<PAGE> 1
As filed with the U.S. Securities and Exchange Commission on December 20, 1999.
FILE NO. 33-78960
File No. 811-8510
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. __________ [ ]
Post Effective Amendment No. 13 [ X ]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 16 [ X ]
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Matthews International Funds
- ----------------------------
(Exact name of Registrant as Specified in Charter)
456 Montgomery Street, Suite 1200, San Francisco, CA 94111
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(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (415)788-7553
G. Paul Matthews, President
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1438
San Francisco, California 94111
(Name and Address of Agent for Service)
COPIES TO:
Kelvin K. Leung, Esq. Joseph M. O'Donnell, Esq.
Paul, Hastings, Matthews International Capital
Janofsky & Walker LLP Management, LLC
345 California Street 456 Montgomery Street, Suite 1200
San Francisco, CA 94194-2635 San Francisco, California 94104-1245
Approximate date of proposed public offering: It is proposed that this filing
become effective:
[ X ] immediately upon filing pursuant to Paragraph (b) of Rule 485.
[ ] on (date) , pursuant to Paragraph (b).
--------------
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)of Rule 485.
----------------
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for previously
filed post-effective amendment.
================================================================================
The Registrant filed its Rule 24f-2 Notice for its fiscal year ended August 31,
1999 on November 23, 1999.
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1
INTRODUCTION
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HOW TO USE THIS DOCUMENT.
This document is called a prospectus. It is intended to explain to you
the information that you need to know so that you may make an informed
decision as to whether an investment in one or more of Matthews
International Funds is right for you.
This prospectus begins with some general information which is then
explained in greater detail further in the document. A second document
called the "Statement of Additional Information" or SAI for short,
provides expanded information and much greater detail than the
prospectus.
The SAI is available to you free of charge. To receive an SAI, please
call 1.800.789.2742, visit our site on the internet at
"www.matthewsfunds.com" or visit the SEC's web site at "www.sec.gov" and
go into the EDGAR database.
Please read this document carefully before you make any investment
decision and if you have any questions, do not hesitate to contact us at
1.800.789.2742. Also, please keep this prospectus with your papers for
future reference.
DEFINITIONS
THE FOLLOWING WORDS HAVE SPECIAL MEANING IN THIS PROSPECTUS:
1. Funds means the six individual mutual funds that make up Matthews
International Funds. They are: MATTHEWS ASIAN GROWTH AND INCOME FUND,
MATTHEWS ASIAN TECHNOLOGY FUND, MATTHEWS DRAGON CENTURY CHINA FUND,
MATTHEWS JAPAN FUND, MATTHEWS KOREA FUND, AND MATTHEWS PACIFIC TIGER
FUND
2. Pacific Tiger refers to certain Asian countries whose economies have
been and are expected to continue to rapidly develop. Those countries
include: China, Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, South Korea, Taiwan and Thailand, but not Japan.
3. Asia refers to the Pacific Tiger countries plus Japan and India.
4. What is considered to be an "Asian Company?" A company is considered
to be "Asian" or "located" in a particular country in Asia if:
(i) it is organized under the laws of China, Hong Kong, India,
Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea,
Taiwan or Thailand, or
(ii) it derives at least 50% of its revenues or profits from goods
produced or sold, investments made, services performed, or has at
least 50% of its assets located in one of these countries or
(iii) it has the primary trading markets for its securities in one of
these countries or
(iv) it is a governmental entity or an agency or instrumentality or
political subdivision of such country.
5. Matthews or The Advisor means Matthews International Capital
Management, LLC, the company which manages the money which is invested
into the Funds.
SUMMARY INFORMATION
INVESTMENT GOALS OF THE FUNDS
The investment goal of all six Matthews International Funds is long term
capital appreciation. In addition, Matthews Asian Growth and Income Fund
seeks to provide some current income as well.
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MATTHEWS' INVESTMENT STRATEGY
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How Matthews chooses investments for each of the Funds is known as an
investment strategy. The strategy Matthews uses is called "Growth at a
Reasonable Price." This means that the investment team studies the
fundamental characteristics of companies appropriate for each Fund and
from those fundamentals makes a judgment that certain companies are
poised for growth, and at the same time are available to the Funds at a
reasonable price. In addition Matthews may use currency hedging
techniques such as forward foreign currency contracts which help
neutralize the impact of the changes in the value of local Asian
currencies as compared to the U.S. dollar.
Fundamental characteristics of a company include the people who are
running the company, the products it makes, the marketing strategy it is
following and its financial health.
The size of a company, which Matthews measures by its market
capitalization (the number of shares outstanding times the market price
per share) is not considered by Matthews when it decides whether to
include that company's securities in one or more of the Funds.
If Matthews believes that market conditions are developing in a way that
is not good for the shareholders, it may sell all of a Fund's securities
and temporarily invest the Funds' money in U.S. Government securities. As
of the date of this prospectus this has never happened, but if it were to
occur, the investment goals of the Funds may not be achieved.
PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS
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MATTHEWS ASIAN GROWTH AND INCOME FUND invests a substantial portion of
its assets in the convertible securities of companies located in Asia.
Examples of convertible securities are convertible bonds and debentures
which may under specific circumstances, be converted into the common or
preferred stock of that company.
MATTHEWS ASIAN TECHNOLOGY FUND invests a substantial portion of its
assets in the common and preferred stock of companies located in Asia
which derive a substantial portion of their revenues from the sale of
products or services in technology-related industries and services.
Matthews considers technology related industries and businesses to
include, among others, telecommunications, telecommunications equipment,
computers, semiconductors, semiconductor capital equipment, networking,
internet and on-line service companies, office automation, server
hardware producers, software companies (e.g., design, consumer and
industrial) biotechnology and medical device technology companies, and
companies involved in the distribution and servicing of these products.
MATTHEWS DRAGON CENTURY CHINA FUND invests a substantial portion of its
assets in the common and preferred stock of companies located in China.
China includes Taiwan and Hong Kong.
MATTHEWS JAPAN FUND invests a substantial portion of its assets in the
common and preferred stock of companies located in Japan.
MATTHEWS KOREA FUND invests a substantial portion of its assets in the
common and preferred stock of companies located in South Korea.
MATTHEWS PACIFIC TIGER FUND invests a substantial portion of its assets
in the common and preferred stock of companies located in the Pacific
Tiger countries.
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3
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
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The most important risk to understand is that there is no guarantee that
your investment in the Funds will increase in value. The value of your
investment in the Funds could go down, meaning you could lose money.
The Funds concentrate their investments in Asia. The Asian markets can be
very volatile for many reasons including the size of the local economies
(as compared with the United States) and each country's unique political
structure. This volatility can cause the price of the Funds' shares (the
net asset value or "NAV") to go up or down dramatically. Because of this
volatility, we recommend that you invest in the Funds as a long term
investment only, and only for a portion of your investment portfolio, not
for all of it.
Further, when one of the Funds buys or sells stock on an Asian stock
market, the transaction is made in the local currency. The price that the
Funds must purchase or sell local currency will impact the value of your
shares in the Funds. These and other risks are more fully discussed below
and in the SAI.
The Advisor uses certain hedging techniques to help neutralize the impact
of changes in the value of local Asian currencies. The Advisor's ability
to anticipate changes in the price of foreign currencies is not always
accurate, however, which may limit the full benefit of a currency move in
the Fund's favor, but at the same time may limit the detriment when the
currency moves against the Fund.
The principal investments of all the Funds except the Asian Growth and
Income Fund are common and preferred stocks. The major risk involved with
the ownership of common and preferred stock is that the Fund may lose
money if the value of a stock goes down during the time that the Fund
owns it.
RISKS ASSOCIATED WITH NON-UNITED STATES COMPANIES
Investments by the Funds in the securities of non U.S. issuers involve
investment risks different from those of U.S. issuers. These risks
include:
- Possible political or economic instability of the country of issue
- Predicting international trade patterns incorrectly
- Possibility of currency exchange controls
- Imposition of foreign withholding taxes
- Seizure or nationalization of foreign deposits or assets
- Adoption of adverse foreign government trade restrictions
There may be less publicly available information about a foreign company
than about a domestic company. Sometimes non U.S. companies are subject
to different accounting, auditing and financial reporting standards,
practices and requirements than U.S. companies. There is generally less
government regulation of stock exchanges, brokers and listed companies
abroad than in the United States, and the absence of negotiated brokerage
commissions in certain countries may result in higher brokerage fees.
With respect to certain non U.S. countries, there is a possibility of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in those countries.
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4
In addition, brokerage commissions, custodian services, withholding
taxes, and other costs relating to investment in foreign markets
generally are more expensive than in the United States.
RISKS ASSOCIATED WITH SMALLER COMPANIES (SO-CALLED "SMALL-CAP" COMPANIES)
The Funds may invest in securities of issuers of various sizes, large or
small. Smaller companies often have limited product lines, markets or
financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies generally are
subject to more abrupt or erratic market movements and may be less liquid
than securities of larger, more established companies or the market
averages in general.
LONG TERM INVESTING AND VOLATILITY
Dramatic changes (volatility) in the price of an investment can be
dangerous because you may have planned or may need to sell your
investment just at a time when its value has decreased. We recommend an
investment in the Funds only as a long term investment (5 years and
longer) because you will be better able to plan to sell your shares at a
time when this volatility will not be as great a factor in your decision
process.
MATTHEWS ASIAN GROWTH AND INCOME FUND
UNIQUE RISKS: In addition to the "Principal risks" noted above, the
ownership of convertible securities and bonds have different kinds of
risks than those of the ownership of common and preferred stock. These
risks include interest rate risk and principal risk. The principal of a
bond refers to the amount of money that was borrowed when the bond was
issued. This principal could be lost if the borrower cannot make timely
payment on the bond (default). In the event of a default the Fund could
lose money. Further, in the event that market interest rates increase,
the bond's market value will go down, which means that if the Fund sold a
bond during that time it would get less money for it. Also, many Asian
convertible securities and bonds are not rated by rating agencies like
Moody's or Standard & Poor's, or if they are rated, they're rated below
investment grade. These securities are commonly referred to as "junk
bonds" and may have a greater risk of default.
Since this Fund may invest in companies from many different countries,
each country's size, level of economic development and governmental
stability will have an impact on the value of those companies. In
general, the economies of these countries are smaller and less developed
than in the United States. Their stock exchanges and brokerage industries
do not have the level of government oversight as do those in the United
States and sometimes their governments are unstable. Each of these
factors can cause these stock markets to be more volatile. Please read
the SAI for an extensive presentation of these and other risk factors.
MATTHEWS ASIAN TECHNOLOGY FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above as a
sector fund that invests in technology companies, the Fund is subject to
the risks associated with this sector. This makes the Fund more
vulnerable to price changes of securities of issuers in technology
related industries and factors that affect the technology industry than a
more broadly diversified mutual fund.
Certain technology related companies may face special risks that their
products or services may not prove to be commercially successful.
Technology related companies are also strongly affected by worldwide
scientific or technological developments. As a result, their products may
rapidly become obsolete which could cause a dramatic decrease in the
value of their stock. Such companies are also often subject to
governmental regulation and may therefore be adversely affected by
governmental policies.
<PAGE> 6
5
MATTHEWS DRAGON CENTURY CHINA FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above investing
in the regional markets of China and Hong Kong involves risks and
considerations not present when investing in more established securities
markets. Investing in regionally concentrated investment funds should be
considered speculative and thus not appropriate for all investors.
China remains a totalitarian society with the risk of nationalization,
expropriation or confiscation of property. The legal system is still in
its infancy making it more difficult to obtain and/or enforce judgments.
Further, the government could at any time alter or discontinue economic
reform programs implemented since 1978. Military conflicts, either in
response to internal social unrest or conflicts with other countries are
an ever present consideration.
In addition to political risk, investments in China are also subject to
economic risk. There is a potential risk of total loss, including
interest, capital appreciation and principle. There is also a greater
risk involved in currency fluctuations, currency convertibility, interest
rate fluctuations and higher rates of inflation. The emergence of a
domestic consumer class is still at an early stage, making China heavily
dependent on exports.
MATTHEWS JAPAN FUND
UNIQUE RISKS: Japan is the second largest economy in the world, but it
has been in recession lately. The government there has been working to
change certain regulations and policies that could help its economy, but
there is no guarantee that these changes will occur or be effective.
MATTHEWS KOREA FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above investing
in Korean securities has special risks including:
- substantial government involvement in, and influence on, the economy
and the private sector;
- political, economic and social instability, including the potential
for increasing militarization in North Korea;
- the substantially smaller size and lower trading volume of the
securities markets for Korean equity securities compared to the U.S.
or Japanese securities markets, resulting in a potential lack of
liquidity and increased price volatility;
- that the sale of portfolio securities by the Korean Securities
Stabilization Fund (the "Stabilization Fund"), a fund established in
order to stabilize the Korean securities markets, or other large
Korean institutional investors, may adversely impact the market value
of securities in the Fund's portfolio; and
- heavy concentration of market capitalization and trading volume in a
small number of issuers, which result in potentially fewer investment
opportunities for the Fund.
Risks Associated with North Korea Following World War II, the Korean
peninsula was partitioned. The demilitarized zone at the boundary between
Korea and North Korea was established after the Korean War of 1950-1953
and is supervised by United Nations forces. The United States maintains a
military force in Korea to help deter the ongoing military threat from
North Korean forces. The situation remains a source of tension although
negotiations to ease tensions and resolve the political division of the
Korean peninsula have been carried on from time to time. There also have
been efforts from time to time to increase economic, cultural and
humanitarian contacts between North Korea and Korea. There can be no
assurance that such
<PAGE> 7
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negotiations or efforts will continue to occur or will result in an
easing of tension between North Korea and Korea.
Military action or the risk of military action or the economic collapse
of North Korea could have a material adverse effect on Korea, and
consequently, on the ability of the Fund to achieve its investment
objective. Lack of available information regarding North Korea may be the
greatest risk factor.
Risks Associated with the Influence of the Korean Government The Korean
government has historically exercised and continues to exercise
substantial influence over many aspects of the private sector. The Korean
government from time to time has informally influenced the payment of
dividends and the prices of certain products, encouraged companies to
invest or to concentrate in particular industries, induced mergers
between companies in industries suffering from excess capacity and
induced private companies to publicly offer their securities. The Korean
government has sought to minimize excessive price volatility on the KSE
through various steps, including the imposition of limitations on daily
price movements of securities.
Risks Associated with a Non-Diversified Investment Company The Fund is a
"non-diversified" investment company, which means that it may invest a
larger portion of its assets in the securities of a single issuer than a
diversified fund. An investment in the Fund therefore will entail greater
risk than an investment in a diversified investment company because a
higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of the Fund's portfolio,
and economic, political or regulatory developments may have a greater
impact on the value of the Fund's portfolio than would be the case if the
portfolio were diversified among more issuers.
MATTHEWS PACIFIC TIGER FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above and since
this Fund may invest in companies from many different countries, each
country's size, level of economic development and governmental stability
will have an impact on the value of those companies. In general, the
economies of these countries are smaller and less developed than in the
United States. Their stock exchanges and brokerage industries do not have
the level of government oversight as do those in the United States and
sometimes their governments are unstable. Each of these factors can cause
these stock markets to be more volatile. Please read the SAI for an
extensive presentation of these and other risk factors.
<PAGE> 8
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PAST PERFORMANCE
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The bar charts and performance table help show some of the risks of
investing in the Funds. The bar charts show each Fund's performance from
prior years. Below the charts you will find the best and worst returns
since each Fund began. You can then compare those returns with that of a
broad based index found next. This information only speaks to the past.
We do not know how the Funds will perform in the future. In that the
Matthews Asian Technology Fund, Matthews Dragon Century China Fund and
Matthews Japan Fund do not have a full calendar year's performance, no
statistics are presented.
MATTHEWS ASIAN GROWTH AND INCOME FUND
[ANNUAL RETURNS FOR PERIODS ENDED 12/31]
<TABLE>
<CAPTION>
ASIAN GROWTH AND INCOME FUND (%)
--------------------------------
<S> <C>
1995 8.19
1996 13.89
1997 -23.18
1998 1.24
1999
</TABLE>
Best Quarter: 4th - 1998 12.30%
Worst Quarter: 4th - 1997 (25.97%)
Year-to-date Return: 31.85% as of September 30, 1999
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR SEPTEMBER 12, 1994
-------------------------------
<S> <C> <C>
Matthews Asian Growth and Income Fund 1.24% (1.51%)
*MSCI All Country Far East ex-Japan Index (4.83%) (12.31%)
</TABLE>
---------------------------------
* The MSCI (Morgan Stanley Capital International) All
Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the
Pacific region excluding Japan.
<PAGE> 9
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MATTHEWS KOREA FUND
[ANNUAL RETURNS FOR PERIODS ENDED 12/31]
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND (%)
-----------------------
<S> <C>
1995 -12.73
1996 -31.79
1997 -64.75
1998 96.15
1999
</TABLE>
Best Quarter: 4th - 1998 99.98%
Worst Quarter: 4th - 1997 (64.44%)
Year-to-date Return: 56.86% as of September 30, 1999
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR JANUARY 3, 1995
-------------------------------
<S> <C> <C>
Matthews Korea Fund 96.15% (19.33%)
*Korea Stock Price Index 98.79% (22.44%)
</TABLE>
---------------------------------
* The Korean Stock Price Index is a
capitalization-weighted index of all common stocks listed
on the Korean Stock Exchange.
MATTHEWS PACIFIC TIGER FUND
[ANNUAL RETURNS FOR PERIODS ENDED 12/31]
<TABLE>
<CAPTION>
PACIFIC TIGER FUND (%)
----------------------
<S> <C>
1995 3.06
1996 24.18
1997 -40.89
1998 -2.86
1999
</TABLE>
Best Quarter: 4th - 1998 38.45%
Worst Quarter: 4th - 1997 (38.17%)
Year-to-date Return: 39.02% as of September 30, 1999
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR SEPTEMBER 12, 1994
-------------------------------
<S> <C> <C>
Matthews Pacific Tiger Fund (2.86%) (8.03%)
*MSCI All Country Far East ex-Japan Index (4.83%) (12.31%)
</TABLE>
---------------------------------
* The MSCI (Morgan Stanley Capital International) All
Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the
Pacific region excluding Japan.
<PAGE> 10
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FEES AND EXPENSES
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This table describes the fees and expenses that you may pay if you buy
and hold shares of any of the Funds:
SHAREHOLDER FEES
<TABLE>
<S> <C>
MAXIMUM SALES LOAD IMPOSED ON PURCHASES as a percentage of
offering price 0.00%
MAXIMUM SALES LOAD IMPOSED ON REINVESTED DIVIDENDS as a
percentage of offering price 0.00%
CONTINGENT DEFERRED SALES CHARGE as a percentage of original
purchase price 0.00%
REDEMPTION FEE as a percentage of amount redeemed within 90
days of purchase 2.00%
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING TOTAL
MAXIMUM 0.25% ANNUAL FEE REDUCTION NET EXPENSES
MANAGEMENT DISTRIBUTION/ SHAREHOLDER OPERATING AND/OR EXPENSE AFTER
MATTHEWS FUND -- CLASS I FEES 12B-1 FEES SERVICE FEE) EXPENSES REIMBURSEMENT REIMBURSEMENT
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asian Growth and Income 1.00% None 1.05% 2.05% 0.15% 1.90%
Asian Technology(1) 1.00% None 2.50% 3.50% 1.50% 2.00%
Dragon Century China 1.00% None 1.09% 2.09% 0.09% 2.00%
Japan 1.00% None 2.45% 3.45% 1.45% 2.00%
Korea 1.00% None 1.02% 2.02% None 2.00%
Pacific Tiger 1.00% None 1.15% 2.15% 0.25% 1.90%
</TABLE>
(1) Estimated; this fund had no operating history.
Under a written agreement between the Funds and the Advisor, the Advisor
agrees to reimburse money to a Fund if its expense ratio exceeds a
certain percentage level as indicated above. In turn, if a Fund's
expenses fall below the level noted above within three years after the
Advisor has made such a reimbursement, a Fund may reimburse the Advisor
up to an amount not to exceed its expense limitation. This agreement will
continue through at least August 31, 2000.
EXAMPLE
Based on the level of expenses listed above, the total expenses relating
to an investment of $10,000 would be as follows, assuming a 5% annual
return, reinvestment of all dividends and distributions and redemption at
the end of each time period.
<TABLE>
<CAPTION>
NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asian Growth and Income Fund $193 $ 643 $1,103 $2,379
Asian Technology Fund $203 $1,074 N/A N/A
Dragon Century China Fund $203 $ 655 $1,124 $2,421
Japan Fund $203 $1,059 $1,793 $3,730
Korea Fund $203 $ 634 $1,088 $2,348
Pacific Tiger Fund $193 $ 673 $1,154 $2,483
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder will bear directly or
indirectly. While the example assumes a 5% annual return, each Fund's
actual performance will vary and may result in actual returns greater or
less than 5%. The above example should not be considered a representation
of past or future expenses or performance. Actual expenses of the Funds
will most likely be different than those shown.
<PAGE> 11
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THE INVESTMENT PROCESS
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The investment goal of each Fund noted above is fundamental. This means
that it can not be changed without a vote of a majority of the voting
securities of each respective Fund.
The way Matthews attempts to achieve each Fund's investment goals is not
fundamental and may change without shareholder approval. While an
investment policy or restriction may be changed by the Trustees of the
Company without shareholder approval, you will be notified before we make
any material change.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT LLC is the investment advisor
to the Funds. Matthews' address is 456 Montgomery Street, Suite 1200, San
Francisco, California 94104-1245 and can be reached by telephone
toll-free at 1-800-789-2742. The Advisor was founded in 1991 by G. Paul
Matthews who serves as Chief Investment Officer. Each Fund pays an annual
fee of 1% of its total assets to Matthews for the services it provides to
the Funds.
Matthews invests the Funds' assets, manages the Funds' business affairs
and supervises its overall day-to-day operations. Matthews also furnishes
the Funds with office space and certain administrative and clerical
services, and provides the personnel needed by the Funds with respect to
the Advisor's responsibilities under the investment advisory agreement.
PORTFOLIO MANAGERS
<TABLE>
<S> <C>
Asian Growth and Income Fund G. Paul Matthews
Asian Technology Fund Mark W. Headley, G. Paul Matthews and Andrew T. Foster
(assistant)
Dragon Century China Fund G. Paul Matthews, Mark W. Headley and Richard H. Gao
Japan Fund James M. Bogin and Mark W. Headley
Korea Fund Mark W. Headley and G. Paul Matthews
Pacific Tiger Fund Mark W. Headley, G. Paul Matthews and Andrew T. Foster
(assistant)
</TABLE>
G. Paul Matthews: has been actively involved in the Asian financial
markets since 1982. Prior to founding Matthews International Capital
Management in 1991, he served as portfolio manager of G. T. Pacific
Growth Fund from 1982-85. While residing in Hong Kong, Mr. Matthews
oversaw all Asian investment from 1985-88 for G. T. Management Asia. From
1989 to 1991 he was self-employed. Mr. Matthews holds an M.A. in history
and law from Cambridge University in the United Kingdom.
Mark W. Headley: joined Matthews International as managing director and
as senior analyst on the investment team in 1995. He has over 10 years of
experience in the Asian Tiger markets. From 1989 to 1992 he held various
positions at Newport Pacific Management and its subsidiaries. In 1992,
Mr. Headley moved to Hong Kong, where he served as a director of Regent
Fund Management. He returned to San Francisco in 1993 and joined
Litman/Gregory & Co. as director of international investments. Mr.
Headley holds a B.A. in Economics and Politics from the University of
California at Santa Cruz.
James M. Bogin: joined Matthews International in 1998 as a portfolio
manager. Prior to joining Matthews, Mr. Bogin served as senior portfolio
manager from 1993-97 at LGT Asset Management in San Francisco where
<PAGE> 12
11
he managed Global Developing Markets portfolios. Mr. Bogin began his
investment career in Tokyo where he worked as an equity analyst from
1985-87. In 1987, he moved to Hong Kong where he worked as a portfolio
manager. Mr. Bogin moved back to Tokyo in 1989 as a portfolio manager for
Nomura Investment Management Tokyo where he managed mutual funds
investing in Asian equities. Mr. Bogin is fluent in Japanese. He holds a
masters' degree in International Management, Finances from American
Graduate School of International Management in Glendale Arizona as well
as a B.A. in the Classics from Harvard College in Cambridge
Massachusetts.
Richard H. Gao: joined Matthews International in 1997 as China analyst.
In 1999 he was promoted to portfolio manager of the Dragon Century China
Fund. In 1989 Mr. Gao served as a loan officer at the Bank of China in
the city of Guanzhow, China. He later became a foreign exchange trader at
the Bank of China's Treasury Department in 1991. From 1993 through 1994
he served as assistant manager in charge of foreign exchange trading for
import/export companies at the Bank. Mr. Gao holds an M.B.A. from
Dominican College of San Rafael and is fluent in three Chinese languages:
Mandarin, Cantonese and Shanghaiese.
Andrew T. Foster: joined Matthews International in November 1998 as an
analyst and was promoted to assistant portfolio manager in August 1999.
Prior to joining Matthews, Mr. Foster provided management consulting
services for A.T. Kearney and was based in Singapore from 1996 to 1998.
During the years 1992 through 1996 Mr. Foster attended Stanford
University where he was awarded a dual degree in Public Policy, with
honors, and in Economics.
All members of the investment team travel extensively to Asia to conduct
research relating to those markets.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
PRICING OF FUND SHARES
The price at which the Funds' shares are bought or sold is call the net
asset value per share or "NAV." The NAV is computed once daily as of the
close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 p.m. Eastern time. In addition to Saturday and Sunday the
NYSE is closed on the days that the following holidays are observed: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The NAV is computed by adding the value of all securities and other
assets of a Fund, deducting any liabilities, and dividing by the total
number of outstanding shares. The Funds' expenses are accounted for by
estimating the total expenses for the year and applying each day's
estimated amount when the NAV calculation is made.
The Funds' equity securities are valued based on market quotations or,
when no market quotations are available, at fair value as determined in
good faith by or under direction of the Board of Trustees. Foreign
securities are valued as of the close of trading on the primary exchange
on which they trade. The value is then converted to U.S. dollars using
current exchange rates.
Securities listed on any U.S. securities exchange are valued at their
last sale price on the exchange where the securities are principally
traded or, if there has been no sale on that date, at the mean between
the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices.
Securities are valued through valuations obtained from a commercial
pricing service or at the
<PAGE> 13
12
most recent mean of the bid and asked prices provided by investment
dealers in accordance with procedures established by the Board of
Trustees.
Short-term fixed-income securities having a maturity of 60 days or less
are valued at amortized cost, which the Board of Trustees believes
represents fair value. When a security is valued at amortized cost, it is
first valued at its purchase price. After it is purchased, it is valued
by assuming a constant amortization to maturity of any discount or
premium (because the Fund will hold the security till it matures and then
receive its face value), regardless of the way of changing interest rates
could change the market value of the instrument.
Foreign currency exchange rates are generally determined prior to the
close of trading on the NYSE. Occasionally, events affecting the value of
foreign investments and such exchange rates occur between the time at
which they are determined and the close of trading on the NYSE. Such
events would not normally be reflected in a calculation of the Funds' net
asset value on that day. If events that materially affect the value of
the Funds' foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the Board
of Trustees. Foreign securities held by the Funds may be traded on days
and at times when the NYSE is closed. Accordingly, the net asset value of
the Funds may be significantly affected on days when shareholders have no
access to the Funds. For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts
stated in foreign currency are translated into U.S. dollar equivalents at
the prevailing market rates.
PURCHASE OF SHARES
You may purchase Fund shares directly from the Funds by mail or by wire
without paying any sales charge. The price for each share you buy will be
the NAV calculated after your order is "received" by the Fund. "Received"
means that payment for your purchase and all the information needed to
complete your order must be received by the Fund before your order is
processed. If your order is Received before 4:00 p.m. on a day the Funds'
NAVs are calculated, the price you pay will be that day's NAV. If your
order is Received after 4:00 p.m., the price you will pay will be the
next NAV calculated.
The Funds' shares are sold through an underwriter. The Funds' underwriter
is Provident Distributors, Inc. ("Provident"), a registered
broker-dealer. Provident's address is Four Falls Corporate Center, West
Conshohocken, PA 19428. Shares of the Funds may also be purchased through
various brokers who have arrangements with it. These brokers may charge
you a fee for their services.
You may purchase and sell shares through securities brokers and benefit
plan administrators or their subagents. You should contact them directly
for information regarding how to invest or redeem through them. They may
also charge you service or transaction fees. If you purchase or redeem
shares through them, you will receive the NAV calculated after receipt of
the order by them (generally, 4:00 p.m. Eastern time) on any day the NYSE
is open. If your order is received by them after that time, it will be
purchased or redeemed at the next-calculated NAV. Brokers and benefit
plan administrators who perform shareholder servicing for the Fund may
receive fees from the Funds or Matthews for providing these services.
These brokers may charge you a fee for their services.
<PAGE> 14
13
<TABLE>
<S> <C>
Minimum Initial Investment (non-retirement plan account): $ 2,500
Subsequent Investments: $ 250
Minimum Initial Investment (*retirement plan account): $ 500
Subsequent Investments: $ 50
</TABLE>
Retirement Plan Accounts include IRAs, 401(k) and 403(b)(7) plans.
* Speak with the Funds' agents for the many retirement plans available
The Funds may reject any purchase order or stop selling shares of the
Funds at any time. Also, the Funds may vary or waive the initial
investment minimum and minimums for additional investments.
<TABLE>
<S> <C> <C>
OPEN AN ACCOUNT ADDING TO AN ACCOUNT
BY MAIL - Complete and sign application - Make check payable to:
- Make check payable to: Matthews (name of Fund)
Matthews (name of Fund) - Mail check with a statement stub to address at
- Mail application and check to: left.
Matthews International Funds
Post Office Box 61767
211 South Gulph Road
King of Prussia, PA 19406
BY PHONE You can not open an account over the When you open your account, you must check the
telephone. box for "Telephone Options." Note that you may
only exchange shares from one Matthews Fund to
another.
*BY WIRE - Complete and sign application - Notify Funds' agent by calling:
- Mail application to: 800-892-0382.
Matthews International Funds - Then wire funds to:
Post Office Box 61767 Boston Safe Deposit & Trust
211 South Gulph Road ABA # 011001234
King of Prussia, PA 19406 Credit:
- Wire funds using instructions at right. [name of specific Matthews Fund]
Account # 000221
FBO: [your name and account number]
BY AUTOMATIC N/A Complete the Automatic Investment Plan section
INVESTMENT of the application. Be sure to sign the
PLAN application and include a voided check when
returning it to the Fund.
</TABLE>
* NOTE THAT WIRE FEES ARE CHARGED BY MOST BANKS.
EXCHANGE OF SHARES
You may exchange your shares of one Matthews Fund for another provided
that the other fund is registered for sale in your state. Minimum
investment requirements apply. Any request must be received by the Fund's
<PAGE> 15
14
agent by 4 p.m. eastern time on any day the New York Stock Exchange is
open, to receive that day's NAV. Such exchanges may be made by telephone
if you have so authorized on your application. Call 800-892-0382 for full
details. The exchange privilege may be terminated if the management of
the Funds believes it is in the best interest for all shareholders to do
so. Note that redemption fees may apply.
SELLING (REDEEMING) SHARES
You may sell your shares back to the Funds on any day it is open for
business. To receive a specific day's NAV, your request must be received
by the Funds before 4:00 p.m. of that day. If it is received after 4:00
p.m., you will receive the next NAV calculated.
If you used a check to buy your shares and later decide to sell them,
your proceeds from that redemption will be withheld until the Funds are
sure that your check has cleared. This could take as much as 15 days or
more.
If your request to sell your shares is made by telephone, you may have
difficulty getting through to the Funds in times of drastic market
conditions. If the Funds believe that it is in the best interest of all
the shareholders, it may modify or discontinue telephone transactions
without any notice.
TELEPHONE SECURITY
The convenience of using telephone transactions may have a cost in
decreased security. The Funds employ certain security measures as they
process telephone transactions. If these security procedures are used,
the Funds or its agents will not be responsible for any losses that you
incur because of a fraudulent telephone transaction. If the security
measures are not followed and you incur a loss because of a fraudulent
telephone transaction, the Funds or its agents will be responsible for
that loss.
<PAGE> 16
15
<TABLE>
<S> <C>
SELLING (REDEEMING) SHARES
BY MAIL - Send a letter to the Funds at the following address:
Matthews International Funds
Post Office Box 61767
211 South Gulph Road
King of Prussia, PA 19406
The letter must include your name and account number, the
name of the Fund and the amount you want to sell in dollars
or shares. This letter must be signed by each owner of the
account. For security purposes, a signature guarantee will
be required if:
- your request is for an amount over $100,000; or
- the money is to be paid to anyone other than the
registered owners; or
- the money is to be sent to an address which is different
than the registered address or to a bank account other than
the account which was pre-authorized.
BY PHONE When you opened your account, you must have checked the
appropriate part of the application or after you opened your
account, you have instructed the Funds to allow telephone
transactions. Any such instruction must be made by mail with
signature guarantees. Call 800.892.0382
BY WIRE Same as by phone above.
THROUGH A BROKER Contact your broker directly. Note that your Broker may
charge you a fee.
</TABLE>
REDEMPTION FEE
Please remember that if you sell your shares within 90 days of the day
you bought them, the money you receive will be 2% less than the total
amount redeemed. This 2% fee is retained by the Funds to compensate the
Funds for the extra expense it incurs because of short term trading. In
addition, the Funds hope that the fee will discourage short term trading
of its shares.
REDEMPTION IN KIND
Under certain circumstances, you could receive your redemption proceeds
as a combination of cash and securities. Receiving securities instead of
cash is called "redemption in kind." Even though the Funds are permitted
to do this, the first $250,000 of any redemption must be paid to you in
cash. Note that if you receive securities as well, you will incur
transactions charges if you sell them.
MINIMUM SIZE OF AN ACCOUNT
The Funds are charged by its service providers a fee for each account. If
an account balance falls below $2,500, it becomes too expensive to keep
it open. If this happens to your account we will give you the option of
investing more money into you account, or closing it. You will receive a
letter from the fund discussing your options in the event your account
falls below $2,500.
<PAGE> 17
16
DISTRIBUTIONS
All of the Funds except Growth and Income will distribute their net
investment income annually in December. Growth and Income will distribute
its net investment income semi-annually in June and December. Any net
realized gain from the sale of portfolio securities and net realized
gains from foreign currency transactions are distributed at least once
each year unless they are used to offset losses carried forward from
prior years.
All such distributions are reinvested automatically in additional shares
at net asset value, unless you elect to receive them in cash. The way you
receive distributions may be changed at any time by writing the Funds.
Any check in payment of dividends or other distributions which cannot be
delivered by the Post Office or which remains uncashed for a period of
more than one year will be reinvested in the shareholder's account at the
then current net asset value and the dividend option changed from cash to
reinvest.
Distributions are treated the same for tax purposes whether received in
cash or reinvested. Please note that shares purchased shortly before the
record date for a dividend or distribution may have the effect of
returning capital although such dividends and distributions are subject
to taxes.
TAXES
An investment in the Funds has certain tax consequences, depending on the
type of account that you have. Distributions are subject to federal
income tax and may also be subject to state and local income taxes.
Distributions are generally taxable when they are paid, whether in cash
or by reinvestment. Distributions declared in October, November or
December, and paid in the following January are taxable as if they were
paid on December 31.
The exchange of one Matthews Fund for another is a "taxable event" which
means that if you have a gain you may be obligated to pay tax on it.
If you have a qualified retirement account, taxes are generally deferred
until distributions are made from the retirement account.
Part of a distribution may include realized capital gains which may be
taxed at different rates depending on how long the fund has held specific
securities.
Make sure you have a social security number or tax I.D. number on file
with the Funds. If you do not, you may be subject to a 31 percent back up
withholding on your distributions.
Speak with your tax counselor for complete information concerning the tax
implications of your ownership of the Funds.
<PAGE> 18
17
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
These financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund assuming all of the dividends and distributions were reinvested. The
information for the periods through August 31, 1998 was audited by Ernst & Young
LLP. The information for the fiscal year ended August 31, 1999 was audited by
Tait, Weller and Baker.
<TABLE>
<CAPTION>
MATTHEWS PACIFIC TIGER FUND
-------------------------------------------------------
PERIOD
YEAR ENDED AUGUST 31, ENDED
----------------------------------------- AUGUST 31,
1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 4.07 $ 11.30 $ 10.81 $ 9.77 $10.00
Income from Investment Operations
Net investment income (loss) 0.21 0.02(2) 0.02 0.01 0.02
Net realized and unrealized gain
(loss) on investments and
foreign currency 6.15 (7.18) 0.50 1.03 (0.23)
-------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.36 (7.16) 0.52 1.04 (0.21)
-------------------------------------------------------
Less Distributions from:
Net investment income (0.02) (0.01) (0.01) 0.00 (0.02)
Net realized gains on investments 0.00 (0.06) (0.02) 0.00 0.00
-------------------------------------------------------
TOTAL DISTRIBUTIONS (0.02) (0.07) (0.03) 0.00 (0.02)
NET ASSET VALUE END OF PERIOD $ 10.41 $ 4.07 $ 11.30 $ 10.81 $ 9.77
TOTAL RETURN 156.28% (63.43%) 4.75% 10.64% (2.07%)++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's) $109,936 $31,319 $43,647 $17,148 $1,082
Ratio of expenses to average net
assets before expense waivers 1.90% 2.06% 1.97% 4.35% 25.95%+
Ratio of expenses to average net
assets after expense waivers 1.90% 1.90% 1.90% 1.90% 2.17%+
Ratio of net investment income
(loss) to average net assets
before waivers 3.35% 0.14% 0.20% (2.13%) (23.41%)+
Ratio of net investment income
(loss) to average net assets after
waivers 3.35% 0.30% 0.27% 0.32% 0.36%+
Portfolio turnover 98.74% 73.09% 70.73% 124.69% 92.53%++
<CAPTION>
MATTHEWS ASIAN GROWTH AND INCOME FUND
---------------------------------------------------
PERIOD
YEAR ENDED AUGUST 31, ENDED
------------------------------------- AUGUST 31,
1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 6.54 $11.71 $10.53 $ 9.88 $ 10.00
Income from Investment Operations
Net investment income (loss) 0.59 0.13 0.10 0.25 0.23
Net realized and unrealized gain
(loss) 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 0.00 (1.05) (0.24) (0.09) 0.00
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%++
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 expense waivers 2.05% 3.76% 4.45% 8.73% 23.11%+
Ratio of expenses to average net
assets after expense waivers 1.90% 1.90% 1.90% 1.85% 2.26%+
Ratio of net investment income
(loss) to average net assets
before waivers 7.98% (0.36%) (1.55%) (4.13%) (18.68%)+
Ratio of net investment income
(loss) to average net assets after
waivers 8.13% 1.50% 1.00% 2.75% 2.17%+
Portfolio turnover 34.82% 54.67% 50.20% 88.16% 121.63%++
</TABLE>
- ---------------
+ Annualized
++ Not Annualized
(1) The Funds commenced operations on September 12, 1994.
(2) Calculated using the average shares method.
<PAGE> 19
18
FINANCIAL HIGHLIGHTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS
MATTHEWS DRAGON JAPAN
MATTHEWS KOREA FUND CENTURY CHINA FUND FUND
------------------------------------------------------ ------------------ ----------
PERIOD YEAR ENDED PERIOD
YEAR ENDED AUGUST 31, ENDED AUGUST 31, ENDED
---------------------------------------- AUGUST 31, ------------------ AUGUST 31,
1999 1998 1997 1996 1995(1) 1999 1998(2) 1999(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 2.03 $ 6.19 $ 7.23 $ 9.13 $10.00 $ 4.36 $10.00 $ 10.00
----------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income (loss) 0.03 (0.03) (0.04)(4) (0.07) 0.08 0.12 0.10 (0.04)
Net realized and unrealized
gain (loss) on investments
and foreign currency 5.43 (4.13) (1.00)(4) (1.75) (0.95) 4.11 (5.74) 11.74
----------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.46 (4.16) (1.04) (1.82) (0.87) 4.23 (5.64) 11.70
----------------------------------------------------------------------------------------------
Less Distributions from:
Net investment income 0.00 0.00 0.00 0.00 0.00 (0.11) 0.00 0.00
Net realized gains on
investments 0.00 0.00 0.00 (0.08) 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.00 0.00 (0.08) 0.00 (0.11) 0.00 0.00
NET ASSET VALUE, END OF PERIOD $ 7.49 $ 2.03 $ 6.19 $ 7.23 $ 9.13 $ 8.48 $ 4.36 $ 21.70
TOTAL RETURN 268.97% (67.21%) (14.38%) (20.11%) (8.70%)++ 97.79% (56.40%)++ 117%++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's) $230,846 $66,607 $19,356 $2,721 $ 504 $6,245 $1,576 $24,486
Ratio of expenses to average net
assets before expense waivers 1.77% 2.07% 2.90% 11.36% 42.87%+ 2.09% 7.84%+ 3.45%+
Ratio of expenses to average net
assets after expense waivers 1.77% 2.06% 2.50% 2.23% 0.24%+ 2.00% 2.00%+ 2.00%+
Ratio of net investment income
(loss) to average net assets
before waivers (0.37%) (1.13%) (1.81%) (10.44%) (41.79%)+ 2.93% (3.45%)+ (2.54%)+
Ratio of net investment income
(loss) to average net assets
after waivers (0.37%) (1.12%) (1.41%) (1.31%) 0.84%+ 3.02% 2.38%+ (1.09%)+
Portfolio turnover 57.06% 94.01% 112.68% 139.71% 42.16%++ 40.27% 11.84%++ 28.92%++
</TABLE>
- ---------------
+ Annualized
++ Not Annualized
(1) The Fund commenced operations on January 3, 1995.
(2) The Fund commenced operations on February 19, 1998
(3) The Fund commenced operations on December 31, 1998
(4) Calculated using the average shares method.
<PAGE> 20
19
GENERAL INFORMATION
- --------------------------------------------------------------------------------
If you wish to know more about Matthews International Funds, You will
find additional information in the following documents.
SHAREOWNER REPORTS
You will receive Semi-Annual Reports dated February 28 and Annual
Reports, audited by independent accountants, dated August 31. These
reports contain a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, which is incorporated into this prospectus by reference and
dated December 20, 1999, is available to you without charge. It contains
more detailed information about the Funds.
HOW TO OBTAIN REPORTS
CONTACTING MATTHEWS INTERNATIONAL FUNDS
You can get free copies of the reports and SAI, request other information
and discuss your questions about the Funds by contacting:
Matthews International Funds
P.O. Box 61767, 211 South Gulph Road
King of Prussia, PA 19406
800.789.2742
Web site: www.matthewsfunds.com
OBTAINING INFORMATION FROM THE SEC:
You can visit the SEC's web site at http://www.sec.gov to view the SAI
and other information. You can also view and copy information about the
Funds at the SEC's Public Reference Room in Washington, DC. Also, you can
obtain copies of this information by sending your request and duplication
fee to the SEC's Public Reference Room, Washington DC 20549-6009. To find
out more about the Public Reference Room, you can call the SEC at
202.942.8090. You may also e-mail the SEC at [email protected] to obtain
additional information about a Fund.
Investment Company Act File Number: 811-08510
<PAGE> 21
<TABLE>
<CAPTION>
[LOGO]
<S> <C>
MATTHEWS INTERNATIONAL FUNDS
SPECIALISTS IN ASIAN INVESTING WWW.MATTHEWSFUNDS.COM
NEW ACCOUNT APPLICATION - CLASS I SHARES
==================================================================================================
1 CHOOSE YOUR INVESTMENTS (Minimum initial investment: $2,500 per fund)
Use this application to [ ] Matthews Pacific Tiger Fund (802)......................$_________________
open a nonretirement [ ] Matthews Asian Growth and Income Fund (801)............$_________________
account only. If you wish [ ] Matthews Korea Fund (803) .............................$_________________
to open an IRA account, [ ] Matthews Dragon Century China Fund (804)...............$_________________
please call (800) 789-2742 [ ] Matthews Japan Fund (805)..............................$_________________
and ask for an IRA [ ] Matthews Asian Technology Fund (806)...................$_________________
application. TOTAL INVESTMENT: .....................................$_________________
If you have an existing Matthews Fund account registered exactly as you would
PLEASE COMPLETE AND like your new account(s) registered, please provide the following:
SIGN THIS APPLICATION
AND RETURN IT IN THE _______________________________________________ ____________________________
ENCLOSED POSTAGE-PAID Existing Account Number Fund Name
ENVELOPE.
==================================================================================================
2 INVESTMENT METHOD
It should take only a few [ ] BY CHECK: I have enclosed a check(s), payable to the appropriate Fund(s).
minutes to complete this
application. If you have [ ] BY WIRE: Federal Funds were wired on____________________ for Account No. ________________.
questions, please call us Month/day/year
at (800) 892-0382
between 9:00 a.m. and ==================================================================================================
7:00 p.m. Eastern Time. 3 ACCOUNT REGISTRATION (Please select one)
[ ] INDIVIDUAL OR JOINT ACCOUNT
______________________________________________ _____________________________________________
Owner's Name Joint Owner's Name
______________________________________________ _____________________________________________
Owner's Social Security Number Joint Owner's Social Security Number
Please make your [ ] GIFT OR TRANSFER TO A MINOR
check(s) payable to the
appropriate _____________________________________________ as custodian for__________________________________
Fund(s) and mail, along Custodian Name Minor's Name
with your completed, under the ___________________________________ Uniform Gifts/Transfers to Minors Act.
signed application, to: State
_____________________________________________ ______________________________________________
Minor's Social Security Number Minor's Date of Birth
MATTHEWS INTERNATIONAL [ ] TRUST
FUNDS
C/O PFPC INC. _____________________________________________ as trustee(s) of ________________________________
P.O. Box 61767 Trustee(s) Name(s) Name of Trust Agreement
211 S. GULPH ROAD
KING OF PRUSSIA, PA for the benefit of________________________________________________.
19406-8767 Beneficiary's Name
_____________________________________________ ______________________________________________
Beneficiary's Taxpayer I.D. Number Date of Trust Agreement
[ ] CORPORATION, PARTNERSHIP OR OTHER ENTITY
_____________________________________________ ______________________________________________
Name of Corporation or Other Entity Taxpayer I.D. Number
=================================================================================================
4 MAILING ADDRESS I am a citizen of:
Distributed by ________________________________________ ______________________ [ ] The United States
Provident Distributors, Inc. Street Address or P.O. Box Daytime Phone Number [ ] Other (please specify):
211 S. Gulph Road ________________________________________ ______________________ ____________________________
King of Prussia, PA 19406 City, State, ZIP Code Evening Phone Number
[OVER]
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
====================================================================================================
5 DIVIDEND OPTIONS (All distributions will be reinvested unless otherwise indicated.)
[ ] Reinvest all dividends and capital gains.
[ ] Pay all dividends and capital gains to me by check.
[ ] Pay all dividends to me by check and reinvest all capital gains
====================================================================================================
6 TELEPHONE EXCHANGE AND REDEMPTION
YOU WILL HAVE THE ABILITY TO EXCHANGE AND REDEEM SHARES BY TELEPHONE UNLESS YOU CHECK BELOW:
IF YOU WANT [ ] Please remove the telephone exchange feature from my account.
REDEMPTION [ ] Please remove the telephone redemption feature from my account.
PROCEEDS WIRED
TO YOUR BANK, YOU Proceeds of telephone redemption requests are paid by check and mailed to the address of record
MUST ENCLOSE A unless a wire to your bank account of record is requested. IF YOU WANT REDEMPTION PROCEEDS WIRED TO
VOIDED CHECK YOUR BANK, YOU MUST ENCLOSE A VOIDED CHECK FROM YOUR BANK ACCOUNT. Exchanges must be between
FROM YOUR BANK identically registered accounts. See the prospectus for details.
ACCOUNT.
====================================================================================================
7 AUTOMATIC INVESTMENT PLAN
This service allows you to automatically invest monthly from your bank account to your Matthews
International Fund account(s). To establish this feature, you must meet the minimum initial
investment of $2,500 per fund. Please specify below the amount you would like deducted from your
bank acount on a monthly basis AND ATTACH A VOIDED CHECK. This plan normally becomes active 20
TO ESTABLISH business days after your application is processed.
AUTOMATIC INVEST-
ING, YOU MUST [ ] Matthews Pacific Tiger Fund (802) ...................$_________________
ENCLOSE A VOIDED [ ] Matthews Asian Growth and Income Fund (801) .........$_________________
CHECK FROM YOUR [ ] Matthews Korea Fund (803) ...........................$_________________
BANK ACCOUNT. [ ] Matthews Dragon Century China Fund (804) ............$_________________
[ ] Matthews Japan Fund (805) ...........................$_________________
[ ] Matthews Asian Technology Fund (806) ................$_________________
Please debit the above amount(s) from my bank account on the [ ] 10th [ ] 15th or [ ] 20th of each
month. ACH debit(s) will be dated on the day of each month indicated above. If that day falls on a
day in which the NYSE is not open for business, the debit will occur on the next available business
day.
====================================================================================================
8 SIGNATURES AND CERTIFICATION
By signing below, I certify that:
- I have received and read the prospectus for the Fund and I agree to its terms.
- If I am a U.S. citizen or resident alien, I certify under penalties of perjury that the Social
Security Number or Taxpayer Identification Number provided on this application is correct (or that
I have applied for a Number and am waiting for it to be issued to me), and that I have not been
notified by the IRS that I am subject to backup withholding.
[ ] I have been notifieded by the IRS that I am subject to backup withholding.
The Internal Revenue Service does not require your consent to any provision of this document
other than the certifications required to avoid backup withholding.
- If I have agreed to telephone exchange or redemption privileges, I (we) authorize PFPC Inc. to
honor telephone instructions for my (our) account. Neither the Fund nor PFPC Inc. will be liable
for properly acting upon telephone instructions believed to be genuine.
- If I have requested participation in the Automatic Investment Plan, I (we) agree that if my (our)
ACH debit is not honored, PFPC Inc. reserves the right to discontinue this service and any share
purchase made upon such deposit will be cancelled. I (we) further agree that if the net asset
value of shares purchased is less when said purchase is cancelled than when the purchase was
made, PFPC Inc. shall be authorized to liquidate other assets or fractions thereof held in my
(our) account to make up the deficiency. This Automatic Investment Plan may be discontinued by
PFPC Inc. upon 30 days written notice or at any time by the investor by written notice to PFPC
Inc., which is received no later than five business days prior to the above-designated
investment date.
________________________________________________________ _______________________
Signature of Owner/Authorized Signer Date
________________________________________________________ _______________________
Signature of Joint Owner/Authorized Signer Date
----------------------------------------------------------------------------------------------------
E-MAIL DELIVERY OPTION: Should it be possible in the future, I would like my shareholder reports
and prospectuses delivered electronically to the following e-mail address:__________________________
I understand that by choosing this option I may be waiving my right to receive paper copies.
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
BOARD OF TRUSTEES
Richard K. Lyons
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott, Emeritus
OFFICERS
G. Paul Matthews -- President
Mark W. Headley -- Vice President
Joseph M. O'Donnell -- Secretary
Brian Stableford -- Treasurer
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
800.789.ASIA (2742)
UNDERWRITER
Provident Distributors, Inc.
Four Falls Corporate Center
West Conshohocken, PA 19428
SHAREHOLDER SERVICES
PFPC Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104-2635
FOR ADDITIONAL INFORMATION ABOUT THE
MATTHEWS INTERNATIONAL FUNDS CALL: 800.789.ASIA (2742)
Investment Company Act File Number: 811-08510
PROSPECTUS - DECEMBER 20, 1999
MATTHEWS
INTERNATIONAL
FUNDS
WWW.MATTHEWSFUNDS.COM
Specialists in Asian Investing
800.789.ASIA (2742)
CLASS I SHARES
LOGO
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS ASIAN TECHNOLOGY FUND
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS JAPAN FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
The U.S. Securities and Exchange Commission (the "SEC") has not
approved of, or disapproved of the Fund or the securities that the Fund sells.
Also, the SEC has not passed upon the adequacy or accuracy of this prospectus.
Anyone who informs you otherwise is committing a crime.
watermark
<PAGE> 24
1
INTRODUCTION
- --------------------------------------------------------------------------------
HOW TO USE THIS DOCUMENT.
This document is called a prospectus. It is intended to explain to you
the information that you need to know so that you may make an informed
decision as to whether an investment in one or more of Matthews
International Funds is right for you.
This prospectus begins with some general information which is then
explained in greater detail further in the document. A second document
called the "Statement of Additional Information" or SAI for short,
provides expanded information and much greater detail than the
prospectus.
The SAI is available to you free of charge. To receive an SAI, please
call 1.800.789.2742, visit our site on the internet at
"www.matthewsfunds.com" or visit the SEC's web site at "www.sec.gov" and
go into the EDGAR database.
Please read this document carefully before you make any investment
decision and if you have any questions, do not hesitate to contact us at
1.800.789.2742. Also, please keep this prospectus with your papers for
future reference.
DEFINITIONS
THE FOLLOWING WORDS HAVE SPECIAL MEANING IN THIS PROSPECTUS:
1. Funds means the six individual mutual funds that make up Matthews
International Funds. They are: MATTHEWS ASIAN GROWTH AND INCOME FUND,
MATTHEWS ASIAN TECHNOLOGY FUND, MATTHEWS DRAGON CENTURY CHINA FUND,
MATTHEWS JAPAN FUND, MATTHEWS KOREA FUND, and MATTHEWS PACIFIC TIGER
FUND. THIS PROSPECTUS PERTAINS ONLY TO CLASS A SHARES OF MATTHEWS
DRAGON CENTURY CHINA FUND, MATTHEWS KOREA FUND AND MATTHEWS PACIFIC
TIGER FUND AND ARE AVAILABLE PRIMARILY THROUGH BROKER/DEALERS. FOR A
PROSPECTUS OFFERING CLASS I SHARES FOR ALL OF THE FUNDS, PLEASE CALL
1.800.789.ASIA (2742).
2. Pacific Tiger refers to certain Asian countries whose economies have
been and are expected to continue to rapidly develop. Those countries
include: China, Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, South Korea, Taiwan and Thailand, but not Japan.
3. Asia refers to the Pacific Tiger countries plus Japan and India.
4. What is considered to be an "Asian Company?" A company is considered
to be "Asian" or "located" in a particular country in Asia if:
(i) it is organized under the laws of China, Hong Kong, India,
Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea,
Taiwan or Thailand; or
(ii) it derives at least 50% of its revenues or profits from goods
produced or sold, investments made, services performed, or has at
least 50% of its assets located in one of these countries; or
(iii) it has the primary trading markets for its securities in one of
these countries; or
(iv) it is a governmental entity or an agency or instrumentality or
political subdivision of such country.
5. Matthews or The Advisor means Matthews International Capital
Management, LLC, the company which manages the money which is invested
into the Funds.
SUMMARY INFORMATION
INVESTMENT GOALS OF THE FUNDS
The investment goal of all six Matthews International Funds is long term
capital appreciation.
<PAGE> 25
2
MATTHEWS' INVESTMENT STRATEGY
- --------------------------------------------------------------------------------
How Matthews chooses investments for each of the Funds is known as an
investment strategy. The strategy Matthews uses is called "Growth at a
Reasonable Price." This means that the investment team studies the
fundamental characteristics of companies appropriate for each Fund and
from those fundamentals makes a judgment that certain companies are
poised for growth, and at the same time are available to the Funds at a
reasonable price. In addition Matthews may use currency hedging
techniques such as forward foreign currency contracts which help
neutralize the impact of the changes in the value of local Asian
currencies as compared to the U.S. dollar.
Fundamental characteristics of a company include the people who are
running the company, the products it makes, the marketing strategy it is
following and its financial health.
The size of a company, which Matthews measures by its market
capitalization (the number of shares outstanding times the market price
per share) is not considered by Matthews when it decides whether to
include that company's securities in one or more of the Funds.
If Matthews believes that market conditions are developing in a way that
is not good for the shareholders, it may sell all of a Fund's securities
and temporarily invest the Funds' money in U.S. Government securities. As
of the date of this prospectus this has never happened, but if it were to
occur, the investment goals of the Funds may not be achieved.
PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS
- --------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND invests a substantial portion of its
assets in the common and preferred stock of companies located in China.
China includes Taiwan and Hong Kong.
MATTHEWS KOREA FUND invests a substantial portion of its assets in the
common and preferred stock of companies located in South Korea.
MATTHEWS PACIFIC TIGER FUND invests a substantial portion of its assets
in the common and preferred stock of companies located in the Pacific
Tiger countries.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
The most important risk to understand is that there is no guarantee that
your investment in the Funds will increase in value. The value of your
investment in the Funds could go down, meaning you could lose money.
The Funds concentrate their investments in Asia. The Asian markets can be
very volatile for many reasons including the size of the local economies
(as compared with the United States) and each country's unique political
structure. This volatility can cause the price of the Funds' shares (the
net asset value or "NAV") to go up or down dramatically. Because of this
volatility, we recommend that you invest in the Funds as a long term
investment only, and only for a portion of your investment portfolio, not
for all of it.
Further, when one of the Funds buys or sells stock on an Asian stock
market, the transaction is made in the local currency. The price that the
Funds must purchase or sell local currency will impact the value of your
shares in the Funds. These and other risks are more fully discussed below
and in the SAI.
<PAGE> 26
3
The Advisor uses certain hedging techniques to help neutralize the impact
of changes in the value of local Asian currencies. The Advisor's ability
to anticipate changes in the price of foreign currencies is not always
accurate, however, which may limit the full benefit of a currency move in
the Fund's favor, but at the same time may limit the detriment when the
currency moves against the Fund.
The principal investments of all the Funds are common and preferred
stocks. The major risk involved with the ownership of common and
preferred stock is that the Fund may lose money if the value of a stock
goes down during the time that the Fund owns it.
RISKS ASSOCIATED WITH NON-UNITED STATES COMPANIES
Investments by the Funds in the securities of non U.S. issuers involve
investment risks different from those of U.S. issuers. These risks
include:
- Possible political or economic instability of the country of issue
- Predicting international trade patterns incorrectly
- Possibility of currency exchange controls
- Imposition of foreign withholding taxes
- Seizure or nationalization of foreign deposits or assets
- Adoption of adverse foreign government trade restrictions
There may be less publicly available information about a foreign company
than about a domestic company. Sometimes non U.S. companies are subject
to different accounting, auditing and financial reporting standards,
practices and requirements than U.S. companies. There is generally less
government regulation of stock exchanges, brokers and listed companies
abroad than in the United States, and the absence of negotiated brokerage
commissions in certain countries may result in higher brokerage fees.
With respect to certain non U.S. countries, there is a possibility of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in those countries.
In addition, brokerage commissions, custodian services, withholding
taxes, and other costs relating to investment in foreign markets
generally are more expensive than in the United States.
RISKS ASSOCIATED WITH SMALLER COMPANIES (SO-CALLED "SMALL-CAP" COMPANIES)
The Funds may invest in securities of issuers of various sizes, large or
small. Smaller companies often have limited product lines, markets or
financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies generally are
subject to more abrupt or erratic market movements and may be less liquid
than securities of larger, more established companies or the market
averages in general.
LONG TERM INVESTING AND VOLATILITY
Dramatic changes (volatility) in the price of an investment can be
dangerous because you may have planned or may need to sell your
investment just at a time when its value has decreased. We recommend an
investment in the Funds only as a long term investment (5 years and
longer) because you will be better able to plan to sell your shares at a
time when this volatility will not be as great a factor in your decision
process.
<PAGE> 27
4
MATTHEWS DRAGON CENTURY CHINA FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above investing
in the regional markets of China and Hong Kong involve risks and
considerations not present when investing in more established securities
markets. Investing in regionally concentrated investment funds should be
considered speculative and thus not appropriate for all investors.
China remains a totalitarian society with the risk of nationalization,
expropriation or confiscation of property. The legal system is still in
its infancy making it more difficult to obtain and/or enforce judgments.
Further, the government could at any time alter or discontinue economic
reform programs implemented since 1978. Military conflicts, either in
response to internal social unrest or conflicts with other countries are
an ever present consideration.
In addition to political risk, investments in China are also subject to
economic risk. There is a potential risk of total loss, including
interest, capital appreciation and principle. There is also a greater
risk involved in currency fluctuations, currency convertibility, interest
rate fluctuations and higher rates of inflation. The emergence of a
domestic consumer class is still at an early stage, making China heavily
dependent on exports.
MATTHEWS KOREA FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above investing
in Korean securities has special risks including:
- substantial government involvement in, and influence on, the economy
and the private sector;
- political, economic and social instability, including the potential
for increasing militarization in North Korea;
- the substantially smaller size and lower trading volume of the
securities markets for Korean equity securities compared to the U.S.
or Japanese securities markets, resulting in a potential lack of
liquidity and increased price volatility;
- that the sale of portfolio securities by the Korean Securities
Stabilization Fund (the "Stabilization Fund"), a fund established in
order to stabilize the Korean securities markets, or other large
Korean institutional investors, may adversely impact the market value
of securities in the Fund's portfolio; and
- heavy concentration of market capitalization and trading volume in a
small number of issuers, which result in potentially fewer investment
opportunities for the Fund.
Risks Associated with North Korea Following World War II, the Korean
peninsula was partitioned. The demilitarized zone at the boundary between
Korea and North Korea was established after the Korean War of 1950-1953
and is supervised by United Nations forces. The United States maintains a
military force in Korea to help deter the ongoing military threat from
North Korean forces. The situation remains a source of tension although
negotiations to ease tensions and resolve the political division of the
Korean peninsula have been carried on from time to time. There also have
been efforts from time to time to increase economic, cultural and
humanitarian contacts between North Korea and Korea. There can be no
assurance that such negotiations or efforts will continue to occur or
will result in an easing of tension between North Korea and Korea.
Military action or the risk of military action or the economic collapse
of North Korea could have a material adverse effect on Korea, and
consequently, on the ability of the Fund to achieve its investment
objective. Lack of available information regarding North Korea may be the
greatest risk factor.
<PAGE> 28
5
Risks Associated with the Influence of the Korean Government The Korean
government has historically exercised and continues to exercise
substantial influence over many aspects of the private sector. The Korean
government from time to time has informally influenced the payment of
dividends and the prices of certain products, encouraged companies to
invest or to concentrate in particular industries, induced mergers
between companies in industries suffering from excess capacity and
induced private companies to publicly offer their securities. The Korean
government has sought to minimize excessive price volatility on the KSE
through various steps, including the imposition of limitations on daily
price movements of securities.
Risks Associated with a Non-Diversified Investment Company The Fund is a
"non-diversified" investment company, which means that it may invest a
larger portion of its assets in the securities of a single issuer than a
diversified fund. An investment in the Fund therefore will entail greater
risk than an investment in a diversified investment company because a
higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of the Fund's portfolio,
and economic, political or regulatory developments may have a greater
impact on the value of the Fund's portfolio than would be the case if the
portfolio were diversified among more issuers.
MATTHEWS PACIFIC TIGER FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above and since
this Fund may invest in companies from many different countries, each
country's size, level of economic development and governmental stability
will have an impact on the value of those companies. In general, the
economies of these countries are smaller and less developed than in the
United States. Their stock exchanges and brokerage industries do not have
the level of government oversight as do those in the United States and
sometimes their governments are unstable. Each of these factors can cause
these stock markets to be more volatile. Please read the SAI for an
extensive presentation of these and other risk factors.
<PAGE> 29
6
PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar charts and performance table help show some of the risks of
investing in the Funds. The bar charts show each Fund's performance from
prior years. Below the charts you will find the best and worst returns
since each Fund began. You can then compare those returns with that of a
broad based index found next. This information only speaks to the past.
We do not know how the Funds will perform in the future. The performance
below is for the Class I shares which are not offered in this prospectus.
Note that the performance does not take into account distribution fees or
sales charges, but barring these differing expenses, the share classes
have substantially similar annual returns because the shares are invested
in the same portfolio of securities. In that Matthews Dragon Century
China Fund does not have a full calendar year's performance, no
statistics are presented.
MATTHEWS KOREA FUND
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND (%)
-----------------------
<S> <C>
1995 -12.73
1996 -31.79
1997 -64.75
1998 96.15
1999
</TABLE>
Best Quarter: 4th - 1998 99.98%
Worst Quarter: 4th - 1997 (64.44%)
Year-to-date Return: 56.86% as of September 30, 1999
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR JANUARY 3, 1995
---------------------------
<S> <C> <C>
Matthews Korea Fund 96.15% (19.33%)
*Korea Stock Price Index 98.79% (22.44%)
</TABLE>
---------------------------------
* The Korean Stock Price Index is a
capitalization-weighted index of all common stocks listed
on the Korean Stock Exchange.
<PAGE> 30
7
MATTHEWS PACIFIC TIGER FUND
<TABLE>
<CAPTION>
PACIFIC TIGER FUND (%)
----------------------
<S> <C>
1995 3.06
1996 24.18
1997 -40.89
1998 -2.86
1999
</TABLE>
Best Quarter: 4th - 1998 38.45%
Worst Quarter: 4th - 1997 (38.17%)
Year-to-date Return: 39.02% as of September 30, 1999
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR SEPTEMBER 12, 1994
-------------------------------
<S> <C> <C>
Matthew Pacific Tiger Fund (2.86%) (8.03%)
*MSCI All Country Far East ex-Japan Index (4.83%) (12.31%)
</TABLE>
---------------------------------
* The MSCI (Morgan Stanley Capital International) All
Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the
Pacific region excluding Japan.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of any of the Funds:
SHAREHOLDER FEES
<TABLE>
<S> <C>
MAXIMUM SALES LOAD IMPOSED ON PURCHASES as a percentage of
offering price 4.95%
MAXIMUM SALES LOAD IMPOSED ON REINVESTED DIVIDENDS as a
percentage of offering price 0.00%
CONTINGENT DEFERRED SALES CHARGE as a percentage of original
purchase price 0.00%
REDEMPTION FEE as a percentage of amount redeemed within 90
days of purchase 2.00%
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING
0.25% TOTAL
SHAREHOLDER ANNUAL FEE REDUCTION NET EXPENSES
MANAGEMENT DISTRIBUTION/ SERVICING OPERATING AND/OR EXPENSE AFTER
MATTHEWS FUND -- CLASS A FEES 12B-1 FEES FEE) EXPENSES REIMBURSEMENT REIMBURSEMENT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dragon Century China 1.00% 0.25% 1.09% 2.34% 0.09% 2.25%
Korea 1.00% 0.25% 1.02% 2.27% None 2.27%
Pacific Tiger 1.00% 0.25% 1.15% 2.40% 0.25% 2.15%
</TABLE>
<PAGE> 31
8
Under a written agreement between the Funds and the Advisor, the Advisor
agrees to reimburse money to a Fund if its expense ratio exceeds a
certain percentage level as indicated above. In turn, if a Fund's
expenses fall below the level noted above within three years after the
Advisor has made such a reimbursement, a Fund may reimburse the Advisor
up to an amount not to exceed its expense limitation. This agreement will
continue through at least August 31, 2000.
EXAMPLE
Based on the level of expenses listed above, the total expenses relating
to an investment of $10,000 would be as follows, assuming a 5% annual
return, reinvestment of all dividends and distributions and redemption at
the end of each time period.
<TABLE>
<CAPTION>
NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dragon Century China Fund $712 $1,189 $1,683 $3,039
Korea Fund $714 $1,169 $1,650 $2,971
Pacific Tiger Fund $702 $1,206 $1,712 $3,096
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder will bear directly or
indirectly. While the example assumes a 5% annual return, each Fund's
actual performance will vary and may result in actual returns greater or
less than 5%. The above example should not be considered a representation
of past or future expenses or performance. Actual expenses of the Funds
will most likely be different than those shown.
THE INVESTMENT PROCESS
- --------------------------------------------------------------------------------
The investment goal of each Fund noted above is fundamental. This means
that it can not be changed without a vote of a majority of the voting
securities of each respective Fund.
The way Matthews attempts to achieve each Fund's investment goals is not
fundamental and may change without shareholder approval. While an
investment policy or restriction may be changed by the Trustees of the
Company without shareholder approval, you will be notified before we make
any material change.
<PAGE> 32
9
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT LLC is the investment advisor
to the Funds. Matthews' address is 456 Montgomery Street, Suite 1200, San
Francisco, California 94104-1245 and can be reached by telephone
toll-free at 1-800-789-2742. The Advisor was founded in 1991 by G. Paul
Matthews who serves as Chief Investment Officer. Each Fund pays an annual
fee of 1% of its total assets to Matthews for the services it provides to
the Funds.
Matthews invests the Funds' assets, manages the Funds' business affairs
and supervises its overall day-to-day operations. Matthews also furnishes
the Funds with office space and certain administrative and clerical
services, and provides the personnel needed by the Funds with respect to
the Advisor's responsibilities under the investment advisory agreement.
PORTFOLIO MANAGERS
<TABLE>
<S> <C>
Dragon Century China Fund G. Paul Matthews, Mark W. Headley and Richard H. Gao
Korea Fund Mark W. Headley and G. Paul Matthews
Pacific Tiger Fund Mark W. Headley, G. Paul Matthews and Andrew T. Foster
(assistant)
</TABLE>
G. Paul Matthews: has been actively involved in the Asian financial
markets since 1982. Prior to founding Matthews International Capital
Management in 1991, he served as portfolio manager of G. T. Pacific
Growth Fund from 1982-85. While residing in Hong Kong, Mr. Matthews
oversaw all Asian investment from 1985-88 for G. T. Management Asia. From
1989 to 1991 he was self-employed. Mr. Matthews holds an M. A. in history
and law from Cambridge University in the United Kingdom.
Mark W. Headley: joined Matthews International as Managing Director and
as Senior Analyst on the investment team in 1995. He has over 10 years of
experience in the Asian Tiger markets. From 1989 to 1992 he held various
positions at Newport Pacific Management and its subsidiaries. In 1992,
Mr. Headley moved to Hong Kong, where he served as a Director of Regent
Fund Management. He returned to San Francisco in 1993 and joined
Litman/Gregory & Co. as Director of International Investments. Mr.
Headley holds a B.A. in Economics and Politics from the University of
California at Santa Cruz.
Richard H. Gao: joined Matthews International in 1997 as China analyst.
In 1999 he was promoted to portfolio manager of the Dragon Century China
Fund. In 1989 Mr. Gao served as a loan officer at the Bank of China in
the city of Guanzhow, China. He later became a foreign exchange trader at
the Bank of China's Treasury Department in 1991. From 1993 through 1994
he served as assistant manager in charge of foreign exchange trading for
import/export companies at the Bank. Mr. Gao holds an M.B.A. from
Dominican College of San Rafael and is fluent in three Chinese languages:
Mandarin, Cantonese and Shanghaiese.
Andrew T. Foster: joined Matthews International in November 1998 as an
analyst and was promoted to assistant portfolio manager in August 1999.
Prior to joining Matthews, Mr. Foster provided management consulting
services for A.T. Kearney and was based in Singapore from 1996 to 1998.
During the years 1992 through 1996 Mr. Foster attended Stanford
University where he was awarded a dual degree in Public Policy, with
honors, and in Economics.
All members of the investment team travel extensively to Asia to conduct
research relating to those markets.
<PAGE> 33
10
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
PRICING OF FUND SHARES
The price at which the Funds' shares are bought or sold is called the
Public Offering Price that is equal to the net asset value per share or
"NAV" plus any applicable sales charge. The NAV is computed once daily as
of the close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 p.m. Eastern Time. In addition to Saturday and Sunday the
NYSE is closed on the days that the following holidays are observed: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The NAV is computed by adding the value of all securities and other
assets of a Fund, deducting any liabilities, and dividing by the total
number of outstanding shares. The Funds' expenses are accounted for by
estimating the total expenses for the year and applying each day's
estimated amount when the NAV calculation is made.
The Funds' equity securities are valued based on market quotations or,
when no market quotations are available, at fair value as determined in
good faith by or under direction of the Board of Trustees. Foreign
securities are valued as of the close of trading on the primary exchange
on which they trade. The value is then converted to U.S. dollars using
current exchange rates.
Securities listed on any U.S. securities exchange are valued at their
last sale price on the exchange where the securities are principally
traded or, if there has been no sale on that date, at the mean between
the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices.
Securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices
provided by investment dealers in accordance with procedures established
by the Board of Trustees.
Short-term fixed-income securities having a maturity of 60 days or less
are valued at amortized cost, which the Board of Trustees believes
represents fair value. When a security is valued at amortized cost, it is
first valued at its purchase price. After it is purchased, it is valued
by assuming a constant amortization to maturity of any discount or
premium (because the Fund will hold the security till it matures and then
receive its face value), regardless of the way of changing interest rates
could change the market value of the instrument.
Foreign currency exchange rates are generally determined prior to the
close of trading on the NYSE. Occasionally, events affecting the value of
foreign investments and such exchange rates occur between the time at
which they are determined and the close of trading on the NYSE. Such
events would not normally be reflected in a calculation of the Funds' net
asset value on that day. If events that materially affect the value of
the Funds' foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the Board
of Trustees. Foreign securities held by the Funds may be traded on days
and at times when the NYSE is closed. Accordingly, the net asset value of
the Funds may be significantly affected on days when shareholders have no
access to the Funds. For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts
stated in foreign currency are translated into U. S. dollar equivalents
at the prevailing market rates.
<PAGE> 34
11
PURCHASE OF SHARES
You may purchase Fund shares directly from the Funds by mail or by wire
or through your broker. The price for each share you buy will be the
Public Offering Price calculated after your order is "received" by the
Fund. "Received" means that payment for your purchase and all the
information needed to complete your order must be received by the Fund
before your order is processed. If your order is Received before 4:00
p.m. on a day the Funds' NAVs are calculated, the price you pay will be
that day's Public Offering Price. If your order is Received after 4:00
p.m., the price you will pay will be the next Public Offering Price
calculated.
USING A BROKER
You may purchase Fund shares through your broker if they have an
agreement with the Funds. Check with your broker to be sure that they
have signed such an agreement.
Shares of the Funds are sold at the Public Offering Price which is
calculated by adding the applicable sales load to the NAV. There is no
sales load charged on the dividends or capital gains paid by the Funds
which are then reinvested. The chart below shows the amount of the sales
load compared to the amount of the Funds purchased and as a percentage of
both the offering price as well as the net amount.
<TABLE>
<CAPTION>
REALLOWANCE
SALES CHARGE SALES CHARGE OF BROKERAGE
AS A AS A AS A
PERCENTAGE OF PERCENTAGE OF PERCENTAGE
CLASS A SHARES PURCHASED OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.95% 5.21% 4.50%
$50,000 or more but less than $100,000 4.25% 4.44% 3.85%
$100,000 or more but less than $250,000 3.25% 3.36% 2.90%
$250,000 or more but less than $500,000 2.50% 2.36% 2.15%
$500,000 or more but less than
$1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
SPECIAL SHARE PURCHASE PLANS WHICH WILL REDUCE YOUR SALES LOAD
There are two special plans whereby you will be able to pay less than the
maximum sales loads. They are "Rights of Accumulation" and a "Letter of
Intent." Under Rights of Accumulation, you may be able to aggregate many
purchases which, if made together, would be eligible for a lower sales
load. A Letter of Intent is an agreement that you will purchase a certain
amount of shares of the Funds which, if made all at once, would be
eligible for a lower sales load. Contact the Fund or your broker for all
of the conditions and details.
DISTRIBUTION (RULE 12b-1) PLAN
The Fund is also permitted to pay for certain distribution expenses
through a distribution plan known as a Rule 12b-1 Plan. This rule is part
of the law that regulates the mutual fund industry. Under the Funds' Rule
12b-1 Plan, the Funds may pay up to 1/4(cent) of each dollar in the fund
annually (put another way, an annual rate of 0.25% of the Funds' net
assets) for services such as printing, mailings, or fees charged by
investment professionals who service shareholder accounts.
Please note that these fees are paid out of the Funds on an ongoing basis
and over time, they increase the cost of your investment and may cost you
more that paying other types of sales charges.
<PAGE> 35
12
The Funds' shares are sold through an underwriter. The Funds' underwriter
is Provident Distributors, Inc. ("Provident"), a registered
broker-dealer. Provident's address is Four Falls Corporate Center, West
Conshohocken, PA 19428. Shares of the Funds may also be purchased through
various brokers who have arrangements with it. These brokers may charge
you a fee for their services.
<TABLE>
<S> <C>
Minimum Initial Investment (non-retirement plan account): $ 2,500
Subsequent Investments: $ 250
Minimum Initial Investment (*retirement plan account): $ 500
Subsequent Investments: $ 50
</TABLE>
Retirement Plan Accounts include IRAs, 401(k) and 403(b)(7) plans.
* Speak with the Funds' agents for the many retirement plans available
The Funds may reject any purchase order or stop selling shares of the
Funds at any time. Also, the Funds may vary or waive the initial
investment minimum and minimums for additional investments.
<TABLE>
<S> <C> <C>
OPEN AN ACCOUNT ADDING TO AN ACCOUNT
BY MAIL - Complete and sign application - Make check payable to:
- Make check payable to: Matthews (name of Fund)
Matthews (name of Fund) - Mail check with a statement stub to address at
- Mail application and check to: left.
Matthews International Funds
Post Office Box 61767
211 South Gulph Road
King of Prussia, PA 19406
BY PHONE You cannot open an account over the When you open your account, you must check the
telephone. box for "Telephone Options." Note that you may
only exchange shares from one Matthews Fund to
another.
*BY WIRE - Complete and sign application - Notify Funds' agent by calling:
- Mail application to: 800-892-0382.
Matthews International Funds - Then wire funds to:
Post Office Box 61767 Boston Safe Deposit & Trust
211 South Gulph Road ABA # 011001234
King of Prussia, PA 19406 Credit: [name of specific Matthews Fund]
- Wire funds using instructions at right. Account # 000221
FBO: [your name and account number]
BY AUTOMATIC N/A Complete the Automatic Investment Plan section
INVESTMENT of the application. Be sure to sign the
PLAN application and include a voided check when
returning it to the Fund.
</TABLE>
* NOTE THAT WIRE FEES ARE CHARGED BY MOST BANKS.
<PAGE> 36
13
EXCHANGE OF SHARES
You may exchange your shares of one Matthews Fund for another provided
that the other fund is registered for sale in your state. Minimum
investment requirements apply. Any request must be received by the Fund's
agent by 4 p.m. eastern time on any day the New York Stock Exchange is
open, to receive that day's NAV. Such exchanges may be made by telephone
if you have so authorized on your application. Call 800-892-0382 for full
details. The exchange privilege may be terminated if the management of
the Funds believes it is in the best interest for all shareholders to do
so. Note that redemption fees may apply.
SELLING (REDEEMING) SHARES
You may sell your shares back to the Funds on any day it is open for
business. To receive a specific day's NAV, your request must be received
by the Funds before 4:00 p.m. of that day. If it is received after 4:00
p.m., you will receive the next NAV calculated.
If you used a check to buy your shares and later decide to sell them,
your proceeds from that redemption will be withheld until the Funds are
sure that your check has cleared. This could take as much as 15 days or
more.
If your request to sell your shares is made by telephone, you may have
difficulty getting through to the Funds in times of drastic market
conditions. If the Funds believe that it is in the best interest of all
the shareholders, it may modify or discontinue telephone transactions
without any notice.
TELEPHONE SECURITY
The convenience of using telephone transactions may have a cost in
decreased security. The Funds employ certain security measures as they
process telephone transactions. If these security procedures are used,
the Funds or its agents will not be responsible for any losses that you
incur because of a fraudulent telephone transaction. If the security
measures are not followed and you incur a loss because of a fraudulent
telephone transaction, the Funds or its agents will be responsible for
that loss.
<TABLE>
<S> <C>
SELLING (REDEEMING) SHARES
BY MAIL - Send a letter to the Funds at the following address:
Matthews International Funds
Post Office Box 61767
211 South Gulph Road
King of Prussia, PA 19406
The letter must include your name and account number, the
name of the Fund and the amount you want to sell in dollars
or shares. This letter must be signed by each owner of the
account. For security purposes, a signature guarantee will
be required if:
- your request is for an amount over $100,000, or
- the money is to be paid to anyone other than the
registered owners or
- the money is to be sent to an address which is different
than the registered address or to a bank account other than
the account which was pre-authorized.
BY PHONE When you opened your account, you must have checked the
appropriate part of the application or after you opened your
account, you have instructed the Funds to allow telephone
transactions. Any such instruction must be made by mail with
signature guarantees. Call 800.892.0382
BY WIRE Same as by phone above.
THROUGH A BROKER Contact your broker directly. Note that your Broker may
charge you a fee.
</TABLE>
<PAGE> 37
14
REDEMPTION FEE
Please remember that if you sell your shares within 90 days of the day
you bought them, the money you receive will be 2% less than the total
amount redeemed. This 2% fee is retained by the Funds to compensate the
Funds for the extra expense it incurs because of short term trading. In
addition, the Funds hope that the fee will discourage short term trading
of its shares.
REDEMPTION IN KIND
Under certain circumstances, you could receive your redemption proceeds
as a combination of cash and securities. Receiving securities instead of
cash is called "redemption in kind." Even though the Funds are permitted
to do this, the first $250,000 of any redemption must be paid to you in
cash. Note that if you receive securities as well, you will incur
transactions charges if you sell them.
MINIMUM SIZE OF AN ACCOUNT
The Funds are charged by its service providers a fee for each account. If
an account balance falls below $2,500, it becomes too expensive to keep
it open. If this happens to your account we will give you the option of
investing more money into you account, or closing it. You will receive a
letter from the fund discussing your options in the event your account
falls below $2,500.
DISTRIBUTIONS
All of the Funds except Growth and Income will distribute their net
investment income annually in December. Growth and Income will distribute
its net investment income semi-annually in June and December. Any net
realized gain from the sale of portfolio securities and net realized
gains from foreign currency transactions are distributed at least once
each year unless they are used to offset losses carried forward from
prior years.
All such distributions are reinvested automatically in additional shares
at net asset value, unless you elect to receive them in cash. The way you
receive distributions may be changed at any time by writing the Funds.
Any check in payment of dividends or other distributions which cannot be
delivered by the Post Office or which remains uncashed for a period of
more than one year will be reinvested in the shareholder's account at the
then current net asset value and the dividend option changed from cash to
reinvest.
Distributions are treated the same for tax purposes whether received in
cash or reinvested. Please note that shares purchased shortly before the
record date for a dividend or distribution may have the effect of
returning capital although such dividends and distributions are subject
to taxes.
TAXES
An investment in the Funds has certain tax consequences, depending on the
type of account that you have. Distributions are subject to federal
income tax and may also be subject to state and local income taxes.
Distributions are generally taxable when they are paid, whether in cash
or by reinvestment. Distributions declared in October, November or
December, and paid in the following January are taxable as if they were
paid on December 31.
The exchange of one Matthews Fund for another is a "taxable event" which
means that if you have a gain you may be obligated to pay tax on it.
<PAGE> 38
15
If you have a qualified retirement account, taxes are generally deferred
until distributions are made from the retirement account.
Part of a distribution may include realized capital gains which may be
taxed at different rates depending on how long the fund has held specific
securities.
Make sure you have a social security number or tax I.D. number on file
with the Funds. If you do not, you may be subject to a 31 percent back up
withholding on your distributions.
Speak with your tax counselor for complete information concerning the tax
implications of your ownership of the Funds.
<PAGE> 39
16
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
These financial highlights tables are intended to help you understand the
Funds' financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in
the table represent the rate that an investor would have earned [or lost]
on an investment in the Fund assuming all of the dividends and
distributions were reinvested. The information for the periods through
August 31, 1998 was audited by Ernst & Young LLP. The information for the
fiscal year ended August 31, 1999 was audited by Tait, Weller and Baker.
<TABLE>
<CAPTION>
MATTHEWS PACIFIC TIGER FUND MATTHEWS KOREA FUND
---------------------------------- ----------------------------------
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, YEAR ENDED AUGUST 31,
AUGUST 31, 1999 1998(4) AUGUST 31, 1999 1998(4)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 4.07 $10.84 2.01 $ 5.32
Income from Investment Operations
Net investment income (loss) 0.21 0.03(5) 0.01 (0.04)
Net realized and unrealized gain
(loss) on investments and
foreign currency 6.15 (6.73) 5.42 (3.27)
------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.36 (6.70) 5.43 (3.31)
------------------------------------------------------------------------
Less Distributions from:
Net investment income (0.02) (0.01) -- --
Net realized gains on investments 0.00 (0.06) -- --
------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.02) (0.07) -- --
NET ASSET VALUE END OF PERIOD $10.41 $ 4.07 $ 7.44 $ 2.01
TOTAL RETURN(3) 156.28% (61.87%) 270.15% (62.03%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's) $1,221 $ 146 $15,281 $4,123
Ratio of expenses to average net
assets before expense waivers 2.15% 11.99%(1) 2.02% 2.97%(1)
Ratio of expenses to average net
assets after expense waivers 1.90% 1.91%(1) 2.02% 2.68%(1)
Ratio of net investment income
(loss) to average net assets
before waivers 3.10% (9.61%)(1) (0.62%) (2.03%)(1)
Ratio of net investment income
(loss) to average net assets
after waivers 3.35% 0.47%(1) (0.62%) (1.74%)(1)
Portfolio turnover 98.74% 73.09% 57.06% 94.01%
</TABLE>
- ---------------
(1) Annualized
(2) Not Annualized
(3) Total Return does not reflect sales load.
(4) The Class A Shares of the Funds commenced operations on October 9, 1997.
(5) Calculated using the average shares method.
<PAGE> 40
17
GENERAL INFORMATION
- --------------------------------------------------------------------------------
If you wish to know more about Matthews International Funds, You will
find additional information in the following documents.
SHAREOWNER REPORTS
You will receive Semi-Annual Reports dated February 28 and Annual
Reports, audited by independent accountants, dated August 31. These
reports contain a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, which is incorporated into this prospectus by reference and
dated December 20, 1999, is available to you without charge. It contains
more detailed information about the Funds.
HOW TO OBTAIN REPORTS
CONTACTING MATTHEWS INTERNATIONAL FUNDS
You can get free copies of the reports and SAI, request other information
and discuss your questions about the Funds by contacting:
Matthews International Funds
P.O. Box 61767, 211 South Gulph Road
King of Prussia, PA 19406
800.789.2742
Web site: www.matthewsfunds.com
OBTAINING INFORMATION FROM THE SEC:
You can visit the SEC's web site at http://www.sec.gov to view the SAI
and other information. You can also view and copy information about the
Funds at the SEC's Public Reference Room in Washington, DC. Also, you can
obtain copies of this information by sending your request and duplication
fee to the SEC's Public Reference Room, Washington DC 20549-6009. To find
out more about the Public Reference Room, you can call the SEC at
202.942.8090. You may also e-mail the SEC at [email protected] to obtain
additional information about a Fund.
Investment Company Act File Number: 811-08510
<PAGE> 41
BOARD OF TRUSTEES
Richard K. Lyons
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott, Emeritus
OFFICERS
G. Paul Matthews -- President
Mark W. Headley -- Vice President
Joseph M. O'Donnell -- Secretary
Brian Stableford -- Treasurer
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
800.789.ASIA (2742)
UNDERWRITER
Provident Distributors, Inc.
Four Falls Corporate Center
West Conshohocken, PA 19428
SHAREHOLDER SERVICES
PFPC Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104-2635
FOR ADDITIONAL INFORMATION ABOUT THE
MATTHEWS INTERNATIONAL FUNDS CALL: 800.789.ASIA (2742)
Investment Company Act File Number: 811-08510
PROSPECTUS - DECEMBER 20, 1999
MATTHEWS
INTERNATIONAL
FUNDS
WWW.MATTHEWSFUNDS.COM
Specialists in Asian Investing
800.789.ASIA (2742)
CLASS A SHARES
LOGO
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
The U.S. Securities and Exchange Commission (the "SEC") has not
approved of, or disapproved of the Fund or the securities that the Fund sells.
Also, the SEC has not passed upon the adequacy or accuracy of this prospectus.
Anyone who informs you otherwise is committing a crime.
watermark
<PAGE> 42
MATTHEWS INTERNATIONAL FUNDS
WWW.MATTHEWSFUNDS.COM
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS ASIAN TECHNOLOGY FUND
MATTHEWS DRAGON CENTURY CHINA FUND
MATTHEWS JAPAN FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
STATEMENT OF ADDITIONAL INFORMATION
December 20, 1999
This Statement of Additional Information or "SAI" is not a prospectus, but it
does relate to the prospectuses of Matthews International Funds Class A and
Class I both dated December 20, 1999.
Read this document in conjunction with the Prospectuses. A copy of each
Prospectus may be obtained without charge from the companies at the addresses
and telephone numbers below.
Underwriter:
Provident Distributors, Inc.
Four Falls Corporate Center
West Conshohocken, PA 19428
(800) 892-0382
Investment Advisor:
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
(800) 789-2742
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectuses in connection with the offering made by the Prospectuses and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Funds or its Underwriter. The Prospectuses do not
constitute an offering by the Funds or by the Underwriter in any jurisdiction in
which such offering may not lawfully be made.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any State.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Fund History
Description of the Fund and Its Investments and Risks
a. Classification
b. Investment Strategies and Risk
Matthews' Investment Process
c. Funds' Policies
d. Temporary Defensive Position
e. Portfolio Turnover
Management of the Funds
a. Board of Trustees; Affiliations, Compensation
b. Sales Loads
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
Control Persons and Principal Holders of Securities
a. Control Persons, Principal
Holders and Management
Ownership
Investment Advisory and Other Services
a. The Investment Advisor
b. Principal Underwriter
c. Service Agreements
d. Dealer Roallowances
e. Rule 12b-1 Plans
f. Other Service Providers
Brokerage Allocation and Other Practices
Capital Stock and Other Securities
a. Capital Stock
b. Other Securities None
Purchase, Redemption and Pricing of Shares
a. Purchase of Shares
b. Fund Reorganizations None
c. Offering Price
d. Redemption in Kind
Taxation of the Fund
a. Subchapter M, IRS Code
b. Unique Foreign Tax Issues
Underwriters
Calculation of Performance Data
Other Information
Appendix: Bond Ratings
Financial Statements
</TABLE>
FUND HISTORY
Matthews International Funds (the "Trust"), 456 Montgomery Street, Suite 1200,
San Francisco, California 94104, is a family of mutual funds currently offering
six separate series of shares named:
Matthews Asian Growth And Income Fund Matthews Asian Technology Fund Matthews
Dragon Century China Fund Matthews Japan Fund Matthews Korea Fund Matthews
Pacific Tiger Fund
(collectively referred to as the "Funds" or individually as a "Fund"). Dragon
Century China, Korea and Pacific Tiger Funds have registered two classes of
shares: the Retail Class (Class A) and the Institutional Class (Class I). Each
Class of shares is offered in its own prospectus. These two prospectuses are
referred to herein as the "Prospectuses." The Class A Dragon Century China
shares are not being distributed to the public at this time. Shareholders of the
Retail Class shares are subject to a sales charge and annual 12b-1 expenses.
The Trust was organized as a Delaware business trust on April 13, 1994 and
commenced operations on September 13, 1994. It has never been engaged in any
other business.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
Please read the following information together with the information contained in
the Prospectuses concerning the investment strategies, risks and policies of the
Funds. The information here supplements the information in the Prospectuses.
a. Classification:
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended. Each Fund is "diversified" except
for the Korea Fund which is non diversified. Diversified means that as to 75% of
the assets of a Fund, one holding can not represent more than 5% of the assets
of the Fund, nor can any holding represent more that 10% of its company's
shares. The remaining 25% of the Fund could be invested in one holding, or in
multiple holdings not subject to the above limitations.
b. Investment Strategies and Risks:
As a general matter, the Advisor believes that the discipline of company
evaluation and choosing good stocks (and in the case of the
<PAGE> 44
Growth and Income Fund, convertible securities) is the best way to manage the
assets of the Funds, and to be fully invested as appropriate with cash needs.
MATTHEWS' INVESTMENT PROCESS
Matthews International Capital Management LLC, serves as the investment advisor
to the Trust. In this SAI, they are referred to as "Matthews" or the "Advisor."
The Advisor uses a multi-factor research approach when selecting investments for
the Funds. These factors include evaluation of each country's political
stability, prospects for economic growth (inflation, interest direction, trade
balance and currency strength), identification of long term trends that might
create investment opportunities, the status of the purchasing power of the
people and population and composition of the work force. In reviewing potential
companies in which to invest, the Advisor considers the company's quality of
management, plans for long-term growth, competitive position in the industry,
future expansion plans and growth prospects, valuations compared with industry
average, earnings track record, technology, research and development,
productivity, labor costs, raw material costs and sources, profit margins,
capital resources, governmental regulation, a debt/equity ratio less than the
market average, and other factors. In addition, the Advisor will visit countries
and companies in person to derive firsthand information for further evaluation.
After evaluation of all factors, the Advisor attempts to identify those
companies in such countries and industries that are best positioned and managed
to take advantage of the varying economic and political factors.
The Funds may invest in securities of issuers of various sizes, large or small.
Smaller companies often have limited product lines, markets or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies generally are subject to more
abrupt or erratic market movements and may be less liquid than securities of
larger, more established companies or the market averages in general.
Many of the debt and convertible securities in which the Funds invest are
un-rated by any rating agency and, therefore, there is no objective standard
against which the Advisor may evaluate such securities. The Advisor seeks to
minimize the risks of investing in lower-rated securities through investment
analysis and attention to current developments in interest rates and economic
conditions. In selecting debt and convertible securities for the Funds, the
Advisor will assess the following factors:
1) potential for capital appreciation; 2) price of security relative to price of
underlying stock, if a convertible security; 3) yield of security relative to
yield of other fixed-income securities; 4) interest or dividend income; 5) call
and/or put features; 6) creditworthiness; 7) price of security relative to price
of other comparable securities 8) size of issue; 9) currency of issue; and 10)
impact of security on diversification of the portfolios.
The Funds may also invest in securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
Generally, ADRs in registered form are dollar denominated securities designed
for use in the U.S. securities markets, which represent and may be converted
into an underlying foreign security. EDRs, in bearer form, are designed for use
in the European securities markets.
The Funds may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices.
<PAGE> 45
FOREIGN CURRENCY TRANSACTIONS:
The Funds must engage in foreign currency transactions in connection with their
investment in foreign securities but will not speculate in foreign currency
exchange. The Funds will conduct their foreign currency exchange transactions
either on a spot (i.e. cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction, a Fund is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. This tends to limit potential gains however,
that might result from a positive change in such currency relationships. The
Funds may also hedge their foreign currency exchange rate risk by engaging in
currency financial futures and options transactions.
When the Advisor believes that the currency of a particular foreign country may
suffer a substantial decline against the United States dollar, it may enter into
a forward contract to sell an amount of foreign currency approximating the value
of some or all of the Funds' securities denominated in such foreign currency. In
this situation the Funds may, in the alternative, enter into a forward contract
to sell a different foreign currency for a fixed United States dollar amount
where the Advisor believes that the United States dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the United States dollar value of the currency in which portfolio
securities of the Funds are denominated ("cross-hedge"). The forecasting of
short-term currency market movement is extremely difficult and whether such a
short-term hedging strategy will be successful is highly uncertain.
The Funds may enter into forward contracts to sell foreign currency with respect
to portfolio positions denominated or quoted in that currency provided that no
more than 15% of each Fund's total assets (except for Matthews Japan Fund) would
be required to purchase offsetting contracts. Matthews Japan Fund has the option
to invest up to 100% of its total assets to purchase offsetting contracts.
INVESTMENT STRATEGIES AND RISKS COMMON TO ALL FUNDS
Below are explanations and the associated risks of certain unique securities and
investment techniques. Shareholders should understand that all investments
involve risk and there can be no guarantee against loss resulting from an
investment in the Funds, nor can there be any assurance that the Funds'
investment objectives will be attained. Again, we remind you that generally
speaking, the Trust's investment strategy is to invest the shareholders' money
in equity securities (convertible securities in the case of Asian Growth and
Income Fund) consistent with each Funds' investment goal.
ADRs AND EDRs
For many foreign securities, there are United States dollar denominated ADRs,
which are bought and sold in the United States and are issued by domestic banks.
ADRs represent the right to receive securities of foreign issuers
<PAGE> 46
deposited in the domestic bank or a correspondent bank. ADRs do not eliminate
all the risks inherent in investing in the securities of foreign issuers. By
investing in ADRs rather than directly in foreign issuer's stock however, the
Funds will avoid currency risks during the settlement period for either
purchases or sales. The Funds may also invest in EDRs which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European securities markets.
EDRs are not necessarily denominated in the currency of the underlying security.
The Funds have no current intention to invest in unsponsored ADRs and EDRs.
IDRs
IDRs (International Depositary Receipts, also known as GDRs or Global Depositary
Receipts) are similar to ADRs except that they are bearer securities for
investors or traders outside the U.S., and for companies wishing to raise equity
capital in securities markets outside the U.S. Most IDRs have been used to
represent shares although it is possible to use them for bonds, commercial paper
and certificates of deposit. IDRs can be convertible to ADRs in New York making
them particularly useful for arbitrage between the markets. The Funds have no
current intention to invest in unsponsored IDRs.
RISKS ASSOCIATED WITH EUROCONVERTIBLE SECURITIES
Most of the convertible securities in which the Funds will invest are unrated by
any rating agency and, therefore, there is no objective standard against which
the Advisor may evaluate such securities. Investing in a convertible security
denominated in a currency different from that of the security into which it is
convertible exposes the Fund to currency risk.
The theoretical value of convertible securities varies with a number of factors
including the value and volatility of the underlying stock, the level and
volatility of the interest rates, the passage of time, dividend policy, and
other variables. Euroconvertible securities, specifically, are also influenced
by the level and volatility of the foreign exchange rate between the security's
currency and the underlying stock's currency. While the volatility of
convertible fixed income securities will typically be less than that of the
underlying securities, the volatility of warrants will typically be greater than
that of the underlying securities.
RISKS ASSOCIATED WITH EMERGING MARKETS
Investing in securities of issuers in Asia and the Pacific Basin involves
special risks. First, the Funds' investment focus on that region makes the Funds
particularly subject to political, social, or economic conditions experienced in
that region. Second, many of the countries in Asia and the Pacific Basin
constitute so-called "developing" or "emerging" economies and markets. The risks
of investing in foreign markets generally are greater for investments in
developing markets. Additional risks of investment in such markets include (i)
less social, political, and economic stability; (ii) the smaller size of the
securities markets in such countries and the lower volume of trading, which may
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Funds' investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests, or expropriation or confiscation of assets or property,
which could result in the Funds' loss of their entire investment in that market;
and (iv) less developed legal structures governing private or foreign investment
or allowing for judicial redress for injury to private property.
<PAGE> 47
RISKS ASSOCIATED WITH FOREIGN CURRENCY
The U.S. dollar market value of the Funds' investments and of dividends and
interest earned by the Funds may be significantly affected by changes in
currency exchange rates. The value of Fund assets denominated in foreign
currencies will increase or decrease in response to fluctuations in the value of
those foreign currencies relative to the U.S. dollar. Although the Funds may
attempt to manage currency exchange rate risks, there is no assurance that the
Funds will do so at an appropriate time or that they will be able to predict
exchange rates accurately. For example, if the Funds increase their exposure to
a currency and that currency's price subsequently falls, such currency
management may result in increased losses to the Funds. Similarly, if the Funds
decrease their exposure to a currency and the currency's price rises, the Funds
will lose the opportunity to participate in the currency's appreciation. Some
currency prices may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency markets,
which could adversely affect the Funds. Foreign investments which are not U.S.
dollar denominated may require the Funds to convert assets into foreign
currencies or to convert assets and income from foreign currencies to U.S.
dollars. Normally, exchange transactions will be conducted on a spot, cash or
forward basis at the prevailing rate in the foreign exchange market.
Dividends and interest received by the Funds with respect to foreign securities
may give rise to withholding and other taxes imposed by foreign countries. Tax
consequences between certain countries and the United States may reduce or
eliminate such taxes. In addition, foreign countries generally do not impose
taxes on capital gains with respect to investments by non-resident investors.
Matthews Korea Fund does not intend to engage in activities that will create a
permanent establishment in Korea within the meaning of the Korea-U.S. Tax
Treaty. Therefore, Matthews Korea Fund generally will not be subject to any
Korean income taxes other than Korean withholding taxes. Exemptions or
reductions in these taxes apply if the Korea-U.S. Tax Treaty applies to the
Fund. If the treaty provisions are not, or cease to be, applicable to Matthews
Korea Fund, significant additional withholding taxes would apply.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN GROWTH AND INCOME
FUND
Convertible securities are fixed-income securities such as corporate bonds,
notes and preferred stocks that can be exchanged for stock and other securities
(such as warrants) that also offer equity participation. Before conversion from
a debt security to an equity security, convertible securities have
characteristics similar to non-convertible debt securities in that they
ordinarily provide a stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities are hybrid
securities, combining the investment characteristics of both bonds and common
stocks. Like a bond, a convertible security pays a pre-determined interest rate,
but may be converted into common stock at a specific price or conversion rate.
An investor has the right to initiate conversion into a specified quantity of
the underlying stock, at a stated price, within a stipulated period of time,
into a specified quantity of the underlying stock. Convertible securities are
generally senior to common stock and junior to non-convertible debt. Under
normal circumstances, the Advisor expects that the portfolio of the Fund will be
comprised of twenty to sixty convertible bonds in various countries in the Asian
markets.
Many Asian convertible securities are unrated or are rated below investment
grade and the Fund may invest without limit in such securities. Investment grade
securities are securities rated Baa or higher by Moody's or
<PAGE> 48
BBB or higher by S&P or if unrated are of comparable quality. It is expected
that not more than 50% of the Fund's portfolio will consist of securities rated
CCC or lower by S&P or Caa or lower by Moody's or, if unrated, are of comparable
quality, and are commonly referred to as "junk bonds." These securities are
considered by the rating agencies to be predominantly speculative and involve
risk exposures such as increased sensitivity to interest rate and economic
changes and limited liquidity. The Fund does not intend to invest in issuers
which are in default.
Euroconvertible securities are denominated in a Eurocurrency, simultaneously
issued in more than one foreign country and issued by an international
syndicate. Frequently, with Euroconvertible notes and bonds, the currency of the
bond is different from the currency of the stock into which the bond is
convertible. This feature may provide some protection against disadvantageous
local currency movement. An issuer of debt securities purchased by the Fund may
be domiciled in a country other than the country in whose currency the
instrument is denominated.
The average maturity of the Fund's portfolio will vary based upon the Advisor's
assessment of economic and market conditions, although it is not currently
expected that the average maturity of the Fund's portfolio will exceed ten
years.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN TECHNOLOGY FUND
Equity securities in which the Fund may invest include common stocks, preferred
stocks, warrants, and securities convertible into common stocks, such as
convertible bonds and debentures of companies related to the technology sector.
Since this fund is concentrated in this sector, the movements in its NAV will
follow the sector, as opposed to the general movement of the economies of the
countries where the companies are located. This concentration will have a
tendency to make the NAV more volatile than a non-concentrated portfolio.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS DRAGON CENTURY CHINA FUND
Equity securities in which the Fund may invest include common stocks, preferred
stocks, warrants, and securities convertible into common stocks, such as
convertible bonds and debentures. The Fund may hold a significant weighting in
securities listed on either the Shanghai and/or Shenzhen stock exchanges.
Securities listed on these exchanges are divided into two classes, A shares,
which are limited to domestic investors, and B shares, which are allocated for
international investors. The Fund's exposure to securities listed on either the
Shanghai and Shenzhen exchanges will initially be through B shares, until the
regulatory environment eliminates the share class distinction. In addition to B
shares, the Fund may also invest in Hong Kong listed H shares, Hong Kong listed
Red chips (which are companies owned by mainland China enterprises, but are
listed in Hong Kong), and companies with the majority of their revenues derived
from business conducted in China (regardless of the exchange the security is
listed on or the country the company is based).
The Fund may invest up to 35% of its total assets in equity and other securities
of issuers located outside of the China region, including, without limitation,
the United States, and in non-convertible bonds and other debt securities issued
by foreign issuers and foreign government entities.
The Fund may invest up to 10% of its total assets in securities rated below
investment grade (securities rated Baa or higher by Moody's or BBB or higher by
S&P or, if unrated, are comparable in quality). Debt securities rated below
investment grade,
<PAGE> 49
commonly referred to as junk bonds, have speculative characteristics that result
in a greater risk of loss of principal and interest. See "Risks Associated with
Lower Rated Securities."
The Advisor may invest where the Advisor believes the potential for capital
growth exists and in companies which have demonstrated the ability to anticipate
and adapt to changing markets. The Fund may invest in the securities of all
types of issuers, large or small, whose earnings are believed by the Advisor to
be in a relatively strong growth trend or whose assets are substantially
undervalued.
Under normal circumstances, the Advisor expects that the portfolio of the Fund
will be comprised of twenty to sixty individual stocks in various countries in
the China region. When purchasing portfolio securities for the Fund, the
Advisor's philosophy is a buy and hold strategy versus buying for short-term
trading.
In addition to the risks of investing in China and Hong Kong discussed in the
prospectus, investors should know that China's securities markets have less
regulation, are substantially smaller, less liquid and more volatile than the
securities markets of more developed countries. Financial information on
companies listed on these markets is limited and can be inaccurate. Companies
listed on these markets may trade at prices not consistent with traditional
valuation measures. Management of these companies could have conflicting
financial interests or little experience managing a business.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN GROWTH AND INCOME
FUND
The Asian convertible bond market has developed largely as a result of the
complementary interests of issuers seeking funding in international capital
markets, and international investors seeking to commit capital in the Pacific
Rim. The proceeds of these securities have typically been used to finance
ongoing business activity (such as expansion of operations) or to retire more
costly debt. Proceeds typically have not been used for corporate restructuring
(such as leveraged buyouts). Despite the fact that many of the issuers are well
known in domestic and, sometimes, international capital markets, most Asian
convertible securities (excluding Japan) are unrated and many would likely be
considered below "investment grade" if they were rated. This lack of an
independent credit opinion constitutes an additional risk.
INTEREST RATE FUTURES CONTRACTS
Asian Growth and Income Fund may buy and sell interest rate futures contracts
relating to debt securities and write and buy put and call options relating to
interest rate futures contracts. This Fund may enter into contracts for the
future delivery of fixed-income securities commonly referred to as "interest
rate futures contracts." These futures contracts will be used only as a hedge
against anticipated interest rate changes. The Fund will not enter into an
interest rate futures contract if immediately thereafter more than 5% of the
value of the Fund's total assets will be committed to margin. The Fund also will
not enter into an interest rate futures contract if immediately thereafter the
sum of the aggregate futures market prices of financial instruments required to
be delivered under open futures contract purchases would exceed 20% of the value
of the Fund's total assets.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS JAPAN FUND AND MATTHEWS
KOREA FUND
SHORT-SELLING
Matthews Korea Fund and Matthews Japan Fund may make short sales, which are
transactions in which a Fund sells a security it
<PAGE> 50
does not own in anticipation of a decline in the market value of that security.
Each Fund is authorized to make short sales of securities or maintain a short
position, provided that at all times when a short sale position is open the Fund
owns an equal amount of such securities of the same issue as, and equal in
amount to, the securities sold short. To complete such a transaction, the Fund
must borrow the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay the lender any dividends or interest which
accrue during the period of the loan. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out. No securities will be sold short if,
after effect is given to any such short sale, the total market value of all
securities sold short would exceed 10% of the value of the Fund's net assets.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS JAPAN FUND
Equity securities in which the Fund may invest include Japanese common stocks,
preferred stocks (including convertible preferred stock), bonds, notes and
debentures convertible into common or preferred stocks, warrants and rights,
depositary receipts and equity interests in trusts, partnerships, joint ventures
or similar enterprises.
The Fund may invest in equity and other securities of issuers located outside of
Japan, including the United States, and in non-convertible bonds and other debt
securities issued by foreign issuers and foreign government entities. The Fund
may invest in non-convertible debt securities provided that such securities are
rated, at the time of investment, BBB or higher by S&P or Baa or higher by
Moody's or rated of equivalent credit quality by an internationally recognized
statistical rating organization or, if not rated, are of equivalent credit
quality as determined by the Advisor. Securities rated BBB by S&P or Baa by
Moody's are considered to have speculative characteristics. Non-convertible debt
securities in which the Fund may invest include U.S. dollar or yen-denominated
debt securities issued by the Japanese government or Japanese companies and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund may invest up to 5% of its total assets in securities rated below
investment grade (securities rated Baa or higher by Moody's or BBB or higher by
S&P or, if unrated, are comparable in quality). Debt securities rated below
investment grade, commonly referred to as junk bonds, have speculative
characteristics that result in a greater risk of loss of principal and interest.
The Fund may invest in convertible securities. Convertible securities are
fixed-income securities such as corporate bonds, notes and preferred stocks that
can be exchanged for stock and other securities (such as warrants) that also
offer equity participation. Convertible securities are hybrid securities,
combining the investment characteristics of both bonds and common stocks. Like a
bond, a convertible security pays a pre-determined interest rate, but may be
converted into common stock at a specific price or conversion rate. The investor
has the right to initiate conversion into a specified quantity of the underlying
stock at a stated price, within a stipulated period of time. Convertible
securities are generally senior to common stock and junior to non-convertible
debt. In addition to the convertible securities denominated in the currency of
the issuer, the Fund may also invest in convertible securities which are
denominated in another currency (i.e., U.S. dollars).
<PAGE> 51
The Fund may invest its assets in a broad spectrum of securities of Japanese
industries which are believed to have attractive long-term growth potential. The
Fund has the flexibility to invest in both large and small companies, as deemed
appropriate by the Advisor. Smaller companies often have limited product lines,
markets or financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies generally are subject to
more abrupt or erratic market movements and may be less liquid than securities
of larger, more established companies or the market averages in general. In
selecting industries and companies for investment, the Advisor considers overall
growth prospects, competitive position in export markets, technology, research
and development, productivity, labor costs, raw material costs and sources,
profit margins, capital resources, government regulation, quality of management
and other factors. After evaluation of all factors, the Advisor attempts to
identify those companies and industries that are best positioned and managed to
take advantage of the varying economic and political factors.
The Fund may invest up to 15% of its net assets in equity or debt securities for
which there is no ready market. The Fund may therefore not be able to readily
sell such securities. Such securities are unlike securities that are traded in
the open market and which can be expected to be sold immediately. The sale price
of securities that are not readily marketable may be lower or higher than the
Fund's most recent estimate of their fair value. Generally, less public
information is available with respect to the issuers of these securities than
with respect to companies whose securities are traded on an exchange. Securities
which are not readily marketable are more likely to be issued by start-up, small
or family business and therefore subject to greater economic, business and
market risks than the listed securities of more well-established companies.
Under normal circumstances, the Advisor expects that the portfolio of the fund
will be comprised of 25 to 75 individual stocks in the Japanese economy. When
purchasing portfolio securities for the Fund, the Advisor's philosophy is a buy
and hold strategy versus buying for short-term trading.
CONCENTRATION IN JAPANESE SECURITIES
The Fund concentrates its investments in equity securities of Japanese
companies. Consequently, the Fund's share value may be more volatile than that
of mutual funds not sharing this geographic concentration. The value of the
Fund's shares may vary in response to political and economic factors affecting
companies in Japan. The Fund should not be considered a complete investment
program, rather it may be used as a vehicle for diversification.
Securities in Japan are denominated and quoted in yen. Yen are fully convertible
and transferable based on floating exchange rates into all readily convertible
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of the Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by fluctuations in the value of Japanese yen relative to the U.S.
dollar.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States,
<PAGE> 52
even after the recent market decline. Differences in accounting methods make it
difficult to compare the earning of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent on foreign economies for raw materials. International
trade is important to Japan's economy, as exports provide the means to pay for
many of the raw materials it must import. Because of the concentration of the
Japanese exports in highly visible products such as automobiles, machine tools
and semiconductors, and the large trade surpluses ensuing therefrom, Japan has
entered a difficult phase in its relations with its trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest. Each Fund has elected and intends to continue to qualify and elect
to be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Such qualification relieves the
Funds of liability for federal income taxes to the extent the Funds' earnings
are distributed in accordance with the Code. To so qualify, among other
requirements, each Fund will limit its investments so that, at the close of each
quarter of its taxable year, (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the securities of
a single issuer, and it will not own more than 10% of the outstanding voting
securities of a single issuer.
INVESTMENT STRATEGIES SPECIFIC TO MATTHEWS KOREA FUND
Equity securities in which the Fund may invest include South Korean common
stocks, preferred stocks (including convertible preferred stock), bonds, notes
and debentures convertible into common or preferred stocks, warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar enterprises
and depositary receipts. At present, not all of these types of securities are
available for investment in South Korea.
The Fund may invest up to 35% of its total assets in non-convertible debt
securities provided that such securities are rated, at the time of investment,
BBB or higher by S&P or Baa or higher by Moody's or rated of equivalent credit
quality by an internationally recognized statistical rating organization or, if
not rated, are of equivalent credit quality as determined by the Advisor.
Securities rated BBB by S&P or Baa by Moody's are considered to have speculative
characteristics. Non-convertible debt securities in which the Fund may invest
include U.S. dollar or Won-denominated debt securities issued by the South
Korean government or South Korean companies and obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. Korean law does not
currently permit foreign investors such as the Fund to acquire debt securities
denominated in Won or equity securities of companies organized under the laws of
Korea that are not listed on the Korea Stock Exchange ("KSE"). At the present
time, however, foreign investors are permitted to invest in debt securities
issued by Korean companies outside of Korea and denominated in currencies other
than Won.
The Fund may invest up to 35% of its total assets in securities rated below
investment grade (securities rated below Baa by Moody's or below BBB by S&P or,
if unrated, are comparable in quality) commonly referred to as "junk bonds."
Debt securities rated below investment grade may have speculative
characteristics that result in a greater risk of loss of principal or interest.
See "Risks Associated with Lower Rated Securities."
The Fund may invest its assets in a broad spectrum of securities of Korean
industries which are believed to have attractive long-term growth potential.
<PAGE> 53
The Fund may invest up to 10% of its total assets in equity or debt securities
for which there is no ready market. The Fund may therefore not be able to
readily sell such securities. Such securities are unlike securities that are
traded in the open market and which can be expected to be sold immediately. The
sale price of securities that are not readily marketable may be lower or higher
than the Fund's most recent estimate of their fair value. Generally, less public
information is available with respect to the issuers of these securities than
with respect to companies whose securities are traded on an exchange. Securities
not readily marketable are more likely to be issued by start-up, small or family
business and therefore subject to greater economic, business and market risks
than the listed securities of more well-established companies.
Because the Fund intends to invest primarily in equity securities of South
Korean companies, an investor in the Fund should be aware of certain risks
relating to South Korea, the Korean securities markets and international
investments generally which are not typically associated with U.S. domestic
investments. In addition, the Fund may be more volatile than a geographically
diverse fund.
SECURITY VALUATION CONSIDERATIONS
The Korean government has historically imposed significant restrictions and
controls for foreign investors. As a result, the Fund may be limited in its
investments or precluded from investing in certain Korean companies, which may
adversely affect the performance of the Fund. Under the current regulations,
foreign investors are allowed to invest in almost all shares listed on the KSE.
From time to time, many of the securities trade among non-Korean residents at a
premium over the market price. Foreign investors may effect transactions with
other foreign investors off the KSE in the shares of companies that have reached
the maximum aggregate foreign ownership limit through a securities company in
Korea. These transactions typically occur at a premium over prices on the KSE.
There can be no assurance that the Fund, if it purchases such shares at a
premium, will be able to realize such premium, on the sale of such shares or
that such premium will not be adversely affected by changes in regulations or
otherwise. Such securities will be valued at fair value as determined in good
faith by the Board of Trustees.
RISKS ASSOCIATED WITH INVESTING IN KOREAN SECURITIES
Investments by the Fund in the securities of Korean issuers may involve
investment risks different from those of U.S. issuers, including possible
political, economic or social instability in Korea, and by changes in Korean law
or regulations. In addition, there is the possibility of the imposition of
currency exchange controls, foreign withholding tax on the interest income
payable on such instruments, foreign controls, seizure or nationalization of
foreign deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the Korean securities held by the Fund.
Political instability and/or military conflict involving North Korea may
adversely affect the value of the Fund's assets. Foreign securities may also be
subject to greater fluctuations in price than securities of domestic
corporations or the U.S. Government. There may be less publicly available
information about a Korean company than about a domestic company. Brokers in
Korea may not be as well capitalized as those in the U.S., so that they are more
susceptible to financial failure in times of market, political, or economic
stress. Additionally, Korean accounting, auditing and financial reporting
standards and requirements differ, in some cases, significantly, from those
applicable to U.S. issuers. In particular the assets and profits appearing on
the financial statements of
<PAGE> 54
a Korean issuer may not reflect its financial position or results of operations
in accordance with U.S. generally accepted accounting principles. There is a
possibility of expropriation, nationalization, confiscatory taxation, or
diplomatic developments that could affect investments in Korea.
In addition, brokerage commissions, custodian services, withholding taxes, and
other costs relating to investment in foreign markets generally are more
expensive than in the United States. Therefore, the operating expense ratio of
the Fund can be expected to be higher than that of a fund investing primarily in
the securities of U.S. issuers.
RISKS ASSOCIATED WITH THE KOREAN SECURITIES MARKETS
In addition to the risks of investing in Korea discussed in the Funds'
prospectus, investors should know that the Korean securities markets are smaller
than the securities markets of the U.S. or Japan. Certain restrictions on
foreign investment in the Korean securities markets may preclude investments in
certain securities by the Fund and limit investment opportunities for the Fund.
Investing in securities of South Korean companies and of the government of the
Republic of Korea involves certain considerations not typically associated with
investing in securities of United States companies or the United States
government. Among these are the risks of political, economic and social
uncertainty and instability, including the potential for increasing
militarization in North Korea. Relations between North and South Korea, while
improving, remain tense and the possibility of military action still exists. In
the event that military action were to take place, the value of the Fund's
Korean assets are likely to be adversely affected. The Fund may also be affected
by foreign currency fluctuations or exchange controls, differences in accounting
procedures and other risks. The Fund is also subject to typical stock and bond
market risk. In addition, limitations of foreign ownership currently exist which
may impact the price of a Korean security paid by the Fund.
In the latter part of 1997, Korea experienced a national financial crisis
requiring intervention by the International Monetary Fund ("IMF") and a large
infusion of foreign capital. The financial crisis has led to a recessionary
environment, which is continuing with serious consequences for unemployment and
domestic business activity. The government has initiated, in conjunction with
the IMF, wide-ranging reform activities. The full impact on corporate Korea
cannot be predicted but widespread restructuring and consolidation as well as a
continued high rate of bankruptcies can be expected.
INVESTMENT POLICIES AND RISKS SPECIFIC TO MATTHEWS PACIFIC TIGER FUND
Equity securities in which the Fund may invest include common stocks, preferred
stocks, warrants, and securities convertible into common stocks, such as
convertible bonds and debentures.
The Fund may invest up to 35% of its total assets in equity and other securities
of issuers located outside of the Pacific Tiger economies, including, without
limitation, the United States, and in non-convertible bonds and other debt
securities issued by foreign issuers and foreign government entities.
The Fund may invest up to 10% of its total assets in securities rated below
investment grade (securities rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or,
if unrated, are comparable in quality). Debt securities rated
<PAGE> 55
below investment grade, commonly referred to as junk bonds, have speculative
characteristics that result in a greater risk of loss of principal and interest.
The Fund may invest up to 25% of its total assets in the convertible securities
of companies of the Pacific Tiger economies. Convertible securities are
fixed-income securities such as corporate bonds, notes and preferred stocks that
can be exchanged for stock and other securities (such as warrants) that also
offer equity participation. Convertible securities are hybrid securities,
combining the investment characteristics of both bonds and common stocks. Like a
bond, a convertible security pays a pre-determined interest rate, but may be
converted into common stock at a specific price or conversion rate. The investor
has the right to initiate conversion into a specified quantity of the underlying
stock at a stated price, within a stipulated period of time. Convertible
securities are generally senior to common stock and junior to non-convertible
debt. In addition to the convertible securities denominated in the currency of
the issuer, the Fund may also invest in convertible securities which are
denominated in another currency (i.e., U.S. dollars).
The Advisor may invest where the Advisor believes the potential for capital
growth exists and in companies which have demonstrated the ability to anticipate
and adapt to changing markets. The Fund may invest in the securities of all
types of issuers, large or small, whose earnings are believed by the Advisor to
be in a relatively strong growth trend or whose assets are substantially
undervalued.
Under normal circumstances, the Advisor expects that the portfolio of the Fund
will be comprised of forty to eighty individual stocks in various countries in
the Pacific Tiger economies. When purchasing portfolio securities for the Fund,
the Advisor's philosophy is a buy and hold strategy versus buying for short-term
trading.
RISKS RELATED TO LOWER RATED DEBT SECURITIES
Debt securities rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("S&P") (commonly referred
to as "junk bonds") are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of credit risk.
There can be no assurance that the Funds would be protected from widespread bond
defaults brought about by a sustained economic downturn or other market and
interest rate changes.
The value of lower-rated debt securities will be influenced not only by changing
interest rates, but also by the bond market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, low and medium-rated bonds may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the value and liquidity (liquidity refers
to the ease or difficulty which the Fund could sell a security at its perceived
value) of lower-rated securities held by a Fund, especially in a thinly traded
foreign market.
To the extent that an established secondary market does not exist and a
particular lower-rated debt security is thinly traded, that security's fair
value may be difficult to determine because of the absence of reliable objective
data. As a result, a Fund's valuation of the security and the price it could
obtain upon its disposition could differ. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower-rated securities held by the Funds, especially in
a thinly traded market.
<PAGE> 56
The credit ratings of S&P and Moody's are evaluations of the safety of principal
and interest payments, not market value risk, of lower-rated securities. These
ratings are provided as an Appendix to this SAI. Also, credit rating agencies
may fail to change timely the credit ratings to reflect subsequent events.
Therefore, in addition to using recognized rating agencies and other sources,
the Advisor may perform its own analysis of issuers in selecting investments for
the Funds. The Advisor's analysis of issuers may include, among other things,
historic and current financial condition and current and anticipated cash flows.
NON PRINCIPAL INVESTMENT STRATEGIES
The following strategies and specific type of investments are not the principal
investment strategies of the Funds, but are reserved by the Advisor for its use
in the event that the Advisor deems it appropriate to do so to achieve the
Funds' fundamental goals.
1. Loans of Portfolio Securities
The Funds may lend portfolio securities to broker-dealers and financial
institutions. In return, the broker-dealers and financial institutions pay the
Funds money to borrow these securities. The Funds may lend portfolio securities
provided:
(1) the loan is secured continuously by collateral marked-to-market daily and
maintained in an amount at least equal to the current market value of the
securities loaned; (2) the Funds may call the loan at any time and receive the
securities loaned; (3) the Funds will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
by a Fund will not at any time exceed 33% of the total assets of such Fund.
Collateral will consist of U.S. Government securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, the Funds will only enter into portfolio loans
after a review by the Advisor, under the supervision of the Board of Trustees,
including a review of the creditworthiness of the borrower. Such reviews will be
monitored on an ongoing basis. Lending portfolio securities by Matthews Korea
Fund is not currently permitted under Korean laws and regulations. In the event
that these laws change, the Fund will take advantage of this strategy as it
deems appropriate.
2. Repurchase Agreements
The Funds may purchase repurchase agreements to earn income. The Funds may also
enter into repurchase agreements with financial institutions that are deemed to
be creditworthy by the Advisor, pursuant to guidelines established by the
Trust's Board of Trustees. The repurchase price under the repurchase agreements
equals the price paid by each Fund plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). Repurchase agreements may be
considered to be collateralized loans by the Funds under the Investment Company
Act of 1940, as amended (the "1940 Act").
Any collateral will be marked-to-market daily. If the seller of the underlying
security under the repurchase agreement should default on its obligation to
repurchase the underlying security, a Fund may experience delay or difficulty in
exercising its right to realize upon the security and, in addition, may incur a
loss if the value of the security should decline, as well as disposition costs
in liquidating the security. A Fund will not invest more than 15% of its net
assets in repurchase agreements maturing in
<PAGE> 57
more than seven days. The Funds must treat each repurchase agreement as a
security for tax diversification purposes and not as cash, a cash equivalent or
receivable. Matthews Korea Fund is not currently permitted to engage in
repurchase transactions in Korea under Korean laws and regulations.
The financial institutions with whom the Funds may enter into repurchase
agreements are banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers and
banks, if such banks and non-bank dealers are deemed creditworthy by the
Advisor. The Advisor will continue to monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain during the
term of the agreement the value of the securities subject to the agreement at
not less than the repurchase price. The Funds will only enter into a repurchase
agreement where the market value of the underlying security, including interest
accrued, will be at all times equal to or exceed the value of the repurchase
agreement.
The Funds may invest in repurchase agreements with foreign parties, or in a
repurchase agreement based on securities denominated in foreign currencies.
Legal structures in foreign countries, including bankruptcy laws, may offer less
protection to investors such as the Funds, and foreign repurchase agreements
generally involve greater risks than a repurchase agreement in the United
States.
3. Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements to raise cash on a
short-term basis. Reverse repurchase agreements involve the sale of securities
held by the Funds pursuant to the Funds' agreement to repurchase the securities
at an agreed upon price, date and rate of interest. Such agreements are
considered to be borrowings under the 1940 Act, and may be entered into only for
temporary or emergency purposes. While reverse repurchase transactions are
outstanding, the Funds will maintain in a segregated account of cash, U.S.
Government securities or other liquid, high-grade debt securities in an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Funds may decline below the price
of the securities the Funds are obligated to repurchase such securities.
4. Securities of Other Investment Companies
The Funds may invest in the securities of other investment companies and
currently intend to limit their investments in securities issued by other
investment companies so that, as determined immediately after a purchase of such
securities is made: (i) not more than 5% of the value of any the individual
Funds' total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of their total assets will be invested in the
aggregate in securities of investment companies as a group; and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the respective Fund.
As a shareholder of another investment company, a Fund would bear along with
other shareholders, its pro rata portion of the investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Funds bear directly in connection with their own
operations.
5. Illiquid Securities
Illiquid Securities are securities that can not be disposed of at the market
price within seven days of wanting to do so. The Board of Trustees has delegated
the function of making
<PAGE> 58
day to day determinations of whether a security is liquid or not to the Advisor,
pursuant to guidelines established by the Board of Trustees and subject to it
quarterly review. The Advisor will monitor the liquidity of securities held by
each Fund and report periodically on such decisions to the Board of Trustees.
6. Rule 144A Securities (Restricted Securities)
Securities which are not registered with the SEC pursuant to Rule 144A of the
Securities Act of 1933, as amended, are only traded among institutional
investors. These securities are sometimes called "Restricted Securities" because
they are restricted from being sold to the general public because they are not
registered with the SEC.
Some of these securities are also illiquid because they can not be sold at its
market price within 7 days of wanting to do so. The Funds will limit their
investments in securities of issuers which are restricted from selling to the
public without registration under the 1933 Act. This 15% does not include any
restricted securities that have been determined to be liquid by the Funds' Board
of Trustees.
7. Convertible Securities
Each Fund may purchase convertible securities. While Common stock occupies the
most junior position in a company's capital structure convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time. In addition, the owner of convertible securities
receives interest or dividends until the security is converted. The provisions
of any convertible security determine its ranking in a company's capital
structure. In the case of subordinated convertible debentures, the holder's
claims on assets and earnings are subordinated to the claims of other creditors,
and are senior to the claims of preferred and common shareholders. In the case
of preferred stock and convertible preferred stock, the holder's claims on
assets and earnings are subordinated to the claims of all creditors but are
senior to the claims of common shareholders.
To the extent that a convertible security's investment value is greater than its
conversion value, its price will be primarily a reflection of such investment
value and its price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security. If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, may sell at some
premium over its conversion value. At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security.
8. Forward Commitments, When-Issued Securities and Delayed-Delivery
Transactions
The Funds may purchase securities on a when-issued basis, or purchase or sell
securities on a forward commitment basis or purchase securities on a
delayed-delivery basis. The Funds will normally realize a capital gain or loss
in connection with these transactions. For purposes of determining the Funds'
average dollar-weighted maturity, the maturity of when-issued or forward
commitment securities will be calculated from the commitment date.
When the Funds purchase securities on a when-issued, delayed-delivery or forward
commitment basis, the Funds' custodian will maintain in a segregated account:
cash, U.S. Government securities or other high grade liquid debt obligations
having a value (determined daily) at least equal to the amount of the Funds'
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio
<PAGE> 59
securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that the Funds will
maintain sufficient assets at all times to cover their obligations under
when-issued purchases, forward commitments and delayed-delivery transactions.
Securities purchased or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although the Funds would
generally purchase securities on a when-issued, delayed-delivery or a forward
commitment basis with the intention of acquiring the securities, the Funds may
dispose of such securities prior to settlement if the Advisor deems it
appropriate to do so.
9. Fixed-Income Securities (Bonds etc.)
All fixed-income securities are subject to two types of risks: credit risk (will
the borrower be able to pay back the money) and the interest rate risk. The
credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they come due. The interest rate risk refers to the
fluctuations in the net asset value of any portfolio of fixed-income securities
resulting from the inverse relationship between price and yield of fixed-income
securities; that is, when the general level of interest rates rises, the prices
of outstanding fixed-income securities decline, and when interest rates fall,
prices rise.
In addition, if the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a rise in interest rates or a decline in the exchange rate of the
currency would adversely affect the value of the security expressed in dollars.
Fixed-income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries.
10. Short-Selling
The Funds may make short sales. A short sale occurs when a Fund borrows stock
(usually from a broker) and promises to give it back at some date in the future.
If the market price of that stock goes down, the Fund buys the stock at a lower
price so that it can pay back the broker for the stock borrowed. The difference
between the price of the stock when borrowed, and when later purchased, is a
profit. The profit is reduced by a fee paid to the broker for borrowing the
stock.
A Fund may incur a loss as a result of a short sale if the price of the security
increases between the date of the short sale and the date on which the Fund
replaced the borrowed security. The amount of any loss will be increased, by the
amount of any premium, dividends or interest the Fund may be required to pay in
connection with a short sale. No securities will be sold short if, after effect
is given to any such short sale, the total market value of all securities sold
short would exceed 10% of the value of the Fund's net assets. The Fund will
place in a segregated account with its custodian bank an amount of cash or U.S.
Government securities equal to the difference between the market value of the
securities sold short at the time they were sold short and any cash or U.S.
Government securities required to be deposited as collateral with the broker in
connection with the short sale.
This segregated account will be marked to market daily, provided that at no time
will the amount deposited in it plus the amount deposited with the broker as
collateral be less than the market value of the securities at the time they were
sold short.
<PAGE> 60
11. Interest Rate Futures Contracts
The Funds may enter into contracts for the future delivery of fixed-income
securities commonly referred to as "interest rate futures contracts." These
futures contracts will be used only as a hedge against anticipated interest rate
changes. The Funds will not enter into an interest rate futures contract if
immediately thereafter more than 5% of the value of the respective Fund's total
assets will be committed to margin. The principal risks related to the use of
such instruments are (1) the offsetting correlation between movements in the
market price of the portfolio investments being hedged and in the price of the
futures contract or option may be imperfect (the Advisor guessed wrong about how
interest rates would change); (2) possible lack of a liquid secondary market for
closing out futures or option positions; (3) the need for additional portfolio
management skills and techniques; and (4) losses due to unanticipated market
price movements.
12. Futures Transactions
The Funds may engage in futures transactions for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into offsetting transactions. The Funds may invest in futures
transactions for hedging purposes or to maintain liquidity. A Fund may not
purchase or sell a futures contract, however, unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 10% or
less of its total assets.
At maturity, a futures contract obligates the Funds to take or make delivery of
certain securities or the cash value of a securities index. A Fund may sell a
futures contract in order to offset a decrease in the market value of its
portfolio securities that might otherwise result from a market decline. A Fund
may do so either to hedge the value of its portfolio of securities as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund may purchase a futures
contract in anticipation of purchases of securities. In addition, a Fund may
utilize futures contracts in anticipation of changes in the composition of its
portfolio holdings.
The Funds may engage in futures transactions on U.S. or foreign exchanges or
boards of trade. In the U.S., futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. Government agency.
The Funds may enter into such futures transactions to protect itself against the
adverse effects of fluctuations in security prices, or interest rates, without
actually buying or selling the securities underlying the contract. A stock index
futures contract obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement was made.
With respect to options on futures contracts, when the Funds are temporarily not
fully invested, they may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities.
<PAGE> 61
The writing of a call option on a futures contract constitutes a partial hedge
against the declining price of the security or foreign currency which is
deliverable upon exercise of the futures contract. The writing of a put option
on a futures contract constitutes a partial hedge against the increasing price
of the security or foreign currency which is deliverable upon exercise of the
futures contract.
To the extent that market prices move in an unexpected direction, the Funds may
not achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize a loss. Further, with respect to options on futures
contracts, the Funds may seek to close out an option position by writing or
buying an offsetting position covering the same securities or contracts and have
the same exercise price and expiration date. The ability to establish and close
out positions on options will be subject to the maintenance of a liquid
secondary market, which cannot be assured.
The Funds may purchase and sell call and put options on futures contracts traded
on an exchange or board of trade. When a Fund purchases an option on a futures
contract, it has the right to assume a position as a purchaser or seller of a
futures contract at a specified exercise price at any time during the option
period. When a Fund sells an option on a futures contract, it becomes obligated
to purchase or sell a futures contract if the option is exercised. In
anticipation of a market advance, the Funds may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Funds intend to
purchase. Similarly, if the market is expected to decline, the Funds might
purchase put options or sell call options on futures contracts rather than sell
futures contracts. In connection with the Funds' position in a futures contract
or option thereon, the Funds will create a segregated account of liquid assets,
such as cash, U.S. Government securities or other liquid high grade debt
obligations, or will otherwise cover its position in accordance with applicable
requirements of the SEC.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
Each Fund may enter into futures contracts provided that such obligations
represent no more than 20% of the Fund's net assets. Under the Commodity
Exchange Act, each Fund may enter into futures transactions for hedging purposes
without regard to the percentage of assets committed to initial margin and for
other than hedging purposes provided that assets committed to initial margin do
not exceed 5% of the Fund's net assets. To the extent required by law, the Fund
will set aside cash and appropriate liquid assets in a segregated account to
cover its obligations related to futures contracts.
RISK FACTORS OF FUTURES TRANSACTIONS
The primary risks associated with the use of futures contracts and options
(commonly referred to as "derivatives") are: (i) imperfect correlation between
the change in market value of the securities held by the Funds and the price of
futures contracts and options; (ii) possible lack of a liquid secondary market
for a futures contract and the resulting inability to close a futures contract
when desired; (iii) losses, which are potentially unlimited, due to
unanticipated market movements; and (iv) the Advisor's ability to predict
correctly the direction of security prices, interest rates and other economic
factors.
13. Foreign Currency Hedging Strategies
SPECIAL CONSIDERATIONS
The Funds may use options and futures on foreign currencies and forward currency
contracts to hedge against movements in the values of the foreign currencies in
which the
<PAGE> 62
Funds' securities are denominated. Such currency hedges can protect against
price movements in a security the Funds own or intend to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
The value of hedging instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such hedging instruments, a
Fund could be disadvantaged by having to deal in the odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Funds might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, the Funds may hedge against price movements in that currency by
entering into transactions using hedging instruments on other currencies, the
values of which the Advisor believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the hedging instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Funds might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
a. Forward Currency Contracts:
A forward currency contract involves an obligation to purchase or sell a
specific currency at a specified future date, which may be any fixed number of
days from the contract date agreed upon by the parties, at a price set at the
time the contract is entered into.
The Funds may enter into forward currency contracts to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or another foreign currency. The
Funds also may use forward currency contracts for "cross-hedging." Under this
strategy, the Funds would increase their exposure to foreign currencies that the
Advisor believes might rise in value relative to the U.S. dollar, or the Funds
would shift their exposure to foreign currency fluctuations from one country to
another.
The cost to each Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward currency
contracts can enter into offsetting closing transactions, similar to closing
transactions on futures, by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Secondary markets generally do not
exist for forward currency contracts, with the
<PAGE> 63
result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the contra party. Thus, there can be
no assurance that the Funds will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, the Funds might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Funds
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or securities in a segregated
account.
The precise matching of forward currency contracts amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Funds might need to purchase
or sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS
The Funds may enter into forward currency contracts or maintain a net exposure
to such contracts only if (1) the consummation of the contracts would not
obligate the Funds to deliver an amount of foreign currency in excess of the
value of their portfolio securities or other assets denominated in that
currency, or (2) the Funds maintain cash, U.S. Government securities or liquid,
high-grade debt securities in a segregated account in an amount not less than
the value of their total assets committed to the consummation of the contract
and not covered as provided in (1) above, as marked to market daily.
14. Options
The Funds may buy put and call options and write covered call and secured put
options. Such options may relate to particular securities, stock indices, or
financial instruments and may or may not be listed on a national securities
exchange and issued by the Options Clearing Corporation. Options trading is a
highly specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
securities, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
securities themselves.
a. Writing Call Options:
The Funds may write covered call options from time to time on portions of its
portfolios, without limit, as the Advisor determines is appropriate in pursuing
a Funds' investment goals. The advantage to the Funds of writing covered calls
is that each Fund receives a premium which is additional income. However, if the
security rises in value, the respective Fund may not fully participate in the
market appreciation.
The Funds will write call options only if they are "covered." In the case of a
call option on a security, the option is "covered" if a Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, liquid assets, such as cash, U.S. Government
securities or other liquid high-grade debt obligations, in such amount held in a
segregated account by its custodian) upon conversion or exchange of other
securities held by it.
<PAGE> 64
For a call option on an index, the option is covered if a Fund maintains with
its custodian a diversified stock portfolio, or liquid assets equal to the
contract value. A call option is also covered if a Fund holds a call on the same
security or index as the call written here the exercise price of the call held
is (i) equal to or less than the exercise price of the call written; or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets such as cash, U.S. Government securities
and other high-grade debt obligations in a segregated account with its
custodian.
The Funds' obligation under a covered call option is terminated upon the
expiration of the option or upon entering a closing purchase transaction. In a
closing purchase transaction, a Fund, as writer of an option, terminates its
obligation by purchasing an option of the same series as the option previously
written.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The Funds may realize a net gain or loss from
a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. A closing purchase transaction cannot be effected with respect
to an option once the option writer has received an exercise notice for such
option.
b. Writing Put Options
Each Fund may write put options. The Funds will write put options only if they
are "secured" at all times by liquid assets of cash or U.S. Government
securities maintained in a segregated account by the Funds' custodian in an
amount not less than the exercise price of the option at all times during the
option period. Secured put options will generally be written in circumstances
where the Advisor wishes to purchase the underlying security for a Fund's
portfolio at a price lower than the current market price of the security. With
regard to the writing of put options, each Fund will limit the aggregate value
of the obligations underlying such put options to 50% of its total net assets.
Following the writing of a put option, the Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
c. Purchasing Call Options
The Funds may purchase call options to the extent that premiums paid by the
Funds do not aggregate more than 10% of a Fund's total assets. When the Funds
purchase a call option, in return for a premium paid by the Fund to the writer
of the option, the Fund obtains the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium upon writing
<PAGE> 65
the option, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. The advantage of
purchasing call options is that the Fund may alter portfolio characteristics and
modify portfolio maturities without incurring the cost associated with such
transactions.
The Funds may, following the purchase of a call option, liquidate their position
by effecting a closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased. The Funds will
realize a profit from a closing sale transaction if the price received on the
transaction is more than the premium paid to purchase the original call option;
the Funds will realize a loss from a closing sale transaction if the price
received on the transaction is less than the premium paid to purchase the
original call option.
Although the Funds will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that the Funds would have to exercise
their options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Funds may expire without any value
to the Funds, in which event the Funds would realize a capital loss which will
be short-term unless the option was held for more than one year.
d. Purchasing Put Options
Each Fund may invest up to 10% of its total assets in the purchase of put
options. Each Fund will, at all times during which it holds a put option, own
the security covered by such option. The purchase of the put options on
substantially identical securities held will constitute a short sale for tax
purposes, the effect of which is to create short-term capital gain on the sale
of the security and to suspend running of its holding period (and treat it as
commencing on the date of the closing of the short sale) or that of a security
acquired to cover the same if at the time the put was acquired, the security had
not been held for more than one year.
A put option purchased by a Fund gives it the right to sell one of its
securities for an agreed price up to an agreed date. Each Fund intends to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The Funds may sell a put option which they have
previously purchased prior to the sale of the securities underlying such option.
Such sale will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold.
The Funds may sell a put option purchased on individual portfolio securities.
Additionally, the Funds may enter into closing sale transactions. A closing sale
transaction is one in which a Fund, when it is the holder of an outstanding
option, liquidate its respective position by selling an option of the same
series as the option previously purchased.
FUND POLICIES
The Policies set forth below are fundamental and may not be changed as to a Fund
without the approval of a majority of the outstanding voting shares (as defined
in the 1940 Act) of the Fund. Unless otherwise indicated, all percentage
limitations listed below apply to the Funds and apply only at the time of the
<PAGE> 66
transaction. Accordingly, if a percentage restriction is adhered to at the time
an investment is made, a later increase or decrease in the percentage which
results from a relative change in values or from a change in a Fund's total
assets will not be considered a violation.
Except as otherwise set forth herein and in the Prospectuses each Fund may not:
1. Issue senior securities or
2. Borrow money, except that each Fund may borrow from banks and enter into
reverse repurchase agreements for temporary purposes in amounts up to one-third
of the value of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the total assets of the Fund at the time of its borrowing. All
borrowing will be done from a bank and asset coverage of at least 300% is
required. A Fund will not purchase securities when borrowings exceed 5% of that
Fund's total assets;
3. Act as an underwriter of securities, except that, in connection with the
disposition of a security, a Fund may be deemed to be an "underwriter" as that
term is defined in the 1933 Act;
4. Purchase the securities of issuers conducting their principal business
activities in the same industry (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if immediately after
such purchase the value of a Fund's investments in such industry would exceed
25% of the value of the total assets of the Fund. This Policy does not apply to
the Technology Fund;
5. Purchase or sell real estate real estate limited partnership interests,
interests in oil, gas and/or mineral exploration or development programs or
leases. This restriction shall not prevent the Funds from investing directly or
indirectly in portfolio instruments secured by real estate or interests therein
or acquiring securities of real estate investment trusts or other issuers that
deal in real estate.;
6. Make loans, except that this restriction shall not prohibit (a) the purchase
and holding of debt instruments in accordance with a Fund's investment
objectives and policies, (b) the lending of portfolio securities, or (c) entry
into repurchase agreements with banks or broker-dealers;
7. Change its diversification status under the 1940 Act.
8. Purchase or sell commodities or commodity contracts, except that a Fund may
purchase or sell currencies, may enter into futures contracts on securities,
currencies, or on indexes of such securities or currencies, or any other
financial instruments, and may purchase or sell options on such futures
contracts;
9. Make investments in securities for the purpose of exercising control;
10. Purchase the securities of any one issuer if, immediately after such
purchase, a Fund would own more than 10% of the outstanding voting securities of
such issuer;
11. Invest more than 5% of its total assets in securities of companies less than
three years old. Such three-year period shall include the operation of any
predecessor company or companies.
TEMPORARY DEFENSIVE POSITION
The Advisor intends to be fully invested in the economies appropriate to each
Fund's investment objectives as is practicable, in light of economic and market
conditions and the Funds' cash needs. When, in the opinion of
<PAGE> 67
the Advisor, a temporary defensive position is warranted, the Funds are
permitted to hold cash or invest temporarily and without limitation in U.S.
Government securities or money market instruments backed by U.S. Government
securities. The Funds' investment objective may not be achieved at such times
when a temporary defensive position is taken.
PORTFOLIO TURNOVER
The Advisor buys and sells securities for the Funds whenever it believes it is
appropriate to do so. The rate of portfolio turnover will not be a limiting
factor in making portfolio decisions. It is currently estimated that under
normal market conditions the annual portfolio turnover rate for the Funds will
not exceed 100%. Portfolio turnover rates may vary greatly from year to year as
well as within a particular year. High portfolio turnover rates (i.e. over 100%)
will generally result in higher transaction costs to the Fund and also may
result in a higher level of taxable gain for a shareholder. Portfolio turnover
for the Funds' most recent fiscal period are set forth in "FINANCIAL HIGHLIGHTS"
table in the Prospectuses
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and executive officers of the Funds is
set forth below. Note that the Trustees nor the officers of the Funds receive
any pension or retirement benefits from the Funds.
<TABLE>
<CAPTION>
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Name & Address Age Aggregate Total Position(s) Principal Occupation During Past Five
Compensation Compensation Held with Years
from from Funds Registrant
Funds and Fund
for Complex
Fiscal Paid to
Year Trustees
Ended
Aug. 31,
1998
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Norman W. Berryessa 71 $5,000 $5,000 Trustee Independent Contractor, Emmett Larkin
100 Bush Street Co., since 1983; President & CEO of
Suite 1000 Gallegoes Institutional Investors,
San Francisco, CA 94109 Inc. From 1990 to 1994.
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Robert K. Connolly 67 $5,000 $5,000 Trustee Retired since 8/90. Prior thereto
P.O. Box 941990 Institutional Sales Manager and
Sonoma, CA 95476 Securities Analyst for Barrington
Research Associates.
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
John H. Dracott* 71 $0 $0 Trustee International mutual fund consultant
1795 Vistaza West Emeritus since 1991
P.O. Box 162
Tiburon, CA 94920
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
</TABLE>
<PAGE> 68
<TABLE>
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
David FitzWilliam-Lay* 69 $0 $0 Trustee Director, USDC Investment Trust PLC &
26 Chalfont House, Berry Starquest PLC. Retired in 1993
19 Chesham Street after 3 yrs. as Chairman of GT
London SWIX 8NG Management, PLC. United Kingdom
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Richard K. Lyons 39 $5,000 $5,000 Trustee Professor, Haas School of Business
350 Barrows Hall University of California since 1995;
Berkeley, CA 94720 Assistant Professor 1993-1995.
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
G. Paul Matthews* 44 $0 $0 President Chief Investment Officer of Matthews
456 Montgomery Street International Capital Management LLC
Suite 1200 since 1991.
San Francisco, CA 94104
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Mark W. Headley* 41 $0 $0 Vice President, Matthews International
456 Montgomery Street President Capital Management LLC since 1999;
Suite 1200 Portfolio Manager and Managing Director
San Francisco, CA 94104 1996-1999; Managing Director and Senior
Analyst from 1995-1996. Director of
International Investments at
Litman/Gregory & Co. from 1993 to 1995.
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Joseph M.O'Donnell* 45 $0 $0 Secretary Chief Operating Officer & General
456 Montgomery Street Counsel, Matthews International Capital
Suite 1200 Management, LLC since 8/99. From 1/98
San Francisco, CA 94104 to 6/99, Vice President, Legal, SEI
Investments Co. From 3/93 to 12/97,
Vice President and General Counsel, FPS
Services, Inc.
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
Brian Stableford* 37 $0 $0 Treasurer Vice President, Matthews International
456 Montgomery Street Capital Management,LLC since 1994 prior
Suite 1200 thereto, Mitubishi Global Custody
San Francisco, CA 94104
- --------------------------- --- ---------- ------------ ----------- -----------------------------------------
</TABLE>
*These Trustees and officers are considered "interested persons" of the Funds as
defined under the 1940 Act. The Trust currently does not maintain any pension or
retirement benefits plan for the benefit of the Trustees.
The Trustees of the Funds receive a retainer of $4,000 per year, plus $1,000 per
meeting and expenses for each meeting of the Board of Trustees they attend.
However, no officer or employee of the Advisor receives any compensation from
the Funds for acting as a Trustee of the Funds. The officers of the Funds
receive no compensation directly from the Funds for performing the duties of
their offices.
<PAGE> 69
SALES LOADS
The Trustees as well as any investor may purchase the "I" shares of any of the
Funds at no load.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 1, 1999 the Trustees and officers as a group owned less than 1%
of the outstanding shares of the Trust.
As of December 1, 1999 the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the:
Account Holders Name, Address, Number and Percentage of Shares
Matthews Pacific Tiger Fund - Class I:
Charles Schwab & Co., Inc. 4,588,394.669, 46.56% FBO Special Custody Acct for
Exclusive Benefit of Customers ATTN: Mutual Funds 101 Montgomery Street San
Francisco, CA 94104
National Financial Services Corp. 1,268,014.816, 12.87% FBO Exclusive Benefit of
our Customers C/O Sal Vella ATTN: Mutual Funds 200 Liberty St., 5th FL New York,
NY 10281-1003
National Investor Services Corp. 1,059,859.582, 10.75% For Exclusive Benefit of
Our Customers 55 Water Street FL 32 New York, NY 10041-3299
Hasso Plattner 594,768.201, 6.04% c/o SAP AG Neurottstrasse 16 Walldorf, Germany
D96190
Matthews Pacific Tiger Fund - Class A:
National Financial Services Corp. 22,833.014, 15.90% FBO Exclusive Benefit of
our Customers C/O Sal Vella Attn: Mutual Funds 200 Liberty Street, 5th floor New
York, NY 10281
Fiserv Securities, Inc. 18,046.446, 12.57% Attn: Mutual Funds Dept., One
Commerce Square 2005 Market Street, STE. 1200 Philadelphia, PA 19103
Donaldson Lufkin Jenrette 8,139.401, 5.67% P.O. Box 2052 Jersey City, NJ
07304-9998
Matthews Asian Growth and Income Fund:
Charles Schwab & Co., Inc. 591,118.891 51.69% FBO Special Custody Acct for
Exclusive Benefit of Customers ATTN: Mutual Funds 101 Montgomery Street San
Francisco, CA 94104
National Investor Services Corp. 148,183.976, 12.96% For Exclusive Benefit of
Our Customers 55 Water Street FL 32 New York, NY 10041-3299
National Financial Services Corp. 1,335,240.761, 11.83% FBO Exclusive Benefit of
our Customers C/O Sal Vella Attn: Mutual Funds 200 Liberty Street, 5th floor New
York, NY 10281
<PAGE> 70
Matthews Korea Fund - Class I:
Charles Schwab & Co., Inc. 7,671,674.234 28.49% FBO Special Custody Acct for
Exclusive Benefit of Customers ATTN: Mutual Funds 101 Montgomery Street San
Francisco, CA 94104
Goodness Limited 5,806,759.396, 21.56% PO Box N-7776 Nassau Bahamas
National Financial Services Corp. 4,594,432.331, 17.06% FBO Exclusive Benefit of
our Customers C/O Sal Vella ATTN: Mutual Funds 200 Liberty Street, 5th floor New
York, NY 10281
National Investor Services Corp. 2,923,668.983, 10.86% For Exclusive Benefit of
Our Customers 55 Water Street FL 32 New York, NY 10041-3299
Matthews Korea Fund - Class A:
RDV Capital Management, LP 1,369,300.780, 67.30% 126 Ottawa Ave. NW, Ste. 500
Grand Rapids, MI 49503-2829
Matthews Dragon Century China Fund-Class I
Charles Schwab & Co., Inc. 440,756.107, 46.99% FBO Special Custody Acct for
Exclusive Benefit of Customers ATTN: Mutual Funds 101 Montgomery Street San
Francisco, CA 94104
National Investor Services Corp. 165,529.733, 17.65% For Exclusive Benefit of
Our Customers 55 Water Street FL 32 New York, NY 10041-3299
National Financial Services Corp. 89,281.380, 9.52% FBO Exclusive Benefit of our
Customers C/O Sal Vella ATTN: Mutual Funds 200 Liberty Street, 5th floor New
York, NY 10281
Matthews Japan Fund
Charles Schwab & Co., Inc. 790,830.749, 67.80% FBO Special Custody Acct for
Exclusive Benefit of Customers ATTN: Mutual Funds 101 Montgomery Street San
Francisco, CA 94104
National Financial Services Corp. 485,334.734, 7.32% FBO Exclusive Benefit of
our Customers C/O Sal Vella ATTN: Mutual Funds 200 Liberty Street, 5th floor New
York, NY 10281
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisors
Currently the Trust employs only one investment advisor, Matthews International
Capital Management LLC. The Advisor performs its duties and is paid pursuant to
a contract. Some of the terms of this contract are set by the 1940 Act such as
that it is reviewed each year by the Board of Trustees and that the Board may
cancel it without penalty on 60 days notice.
The advisory services provided by the Advisor and the fees received by it for
such services are described in each Prospectus. As stated in each Prospectus,
the Advisor may from time to time voluntarily waive its advisory fees with
respect to any Fund.
Under the Advisory Contract, the Advisor is not liable for any error of judgment
or mistake of law or for any loss suffered by the Trust or a Fund in connection
with the performance of the Advisory Agreement, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The terms of the Advisory Contract provide that it will continue from year to
year provided that it is approved at least annually by the vote of the holders
of at least a majority of the outstanding shares of the respective Fund, or by
the Trustees of the respective Fund. The Advisory Contract may be terminated
with respect to a Fund by vote of the Board of Trustees or by the holders of a
majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to the Advisor. The Advisor may also
terminate its advisory relationship with respect to a Fund on 60 days' written
notice to the Trust. The Advisory Contract terminates automatically in the event
of an assignment.
<PAGE> 71
Under its respective Advisory Contract, each Fund pays the following expenses:
1. the fees and expenses of the Trust's disinterested Trustees;
2. the salaries and expenses of any of the Trust's officers or employees who are
not affiliated with the Advisor;
3. interest expenses;
4. taxes and governmental fees;
5. brokerage commissions and other expenses incurred in acquiring or disposing
of portfolio securities;
6. the expenses of registering and qualifying shares for sale with the
Securities and Exchange Commission (" SEC") and with various state securities
commissions;
7. accounting and legal costs;
8. insurance premiums;
9. fees and expenses of the Trust's custodian, administrator and transfer agent
and any related services;
10. expenses of obtaining quotations of the Funds' portfolio securities and of
pricing the Funds' shares;
11. expenses of maintaining the Trust's legal existence and of shareholders'
meetings;
12. expenses of preparation and distribution to existing shareholders of
reports, proxies and prospectuses; and
13. fees and expenses of membership in industry organizations.
The ratio of each Fund's expenses to its relative net assets can be expected to
be higher than the expense ratios of funds investing solely in domestic
securities, since the cost of maintaining the custody of foreign securities and
the rate of investment management fees paid by each Fund generally are higher
than the comparable expenses of such other funds.
General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurance, etc.) and expenses shares by the Funds will be allocated
among the Funds on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to each Fund. Expenses which relate exclusively to a
particular Fund or Class, such as certain registration fees, brokerage
commissions and other portfolio expenses, will be borne directly by that Fund or
Class.
During the fiscal years ended August 31, 1997, 1998 and 1999, the aggregate
advisory fees earned by the Advisor, before voluntary waivers, totaled $506,535,
$1,155,889 and $2,401,451, respectively.
<TABLE>
<CAPTION>
- -------------------- ------------ ------------ -------------
Matthews Fund Gross Gross Gross
Advisory Advisory Advisory Fees
Fees Fees Earned During
Earned Earned FYE 08-31,
During FYE During FYE 1999
08-31, 1997 08-31, 1998
- -------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Asian Technology N/A N/A N/A
- -------------------- ------------ ------------ -------------
Dragon Century China N/A $15,893 $30,128
- -------------------- ------------ ------------ -------------
Growth and Income $44,164 $48,161 $65,119
- -------------------- ------------ ------------ -------------
Japan N/A N/A $41,869
- -------------------- ------------ ------------ -------------
Korea $104,316 $640,716 $1,597,951
- -------------------- ------------ ------------ -------------
Pacific Tiger $358,055 $451,119 $666,384
- -------------------- ------------ ------------ -------------
</TABLE>
<PAGE> 72
PRINCIPAL UNDERWRITER
Provident Distributors, Inc. ("Provident"), Four Falls Corporate Center, West
Conshohocken, MA 19428, acts as an underwriter of the Funds' shares for the
purpose of facilitating the registration of shares of the Funds under state
securities laws and assists in the continuous offering of shares pursuant to an
underwriting agreement (the "Underwriting Agreement") approved by the Trust's
Trustees.
In this regard, Provident has agreed at its own expense to qualify as a
broker-dealer under all applicable Federal or state laws in those states which
the Trust shall from time to time identify to Provident as states in which it
wishes to offer its shares for sale, in order that state registrations may be
maintained for the Funds.
Provident is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
Pursuant to its Underwriter Compensation Agreement with the Trust, Provident is
paid for certain registration and transaction fees.
SERVICE AGREEMENTS
PFPC Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903,
provides certain administrative services to the Trust pursuant to an Investment
Company Services Agreement (the "Investment Company Services Agreement"). The
Funds pay the Administrator a fee at the annual rate of:
0.10% of the first $250 million of average net assets of each Fund;
0.075% of the next $250 million of such average net assets;
0.05% of the next $250 million of such average net assets and
0.03% on average net assets in excess of $750 million.
Such fee shall not be less than $100,000 per year for each Fund (except for
Matthews Japan Fund, which is subject to a minimum fee of $55,000), subject to
certain reductions provided for in the Investment Company Services Agreement.
Under the Investment Company Services Agreement, PFPC: (1) coordinates with the
custodian and transfer agent and monitors the services they provide to the
Funds; (2) coordinates with and monitors any other third parties furnishing
services to the Funds; (3) provides the Funds with necessary office space,
telephones and other communications facilities and personnel competent to
perform administrative and clerical functions; (4) supervises the maintenance by
third parties of such books and records of the Funds as may be required by
applicable federal or state law; (5) prepares or supervises the preparation by
third parties of all Federal, state and local tax returns and reports of the
Funds required by applicable law; (6) prepares and files and arranges for the
distribution of proxy materials and periodic reports to shareholders of the
Funds as required by applicable law; (7) prepares and arranges for the filing of
such registration statements and other documents with the SEC and other Federal
and state regulatory authorities as may be required by applicable law; (8)
reviews and submits to the officers of the Trust for their approval invoices or
other requests for payment of the Funds' expenses and instructs the Custodian to
issue checks in payment thereof; and (9) takes such other action with respect to
the Trust or the Funds as may be necessary in the opinion of the Administrator
to perform its duties under the agreement.
During the fiscal years ended August 31, 1997, 1998 and 1999, the aggregate fees
paid to the Administrator by the Funds totaled $89,779, $127,419 and $241,818,
respectively and is broken down as follows:
<PAGE> 73
<TABLE>
<CAPTION>
- ---------------- -------------- -------------- ------------
Matthews Fund Admin. Fees Admin. Fees Admin. Fees
Paid During Paid During Paid During
FYE 08-31, FYE 08-31, FYE 08-31,
1997 1998 1999
- ---------------- -------------- -------------- ------------
<S> <C> <C> <C>
Asian N/A N/A N/A
Technology
- ---------------- -------------- -------------- ------------
Dragon Century N/A $22,432 0
China
- ---------------- -------------- -------------- ------------
Growth and Income $28,801 $30,649 $ 3,677
- ---------------- -------------- -------------- ------------
Japan N/A N/A $ 15,359
- ---------------- -------------- -------------- ------------
Korea $30,046 $39,772 $161,205
- ---------------- -------------- -------------- ------------
Pacific Tiger $30,932 $34,566 $ 61,577
- ---------------- -------------- -------------- ------------
</TABLE>
DEALER REALLOWANCES
The "A" shares charges a 4.95% sales load on all purchases. Of that 4.5% is paid
to the broker which made the sale and the remainder is retained by the
Underwriter.
RULE 12b-1 PLAN (DISTRIBUTION PLAN)
The Board of Trustees of the Trust has adopted a Plan of Distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act which permits the Class A
shares of each Fund (except Matthews Asian Growth and Income Fund, Matthews
Asian Technology Fund and Matthews Japan Fund) to pay certain expenses
associated with the distribution of its shares. Under the Plan, each Fund may
pay actual expenses not exceeding, on an annual basis, 0.25% of a Fund's average
daily net assets. The Underwriter will use the amounts received under the Plan
for the promotion and distribution of the Class A shares of each Fund,
including, but not limited to, the printing of prospectuses and reports used for
sales purposes, expenses of preparation of sales literature and related
expenses, advertisements, and other distribution related expenses, as well as
any distribution fees paid to securities dealers or others who have executed a
selling agreement with the Trust on behalf of Class A shares of the Funds or the
Distributor. To the Trust's knowledge, no interested person of the Trust, nor
any of its Trustees who are not "interested persons", has a direct or indirect
financial interest in the operation of the Plan. The Trust anticipates that each
Fund will benefit from additional shareholders and assets as a result of
implementation of the Plan.
For the fiscal year ended August 31, 1999, the Matthews Pacific Tiger Fund and
the Matthews Korea Fund made distribution payments to the Underwriter pursuant
to the Plan in the approximate total amount of $23,952. Such payments made by
the Matthews Pacific Tiger Fund consisted of payments of approximately: $448 for
printing, postage and stationary, and $591 for compensation to brokers. Such
payments made by the Matthews Korea Fund consisted of payments of approximately:
$11,805 for printing, postage and stationary, and $5,469 for compensation to
brokers. The Matthews Dragon Century China Fund made no distribution payments to
the Underwriter for the period ended August 31, 1999.
OTHER SERVICE PROVIDERS
Custodian
Custodian The Bank of New York, 90 Washington Street, New York, New York 10286
is the custodian of the Trust's assets pursuant to a custodian agreement. Under
the custodian agreement, The Bank of New York (i) maintains a separate account
or accounts in the name of each Fund (ii) holds and transfers portfolio
securities on account of each Fund, (iii) accepts receipts and makes
disbursements of money on behalf of each Fund, (iv) collects and receives all
income and other payments and distributions on account of each Fund's securities
and (v) makes periodic reports to the Board of Trustees concerning each Fund's
operations.
<PAGE> 74
Counsel to the Trust
Paul, Hastings, Janofsky and Walker LLP, 345 California Street, San Francisco,
CA 94104-2635 is a law firm which serves as counsel to the Trust.
Independent Auditors
Tait, Weller and Baker, 8 Penn Center, Philadelphia, Pennsylvania 19103 were
selected as the independent auditors for the Trust by the Board of Trustees on
July 16, 1999 and provide audit services and assistance and consultation with
respect to regulatory filings with the SEC. The books of each Fund will be
audited at least once each year by Tait, Weller and Baker.
Ernst & Young LLP, 555 California Street, Suite 1700, San Francisco, CA 94101
served as the independent auditors for the Trust from its inception through June
30, 1999.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Advisor is responsible for decisions to buy and sell securities for the
Funds and for the placement of its portfolio business and the negotiation of
commissions, if any, paid on such transactions. Fixed-income securities and many
equity securities in which the Funds invest are traded in over-the-counter
markets. These securities are generally traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. In
over-the-counter transactions, orders are placed directly with a principal
market-maker unless a better price and execution can be obtained by using a
broker. Brokerage commissions are paid on transactions in listed securities,
futures contracts and options thereon.
The Advisor is responsible for effecting portfolio transactions and will do so
in a manner deemed fair and reasonable to the Funds. The primary consideration
in all portfolio transactions will be prompt execution of orders in an efficient
manner at the most favorable price.
In selecting and monitoring broker-dealers and negotiating commissions, the
Advisor may consider a number of factors, including, for example, net price,
reputation, financial strength and stability, efficiency of execution and error
resolution, block trading and block positioning capabilities, willingness to
execute related or unrelated difficult transactions in the future, order of
call, offering to the Advisor on-line access to computerized data regarding the
Funds' accounts, and other matters involved in the receipt of brokerage services
generally.
The Advisor may also purchase from a broker or allow a broker to pay for certain
research services, economic and market information, portfolio strategy advice,
industry and company comments, technical data, recommendations, general reports,
consultations, performance measurement data and on-line pricing and news service
and periodical subscription fees.
The Advisor may pay a brokerage commission in excess of that which another
broker-dealer might charge for effecting the same transaction in recognition of
the value of these research services. In such a case, however, the Advisor will
determine in good faith that such commission is reasonable in relation to the
value of brokerage and research provided by such broker-dealer, viewed in terms
of either the specific transaction or the Advisor's overall responsibilities to
the portfolios over which Advisor exercises investment authority. Research
services furnished by brokers through whom the Advisor intends to effect
securities transactions may be used in servicing all of the Advisor's accounts;
not all of such services may be used by the Advisor in connection with accounts
which paid commissions to the broker providing such services. In conducting all
of its soft dollar relationships, the Advisor
<PAGE> 75
will seek to take advantage of the safe harbor provided by Section 28(e) of the
Securities Exchange Act of 1934, as amended.
The Advisor will attempt to equitably allocate portfolio transactions among the
Funds and other accounts whenever concurrent decisions are made to purchase or
sell securities by the Funds and other accounts. In making such allocations
between the Funds and others, the main factors to be considered are the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and the opinions of the persons
responsible for recommending investments to the Funds and the others. In some
cases, this procedure could have an adverse effect on the Fund. In the opinion
of the Advisor, however, the results of such procedures will, on the whole, be
in the best interests of each of the clients.
For the fiscal years ended August 31, 1997, 1998 and 1999, the aggregate
brokerage commissions paid by the Trust on behalf of the Funds amounted to
$576,519, $1,295,324 and $1,579,983 respectively. The total brokerage
commissions attributable to each Fund are set forth below.
<TABLE>
<CAPTION>
- --------------- -------------- -------------- ---------------
Matthews Fund Brokerage Brokerage Brokerage
Commissions Commissions Commissions
Paid During Paid During Paid During
FYE 08-31, FYE 08-31, FYE 08-31,
1997 1998 1999
- --------------- -------------- -------------- ---------------
<S> <C> <C> <C>
Asian N/A N/A N/A
Technology
- --------------- -------------- -------------- ---------------
Dragon N/A $ 16,307 $ 20,865
Century China
- --------------- -------------- -------------- ---------------
Growth and $ 5,838 $ 2,956 $ 17,991
Income
- --------------- -------------- -------------- ---------------
Japan N/A N/A $ 37,953
- --------------- -------------- -------------- ---------------
Korea $196,599 $906,617 $711,735
- --------------- -------------- -------------- ---------------
Pacific Tiger $274,082 $369,443 $791,439
- --------------- -------------- -------------- ---------------
</TABLE>
There are no brokers which the Advisor uses which are affiliated with the Trust
or the Advisor. Daewoo Securities formerly rendered advisory services to Korea
Fund, but no longer does so.
The percentage of Total Brokerage Commissions paid to Daewoo Securities and the
percentage of Total Transactions involving Commissions paid to Daewoo Securities
for the fiscal year ended August 31, 1998 was 14.79% and 14.53%, respectively.
The percentage of Total Brokerage Commissions paid to Daeyu Securities Co. and
the percentage of Total Transactions involving Commission paid to Daeyu for the
fiscal year ended August 31, 1998 was 2.35% and 2.29%, respectively.
SHARES OF BENEFICIAL INTEREST
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest, each with a $0.001 par value. Shares of each Fund represent equal
proportionate interests in the assets of that Fund only, and have identical
voting, dividend, redemption, liquidation and other rights. All shares issued
are fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares and no conversion rights.
Currently, Matthews Pacific Tiger Fund and Matthews Korea Fund offer two classes
of shares: Class I and Class A. The classes offered have different sales charges
and other expenses which may affect performance.
The validity of shares of beneficial interest offered by this registration
statement has been passed on by Paul, Hastings, Janofsky and
<PAGE> 76
Walker LLP, 345 California Street, San Francisco, CA 94104-2635.
All accounts will be maintained in book entry form and no share certificates
will be issued.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase of Shares
The shares are offered to the public through the Underwriter or through
investment professionals.
Determination of Net Asset Value
Generally, the net asset value of a Fund will be determined as of the close of
trading on each day the New York Stock Exchange ("NYSE") is open for trading.
The Funds do not determine net asset value on days that the NYSE is closed and
at other times described in the respective Prospectus. The NYSE is closed on the
day which the following holidays are observed: New Year's Day, Martin Luther
King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE will not be open for
trading on the preceding Friday and when such holiday falls on a Sunday, the
NYSE will not be open for trading on the succeeding Monday, unless unusual
business conditions exist, such as the ending of a monthly or the yearly
accounting period.
Trading in securities on Asian and Pacific Basin securities exchanges and
over-the-counter markets is normally completed well before the close of the
business day in New York. In addition, Far Eastern securities trading may not
take place on all business days in New York. Furthermore, trading takes place in
Japanese markets and in various foreign markets on days which are not business
days the NYSE is open and therefore the Fund's respective net asset values are
not calculated.
The calculation of the Funds' net asset values may not take place
contemporaneously with the determination of the prices of portfolio securities
held by the Funds. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the NYSE
will not be reflected in the Funds' calculation of net asset value unless the
Board of Trustees deems that the particular event would materially affect the
net asset value, in which case an adjustment will be made. Assets or liabilities
initially expressed in terms of foreign currencies are translated prior to the
next determination of the net asset value of the Funds' shares into U.S. dollars
at the prevailing market rates. The fair value of all other assets is added to
the value of securities to arrive at the total assets.
Portfolio securities for Matthews Korea Fund and Matthews Japan Fund which are
traded on the Korean exchange and Japanese exchanges, respectively, are valued
at the most recent sale price reported on the exchange. If no sale occurred, the
security is then valued at the calculated mean between the most recent bid and
asked quotations. If there are no such bid and asked quotations, the most recent
bid quotation is used. All other securities are valued at fair value as
determined in good faith by the Board of Trustees including certain investments
in Korean equity securities and Japanese equity securities that have met the
limit for aggregate foreign ownership and for which premiums to the local stock
exchange prices are offered by prospective foreign investors.
Generally portfolio securities subject to a "foreign share" premium are valued
at the local share prices (i.e., without including any foreign share premium)
because of the uncertainty of realizing the premium and the recent trend toward
the reduction or disappearance of such foreign premiums.
<PAGE> 77
Offering Price
Class A Shares of the Trust are offered at the "public offering price." The
public offering price is the sum of any applicable sales charge plus the current
net asset value per share next determined after receipt of a purchase order in
proper form by the transfer agent. The sales charge is a variable percentage of
the offering price, depending upon the amount of the sale. No sales charge will
be assessed on the reinvestment of distribution. Shares may also be bought and
sold through any securities dealer having a dealer agreement with PROVIDENT, the
Fund's principal underwriter. The following table shows the regular sales charge
on Class A Shares of the Trust together with the re-allowance paid to dealers
and the agency commission paid to brokers, collectively the "commission":
<TABLE>
<CAPTION>
- --------------- -------------- -------------- ----------------
Class A Sales Charge Sales Charge Reallowance of
shares as as Brokerage as
purchased Percentage Percentage Percentage of
of Offering of Net Offering Price
Price Amount
Invested
- --------------- -------------- -------------- ----------------
<S> <C> <C> <C>
Less than 4.95% 5.21% 4.50%
$50,000
- --------------- -------------- -------------- ----------------
$50,000 or 4.25% 4.44% 3.85%
more but less
than $100,000
- --------------- -------------- -------------- ----------------
$100,000 or 3.25% 3.36% 2.90%
more but less
than $250,000
- --------------- -------------- -------------- ----------------
$250,000 or 2.50% 2.36% 2.15%
more but less
than $500,000
- --------------- -------------- -------------- ----------------
$500,000 or 2.00% 2.04% 1.80%
more but less
than
$1,000,000
- --------------- -------------- -------------- ----------------
$1,000,000 0.00% 0.00% 0.00%
and over
- --------------- -------------- -------------- ----------------
</TABLE>
The commissions shown in the table apply to sales through financial institutions
and intermediaries. Under certain circumstances, the Underwriter or a
sub-distributor may use its own funds to compensate financial institutions and
intermediaries in amounts that are in addition to the commissions shown above.
The Underwriter or a sub-distributor may, from time to time and at its own
expense, provide promotional incentive, in the form of cash or other
compensation, to certain financial institutions and intermediaries whose
registered representatives have sold or are expected to sell significant amounts
of shares of a Fund. Such other compensation may take the form of payments for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives to places within or outside of the United
States. Under certain circumstances, commissions up to the amount on the entire
sales charge may be reallowed to certain financial institutions and
intermediaries, who might then be deemed to be "underwriters" under the
Securities Act of 1933, as amended.
Reduced Sales Charges
The sales charge for purchases of Class A Shares of the Fund may be reduced
through Rights of Accumulation or a Letter of Intent. To qualify for a reduced
sales charge, an investor must so notify his or her distributor at the time of
each purchase of shares which qualifies for the reduction.
Rights of Accumulation
A shareholder may qualify for a reduced sales charge by aggregating the net
asset values of
<PAGE> 78
shares requiring the payment of an initial sales charge, previously purchased
and currently owned, with the dollar amount of shares to be purchased.
Letter of Intent
An investor of Class A Shares may qualify for a reduced sales charge immediately
by signing a non-binding Letter of Intent stating the investor's intention to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge. The first investment cannot be made
more than 90 days prior to the date of the Letter of Intent. Any redemptions
made during the 13-month period will be subtracted from the amount of purchases
in determining whether the Letter of Intent has been completed. During the term
of the Letter of Intent, the transfer agent will hold shares representing 5% of
the indicated amount in escrow for payment of a higher sales load if the full
amount indicated in the Letter of Intent is not purchased. The escrowed shares
will be released when the full amount indicated has been purchased. If the full
amount indicated is not purchased within the 13-month period, a shareholder's
escrowed shares will be redeemed in an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge the
shareholder would have had to pay on his or her aggregate purchases if the total
of such purchases had been made at a single time. It is the shareholder's
responsibility to notify the transfer agent at the time the Letter of Intent is
submitted that there are prior purchases that may apply. The term "single
purchaser" refers to (i) an individual, (ii) an individual and spouse purchasing
shares of the Fund for their own account or for trust or custodial accounts of
their minor children, or (iii) a fiduciary purchasing for any one trust, estate
or fiduciary account, including employee benefit plans created under Sections
401 and 457 of the Internal Revenue Code of 1986, as amended, including related
plans of the same employer.
REDEMPTION IN KIND
At the organizational meeting of the Trust, the Trustees directed that the Trust
elect to pay redemptions in cash as consistent with Rule 18f-1 of the 1940 Act.
The Trustees further directed that Form N-18F-1 be filed with the SEC on the
Trust's behalf committing the Trust to pay in cash all requests for redemption
by any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of $250,000 or 1 percent of the net asset
value of such company at the beginning of such period. This means that the Trust
could, if the redemption is larger that $250,000 or 1% of the net asset value of
the Trust, pay a redemption with the securities held in the Trust's portfolios.
It this occurred, the shareholder receiving these portfolio securities would
incur transactions charges if they were to convert the securities into cash.
TAXATION OF THE TRUST
In General
Each Fund has elected and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). In order to so qualify for any taxable year, a
fund must, among other things, (i) derive at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, gains
from the sale of securities or foreign currencies, or other income (including
but not limited to gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; (ii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iii) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, government
securities, securities of other regulated investment companies, and other
<PAGE> 79
securities of issuers which represent, with respect to each issuer, no more than
5% of the value of a fund's total assets and 10% of the outstanding voting
securities of such issuer, and have no more than 25% of its assets invested in
the securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the fund
controls and which are engaged in the same, similar or related trades and
businesses.
To the extent the Funds qualify for treatment as a regulated investment company,
they will not be subject to Federal income tax on income paid to shareholders in
the form of dividends or capital gains distributions.
An excise tax will be imposed on the excess, if any, of the Funds' "required
distributions" over actual distributions in any calendar year. Generally, the
"required distribution" is 98% of a fund's ordinary income for the calendar year
plus 98% of its capital gain net income recognized during the one-year period
ending on October 31 plus undistributed amounts from prior years. The Funds
intend to make distributions sufficient to avoid imposition of the excise tax.
For a distribution to qualify as such with respect to a calendar year under the
foregoing rules, it must be declared by a Fund during October, November or
December to shareholders of record during such months and paid by January 31 of
the following year. Such distributions will be taxable in the year they are
declared, rather than the year in which they are received.
Shareholders will be subject to Federal income taxes on distributions made by
the Funds whether received in cash or additional shares of the Funds.
Distributions of net investment income and net capital gains, if any, will be
taxable to shareholders without regard to how long a shareholder has held shares
of the Fund. Dividends paid by the Funds may qualify in part for the dividends
received deduction for corporations.
The Funds will notify shareholders each year of the amount of dividends and
distributions, and the portion of its dividends which qualify for the corporate
deduction.
TAXES REGARDING OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
When the Funds write a call, or purchase a put option, an amount equal to the
premium received or paid by them is included in the Funds' accounts as an asset
and as an equivalent liability. In writing a call, the amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which a Fund has written expires on its stipulated expiration date, the Fund
recognizes a short-term capital gain. If the Fund enters into a closing purchase
transaction with respect to an option which the Fund has written, the Fund
realizes a short-term gain (or loss if the cost of the closing transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received.
The premium paid by the Fund for the purchase of a put option is recorded in the
Fund's assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess
<PAGE> 80
would be unrealized depreciation. The current market value of a purchased option
is the last sale price on the principal exchange on which such option is traded
or, in the absence of a sale, the mean between the last bid and asked prices. If
an option which the Fund has purchased expires on the stipulated expiration
date, the Fund realizes a short-term or long-term capital loss for Federal
income tax purposes in the amount of the cost of the option. If the Fund
exercises a put option, it realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Fund at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for Federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss
("60/40 gain or loss"). Certain options, futures contracts and options on
futures contracts utilized by the Fund are "Section 1256 contracts." Any gains
or losses on Section 1256 contracts held by the Fund at the end of each taxable
year (and on October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as a
60/40 gain or loss.
UNIQUE FOREIGN TAX ISSUES
Foreign governments may withhold taxes from dividends or interest paid with
respect to foreign securities typically at a rate between 10% and 35%. Tax
conversions between certain countries and the United States may reduce or
eliminate such taxes. The Funds intend to elect to pass-through foreign taxes
paid in order for a shareholder to take a credit or deduction if, at the close
of its fiscal year, more than 50% of a Fund's total assets are invested in
securities of foreign issuers.
Under the United States-Korea income tax treaty, as presently in effect, the
government of Korea imposes a nonrecoverable withholding tax and resident tax
aggregating 10.125% on dividends and 12.9% on interest paid to Matthews Korea
Fund by Korean issuers. Under United States-Korea income tax treaty, there is no
Korean withholding tax on realized capital gains.
The above discussion and the related discussion in the Prospectuses are not
intended to be complete discussions of all applicable Federal tax consequences
of an investment in the Funds. Dividends and distributions also may be subject
to state and local taxes. Shareholders are urged to consult their tax advisors
regarding specific questions as to Federal, state and local taxes.
The foregoing discussion relates solely to U.S. Federal income tax law. Non-U.S.
investors should consult their tax advisors concerning the tax consequences of
ownership of shares of the Funds, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
UNDERWRITERS
Other than PROVIDENT, which serves as a nominal statutory underwriter, the Trust
has not engaged an underwriter which actively distributes its shares.
<PAGE> 81
CALCULATION OF PERFORMANCE DATA
In General
From time to time, the Trust may include general comparative information, such
as statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Trust may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund.
In addition, the yield and total return of a Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Average Total Return Quotation
The Funds compute their average annual total return by determining the average
annual compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
P(1+T)n = ERV
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000. n = period covered by the
computation, expressed in terms of years. T = average annual total return.
The Funds compute their aggregate total return by determining the aggregate
compounded rate of return during specified period that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ ERV - 1 ] P ERV = ending redeemable value at the end
of the period covered by the computation of a hypothetical $1,000 payment made
at the beginning of the period. P = hypothetical initial payment of $1,000.
The average annual total returns for the Funds which quote such performance were
as follows for the periods shown:
<TABLE>
<CAPTION>
- ------------------- -------- -------------- ------------
Series Class *Inception 9/1/98
through through
8/31/98 8/31/99
- ------------------- -------- -------------- ------------
<S> <C> <C> <C>
Asian Technology I N/A N/A
- ------------------- -------- -------------- ------------
Asian Growth and I ( 4.71%) N/A
Income
- ------------------- -------- -------------- ------------
Dragon Century I (79.19%) N/A
China
- ------------------- -------- -------------- ------------
Japan I N/A N/A
- ------------------- -------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
- ------------ ------------- ---------------- ------------
Series Class *Inception 9/1/98
through 8/31/98 through
8/31/99
- ------------ ------------- ---------------- ------------
<S> <C> <C> <C>
Korea I (34.63%) N/A
- ------------ ------------- ---------------- ------------
Korea A (35.25% (68.74%)
No Load
- ------------ ------------- ---------------- ------------
Korea A (36.14%) (70.58%)
Load
- ------------ ------------- ---------------- ------------
</TABLE>
<PAGE> 82
<TABLE>
- ------------ ------------- ---------------- ------------
<S> <C> <C> <C>
Pacific I (19.87%) N/A
Tiger
- ------------ ------------- ---------------- ------------
Pacific A (19.87%) (66.03%)
Tiger No Load
- ------------ ------------- ---------------- ------------
Pacific A (20.89%) (67.91%)
Tiger Load
- ------------ ------------- ---------------- ------------
</TABLE>
*Asian Growth and Income Funds commenced operations on September 12, 1994; Asia
Technology commenced operations of December 20, 1999. Dragon Century China
commenced operations on February 19, 1998; Japan commenced operations on
December 31, 1998; and Korea commenced operations on January 3, 1995; Pacific
Tiger and Growth and Income Funds commenced operations on September 13, 1994;
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Since performance will fluctuate, performance data for the Funds should not be
used to compare an investment in the Funds' shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
Yield Quotation
Yield, in its simplest form, is the ratio of income per share derived from the
Fund's investments to a current maximum offering price expressed in terms of
percent. The yield is quoted on the basis of earnings after expenses have been
deducted. The yield of a Fund is calculated by dividing the net investment
income per share earned during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period and annualizing the
result. The Funds' net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
YIELD = 2 [(a - b + 1)6 - 1 ] cd
Where:
a=dividends and interest earned during the period. b= expenses accrued for the
period (net of reimbursements). c= the average daily number of shares
outstanding during the period that were entitled to receive dividends. d =
maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by a Fund is calculated by computing the
yield to maturity of each obligation held by that Fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the
<PAGE> 83
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by that Fund. For purposes of this calculation, it is assumed
that each month contains 30 days. The date on which the obligation reasonably
may be expected to be called or, if none, the maturity date. With respect to
debt obligations purchased at a discount or premium, the formula generally calls
for amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
Performance and Advertisements
The Funds' performance may from time to time be compared, in marketing and other
fund literature, to the performance of other mutual funds in general or to the
performance of particular types of mutual funds with similar investment goals,
as tracked by independent organizations. Among these organizations, Lipper
Analytical Services, Inc. ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are based on changes in net
asset value, with all income and capital gains dividends reinvested. Such
calculations do not include the effect of any sales charges imposed by other
funds. The Funds will be compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings. The Funds' performance may also be
compared to the average performance of their Lipper category.
The Funds' performance may also be compared to the performance of other mutual
funds by Morningstar, Inc. ("Morningstar") which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for
three, five and ten year periods. Ranks are not absolute or necessarily
predictive of future performance.
Matthews Asian Growth and Income Fund, and Pacific Tiger Fund may compare their
performance to a wide variety of indices including the Morgan Stanley All
Country Far East ex-Japan Index and the Morgan Stanley All Country Far East Free
ex-Japan Index. The Index is expressed in US Dollars to provide a benchmark for
US Dollar-denominated investors.
The Matthews Dragon Century China Fund may compare its performance to a wide
variety of indices including the Credit Lyonnais China World Index, a market
capitalization weighted index of Chinese equities which are listed on the Hong
Kong, Shanghai, and Shenzen stock exchanges.
The Matthews Japan Fund may compare its performance to a wide variety of indices
including the Tokyo Stock Price Index (TOPIX), a market capitalization weighted
index of over 1100 stocks traded in the Japanese market.
The Matthews Korea Fund may compare its performance to a wide variety of indices
including the South Korea Stock Market Price Index, a market capitalization
weighted index of all common stocks traded in the South Korean Market.
In assessing such comparisons of yield, return, or volatility, an investor
should keep in mind that the composition of the investments in the
<PAGE> 84
reported indices and averages is not identical to those of the Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by a Fund
to calculate its figures.
Because the Funds' investments primarily are denominated in foreign currencies,
the strength or weakness of the U.S. dollar as against these currencies may
account for part of the Funds' investment performance. Historical information
regarding the value of the dollar versus foreign currencies may be used from
time to time in advertisements concerning the Funds. Marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which the Funds invest. Sources for such statistics may
include official publications of various foreign governments, exchanges, or
investment research firms.
OTHER INFORMATION
Statements contained in the Prospectuses or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Statement of Additional Information
form a part. Each such statement is qualified in all respects by such reference.
Reports to Shareholders Shareholders will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by independent certified public accountants. Inquiries regarding the
Funds may be directed to the Advisor at (800) 789-2742.
FINANCIAL STATEMENTS
The financial statements for the Funds, including the notes thereto as of August
31, 1999 are incorporated by reference from the Funds' 1999 Annual Report to
Shareholders and the Funds' 1999 Semi-Annual Report to Shareholders as filed
with the S.E.C. on form N-30D.
APPENDIX
Bond Ratings
Moody's Investors Service, Inc. ("Moody's") describes classifications of
corporate bonds as follows:
AaaBonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
<PAGE> 85
BaaBonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CaaBonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate and municipal
bond rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
Standard & Poor's Corporation ("S&P") describes classification of corporate and
municipal debt as follows:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
<PAGE> 86
B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default. The D rating is assigned on the day an interest or
principal payment is missed.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of obligation as a matter of policy.
<PAGE> 87
MATTHEWS INTERNATIONAL FUNDS
- ----------------------------
Form N-1A
Part C - Other Information
Item 23. Exhibits
- -------- --------
(a) Trust Instrument and Certificate of Trust is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 5 on
December 27, 1996.
(b) By-Laws are incorporated herein by reference to and was filed electronically
with Post-Effective Amendment No. 5 on December 27, 1996.
(c) Not Applicable.
(d)(1) Investment Advisory Agreement for Matthews Pacific Tiger Fund with
Matthews International Capital Management, effective September 12, 1994, is
incorporated herein by reference to and was filed electronically with
Post-Effective Amendment No. 5 on December 27, 1996.
(d)(2) Investment Advisory Agreement for Matthews Asian Growth and Income Fund
(formerly Matthews Asian Convertible Securities Fund) with Matthews
International Capital Management, effective September 12, 1994, is incorporated
herein by reference to and was filed electronically with Post-Effective
Amendment No. 5 on December 27, 1996.
(d)(3) Investment Advisory Agreement for Matthews Korea Fund with Matthews
International Capital Management, effective December 13, 1994, is incorporated
herein by reference to and was filed electronically with Post-Effective
Amendment No. 5 on December 27, 1996.
(d)(4) Investment Advisory Agreement for Matthews Dragon Century China Fund with
Matthews International Capital Management, effective December 22, 1997 is
incorporated herein by reference to and was filed electronically with
Post-Effective Amendment No. 8 on December 31, 1997.
(d)(5) Form of Investment Advisory Agreement for Matthews Japan Fund with
Matthews International Capital Management, is incorporated herein by reference
to and was filed electronically with Post-Effective Amendment No.
9 on October 16, 1998.
(d)(6) Research and Advisory Agreement between Matthews International Capital
Management, Inc. and Daewoo Capital Management Co., Ltd., effective December 13,
1994, is incorporated herein by reference to and was filed electronically with
Post-Effective Amendment No. 5 on December 27, 1996.
(d)(7) [Form of] Investment Advisory Agreement between Matthews International
Funds, on behalf of Matthews Asian Technology Fund and Matthews International
Capital Management, LLC [to be] filed herewith [by subsequent amendment].
(e)(1) Form of Underwriting Agreement for Matthews International Funds with
First Data Distributors, Inc., effective January 1, 1999, is incorporated herein
by reference to and was filed electronically with Post-Effective Amendment No. 9
on October 16, 1998.
(e)(1)(i) Amendment No. 1 to Underwriting Agreement for Matthews International
Funds with First Data Distributors, Inc., adding new series and
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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Page 1 of 9 pages
<PAGE> 88
classes for Matthews Asian Technology Fund effective October 15, 1999,is filed
herewith.
(e)(1)(ii) Underwriting Agreement for Matthews International Funds with
Provident Distributors, Inc., effective December 1, 1999, is filed herewith.
(f) Not Applicable.
(g)(1) Custody Agreement with The Bank of New York, effective June 1, 1995 is
incorporated herein by reference to and was electronically filed with
Post-Effective Amendment No. 4 on December 29, 1995.
[(h)(1) Transfer Agent Services Agreement for Matthews International Funds with
FPS Services, Inc., effective August 12, 1994, is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 5 on
December 27, 1996.]
[(h)(2) Amended Transfer Agent Services Agreement adding Matthews Korea Fund,
effective December 13, 1994, is incorporated herein by reference to and was
filed electronically with Post-Effective Amendment No. 5 on December 27, 1996.]
(h)(1[3]) Investment Company Services Agreement for Matthews International
Funds with FPS Services, Inc., effective October 1, 1997, is incorporated herein
by reference to and was filed electronically with Post-Effective Amendment No. 8
on December 31, 1997.
(h)(1[4])(i) Amendment to Investment Company Services Agreement adding new
series and new classes for Matthews Pacific Tiger Fund and Matthews Korea Fund,
effective November 11, 1997, is incorporated herein by reference to and was
filed electronically with Post-Effective Amendment No. 8 on December 31, 1997.
(h)(1[5])(ii) Form of Amendment to Investment Company Services Agreement adding
Matthews Japan Fund is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 9 on October 16, 1998.
(h)(1)(iii) Amendment No. 3 to Investment Company Services Agreement adding
Matthews Asian Technology Fund, effective October 15, 1999, is filed herewith.
(h)(1)(iv) Amendment to Investment Company Services Agreement for the addition
of sales support services, effective December 1, 1999, is filed herewith.
(h)(2) Shareholder Services Agreement between Matthews International Funds and
Matthews International Capital Management, LLC, is filed herewith.
(i) Not Applicable.
(j) [Not Applicable]. Consent of Independent Auditors-Ernst & Young
[(j)(i) Consent of Independent Auditors-Tait, Weller and Baker]
(k) Not Applicable.
(l) Not Applicable.
(m) 12b-1 Plan [to be] filed herewith [by subsequent amendment].
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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Page 2 of 9 pages.
<PAGE> 89
(n) Not Applicable.
(o)(i) 18f-3 Plan [to be] filed herewith [by subsequent amendment].
(o)(ii) Amendment to 18f-3 Plan effective April 18, 1997 filed herewith.
(p)(1) Power of Attorney is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 9 on October 16, 1998.
Item 24. Persons Controlled by or under Common Control with the Registrant Not
Applicable.
Item 25. Indemnification
Section 10.2 of the Registrant's Trust Instrument provides as follows:
10.2 INDEMNIFICATION. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while as a Trustee or thereafter, by reason of his
being or having been such a Trustee EXCEPT with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties, PROVIDED that
as to any matter disposed of by a compromise payment by such person, pursuant to
a consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of bad faith had been adjudicated, it
would in the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions shall not
exclude any other right to which he may be lawfully entitled, PROVIDED that no
person may satisfy any right of indemnity or reimbursement hereunder except out
of the property of the Trust. The Trustees may make advance payments in
connection with the indemnification under this Section 10.2, PROVIDED that the
indemnified person shall have given a written undertaking to reimburse the Trust
in the event it is subsequently determined that he is not entitled to such
indemnification.
The Trust shall indemnify officers, and shall have the power to indemnify
representatives and employees of the Trust, to the same extent that Trustees are
entitled to indemnification pursuant to this Section 10.2
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in that Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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Page 3 of 9 pages.
<PAGE> 90
public policy as expressed in that Act and will be governed by the final
adjudication of such issue.
Section 10.3 of the Registrant's Trust Instrument, incorporated herein by
reference as Exhibit 1 to Post-Effective Amendment No. 5, also provides for the
indemnification of shareholders of the Registrant. Section 10.3 states as
follows:
10.3 SHAREHOLDERS. In case any Shareholder or former Shareholder of any Series
shall be held to be personally liable solely by reason of his being or having
been a shareholder of such Series and not because of his acts or omissions or
for some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Trust, on behalf of the affected Series, shall, upon request by
the Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Trust and satisfy any judgment thereon from the
assets of the Series.
In addition, Registrant currently has a trustees' and officers' liability policy
covering certain types of errors and omissions.
Item 26. Business and Other Connections of Advisor and Korean Advisor:
Matthews International Capital Management, LLC provides investment advisory
services to individual and institutional investors, and as of October 1, 1999
had approximately $115 million in assets under management.
For information as to any other business, vocation or employment of a
substantial nature in which each Trustee or officer of the Registrant's
investment advisor has been engaged for his own account or in the capacity of
Trustee, officer, employee, partner or trustee, reference is made to the Form
ADV (File #801-39520) filed by it under the Investment Advisers Act of 1940.
Daewoo International Capital Management, Ltd. (the "Research Advisor") was
organized in February 1988 under the laws of the Republic of Korea. The Research
Advisor is wholly owned by Daewoo Securities Co., Ltd., Daewoo Securities
Building, 34-3 Yoido-dong, Yungdungpo-gu, Seoul, Korea, the largest Korean
securities firm in terms of paid-in capital and revenues in 1992. Daewoo
Securities Co., Ltd. is affiliated with Daewoo Corporation, a conglomerate
headquartered in Seoul, Korea. Daewoo Corporation and certain affiliates of
Daewoo Corporation own approximately 12% of Daewoo Securities Co., Ltd. For
information as to any other business, vocation or employment of a substantial
nature in which each Trustee or officer of the Registrant's Research Advisor has
been engaged for his own account or in the capacity of Trustee, officer,
employee, partner or trustee, reference is made to the Form ADV (File
#801-32282) filed by it under the Investment Advisers Act of 1940.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Provident Distributors, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies as of 12/1/99:
International Dollar Reserve Fund I, Ltd.
Provident Institutional Funds Trust
Pacific Innovations Trust
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
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Page 4 of 9 pages.
<PAGE> 91
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
GAMNA Series Funds, Inc.
WT Investment Trust
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
Robertson Stephens Investment Trust
HT Insight Funds, Inc.
Harris Insight Funds Trust
Hilliard-Lyons Government Fund, Inc
Hilliard-Lyons Growth Fund, Inc.
Hilliard-Lyons Research Trust
Senbanc Fund
ABN AMRO Funds
Alleghany Funds
BT Insurance Funds Trust
First Choice Funds Trust
Forward Funds, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Growth Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
IBJ Funds Trust
Light Index Funds, Inc.
LKCM Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
New Covenant Funds, Inc.
Panorama Trust
Smith Breeden Series Funds
Smith Breeden Trust
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
The Stratton Funds, Inc.
The Galaxy Fund
The Galaxy VIP Fund
Galaxy Fund II
The Govett Funds, Inc.
Trainer, Wortham First Mutual Funds
Undiscovered Managers Funds
Wilshire Target Funds, Inc.
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth and Income Fund
WPG Growth Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
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Page 5 of 9 pages.
<PAGE> 92
Northern Funds Trust (Distributed by Northern Funds
Distributors, LLC. a wholly owned subsidiary of Provident
Distributors, Inc.)
The Offit Investment Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
The Offit Variable Insurance Fund, Inc. (Distributed by Offit
Funds Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
(b)
PROVIDENT DISTRIBUTORS, INC.
NAME OWNERSHIP DIRECTOR TITLE
- ---- --------- -------- -----
Philip H. Rinnander President & Treasurer
Jane Haegele 100% Owner Director Secretary
Jason A. Greim Vice President
Barbara A. Rice Vice President
Jennifer K. Rinnander Vice President
Lisa M. Buono Vice President & Compliance Officer
BLACKROCK DISTRIBUTORS, INC.
(100% WHOLLY OWNED SUBSIDIARY OF PROVIDENT DISTRIBUTORS, INC.)
NAME OWNERSHIP DIRECTOR TITLE
- ---- --------- -------- -----
Philip H. Rinnander President & Treasurer
Jane Haegele 100% Owner Director Secretary
Jason A. Greim Vice President
Barbara A. Rice Vice President
Jennifer K. Rinnander Vice President
Lisa M. Buono Vice President & Compliance Officer
OFFIT FUNDS DISTRIBUTOR, INC.
(100% WHOLLY OWNED SUBSIDIARY OF PROVIDENT DISTRIBUTORS, INC.)
NAME OWNERSHIP DIRECTOR TITLE
- ---- --------- -------- -----
Philip H. Rinnander President & Treasurer
Jane Haegele 100% Owner Director Secretary
Jason A. Greim Vice President
Barbara A. Rice Vice President
Jennifer K. Rinnander Vice President
Lisa M. Buono Vice President & Compliance Officer
NORTHERN FUNDS DISTRIBUTORS, LLC
(100% WHOLLY OWNED SUBSIDIARY OF PROVIDENT DISTRIBUTORS, INC.)
NAME OWNERSHIP DIRECTOR TITLE
- ---- --------- -------- -----
Philip H. Rinnander President & Secretary
Jane Haegele 100% Owner Director Secretary
Jason A. Greim Vice President & Treasurer
Jennifer K. Rinnander Vice President
Lisa M. Buono Vice President & Compliance Officer
Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is located at
Four Falls Corporate Center, Suite 600, West Conshohocken, Pennsylvania
19428-2961.
[First Data Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. and an indirect wholly owned subsidiary
of First Data Corporation, acts as distributor for Northern Funds pursuant to a
distribution agreement dated January 1, 1999. The Distributor also acts as
underwriter for ABN AMRO Funds, Alleghany Funds, BT Insurance Funds Trust, First
Choice Funds Trust, LKCM Funds, The Galaxy Fund, The Galaxy VIP Fund, Galaxy
Fund II, IBJ Funds Trust, Panorama Trust, Undiscovered Managers Fund, New
Convenant Funds, Forward Funds, Inc., Light Index Funds, Inc. Weiss Peck & Greer
Funds Trust, Weiss Peck & Greer International Fund, WPG Growth Fund, WPG Growth
& Income Fund, WPG Tudor Fund, RWB/WPG U.S. Large Stock Fund, Tomorrow Funds
Retirement Trust, The Govett Funds, Inc., IAA Trust Growth Fund, Inc., IAA Trust
Asset Allocation Fund, Inc., IAA Trust Tax Exempt Bond Fund, Inc., IAA Trust
Taxable Fixed Income Series Fund, Inc., Matthews International Funds, MCM Funds,
Metropolitan West Funds, Smith Breeden Series Fund, Smith Breeden Trust,
Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc., The
Stratton Funds, Inc., Trainer, Wortham First Mutual Funds, Wilshire Target
Funds, Inc. and Worldwide Index Funds. The Distributor is registered with the
Securities and Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.]
[(b) The information required by this Item 27(b) with respect to each director,
officer, or partner of First Data Distributors, Inc. is incorporated by
reference to Schedule A of Form BD filed by First Data Distributors, Inc. with
the Securities and Exchange Commission pursuant to the Securities Act of 1934
(File No. 8-45467).]
(c) Not Applicable.
Item 28. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records will be maintained at the
offices of Registrant's Custodian:
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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Page 6 of 9 pages.
<PAGE> 93
The Bank of New York, 90 Washington Street, New York, N.Y. 10286
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b),(4); (2)(C) and (D); (4); and
31a-1(f), the required books and records are maintained at the offices of
Registrant's Administrator, Transfer Agent and Fund Accounting Services Agent:
PFPC Inc., 3200 Horizon Drive, King of Prussia, 19406-0903.
(c) With respect to Rules 31a-1(b)(5), (6), (9), (10) and (11) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser:
Matthews International Capital Management, LLC, 456[655] Montgomery Street,
Suite 1200[143[8]], San Francisco, CA 94104 [94111]
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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Page 7 of 9 pages.
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has caused this
Post-Effective Amendment No. 13 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, and State of California
on the 20th day of December 1999.
Matthews International Funds
Registrant
By /s/G. Paul Matthews
- --------------------------------------
G. Paul Matthews, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement of Matthews International Funds has been signed below by the following
persons in the capacities and on the date indicated.
Signature Capacity Date
/s/ G. Paul Matthews* President and December 20, 1999
- -------------------------
G. Paul Matthews Principal Executive Officer
/s/ Brian Stableford* Treasurer December 20, 1999
- -------------------------
Brian Stableford
/s/ John Dracott* Secretary December 20, 1999
- -------------------------
John Dracott
/s/ Robert K. Connolly* Trustee December 20, 1999
- -------------------------
Robert K. Connolly
/s/ Richard K. Lyons* Trustee December 20, 1999
- -------------------------
Richard K. Lyons
/s/ David FitzWilliam-Lay* Trustee December 20, 1999
- -------------------------
David FitzWilliam-Lay
/s/ Norman W. Berryessa* Trustee December 20, 1999
- -------------------------
Norman W. Berryessa
* By: /s/ Deborah Ann Potter, as Attorney-in-Fact and Agent pursuant to Power
of Attorney
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Page 8 of 9 pages.
<PAGE> 95
Matthews International Funds
Index to Exhibits
Item No. Description
99(d)(7) Investment Advisory Agreement
99(e)(1)(i) Amendment No. 1 to Underwriting Agreement
99(e)(1)(ii) Underwriting Agreement
99(h)(1)(iii) Amendment No. 3 to Investment Company Services Agreement
99(h)(1)(iv) Amendment to Investment Company Services Agreement
99(h)(2) Shareholder Services Agreement
99(i) Legal Opinion of Counsel
99(j)(i) Consent of Independent Auditors-Ernst & Young
99(j)(ii) Consent of Independent Auditors-Tait, Weller & Baker
99(m) 12b-1 Plan
99(n)(i) Multiple Class Plan
99(n)(ii) Amendment to Multiple Class Plan
- --------------------------------------------------------------------------------
Page 9 of 9 pages.
<PAGE> 1
Exhibit 99(d)(7)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 15th day of October by and between Matthews International
Funds, a Delaware Business Trust (the "Trust") and Matthews International
Capital Management, LLC, a Delaware limited liability company (the "Advisor").
1. DUTIES OF ADVISOR. The Trust hereby appoints the Advisor to act as investment
advisor to the Matthews Asian Technologies Fund (the "Series") for the period
and on such terms set forth in this Agreement. The Trust employs the Advisor to
manage the investment and reinvestment of the assets of the Series, to determine
in its discretion the assets to be held uninvested, to provide the Trust with
records concerning the Advisor's activities which the Trust is required to
maintain, and to render regular reports to the Trust's officers and Board of
Trustees concerning the Advisor's discharge of the foregoing responsibilities.
The Advisor shall discharge the foregoing responsibilities subject to the
control of the officers and the Board of Trustees of the Trust, and in
compliance with the objectives, policies and limitations set forth in the
Trust's Prospectus and Statement of Additional Information. The Advisor accepts
such employment and agrees to render the services and to provide, at its own
expense, the office space, furnishings, equipment and the personnel required by
it to perform the services on the terms and for the compensation provided
herein.
2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading
department. The Advisor shall select the brokers or dealers that will execute
the purchases and sales of securities for the Series and is directed to use its
best efforts to ensure that the best available price and most favorable
execution of securities transactions for the Series are obtained. The Series
will bear all expenses associated with its investment activities, including,
without limitation, brokerage commissions and custody expenses. Subject to
policies established by the Board of Trustees of the Trust and communicated to
the Advisor, it is understood that the Advisor will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or in respect of
the Series, or be in breach of any obligation owing to the Trust or in respect
of the Series under this Agreement, or otherwise, solely by reason of its having
caused the Series to pay a member of a securities exchange, a broker or a dealer
a commission for effecting a securities transaction for the Series in excess of
the amount of commission another member of an exchange, broker or dealer would
have charged if the Advisor determines in good faith that the commission paid
was reasonable in relation to the brokerage or research services provided by
such member, broker or dealer, viewed in terms of the particular transaction or
the Advisor's overall responsibilities with respect to the accounts, including
the Series, as to which it exercises investment discretion. The Advisor will
promptly communicate to the officers and directors of the Trust such information
relating to Series transactions as they may reasonably request.
3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor
as provided in Section 1 and 2 of this Agreement, the Series shall pay to the
Advisor within five business days after the end of each calendar month, a
monthly fee of one twelfth of 1.00% of the Series' average daily net assets for
the month. The net asset value shall be calculated in the manner provided in the
Series' prospectus and statement of additional information then in effect. The
Advisor may reduce any portion of the compensation or reimbursement of expenses
due to it pursuant to this Agreement. Any fee
<PAGE> 2
withheld pursuant to this paragraph from the Advisor shall be reimbursed by the
Series to the Advisor in the first, second or third (or any combination thereof)
fiscal year next succeeding the fiscal year of the withholding if the aggregate
expenses for the next succeeding fiscal year or second succeeding fiscal year or
third succeeding fiscal year do not exceed any more restrictive limitation to
which the Advisor has agreed. The Advisor generally may request and receive
reimbursement for the oldest reductions and waivers before payment for fees and
expenses for the current year.
In the event of termination of this Agreement, the fee provided in this Section
3 shall be paid on a pro rate basis, based on the number of days when this
Agreement was in effect.
4. REPORTS. The Series and the Advisor agree to finish to each other such
information regarding their operations with regard to their affairs as each may
reasonably request.
5. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be
deemed exclusive, and the Advisor shall be free to render similar services to
others so long as its services to the Series are not impaired thereby.
6. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard by the Advisor of its obligations and duties
hereunder, the Advisor shall not be subject to any liability whatsoever to the
Series, or to any shareholder of the Series, for any error of judgment, mistake
of law or any other act or omission in the course of, or connected with,
rendering services hereunder including, without limitation, for any losses that
may be sustained in connection with the purchase, holding, redemption or sale of
any security on behalf of the Series.
7. DURATION AND TERMINATION. This Agreement shall become effective on
__________________ provided that first it is approved by the Board of Trustees
of the Trust, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act")
and by the holders of a majority of the outstanding voting securities of the
Series; and shall continue in effect until ______________. Thereafter, this
Agreement may continue in effect only if such continuance is approved at least
annually by: (i) the Trust's Board of Trustees or, (ii) by the vote of a
majority of the outstanding voting securities of the Series; and in either event
by a vote of a majority of those trustees of the Trust who are not parties to
this Agreement or interested persons of any such party in the manner provided in
section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at
any time, without the payment of any penalty, by the Board of Trustees of the
Trust at any time, without the payment of any penalty, by the Board of Trustees
of the Trust or by vote of the holders of a majority of the outstanding voting
securities of the Series on 60 days' written notice to the Advisor. This
Agreement may be terminated by the Advisor at any time, without the payment of
any penalty, upon 60 days' written notice to the Trust. This Agreement will
automatically terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered or mailed postpaid,
to the other party at the principal office of such party.
As used in this Section 8, the terms "assignment" "interested person", and "a
vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
<PAGE> 3
8. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary
interest in the name "Matthews," and the Trust agrees to promptly take such
action as may be necessary to delete from its corporate name and/or the name of
the Series any reference to the name of the Advisor or the name "Matthews,"
promptly after receipt from the Advisor of a written request therefore.
9. SEVERABILITY. If any provisions of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
10. GOVERNING LAW. This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of ___ day of_______________.
ATTEST: MATTHEWS INTERNATIONAL FUNDS
/s/ Joseph O'Donnell /s/ G. Paul Matthews
- ---------------------- --------------------
Joseph O'Donnell G. Paul Matthews
Secretary President
ATTEST: MATTHEWS INTERNATIONAL
CAPITAL MANAGEMENT, LLC
/s/ Joseph O'Donnell /s/Mark W. Headley
- ---------------------- ------------------
Joseph O'Donnell Mark W. Headley
Secretary Managing Director
<PAGE> 1
Exhibit 99(e)(1)(i)
AMENDMENT NO. 1 TO UNDERWRITING AGREEMENT
This Amendment No. 1, dated as of the 15th day of October, 1999 made by
and between Matthews International Funds, a Delaware business trust (the
"Trust") operating as a registered investment company under the Investment
Company Act of 1940, as amended, and duly organized and existing under the laws
of the State of Delaware and First Data Distributors, Inc, ("FDDI"), a
Massachusetts corporation (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Parties are Parties to an Underwriting Agreement dated
January 1, 1999 (the "Agreement"), wherein FDDI agreed to provide certain
services to the Trust; and
WHEREAS, the Parties wish to amend the Agreement to provide for the
addition of a separate series of shares;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
1. The Agreement is hereby amended to add a new series, THE
MATTHEWS ASIAN TECHNOLOGY FUND, by replacing Schedule "C" of
the Agreement with the attached amended Schedule "C".
2. Except as specifically amended hereby, the Agreement shall not
be modified or amended and shall remain in full force and
effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment
consisting of one typewritten page, together with amended Schedule "C", to be
signed by their duly authorized officers as of the day and year first above
written.
Matthews International Funds First Data Distributors, Inc.
/s/ G. Paul Matthews /s/ Bruno DiStefano
-------------------- ------------------
By: G. Paul Matthews By: Bruno DiStefano
President
<PAGE> 2
Schedule B
Fee Schedule
For
Matthews International Funds
I. Fees related to Fund Administration, and Portfolio Valuation and Mutual Fund
Accounting: (1/12th payable monthly)
A. Subject to a minimum fee of $100,000 for each separate series of
shares of the Trust (except for the Matthews Japan Fund, which shall be
subject to a minimum fee of $40,000 so long as it does not offer
multiple classes of shares) and subject to the discount as set forth
below, the Trust agrees to pay Investor Services Group for services
related to Fund Administration, and Portfolio Valuation and Mutual Fund
Accounting at an annual rate of:
.00100 on the first $250 million of average net assets of each separate
series of shares
.00075 on the next $250 million of average net assets of each separate
series of shares
.00050 on the next $250 million of average net assets of each separate
series of shares
.00030 on average net assets of each separate series of shares in
excess of $750 million
During the period October 1, 1997 to July 31, 1998, the annual fees set
forth above are discounted on a monthly basis by 90% in the first
month, 80% in the second month, 70% in the third month 60% in the
fourth month, 50% in the fifth month, 40% in the sixth month, 30% in
the seventh month, 20% in the eighth month 10% in the ninth month and
the stated fees applying for the remaining term. In the event any
separate series of shares average net assets exceed $100mm, this
discount shall no longer apply and the stated fees shall apply. See
attachment outlining actual numerical fees.
B. PRICING SERVICES QUOTATION FEE
Specific costs will be identified based upon options selected by the
Trust and will be billed monthly.
Except for the Matthews Japan Fund, Investor Services Group does not
currently pass along the charges for the U.S. equity prices supplied by
Muller Data. Should the Series invest in security types other than
domestic equities supplied by Muller, the following fees would apply.
<TABLE>
<CAPTION>
------------------------------------------
Muller Interactive J.J.
Security Types Data Data Kenny
Corp.* Corp.* Co.,
Inc.*
------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Bonds $ .50 $ .50 $ .25 (a)
------------------------------------------------------------------------------
Mortgage-Backed (evaluated,
seasoned, closing) .50 .50 .25 (a)
------------------------------------------------------------------------------
Corporate Bonds (short and long
term) .50 .50 .25 (a)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
U.S. Municipal Bonds (short and
long term) .55 .80 .50 (b)
------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
----------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
CMO's/ARM's/ABS 1.00 .80 1.00 (a)
----------------------------------- ------------ -------------- --------------
Convertible Bonds .50 .50 1.00 (a)
----------------------------------- ------------ -------------- --------------
High Yield Bonds .50 .50 1.00 (a)
----------------------------------- ------------ -------------- --------------
Mortgage-Backed Factors (per
Issue per Month) 1.00 n/a n/a
----------------------------------- ------------ -------------- --------------
U.S. Equities .50 .15 n/a
----------------------------------- ------------ -------------- --------------
U.S. Options n/a .15 n/a
----------------------------------- ------------ -------------- --------------
Domestic Dividends & Capital
Changes
(per Issue per Month) (d) 3.50 n/a
----------------------------------- ------------ -------------- --------------
Foreign Securities .50 .50 n/a
----------------------------------- ------------ -------------- --------------
Foreign Securities Dividends &
Capital Changes
(per Issue per Month) 2.00 4.00 n/a
----------------------------------- ------------ -------------- --------------
Set-up Fees n/a n/a (e) .25 (c)
----------------------------------- ------------ -------------- --------------
All Added Items n/a n/a .25 (c)
----------------------------------- ------------ -------------- --------------
</TABLE>
* Based on current Vendor costs, subject to change. Costs are
quoted based on individual security CUSIP/identifiers and are
per issue per day.
(a) $35.00 per day minimum
(b) $25.00 per day minimum
(c) $ 1.00, if no cusip
(d) At no additional cost except for the Matthews Japan
Fund
(e) Interactive Data also charges monthly transmission
costs and disk storage charges.
1) Futures and Currency Forward Contracts $2.00 per
Issue per Day
2) Dow Jones Markets (formerly Telerate Systems, Inc.)*
(if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options
selected by the Trust and will be billed monthly.
3) Reuters, Inc.*
*Based on current vendor costs, subject to change.
Investor Services Group does not currently pass along
the charges for the domestic security prices supplied
by Reuters, Inc.
4) Municipal Market Data* (if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options
selected by the Trust and will be billed monthly.
II. Fees related to Shareholder Servicing
Subject to a minimum fee of $36,000 for each separate operating series
of shares of the Trust and $16,500 for each additional operating class
<PAGE> 4
of shares within each series, and subject to the discount as set forth
in section I.A. above, the Trust will be charged for maintenance of and
transactions in each shareholder account as follows:
A. ACCOUNT FEE: (1/12th payable monthly)
Annual/Semi Annual Dividend Fund: $10.00
Quarterly Dividend Fund 12.00
Monthly Dividend Fund 15.00
Daily Accrual Dividend Fund 18.00
Inactive Account 3.60
B. TRANSACTION CHARGES FOR EACH TRANSACTION IN AN INDIVIDUAL
ACCOUNT:
Master/Omnibus Subscription or Liquidation $1.00
Wire Order for each Broker Call 4.00
New Account Registration; electronic 0.40
New Account Registration; paper 5.00
Rule 12b-1 Plan Calculation 0.25
C. IRA'S, 403(b) PLANS, DEFINED CONTRIBUTION/BENEFIT PLANS:
Annual Maintenance Fee - $12.00/account per year (Normally
charged to participants)
<PAGE> 5
III. Fees related to Custody of Fund Assets using Bank of New York
A. DOMESTIC SECURITIES AND ADRS: (1/12th payable monthly)
U.S. Dollar Denominated Securities only
.00065 On the First $ 10 Million of Average Net Assets
.00035 On the Next $ 20 Million of Average Net Assets
.00025 On the Next $ 20 Million of Average Net Assets
.000175 On the Next $ 50 Million of Average Net Assets
.00015 On the Next $150 Million of Average Net Assets
.000125 Over $250 Million of Average Net Assets
Minimum monthly fee is $50 per portfolio for the Matthews
Japan Fund
B. CUSTODY DOMESTIC SECURITIES TRANSACTIONS CHARGE: (billed
monthly)
Book Entry DTC, Federal Book Entry, PTC $12.00
Physical/Options/GNMA/RIC's $24.00
Mortgage Backed Securities - Principal Pay Down $11.00
Per Pool
A transaction includes buys, sells, maturities or free
security movements.
C. WHEN ISSUED, SECURITIES LENDING, INDEX FUTURES, ETC.:
Should any investment vehicle require a separate segregated
custody account, a fee of $250 per account per month will
apply.
D. CUSTODY OF FOREIGN SECURITIES PER GLOBAL PORTFOLIO:
(Bank of New York Custody Schedule)
<PAGE> 6
==================================== ======================== ==================
Countries *Safekeeping Charges Transaction Fee
(BASIS POINTS) (USD)
------------------------ ------------------
Argentina 22 75
- ------------------------------------ ------------------------ ------------------
Australia 5 65
- ------------------------------------ ------------------------ ------------------
Austria 6 90
- ------------------------------------ ------------------------ ------------------
Bangladesh 50 180
- ------------------------------------ ------------------------ ------------------
Belgium (reg bds) 3.5 80
- ------------------------------------ ------------------------ ------------------
Belgium (equities and Cpn bds) 6 80
- ------------------------------------ ------------------------ ------------------
Brazil 35 40
- ------------------------------------ ------------------------ ------------------
Canada 3 20
- ------------------------------------ ------------------------ ------------------
Chile 35 65
- ------------------------------------ ------------------------ ------------------
China 25 30
- ------------------------------------ ------------------------ ------------------
Colombia 55 165
- ------------------------------------ ------------------------ ------------------
Czech Republic 28 65
- ------------------------------------ ------------------------ ------------------
Denmark 4.5 110
- ------------------------------------ ------------------------ ------------------
Euromarket (Cedel/Euroclear) 4 20
- ------------------------------------ ------------------------ ------------------
Finland 16 75
- ------------------------------------ ------------------------ ------------------
France 5 75
- ------------------------------------ ------------------------ ------------------
Germany 3 40
- ------------------------------------ ------------------------ ------------------
Greece 35 150
- ------------------------------------ ------------------------ ------------------
Hong Kong 13 75
- ------------------------------------ ------------------------ ------------------
Hungary 70 205
- ------------------------------------ ------------------------ ------------------
India 55 180**
- ------------------------------------ ------------------------ ------------------
Indonesia 15 115
- ------------------------------------ ------------------------ ------------------
Ireland 4.5 55
- ------------------------------------ ------------------------ ------------------
Israel 80 60
- ------------------------------------ ------------------------ ------------------
Italy 5 95
==================================== ======================== ==================
<PAGE> 7
==================================== ======================== ==================
Countries *Safekeeping Charges Transaction Fee
(BASIS POINTS) (USD)
- ------------------------------------ ------------------------ ------------------
Japan 5 15
- ------------------------------------ ------------------------ ------------------
Luxembourg 10 85
- ------------------------------------ ------------------------ ------------------
Malaysia 13 115
- ------------------------------------ ------------------------ ------------------
Mexico (bonds) 15 30
- ------------------------------------ ------------------------ ------------------
Netherlands 8 17
- ------------------------------------ ------------------------ ------------------
New Zealand 4.5 90
- ------------------------------------ ------------------------ ------------------
Norway 4 90
- ------------------------------------ ------------------------ ------------------
Pakistan 45 170
- ------------------------------------ ------------------------ ------------------
Peru 80 195
- ------------------------------------ ------------------------ ------------------
Philippines 16.5 125
- ------------------------------------ ------------------------ ------------------
Poland 60 155
- ------------------------------------ ------------------------ ------------------
Portugal 35 145
- ------------------------------------ ------------------------ ------------------
Singapore 10 60
- ------------------------------------ ------------------------ ------------------
South Africa 3 40
- ------------------------------------ ------------------------ ------------------
South Korea 16 30
- ------------------------------------ ------------------------ ------------------
Spain 6 55
- ------------------------------------ ------------------------ ------------------
Sweden 4 65
- ------------------------------------ ------------------------ ------------------
Switzerland 4.5 105
- ------------------------------------ ------------------------ ------------------
Taiwan 21 115
- ------------------------------------ ------------------------ ------------------
Thailand 7 50
- ------------------------------------ ------------------------ ------------------
Turkey 35 105
- ------------------------------------ ------------------------ ------------------
United Kingdom 4 40
- ------------------------------------ ------------------------ ------------------
United Kingdom (gilts) 5 55
- ------------------------------------ ------------------------ ------------------
Uruguay (Equities) 65 90
- ------------------------------------ ------------------------ ------------------
Uruguay (bonds) 45 90
- ------------------------------------ ------------------------ ------------------
Venezuela 55 180
==================================== ======================== ==================
Chart Notes:
* Fee expressed in basis points per annum is calculated based upon month-end
market value
** Transaction charge is per 10,000 shares or part thereof
<PAGE> 8
A transaction includes buys, sells, maturities or Free
Security movements
Global Network Usage Fee:
$500 per portfolio per month
Minimum charges imposed by Agent Banks/Local Administrators:
Chile USD 5,000 per annum
Columbia USD 600 per month
Peru USD 6,000 per annum per account
Brazil USD 15 basis points for annual administrative
charge
Taiwan USD 3,000 account opening charge
E. CUSTODY MISCELLANEOUS FEES:
Administrative fees incurred in certain local markets will be
passed onto the customer with a detailed description of the
fees. Fees include income collection, corporate action
handling, overdraft charges, funds transfer, special local
taxes, stamp duties, registration fees, messenger and courier
services and other out-of-pocket expenses.
IV. Out-of-Pocket Expenses
The Trust will reimburse Investor Services Group monthly for all reasonable
out-of-pocket expenses, including telephone, postage, EDGAR filings, Fund/SERV
and Networking expenses, incoming wire charges, telecommunications, special
reports, record retention, special transportation costs, copying and sending
materials to auditors and/or regulatory agencies as incurred and approved.
V. Additional Services
To the extent the Trust commences investment techniques such as Security
Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or
foreign currency futures and options, additional fees will apply. Activities of
a non-recurring nature such as shareholder in-kinds, fund consolidations,
mergers or reorganizations will be subject to negotiation. Any
additional/enhanced services, programming requests, or reports will be quoted
upon request.
VI. Allocation of Fees
Notwithstanding the foregoing, the total of all fees payable under this
Agreement shall be prorated on the basis of each series and/or class average net
assets.
<PAGE> 9
Schedule "C"
(as amended ________, 1999)
IDENTIFICATION OF SERIES
Below are listed the separate funds to which services under this Agreement are
to be performed as of the Execution Date of this Agreement:
Matthews International Funds
----------------------------
Matthews Asian Growth and Income Fund - Class I
MATTHEWS ASIAN TECHNOLOGY FUND - CLASS I
Matthews Dragon Century China Fund - Class A and Class I
Matthews Korea Fund - Class A and Class I
Matthews Japan Fund - Class I
Matthews Pacific Tiger Funds - Class A and Class I
This Schedule "C" may be amended from time to time by agreement of the Parties.
<PAGE> 1
Exhibit 99(e)(1)(ii)
UNDERWRITING AGREEMENT
This Agreement, dated as of December 1, 1999, is made by and between
Matthews International Funds, a Delaware business trust (the "Fund") operating
as an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"), and Provident Distributors, Inc.
("PDI"), a corporation duly organized and existing under the laws of the State
of Delaware (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Fund is authorized to issue separate series of shares
representing interests in separate investment portfolios (the "Series"), which
Series are identified on Schedule "A" attached hereto, and which Schedule "A"
may be amended from time to time by mutual agreement among the Parties; and
WHEREAS, PDI is a broker-dealer registered with the U.S. Securities and
Exchange Commission (the "SEC") and a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Parties are desirous of entering into an agreement
providing for the distribution by PDI of the shares of the Fund (the "Shares").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
1. APPOINTMENT
The Fund hereby appoints PDI as its principal agent for the
distribution of the Shares, and PDI hereby accepts such appointment
under the terms of this Agreement. The Fund agrees that it will not
sell any Shares to any person except to fill orders for the Shares
received through PDI, provided, however, that the foregoing exclusive
right shall not apply to: (a) Shares issued or sold in connection with
the merger or consolidation of any other investment company with the
Fund or the acquisition by purchase of otherwise of all or
substantially all of the assets of any investment company or
substantially all of the outstanding shares of any such company by the
Fund; (b) Shares which may be offered by the Fund to its stockholders
for reinvestment of cash distributed from capital gains or net
investment income of the Fund; or (c) Shares which may be issued to
shareholders of other funds who exercise any exchange privilege set
forth in the Fund's Prospectus. Notwithstanding any other provision
hereof, the Fund may terminate, suspend, or withdraw the offering of
the Shares
-1-
<PAGE> 2
whenever, in their sole discretion, they deem such action to be
desirable.
2. SALE AND REPURCHASE OF SHARES
(a) PDI is hereby granted the right, as agent for the Fund, to
sell Shares to the public against orders received at the
public offering price as defined in the Fund's Prospectus and
Statement of Additional Information.
(b) PDI will also have the right to take, as agent for the Fund,
all actions which, in PDI's judgment, and subject to the
Fund's reasonable approval, are necessary to carry into effect
the distribution of the Shares.
(c) PDI will act as agent for the Fund in connection with the
repurchase of Shares by the Fund upon the terms set forth in
the Fund's Prospectus and Statement of Additional Information.
(d) The net asset value of the Shares shall be determined in the
manner provided in the then current Prospectus and Statement
of Additional Information relating to the Shares, and when
determined shall be applicable to all transactions as provided
in the Prospectus. The net asset value of the Shares shall be
calculated by the Fund or by another entity on behalf of the
Fund. PDI shall have no duty to inquire into, or liability
for, the accuracy of the net asset value per Share as
calculated.
(e) On every sale, PDI shall promptly pay to the Fund the
applicable net asset value of the Shares.
(f) Upon receipt of purchase instructions, PDI will transmit such
instructions to the Fund or its transfer agent for
registration of the Shares purchased.
(g) Nothing in this Agreement shall prevent PDI or any affiliated
person (as defined in the Act) of PDI from acting as
underwriter for any other person, firm or corporation
(including other investment companies), or in any way limit or
restrict PDI or such affiliated person from buying, selling or
trading any securities for its or their own account or for the
account of others for whom it or they may be acting, provided,
however, that PDI expressly agrees that it will not for its
own account purchase any Shares of the Fund except for
investment purposes, and that it will not for its own account
dispose of any such Shares except by redemption of such Shares
with the Fund, and that it will not undertake in any
activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this
Agreement.
3. RULES OF SALE OF SHARES
-2-
<PAGE> 3
PDI does not agree to sell any specific number of Shares and serves
only in the capacity of Statutory Underwriter. The Fund reserves the
right to terminate, suspend or withdraw the sale of its Shares for any
reason deemed adequate by it, and the Fund reserves the right to refuse
at any time or times to sell any of its Shares to any person for any
reason deemed adequate by it.
4. RULES OF NASD, ETC.
(a) PDI will conform to the Conduct Rules of the NASD and the
securities laws of any jurisdiction in which it directly or
indirectly sells any Shares.
(b) PDI will require each dealer with whom PDI has a selling
agreement to conform to the applicable provisions of the
Prospectus, with respect to the public offering price of the
Shares, and PDI shall not cause the Fund to withhold the
placing of purchase orders so as to make a profit thereby.
(c) The Fund agrees to furnish PDI sufficient copies of any and
all: agreements, plans, communications with the public or
other materials which the Fund intends to use in connection
with any sales of Shares, in adequate time for PDI to file and
clear such materials with the proper authorities before they
are put in use. PDI and the Fund may agree that any such
material does not need to be filed prior to distribution. In
addition, the Fund agrees not to use any such materials until
so filed and cleared for use, if required, by appropriate
authorities as well as by PDI.
(d) PDI, at its own expense, will qualify as a dealer or broker,
or otherwise, under all applicable state or federal laws
required in order that the Shares may be sold in such states
as may be mutually agreed upon by the Parties.
(e) PDI shall remain registered with the SEC and a member of the
NASD for the term of this Agreement.
(f) PDI shall not, in connection with any sale or solicitation of
a sale of the Shares, make or authorize any representative,
service organization, broker or dealer to make any
representations concerning the Shares, except those contained
in the Prospectus offering the Shares and in communications
with the public or sales materials approved by PDI as
information supplemental to such Prospectus. Copies of the
Prospectus will be supplied by the Fund to PDI in reasonable
quantities upon request.
(g) PDI shall only be authorized to make representations in
respect of the Fund consistent with the then current
Prospectus, Statement of Additional Information, and other
written information provided by the Fund or its agents to be
used explicitly with respect to the sale of Shares.
-3-
<PAGE> 4
5. RECORDS TO BE SUPPLIED BY THE FUND
The Fund shall furnish to PDI copies of all information, financial
statements and other papers which PDI may reasonably request for use in
connection with the underwriting of the Shares including, but not
limited to, one certified copy of all financial statements prepared for
the Fund by its independent public accountants.
6. EXPENSES
(a) The Fund will bear the following expenses:
(i) reparation, setting in type, and printing of
sufficient copies of the Prospectus and Statement of
Additional Information for distribution to
shareholders, and the cost of distribution of same to
the shareholders;
(ii) preparation, printing and distribution of reports and
other communications to shareholders;
(iii) registration of the Shares under the federal
securities laws;
(iv) qualification of the Shares for sale in the
jurisdictions as directed by the Fund;
(v) maintaining facilities for the issue and transfer of
the Shares;
(vi) supplying information, prices and other data to be
furnished by the Fund under this Agreement; and
(vii) any original issue taxes or transfer taxes applicable
to the sale or delivery of the Shares or certificates
therefor.
(b) PDI agrees to pay all of its own expenses in performing its
obligations hereunder.
7. TERM
(a) The term of this Agreement shall commence immediately upon the
consummation of the acquisition of First Data Investor
Services Group, Inc. by a subsidiary of PNC Bank Corp., which
the parties anticipate to occur on or about December 1, 1999
(the "Effective Date").
(b) This Agreement shall remain in effect for one (1) year from
the Effective Date. This Agreement shall continue thereafter
for periods not exceeding one (1) year, if approved at least
annually (i) by a vote of a majority of the outstanding voting
securities of each Series, or (ii) by
-4-
<PAGE> 5
a vote of a majority of the Board Members of the Fund who are
not parties to this Agreement (other than as Board Members of
the Fund) or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such
approval.
(c) This Agreement (i) may be terminated at any time without the
payment of any penalty, either by a vote of the Trustees of
the Fund or by a vote of a majority of the outstanding voting
securities of each Series with respect to such Series, on
sixty (60) days' written notice to PDI; and (ii) may be
terminated by PDI on sixty (60) days' written notice to the
Fund with respect to any Series.
(d) This Agreement shall automatically terminate in the event of
its assignment, as defined in the Act.
8. LIABILITY OF PDI
(a) PDI, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in
connection with the performance of this Agreement, except a
loss resulting from a breach of PDI's obligations pursuant to
Section 4 of this Agreement (Rules of NASD), a breach of
fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of PDI in the
performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under this
Agreement. PDI agrees to indemnify and hold harmless the Fund
and each person who has been, is, or may hereafter be a
Trustee, officer, or employee of the Fund against expenses
reasonably incurred by any of them in connection with any
claim or in connection with any action, suit, or proceeding to
which any of them may be a party, which arises out of or is
alleged to arise out of any misrepresentation or omission to
state a material fact, on the part of PDI or any agent of
employee of PDI or any of the persons for whose acts PDI is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon
written information furnished to PDI by the Fund. PDI also
agrees to indemnify and hold harmless the Fund and each such
person in connection with any claim or in connection with any
action, suit, or proceeding which arises out of or is alleged
to arise out of PDI's failure to exercise reasonable care and
diligence with respect to its services rendered in connection
with the purchase and sale of Shares. The foregoing rights of
indemnification shall be in addition to any other rights to
which the Fund or any such person shall be entitled to as a
matter of law.
(b) The Fund agrees to indemnify and hold harmless PDI against any
and all liability, loss, damages, costs of expenses
-5-
<PAGE> 6
(including reasonable counsel fees) which PDI may incur or be
required to pay hereafter, in connection with any action, suit
or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which PDI may
be involved as a party or otherwise or with which PDI may be
threatened, by reason of the offer or sale of the Fund's
Shares by persons other than PDI or its representatives, prior
to the execution of this Agreement. If a claim is made against
PDI as to which PDI may seek indemnity under the Section, PDI
shall notify the Fund promptly after any written assertion of
such claim threatening to institute an action or proceeding
with respect thereto and shall notify the Fund promptly of any
action commenced against PDI within 10 days time after PDI
shall have been served with a summons or other legal process,
giving information as to the nature and basis of the claim.
Failure to notify the Fund shall not, however, relieve the
Fund from any liability which it may have on account of the
indemnity under this Section 8(b) if the Fund has not been
prejudiced in any material respect by such failure. The Fund
shall have the sole right to control the settlement of any
such action, suit or proceeding subject to PDI approval, which
shall not be unreasonably withheld. PDI shall have the right
to participate in the defense of an action or proceeding and
to retain its own counsel, and the reasonable fees and
expenses of such counsel shall be borne by the Fund (which
shall pay such fees, costs and expenses at least quarterly)
if:
(i) PDI has received an opinion of counsel
stating that the use of counsel chosen by
the Fund to represent PDI would present such
counsel with a conflict of interest:
(ii) the defendants in, or targets of, any such
action or proceeding include both PDI and
the Fund, and legal counsel to PDI shall
have reasonably concluded that there are
legal defenses available to it which are
different from or additional to those
available to the trust or which may be
adverse to or inconsistent with defenses
available to the Fund (in which case the
Fund shall not have the right to direct the
defense of such action on behalf of PDI); or
(iii) the Fund shall authorize PDI to employ
separate counsel at the expense of the Fund.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of PDI who may be or become an officer,
director, trustee, employee or agent of the Fund, shall be
deemed, when rendering services to the Fund or acting on any
business of the Fund (other than services or business in
connection with PDI's duties hereunder), to be rendering
-6-
<PAGE> 7
such services to or acting solely for the Fund and not as a
director, officer, employee, shareholder or agent, or one
under the control or direction of PDI even though receiving a
salary from PDI.
(d) The Fund agrees to indemnify and hold harmless PDI, and each
person who controls PDI within the meaning of Section 15 of
the Securities Act of 1933, as amended (the "Securities Act"),
or Section 20 of the Securities Exchange Act of 1934, s
amended (the "Exchange Act"), against any and all losses,
claims, damages and liabilities, joint or several (including
any reasonable investigative, legal and other expenses
incurred in connection therewith) to which they, or any of
them, may become subject under the Act, the Securities Act,
the Exchange Act or other federal or state law or regulations,
at common law or otherwise insofar as such losses, claims,
damages or liabilities (or actions, suits or proceedings in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
contained in a Prospectus, Statement of Additional
Information, supplement thereto, sales literature (or other
written information) prepared by the Fund and furnished by the
Fund to PDI for PDI's use hereunder, disseminated by the trust
or which arise out of or are based upon any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading.
Such indemnity shall not, however, inure to the benefit of PDI
(or any person controlling PDI) on account of any losses,
claims, damages or liabilities (or actions, suits or
proceedings in respect thereof) arising from the sale of the
Shares of the Fund to any person by PDI (i) if such untrue
statement or omission or alleged untrue statement or omission
was made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in
reliance upon and in conformity with information furnished in
writing to the Fund by PDI specifically for use therein or
(ii) if such losses, claims, damages or liabilities arise out
of or are based upon an untrue statement or omission or
alleged untrue statement or omission found in any Prospectus,
Statement of Additional Information, supplement, sales or
other literature, subsequently corrected, but negligently
distributed by PDI and a copy of the corrected Prospectus was
not delivered to such person at or before the confirmation of
the sale to such person
(e) PDI shall not be responsible for any damages, consequential or
otherwise, which the Fund may experience, due to the
disruption of the distribution of Shares caused by any action
or inaction of any registered representative or affiliate of
PDI or of PDI itself.
-7-
<PAGE> 8
(f) Notwithstanding anything in this Agreement to the contrary, in
no event shall any party to this Agreement, its affiliates or
any of its or their directors, trustees, officers, employees,
agents or subcontractors be liable for lost profits,
exemplary, punitive, special, incidental, indirect or
consequential damages.
9. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
whatsoever, except by a written agreement properly authorized and
executed by the Parties.
10. SECTION HEADINGS
Section and paragraph headings are for convenience only and shall not
be construed as part of this Agreement.
11. REPORTS
PDI shall prepare reports for the Board of the Fund, on a quarterly
basis, showing such information as, from time to time, shall be
reasonably requested by the Board.
12. SEVERABILITY
If any part, term or provision of this Agreement is held by any court
to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not
affected, and the rights and obligations of the Parties shall be
construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid
provided that the basic agreement is not thereby substantially
impaired.
13. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Delaware
and the exclusive venue of any action arising under this Agreement
shall be the City of Wilmington, State of Delaware.
14. AUTHORITY TO EXECUTE
The Parties represent and warrant to each other that the execution and
delivery of this Agreement by the undersigned officer of each Party has
been duly and validly authorized; and, when duly executed, this
Agreement will constitute a valid and legally binding and enforceable
obligation of each Party.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed
by their duly authorized officer, of the day and year first above written.
PROVIDENT DISTRIBUTORS, INC.
/s/ Philip H. Rinnander
-------------------
By: Philip H. Rinnander
Title: President
MATTHEWS INTERNATIONAL FUNDS
/s/ G. Paul Matthews
----------------
By: G. Paul Matthews
Title:President
-9-
<PAGE> 10
SCHEDULE A
IDENTIFICATION OF SERIES
Below are listed the Series and Classes of Shares to which services under this
Agreement are to be performed as of the Effective Date of this Agreement:
Matthews Pacific Tiger Fund - Class A & Class I
Matthews Asian Growth & Income Fund
Matthews Korea Fund - Class A & Class I
Matthews Dragon Century China Fund - Class A & I
Matthews Japan Fund
Matthews Asian Technology Fund
This Schedule "A" may be amended from time to time by agreement of the Parties.
-10-
<PAGE> 1
Exhibit 99(h)(1)(iii)
AMENDMENT NO.3 TO INVESTMENT COMPANY SERVICES AGREEMENT
This Amendment No. 3, dated as of the 15th day of October, 1999 made by
and between Matthews International Funds, a Delaware business trust (the
"Trust") operating as a registered investment company under the Investment
Company Act of 1940, as amended, and duly organized and existing under the laws
of the State of Delaware and First Data Investor Services Group, Inc. ("Investor
Services Group"), a Massachusetts corporation (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Parties originally entered into an Investment Company
Services Agreement dated October 1, 1997 (the "Agreement"), wherein Investor
Services Group agreed to provide certain services to the Trust; and
WHEREAS, the Parties wish to amend the Agreement to provide of the
addition of a separate series of shares;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
1. To the amendment of Schedule "B" as attached; and
2. The addition of the MATTHEWS ASIAN TECHNOLOGY FUND as set
forth on the attached amended Schedule "C".
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of one typewritten page, together with amended Schedules "B" and "C",
to be signed by their duly authorized officers as of the day and year first
above written.
Matthews International Funds First Data Investor Services Group, Inc.
/s/ G. Paul Matthews /s/ Kenneth J. Kempf
- -------------------- --------------------
By: G. Paul Matthews, President By:Kenneth J. Kempf, Senior Vice
President
<PAGE> 2
Schedule B
(as amended _____, 1999)
Fee Schedule
For
Matthews International Funds
I. Fees related to Fund Administration, and Portfolio Valuation and Mutual
Fund Accounting: (1/12th payable monthly)
A. Subject to a minimum fee of $100,000 for each separate series of
shares of the Trust (except for the Matthews Japan Fund and the
Matthews Asian Technology Fund which shall each be subject to a minimum
fee of $50,000 so long as they do not offer multiple classes of shares)
and subject to the discount as set forth below, the Trust agrees to pay
Investor Services Group for services related to Fund Administration,
and Portfolio Valuation and Mutual Fund Accounting at an annual rate
of:
.00100 on the first $250 million of average net assets of each separate
series of shares
.00075 on the next $250 million of average net assets of each separate
series of shares
.00050 on the next $250 million of average net assets of each separate
series of shares
.00030 on average net assets of each separate series of shares in
excess of $750 million
During the period October 1, 1997 to July 31, 1998, the annual fees set
forth above are discounted on a monthly basis by 90% in the first
month, 80% in the second month, 70% in the third month 60% in the
fourth month, 50% in the fifth month, 40% in the sixth month, 30% in
the seventh month, 20% in the eighth month 10% in the ninth month and
the stated fees applying for the remaining term. In the event any
separate series of shares average net assets exceed $100mm, this
discount shall no longer apply and the stated fees shall apply.
B. Pricing Services Quotation Fee
Actual out of pocket costs for vendor pricing feeds costs will be
identified based upon options selected by the Trust and will be billed
monthly. These vendor fees include, but are not limited to per day/per
CUSIP minimums, vendor monthly transmission charges and disk storage
charges. These caosts are subject to change by the vendor.
In addition, Investor Services Group charges $2.00 per issue per day
for Futures and Currency Forward Contracts.
II. Fees related to Shareholder Servicing
Subject to a minimum fee of $36,000 for each separate operating series
of shares of the Trust and $16,500 for each additional operating class
of shares within each series, and subject to the discount as set forth
<PAGE> 3
in section I.A. above, the Trust will be charged for maintenance of and
transactions in each shareholder account as follows:
A. ACCOUNT FEE: (1/12th payable monthly)
Annual/Semi Annual Dividend Fund: $10.00
Quarterly Dividend Fund 12.00
Monthly Dividend Fund 15.00
Daily Accrual Dividend Fund 18.00
Inactive Account 3.60
B. TRANSACTION CHARGES FOR EACH TRANSACTION IN AN INDIVIDUAL
ACCOUNT:
Master/Omnibus Subscription or Liquidation $1.00
Wire Order for each Broker Call 4.00
New Account Registration; electronic 0.40
New Account Registration; paper 5.00
Rule 12b-1 Plan Calculation 0.25
C. IRA'S, 403(b) PLANS, DEFINED CONTRIBUTION/BENEFIT PLANS:
Annual Maintenance Fee - $12.00/account per year (Normally
charged to participants)
III. Fees related to Custody of Fund Assets using Bank of New York
A. DOMESTIC SECURITIES AND ADRS: (1/12th payable monthly) U.S.
Dollar Denominated Securities only
.00065 On the First $ 10 Million of Average Net Assets
.00035 On the Next $ 20 Million of Average Net Assets
.00025 On the Next $ 20 Million of Average Net Assets
.000175 On the Next $ 50 Million of Average Net Assets
.00015 On the Next $150 Million of Average Net Assets
.000125 Over $250 Million of Average Net Assets
Minimum monthly fee is $50 per portfolio for the Matthews
Japan Fund
B. CUSTODY DOMESTIC SECURITIES TRANSACTIONS CHARGE: (billed
monthly)
Book Entry DTC, Federal Book Entry, PTC $12.00
Physical/Options/GNMA/RIC's $24.00
Mortgage Backed Securities - Principal Pay Down Per
Pool $11.00
A transaction includes buys, sells, maturities or free
security movements.
<PAGE> 4
C. WHEN ISSUED, SECURITIES LENDING, INDEX FUTURES, ETC.:
Should any investment vehicle require a separate segregated
custody account, a fee of $250 per account per month will
apply.
D. CUSTODY OF FOREIGN SECURITIES PER GLOBAL PORTFOLIO:
(Bank of New York Custody Schedule)
<PAGE> 5
=================================== ===================== ====================
Countries *Safekeeping Charges Transaction Fee
(BASIS POINTS) (USD)
--------------------- --------------------
Argentina 22 75
- ----------------------------------- --------------------- --------------------
Australia 5 65
- ----------------------------------- --------------------- --------------------
Austria 6 90
- ----------------------------------- --------------------- --------------------
Bangladesh 50 180
- ----------------------------------- --------------------- --------------------
Belgium (reg bds) 3.5 80
- ----------------------------------- --------------------- --------------------
Belgium (equities and Cpn bds) 6 80
- ----------------------------------- --------------------- --------------------
Brazil 35 40
- ----------------------------------- --------------------- --------------------
Canada 3 20
- ----------------------------------- --------------------- --------------------
Chile 35 65
- ----------------------------------- --------------------- --------------------
China 25 30
- ----------------------------------- --------------------- --------------------
Colombia 55 165
- ----------------------------------- --------------------- --------------------
Czech Republic 28 65
- ----------------------------------- --------------------- --------------------
Denmark 4.5 110
- ----------------------------------- --------------------- --------------------
Euromarket (Cedel/Euroclear) 4 20
- ----------------------------------- --------------------- --------------------
Finland 16 75
- ----------------------------------- --------------------- --------------------
France 5 75
- ----------------------------------- --------------------- --------------------
Germany 3 40
- ----------------------------------- --------------------- --------------------
Greece 35 150
- ----------------------------------- --------------------- --------------------
Hong Kong 13 75
- ----------------------------------- --------------------- --------------------
Hungary 70 205
- ----------------------------------- --------------------- --------------------
India 55 180**
- ----------------------------------- --------------------- --------------------
Indonesia 15 115
- ----------------------------------- --------------------- --------------------
Ireland 4.5 55
- ----------------------------------- --------------------- --------------------
Israel 80 60
- ----------------------------------- --------------------- --------------------
Italy 5 95
=================================== ===================== ====================
<PAGE> 6
=================================== ===================== ====================
Countries *Safekeeping Charges Transaction Fee
(BASIS POINTS) (USD)
- ----------------------------------- --------------------- --------------------
Japan 5 15
- ----------------------------------- --------------------- --------------------
Luxembourg 10 85
- ----------------------------------- --------------------- --------------------
Malaysia 13 115
- ----------------------------------- --------------------- --------------------
Mexico (bonds) 15 30
- ----------------------------------- --------------------- --------------------
Netherlands 8 17
- ----------------------------------- --------------------- --------------------
New Zealand 4.5 90
- ----------------------------------- --------------------- --------------------
Norway 4 90
- ----------------------------------- --------------------- --------------------
Pakistan 45 170
- ----------------------------------- --------------------- --------------------
Peru 80 195
- ----------------------------------- --------------------- --------------------
Philippines 16.5 125
- ----------------------------------- --------------------- --------------------
Poland 60 155
- ----------------------------------- --------------------- --------------------
Portugal 35 145
- ----------------------------------- --------------------- --------------------
Singapore 10 60
- ----------------------------------- --------------------- --------------------
South Africa 3 40
- ----------------------------------- --------------------- --------------------
South Korea 16 30
- ----------------------------------- --------------------- --------------------
Spain 6 55
- ----------------------------------- --------------------- --------------------
Sweden 4 65
- ----------------------------------- --------------------- --------------------
Switzerland 4.5 105
- ----------------------------------- --------------------- --------------------
Taiwan 21 115
- ----------------------------------- --------------------- --------------------
Thailand 7 50
- ----------------------------------- --------------------- --------------------
Turkey 35 105
- ----------------------------------- --------------------- --------------------
United Kingdom 4 40
- ----------------------------------- --------------------- --------------------
United Kingdom (gilts) 5 55
- ----------------------------------- --------------------- --------------------
Uruguay (Equities) 65 90
- ----------------------------------- --------------------- --------------------
Uruguay (bonds) 45 90
- ----------------------------------- --------------------- --------------------
Venezuela 55 180
- ----------------------------------- --------------------- --------------------
Chart Notes:
* Fee expressed in basis points per annum is calculated based upon month-end
market value
** Transaction charge is per 10,000 shares or part thereof
<PAGE> 7
A transaction includes buys, sells, maturities or Free
Security movements
Global Network Usage Fee: $500 per portfolio per month
Minimum charges imposed by Agent Banks/Local Administrators:
Chile USD 5,000 per annum
Columbia USD 600 per month
Peru USD 6,000 per annum per account
Brazil USD 15 basis points for annual administrative charge
Taiwan USD 3,000 account opening charge
E. CUSTODY MISCELLANEOUS FEES:
Administrative fees incurred in certain local markets will be
passed onto the customer with a detailed description of the
fees. Fees include income collection, corporate action
handling, overdraft charges, funds transfer, special local
taxes, stamp duties, registration fees, messenger and courier
services and other out-of-pocket expenses.
IV. Out-of-Pocket Expenses
The Trust will reimburse Investor Services Group monthly for all reasonable
out-of-pocket expenses, including telephone, postage, EDGAR filings, Fund/SERV
and Networking expenses, incoming wire charges, telecommunications, special
reports, record retention, special transportation costs, copying and sending
materials to auditors and/or regulatory agencies as incurred and approved.
V. Additional Services
To the extent the Trust commences investment techniques such as Security
Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or
foreign currency futures and options, additional fees will apply. Activities of
a non-recurring nature such as shareholder in-kinds, fund consolidations,
mergers or reorganizations will be subject to negotiation. Any
additional/enhanced services, programming requests, or reports will be quoted
upon request.
VI. Allocation of Fees
Notwithstanding the foregoing, the total of all fees payable under this
Agreement shall be prorated on the basis of each series and/or class average net
assets.
<PAGE> 8
Schedule "C"
(as amended _____, 1999)
IDENTIFICATION OF FUNDS
-----------------------
Below are listed the separate funds to which services under this Agreement are
to be performed as of the Execution Date of this Agreement:
Matthews International Funds
----------------------------
Matthews Asian Growth and Income Fund - Class I
MATTHEWS ASIAN TECHNOLOGY FUND - CLASS I
Matthews Dragon Century China Fund - Class A and Class I
Matthews Korea Fund - Class A and Class I
Matthews Japan Fund - Class I
Matthews Pacific Tiger Funds - Class A and Class I
This Schedule "C" may be amended from time to time by agreement of the Parties.
<PAGE> 1
Exhibit 99(h)(1)(iv)
AMENDMENT TO
INVESTMENT COMPANY SERVICES AGREEMENT
This Amendment dated as of December 1, 1999, is entered into by
MATTHEWS INTERNATIONAL FUNDS (the "Company") and FIRST DATA INVESTOR SERVICES
GROUP, INC. ("Investor Services Group"), the successor in interest to FPS
Services, Inc. ("FPS").
WHEREAS, the Company and FPS entered into an Investment Company
Services Agreement dated as of October 1, 1997, which agreement was assigned to
Investor Services Group effective February 23, 1998 (as amended and
supplemented, the "Agreement"); and
WHEREAS, the Company and Investor Services Group wish to amend the
Agreement to revise the description of services to be provided by Investor
Services Group to the Company and related matters;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:
I. The following is hereby added to Schedule A of the Agreement:
SALES SUPPORT SERVICES
- Sales literature review and recommendations for compliance with NASD
and SEC rules and regulations
- Preparation of training materials for use by personnel of the Company
or the Adviser
- Preparation of ongoing compliance updates
- Coordination of registration of the Fund with National Securities
Clearing Corp. ("NSCC") and filing required Fund/SERV reports with
NSCC
- Provision of advice and counsel to the Company with respect to
regulatory matters, including monitoring regulatory and legislative
developments that may affect the Company
- Assistance in the preparation of quarterly board materials with
regard to sales and other distribution related data reasonably
requested by the board
II. This Amendment shall become effective immediately upon the
consummation of the acquisition of Investor Services Group by a subsidiary of
PNC Bank Corp., which the parties anticipate to occur on or about December 1,
1999.
III. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.
MATTHEWS INTERNATIONAL FUNDS
By: /s/ G.Paul Matthews
--------------------
G.Paul Mtthews
President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ James L. Fox
-----------------
James L. Fox
President
<PAGE> 1
Exhibit 99(h)(2)
MATTHEWS INTERNATIONAL FUNDS
SHAREHOLDER SERVICES AGREEMENT
THIS SHAREHOLDER SERVICES AGREEMENT (this "Agreement") is made as of the 17th
day of April, 1998 by and between MATTHEWS INTERNATIONAL FUNDS, a business trust
organized under the laws of the State of Delaware (the "Trust"), and MATTHEWS
INTERNATIONAL CAPITAL MANAGEMENT LLC (the "Adviser").
WITNESSETH
WHEREAS, the Trust is registered as open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust, on behalf of certain series of the Trust listed on EXHIBIT A
hereto, as the same may be amended from time to time (each, a "Fund"), wishes to
retain the Adviser to coordinate the provision of services to shareholders of
the Funds, either by the Adviser directly or by broker-dealers, retirement plan
administrators, and other shareholder service providers ("Service Providers"),
which may include affiliates of the Adviser, and the Adviser is willing to
furnish those services and to arrange for the provision of those services,
subject to the oversight of the Trust's Board of Trustees.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust, on behalf of the Funds, hereby appoints the Adviser
to provide the shareholder services specified in Section 2 to all shareholders
of the Funds, some of whom may be client of the Service Providers. The Adviser
accepts the appointment and agrees to furnish through its own organization, or
through the Service Providers, as the case may be, those shareholder services in
return for compensation as provided in Section 6 of this Agreement. The Adviser
agrees that the shareholder services required to be furnished hereunder shall be
furnished in compliance with all relevant provisions of state and federal law,
and in compliance with all applicable rules and regulations of all relevant
regulatory agencies, including, without limitation, the 1940 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the applicable rules and
regulations promulgated thereunder, and the conduct Rules of the National
Association of Securities Dealers, Inc.
2. SERVICES AND RESPONSIBILITIES ON A CONTINUING BASIS. The Adviser will arrange
for the provision of the following shareholder services on a regular basis which
shall be daily, weekly, or as otherwise appropriate, unless otherwise specified
by this Trust:
(a) responding to shareholder inquiries;
(b) processing purchases and redemptions of
shares of the funds, including reinvestment
of dividends;
(c) assisting shareholders in changing dividend
options, account designations and addresses;
<PAGE> 2
(d) transmitting proxy statements, annual
reports, prospectuses, and other
correspondence from the Funds to
shareholders (including, upon request,
copies, but not originals, of regular
correspondence, confirmations, or regular
statements of account) where such
shareholders hold shares of the Funds
registered in the name of the Adviser, a
Service Provider, or their nominees; and
(e) providing such other information and
assistance to shareholder as may be
reasonably requested by such shareholders.
The Adviser and the Service Providers are under no obligation to, and shall not,
provide pursuant to this Agreement any services with respect to the sale or
distribution of shares of the Funds.
3. STANDARD OF CARE. The Adviser and the Service Providers shall be under no
duty to take any action on behalf of the Funds except as specifically set forth
herein or as may be specifically agreed to by the Adviser or the Service
Providers with the Trust in writing. In the performance of the duties hereunder,
the Adviser and the Service Providers shall be obligated to exercise due care
and diligence and to act in good faith and to use their best efforts. Agreements
with Service Providers shall provide for at least the same standard of care,
indemnification coverage, confidentiality, requirements for use of information
about the Funds, and other material requirements to which the Adviser is subject
under this Agreement. Without limiting the generally of the foregoing or of any
other provision of this Agreement, neither the Adviser nor any Service Provider
shall be liable for delays or errors or losses of data that result from acts or
war or terrorism, national emergencies or catastrophes directly affecting the
Adviser or Service Provider, but such relief from liability shall not extend to
delays, errors, or losses of data that result from power failures or other
contingencies that typically are addressed by contingency or emergency plans
meeting industry standards.
4. CONFIDENTIALITY. The Adviser agrees, on behalf of itself and its employees,
to treat confidentially all records and other information about the Funds and
the Trust and all prior, present, or potential shareholders of the Funds. This
confidential information may be disclosed only after prior notification to, and
approval of release of information in writing by, the Trust, which approval
shall not be unreasonably withheld, nor may it be withheld where the Adviser or
a Service Provider may be exposed to civil or criminal attorney proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
5. INDEPENDENT CONTRACTOR. The Adviser shall, for all purposes herein, be deemed
to be an independent contractor, and the Adviser and the Service Providers
shall, unless otherwise expressly provided and authorized to do so, have no
authority under this Agreement to act for or represent the Trust or the Funds in
any way, or in any way be deemed an agent for the Trust or for the funds, except
to the limited extent expressly provided in this Agreement. It is expressly
understood and agreed that the services to be rendered by the Adviser under the
provisions of this Agreement are not to be deemed exclusive, and the Adviser
shall be free to render similar or different
<PAGE> 3
services to others so long as its ability to render the services provided for in
this agreement shall not be impaired materially thereby.
6. COMPENSATION. As compensation for the services rendered by, and
responsibilities assumed by, the Adviser during the term of this Agreement, each
Fund will pay to the Adviser a service fee not to exceed the per annum
percentage of the average daily net asset value of such Fund's shares set forth
on EXHIBIT A. The Adviser will collect such fee applicable to clients of the
Service Providers that furnish the shareholder services specified in Section 2
above for the separate account of each Service Provider. The service fee shall
be accrued daily by the Funds and paid to the Adviser on a monthly basis.
7. INDEMNIFICATION.
(a) The Funds agree to indemnify and hold harmless the Adviser and its
officers and directors from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state and foreign
securities laws, all as amended from time to time) and expenses, including
(without limitation) reasonable attorneys' fees and disbursements, arising
directly or indirectly from any action or thing which the Adviser takes or does
or omits to take or do (i) at the request or on the direction of or in reliance
on the advice of the Funds or (ii) upon oral or written instructions from an
officer of the Funds, provided that the Adviser shall not be indemnified against
any liability to the Funds or to the Fund's shareholders (or any expenses
incident to such liability arising out of the Adviser's or any Service
Provider's own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement.
(b) The Adviser agrees to indemnify and hold harmless the Funds, the Trust
and its officers and Trustees from all claims and liabilities (including,
without limitation, liabilities arising under the Securities Act of 1933, the
1934 Act, the 1940 Act, and any state and foreign securities laws, all as
amended from time to time) and expenses, including (without limitation)
reasonable attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Adviser or any Service Provider takes or does
or omits to take or do which is in violation of this Agreement, not in
accordance with written instructions given by an officer of the Trust, in
violation of written procedures then in effect, or arising out of the Adviser's
or the Service Provider's own willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties and obligations under this Agreement.
(c) The Adviser shall provide such security as is necessary to prevent
unauthorized use of any on-line computer facilities. The Adviser agrees to
release, indemnify and hold harmless the Trust and the Funds from any all direct
or indirect liabilities or losses resulting from requests, directions, actions,
or inactions of or by the Adviser or any Service Provider, its officers,
employees or agents regarding the redemption, transfer or registration of the
Funds' shares for accounts of shareholders or the Service Provider, its clients
and other shareholders. Principals of the Adviser will be available to consult
from time to time with officers of the Trust and the Trustees concerning
performance of the services contemplated by Section 2 of this Agreement.
<PAGE> 4
8. FUNDS INFORMATION. No person is authorized to make any representations
concerning the Funds, or shares of the Funds or shareholder services that are
inconsistent with the terms of this Agreement. Neither the Adviser nor any
Service Provider, nor any of their respective agents will use or distribute, or
authorize the use or distribution of, any statements other than those contained
in the Funds' current Prospectuses or Statements of Additional Information or in
such current supplemental literature as may be authorized by the Funds.
9. DURATION AND TERMINATION. This Agreement shall continue until termination by
the Trust or the Adviser on 60 days' prior written notice to the other. The
Adviser's Indemnification obligations under Section 7(b) shall survive the
termination of this Agreement. All notices and other communications hereunder
shall be writing.
10. AMENDMENTS. This Agreement or any part hereof may be changed or waived only
by an instrument in writing signed by the party against which enforcement of
such charge or waiver is sought.
11. MISCELLANEOUS.
(a) This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings, relating to the subject matter hereof.
(b) The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applicable to contracts
between California residents entered into and to be performed entirely within
California.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
(e) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
(f) This Agreement may not be assigned without the prior
mutual written consent of all parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their officers designated below on the day and year first above
written.
MATTHEWS INTERNATIONAL FUNDS
<PAGE> 5
By: /s/ G. Paul Matthews
---------------------
G. Paul Matthews
President, Matthews International Funds
MATTHEWS INTERNATIONAL
CAPITAL MANAGEMENT, LLC
By: /s/ Mark W. Headley
--------------------
Mark W. Headley
Managing Director
<PAGE> 6
MATTHEWS INTERNATIONAL FUNDS
EXHIBIT A
FUNDS COVERED BY THE
SHAREHOLDER SERVICES AGREEMENT
(as amended _________, 1999)
Name of Fund Annual Service Fee
- ------------ ------------------
Rate
----
(Not to Exceed)
Matthews Pacific Tiger Fund 0.25%
(as adopted April 17, 1998)
Matthews Asian Convertible Securities Fund 0.25%
(as adopted April 17, 1998)
Matthews Korea Fund 0.25%
(as adopted April 17, 1998)
Matthews Dragon Century China Fund 0.25%
(as adopted April 17, 1998)
Matthews Japan Fund 0.25%
(as adopted October 9, 1998)
Matthews International Growth Fund
(as adopted April 16, 1999) 0.25%
MATTHEWS ASIAN TECHNOLOGY FUND (CLASS I)
[(as adopted October 15, 1999)] 0.25%
Dated as of October 15, 1999
MATTHEWS INTERNATIONAL FUNDS MATTHEWS INTERNATIONAL
CAPITAL MANAGEMENT LLC
By: /s/ G. Paul Matthews By: /s/ G. Paul Matthews
--------------------- ---------------------
President President
<PAGE> 1
Exhibit 99(i)
Letterhead of Paul, Hastings, Janofsky & Walker LLP
December 14, 1999
Matthews International Funds
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
Re: Matthews Asian Growth and Income Fund, Asian Technology Fund, Dragon
Century China Fund, Japan Fund, Korea Fund and Pacific Tiger Fund
Ladies and Gentleman:
We have acted as counsel to Matthews International Funds, a Delaware
business trust (the "Trust"), in connection with Post-Effective Amendment No. 13
to the Trust's Registration Statement on Form N-1A to be filed with the
Securities and Exchange Commission on December 20, 1999 (the "Post-Effective
Amendment") and relating to the issuance by the Trust of an indefinite number of
$0.001 par value shares of beneficial interest (the "Shares") of six series of
the Trust: the Matthews Asian Growth and Income Fund, the Matthews Asian
Technology Fund, the Matthews Dragon Century China Fund, the Matthews Japan
Fund, the Matthews Korea Fund and the Matthews Pacific Tiger Fund (the "Funds").
In connection with this opinion, we have assumed the authenticity of
all records, documents and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of all natural persons, and
the conformity to the originals of all records, documents, and instruments
submitted to us as copies. We have based our opinion on the following;
(a) the Trust's Trust Instrument dated April 8, 1994 (the "Trust
Instrument"), and the Trust's Certificate of the Trust as filed with the
Secretary of State of Delaware on April 13, 1994, certified to us in effect on
the date hereof;
(b) the By-laws of the Trust;
(c) resolutions of the Trustees of the Trust adopted at a meeting on
August 12, 1994, authorizing the establishment of the Matthews Pacific Tiger
Fund and the issuance of the Shares; resolutions of the Trustees of the Trust
adopted at a meeting on August 12, 1994, authorizing the establishment of the
Matthews Asian Growth and Income Fund and the issuance of the Shares;
resolutions of the Trustees of the Trust adopted at a meeting on December 13,
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1994, authorizing the establishment of the Matthews Korea Fund and the issuance
of the Shares; resolutions of the Trustees of the Trust adopted at a meeting on
November 11, 1997, authorizing the establishment of the Matthews Dragon Century
China Fund and the issuance of the Shares; resolutions of the Trustees of the
Trust adopted at a meeting on October 9, 1998, authorizing the establishment of
the Matthew Japan Fund and the issuance of Shares; and resolutions of the
Trustees of the Trust adopted at a meeting on October 15, 1999, authorizing the
establishment of the Matthews Asian Technology Fund and the issuance of the
Shares;
(d) Post-Effective Amendment No. 13; and
(e) a certificate of an officer of the Trust as to certain factual
matters relevant to this opinion.
Our opinion below is limited to the federal law of the United States of
America and the business trust law of the State of Delaware. We are not licensed
to practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code and the case
law interpreting such Chapter as reported in Delaware Code Annotated. We have
not undertaken a review of other Delaware law or of any administrative or court
decisions in connection with rendering this opinion. We disclaim any opinion as
to any law other than that of the United States of America and the business
trust law of the State of Delaware as described above, and we disclaim any
opinion as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional or local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendment
and in accordance with the Trust Instrument, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, it is our opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective
Amendment and is solely for your benefit. This opinion may not be relied upon by
your for any other purpose or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any developments in areas covered by this
opinion that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm as Legal Counsel in
the Prospectus included in Post-Effective Amendment No. 13, and (ii) the filing
of this opinion as an exhibit to the Post-Effective Amendment No. 13.
Very truly yours,
Paul, Hastings, Janofsky & Walker LLP
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Exhibit 99(j)(i)
Ernst & Young LLP
555 California Street
Suite 1700
San Francisco, California 94104
Consent Of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" and "Other Information" in the Post-Effective Amendment No. 12 to
the Registration Statement (No. 33-78960) on Form N-1A of Matthews International
Funds and to the incorporation by reference therein of our report dated October
9, 1998, with respect to the financial statements of Matthews International
Funds included in its Annual Report to Shareholders filed on Form N-30D with the
Securities and Exchange Commission.
Ernst & Young LLP
December 15, 1999
<PAGE> 1
Exhibit 99(j)(ii)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to the
Registration Statement on Form N-1A of Matthews International Funds comprising,
respectively, the Matthews Pacific Tigers Fund, Matthews Asian Growth and Income
Fund, Matthews Korea Fund, Matthews Dragon Century China Fund, and Matthews
Japan Fund and to the use of our report dated October 1, 1999 on the financial
statements and financial highlights. Such financial statements and financial
highlights are incorporated by reference in the Statement of Additional
Information, which is a part of such Registration Statement.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
DECEMBER 20, 1999
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Exhibit 99(m)
DISTRIBUTION PLAN
OF
MATTHEWS INTERNATIONAL FUNDS - CLASS A
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Matthews
International Funds (the "Trust") for the Class A shares of the Trust and any
separate series of the Trust hereinafter organized. The Plan has been approved
by a majority of the Trust's Board of Trustees, including a majority of the
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the "non-interested
Trustees"), cast in person at a meeting called for the purpose of voting on such
Plan.
In reviewing the Plan, the Board of Trustees determined that the
adoption of the Plan would be prudent and in the best interests of the Trust and
its shareholders. Such approval included a determination that in the exercise of
their reasonable business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Trust and its
shareholders. The Plan has also been approved by a vote of the sole initial
shareholder of the Class A shares of the Trust.
The Provisions of the Plan are:
1. (a) Class A of the Trust shall reimburse the Advisor, the
Distributor or others for all expenses incurred by such parties in the promotion
and distribution of the Class A shares of the Trust, including but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation of sales literature and related expenses, advertisements, and
other distribution-related expenses, as well as any distribution fees paid to
securities dealers or others who have executed a selling agreement with the
Trust on behalf of Class A or the Distributor. The maximum aggregate amount
which may be reimbursed by Class A of the Trust to such parties pursuant to this
paragraph herein shall be 0.25% per annum of the average daily net assets of
Class A. Said reimbursement shall be made monthly by Class A to such parties.
(b) In addition to the amounts described in (a) above, the
Trust shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% per annum of Class A's average
daily net assets represented by shares of Class A from time to time, as a
service fee. The monies to be paid pursuant to this paragraph 1(b) shall be used
to pay dealers or others for, among other things, furnishing personal services
and maintaining shareholder accounts, which services include, among other
things, assisting in establishing and maintaining customer accounts and records;
assisting with the purchase and redemption requests; arranging for bank wires;
monitoring dividend payments from the Trust on behalf of customers; forwarding
certain shareholder communications from the Trust to customers; receiving and
answering correspondence; and aiding in maintaining the investment of their
respective customers in Class A. Any amounts paid under this paragraph 1(b)
shall be paid pursuant to a servicing or other
<PAGE> 2
agreement.
2. All payments in connection with this Plan shall be paid quarterly by
Class A of the Trust to the appropriate parties.
3. The Advisor and the Distributor shall collect and monitor the
documentation of payments made under paragraph 1, and shall furnish to the Board
of Trustees of the Trust, for their review, on a quarterly basis, a written
report of the monies reimbursed to them and others under the Plan as to the
Trust's Class A, and shall furnish the Board of Trustees of the Trust with such
other information as the Board may reasonably request in connection with the
payments made under the Plan as to the Trust's Class A in order to enable the
Board to make an informed determination of whether the Plan should be continued.
4. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Trust's Board of Trustees, including the non-interested Trustees, cast in
person at a meeting called for the purpose of voting on the Plan.
5. The Plan, or any agreements entered into pursuant to this Plan, may
be terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Trust, or by vote of a majority of the
non-interested Trustees, on not more than sixty (60) days' written notice, and
shall terminate automatically in the event of any act that constitutes an
assignment of the management agreement between the Trust and the Manager.
6. The Plan and any agreements entered into pursuant to this Plan may
not be amended to increase materially the amount to be spent by the Trust's
Class A for distribution pursuant to Paragraph 1 hereof without approval by a
majority of Class A's outstanding voting securities.
7. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Trustees cast in
person at a meeting called for the purpose of voting on any such amendment.
8. So long as the Plan is in effect, the selection and nomination of
the Trust's non-interested Trustees shall be committed to the discretion of such
non-interested Trustees.
9. This Plan shall take effect on the 18th day of April, 1998.
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Exhibit 99(o)(i)
MATTHEWS INTERNATIONAL FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Trustees, including a majority of the independent trustees, of
Matthews International Funds (the "Trust"). The Board has determined that the
Plan is in the best interests of each Class and the Trust. The Plan sets forth
the provisions relating to the establishment of multiple classes of shares for
the Trust.
1. The Trust may offer two classes of shares, Class A and Class I
shares.
2. Class A shares shall be sold with a front-end sales charge of 4.95%
for an investment of less than $50,000, 4.25% for investments over $50,000 but
under $100,000, 3.25% for investments over $100,000 but under $250,000, 2.50%
for investments over $250,000 but under $500,000, 2.00% for investments over
$500,000 but under $1,000,000. There is no sales load for investments over
$1,000,000, however if such an investment be made and subsequently withdrawn
within the first year a 1% redemption charge will be waived against the
redemption proceeds. The Class A shares are subject to Rule 12b-1 charges. The
Rule 12b-1 Plan associated with the Class A shares has two components. The first
component shall be paid to Matthews International Capital Management, LLC, (the
"Advisor"), First Data Distributors, Inc. (the "Distributor") or others for
expenses incurred in distributing and promoting sales of Class A shares. These
expenses include, but are not limited to, preparing and distributing
advertisements and sales literature, printing prospectuses and reports used for
sales purposes, and paying distribution, maintenance and continuing commissions
to broker dealers or others in accordance with a selling agreement with the
Distributor on behalf of the Trust's Class A shares. The second component is a
shareholder servicing fee which shall be paid to dealers and others who have
executed a servicing or other agreement with the Distribution on behalf of the
Class A Shares of the Trust, for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include, among
other things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; arranging for bank
wires; monitoring dividend payments from the series on behalf of customers;
forwarding certain shareholder communications from the Trust to customers;
receiving and answering correspondence; and aiding in maintaining the investment
of their respective customers in Class A. In no event shall the Class be charged
a combined fee in excess of 0.25% per annum of its average daily net assets.
3. The Trust's Rule 12b-1 Plans relating to Class A shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
<PAGE> 2
4. The only difference in expenses as between Class A and Class I
shares shall relate to the existence of Class A's Rule 12b-1 Plan.
5. There shall be no conversion features associated with Class I
shares.
6. Class A will vote separately with respect to any Rule 12b-1 Plan
related to the Class.
7. On an ongoing basis, the Trustees pursuant to their fiduciary
responsibilities under the Investment Company Act of 1940, as amended, (the
"Act"), and otherwise, will monitor the Trust for the existence of any material
conflicts between the interests of the classes of shares. The Trustees,
including a majority of the independent trustees, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop. Matthews
International Capital Management, LLC (the "Advisor") and the Distributor shall
be responsible for alerting the Board to any material conflicts that arise.
8. All material amendments to this Plan must be approved by a majority
of the Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" of the Trust, as defined in the Act.
2
<PAGE> 1
Exhibit 99(o)(ii)
FIRST AMENDMENT TO
MATTHEWS INTERNATIONAL FUNDS
MULTIPLE CLASS PLAN
The Multiple Class Plan (the "Plan") previously adopted by a majority
of the Board of Trustees, including a majority of the independent trustees, of
Matthews International Funds (the "Trust") on its April 18, 1997 meeting is
hereby amended by this First Amendment.
I. Paragraph 2 is hereby amended to read as follows:
2. Class A shares shall be sold with a front-end charge of
4.95% for an investment of less than $50,000, 4.25% for investments of $50,000
or more but under $100,000, 3.25% for investments of $100,000 or more but under
$250,000, 2.50% for investments of $250,000 or more but under $500,000, 2.00%
for investments of $500,000 or more but under $1,000,000. There is no sales load
for investments of $1,000,000 or more, however if such an investment be made and
subsequently withdrawn within the first year a 1.00% redemption fee will be
charged against the redemption proceeds. The Class A shares are subject to Rule
12b-1 charges. The Rule 12b-1 Plan associated with the Class A shares has the
following two components:
(a) the first component shall be paid to Matthews
International Capital Management, LLC (the "Advisor"), First Data Distributors,
Inc. (the "Distributor") or others for expenses incurred in distributing and
promoting sales of Class A shares. These expenses include, but are not limited
to, preparing and distributing advertisements and sales literature, printing
prospectuses and reports used for sales purposes, and paying distribution,
maintenance and continuing commissions to broker dealers or others in accordance
with a selling agreement with the Distributor on behalf of the Trust's Class A
shares;
(b) the second component is a shareholder servicing fee
charged pursuant to a Shareholder Servicing Plan. The shareholder servicing fee
shall be paid to the Advisor and others who have executed a servicing or similar
agreement with the Trust (or, in the case of other service providers, with the
Advisor) on behalf of Class A shares of the Trust, for among other things,
furnishing personal services and maintaining customer accounts and records;
assisting with purchases and redemption requests; arranging for bank wires;
monitoring dividend payments from the series on behalf of customers, forwarding
certain shareholder communications from the Trust to customers; receiving and
answering correspondences; and aiding in maintaining the investment of their
respective customers in Class A. In no event shall Class A shares be charged a
shareholder servicing fee in excess of 0.25% per annum of its average daily net
assets.
<PAGE> 2
II. Paragraph 4 is hereby amended to read as follows:
4. Class I shares shall be sold with a shareholder servicing
fee pursuant to a Shareholder Servicing Plan. The shareholder servicing fee
shall be paid to the Advisor and others who have executed a servicing or similar
agreement with the Trust (or, in the case of other service providers, with the
Advisor) on behalf of Class I shares of the Trust, for among other things,
furnishing personal services and maintaining customer accounts and records;
assisting with purchases and redemption requests; arranging for bank wires;
monitoring dividend payments from the series on behalf of customers, forwarding
certain shareholder communications from the Trust to customers; receiving and
answering correspondences; and aiding in maintaining the investment of their
respective customers in Class I. In no event shall the Class be charged a
shareholder servicing fee in excess of 0.25% per annum of its average daily net
assets.
2
