TABLE OF CONTENTS
--------------------------------------------------------------------------------
A MESSAGE TO SHAREHOLDERS ............................................... 2
INVESTMENT MANAGEMENT TEAM .............................................. 3
GENERAL MARKET AND ECONOMIC INFORMATION ................................. 4
PORTFOLIO MANAGERS' COMMENTS AND SCHEDULE OF INVESTMENTS
Matthews Asian Growth and Income Fund (MACSX) ........................ 5
Matthews Asian Technology Fund (MATFX) ............................... 8
Matthews Dragon Century China Fund (MCHFX) ........................... 11
Matthews Japan Fund (MJFOX) .......................................... 14
Matthews Korea Fund (MAKOX) .......................................... 16
Matthews Pacific Tiger Fund (MAPTX) .................................. 19
FINANCIAL STATEMENTS
Statements of Assets and Liabilities ................................. 22
Statements of Operations ............................................. 23
Statements of Changes in Net Assets .................................. 24
Financial Highlights ................................................. 27
Notes to Financial Statements ........................................ 31
Report of Independent Auditors ....................................... 36
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WWW.MATTHEWSFUNDS.COM
<PAGE>
A MESSAGE TO SHAREHOLDERS
--------------------------------------------------------------------------------
Dear Fellow Shareholders,
The twelve-month period ending August 31, 2000 has seen Asia continue to build
on its recovery from the financial turmoil of two years ago. China has made
substantial progress towards its goal of full World Trade Organization
membership; North and South Korea have made historic steps towards long term
peace; Japan has continued to show slow but steady improvement in its economic
reform process and real economies across the region have seen restored growth.
In spite of these substantive and real advances in Asia, the financial markets
of the region have remained mixed, plagued by self-doubt and external skepticism
that the "Crisis" is truly over. After the markets' dramatic recovery in 1999,
some period of consolidation and correction was perhaps inevitable. We firmly
believe that Asia is now well positioned to continue to build on its post-Crisis
achievements and that the overall environment for equity investors in the region
is extremely positive with solid corporate earnings growth and low inflation.
Economic performance around the region has been generally positive. For the full
year 2000, growth estimates now range from 2% in Japan to 9% in China, with the
rest of the region somewhere in between. Central banks across the region remain
relatively cautious, continuing to maintain near record levels of foreign
exchange reserves and only modestly expansionary monetary policies. In the
meantime, at the company level where we focus most of our attention, the drive
to improve capital returns and corporate governance continues with varied
success.
The approximately 150 companies in which we are invested in Asia are on average
seeing revenue and profit expansion this year of between 10% and 30%. The level
of mergers and acquisitions is still not up to levels that are considered normal
in developed markets. Governments in Asia are still prone to believing they can
control factors that should be left to the market. Overall, however, Asia's
financial markets are operating with greater transparency and better governance
than they were three years ago.
With the addition of the Matthews Asian Technology Fund launched at the end of
1999, our fund family now includes six no-load Asian portfolios. With three
diversified regional funds and three single country funds, our fund family
offers a sophisticated range of investment vehicles for participation in the
Asian financial markets. We have recently launched our redesigned Web site,
WWW.MATTHEWSFUNDS.COM, adding significant information for investors including
monthly fund commentary by our portfolio managers and a discussion on the
appropriate use of our funds in a globally diversified portfolio. Please visit
WWW.MATTHEWSFUNDS.COM to take advantage of these new enhancements.
Thank you for your continued support,
/S/ SIGNATURE /S/ SIGNATURE
G. Paul Matthews Mark W. Headley
Chairman and Chief Investment Officer President and Portfolio Manager
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2 800.789.ASIA [2742]
<PAGE>
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC INVESTMENT MANAGEMENT TEAM
--------------------------------------------------------------------------------
[PHOTO OMITTED]
G. Paul Matthews
CHAIRMAN,
CHIEF EXECUTIVE OFFICER,
CHIEF INVESTMENT OFFICER
Andrew T. Foster
ASSISTANT
PORTFOLIO MANAGER
Mark W. Headley
PRESIDENT,
PORTFOLIO MANAGER
James M. Bogin
PORTFOLIO MANAGER
Richard H. Gao
PORTFOLIO MANAGER
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WWW.MATTHEWSFUNDS.COM 3
<PAGE>
GENERAL MARKET AND ECONOMIC INFORMATION
--------------------------------------------------------------------------------
ASIA EX-JAPAN VS. US AND INTERNATIONAL STOCK MARKETS
DECEMBER 1987-SEPTEMBER 2000
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MSCI MSCI
ALL COUNTRY EUROPE
FAR EAST AUSTRALIA
EX JAPAN FAR EAST
S&P 500(1) INDEX(2) INDEX(3)
Mar. 88 5.68% 21.83% 15.32%
Sept. 88 13.08 79.54 11.11
Mar. 89 24.81 102.81 29.02
Sept. 89 50.32 138.06 36.22
Mar. 90 48.81 139.08 14.38
Sept. 90 36.44 36.58 -1.09
Mar. 91 70.22 87.53 17.66
Sept. 91 78.87 87.80 20.97
Mar. 92 88.96 101.53 8.59
Sept. 92 98.62 99.34 12.76
Mar. 93 117.70 131.55 21.62
Sept. 93 124.33 166.65 42.93
Mar. 94 120.85 221.50 49.40
Sept. 94 132.60 293.38 57.39
Mar. 95 155.17 250.32 58.92
Sept. 95 201.70 255.15 67.00
Mar. 96 237.01 278.20 79.05
Sept. 96 263.00 284.32 81.93
Mar. 97 303.80 283.39 82.20
Sept. 97 409.76 239.93 104.66
Mar. 98 497.49 156.72 116.68
Sept. 98 455.94 61.98 88.12
Mar. 99 607.84 136.16 130.47
Sept. 99 610.45 201.56 147.03
Mar. 00 734.80 275.58 189.01
Sept. 00 704.75 181.56 155.49
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) The S&P 500 Index is a capitalization-weighted index of 500 U.S. stocks.
(2) The MCSI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the Pacific region
excluding Japan.
(3) The MCSI Europe, Australia, Far East Index is an unmanaged
capitalization-weighted index of stock markets in Europe, Australia and the
Far East.
ECONOMIC STATISTICS (AS OF 9/30/00)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000E REAL 1999 REAL 3Q00 THREE
2000E GDP GDP 2000E GDP 2000E GDP 2000E 1999E MONTH INTEREST 2000E
POPULATION GROWTH GROWTH (US $ PER CAPITA INFLATION INFLATION RATE CURRENT A/C
MARKET (MILLIONS) % % BILLIONS) (US $) % % % (% OF GDP)
---------- -------- -------- ---------- -------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Japan............. 126.5 2.1% 0.5% 4,783.0 37,795 (0.5%) (0.5%) 0.25% 2.6%
China............. 1,261.8 8.5% 7.1% 1,072.0 850 0.3% (1.4%) 2.0% 1.1%
Hong Kong......... 7.1 10.0% 3.1% 166.6 23,411 (3.7%) (4.0%) 6.2% 4.1%
Indonesia......... 224.8 3.5% 0.3% 184.0 819 4.0% 20.5% 12.7% 7.2%
Malaysia.......... 21.8 9.0% 5.6% 87.5 4,015 1.8% 2.8% 3.8% 8.5%
Philippines....... 81.2 3.5% 3.3% 77.5 955 4.5% 6.7% 9.0% 10.3%
Singapore......... 4.2 8.0% 5.4% 92.7 22,331 1.7% 0.4% 2.7% 25.3%
South Korea....... 47.5 9.0% 10.7% 486.5 10,248 2.0% 0.8% 8.7% 1.4%
Taiwan............ 22.2 6.7% 5.7% 328.6 14,808 1.3% 0.2% 5.4% 0.1%
Thailand.......... 61.2 5.7% 4.2% 121.6 1,986 1.7% 0.3% 4.0% 9.0%
<FN>
SOURCE: U.S. CENSUS BUREAU, GOLDMAN SACHS, ABN AMRO
</FN>
</TABLE>
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4 800.789.ASIA [2742]
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
--------------------------------------------------------------------------------
MATTHEWS ASIAN GROWTH AND INCOME FUND
Portfolio Manager: G. Paul Matthews
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S OUTPERFORMANCE OF ITS BENCHMARK FOR
THE FISCAL YEAR ENDED AUGUST 31, 2000?
A: During the fiscal year that ended August 31st 2000, the Matthews Asian Growth
and Income Fund gained 18.68%, significantly outperforming the MSCI Far East
Ex-Japan Index(1), which declined (2.50%) during the period. This outperformance
was due to two factors. Firstly, the individual securities included in the
portfolio have been selected based on their ability to pay a current return to
shareholders, either through dividends or a fixed return on a convertible bond.
During the twelve months under review, the market has favored this type of
security. Secondly, the Fund has held a high percentage of its investments in
Hong Kong and China, where markets have performed better than other markets that
are included in the Index.
Q: HOW DOES THE FUND ARRIVE AT ITS COUNTRY WEIGHTINGS?
A: Our primary focus is selecting individual securities that have historically
paid a higher level of income than is generally available, but which still have
long-term growth potential. Because we are finding more such companies and
securities in the more developed markets of Hong Kong, Korea, Singapore and
Taiwan, we have tended to have higher exposure to those countries than to the
lesser-developed ASEAN countries such as the Philippines, Thailand and
Indonesia. The country weightings are therefore a byproduct of our "bottom up"
process, rather than a deliberate attempt to forecast short-term country
performance.
Q: WHAT NEW POSITIONS HAVE YOU ADDED TO THE PORTFOLIO?
A: We have been adding to equity positions that have historically paid out an
above average level of dividend and where we believe those higher dividends are
sustainable. We believe that the overall prospects for Asian financial markets
are positive now that Asia's Financial Crisis is behind it and that the Fund
should have more exposure to equities than has historically been the case. At
year end approximately 35% of the funds portfolio was invested in
dividend-paying equities, while 65% was invested in dollar-denominated
convertible bonds that may be converted into Asian equities. Examples of equity
positions added to the portfolio include Huaneng Power (a Chinese based electric
utility), South China Morning Post (Hong Kong's leading English language
newspaper), and Cafe de Coral (a Chinese style fast food chain based in Hong
Kong).
Q: WHAT IS THE OUTLOOK FOR ASIAN CONVERTIBLE BONDS?
A: Asian convertible bonds tend to perform best when interest rates are falling
and underlying equity markets are rising. Neither condition has prevailed so far
in 2000. While the economies of the region are all at various stages of
recovery, confidence is still fragile. We believe that as it becomes clearer
that Asia's recovery is sustainable and will be long term in nature, the
prospects for the underlying equity markets will improve, although interest
rates may not fall much from current levels.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS ASIAN
GROWTH AND INCOME FUND
One Year ....................... 18.68%
Five Years ..................... 8.18%
Since inception (9/12/94) ...... 6.97%
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
EX-JAPAN INDEX(1)
One Year ...................... (2.50%)
Five Years .................... (1.52%)
Since 9/12/94 ................. (3.23%)
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
FREE EX-JAPAN INDEX(2)
One Year ...................... (7.01%)
Five Years .................... (4.06%)
Since 9/12/94 ................. (4.66%)
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS MSCI
ASIAN ALL COUNTRY
GROWTH AND FAR EAST
INCOME EX-JAPAN
FUND INDEX(1)
09/12/94 $10,000 $10,000
02/95 9,722 8,879
08/95 10,089 8,873
02/96 11,124 9,563
08/96 11,122 9,658
02/97 12,095 10,326
08/97 12,754 9,017
02/98 9,873 6,769
08/98 8,256 3,798
02/99 9,117 5,520
08/99 12,603 8,430
02/00 13,872 9,299
08/00 14,957 8,220
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) The MSCI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China.
(2) The MSCI All Country Far East ex-Japan Free Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Singapore, Korea, Indonesia, Philippines, Thailand and China that excludes
securities not available to foreign investors. Malaysia is not represented
in the Index, and Taiwan is only represented at 50% of its total market cap.
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WWW.MATTHEWSFUNDS.COM 5
<PAGE>
MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 31.13%****
CHINA/HONG KONG - 22.39%
Cafe de Coral Holdings, Ltd. 936,000 $ 354,036
China Hong Kong Photo
Products Holdings, Ltd. 1,654,003 165,417
CLP Holdings, Ltd. 64,500 289,453
Hang Seng Bank, Ltd. 26,400 283,491
Hong Kong Land Holdings, Ltd. 85,000 170,000
Huaneng Power
International, Inc. ADR 10,000 161,875
Shangri-La Asia, Ltd. 260,000 263,360
South China Morning
Post Holdings, Ltd. 334,000 250,526
The Wharf Holdings, Ltd. 126,000 299,685
Vitasoy International
Holdings, Ltd. 1,830,000 330,842
-----------
TOTAL CHINA/HONG KONG 2,568,685
-----------
SOUTH KOREA - 6.67%
Hana Bank 42,930 230,767
Hyundai Motor Co., Ltd., Pfd. 50,200 258,074
Sindo Ricoh Co. 11,170 276,039
-----------
TOTAL SOUTH KOREA 764,880
-----------
TAIWAN - 0.05%
Winbond Electronic Corp., GDR** 215 5,370
-----------
UNITED KINGDOM - 2.02%
HSBC Holdings PLC Spon ADR 3,200 231,800
-----------
TOTAL EQUITIES
(Cost $3,313,132) 3,570,735
-----------
FACE
AMOUNT
------
INTERNATIONAL DOLLAR BONDS - 65.99%****
CHINA/HONG KONG - 37.92%
Hong Kong Land Co.
4.000%, 02/23/01 $ 550,000 541,750
New World Infrastructure, Ltd.
5.000%, 07/15/01 450,000 439,875
Qingling Motors, Ltd.***
3.500%, 01/22/02 1,300,000 412,750
First Pacific Capital, Ltd.
2.000%, 03/27/02 450,000 515,250
Shanghai Industrial
Investment Co.
1.000%, 02/24/03 200,000 236,000
COSCO Treasury Co., Ltd.
1.000%, 03/13/03 400,000 480,000
FACE AMOUNT VALUE
----------- -----
Zhenhai Refining &
Chemical Co., Ltd.
3.000%, 12/19/03 $ 250,000 $ 281,250
Huaneng Power International
Public Co., Ltd.
1.750%, 05/21/04 500,000 566,250
New World Cap Finl, Cnv.
(New World Development)
3.000%, 06/09/04 300,000 289,125
Amoy Properties, Ltd.
0.000%, 12/29/49 750,000 586,875
-----------
TOTAL CHINA/HONG KONG 4,349,125
-----------
SINGAPORE - 12.49%
Fullerton Global Corp.
(Singapore Telecom)
0.000%, 04/02/03 500,000 531,250
Finlayson Global Corp.
(DBS Holdings)***
0.000%, 02/19/04 250,000 485,625
Natsteel Electronics Cnv
1.500%, 06/30/04 400,000 416,000
-----------
TOTAL SINGAPORE 1,432,875
-----------
SOUTH KOREA - 6.42%
Samsung SDI Co., Ltd.
0.250%, 03/12/06 250,000 300,000
Samsung Electronics Co.
0.250%, 12/31/06 75,000 238,687
Samsung Electronics Co.
0.000%, 12/31/07 100,000 197,500
-----------
TOTAL SOUTH KOREA 736,187
-----------
TAIWAN - 3.79%
Winbond Electronics Corp.
1.000%, 11/04/02 150,000 317,250
Walsin Lihwa Corp.
3.250%, 06/16/04 120,000 117,600
-----------
TOTAL TAIWAN 434,850
-----------
THAILAND - 5.37%
Bank of Asia Public Co., Ltd.
3.750%, 02/09/04 300,000 171,000
Bangkok Bank Public Co.
4.589%, 03/03/04 825,000 439,312
Robinson Department Store
4.250%, 04/07/04 50,000 5,000
-----------
TOTAL THAILAND 615,312
-----------
TOTAL INTERNATIONAL
DOLLAR BONDS
(Cost $7,170,581) 7,568,349
-----------
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6 800.789.ASIA [2742]
<PAGE>
MATTHEWS ASIAN GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
VALUE
-----
TOTAL INVESTMENTS - 97.12%****
(Cost $10,483,713*) $11,139,084
CASH AND OTHER ASSETS,
LESS LIABILITIES - 2.88% 329,883
-----------
NET ASSETS - 100.00% $11,468,967
===========
* Cost for Federal income tax purposes is $10,483,713 and
net unrealized appreciation consists of:
Gross unrealized appreciation $ 1,336,879
Gross unrealized depreciation (681,508)
-----------
Net unrealized appreciation $ 655,371
===========
** Non-income producing security
*** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the value of these securities amounted to $898,375 or 7.83% of net
assets.
**** As a percentage of net assets as of August 31, 2000.
ADR - American Depositary Receipt
GDR - Government Depositary Receipt
Pfd. - Preferred
Cnv. - Convertible
See accompanying notes to financial statements.
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CONSUMER DISCRETIONARY .................... 15.31%
Automobiles ............................. 6.02%
Distributors ............................ 1.49%
Hotels Restaurants & Leisure ............ 5.55%
Media ................................... 2.25%
CONSUMER STAPLES .......................... 2.97%
Food Products ........................... 2.97%
ENERGY .................................... 2.53%
Oil & Gas ............................... 2.53%
FINANCIALS ................................ 38.12%
Banks ................................... 16.54%
Diversified Financials .................. 4.63%
Real Estate ............................. 16.95%
INDUSTRIALS ............................... 11.44%
Construction & Engineering .............. 4.31%
Electrical Equipment .................... 1.06%
Industrial Conglomerates ................ 2.12%
Transportation Infrastructure ........... 3.95%
INFORMATION TECHNOLOGY .................... 15.72%
Computers & Peripherals ................. 3.73%
Electronic Equipment & Instruments ...... 2.69%
Office Electronics ...................... 2.48%
Semiconductor Equipment & Products ...... 6.82%
TELECOMMUNICATION SERVICES ................ 4.77%
Diversified Telecommunication Services .. 4.77%
UTILITIES ................................. 9.14%
Electric Utilities ...................... 9.14%
-------
TOTAL INVESTMENTS ......................... 100.00%
=======
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WWW.MATTHEWSFUNDS.COM 7
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS ASIAN TECHNOLOGY FUND
Portfolio Managers: G. Paul Matthews, Mark W. Headley and Andrew T. Foster
(Assistant)
Q: HOW HAS THE FUND PERFORMED RELATIVE TO ITS BENCHMARK OVER THE FISCAL YEAR
ENDING AUGUST 31ST, 2000?
A: Year-to-date, the Fund slightly outpaced its benchmark, the MSCI/Matthews
Asian Technology Index. Over the period, the Fund declined (23.90%), while the
Index declined (25.51%).
During the better part of 2000, the Fund outpaced the Index by a significant
margin. The Fund's relatively strong performance was driven initially by
exposure to the Internet sector; later, semiconductor stocks boosted the Fund's
returns. However, exposure to the Internet sector and Korean holdings ultimately
hindered the Fund's performance. The Index's low weightings in these two areas
boosted its relative return. As a result, the year-to-date performances of the
Fund and the Index are nearly identical.
Q: WHY HAS THE TECHNOLOGY SECTOR IN ASIA BEEN LAGGING BEHIND ITS NASDAQ
COUNTERPART?
A: Year-to-date through August 31st, the NASDAQ rose 3.5%, while the MSCI/
Matthews Asian Technology Index fell (25.51%). Asian technology shares have
lagged behind the NASDAQ during the entire year, though from December to May,
Asia's underperformance was relatively muted. From June to August, however,
Asian tech shares weakened appreciably, failing to participate in the NASDAQ's
summer rally.
Asia's underperformance stems largely from concerns over the global
semiconductor industry. Several analysts have warned that the industry cycle has
peaked, triggering a global sell-off in semiconductor stocks. Such warnings have
hit Asia particularly hard, as the region's technology sector has a number of
very large semiconductor companies.
Q: WHAT IS THE OUTLOOK FOR ASIAN TECHNOLOGY COMPANIES?
A: Broadly speaking, prospects appear strong for Asian tech firms. Many of
Asia's semiconductor firms are poised to benefit from growing demand for PCs and
digital products. Tech hardware companies also stand to gain from ongoing
outsourcing trends--many U.S. tech firms continue to outsource production to
Asia's highly efficient manufacturers. Asia's wireless telecom carriers and
equipment makers continue to run ahead of the pack. Wireless penetration rates
in Japan, Korea and Hong Kong are among the highest in the world, and China is
set for impressive subscriber growth.
Q: WHAT CAN YOU TELL US ABOUT THE FUND'S STRATEGY?
A: The Asian Technology Fund includes holdings in a number of the world's most
powerful and innovative technology companies as well as a wide range of smaller
niche players and domestic technology service companies. We believe that Asia's
technology sector includes many of the region's best run companies including
dominant global competitors such as Sony of Japan, Samsung Electronics of Korea
and TSMC of Taiwan. We also are finding a wide array of new technology companies
as Asian technology entrepreneurs bring expertise and innovation back to their
home companies from Silicon Valley. A very exciting area of investment for the
Fund is found in those companies that are bringing high tech services and
products to Asian consumers and corporations.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS ASIAN
TECHNOLOGY FUND
Since inception (12/27/99) .... (23.90%)
--------------------------------------------------------------------------------
MSCI MATTHEWS
ASIAN TECHNOLOGY INDEX(1)
Since 12/31/99 .... (25.51%)
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS MSCI/
ASIAN MATTHEWS
TECHNOLOGY ASIAN
FUND TECHNOLOGY INDEX(1)
12/27/99 $10,000 $10,000
1/31/00 9,280 9,263
2/28/00 11,370 9,487
3/31/00 10,890 9,436
4/30/00 8,620 8,315
5/31/00 7,900 7,717
6/30/00 8,530 8,268
7/31/00 7,460 7,025
8/31/00 7,610 7,449
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) The MSCI/Matthews Asian Technology Index is an unmanaged
capitalization-weighted index of Asian equities tracking a broad range of
technology stocks including: semiconductor equipment and products,
communications equipment, computers and peripherals, electronic equipment
and instruments, offices electronics, software, IT consulting and services,
Internet software and services, diversified telecommunications services,
and wireless telecommunications services.
--------------------------------------------------------------------------------
8 800.789.ASIA [2742]
<PAGE>
MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 100.33%***
CHINA/HONG KONG - 21.96%
Asia Satellite Telecommunications
Holdings, Ltd. 237,000 $ 692,840
Asia Satellite Telecommunications
Holdings, Ltd. ADR 5,900 177,737
AsiaInfo Holdings, Inc.** 4,000 126,000
China Telecom HK, Ltd.** 115,000 884,706
e-Kong Group, Ltd.** 2,276,000 306,416
ehealthcareasia, Ltd.** 3,870,000 277,875
Global Sources, Ltd.** 7,700 255,544
Hutchison Whampoa, Ltd. 52,000 733,409
Legend Holdings, Ltd. 1,188,000 1,264,283
SINA.com** 17,000 365,500
SmarTone Telecommunications
Holdings, Ltd. 161,000 310,679
-----------
TOTAL CHINA/HONG KONG 5,394,989
-----------
JAPAN - 26.49%
Canon, Inc. 14,000 626,102
Fujitsu, Ltd. 21,000 608,382
Honda Tsushin Kogyo Co., Ltd. 9,400 519,970
Kyowa Hakko Kogyo Co., Ltd. 38,000 312,094
NEC Corp. 39,000 1,115,226
Nintendo Co., Ltd. 4,400 760,698
Sharp Corp. 26,000 414,157
Sony Corp. 11,700 1,305,363
Tokyo Denpa Co., Ltd. 8,100 410,088
Woodland Corp. 21,000 437,090
-----------
TOTAL JAPAN 6,509,170
-----------
SINGAPORE - 13.66%
CSE Systems &
Engineering, Ltd.** 1,028,000 722,724
Datacraft Asia, Ltd. 147,720 1,240,848
Informatics Holdings, Ltd. 642,000 318,930
Venture Manufacturing, Ltd 84,000 1,073,732
-----------
TOTAL SINGAPORE 3,356,234
-----------
SHARES VALUE
------ -----
SOUTH KOREA - 17.33%
Comtec System Co., Ltd. 103,830 $ 427,026
Cybertek Holdings, Inc.** 22,786 297,990
Daou Technology, Inc. 10,803 72,588
Daum Communications Corp.** 3,669 228,992
Korea Next Education
Service, Inc.** 60,333 202,969
Korea Telecom Corp. 3,310 226,588
Korea Telecom Corp. ADR 5,000 189,375
Korea Telecom Freetel** 10,741 495,999
KT M.com Co., Ltd.** 15,765 202,617
Samsung Electronics 4,570 1,127,301
Serome Technology, Inc. 10,255 231,691
SK Telecom Co., Ltd.** 1,820 400,523
SK Telecom Co., Ltd. ADR 6,000 153,750
-----------
TOTAL SOUTH KOREA 4,257,409
-----------
TAIWAN - 17.57%
Acer, Inc. 240,000 299,227
Realtek Semiconductor Corp. 88,600 667,925
Taiwan Semiconductor
Manufacturing Co., Ltd.** 165,240 716,004
VIA Technologies, Inc.** 126,000 1,680,541
WYSE Technology Taiwan, Ltd. 386,000 460,116
Zyxel Communications Corp.** 175,650 492,318
-----------
TOTAL TAIWAN 4,316,131
-----------
THAILAND - 3.32%
Advanced Info Service
Public Co., Ltd.** 46,400 560,842
Shinawatra Satellite
Public Co., Ltd.** 302,800 255,606
-----------
TOTAL THAILAND 816,448
-----------
TOTAL INVESTMENTS - 100.33%***
(Cost $29,679,894*) 24,650,381
LIABILITIES, LESS CASH AND
OTHER ASSETS - (0.33%) (80,401)
-----------
NET ASSETS - 100.00% $24,569,980
===========
* Cost for Federal income tax purposes is $30,112,198 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 189,965
Gross unrealized depreciation (5,651,782)
-----------
Net unrealized depreciation $(5,461,817)
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 2000.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 9
<PAGE>
MATTHEWS ASIAN TECHNOLOGY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CONSUMER DISCRETIONARY .................... 13.60%
Household Durables ...................... 6.98%
Leisure Equipment & Products ............ 3.09%
Media ................................... 3.53%
FINANCIALS ................................ 2.98%
Diversified Financials .................. 2.98%
HEALTH CARE ............................... 1.27%
Biotechnology ........................... 1.27%
INFORMATION TECHNOLOGY .................... 67.23%
Communications Equipment ................ 7.03%
Computers & Peripherals ................. 15.19%
Electronic Equipment & Instruments ...... 8.13%
Internet Software & Services ............ 7.88%
IT Consulting & Services ................ 6.47%
Office Electronics ...................... 2.54%
Semiconductor Equipment & Products ...... 17.01%
Software ................................ 2.98%
TELECOMMUNICATION SERVICES ................ 14.92%
Diversified Telecommunication Services .. 2.72%
Wireless Telecommunication Services ..... 12.20%
-------
TOTAL INVESTMENTS ......................... 100.00%
=======
--------------------------------------------------------------------------------
10 800.789.ASIA [2742]
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY CHINA FUND
Co-Portfolio Managers: G. Paul Matthews, Mark W. Headley and Richard H. Gao
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S OUTPERFORMANCE OF ITS BENCHMARK FOR
THE FISCAL YEAR ENDED AUGUST 31, 2000?
A: The Matthews Dragon Century China Fund ended August 31, 2000 with an annual
return of 18.54%, while the benchmark CL China World Index(1) was up 10.14% and
the MSCI China Free Index was down (24.01%).
The Fund outperformed the benchmark index by overweighting the utilities,
telecom, and technology sectors in the first part of 2000, and also through
exposure to Mainland Chinese B shares(2) that performed strongly in June and
July.
Q: WHY HAS CHINA BEEN SO STRONG RELATIVE TO OTHER ASIAN MARKETS IN 2000?
A: After seven years of economic slowdown due to deflation and structural
reforms, China's macro economy began turning around strongly this year. In the
first half of 2000, GDP growth was an impressive 8.2% versus a respectable 7.1%
for the whole of 1999. It is the first time in seven years that economic growth
has increased. China's strong economic performance came mainly from rising
exports and a mild recovery in domestic demand. During the first half of 2000,
China's exports grew 38% over last year due to strong demand from the U.S. and
neighboring Asian countries. China is also recovering from a deflationary stage
as its Consumer Price Index ("CPI") finally rose a mild 0.1% in the first half
after two years of negative growth or "deflation".
Q: WHAT FACTORS WILL CONTRIBUTE TO SUSTAINABLE MARKET PERFORMANCE IN CHINA?
A: China adopted its "Open-Door Policy" in 1978. During the next twenty years,
reforms were at the center stage of the economy. The government's reform
projects in the state-owned enterprises: banking, housing, health care, etc.,
have significantly changed every aspect of people's lives. By the end of 1998,
state-owned enterprises contributed less than 30% to the total economy, down
from over 70% just a decade ago. The private sector is playing an ever more
crucial role in the economy. China is changing from a socialist, planned economy
to a market economy. We believe China's long-term growth lies in its continued
reform process in key economic areas. Under the comparatively enlightened
leadership of China's current heads of state, economic reform will gradually
lead the economy to healthy long-term growth.
Q: WHAT IS THE IMPACT OF CHINA'S ENTRY INTO THE WORLD TRADE ORGANIZATION?
A: China is expected to join the World Trade Organization ("WTO") by the end of
this year or early next year. WTO membership entry will have a significant
impact on China's long-term economic development. Firstly, WTO membership will
increase trade activities and further boost China's exports. Secondly, more
foreign direct investment will come into China as it becomes more open. Thirdly,
WTO membership will strengthen reform efforts the government is making as the
country prepares itself to face competition from multi-national corporations.
Finally and most importantly, entry into the WTO will provide a level playing
field for all companies doing business in China.
Q: WHAT IS THE FUND'S CURRENT INVESTMENT STRATEGY?
A: The Fund remains well diversified. Currently it is overweight in the
utilities, telecommunications and infrastructure sectors. China's strong
economic growth has led to a strong demand in the energy sector. Utility
companies' profitability will also be raised due to prospects of mergers and
acquisitions. To take advantage of the WTO entry, we also hold significant
positions in ports and transportation companies. We are currently avoiding the
consumer sector, especially household appliance companies. Cutthroat price
competition has greatly eroded margins and profitability of these companies.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS DRAGON CENTURY
CHINA FUND
One Year ....................... 18.54%
Since inception (2/19/98) ...... 0.87%
--------------------------------------------------------------------------------
CREDIT LYONNAIS
CHINA WORLD INDEX(1)
One Year ....................... 10.14%
Since 2/19/98 .................. 0.02%
--------------------------------------------------------------------------------
MSCI CHINA FREE INDEX(3)
One Year .......................(24.01%)
Since 2/19/98 .................. (7.03%)
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS CREDIT
DRAGON LYONNAIS
CENTURY CHINA
CHINA WORLD
FUND INDEX(1)
02/19/98 $10,000 $10,000
05/98 8,570 8,100
08/98 4,360 4,027
11/98 6,650 6,573
02/99 5,150 5,200
05/99 6,734 7,107
08/99 8,624 9,090
11/99 8,746 8,578
02/00 8,586 9,075
05/00 8,472 8,585
08/00 10,223 9,996
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) The Credit Lyonnais China World Index is an unmanaged
capitalization-weighted index of Chinese equities which are listed on the
Hong Kong, Shanghai and Shenzhen stock exchanges.
(2) Mainland Chinese B Shares are Chinese stocks listed on the Shanghai and
Shenzhen stock markets which are available to foreign investors.
(3) The MSCI China Free Index is an unmanaged capitalization-weighted index of
Chinese equities that includes only H-shares listed on the Hong Kong
exchange, B-shares listed on the Shanghai and Shenzhen exchanges, and
N-shares listed on the New YorkStock Exchange.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 11
<PAGE>
MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - CHINA/HONG KONG - 97.23%***
CONSUMER DISCRETIONARY - 7.93%
AUTOMOBILES & COMPONENTS - 1.87%
Qingling Motors Co., Ltd.
H Shares 1,071,000 $ 173,025
-----------
CONSUMER DURABLE & APPAREL - 5.33%
China Hong Kong Photo
Products Holdings, Ltd. 876,000 87,609
Glorious Sun Enterprises, Ltd. 852,000 195,543
TCL International
Holdings, Ltd.** 424,000 120,961
Wuxi Little Swan Co., Ltd.
B Shares 170,000 87,624
-----------
491,737
-----------
MEDIA - 0.73%
Television Broadcasts, Ltd. 12,000 67,853
-----------
TOTAL CONSUMER DISCRETIONARY 732,615
-----------
CONSUMER STAPLES - 5.21%
FOOD & DRUG RETAILING - 3.59%
Ng Fung Hong, Ltd. 602,000 329,976
Want Want Holdings Warrants 3,500 1,155
-----------
331,131
-----------
HOUSEHOLD & PERSONAL PRODUCTS - 1.62%
Hengan International
Group Co., Ltd. 524,000 149,490
-----------
TOTAL CONSUMER STAPLES 480,621
-----------
ENERGY - 6.43%
PetroChina Co., Ltd. H Shares 1,408,000 335,788
Sinopec Zhenhai Refining &
Chemical Co., Ltd. 1,406,000 257,793
-----------
TOTAL ENERGY 593,581
-----------
FINANCIALS - 8.80%
DIVERSIFIED FINANCIALS - 2.86%
China Everbright, Ltd. 282,000 263,950
-----------
REAL ESTATE - 5.94%
China Vanke Co., Ltd. B Shares 504,912 257,661
New World China Land, Ltd.** 761,600 290,512
-----------
548,173
-----------
TOTAL FINANCIALS 812,123
-----------
HEALTH CARE - 3.86%
PHARMACEUTICALS & BIOTECHNOLOGY - 3.86%
China Pharmaceutical Enterprise
& Investment Corp., Ltd. 1,502,000 192,584
Guangzhou Pharmaceutical
Co., Ltd. H Shares 1,466,000 163,532
-----------
TOTAL HEALTH CARE 356,116
-----------
SHARES VALUE
------ -----
INDUSTRIALS - 28.51%
CAPITAL GOODS - 11.89%
Beijing Enterprises
Holdings, Ltd. 94,000 $ 110,281
Cheung Kong Infrastructure
Holdings, Ltd. 103,000 176,307
China Resources
Enterprises, Ltd. 160,000 237,973
Citic Pacific, Ltd. 67,000 319,571
Shanghai Industrial
Holdings, Ltd. 118,000 253,423
-----------
1,097,555
-----------
TRANSPORTATION - 16.62%
China Merchants Holdings
International Co., Ltd. 348,000 274,413
China Southern
Airlines Co., Ltd. ADR** 9,500 141,313
Cosco Pacific, Ltd. 334,000 301,916
New World Infrastructure, Ltd.** 255,000 289,357
Shanghai Zhenhua Port
Machinery Co., Ltd. B Shares 253,000 101,200
Zhejiang Expressway
Co., Ltd. H Shares 2,312,000 426,875
-----------
1,535,074
-----------
TOTAL INDUSTRIALS 2,632,629
-----------
MATERIALS - 3.61%
Beijing Yanhua Petrochemical
Co., Ltd. H Shares 1,390,000 208,521
Yizheng Chemical Fibre
Co., Ltd. H Shares 488,000 125,141
-----------
TOTAL MATERIALS 333,662
-----------
INFORMATION TECHNOLOGY - 11.22%
SOFTWARE & SERVICES - 3.44%
Asiainfo Holdings, Inc.** 3,000 94,500
Computer & Technologies
Holdings, Ltd. 44,000 40,055
SINA.com** 8,500 182,750
-----------
317,305
-----------
TECHNOLOGY HARDWARE & EQUIPMENT - 7.78%
Eastern Communications
Co., Ltd. B Shares 167,700 158,309
Legend Holdings, Ltd. 450,000 478,895
Yuxing Infotech Holdings, Ltd. 272,000 81,085
-----------
718,289
-----------
TOTAL INFORMATION TECHNOLOGY 1,035,594
-----------
--------------------------------------------------------------------------------
12 800.789.ASIA [2742]
<PAGE>
MATTHEWS DRAGON CENTURY CHINA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
TELECOMMUNICATION SERVICES - 7.48%
China Mobile (Hong Kong), Ltd.** 68,000 $ 523,131
China Unicom, Ltd. ADR** 7,000 162,750
China Unicom, Ltd.** 2,000 4,642
-----------
TOTAL TELECOMMUNICATION SERVICES 690,523
-----------
UTILITIES - 14.18%
CLP Holdings, Ltd. 44,500 199,700
Guangdong Electric Power
Development Co., Ltd.
B Shares 376,896 306,380
Huaneng Power
International, Inc. ADR 27,200 440,300
Shandong International Power
Development Co., Ltd.
H Shares 1,888,000 363,114
-----------
TOTAL UTILITIES 1,309,494
-----------
TOTAL INVESTMENTS - 97.23%***
(Cost $8,753,406*) 8,976,958
CASH AND OTHER ASSETS,
LESS LIABILITIES - 2.77% 255,395
-----------
NET ASSETS - 100.00% $ 9,232,353
===========
* Cost for Federal income tax purposes is $8,872,238 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 1,282,721
Gross unrealized depreciation (1,178,001)
-----------
Net unrealized appreciation $ 104,720
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 2000.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 13
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
Co-Portfolio Managers: James M. Bogin and Mark W. Headley
Q: HOW DID THE FUND PERFORM RELATIVE TO ITS INDEX IN THE ONE-YEAR PERIOD ENDING
AUGUST 31, 2000?
A: In the period ending August 31, 2000, the TOPIX(1) Index was up 7.05% while
the Matthews Japan Fund fell (1.75%). This underperformance resulted largely
from the Fund's underweighting in technology stocks during the last part of
1999. Year-to-date, the Fund is up 2.82% while the TOPIX Index is down (15.3%),
outperforming by over 18%. Because the Fund had a relatively low weighting in
technology and Internet stocks during 1Q2000, it was relatively unscathed by
their decline. In the first part of the year, the brokerage and pharmaceutical
sectors also performed very strongly, and the Fund's relatively high weighting
in these industries contributed to outperformance.
Q: WHAT IS THE CURRENT MACRO SITUATION IN JAPAN?
A: It has been somewhat of a paradox this year that the Japanese stock market
has performed poorly, and sentiment has been poor, while the economy has been
recovering. Private capital investment, exports, and government expenditures
have been driving economic growth. Japan has lagged in capital expenditure for
technology in recent years, and as its 'catch-up' phase begins, information
technology expenditure may grow as much as 20% each year for the next three
years. In real terms, the economy may grow around 3% this year, which is
impressive, considering that many forecasters expected a pedestrian 1% growth
rate at the beginning of the year. Overtime hours, a leading indicator of
consumption, are now increasing, and this will hopefully lead to an increase in
consumption. Government economic policy has been a bit of an enigma. On the
spending side, there is still too much pork barrel spending on 'bridges to
nowhere', which does not lead to sustainable growth. The government plans a
change in tax policy, but at this writing, we do not know whether they plan to
raise them or lower them.
Q: WILL JAPAN FALL BACK INTO RECESSION?
A: Given that Japan is just now emerging from a 'lost decade' of sluggish or no
growth, we think it is unlikely to sink back into recession. Instead, the
economy is likely to shift further and further into services and away from
manufacturing. The biggest concern at present is deflation. Prices are still
falling in Japan, which, among other things, causes consumers to postpone
purchases.
Q: WHAT WAS THE OUTCOME OF THE PARLIAMENTARY ELECTION IN JUNE?
A: The election of Prime Minister Mori after the untimely death of the
incumbent, Mr. Obuchi, has not led to any substantive policy changes. Obuchi
accomplished real reform, including the lowering of taxes. Mr. Mori is much less
popular and as such, may be able to accomplish less. Japan's dominant Liberal
Democratic Party (LDP) saw its majority further eroded in Parliament. Over time,
it is hoped that pressure from other political parties will lead to further
economic deregulation.
Q: HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THE RESTRUCTURING?
A: We take the view that the entire economy is in the midst of a restructuring,
and several of the industries in which we invest shall be positively affected. A
shift from department store shopping to specialty stores benefits several of the
retail chains in which we are invested. In Japan, the mutual fund business is
just beginning to be reborn after a ten-year hiatus, and our exposure to
brokerage firms should be rewarded. We invest in both large well-known
technology firms and businesses that are continually renewing themselves in
terms of their product lines. By focusing on investing through a bottom-up or
company-by-company basis, we are continually searching for those companies that
will drive change in Japan rather than be overrun by it.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS JAPAN FUND
One Year .........................(1.75%)
Since inception (12/31/98) .......57.42%
--------------------------------------------------------------------------------
TOPIX(1)
(TOKYO PRICE INDEX)
One Year ......................... 7.05%
Since 12/31/98 ...................28.30%
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS TOPIX
JAPAN INDEX
FUND (TOKYO)(1)
12/31/98 $10,000 $10,000
02/99 11,310 9,937
05/99 15,370 11,258
08/99 21,770 14,080
11/99 22,840 17,094
02/00 23,323 16,659
05/00 21,238 15,096
08/00 21,320 15,156
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) TOPIX: The Tokyo Price Index is a capitalization-weighted index of all
companies of the Tokyo Stock Exchange.
--------------------------------------------------------------------------------
14 800.789.ASIA [2742]
<PAGE>
MATTHEWS JAPAN FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - JAPAN - 97.53%***
CONSUMER DISCRETIONARY - 31.27%
HOTELS, RESTAURANTS & LEISURE - 1.98%
Marche Corp. 39,600 $ 472,259
-----------
INTERNET & CATALOG RETAIL - 6.03%
Belluna Co., Ltd. 33,600 1,439,640
-----------
MEDIA - 0.03%
Aoi Advertising Promotion, Inc. 400 5,963
-----------
RETAIL - 23.23%
Arcland Sakamoto Co., Ltd. 59,000 663,791
Don Quijote Co., Ltd. 8,100 907,510
Himiko Co., Ltd. 76,000 847,928
Kyoto Kimono Yuzen Co., Ltd. 149 908,025
Thanks Japan Corp. 36,000 438,777
Tsutsumi Jewelry Co., Ltd. 30,000 590,662
USS Co., Ltd. 35,000 1,187,887
-----------
5,544,580
-----------
TOTAL CONSUMER DISCRETIONARY 7,462,442
-----------
CONSUMER STAPLES - 1.60%
FOOD & DRUG RETAILING - 1.60%
Eco's Co., Ltd. 48,000 382,524
-----------
TOTAL CONSUMER STAPLES 382,524
-----------
FINANCIALS - 27.82%
DIVERSIFIED FINANCIALS - 23.29%
Daiwa Securities Group, Inc. 51,000 635,946
Ichiyoshi Securities Co., Ltd. 222,000 1,446,559
Japan Securities
Finance Co., Ltd. 230 1,334,802
The 77 Bank, Ltd. 57,000 443,559
The Nikko Securities Co., Ltd. 95,000 916,510
Tsubasa Securities Co., Ltd. 163,000 782,449
-----------
5,559,825
-----------
INSURANCE - 4.53%
AFLAC, Inc. 20,000 1,080,000
-----------
TOTAL FINANCIALS 6,639,825
-----------
HEALTH CARE - 7.78%
PHARMACEUTICALS - 7.78%
Banyu Pharmaceutical Co., Ltd. 20,000 409,713
Chugai Pharmaceutical Co., Ltd. 22,000 391,899
Kissei Pharmaceutical Co., Ltd. 19,000 374,086
Nippon Shinyaku Co., Ltd. 75,000 682,074
-----------
TOTAL HEALTH CARE 1,857,772
-----------
INDUSTRIALS - 3.71%
MACHINERY - 3.71%
Nitto Kohki Co., Ltd. 31,000 886,462
-----------
TOTAL INDUSTRIALS 886,462
-----------
SHARES VALUE
------ -----
INFORMATION TECHNOLOGY - 25.35%
COMPUTERS & PERIPHERALS - 14.30%
Ferrotec Corp. 49,000 $ 790,174
Fujitsu, Ltd. 34,000 984,999
NEC Corp. 42,000 1,201,013
Woodland Corp. 21,000 437,090
-----------
3,413,276
-----------
ELECTRONICS EQUIPMENT & INSTRUMENTS - 11.05%
Honda Tsushin Kogyo Co., Ltd. 7,000 387,212
Canon, Inc. 11,000 491,937
Hitachi, Ltd. 92,000 1,089,406
Sony Corp. 6,000 669,417
-----------
2,637,972
-----------
TOTAL INFORMATION TECHNOLOGY 6,051,248
-----------
TOTAL INVESTMENTS - 97.53%***
(Cost $22,764,118*) 23,280,273
CASH AND OTHER ASSETS,
LESS LIABILITIES - 2.47% 588,502
-----------
NET ASSETS - 100.00% $23,868,775
===========
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
EXPIRATION UNREALIZED
DATE APPRECIATION
---------- ------------
Forward Foreign Exchange
Contracts to Deliver
1,645,500,000****
Japanese Yen in exchange for
USD, $16,000,000 ......... 09/29/00-11/30/00 $431,358
* Cost for Federal income tax purposes is $22,899,423 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 2,805,306
Gross unrealized depreciation (2,424,456)
-----------
Net unrealized appreciation $ 380,850
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 2000.
**** Principal amount denoted in Japanese Yen.
USD - United States Dollars
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 15
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS KOREA FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
Q: WHY DID THE FUND UNDERPERFORM ITS BENCHMARK THE FISCAL YEAR ENDING AUGUST 31,
2000?
A: During the year, which ended on August 31st, the Korean market as measured by
the KOSPI(1) declined by (21.55%) while the Matthews Korea Fund Class I Shares
fell by (22.92%). This marginal underperformance was due to the fact that in
Korea a small number of companies account for a large proportion of the market
and the Fund has adopted a higher degree of diversification. Specifically
Samsung Electronics, a world leader in DRAM chips, accounts for approximately
20% of the index, while the Matthews Korea Fund has held a weighting of
approximately 12% in this stock. During the year, and in particular in the
latter half of calendar 1999, Samsung Electronics performed well relative to the
Index, and our relative underweighting affected performance. While we believe
that Samsung Electronics is an attractive long-term investment, it is highly
exposed to the semi-conductor cycle and its earnings have historically been very
volatile. We believe that there are other attractive investments in Korea that
do not currently account for such a large percentage of the Index and that, over
time, will contribute positively to the relative performance of the portfolio.
Q: WHY HAS THE KOREAN MARKET BEEN SO WEAK IN RECENT MONTHS?
A: Following its dramatic recovery from its low point during the Asian Crisis,
the Korean market has "given back" about 45% from its highs. While some
correction might have been expected, the extent of the decline suggests that
some investors are concerned about the sustainability of Korea's recovery. In
the immediate aftermath to the Crisis, Korea commenced a drive to reform and
restructure its key industries and financial system and this was well received
by investors. This reform program has not proceeded as fast as the financial
markets would like and this has put pressure on the stock market. Although in
broad terms the restructuring process has been slow, the changes that we are
observing at individual companies are very real. Disclosure, transparency and
corporate governance are in general terms significantly better than prior to the
Crisis. While it is likely that the pace of economic recovery will slow in the
next twelve months, we believe it is sustainable and that current valuations are
very attractive.
Q: WHAT SECTORS DO YOU FIND ATTRACTIVE IN KOREA?
A: As "bottom-up" investors we are looking for companies that can achieve
long-term growth in earnings whose stocks are trading at reasonable multiples to
those projected earnings. We are finding many of these companies are either in
industries focused on manufacturing electronics goods or are in domestic
consumer-based businesses. In addition, the financial sector, which is going
through a period of great change in Korea, appears to us to offer many
attractive growth opportunities and is very reasonably priced. As a result, our
portfolio is currently concentrated in three sectors, technology (including
telecoms), financial services and consumer/retail.
Q: WHAT POSITIVE CHANGES DO YOU SEE IN KOREA?
A: Prior to the Financial Crisis, Korea's economy was dominated by a small
number of large conglomerates, known as Chaebol, whose business strategy was
dictated in large part by the government. Since the Crisis, the government has
been consciously seeking to reduce its role in business decisions and to
encourage more entrepreneurial activity. We are now seeing a high level of new
company formations, and many Korean companies are developing innovative products
and services at record rates. This has been reflected in the rapid development
of the new economy in Korea, an economy which is now widely recognized as one of
the world's most advanced users of the Internet. We are seeing the impact of
this every time we visit one of the portfolio's companies.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS KOREA FUND
CLASS I SHARES
One Year ........................(22.92%)
Five Years ...................... (8.59%)
Since inception (1/3/95) ........ (9.10%)
--------------------------------------------------------------------------------
KOSPI(1)
(SOUTH KOREAN STOCK PRICE INDEX)
One Year ........................(21.55%)
Five Years ......................(12.02%)
Since 1/3/95 ....................(12.02%)
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS KOREA
KOREA FUND STOCK
CLASS I PRICE
SHARES INDEX(1)
01/02/95 $10,000 $10,000
02/95 8,960 8,855
08/95 9,230 9,237
02/96 8,636 8,779
08/96 6,820 6,794
02/97 6,416 6,412
08/97 3,047 2,748
02/98 2,280 1,832
08/98 3,107 2,748
02/99 6,103 4,733
08/99 8,222 6,666
02/00 5,723 5,035
08/00 5,824 4,833
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) KOSPI: The South Korea Stock Price Index is a capitalization-weighted index
of all common stocks listed on the Korea Stock Exchange.
--------------------------------------------------------------------------------
16 800.789.ASIA [2742]
<PAGE>
MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - SOUTH KOREA - 97.03%
CONSUMER DISCRETIONARY - 11.99%
AUTO COMPONENTS - 0.66%
Global & Yuasa Battery Co., Ltd. 224,800 $ 427,804
Hankook Tire Co., Ltd. 164,568 403,720
------------
831,524
------------
AUTOMOBILES - 3.31%
Hyundai Motor Co., Ltd. 276,931 4,196,113
------------
INTERNET & CATALOG RETAIL - 0.01%
Hansol CSN Co., Ltd. 3,215 12,759
------------
RETAIL - 8.01%
LG Home Shopping, Inc. 30,400 3,070,846
Shinsegae Department Store Co. 122,420 6,094,777
Shinsegae Department
Stores Co. - Pfd. 27,504 997,214
------------
10,162,837
------------
TOTAL CONSUMER DISCRETIONARY 15,203,233
------------
CONSUMER STAPLES - 15.69%
BEVERAGES - 8.04%
Hite Brewery Co., Ltd. 156,281 6,695,240
Lotte Chilsung Beverage Co. 34,260 3,507,112
------------
10,202,352
------------
FOOD PRODUCTS - 4.78%
Lotte Confectionery Co., Ltd. 23,990 2,444,979
Nong Shim Co., Ltd. 100,308 3,618,778
------------
6,063,757
------------
PERSONAL PRODUCTS - 2.87%
Pacific Corp. 147,450 3,643,860
------------
TOTAL CONSUMER STAPLES 19,909,969
------------
ENERGY - 0.96%
OIL & GAS - 0.96%
SK Corp. GDR 59,938 242,749
SK Corp. GDR** 241,000 976,050
------------
TOTAL ENERGY 1,218,799
------------
FINANCIALS - 23.78%
BANKS - 11.58%
Hana Bank 1,034,430 5,560,499
Kookmin Bank 309,245 3,765,328
Shinhan Bank 491,702 5,366,038
------------
14,691,865
------------
DIVERSIFIED FINANCIALS - 6.94%
Dongwon Securities Co. 184,350 1,163,878
Good Morning Securities Co., Ltd. 941,810 2,905,064
Samsung Securities Co., Ltd. 167,075 3,405,542
Seoul Securities Co., Ltd. 203,000 1,332,888
------------
8,807,372
------------
SHARES VALUE
------ -----
INSURANCE - 5.26%
Samsung Fire & Marine Insurance 249,942 $ 6,672,634
------------
TOTAL FINANCIALS 30,171,871
------------
HEALTH CARE - 1.26%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.97%
Shinhung Co., Ltd. 342,700 930,351
Suheung Capsule Co., Ltd. 35,050 306,638
------------
1,236,989
------------
PHARMACEUTICALS - 0.29%
Hanmi Pharmaceutical
Industrial Co., Ltd. 51,090 370,935
------------
TOTAL HEALTH CARE 1,607,924
------------
INDUSTRIALS - 3.08%
COMMERCIAL SERVICES & SUPPLIES - 1.27%
S1 Corp. 135,635 1,614,775
------------
ELECTRICAL EQUIPMENT - 1.76%
LG Cable, Ltd. 161,501 2,228,605
------------
MACHINERY - 0.05%
Hanjin Heavy Industries Co., Ltd. 26,139 67,661
------------
TOTAL INDUSTRIALS 3,911,041
------------
INFORMATION TECHNOLOGY - 18.59%
ELECTRONICS EQUIPMENT & INSTRUMENTS - 4.29%
Dae Duck GDS Co., Ltd. 221,233 2,105,081
Dae Duck Industrial Co., Ltd. 5,924 40,072
Samsung SDI Co., Ltd. 73,793 3,294,479
------------
5,439,632
------------
IT CONSULTING & SERVICES - 0.91%
Comtec Systems Co., Ltd. 198,270 815,433
Locus Corp.** 9,600 340,275
------------
1,155,708
------------
INTERNET SOFTWARE & SERVICES - 3.13%
Daou Technology, Inc. 192,851 1,295,820
Korea Next Education
Service, Inc.** 328,440 1,104,921
Serome Technology, Inc. 69,560 1,571,570
------------
3,972,311
------------
OFFICE ELECTRONICS - 0.98%
Sindo Ricoh Co. 50,556 1,249,366
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 9.28%
Samsung Electronics 47,724 11,772,279
------------
TOTAL INFORMATION TECHNOLOGY 23,589,296
------------
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 17
<PAGE>
MATTHEWS KOREA FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
MATERIALS - 0.52%
CHEMICALS - 0.52%
Han Kuk Carbon Co., Ltd. 121,188 $ 306,044
Honam Petrochemical Corp. 50,790 350,434
Korea Fine Chemical Co., Ltd. 374 6,780
------------
TOTAL MATERIALS 663,258
------------
TELECOMMUNICATION SERVICES - 12.74%
TELECOMMUNICATION SERVICES - 6.00%
Dacom Corp.** 13,618 1,228,230
Korea Telecom Corp. 51,100 3,498,074
Korea Telecom Corp. ADR** 76,317 2,890,506
------------
7,616,810
------------
WIRELESS TELECOMMUNICATION SERVICES - 6.74%
Korea Telecom Freetel** 21,670 1,000,680
KT M.Com Co., Ltd.** 230,355 2,960,594
SK Telecom Co., Ltd. 20,900 4,599,414
------------
8,560,688
------------
TOTAL TELECOMMUNICATION SERVICES 16,177,498
------------
UTILITIES - 8.42%
Daehan City Gas Co., Ltd. 57,492 762,239
Korea Electric Power Corp. 240,080 7,058,947
Korea Electric Power Corp. ADR 132,900 2,242,687
Seoul City Gas Co., Ltd. 36,750 619,820
------------
TOTAL UTILITIES 10,683,693
------------
TOTAL EQUITIES
(Cost $111,994,210) 123,136,582
------------
INTERNATIONAL DOLLAR BONDS
SOUTH KOREA - 2.08%
INFORMATION TECHNOLOGY - 2.08%
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.08%
Samsung Electronics Co.
0.250%, 12/31/06 830,000 2,641,475
------------
(Cost $899,232)
VALUE
-----
TOTAL INVESTMENTS - 99.11%***
(Cost $112,893,442*) $125,778,057
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.89% 1,130,170
------------
NET ASSETS - 100.00% $126,908,227
============
* Cost for Federal income tax purposes is $113,146,510
and net unrealized appreciation consists of:
Gross unrealized appreciation $ 29,548,934
Gross unrealized depreciation (16,917,387)
------------
Net unrealized appreciation $ 12,631,547
============
** Non-income producing security
*** As a percentage of net assets as of August 31, 2000.
ADR - American Depositary Receipt
GDR - Government Depositary Receipt
Pfd. - Preferred
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
18 800.789.ASIA [2742]
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
--------------------------------------------------------------------------------
MATTHEWS PACIFIC TIGER FUND
Co-Portfolio Managers: G. Paul Matthews and Mark W. Headley
Q: HOW HAS THE FUND PERFORMED RELATIVE TO ITS BENCHMARK?
A: The Matthews Pacific Tiger Fund Class I Shares returned 21.28% in
twelve-month period ending August 31, 2000. This was significantly better than
(2.50%) for the MSCI Far East ex-Japan Index(1) over the same period. The
outperformance of the Fund can be largely attributed to individual stock
selection. While many similar funds are run from a top-down perspective with
country weightings driving the investment process, we search the region for
companies that meet our desired characteristics with bottom-up, company
considerations driving the investment process. Excellent returns were seen from
most of our technology and telecommunications holdings in the first half of the
period. More recently, performance has been helped by holdings in the financial
sector, the energy sector and the consumer/retail sector.
Q: HOW IS THE PORTFOLIO POSITIONED IN GENERAL?
A: The Fund has consistently had the majority of its 40 to 50 holdings in three
general areas, technology/communications, financials and consumer retail. We
believe each of these sectors has considerable long-term growth potential and we
strive to find Asia's regional and global winners in their respective niches.
This industry diversification is important to our risk control process as well.
The Fund also has consistently invested across the range of company sizes from
Asia's largest companies to its smaller companies. This diversification of the
portfolios allows for participation in huge globally competitive companies as
well as locally oriented companies with strong domestic businesses.
While the portfolio is driven by bottom-up considerations, we are constantly
analyzing domestic policies in each country and intra-regional policies that can
have an impact on our decisions. For example, the actions of the Malaysian
government to impose capital controls during the 97/98 period has led us to
exclude the country from our investment universe until this policy is renounced
by the government.
Q: LOOKING AHEAD, WHAT ARE THE KEY FACTORS FOR ASIAN FINANCIAL MARKETS?
A: Asian economies are generally continuing to recover impressively from the
after-effects of the 97/98 recession. Individual companies have been focusing on
profitability rather than market share. We are particularly impressed with the
improvement in communications between company management and institutional
investors such as ourselves. We believe the coming years in Asia will see slower
absolute growth rates than in the previous decade, but will also see stronger
corporate profitability. Strong corporate earnings, such as we are currently
seeing, can be attributed to more focused management efforts and more open
market environments in most countries and industries. While there are always
exceptions, Asia is moving to a much more free competitive environment similar
to the U.S. This transformation is very positive for long-term fundamentally
driven investors.
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
ANNUALIZED PERFORMANCE INFORMATION
(AS OF AUGUST 31, 2000)
--------------------------------------------------------------------------------
MATTHEWS
PACIFIC TIGER FUND
CLASS I SHARES
One Year ........................21.28%
Five Years ...................... 5.66%
Since inception (9/12/94) ....... 4.36%
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
EX-JAPAN INDEX(1)
One Year ........................(2.50%)
Five Years ......................(1.52%)
Since 9/12/94 ...................(3.23%)
--------------------------------------------------------------------------------
MSCI ALL COUNTRY FAR EAST
FREE EX-JAPAN INDEX(2)
One Year ........................(7.01%)
Five Years ......................(4.06%)
Since 9/12/94 ...................(4.66%)
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
MATTHEWS
PACIFIC MSCI
TIGER ALL COUNTRY
FUND FAR EAST
CLASS I EX-JAPAN
SHARES INDEX(1)
09/12/94 $10,000 $10,000
02/95 9,241 8,879
08/95 9,793 8,873
02/96 10,965 9,563
08/96 10,835 9,658
02/97 12,439 10,326
08/97 11,349 9,017
02/98 7,693 6,769
08/98 4,151 3,798
02/99 6,517 5,520
08/99 10,638 8,430
02/00 13,129 9,299
08/00 12,901 8,220
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
(1) The MSCI All Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Malaysia, Singapore, Korea, Indonesia, Philippines, Thailand, and China.
(2) The MSCI All Country Far East ex-Japan Free Index is an unmanaged
capitalization-weighted index of stock markets of Hong Kong, Taiwan,
Singapore, Korea, Indonesia, Philippines, Thailand and China that excludes
securities not available to foreign investors. Malaysia is not represented
in the Index, and Taiwan is only represented at 50% of its total market cap.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 19
<PAGE>
MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
EQUITIES - 97.34%***
CHINA/HONG KONG - 51.60%
Asia Satellite Telecommunications
Holdings, Ltd. ADR 125,200 $ 3,771,650
China Hong Kong Photo
Products Holdings, Ltd. 16,886,000 1,688,773
China Mobile HK, Ltd. ADR** 57,000 2,198,062
China Mobile HK, Ltd.** 280,800 2,160,222
China Unicom, Ltd.** 6,000 13,925
Dah Sing Financial Group 761,600 3,544,733
Dao Heng Bank Group, Ltd. 561,000 2,841,253
Dickson Concepts
International, Ltd. 2,661,000 2,371,262
ehealthcareasia, Ltd.** 532,525 38,236
Giordano International, Ltd.** 7,413,000 4,063,311
Guangdong Electric Power
Development Co., Ltd.
B Shares 3,540,294 2,877,919
HSBC Holdings Plc. ADR 32,300 2,339,731
Huaneng Power
International, Inc. ADR 219,800 3,558,012
Hutchison Whampoa, Ltd. 358,320 5,053,749
Legend Holdings, Ltd. 5,036,000 5,359,370
Li & Fung, Ltd. 1,120,000 4,882,552
Quality Healthcare
Asia, Ltd.** 10,650,500 3,345,693
Shangri-La Asia, Ltd. 3,584,000 3,630,321
Vitasoy International
Holdings, Ltd. 19,620,750 3,547,192
Wuxi Little Swan
Co., Ltd. B Shares 2,143,703 1,104,945
------------
TOTAL CHINA/HONG KONG 58,390,911
------------
INDONESIA - 0.90%
PT Hero Supermarket** 5,564,500 1,022,051
------------
PHILIPPINES - 0.93%
Benpres Holdings Corp.** 11,869,000 1,052,566
------------
SINGAPORE - 9.27%
CSE Systems &
Engineering, Ltd.** 3,101,000 2,180,123
Parkway Holdings, Ltd. 1,385,000 3,524,664
Venture Manufacturing, Ltd. 238,800 3,052,466
Vickers Ballas Holdings, Ltd. 3,615,000 1,732,831
------------
TOTAL SINGAPORE 10,490,084
------------
SHARES VALUE
------ -----
SOUTH KOREA - 21.48%
Comtec Systems Co., Ltd. 239,770 $ 986,112
Daeduck Electronics Co., Ltd. 2,839 27,014
Daou Technology, Inc. 12,565 84,428
Hana Bank 657,549 3,534,604
Hite Brewery Co., Ltd. 109,677 4,698,676
KT M.com Co., Ltd.** 93,330 1,199,506
Samsung Electronics 19,498 4,809,653
Samsung Fire & Marine Insurance 87,031 2,323,443
Samsung Securities Co., Ltd. 124,894 2,545,754
Shinsegae Department Store Co. 58,240 2,899,525
SK Telecom Co., Ltd. 5,480 1,205,971
------------
TOTAL SOUTH KOREA 24,314,686
------------
TAIWAN - 8.79%
Bank Sinopac** 5,340,500 3,045,324
VIA Technologies, Inc.** 428,321 5,712,780
WYSE Technology Taiwan, Ltd. 1,000,000 1,192,010
------------
TOTAL TAIWAN 9,950,114
------------
THAILAND - 4.37%
Advanced Info Service
Public Co., Ltd.** 140,000 1,692,195
Bangkok Bank Public Co., Ltd.** 723,100 747,516
Shinawatra Satellite
Public Co., Ltd.** 2,962,500 2,500,765
------------
TOTAL THAILAND 4,940,476
------------
TOTAL EQUITIES
(Cost $92,749,604) 110,160,888
------------
FACE
AMOUNT
--------
INTERNATIONAL DOLLAR BONDS - 2.45%
SINGAPORE - 2.45%
Finlayson Global Corp.
(DBS Holdings)
0.000%, 02/19/04
(Cost $2,325,946) $1,430,000 2,777,775
------------
--------------------------------------------------------------------------------
20 800.789.ASIA [2742]
<PAGE>
MATTHEWS PACIFIC TIGER FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
VALUE
-------
TOTAL INVESTMENTS - 99.79%***
(Cost $95,075,550*) $112,938,663
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.21% 233,872
------------
NET ASSETS - 100.00% $113,172,535
============
* Cost for Federal income tax purposes is $95,206,297 and
net unrealized appreciation consists of:
Gross unrealized appreciation $30,219,088
Gross unrealized depreciation (12,486,722)
-----------
Net unrealized appreciation $17,732,366
===========
** Non-income producing security
*** As a percentage of net assets as of August 31, 2000.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
MARKET SECTOR DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CONSUMER DISCRETIONARY ...................... 22.54%
Distributors .............................. 1.50%
Hotels Restaurants & Leisure .............. 3.21%
Household Durables ........................ 0.98%
Media ..................................... 4.27%
Multiline Retail .......................... 2.57%
Specialty Retail .......................... 5.69%
Textiles & Apparel ........................ 4.32%
CONSUMER STAPLES ............................ 8.21%
Beverages ................................. 4.16%
Food & Drug Retailing ..................... 0.91%
Food Products ............................. 3.14%
FINANCIALS .................................. 27.00%
Banks ..................................... 14.60%
Diversified Financials .................... 10.34%
Insurance ................................. 2.06%
HEALTH CARE ................................. 6.08%
Health Care Providers & Services .......... 6.08%
INFORMATION TECHNOLOGY ...................... 20.76%
Computers & Peripherals ................... 5.80%
Electronic Equipment & Instruments ........ 2.73%
Internet Software & Services .............. 0.11%
IT Consulting & Services .................. 2.80%
Semiconductor Equipment & Products ........ 9.32%
TELECOMMUNICATION SERVICES .................. 9.71%
Diversified Telecommunication Services .... 2.21%
Wireless Telecommunication Services ....... 7.50%
UTILITIES ................................... 5.70%
Electric Utilities ........................ 5.70%
-------
TOTAL INVESTMENTS ........................... 100.00%
=======
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 21
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS MATTHEWS MATTHEWS
ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC
AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER
FUND FUND CHINA FUND FUND FUND FUND
------------ ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Cost $10,483,713,
$29,679,894, $8,753,406, $22,764,118,
$112,893,442 and $95,075,550,
respectively) .............................. $11,139,084 $24,650,381 $8,976,958 $23,280,273 $125,778,057 $112,938,663
Cash ......................................... 226,027 834,413 33,570 - - 149,327
Foreign currency, at value (Cost $23,166,
$19,510, $344, $0, $0, and
$0, respectively) .......................... 23,152 19,497 292 - - -
Dividends and interest receivable ............ 114,579 6,938 31,588 7,575 33,302 282,497
Receivable for securities sold ............... - 446,359 97,722 - 4,845,122 -
Receivable for capital shares sold ........... 72,004 39,401 113,559 625,472 469,620 290,999
Unrealized appreciation on forward
foreign exchange contracts ................. - - - 431,358 - -
Deferred organization costs (Note 1-F) ....... - 24,686 7,628 - - -
Other assets ................................. 366 24,063 12,074 9,223 41,563 4,668
----------- ----------- ---------- ----------- ------------ ------------
Total assets ............................... 11,575,212 26,045,738 9,273,391 24,353,901 131,167,664 113,666,154
----------- ----------- ---------- ----------- ------------ ------------
LIABILITIES:
Payable for securities purchased ............. - 539,403 - - 3,342,637 -
Payable for capital shares redeemed .......... 79,984 859,891 26,270 13,000 436,271 263,929
Cash overdraft ............................... - - - 430,826 161,582 -
Due to Advisor (Note 2) ...................... 8,797 14,675 3,707 6,286 110,266 20,309
Accrued expenses ............................. 17,464 37,474 11,061 33,991 206,094 157,320
Accrued distribution expense ................. - - - - 2,587 362
Other liabilities ............................ - 24,315 - 1,023 - 51,699
----------- ----------- ---------- ----------- ------------ ------------
Total liabilities .......................... 106,245 1,475,758 41,038 485,126 4,259,437 493,619
----------- ----------- ---------- ----------- ------------ ------------
NET ASSETS: ..................................... $11,468,967 $24,569,980 $9,232,353 $23,868,775 $126,908,227 $113,172,535
=========== =========== ========== =========== ============ ============
CLASS I SHARES:
Net assets (Applicable to 1,091,869,
3,226,648, 930,092, 1,149,803, 22,168,141
and 9,029,279 shares of beneficial interest
issued and outstanding, respectively,
unlimited number of shares authorized
with a $0.001 par value) ................... $11,468,967 $24,569,980 $9,232,353 $23,868,775 $115,145,274 $111,501,997
=========== =========== ========== =========== ============ ============
Net asset value, offering price and
redemption price per Class I share ......... $10.50 $7.61 $9.93 $20.76 $5.19 $12.35
=========== =========== ========== =========== ============ ============
CLASS A SHARES:*
Net assets (Applicable to 0, 0, 0, 0,
2,290,437, and 135,437 shares of
beneficial interest issued and outstanding,
respectively, unlimited number of shares
authorized with a $0.001 par value) ........ N/A N/A N/A N/A $ 11,762,953 $ 1,670,538
=========== =========== ========== =========== ============ ============
Net asset value and redemption price
per Class A share .......................... N/A N/A N/A N/A $5.14 $12.33
=========== =========== ========== =========== ============ ============
Offering price per Class A share
(Net asset value / 0.9505) ................. N/A N/A N/A N/A $5.41 $12.97
=========== =========== ========== =========== ============ ============
NET ASSETS CONSIST OF:
Capital paid-in .............................. $10,054,181 $31,906,826 $8,755,897 $22,086,425 $ 48,780,690 $ 84,076,515
Accumulated undistributed net
investment income (loss) ................... 229,562 515,388 118,380 742,093 - 998,574
Accumulated net realized gain (loss)
on investments ............................. 529,865 (2,822,740) 134,533 92,696 65,243,043 10,243,705
Net unrealized appreciation (depreciation)
on investments and foreign currency
related transactions ....................... 655,359 (5,029,494) 223,543 947,561 12,884,494 17,863,741
----------- ----------- ---------- ----------- ------------ ------------
$11,468,967 $24,569,980 $9,232,353 $23,868,775 $126,908,227 $113,172,535
=========== =========== ========== =========== ============ ============
<FN>
* At August 31, 2000, the Matthews Asian Growth and Income Fund, Matthews Asian
Technology Fund, Matthews Dragon Century China Fund and Matthews Japan Fund
did not offer Class A shares.
N/A - Not Applicable
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
22 800.789.ASIA [2742]
<PAGE>
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS MATTHEWS MATTHEWS
ASIAN GROWTH ASIAN DRAGON MATTHEWS MATTHEWS PACIFIC
AND INCOME TECHNOLOGY CENTURY JAPAN KOREA TIGER
FUND FUND* CHINA FUND FUND FUND FUND
------------ ----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax
withheld of $7,478, $31,773, $409,
$38,145, $565,290, and
$157,221, respectively) .................... $ 231,549 $ 611,618 $ 242,663 $ 218,781 $ 2,764,889 $ 3,881,568
Interest ..................................... 672,775 15,941 11,697 26,266 4,073 (75,514)
Other income (See Note 1K) ................... 24,847 133,462 30,325 151,786 1,074,793 226,710
---------- ---------- ---------- ---------- ----------- -----------
Total investment income .................... 929,171 761,021 284,685 396,833 3,843,755 4,032,764
---------- ---------- ---------- ---------- ----------- -----------
EXPENSES:
Investment advisory fees (Note 2) ............ 114,463 117,827 77,085 260,067 1,783,564 1,169,262
Recovery of reimbursed
expenses (Note 2) .......................... - - - 34,633 - -
Distribution expenses ........................ - - - - 35,229 4,457
Transfer agent fees .......................... 33,004 46,971 25,297 82,565 394,632 349,888
Administration fees .......................... 21,205 25,570 13,622 44,242 254,892 213,746
Accounting fees .............................. 11,513 16,789 6,064 24,697 138,230 93,002
Professional fees ............................ 4,252 4,443 3,065 14,168 79,895 50,013
Custodian fees ............................... 21,115 51,296 14,138 33,667 334,447 224,025
Directors fees (Note 2) ...................... 945 664 621 2,128 13,857 10,157
Insurance expense ............................ 841 44 563 936 16,678 8,476
Amortization of organization
costs (Note 1-F) ........................... 223 25,315 3,096 - 1,393 223
Printing expense ............................. 2,540 2,119 5,693 4,242 27,963 19,007
Registration expenses ........................ 12,838 23,857 16,125 19,084 46,730 40,084
Other expenses ............................... 1,621 499 774 2,339 13,808 10,109
---------- ---------- ---------- ---------- ----------- -----------
Total expenses .............................. 224,560 315,394 166,143 522,768 3,141,318 2,192,449
Expenses reimbursed and
waived (Note 2) ............................ (7,819) (78,544) (12,001) - - (84,180)
---------- ---------- ---------- ---------- ----------- -----------
Net expenses ............................... 216,741 236,850 154,142 522,768 3,141,318 2,108,269
---------- ---------- ---------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .................... 712,430 524,171 130,543 (125,935) 702,437 1,924,495
---------- ---------- ---------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain (loss) on investments ...... 1,425,875 (2,822,740) 909,244 2,394,637 77,627,464 20,371,270
Net realized gain (loss) on foreign
currency related transactions .............. (3,569) (8,783) 347 (1,245,482) (282,548) (25,149)
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions ...... (151,186) (5,029,494) 81,652 (2,902,438) (116,843,995) (1,074,283)
---------- ---------- ---------- ---------- ----------- -----------
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions ....................... 1,271,120 (7,861,017) 991,243 (1,753,283) (39,499,079) 19,271,838
---------- ---------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS .............................. $1,983,550 ($7,336,846) $1,121,786 ($1,879,218) ($38,796,642) $21,196,333
========== ========== ========== ========== =========== ===========
<FN>
* The Fund commenced operations on December 27, 1999.
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS ASIAN MATTHEWS ASIAN
GROWTH AND INCOME FUND TECHNOLOGY FUND
-------------------------- -------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000*
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income ........................ $ 712,430 $ 530,190 $ 524,171
Net realized gain (loss) on investments and
foreign currency related transactions ...... 1,422,306 (13,355) (2,831,523)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions .............. (151,186) 2,441,914 (5,029,494)
----------- ----------- -----------
Net increase (decrease) in net assets
from operations ............................ 1,983,550 2,958,749 (7,336,846)
----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I .................................... (672,202) (436,230) -
Class A .................................... N/A N/A N/A
Realized gains on investments:
Class I .................................... - - -
Class A .................................... N/A N/A N/A
----------- ----------- -----------
Net decrease in net assets resulting
from distributions ......................... (672,202) (436,230) -
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (NET):
Class I .................................... (486,162) 4,058,565 31,906,826
Class A .................................... N/A N/A N/A
----------- ----------- -----------
Increase (decrease) in net assets derived from
capital share transactions ................. (486,162) 4,058,565 31,906,826
----------- ----------- -----------
Total increase in net assets ................. 825,186 6,581,084 24,569,980
NET ASSETS:
Beginning of period .......................... 10,643,781 4,062,697 -
----------- ----------- -----------
End of period (including undistributed net
investment income (loss) of $229,562,
$94,927, and $515,388, respectively) ....... $11,468,967 $10,643,781 $24,569,980
=========== =========== ===========
<FN>
*The Asian Technology Fund commenced operations on December 27, 1999.
N/A - Not Applicable
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
24 800.789.ASIA [2742]
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS DRAGON MATTHEWS
CENTURY CHINA FUND JAPAN FUND
-------------------------- --------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000 1999*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................. $ 130,543 $ 88,561 ($125,935) ($45,727)
Net realized gain (loss) on investments and
foreign currency related transactions ...... 909,591 (513,007) 1,149,155 448,510
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related transactions ...... 81,652 2,028,439 (2,902,438) 3,849,999
---------- ---------- ----------- -----------
Net increase (decrease) in
net assets from operations ................. 1,121,786 1,603,993 (1,879,218) 4,252,782
---------- ---------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I .................................... (100,689) (40,925) - -
Class A .................................... N/A N/A - -
Realized gains on investments:
Class I .................................... - - (601,550) -
Class A .................................... N/A N/A N/A N/A
---------- ---------- ----------- -----------
Net decrease in net assets resulting
from distributions ......................... (100,689) (40,925) (601,550) -
---------- ---------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (NET):
Class I .................................... 1,965,983 3,106,211 1,863,670 20,233,091
Class A .................................... N/A N/A N/A N/A
---------- ---------- ----------- -----------
Increase in net assets derived from
capital share transactions ................. 1,965,983 3,106,211 1,863,670 20,233,091
---------- ---------- ----------- -----------
Total increase (decrease) in net assets ...... 2,987,080 4,669,279 (617,098) 24,485,873
NET ASSETS:
Beginning of period .......................... 6,245,273 1,575,994 24,485,873 -
---------- ---------- ----------- -----------
End of period (including undistributed
net investment income of $118,380,
$88,179, $742,093 and $0, respectively) .... $9,232,353 $6,245,273 $23,868,775 $24,485,873
========== ========== =========== ===========
<FN>
*The Japan Fund commenced operations on December 31, 1998.
N/A - Not Applicable
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS KOREA MATTHEW PACIFIC
FUND TIGER FUND
-------------------------- ---------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ........................ $ 702,437 $ 837,323 $ 1,924,495 $ 2,241,628
Net realized gain (loss) on investments and
foreign currency related transactions ...... 77,344,916 37,190,472 20,346,121 (25,438)
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency related transactions .............. (116,843,995) 143,518,288 (1,074,283) 47,488,287
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets from operations ................. (38,796,642) 181,546,083 21,196,333 49,704,477
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class I .................................... - - (2,508,804) (233,408)
Class A .................................... - - (36,563) (1,392)
Realized gains on investments:
Class I .................................... (22,901,449) - - -
Class A .................................... (1,790,122) - - -
------------ ------------ ------------ ------------
Net decrease in net assets resulting
from distributions ......................... (24,691,571) - (2,545,367) (234,800)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (NET):
Class I .................................... (57,694,292) (6,709,788) (16,792,146) 29,385,046
Class A .................................... 1,963,559 560,219 156,788 837,725
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from
capital share transactions ................. (55,730,733) (6,149,569) (16,635,358) 30,222,771
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ...... (119,218,946) 175,396,514 2,015,608 79,692,448
NET ASSETS:
Beginning of period .......................... 246,127,173 70,730,659 111,156,927 31,464,479
------------ ------------ ------------ ------------
End of period (including undistributed
net investment income (loss) of
$0, ($643,314), $1,897,661
and $1,634,802, respectively ............... $126,908,227 $246,127,173 $113,172,535 $111,156,927
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
26 800.789.ASIA [2742]
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each year presented.
<TABLE>
<CAPTION>
MATTHEWS ASIAN
GROWTH AND INCOME FUND
--------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year ......... $ 9.37 $ 6.54 $11.71 $10.53 $ 9.88
------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income ................... 0.63 0.59 0.13 0.10 0.25
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency .................. 1.09 2.75 (4.15) 1.42 0.75
------ ------ ------ ------ ------
Total from investment operations ...... 1.72 3.34 (4.02) 1.52 1.00
------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ................... (0.59) (0.51) (0.10) (0.10) (0.26)
Net realized gains on investments ....... - - (1.05) (0.24) (0.09)
------ ------ ------ ------ ------
Total distributions ................... (0.59) (0.51) (1.15) (0.34) (0.35)
------ ------ ------ ------ ------
Net Asset Value, end of year ............... $10.50 $ 9.37 $ 6.54 $11.71 $10.53
====== ====== ====== ====== ======
TOTAL RETURN ............................... 18.68% 52.65% (35.27%) 14.67% 10.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(in 000's) ............................ $11,469 $10,644 $4,063 $6,166 $3,272
Ratio of expenses to average net
assets before reimbursement
and waiver of expenses by
Advisor and Administrator ............. 1.97% 2.05% 3.76% 4.45% 8.73%
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor
and Administrator (Note 2) ............ 1.90% 1.90% 1.90% 1.90% 1.85%
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by Advisor
and Administrator ..................... 6.17% 7.98% (0.36%) (1.55%) (4.13%)
Ratio of net investment income
to average net assets after
reimbursement and waiver
of expenses by Advisor and
Administrator ......................... 6.24% 8.13% 1.50% 1.00% 2.75%
Portfolio turnover ...................... 62.23% 34.82% 54.67% 50.20% 88.16%
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 27
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS ASIAN MATTHEWS DRAGON MATTHEWS
TECHNOLOGY FUND CENTURY CHINA FUND JAPAN FUND
------------------- ---------------------------------------------- ------------------------------
PERIOD YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000(3) 2000 1999 1998(4) 2000 1999(5)
-------------- -------------- -------------- -------------- -------------- --------------
CLASS I CLASS I CLASS I CLASS I CLASS I CLASS I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period ........................ $10.00 $ 8.48 $ 4.36 $10.00 $21.70 $10.00
------ ------- ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss) ..... 0.26(6) 0.12(6) 0.12 0.10 (0.11)(6) (0.04)
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency ........... (2.65) 1.44 4.11 (5.74) (0.29) 11.74
------ ------- ------ ------ ------ ------
Total from investment operations (2.39) 1.56 4.23 (5.64) 0.40 11.70
------ ------- ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............ - (0.11) (0.11) - - -
Net realized gains on investments - - - - (0.54) -
------ ------- ------ ------ ------ ------
Total distributions ............ - (0.11) (0.11) - (0.54) -
------ ------- ------ ------ ------ ------
Net Asset Value, end of period ...... $ 7.61 $ 9.93 $ 8.48 $ 4.36 $20.76 $21.70
====== ====== ====== ====== ====== ======
TOTAL RETURN ........................ (23.90%)(2) 18.54% 97.79% (56.40%)(2) (1.75%) 117.00%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) ..................... $24,570 $9,232 $6,245 $1,576 $23,869 $24,486
Ratio of expenses to average
net assets before reimbursement
waiver or recovery of expenses
by Advisor and Administrator ... 2.66%(1) 2.15% 2.09% 7.84%(1) 1.88% 3.45%(1)
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor
and Administrator (Note 2) ..... 2.00%(1) 2.00% 2.00% 2.00%(1) 2.00% 2.00%(1)
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by
Advisor and Administrator ...... 3.75%(1) 1.54% 2.93% (3.45%)(1) (0.36%) (2.54%)(1)
Ratio of net investment income
(loss) to average net assets
after reimbursement and
waiver of expenses by Advisor
and Administrator .............. 4.41%(1) 1.69% 3.02% 2.38%(1) (0.48%) (1.09%)(1)
Portfolio turnover ............... 50.35%(2) 80.90% 40.27% 11.84%(2) 223.00% 28.92%(2)
<FN>
(1) Annualized
(2) Not annualized
(3) The Asian Technology Fund commenced operations on December 27, 1999.
(4) The Dragon Century China Fund Class I commenced operations on February 19,
1998.
(5) The Japan Fund commenced operations on December 31, 1998.
(6) Based on average shares method.
# Amount represents less than $0.01 per share.
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
28 800.789.ASIA [2742]
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS KOREA
FUND
-----------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 2000 1999 1999 1998(5) 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period ........................ $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 5.32 $ 6.19 $ 7.23 $ 9.13
------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss) ..... 0.01(6) 0.03(6) 0.01 0.03 (0.04) (0.03) (0.04)(4) (0.07)
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency ........... (1.43) (1.45) 5.42 5.43 (3.27) (4.13) (1.00)(4) (1.75)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................... (1.42) (1.42) 5.43 5.46 (3.31) (4.16) (1.04) (1.82)
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net realized gains on investments (0.88) (0.88) - - - - - (0.08)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of period ...... $ 5.14 $ 5.19 $ 7.44 $ 7.49 $ 2.01 $ 2.03 $ 6.19 $ 7.23
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN ........................ (23.08%)(3) (22.92%) 270.15%(3) 268.97% (62.03%)(2,3) (67.21%) (14.38%) (20.11%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) ................ $11,763 $115,145 $15,281 $230,846 $4,123 $66,607 $19,356 $2,721
Ratio of expenses to average net
assets before reimbursement
and waiver of expenses by
Advisor and Administrator ........ 2.00% 1.75% 2.02% 1.77% 2.97%(1) 2.07% 2.90% 11.36%
Ratio of expenses to average
net assets after reimbursement
and waiver of expenses by
Advisor and Administrator
(Note 2) ......................... 2.00% 1.75% 2.02% 1.77% 2.68%(1) 2.06% 2.50% 2.23%
Ratio of net investment income
(loss) to average net assets before
reimbursement and waiver
of expenses by Advisor and
Administrator .................... 0.17% 0.42% (0.62%) (0.37%) (2.03%)(1) (1.13%) (1.81%) (10.44%)
Ratio of net investment income
(loss) to average net assets after
reimbursement and waiver of
expenses by Advisor and
Administrator .................... 0.17% 0.42% (0.62%) (0.37%) (1.74%)(1) (1.12%) (1.41%) (1.31%)
Portfolio turnover .................. 47.80% 47.80% 57.06% 57.06% 94.01% 94.01% 112.68% 139.71%
<FN>
(1) Annualized
(2) Not annualized
(3) Total return calculation does not reflect sales load.
(4) Calculated using the average shares method.
(5) The Korea Fund Class A commenced operations on October 9, 1997.
(6) Based on average shares method.
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 29
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The table below sets forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
MATTHEWS PACIFIC
TIGER FUND
-----------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 2000 1999 1999 1998(4) 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS I CLASS I CLASS I
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period ........................ $10.41 $10.41 $ 4.07 $ 4.07 $10.84 $11.30 $10.81 $ 9.77
------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income ............... 0.17(5) 0.20(5) 0.21 0.21 0.03(5) 0.02(5) 0.02 0.01
Net realized gain (loss) and
unrealized appreciation
(depreciation) on investments
and foreign currency ............. 2.01 2.01 6.15 6.15 (6.73) (7.18) 0.50 1.03
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................... 2.18 2.21 6.36 6.36 (6.70) (7.16) 0.52 1.04
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............... (0.26) (0.27) (0.02) (0.02) (0.01) (0.01) (0.01) -
Net realized gains
on investments ................... - - - - (0.06) (0.06) (0.02) -
------ ------ ------ ------ ------ ------ ------ ------
Total distributions .............. (0.26) (0.27) (0.02) (0.02) (0.07) (0.07) (0.03) -
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of period ...... $12.33 $12.35 $10.41 $10.41 $ 4.07 $ 4.07 $11.30 $10.81
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN ........................ 21.01%(3) 21.28% 156.28%(3) 156.28% (61.87%)(2,3) (63.43%) 4.75% 10.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) ....................... $1,671 $111,502 $1,221 $109,936 $ 146 $31,319 $43,647 $17,148
Ratio of expenses to average
net assets before reimbursement
and waiver of expenses by
Advisor and Administrator ........ 2.13% 1.88% 2.15% 1.90% 11.99%(1) 2.06% 1.97% 4.35%
Ratio of expenses to average net
assets after reimbursement and
waiver of expenses by Advisor
and Administrator (Note 2) ....... 2.06% 1.81% 1.90% 1.90% 1.91%(1) 1.90% 1.90% 1.90%
Ratio of net investment income
(loss) to average net assets
before reimbursement and
waiver of expenses by Advisor
and Administrator ................ 1.24% 1.49% 3.10% 3.35% (9.61%)(1) 0.14% 0.20% (2.13%)
Ratio of net investment income
to average net assets
after reimbursement and
waiver of expenses by Advisor
and Administrator ................ 1.31% 1.56% 3.35% 3.35% 0.47%(1) 0.30% 0.27% 0.32%
Portfolio turnover .................. 52.11% 52.11% 98.74% 98.74% 73.09% 73.09% 70.73% 124.69%
<FN>
(1) Annualized
(2) Not annualized
(3) Total return calculation does not reflect sales load.
(4) Class A commenced operations on October 9, 1997.
(5) Calculated using the average shares method.
(6) Based on average shares method.
</FN>
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
30 800.789.ASIA [2742]
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Matthews International Funds (the "Company") is an open-end investment
management company registered under the Investment Company Act of 1940, as
amended (the "Act"). The Company currently issues six separate series of shares
(each a "Fund" and collectively, the "Funds"): Matthews Asian Growth and Income
Fund (formerly, the Matthews Asian Convertible Securities Fund), Matthews Asian
Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund,
Matthews Korea Fund and Matthews Pacific Tiger Fund. The Matthews Dragon Century
China Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund are authorized
to offer two classes of shares: Class I shares and Class A shares. Although
authorized, on September 1, 1998, the Matthews Dragon Century China Fund
suspended issuing Class A shares. The classes offered have different sales
charges and other expenses which may affect performance. The Matthews Asian
Technology Fund, Matthews Dragon Century China Fund, Matthews Japan Fund,
Matthews Korea Fund and Matthews Pacific Tiger Fund seek to maximize capital
appreciation by investing a substantial portion of their assets in equity
securities of Pacific Tiger economies, South Korean companies, Chinese companies
and Japanese companies, respectively. Pacific Tiger economies include Hong Kong,
Singapore, South Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand and
China. Matthews Asian Growth and Income Fund seeks capital appreciation and
current income by investing a substantial portion of their assets in the
convertible securities of Asian economies. Asian economies include Hong Kong,
Japan, Singapore, South Korea, Taiwan, Indonesia, Malaysia, Philippines,
Thailand, China and India. The following is a summary of significant accounting
policies consistently followed by the Funds in the preparation of their
financial statements.
A. SECURITY VALUATION: Securities listed on any national securities exchange
are valued at their last sale price on the exchange where the securities are
principally traded or, if there has been no sale on that date, at the mean
between the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices. All
other securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices
provided by investment dealers in accordance with procedures established by
the Board of Trustees.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate
during the reporting period and realized gains and losses on the settlement
of foreign currency transactions are reported in the results of operations
for the current period. The Funds do not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rate from that which is due to changes in market prices of
equity securities. International dollar bonds are issued offshore, pay
interest and principal in U.S. dollars, and are denominated in U.S. dollars.
Portfolio securities traded on a foreign exchange are generally valued at the
respective current prevailing exchange rates. The securities' values are
translated into U.S. dollars using these rates. If subsequent to the time a
rate has been established and it has been determined to have materially
changed, the fair value of those securities, (considering the changing
conditions) will be determined by (or under the direction of) the Funds'
Board of Trustees.
B. FORWARD FOREIGN EXCHANGE CONTRACTS: The Funds may engage in forward
foreign exchange contracts for hedging a specific transaction in which the
currency is denominated as deemed appropriate by Matthews International
Capital Management, LLC (the "Advisor"). Forward foreign exchange contracts
are valued at the forward rate and are marked-to-market daily. The change in
market value is recorded by the Funds as an unrealized gain or loss. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations
in the underlying prices of the Funds' portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts.
C. RISKS ASSOCIATED WITH FOREIGN SECURITIES: Investments by the Funds in the
securities of foreign issuers may involve investment risks different from
those of U.S. issuers including possible political or economic instability of
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of currency exchange controls, the possible
imposition of foreign withholding tax on the interest income payable on such
instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect the foreign
securities held by the Funds. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations or the
U.S. Government.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 31
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. The Funds have met the requirements of
the Code applicable to regulated investment companies for the year ended
August 31, 2000. Therefore, no Federal income tax provision is required.
E. DETERMINATION OF GAINS OR LOSSES ON SALES OF SECURITIES: Gains or losses
on the sale of securities are determined on the identified cost basis.
F. ORGANIZATION COSTS: Organization costs are being amortized on a
straight-line basis over five years from each Fund's respective commencement
of operations with the exception of the Matthews Japan Fund and the Matthews
Asian Technology Fund are amortized on a straight-line basis over one year
from the Fund's commencement of operations. In the event that any of the
initial shares are redeemed during the year of amortization of the Funds'
organization costs, the redemption proceeds will be reduced by any such
unamortized organization costs in the same proportion as the number of
initial shares being redeemed bears to the number of those shares outstanding
at the time of redemption.
G. DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth
and Income Fund to distribute net investment income on a semi-annual basis
and capital gains, if any, annually. Matthews Asian Technology Fund, Matthews
Dragon Century China Fund, Matthews Japan Fund, Matthews Korea Fund and
Matthews Pacific Tiger Fund distribute net investment income and capital
gains, if any, annually. Distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Net investment losses may not be utilized to
offset net investment income in future years for tax purposes.
H. FUND AND CLASS ALLOCATIONS: The Funds account separately for the assets,
liabilities and operations of each Fund. Direct expenses of each Fund are
charged to the Fund while general expenses are allocated pro-rata among the
Funds based on net asset value. Income, expenses (other than class specific
expenses), and realized and unrealized gains (losses) are calculated at the
Fund level and allocated daily to each class of shares based on the relative
proportion of net assets of each class.
I. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
J. OTHER: Securities transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the accrual
basis and dividend income on the ex-dividend date.
K. CAPITAL SHARE TRANSACTIONS: Each Fund is authorized to issue an unlimited
number of shares of beneficial interest with a par value of $0.001 per share.
Class A Shares are sold with a front-end sales charge of 4.95%. Transactions
in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS
ASIAN GROWTH AND INCOME FUND ASIAN TECHNOLOGY FUND
------------------------------------------------ -------------------------
CLASS I CLASS I
------------------------------------------------ -------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000
----------------------- ----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................ 704,212 $7,052,878 1,019,797 $8,107,270 5,216,329 $49,292,911
Shares issued through
reinvestment of dividends 65,587 663,908 49,419 406,448 - -
Shares redeemed ............ (814,085) (8,202,948) (554,197) (4,455,153) (1,989,681) (17,386,085)
-------- ---------- --------- ---------- ---------- -----------
Net increase (decrease) .... (44,286) ($486,162) 515,019 $4,058,565 3,226,648 $31,906,826
======== ========== ========= ========== ========== ===========
</TABLE>
--------------------------------------------------------------------------------
32 800.789.ASIA [2742]
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS MATTHEWS
DRAGON CENTURY CHINA FUND JAPAN FUND
---------------------------------------------------- ------------------------------------------------
CLASS I CLASS I
---------------------------------------------------- ------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999
------------------------- ------------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ................ 922,748 $8,321,445 791,595 $6,408,921 2,158,789 $47,157,104 1,248,676 $22,728,238
Shares issued through
reinvestment of dividends 11,236 100,022 6,071 39,314 28,758 573,444 - -
Shares redeemed ............ (740,130) (6,455,484) (423,005) (3,342,024) (2,166,167) (45,866,878) (120,253) (2,495,147)
-------- ---------- -------- ---------- ---------- ----------- --------- -----------
Net increase ............... 193,854 $1,965,983 374,661 $3,106,211 21,380 $ 1,863,670 1,128,423 $20,233,091
======== ========== ======== ========== ========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS
KOREA FUND
------------------------------------------------------------------------------------------------------
CLASS I CLASS A
---------------------------------------------------- ------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999
------------------------- ------------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ................ 22,234,328 $143,560,898 46,512,355 $307,041,168 1,087,775 $6,675,877 349,768 $2,266,586
Shares issued through
reinvestment of dividends 2,867,052 22,391,670 - - 221,542 1,714,731 - -
Shares redeemed ............ (33,747,464) (223,646,860) (48,584,494) (313,750,956) (1,072,224) (6,427,049) (343,013) (1,706,367)
----------- ------------ ----------- ------------ ---------- ---------- -------- ----------
Net increase (decrease) .... (8,646,084) ($57,694,292) (2,072,139) ($6,709,788) 237,093 $1,963,559 6,755 $ 560,219
=========== ============ =========== ============ ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
MATTHEWS
PACIFIC TIGER FUND
---------------------------------------------------- ------------------------------------------------
CLASS I CLASS A
---------------------------------------------------- ------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 AUGUST 31, 1999
------------------------- ------------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ................ 6,708,677 $ 82,110,584 14,367,556 $125,011,426 104,297 $1,247,215 117,898 $1,081,693
Shares issued through
reinvestment of dividends 197,956 2,392,082 20,786 223,856 2,903 35,066 129 1,390
Shares redeemed ............ (8,441,468) (101,294,812) (11,513,378) (95,850,236) (89,013) (1,125,493) (36,570) (245,358)
----------- ------------ ----------- ------------ ------- ---------- ------- ----------
Net increase (decrease) .... (1,534,835) ($16,792,146) 2,874,964 $ 29,385,046 18,187 $ 156,788 81,457 $ 837,725
=========== ============ =========== ============ ======= ========== ======= ==========
</TABLE>
The Funds imposed a redemption fee of 2.00% on shares that are redeemed
within ninety days of purchase. The charge will be assessed on an amount
equal to the net asset value of the shares at the time of redemption. The
redemption fee is deducted from the proceeds otherwise payable to the
shareholder. The redemption fees were returned to the assets of the Asian
Growth and Income Fund, Asian Technology Fund, Dragon Century China Fund,
Japan Fund, Korea Fund and Pacific Tiger Fund in the amounts of $24,847,
$133,462, $30,325, $151,786, $1,074,793 and $226,710, respectively.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 33
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor, a registered investment advisor, provides the Funds with
investment management services. As compensation for these services, the
Advisor charges the Funds a monthly fee of 1/12 of 1% on each Fund's
respective average daily net assets. The Funds reimburse the Advisor any
service fees paid by it to the extent that shareholder service related
expenses are incurred by the Advisor. Certain officers and Trustees of the
Funds are also officers and directors of the Advisor. All officers serve
without direct compensation from the Funds. Investment advisory fees and
other transactions with affiliates, for the year ended August 31, 2000,
are as follows:
<TABLE>
<CAPTION>
EXPENSES
INVESTMENT VOLUNTARY WAIVED AND
ADVISORY EXPENSE ADVISORY REIMBURSED
FEE RATE LIMITATION* FEES BY ADVISOR
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Matthews Asian Growth and Income Fund ......... 1.00% 1.90% $ 114,463 $ 7,819
Matthews Asian Technology Fund................. 1.00 2.00 117,827 78,544
Matthews Dragon Century China Fund ............ 1.00 2.00 77,085 12,001
Matthews Japan Fund ........................... 1.00 2.00 260,067 -
Matthews Korea Fund ........................... 1.00 2.50 1,783,564 -
Matthews Pacific Tiger Fund ................... 1.00 1.90 1,169,262 84,180
<FN>
*For Funds offering Class A shares, the contractual expense limitation would
include an additional 0.25% for Class A Distributor fees.
</FN>
</TABLE>
The investment advisory agreements provide that any reductions made by the
Advisor in its fees are subject to reimbursement by the Funds within the
following three years provided that Funds are able to effect such
reimbursement and remain in compliance with applicable expense
limitations. During the year ended August 31, 2000, the Matthews Japan
Fund reimbursed expenses to the Advisor totaling $34,366. As of August 31,
2000, the total expenses waived and reimbursed by the Advisor that are
subject to reimbursement by the 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
totaled $189,272, $78,544, $107,459, $26,281, $0 and $228,116,
respectively.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank,
serves as the Trust's Administrator and, in that capacity, performs
various administrative and accounting services for each Fund. PFPC also
serves as the Trust's Transfer Agent, dividend disbursing agent and
registrar. An officer of PFPC serves as Treasurer to the Trust. Total fees
received by PFPC for the year end August 31, 2000 was $594,610 for
administrative and accounting services and $249,000 for transfer agent
services.
3. DISTRIBUTOR FEES AND CLASS SPECIFIC EXPENSES
Effective December 1, 1999, Provident Distributors, Inc. (the
"Distributor") serves as the Funds' Distributor pursuant to an
Underwriting Agreement. Prior to December 1, 1999, First Data
Distributors, Inc. served as the Funds' distributor. Pursuant to Rule
12b-1 adopted by the Securities and Exchange Commission under the Act, the
Korea Fund Class A and the Pacific Tiger Fund Class A, have adopted a Plan
of Distribution (the "Plan"). The Plan permits the participating Funds to
pay certain expenses associated with the distribution of their shares.
Under the Plan, each Fund offering Class A shares may pay actual expenses
not exceeding, on an annual basis, 0.25% of each participating Fund's
Class A average daily net assets. Pacific Tiger distribution fees were
reimbursed by the Advisor. The Class I shares of the Funds do not have a
distribution plan.
The Funds bear a portion of the fees paid to certain service providers
(exclusive of the Funds' transfer agent) which provide transfer agency and
shareholder servicing to certain shareholders. Fees paid to such service
providers for the year ended August 31, 2000 are reflected in the
statement of operations as follows:
<TABLE>
<CAPTION>
TRANSFER AGENT ADMINISTRATION TOTAL
-------------- ---------------- -----------
<S> <C> <C> <C>
Matthews Asian Growth and Income Fund .................. $ 23,516 $ 11,471 $ 34,987
Matthews Asian Technology Fund.......................... 15,138 7,592 22,730
Matthews Dragon Century China Fund...................... 14,260 7,112 21,372
Matthews Japan Fund..................................... 35,708 17,811 53,519
Matthews Korea Fund..................................... 218,557 109,160 327,717
Matthews Pacific Tiger Fund............................. 216,117 107,895 324,012
</TABLE>
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34 800.789.ASIA [2742]
<PAGE>
MATTHEWS INTERNATIONAL FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000
--------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended August 31, 2000, excluding
temporary short-term investments, were as follows:
PROCEEDS
PURCHASES FROM SALES
------------- --------------
Matthews Asian Growth and Income Fund..... $ 6,774,366 $ 7,543,275
Matthews Asian Technology Fund............ 40,711,886 8,209,252
Matthews Dragon Century China Fund........ 7,918,839 5,967,412
Matthews Japan Fund....................... 57,440,570 57,352,869
Matthews Korea Fund....................... 83,741,687 163,177,401
Matthews Pacific Tiger Fund............... 59,384,600 73,995,240
The Funds invest excess cash in interest bearing deposits at The Bank of New
York.
5. CAPITAL LOSS CARRYOVER
At August 31, 2000, the Funds had capital loss carryovers expiring through
2008 as follows:
EXPIRING ON:
----------------------------------
2006 2007 2008
---------- ---------- ----------
Matthews Asian Technology Fund ......... $ - $ - $2,390,436
These amounts are available to offset possible future capital gains of the
Fund.
--------------------------------------------------------------------------------
WWW.MATTHEWSFUNDS.COM 35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of Matthew International Funds:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of Matthews International Funds
(comprised of the Matthews 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, collectively referred to
as the "Funds") as of August 31, 2000, and the related statements of
operations, statements of changes in net assets and financial highlights for
the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Funds for the periods prior to August 31, 1999 were audited by other auditors
whose report dated October 9, 1998 expressed an unqualified opinion on the
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2000, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Matthews International Funds as of August 31, 2000, the results of their
operations, changes in their net assets and the financial highlights for each
of the periods indicated thereon, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 13, 2000
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36 800.789.ASIA [2742]
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<PAGE>
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<PAGE>
BOARD OF TRUSTEES
Richard K. Lyons, Chairman
Robert K. Connolly
David FitzWilliam-Lay
Norman W. Berryessa
John H. Dracott, Emeritus
OFFICERS
G. Paul Matthews
Mark W. Headley
Joseph M. O'Donnell
James E. Walter
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
800.789.ASIA (2742)
UNDERWRITER
Provident Distributors, Inc.
3200 Horizon Drive
King of Prussia, PA 19406-0903
SHAREHOLDER SERVICES
PFPC Inc.
211 South Gulph Road
King of Prussia, Pennsylvania 19406-0903
800.892.0382
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286-0007
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
[GRAPHIC OF DRAGON OMITTED]
--------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION ABOUT THE
MATTHEWS INTERNATIONAL FUNDS:
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CALIFORNIA 94104-1245
800.789.ASIA (2742)
WWW.MATTHEWSFUNDS.COM
--------------------------------------------------------------------------------
DISTRIBUTED BY PROVIDENT DISTRIBUTORS, INC.
MAT-AR 8/00
--------------------------------------------------------------------------------
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
[GRAPHIC OF DRAGON OMITTED]
--------------------------------------------------------------------------------
ANNUAL REPORT
AUGUST 31, 2000
[GRAPHIC OF ASIAN CHARACTERS OMITTED]
--------------------------------------------------------------------------------
