
Industrial ......................................... 0.00 4.24 0.00 0.00 0.00
Infrastructure ..................................... 0.00 2.24 0.00 0.00 0.00
Petro-Chemical ..................................... 0.00 2.59 0.00 0.00 0.00
Property ........................................... 0.00 6.34 0.00 0.00 0.00
Telecommunications ................................. 0.00 2.98 0.00 0.00 0.00
Transportation ..................................... 0.00 5.31 0.00 0.00 0.00
Utility ............................................ 0.00 2.85 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Bonds ........................................ 2.82 77.53 0.79 0.00 0.00
------ ------ ------ ------ ------
TOTAL INVESTMENTS ..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Shares Value
--------- ---------
Equities - 94.74%***
China/Hong Kong - 45.03%
Asia Satellite Telecommunications
Holdings, Ltd. ADR 127,600 $ 3,094,300
Axa China Region, Ltd. 4,418,000 3,100,890
Beijing Datang Power Generation
Co., Ltd. H Shares** 5,384,000 1,438,756
Cafe De Coral Holdings, Ltd. 6,262,000 2,963,702
China Hong Kong Photo
Products Holdings, Ltd. 18,488,000 2,452,400
China Telecom
(Hong Kong), Ltd. ADR ** 32,800 2,039,750
China Telecom
(Hong Kong), Ltd.** 168,800 524,993
Dickson Concepts
International, Ltd. 3,015,500 2,796,121
Giordano International, Ltd. 4,347,000 4,030,754
Guangdong Electric Power
Development Co., Ltd. B Shares 3,540,294 1,887,573
Guangdong Kelon Electrical
Holdings Co., Ltd. H Shares 2,902,000 2,971,178
Hengan International
Group Co., Ltd. 6,952,000 2,574,019
Huaneng Power
International, Inc. ADR 122,900 1,536,250
Hutchison Whampoa, Ltd. 232,200 2,265,213
Legend Holdings, Ltd. 4,041,000 3,903,141
Li & Fung, Ltd. 1,492,000 4,784,453
Peregrine Investments
Holdings, Ltd.** 1,097,000 0
Quality Healthcare Asia, Ltd.** 2,418,000 448,418
Shangri-La Asia, Ltd. 2,240,000 2,538,603
Vitasoy International
Holdings, Ltd. 9,562,500 3,109,546
Wuxi Little Swan Co., Ltd.
B Shares 2,687,483 1,592,090
-----------
Total China/Hong Kong 50,052,150
-----------
Indonesia - 1.22%
PT Hero Supermarket** 5,564,500 1,360,292
PT Steady Safe
Transportation Service** 6 0
-----------
Total Indonesia 1,360,292
-----------
Malaysia - 0.88%
PhileoAllied Berhad 1,521,000 979,844
Public Bank Berhad 3 3
-----------
Total Maylasia 979,847
-----------
Philippines - 4.61%
Benpres Holdings Corp.** 9,294,000 1,827,176
Manila Electric Co. B Shares 691,000 2,055,148
<PAGE>
Shares Value
--------- ---------
Philippine Long Distance
Telephone Co. 46,280 $ 1,096,489
SPI Technologies, Inc. 569,000 143,415
-----------
Total Philippines 5,122,228
-----------
Singapore - 10.17%
Avimo Group, Ltd. 1,599,600 2,099,861
CSE Systems &
Engineering, Ltd.** 1,851,000 1,770,187
Parkway Holdings, Ltd. 921,000 1,936,644
Venture Manufacturing
(Singapore), Ltd. 335,800 3,211,393
Vickers Ballas Holdings, Ltd. 3,238,000 2,288,815
-----------
Total Singapore 11,306,900
-----------
South Korea - 23.66%
Comtec System Co., Ltd. 206,470 2,186,256
Dae Duck Electronics Co.** 94,652 1,114,501
Hana Bank 377,289 3,355,811
Hite Brewery Co., Ltd.** 74,357 2,324,247
Korea Electric Power
Corp. ADR 20,000 360,000
Korea Electric Power Corp. 87,340 3,255,366
Korea Telecom Corp. ADR** 14,750 479,375
S1 Corp. 221 38,165
Samsung Electronics 36,018 6,834,419
Samsung Fire &
Marine Insurance 78,850 3,894,075
Samsung Securities Co., Ltd. 61,480 2,411,287
SK Telecom Co., Ltd. 44 44,019
-----------
Total South Korea 26,297,521
-----------
Taiwan - 0.86%
Bank Sinopac 1,548,000 954,113
-----------
Thailand - 8.31%
Advanced Info Service
Public Co., Ltd.** 97,500 1,338,335
Bangkok Bank Public
Co., Ltd.** 1,121,100 2,852,486
Charoen Pokphand Feedmill
Public Co., Ltd.** 636,300 1,942,774
Shinawatra Satellite
Public Co., Ltd.** 3,362,500 2,040,139
Srithai Superware Public
Co., Ltd.** 1,850,700 893,475
Thai Engine Manufacturing
Public Co., Ltd.** 595,800 115,055
Thai Reinsurance Public
Co., Ltd. 45,000 48,147
-----------
Total Thailand 9,230,411
-----------
Total Equities
(Cost $87,004,125) 105,303,462
-----------
14
<PAGE>
MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Face Amount Value
----------- ------------
International Dollar Bonds - 2.75%,***
Singapore - 2.75%
Finlayson Global Corp.
0.000%, 02/19/04
(Cost $2,422,466) $1,670,000 $ 3,060,275
------------
TOTAL INVESTMENTS - 97.49%***
(Cost $89,426,591*) 108,363,737
CASH AND OTHER ASSETS,
LESS LIABILITIES - 2.51% 2,793,190
------------
NET ASSETS - 100% $111,156,927
============
* Cost for Federal income tax purposes is
$89,845,647 and net unrealized appreciation
consists of:
Gross unrealized appreciation $30,100,506
Gross unrealized depreciation (11,582,416)
-----------
Net unrealized appreciation $18,518,090
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 1999.
See accompanying notes to financial statements.
15
<PAGE>
MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Shares Value
--------- ---------
Equities - 21.53%****
China/Hong Kong - 16.32%
ASM Pacific Technology, Ltd. 194,000 $ 177,388
Cable & Wireless HKT, Ltd. 6,600 148,913
Cafe De Coral Holdings, Ltd. 446,000 211,084
Chen Hsong Holdings, Ltd. 530,000 74,399
China Hong Kong Photo Products
Holdings, Ltd. 1,186,003 157,321
Dairy Farm International
Holdings, Ltd. 214,000 212,930
Hong Kong Aircraft
Engineering Co., Ltd. 72,400 127,739
Peregrine Investments
Holdings, Ltd.** 64,000 0
Shadong Huaneng Power
Co., Ltd. ADR 48,000 210,000
South China Morning Post
(Holdings), Ltd. 428,000 271,465
Tungtex Holdings 834,000 146,073
----------
Total China/Hong Kong 1,737,312
----------
Malaysia - 0.04%
Renong Berhad Warrants** 40,000 4,211
----------
South Korea - 4.07%
SK Corp. GDR 34,000 272,000
Ssangyong Oil Refining Co., Ltd.
Pfd. Shares 7,300 160,779
----------
Total South Korea 432,779
----------
Taiwan - 0.70%
Ton Yi Industrial Corp.** 77,920 36,510
Winbond Electronics Corp.** 2,000 38,000
----------
Total Taiwan 74,510
----------
Thailand - 0.40%
Srithai Superware
Public Co., Ltd** 88,000 42,484
----------
Total Equities
(Cost $2,132,963) 2,291,296
----------
Face Amount
-----------
International Dollar Bonds - 74.26%****
China/Hong Kong - 30.78%
Shangri-La Asia
Capital, Ltd.
2.875%, 12/16/00 $ 380,000 352,450
HSH Overseas Finance, Ltd.
5.000%, 01/06/01 250,000 239,375
Hong Kong Land Co.
4.000%, 02/23/01 150,000 142,875
New World Infrastructure, Ltd.
5.000%, 07/15/01 250,000 228,750
Qingling Motors, Ltd.***
3.500%, 01/22/02 1,000,000 380,000
<PAGE>
Face Amount Value
----------- --------
First Pacific Capital, Ltd.
2.000%, 03/27/02 $250,000 $251,875
Tingyi (C.I.) Holding Corp.
1.625%, 07/17/02 250,000 171,250
Shanghai Industrial Investment Co.
1.000%, 02/24/03 200,000 190,500
Cosco Treasury Co., Ltd.
1.000%, 03/13/03 300,000 293,250
Guangdong Investment, Ltd.***
3.250%, 04/07/03 170,000 72,250
Zhenhai Refining & Chemical Co., Ltd.
3.000%, 12/19/03 250,000 263,750
Huaneng Power International
Public Co., Ltd.
1.750%, 05/21/04 300,000 290,250
Regal Hotels International
Holdings, Ltd.
5.250%, 12/13/08 95,000 51,775
Amoy Properties, Ltd.
5.500%, 12/29/49 450,000 347,625
----------
Total China/Hong Kong 3,275,975
----------
Indonesia - 3.41%
Asia Pulp & Paper Global
Finance V, Ltd.
2.000%, 07/25/00 150,000 141,375
Polymax***
2.000%, 02/27/06 260,000 222,300
----------
Total Indonesia 363,675
----------
Philippines - 4.40%
Metro Pacific Capital, Ltd.
2.500%, 04/11/03 60,000 64,800
JG Summit (Cayman), Ltd.
3.500%, 12/23/03 80,000 60,200
International Container
Terminal Services, Inc.
1.750%, 03/13/04 250,000 248,125
FDC Capital Cayman
2.500%, 05/15/06 90,000 95,625
----------
Total Philippines 468,750
----------
Singapore - 6.30%
Fullerton Global Corp.
0.000%, 04/02/03 300,000 303,750
Finlayson Global Corp.***
0.000%, 02/19/04 200,000 366,500
----------
Total Singapore 670,250
----------
16
<PAGE>
MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Face Amount Value
----------- --------
South Korea - 9.68%
Samsung Display Devices Co.
0.250%, 03/12/06 $250,000 $ 273,750
Samsung Electronics Co.
0.250%, 12/31/06 200,000 466,000
Samsung Electronics Co.
0.000%, 12/31/07 200,000 290,500
----------
Total South Korea 1,030,250
----------
Taiwan - 12.32%
Winbond Electronics Corp.
1.000%, 11/04/02 300,000 405,750
Yageo Corp.
1.250%, 07/24/03 80,000 95,200
Compal Electronics, Inc.
1.000%, 11/21/03 100,000 357,500
Walsin Lihwa Corp.
3.250%, 06/16/04 120,000 88,800
Acer Peripherals, Inc.
1.250%, 11/27/06 180,000 364,500
----------
Total Taiwan 1,311,750
----------
Thailand - 7.37%
Bank of Asia Public Co., Ltd.
3.750%, 02/09/04 300,000 162,000
Bangkok Bank Public Co.
4.589%, 03/03/04 625,000 320,312
Robinson Department Store
Public Co., Ltd.
4.250%, 04/07/04 50,000 10,750
<PAGE>
Face Amount Value
----------- --------
Tipco Asphalt Co.
2.750%, 09/19/06 $300,000 $291,000
-----------
Total Thailand 784,062
-----------
Total International Dollar Bonds
(Cost $7,256,498) 7,904,712
-----------
TOTAL INVESTMENTS - 95.79%****
(Cost $9,389,461*) 10,196,008
CASH AND OTHER ASSETS,
LESS LIABILITIES - 4.21% 447,773
-----------
NET A SETS - 100% $10,643,781
===========
* Cost for Federal income tax purposes
is $9,389,749 and net unrealized appreciation
consists of:
Gross unrealized appreciation $1,647,392
Gross unrealized depreciation (841,133)
----------
Net unrealized appreciation $ 806,259
==========
** 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 August 31,
1999, the value of these securities amounted to $1,041,050 or 9.78% of net
assets.
**** As a percentage of net assets as of August 31, 1999. See accompanying
notes to financial statements.
17
<PAGE>
MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Shares Value
-------- ----------
Equities - South Korea - 98.43%***
Comtec Systems Co., Ltd. 373,700 $3,957,010
Dacom Corp.** 87,048 8,664,244
Dae Duck Electronics Co. 365,644 4,305,343
Dae Duck Industrial Co., Ltd. 247,490 2,631,084
Daehan City Gas Co. 43,860 1,337,535
Dongbu Insurance Co., Ltd. 248,700 1,122,889
Dongbu Securities Co. 218,100 1,394,879
Dongwon Securities Co. 140,130 3,418,673
Global & Yuasa Battery Co. 32,060 909,792
Han Kuk Carbon Co., Ltd. 508,120 2,823,604
Han Kuk Paper
Manufacturing Co. 78,680 1,259,680
Hana Bank 695,100 6,182,592
Hanjin Heavy Industries 24,895 234,083
Hankook Synthetics, Inc. 336,786 907,225
Hankook Tire Co., Ltd. 781,392 3,620,681
Hanmi Pharmaceutical
Industrial Co. 69,826 955,265
Hite Brewery Co., Ltd.** 219,251 6,853,335
Honam Petrochemical Corp. 118,790 2,435,170
Housing & Commercial
Bank, Korea** 299,657 7,005,958
Hyundai Heavy Industries** 34,230 1,919,548
Hyundai Motor Co., Ltd.** 208,840 6,474,836
Hyundai Precision Co.** 74,000 1,065,650
Kolon Chemical Co. 59,220 1,494,922
Kookmin Bank 440,263 6,153,612
Korea Electric Power Corp. ADR 199,700 3,594,600
Korea Electric Power Corp. 265,400 9,892,080
Korea Electric Terminal Co. 240,000 2,734,435
Korea Fine Chemical Co. 46,520 1,532,933
Korea Telecom Corp. ADR** 46,817 1,521,552
Korea Telecom Corp. 67,700 4,243,795
LG Cable, Ltd. 293,091 6,703,479
LG Chemical, Ltd. 223,458 7,136,270
LG Information &
Communication, Ltd. 101,611 9,080,864
LG Insurance Co., Ltd. 623,740 3,989,188
Lotte Chilsung Beverage Co. 34,260 2,423,304
Lotte Confectionery Co. 23,990 3,312,469
Medison Co., Ltd. 179,936 2,286,353
Nong Shim Co., Ltd. 76,010 4,713,199
Oriental Fire &
Marine Insurance 130,640 2,788,757
Pacific Corp. 121,710 3,031,151
Pusan City Gas Co., Ltd. 99,550 2,445,531
S1 Corp. 13,056 2,256,229
<PAGE>
Shares Value
-------- ----------
Samsung Display Devices Co. 84,093 $ 4,865,355
Samsung Electronics 139,324 26,436,744
Samsung Fire & Marine Insurance 276,200 13,640,373
Samsung Securities Co., Ltd. 168,536 6,610,095
Seoul City Gas Co., Ltd. 43,860 1,304,097
Shinhan Bank 480,752 5,172,004
Shinhung Co. 342,700 1,538,594
Shinsegae Department Store Co. 199,680 15,713,911
Sindo Ricoh Co. 77,146 3,006,113
SK Corp. GDR 369,000 2,952,000
SK Corp. 176,490 4,260,877
SK Telecom Co., Ltd. 16 16,007
Ssangyong Oil
Refining Co., Ltd. 194,600 4,829,970
Suheung Capsule 35,050 436,455
Trigem Computer, Inc. 9,067 675,897
------------
Total Equities
(Cost $113,566,392) 242,272,291
------------
Face Amount
-----------
International Dollar Bonds - 0.79%***
South Korea - 0.79%
Samsung Electronics Co.
0.250%, 12/31/06
(Cost $911,310) $830,000 1,933,900
------------
TOTAL INVESTMENTS - 99.22%***
(Cost $114,477,702*) 244,206,191
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.78% 1,920,982
------------
NET ASSETS - 100% $246,127,173
============
* Cost for Federal income tax purposes is $115,147,956 and
net unrealized appreciation consists of:
Gross unrealized appreciation $130,081,280
Gross unrealized depreciation (1,023,045)
------------
Net unrealized appreciation $129,058,235
============
** Non-income producing security
*** As a percentage of net assets as of August 31, 1999.
See accompanying notes to financial statements.
18
<PAGE>
MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Shares Value
-------- --------
Equities - China/Hong Kong - 96.63%***
Axa China Region, Ltd. 154,000 $108,089
Beijing Datang Power Generation
Co., Ltd. H Shares 436,000 116,511
Beijing Enterprises Holdings, Ltd. 114,000 227,562
Beijing North Star Co., Ltd.
H Shares 622,000 84,109
Brilliance China Automotive
Holdings, Ltd. 18,900 284,681
Cheung Kong Infrastructure
Holdings, Ltd. 31,000 62,480
China Everbright, Ltd.** 124,000 111,785
China Hong Kong Photo Products
Holdings, Ltd. 654,000 86,752
China Pharmaceutical Enterprise
and Investment Corp., Ltd. 1,482,000 282,471
China Resources Enterprises, Ltd. 64,000 105,088
China Telecom
(Hong Kong), Ltd.** 100,000 311,015
China Vanke Co., Ltd. B Shares 313,909 141,493
Citic Pacific, Ltd. 58,000 180,389
Cosco Pacific, Ltd. 268,000 234,697
Dazhong Transportation Co.
B Shares** 66,000 26,796
Eastern Communications Co., Ltd.
B Shares 202,000 181,800
First Tractor Co., Ltd. H Shares 499,000 102,822
Glorious Sun Enterprises, Ltd. 524,000 168,708
Guangdong Electric Power
Development Co., Ltd.
B Shares 376,896 200,949
Guangdong Kelon Electrical
Holdings Co., Ltd. H Shares 226,500 231,899
Guangzhou Pharmaceutical Co., Ltd.
H Shares 1,000,000 168,708
Harbin Power Equipment Co., Ltd.
H Shares 1,284,000 120,712
Hengan International
Group Co., Ltd.** 370,000 136,995
Legend Holdings, Ltd. 356,000 343,855
New World Infrastructure, Ltd.** 74,000 103,878
<PAGE>
Shares Value
-------- --------
Ng Fung Hong, Ltd. 192,000 $ 134,760
Qingling Motors Co., Ltd.
H Shares 634,000 141,254
Shandong International Power
Development Co., Ltd.
H Shares** 898,000 179,255
Shanghai Industrial
Holdings, Ltd. 57,000 135,804
Shanghai Petrochemical Co., Ltd.
H Shares 1,090,000 234,428
Shanghai Zhenhua Port
Machinery Co., Ltd.
B Shares 360,000 124,560
Tianjin Development Holdings, Ltd. 268,000 188,103
Want Want Holdings, Ltd. 35,000 63,000
Wuxi Little Swan Co., Ltd.
B Shares 257,400 152,486
Zhejiang Expressway Co., Ltd.
H Shares 1,194,000 212,201
Zhejiang Southeast Electric
Power Co., Ltd. B Shares 281,000 93,854
Zhenhai Refining and
Chemical Co., Ltd. H Shares 938,000 250,660
----------
TOTAL INVESTMENTS - 96.63%***
(Cost $5,892,734*) 6,034,609
CASH AND OTHER ASSETS
LESS LIABILITIES - 3.37% 210,664
----------
NET ASSETS - 100% $6,245,273
==========
* Cost for Federal income tax purposes is
$5,986,656 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 748,821
Gross unrealized depreciation (700,868)
----------
Net unrealized appreciation $47,953
==========
** Non-income producing security
*** As a percentage of net assets as of August 31, 1999.
See accompanying notes to financial statements.
19
<PAGE>
MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS AUGUST 31, 1999
Shares Value
-------- --------
Equities - 102.88%***
Japan - 102.88%
Aiphone Co., Ltd. 30,000 $ 458,413
Airport Facilities Co., Ltd. 11,000 61,698
Arcland Sakamoto Co., Ltd. 60,000 867,417
Asia Securities Printing Co. Ltd. 45,000 1,502,882
Atlantis Japan Growth Fund** 45,600 558,144
The Bank of Fukuoka, Ltd. 100,000 592,918
Chofu Seisakusho Co., Ltd. 34,000 619,087
Daito Chemix Corp. 12,000 176,777
Daiwa Securities Group, Inc. 83,000 752,612
Eiden Co., Ltd. 101,000 1,238,357
Gun Ei Chemical
Industry Co., Ltd. 40,000 103,212
Gunze Limited 208,000 548,120
Hachijuni Bank, Ltd. 50,000 340,836
Hankyu Realty Co., Ltd. 20,000 84,180
Heiwa Real Estate Co., Ltd. 70,000 217,129
Himiko Co., Ltd. 65,000 993,229
Hisaka Works, Ltd. 14,000 71,223
Ichiyoshi Securities Co., Ltd. 201,000 1,132,912
Japan Airport Terminal Co., Ltd. 30,000 359,594
Japan Co., Ltd. 5,000 156,922
Kansai Sekiwa Real Estate, Ltd. 4,000 17,385
Kokusai Securities Co., Ltd. 40,000 651,478
Kyocera Corp. 7,000 461,158
Marche Corp. 27,000 689,267
Marusan Securities Co., Ltd. 3,000 18,446
Miroku Jyoho Service Co., Ltd. 40,000 794,217
Nintendo Co., Ltd. 2,400 407,357
Nippon Broadcasting System, Inc. 14,000 869,796
Nippon Conlux Co., Ltd. 92,000 522,756
Nippon Telegraph &
Telephone Corp. ADR 14,200 802,300
Nitto Kohki Co., Ltd. 36,000 849,849
Okinawa Cellular Telephone Co. 105 403,514
Q'sai Co., Ltd. 2,000 126,270
<PAGE>
Shares Value
-------- --------
Ralse Co., Ltd. 16,000 $ 376,247
Sankyo Co., Ltd. 58,000 1,618,629
Softbank Corp. 4,200 1,444,963
Sony Corp. ADR 100 12,731
Takara Printing Co., Ltd. 46,000 568,213
Thanks Japan Corp. 29,000 1,061,396
Tochigi Fuji Industrial Co., Ltd. 141,000 423,168
Toyoda Auto SP Automatic
Loom Works, Ltd. 58,000 951,011
Universal Securities Co., Ltd. 203,000 993,732
Woodland Corp. 10,000 291,884
-----------
TOTAL INVESTMENTS - 102.88%***
(Cost $20,275,781*) 25,191,429
LIABILITIES, LESS CASH AND
OTHER ASSETS - (2.88%) (705,556)
-----------
NET ASSETS - 100% $24,485,873
===========
Schedule of Forward Foreign Exchange Contracts
Expiration Unrealized
Date Depreciation
---------- ------------
Forward Foreign Exchange
Contracts to Deliver
1,159,016,000 ****
Japanese Yen in exchange for
USD, $9,800,000 ................................11/30/99-01/31/00 (1,065,803)
* Cost for Federal income tax purposes is $20,306,153 and
net unrealized appreciation consists of:
Gross unrealized appreciation $5,049,130
Gross unrealized depreciation (163,854)
----------
Net unrealized appreciation $4,885,276
==========
** Non-income producing security
*** As a percentage of net assets as of August 31, 1999.
**** Principal amount denoted in Japanese Yen.
USD United States Dollars
See accompanying notes to financial statements.
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Pacific Asian Growth Matthews Matthews Matthews
Tiger and Income Korea Dragon Century Japan
Fund Fund Fund China Fund Fund
--------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value (Cost $89,426,591,
$9,389,461, $114,477,702, $5,892,734
and $20,275,781, respectively) .............. $108,363,737 $10,196,008 $244,206,191 $6,034,609 $25,191,429
Cash ......................................... 1,825,059 316,081 4,285,450 285,725 802,146
Foreign currency, at value (Cost $1,490,766,
$5,104, $0, $476 and $533, respectively) .... 1,491,967 5,104 -- 451 784
Dividends and interest receivable ............ 309,801 107,471 2,529 16,295 4,363
Receivable for securities sold ............... -- -- -- -- 264,433
Receivable for capital shares sold ........... 449,279 173,866 575,735 3,000 141,000
Deferred organization costs (Note 1-F) ....... 223 223 1,393 10,724 --
Other assets ................................. 63,660 2,263 179,172 6,540 14,649
------------ ----------- ------------ ---------- -----------
Total assets ................................ 112,503,726 10,801,016 249,250,470 6,357,344 26,418,804
------------ ----------- ------------ ---------- -----------
Liabilities:
Payable for securities purchased ............. -- 99,890 -- -- 692,236
Payable for capital shares redeemed .......... 1,080,329 40,217 2,675,652 46,741 144,672
Due to Advisor (Note 2) ...................... 165,449 542 194,275 51,372 10,760
Accrued expenses ............................. 100,925 16,586 252,970 5,658 19,460
Accrued distribution expense ................. 96 -- 400 -- --
Unrealized depreciation on forward
foreign exchange contracts .................. -- -- -- -- 1,065,803
Other liabilities ............................ -- -- -- 8,300 --
------------ ----------- ------------ ---------- -----------
Total liabilities ........................... 1,346,799 157,235 3,123,297 112,071 1,932,931
------------ ----------- ------------ ---------- -----------
Net Assets: ..................................... $111,156,927 $10,643,781 $246,127,173 $6,245,273 $24,485,873
============ =========== ============ ========== ===========
Class I Shares:
Net assets (Applicable to 10,564,114,
1,136,155, 30,814,225, 736,238 and
1,128,423 shares of beneficial interest
issued and outstanding, respectively,
unlimited number of shares
authorized with a $0.001 par value) ......... $109,936,424 $10,643,781 $230,846,070 $6,245,273 $24,485,873
============ =========== ============ ========== ===========
Net asset value, offering price and redemption
price per Class I share ..................... $10.41 $9.37 $7.49 $8.48 $21.70
============ =========== ============ ========== ===========
Class A Shares:*
Net assets (Applicable to 117,250, 0,
2,053,344, 0 and 0 shares of beneficial
interest issued and outstanding,
respectively, unlimited number
of shares authorized with a $0.001
par value) .................................. $ 1,220,503 N/A $ 15,281,103 N/A N/A
============ =========== ============ ========== ===========
Net asset value and redemption price
per Class A share ........................... $10.41 N/A $7.44 N/A N/A
============ =========== ============ ========== ===========
Offering price per Class A share
(Net asset value + 0.9505) ................... $10.95 N/A $7.83 N/A N/A
============ =========== ============ ========== ===========
Net Assets Consist of:
Capital paid-in .............................. $100,711,409 $10,540,342 $ 92,164,513 $6,789,914 $20,233,091
Accumulated undistributed net
investment income (loss) .................... 1,634,802 94,927 (643,314) 88,179 --
Accumulated net realized gain (loss)
on investments .............................. (10,127,308) (798,032) 24,877,485 (774,711) 402,783
Net unrealized appreciation on investments and
foreign currency related transactions ....... 18,938,024 806,544 129,728,489 141,891 3,849,999
------------ ----------- ------------ ---------- -----------
$111,156,927 $10,643,781 $246,127,173 $6,245,273 $24,485,873
============ =========== ============ ========== ===========
</TABLE>
* At August 31, 1999, Matthews Asian Growth and Income Fund , Matthews Dragon
Century China Fund and Matthews Japan Fund did not offer Class A shares.
N/A - Not Applicable
See accompanying notes to financial statements.
21
<PAGE>
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
Matthews Matthews
Pacific Asian Growth Matthews Matthews Matthews
Tiger and Income Kore Dragon Century Japan
Fund Fund Fund China Fund Fund
-------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign tax withheld
of $70,733, $2,845, $340,884, $608, and
$874, respectively) .......................... $ 3,057,705 $ 228,360 $ 2,131,980 $ 105,964 $ 5,222
Interest ...................................... 81,668 414,559 120,952 5,457 11,761
Other income .................................. 369,705 10,944 1,437,595 37,395 21,316
----------- ---------- ------------ ---------- ----------
Total investment income ...................... 3,509,078 653,863 3,690,527 148,816 38,299
----------- ---------- ------------ ---------- ----------
Expenses:
Investment advisory fees (Note 2) ............. 666,384 65,119 1,597,951 30,128 41,869
Recovery of reimbursed expenses (Note 2) ...... 140,254 -- -- -- --
Distribution expenses ......................... 967 -- 22,985 -- --
Transfer agent fees ........................... 80,532 12,822 283,908 2,880 17,059
Administration fees ........................... 61,577 3,677 161,205 -- 15,359
Accounting fees ............................... 68,855 5,548 167,925 -- 19,411
Professional fees ............................. 39,439 5,439 89,099 1,465 1,812
Custodian fees ................................ 122,467 15,185 328,333 5,483 10,558
Directors fees (Note 2) ....................... 3,913 1,240 8,655 974 58
Insurance expense ............................. 6,385 730 10,182 167 1
Amortization of organization costs (Note 1-F).. 6,734 6,734 3,124 3,088 17,830
Printing expense .............................. 32,146 3,564 49,728 2,107 5,598
Registration expenses ......................... 37,044 13,014 81,049 16,683 15,287
Servicing fees (Note 2) ....................... -- -- 48,423 -- --
Other expenses ................................ 1,729 281 637 -- 98
----------- ---------- ------------ ---------- ----------
Total expenses ............................... 1,268,426 133,353 2,853,204 62,975 144,940
Expenses reimbursed and waived (Note 2) ....... (976) (9,680) -- (2,720) (60,914)
----------- ---------- ------------ ---------- ----------
Net expenses ................................. 1,267,450 123,673 2,853,204 60,255 84,026
----------- ---------- ------------ ---------- ----------
Net Investment Income (Loss) ..................... 2,241,628 530,190 837,323 88,561 (45,727)
----------- ---------- ------------ ---------- ----------
Realized and Unrealized Gain on Investments and
Foreign Currency Related Transactions:
Net realized gain (loss) on investments ....... 204,334 (14,764) 37,970,291 (513,485) 442,153
Net realized gain (loss) on foreign currency
related transactions ......................... (229,772) 1,409 (779,819) 478 6,357
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions ................ 47,488,287 2,441,914 143,518,288 2,028,439 3,849,999
----------- ---------- ------------ ---------- ----------
Net realized and unrealized gain on investments
and foreign currency related transactions .... 47,462,849 2,428,559 180,708,760 1,515,432 4,298,509
----------- ---------- ------------ ---------- ----------
Net Increase in Net Assets from Operations ....... $49,704,477 $2,958,749 $181,546,083 $1,603,993 $4,252,782
=========== ========== ============ ========== ==========
</TABLE>
* The Fund commenced operations on December 31, 1998.
See accompanying notes to financial statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Pacific Matthews Asian
Tiger Fund Growth and Income Fund
----------------------------- -----------------------------
Year Year Year Year
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................ $ 2,241,628 $ 137,926 $ 530,190 $ 72,168
Net realized loss on investments and
foreign currency related transactions ....... (25,438) (10,655,927) (13,355) (548,730)
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions ....... 47,488,287 (27,390,703) 2,441,914 (1,847,576)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets from operations .................. 49,704,477 (37,908,704) 2,958,749 (2,324,138)
------------ ------------ ----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I ..................................... (233,408) (109,051) (436,230) (56,200)
Class A ..................................... (1,392) (508) N/A N/A
Realized gains on investments:
Class I ..................................... -- (490,577) -- (560,367)
Class A ..................................... -- (2,286) N/A N/A
------------ ------------ ----------- -----------
Net decrease in net assets resulting
from distributions .......................... (234,800) (602,422) (436,230) (616,567)
------------ ------------ ----------- -----------
Capital Share Transactions (net):
Class I ..................................... 29,385,046 26,084,128 4,058,565 837,410
Class A ..................................... 837,725 244,324 N/A N/A
------------ ------------ ----------- -----------
Increase in net assets derived from
capital share transactions .................. 30,222,771 26,328,452 4,058,565 837,410
------------ ------------ ----------- -----------
Total increase (decrease) in net assets ...... 79,692,448 (12,182,674) 6,581,084 (2,103,295)
Net Assets:
Beginning of period .......................... 31,464,479 43,647,153 4,062,697 6,165,992
------------ ------------ ----------- -----------
End of period (including undistributed
net investment income of $1,634,802,
$75,013, $94,927 and $14,166, respectively).. $111,156,927 $ 31,464,479 $10,643,781 $ 4,062,697
============ ============ =========== ===========
</TABLE>
N/A - Not Applicable
See accompanying notes to financial statements.
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Matthews Korea Matthews Dragon
Fund Century China Fund
----------------------------- -------------------------
Year Year Year Period
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) ................. $ 837,323 ($ 743,286) $ 88,561 $ 37,836
Net realized gain (loss) on investments and
foreign currency related transactions ....... 37,190,472 (13,212,349) (513,007) (262,099)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions ............... 143,518,288 (13,075,569) 2,028,439 (1,886,548)
------------ ------------- ---------- -----------
Net increase (decrease) in
net assets from operations .................. 181,546,083 (27,031,204) 1,603,993 (2,110,811)
------------ ------------- ---------- -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class I ..................................... -- -- (40,925) --
Class A ..................................... -- -- N/A N/A
Realized gains on investments:
Class I ..................................... -- -- -- --
Class A ..................................... -- -- N/A N/A
------------ ------------- ---------- -----------
Net decrease in net assets resulting
from distributions .......................... -- -- (40,925) --
------------ ------------- ---------- -----------
Capital Share Transactions (net):
Class I ..................................... (6,709,788) 73,040,728 3,106,211 3,686,805
Class A ..................................... 560,219 5,365,114 N/A --
------------ ------------- ---------- -----------
Increase (decrease) in net assets derived from
capital share transactions .................. (6,149,569) 78,405,842 3,106,211 3,686,805
------------ ------------- ---------- -----------
Total increase in net assets ................. 175,396,514 51,374,638 4,669,279 1,575,994
Net Assets:
Beginning of period .......................... 70,730,659 19,356,021 1,575,994 --
------------ ------------- ---------- -----------
End of period (including undistributed
net investment income (loss) of ($643,314),
$0, $88,179 and $37,836, respectively) ...... $246,127,173 $ 70,730,659 $6,245,273 $ 1,575,994
============ ============ ========== ===========
</TABLE>
* The Fund commenced operations on February 19, 1998.
N/A - Not Applicable
See accompanying notes to financial statements.
24
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Matthews Japan
Fund
--------------
Period
Ended
August 31,
1999*
--------------
Operations:
Net investment loss ........................ ($ 45,727)
Net realized gain on investments and foreign
currency related transactions ............. 448,510
Net change in unrealized appreciation on
investments and foreign currency
related transactions ...................... 3,849,999
------------
Net increase in net assets from operations.. 4,252,782
------------
Capital Share Transactions (net):
Class I .................................... 20,233,091
Class A .................................... N/A
------------
Increase in net assets derived from
capital share transactions ................ 20,233,091
------------
Total increase in net assets ............... 24,485,873
Net Assets:
Beginning of period ........................ --
------------
End of period .............................. $ 24,485,873
============
* The Fund commenced operations on December 31, 1998.
N/A - Not Applicable
See accompanying notes to financial statements.
25
<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
---------------------------------------------------------------------
Year Year Period Year Year
Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31,
1999 1999 1998(5) 1998 1997
---------- ---------- ---------- ---------- ----------
Class A Class I Class A Class I Class I
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .............. $ 4.07 $ 4.07 $ 10.84 $ 11.30 $ 10.81
------- -------- ------- ------- -------
Income (loss) from Investment Operations
Net investment income .......................... 0.21 0.21 0.03(6) 0.02(6) 0.02
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency .......................... 6.15 6.15 (6.73) (7.18) 0.50
------- -------- ------- ------- -------
Total from investment operations .............. 6.36 6.36 (6.70) (7.16) 0.52
------- -------- ------- ------- -------
Less Distributions from:
Net investment income .......................... (0.02) (0.02) (0.01) (0.01) (0.01)
Net realized gains on investments .............. -- -- (0.06) (0.06) (0.02)
------- -------- ------- ------- -------
Total distributions ........................... (0.02) (0.02) (0.07) (0.07) (0.03)
------- -------- ------- ------- -------
Net Asset Value, end of period .................... $ 10.41 $ 10.41 $ 4.07 $ 4.07 $ 11.30
======= ======== ======= ======= =======
Total Return ...................................... 156.28%(3) 156.28% (61.87%)(2,3) (63.43%) 4.75%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........... $ 1,221 $109,936 $ 146 $31,319 $43,647
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ...................... 2.15% 1.90% 11.99%(1) 2.06% 1.97%
Ratio of expenses to average net assets after
reimbursement and waiver of expenses by
Advisor and Administrator (Note 2) ............ 1.90% 1.90% 1.91%(1) 1.90% 1.90%
Ratio of net investment income (loss) to average
net assets before reimbursement and waiver of
expenses by Advisor and Administrator ......... 3.10% 3.35% (9.61%)(1) 0.14% 0.20%
Ratio of net investment income to average net
assets after reimbursement and waiver of
expenses by Advisor and Administrator ......... 3.35% 3.35% 0.47%(1) 0.30% 0.27%
Portfolio turnover ............................. 98.74% 98.74% 73.09% 73.09% 70.73%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Period
Ended Ended
August 31, August 31,
1996 1995(4)
---------- ----------
Class I Class I
---------- ----------
<S> <C> <C>
Net Asset Value, beginning of period .............. $ 9.77 $10.00
------- ------
Income (loss) from Investment Operations
Net investment income .......................... 0.01 0.02
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency .......................... 1.03 (0.23)
------- ------
Total from investment operations .............. 1.04 (0.21)
------- ------
Less Distributions from:
Net investment income .......................... -- (0.02)
Net realized gains on investments .............. -- --
------- ------
Total distributions ........................... -- (0.02)
------- ------
Net Asset Value, end of period .................... $ 10.81 $ 9.77
======= ======
Total Return ...................................... 10.64% (2.07%)(2)
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........... $17,148 $1,082
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ..................... 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% 2.17%(1)
Ratio of net investment income (loss) to average
net assets before reimbursement and waiver of
expenses by Advisor and Administrator ......... (2.13%) (23.41%)(1)
Ratio of net investment income to average net
assets after reimbursement and waiver of
expenses by Advisor and Administrator ......... 0.32% 0.36%(1)
Portfolio turnover ............................. 124.69% 92.53%(2)
</TABLE>
(1) Annualized
(2) Not annualized
(3) Total return calculation does not reflect sales load.
(4) Class I commenced operations on September 13, 1994.
(5) Class A commenced operations on October 9, 1997.
(6) Calculated using the average shares method.
See accompanying notes to financial statements.
26
<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 and Income Fund
------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31,
1999 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 (loss) from Investment Operations
Net investment income .......................... 0.59 0.13 0.10 0.25 0.23
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency .......................... 2.75 (4.15) 1.42 0.75 (0.14)
------- ------- ------- ------- ------
Total from investment operations .............. 3.34 (4.02) 1.52 1.00 0.09
Less Distributions from:
Net investment income .......................... (0.51) (0.10) (0.10) (0.26) (0.21)
Net realized gains on investments .............. -- (1.05) (0.24) (0.09) --
------- ------- ------- ------- ------
Total distributions ........................... (0.51) (1.15) (0.34) (0.35) (0.21)
------- ------- ------- ------- ------
Net Asset Value, end of period .................... $ 9.37 $ 6.54 $ 11.71 $ 10.53 $ 9.88
======= ======= ======= ======= ======
Total Return ...................................... 52.65% (35.27%) 14.67% 10.24% 0.89%(2)
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........... $10,644 $ 4,063 $ 6,166 $ 3,272 $ 863
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ..................... 2.05% 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% 1.90% 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 ......... 7.98% (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 .......... 8.13% 1.50% 1.00% 2.75% 2.17%(1)
Portfolio turnover ............................ 34.82% 54.67% 50.20% 88.16% 121.63%(2)
</TABLE>
(1) Annualized
(2) Not annualized
(3) The Fund commenced operations on September 13, 1994.
See accompanying notes to financial statements.
27
<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
-------------------------------------------------------
Year Year Period Year
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1999 1999 1998(6) 1998
---------- ---------- ---------- ----------
Class A Class I Class A Class I
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period ................ $ 2.01 $ 2.03 $ 5.32 $ 6.19
------ ------ ------ ------
Income (loss) from Investment Operations
Net investment income (loss) ..................... 0.01 0.03 (0.04) (0.03)
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency ............................ 5.42 5.43 (3.27) (4.13)
------ ------ ------ ------
Total from investment operations ................. 5.43 5.46 (3.31) (4.16)
------ ------ ------ ------
Less Distributions from:
Net realized gains on investments ................ -- -- -- --
Net Asset Value, end of period ...................... $ 7.44 $ 7.49 $ 2.01 $ 2.03
====== ====== ====== ======
Total Return ........................................ 270.15%(3) 268.97% (62.03%)(2,3) (67.21%)
Ratios/Supplemental Data
Net assets, end of period (in 000's) ............. $15,281 $230,846 $ 4,123 $ 66,607
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ....................... 2.02% 1.77% 2.97%(1) 2.07%
Ratio of expenses to average net assets
after reimbursement and waiver of expenses
by Advisor and Administrator (Note 2) ........... 2.02% 1.77% 2.68%(1) 2.06%
Ratio of net investment loss to average net assets
before reimbursement and waiver of expenses
by Advisor and Administrator .................... (0.62%) (0.37%) (2.03%)(1) (1.13%)
Ratio of net investment income (loss) to average
net assets after reimbursement and waiver
of expenses by Advisor and Administrator ........ (0.62%) (0.37%) (1.74%)(1) (1.12%)
Portfolio turnover ............................... 57.06% 57.06% 94.01% 94.01%
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Matthews Korea Fund
-------------------------------------
Year Year Period
Ended Ended Ended
August 31, August 31, August 31,
1997 1996 1995(5)
---------- ---------- ----------
Class I Class I Class I
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of period ................ $ 7.23 $ 9.13 $ 10.00
------ ------ -----
Income (loss) from Investment Operations
Net investment income (loss) ..................... (0.04)(4) (0.07) 0.08
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency ............................ (1.00)(4) (1.75) (0.95)
------ ------ -----
Total from investment operations ................. (1.04) (1.82) (0.87)
------ ------ -----
Less Distributions from:
Net realized gains on investments ................ -- (0.08) --
Net Asset Value, end of period ...................... $ 6.19 $ 7.23 $ 9.13
====== ====== =====
Total Return ........................................ (14.38%) (20.11%) (8.70%)(2)
Ratios/Supplemental Data
Net assets, end of period (in 000's) ............. $ 19,356 $ 2,721 $ 504
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ....................... 2.90% 11.36% 42.87%(1)
Ratio of expenses to average net assets
after reimbursement and waiver of expenses
by Advisor and Administrator (Note 2) ........... 2.50% 2.23% 0.24%(1)
Ratio of net investment loss to average net assets
before reimbursement and waiver of expenses
by Advisor and Administrator .................... (1.81%) (10.44%) (41.79%)(1)
Ratio of net investment income (loss) to average
net assets after reimbursement and waiver
of expenses by Advisor and Administrator ........ (1.41%) (1.31%) 0.84%(1)
Portfolio turnover ............................... 112.68% 139.71% 42.16%(2)
</TABLE>
(1) Annualized
(2) Not annualized
(3) Total return calculation does not reflect sales load.
(4) Calculated using the average shares method.
(5) The Korea Fund Class I commenced operations on January 3, 1995.
(6) The Korea Fund Class A commenced operations on October 9, 1997.
See accompanying notes to financial statements.
28
<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 Matthews
Century China Japan
Fund Fund
----------------------- --------
Year Period Period
Ended Ended Ended
August 31, August 31, August 31,
1999 1998(3) 1999(4)
---------- ---------- ----------
Class I Class I Class I
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of period .............. $ 4.36 $ 10.00 $ 10.00
------- ------- -------
Income (loss) from Investment Operations
Net investment income (loss) ................... 0.12 0.10 (0.04)
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments
and foreign currency .......................... 4.11 (5.74) 11.74
------- ------- -------
Total from investment operations ............... 4.23 (5.64) 11.70
------- ------- -------
Less Distributions from:
Net investment income .......................... (0.11) -- --
------- ------- -------
Net Asset Value, end of period .................... $ 8.48 $ 4.36 $ 21.70
======= ======= =======
Total Return ...................................... 97.79% (56.40%)(2) 117.00%(2)
Ratios/Supplemental Data
Net assets, end of period (in 000's) ........... $ 6,245 $ 1,576 $24,486
Ratio of expenses to average net assets before
reimbursement and waiver of expenses by
Advisor and Administrator ..................... 2.09% 7.84%1 3.45%(1)
Ratio of expenses to average net assets
after reimbursement and waiver of expenses
by Advisor and Administrator (Note 2) ......... 2.00% 2.00%1 2.00%(1)
Ratio of net investment income (loss) to average
net assets before reimbursement and waiver of
expenses by Advisor and Administrator ......... 2.93% (3.45%)1 (2.54%)(1)
Ratio of net investment income (loss)
to average net assets after reimbursement
and waiver of expenses
by Advisor and Administrator .................. 3.02% 2.38%1 (1.09%)(1)
Portfolio turnover ............................. 40.27% 11.84%2 28.92%(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 commenced operations on December 31, 1998.
See accompanying notes to financial statements.
29
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
1. Significant Accounting Policies
Matthews International Funds (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "Act"). The Company currently issues five separate series of shares
(each a "Fund" and collectively, the "Funds"): Matthews Pacific Tiger Fund,
Matthews Asian Growth and Income Fund (formerly, the Matthews Asian Convertible
Securities Fund), Matthews Korea Fund, Matthews Dragon Century China Fund and
Matthews Japan Fund. Matthews Pacific Tiger Fund, Matthews Korea Fund and
Matthews Dragon Century China Fund are authorized to offer two classes of
shares: Class I shares and Class A shares. Although authorized, on September 1,
1998, the Matthews Dragon Century China Fund suspended issuing Class A shares.
The classes offered have different sales charges and other expenses which may
affect performance. 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, Philippines, Thailand and China. Matthews Asian Growth and Income Fund
seeks capital appreciation and some current income by investing, under normal
circumstances, at least 65% of its total assets in the 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 commercial
pricing services 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 Funds may engage in forward
foreign exchange contracts for hedging a specific transaction in which the
currency is denominated as deemed appropriate by Matthews International
Capital Management, LLC (the "Advisor"). 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 Funds as an unrealized gain or loss. When the
contract is closed, the Funds record 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.
The use of forward foreign exchange contracts does not eliminate fluctuations
in the underlying prices of the Funds' 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
Funds could be exposed to risks if the counterparties 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.
30
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
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 year ended
August 31, 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 is 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. Fund and Class Allocations: The Funds account separately for the assets,
liabilities and operations of each Fund. Direct expenses of each Fund are
charged to the Fund while general expenses are allocated pro-rata among the
Funds based on net asset value. Income, expenses (other than class specific
expenses), and realized and unrealized gains (losses) are calculated at the
Fund level and allocated daily to each class of shares based on the relative
proportion of net assets of each class.
I. 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.
J. Other: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the accrual
basis and dividend income on the ex-dividend date.
K. 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.
Class A Shares are sold with a front-end sales charge of 4.95%. Transactions
in shares of beneficial interest were as follows:
<PAGE>
<TABLE>
<CAPTION>
MATTHEWS
PACIFIC TIGER FUND
------------------------------------------------------------------------------------------------------
Class I Class A
------------------------------------------------------ --------------------------------------------
Year Ended Year Ended Year Ended Period Ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998
-------------------------- ------------------------- --------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ------------ ---------- ----------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ............. 14,367,556 $125,011,426 11,658,573 $81,328,869 117,898 $1,081,693 40,296 $274,792
Shares issued through
reinvestment of
dividends ............. 20,786 223,856 109,556 563,118 129 1,390 544 2,794
Shares redeemed ......... (11,513,378) (95,850,236) (7,939,984) (55,807,859) (36,570) (245,358) (5,047) (33,262)
----------- ------------ ---------- ----------- ------- ---------- ------ --------
Net increase ............ 2,874,964 $ 29,385,046 3,828,145 $26,084,128 81,457 $ 837,725 35,793 $244,324
=========== ============ ========== =========== ======= ========== ====== ========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS
ASIAN GROWTH AND INCOME FUND
---------------------------------------------------
Class I
---------------------------------------------------
Year Ended Year Ended
August 31, 1999 August 31, 1998
------------------------ ---------------------
Shares Amount Shares Amount
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold ..................................... 1,019,797 $8,107,270 547,648 $4,710,652
Shares issued through reinvestment
of dividends ................................. 49,419 406,448 66,761 498,935
Shares redeemed ................................. (554,197) (4,455,153) (519,724) (4,372,177)
--------- ---------- -------- ----------
Net increase .................................... 515,019 $4,058,565 94,685 $ 837,410
========= ========== ======== ==========
</TABLE>
31
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
<TABLE>
<CAPTION>
MATTHEWS
KOREA FUND
--------------------------------------------------------------------------------------------------------
Class I Class A
------------------------------------------------------ ----------------------------------------------
Year Ended Year Ended Year Ended Period Ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998
-------------------------- ------------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ------------ ---------- ----------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ............. 46,512,355 $307,041,168 77,651,372 $199,169,372 349,768 $2,266,586 3,061,063 $8,324,379
Shares issued through
reinvestment
of dividends .......... - - - - - - - -
Shares redeemed ......... (48,584,494) (313,750,956) (47,890,663) (126,128,644) (343,013) (1,706,367) (1,014,474) (2,959,265)
----------- ------------ ----------- ------------ -------- ---------- ---------- ----------
Net increase (decrease) . (2,072,139) ($6,709,788) 29,760,709 $ 73,040,728 6,755 $ 560,219 2,046,589 $5,365,114
=========== ============ =========== ============ ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS DRAGON CENTURY
CHINA FUND
---------------------------------------------------
Class I
---------------------------------------------------
Year Ended Period Ended
August 31, 1999 August 31, 1998
------------------------ ---------------------
Shares Amount Shares Amount
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold ............... 791,595 $6,408,921 474,122 $4,516,710
Shares issued through
reinvestment
of dividends ............ 6,071 39,314 - -
Shares redeemed ........... (423,005) (3,342,024) (112,545) (829,905)
--------- ---------- -------- ----------
Net increase .............. 374,661 $3,106,211 361,577 $3,686,805
========= ========== ======== ==========
</TABLE>
MATTHEWS
JAPAN FUND
-------------------------
Class I
-------------------------
Period Ended
August 31, 1999
------------------------
Shares Amount
--------- ----------
Shares sold .............. 1,248,676 $22,728,238
Shares issued through
reinvestment
of dividends ........... - -
Shares redeemed .......... (120,253) (2,495,147)
--------- -----------
Net increase ............. 1,128,423 $20,233,091
========= ===========
<PAGE>
The Funds imposed a redemption fee of 2.00% on shares that are redeemed
within ninety days of purchase. The charge will be assessed on an amount
equal to the net asset value of the shares at the time of redemption. The
redemption fee is deducted from the proceeds otherwise payable to the
shareholder. The redemption fees were returned to the assets of the Pacific
Tiger Fund, Asian Growth and Income Fund, Korea Fund, Dragon Century China
Fund and Japan Fund in the amounts of $369,705, $10,944, $1,437,595, $37,395
and $21,316, respectively.
2. Investment Advisory Fees and Other Transactions with Affiliates
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. The Funds reimburse the Advisor any
service fees paid by it to the extent that shareholder service related
expenses are incurred by the Advisor. Certain officers and Trustees of the
Funds are also officers and directors of the Advisor. All officers serve
without direct compensation from the Funds. Investment advisory fees and
other transactions with affiliates, for the year ended August 31, 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% $ 666,384 976
Matthews Asian Growth
and Income Fund ...................... 1.00 1.90 65,119 9,680
Matthews Korea Fund ..................... 1.00 2.50 1,597,951 -
Matthews Dragon Century China Fund ...... 1.00 2.00 30,128 2,720
Matthews Japan Fund ..................... 1.00 2.00 41,869 60,914
</TABLE>
- -------------------
* For Funds offering Class A shares, the voluntary expense limitation would
include an additional 0.25% for Class A Distributor fees.
32
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
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 fiscal year ended August 31, 1999, Matthews Pacific Tiger Fund
reimbursed expenses to the Advisor totaling $140,254. As of August 31, 1999,
the total expenses waived and reimbursed by the Advisor that are subject to
reimbursement by Matthews Pacific Tiger Fund, Matthews Asian Growth and
Income Fund, Matthews Korea Fund, Matthews Dragon Century China Fund and
Matthews Japan Fund totaled $221,400, $205,126, $0, $95,458 and $60,914,
respectively.
The Matthews Korea Fund bears a portion of the fees paid to certain service
providers (exclusive of the Fund's transfer agent), which provide transfer
agency and shareholder servicing to certain shareholders. Fees paid to such
service providers for the year ended August 31, 1999 are reflected in the
statement of operations as follows: transfer agent fees - $96,847 and
shareholder servicing fees - $48,423.
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 and the Korea 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. Pacific Tiger
distribution fees were reimbursed by the Advisor. The Class I shares of the
Funds do not have a distribution plan.
4. Investment Transactions
Investment transactions for the fiscal year ended August 31, 1999, excluding
temporary short-term investments, were as follows:
Proceeds
Purchases from Sales
----------- -----------
Matthews Pacific Tiger Fund ................. $93,539,266 $63,764,840
Matthews Asian Growth and Income Fund ....... 5,946,898 2,205,522
Matthews Korea Fund ......................... 88,184,693 97,358,645
Matthews Dragon Century China Fund .......... 4,179,012 1,191,029
Matthews Japan Fund ......................... 22,096,416 2,262,788
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
5. Capital Loss Carryover
At August 31, 1999, the Funds had capital loss carryovers expiring through
2007 as follows:
Expiring on:
--------------------------
2006 2007
---------- ----------
Matthews Pacific Tiger Fund .................. $1,586,029 $8,122,479
Matthews Asian Growth and Income Fund ........ 51,948 726,172
Matthews Korea Fund .......................... - -
Matthews Dragon Century China Fund ........... - 295,158
Matthews Japan Fund .......................... - -
These amounts are available to offset possible future capital gains of the
Fund.
33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of Matthew International Funds:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of Matthews International Funds (comprised of the
Matthews Pacific Tiger Fund, Matthews Asian Growth and Income Fund, Matthews
Korea Fund, Matthews Dragon Century China Fund and Matthews Japan Fund,
collectively referred to as the "Funds") as of August 31, 1999, and the related
statements of operations, statements of changes in net assets and financial
highlights for the year then ended of the Matthews Pacific Tiger Fund, Matthews
Asian Growth and Income Fund, Matthews Korea Fund, and Matthews Dragon Century
China Fund, and the related statements of operations, changes in net assets and
financial highlights for the period from December 31, 1998 (commencement of
operations) to August 31, 1999 of Matthews Japan Fund. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statement of
changes in net assets for the year ended August 31, 1998 and the financial
highlights of the Funds for the periods prior to August 31, 1999 were audited by
other auditors whose report dated October 9, 1998 expressed an unqualified
opinion on those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Matthews International Funds as of August 31, 1999, the results of their
operations, changes in their net assets and the financial highlights for each of
the periods indicated above, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 1, 1999
34
<PAGE>
BOARD OF TRUSTEES
Richard K. Lyons
Robert K. Connolly
David Fitz William-Lay
Norman W. Berryessa
John H. Dracott - Trustee Emeritus
OFFICERS
G. Paul Matthews
Mark W. Headley
Joseph M. O'Donnell
Brian Stableford
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
800.789.ASIA (2742)
UNDERWRITER
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581-5108
SHAREHOLDER SERVICES
First Data Investor Services Group, Inc.
211 South Gulph Road
King of Prussia, Pennsylvania 19406-0903
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286-0007
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
[DRAGON LOGO]
For additional information about the
Matthews International Funds:
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CALIFORNIA 94104-1245
800.789.ASIA (2742)
www.matthewsfunds.com
Distributed by First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581-5108
It is expected that on or about December 1, 1999 that the distributor
function will be carried out by Provident Distributors Inc.,
Four Falls Corporate Center, West Conshohocken, PA 19428
<PAGE>
MATTHEWS
INTERNATIONAL FUNDS
www.matthewsfunds.com
MATTHEWS PACIFIC TIGER FUND
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS KOREA FUND
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS JAPAN FUND
[DRAGON LOGO]
ANNUAL REPORT
AUGUST 31, 1999
[FOREIGN
LANGUAGE
OMITTED]
