<PAGE> 1
As filed with the U.S. Securities and Exchange Commission on December 15, 2000
Securities Act of 1933 File No. 33-78960
Investment Company Act of 1940 File No. 811-8510
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 15 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18 [X]
Matthews International Funds
(Exact name of Registrant as Specified in Charter)
456 Montgomery Street, Suite 1200, San Francisco, CA 94104-1245
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (415)788-7553
G. Paul Matthews, President
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
(Name and Address of Agent for Service)
COPIES TO:
Thao H. Ngo, Esq. Joseph M. O'Donnell, Esq.
Paul, Hastings, Janofsky Matthews International Capital Management, LLC
& Walker LLP 456 Montgomery Street, Suite 1200
345 California Street San Francisco, CA 94104-1245
San Francisco, CA 94104-2635
Approximate date of proposed public offering: It is proposed that this filing
become effective:
[ ] immediately upon filing pursuant to Paragraph (b) of Rule 485.
[ X ] on December 15, 2000, pursuant to Paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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INTRODUCTION
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HOW TO USE THIS DOCUMENT.
This document is called a prospectus. It is intended to explain to you
the information that you need to know so that you may make an informed
decision as to whether an investment in one or more of Matthews
International Funds is right for you.
This prospectus begins with some general information which is then
explained in greater detail further in the document. A second document
called the "Statement of Additional Information" or SAI for short,
provides expanded information and much greater detail than the
prospectus.
The SAI is available to you free of charge. To receive an SAI, please
call 1.800.789.2742, visit our site on the Internet at
"www.matthewsfunds.com" or visit the SEC's web site at "www.sec.gov" and
go into the EDGAR database.
Please read this document carefully before you make any investment
decision and if you have any questions, do not hesitate to contact us at
1.800.789.2742. Also, please keep this prospectus with your papers for
future reference.
DEFINITIONS
THE FOLLOWING WORDS HAVE SPECIAL MEANING IN THIS PROSPECTUS:
1. Funds means the six individual mutual funds that make up Matthews
International Funds. They are: MATTHEWS ASIAN GROWTH AND INCOME FUND,
MATTHEWS ASIAN TECHNOLOGY FUND, MATTHEWS CHINA FUND, MATTHEWS JAPAN
FUND, MATTHEWS KOREA FUND, AND MATTHEWS PACIFIC TIGER FUND.
2. Pacific Tiger refers to certain Asian countries whose economies have
been and are expected to continue to rapidly develop. Those countries
include: China, Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, South Korea, Taiwan and Thailand, but not Japan.
3. Asia refers to the Pacific Tiger countries plus Japan and India.
4. What is considered to be an "Asian Company?" A company is considered
to be "Asian" or "located" in a particular country in Asia if:
(i) it is organized under the laws of China, Hong Kong, India,
Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea,
Taiwan or Thailand, or
(ii) it derives at least 50% of its revenues or profits from goods
produced or sold, investments made, services performed, or has at
least 50% of its assets located within the region or
(iii) it has the primary trading markets for its securities in one of
these countries or
(iv) it is a governmental entity or an agency or instrumentality or
political subdivision of such country.
5. Matthews or The Advisor means Matthews International Capital
Management, LLC, the company which manages the money which you invest
into the Funds.
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INVESTMENT GOALS OF THE FUNDS
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The investment goal of all six Matthews International Funds is long term
capital appreciation. In addition, Matthews Asian Growth and Income Fund
seeks to provide some current income as well.
SUMMARY INFORMATION
--------------------------------------------------------------------------------
MATTHEWS' INVESTMENT STRATEGY
How Matthews chooses investments for each of the Funds is known as an
investment strategy. The strategy Matthews uses is called "Growth at a
Reasonable Price." This means that the investment team studies the
fundamental characteristics of companies appropriate for each Fund and
from those fundamentals makes a judgment that certain companies are
poised for growth, and at the same time are available to the Funds at a
reasonable price.
Fundamental characteristics of a company include the people who are
running the company, the products it makes, the marketing strategy it is
following and its financial health.
The size of a company, which Matthews measures by its market
capitalization (the number of shares outstanding times the market price
per share) is not a primary consideration for Matthews when it decides
whether to include that company's securities in one or more of the Funds.
If Matthews believes that market conditions are developing in a way that
is not good for the shareholders, it may sell all of a Fund's securities
and temporarily invest that Fund's money in U.S. Government securities.
As of the date of this prospectus this has never happened, but if it were
to occur, the investment goals of the Funds may not be achieved.
PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS
MATTHEWS ASIAN GROWTH AND INCOME FUND invests a substantial portion of
its assets in the convertible securities of companies located in Asia.
Examples of convertible securities are convertible bonds and debentures
which may under specific circumstances, be converted into the common or
preferred stock of that company.
MATTHEWS ASIAN TECHNOLOGY FUND invests a substantial portion of its
assets in the common and preferred stock of companies located in Asia
which derive a substantial portion of their revenues from the sale of
products or services in technology-related industries and services.
Matthews considers technology-related industries and businesses to
include, among others, telecommunications, telecommunications equipment,
computers, semiconductors, semiconductor capital equipment, networking,
Internet and online service companies, office automation, server hardware
producers, software companies (e.g., design, consumer and industrial)
biotechnology and medical device technology companies, and companies
involved in the distribution and servicing of these products.
MATTHEWS CHINA FUND (FORMERLY NAMED "MATTHEWS DRAGON CENTURY CHINA FUND")
invests a substantial portion of its assets in the common and preferred
stock of companies located in China. China includes Taiwan and Hong Kong.
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MATTHEWS JAPAN FUND invests a substantial portion of its assets in the
common and preferred stock of companies located in Japan.
MATTHEWS KOREA FUND invests a substantial portion of its assets in the
common and preferred stock of companies located in South Korea.
MATTHEWS PACIFIC TIGER FUND invests a substantial portion of its assets
in the common and preferred stock of companies located in the Pacific
Tiger countries.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The most important risk to understand is that there is no guarantee that
your investment in the Funds will increase in value. The value of your
investment in the Funds could go down, meaning you could lose money.
The Funds concentrate their investments in Asia. The Asian markets can be
very volatile for many reasons including the size of the local economies
(as compared with the United States) and each country's unique political
structure. This volatility can cause the price of the Funds' shares (the
net asset value or "NAV") to go up or down dramatically. Because of this
volatility, we recommend that you invest in the Funds as a long term
investment only, and only for a portion of your investment portfolio, not
for all of it.
Further, when one of the Funds buys or sells stock on an Asian stock
market, the transaction is made in the local currency. The price that the
Funds must purchase or sell local currency will impact the value of your
shares in the Funds. These and other risks are more fully discussed below
and in the SAI.
The principal investments of all the Funds except the Asian Growth and
Income Fund are common and preferred stocks. The major risk involved with
the ownership of common and preferred stock is that the Fund may lose
money if the value of a stock goes down during the time that the Fund
owns it.
RISKS ASSOCIATED WITH NON-UNITED STATES COMPANIES
Investments by the Funds in the securities of non-U.S. issuers involve
investment risks different from those of U.S. issuers. These risks
include:
- Possible political or economic instability of the country of issue
- Predicting international trade patterns incorrectly
- Possibility of currency exchange controls
- Imposition of foreign withholding taxes
- Seizure or nationalization of foreign deposits or assets
- Adoption of adverse foreign government trade restrictions
There may be less publicly available information about a non-U.S. company
than about a U.S. company. Sometimes non-U.S. companies are subject to
different accounting, auditing and financial reporting standards,
practices and requirements than U.S. companies. There is generally less
government regulation of stock exchanges, brokers and listed companies
abroad than in the United States, and the absence of negotiated brokerage
commissions in certain countries may result in higher brokerage fees.
With respect to certain non-U.S. countries, there is a possibility of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in those countries.
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In addition, brokerage commissions, custodian services, withholding
taxes, and other costs relating to investment in foreign markets
generally are more expensive than in the United States.
RISKS ASSOCIATED WITH SMALLER COMPANIES (SO-CALLED "SMALL-CAP" COMPANIES)
The Funds may invest in securities of issuers of various sizes, large or
small. Smaller companies often have limited product lines, markets or
financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies generally are
subject to more abrupt or erratic market movements and may be less liquid
than securities of larger, more established companies or the market
averages in general.
LONG TERM INVESTING AND VOLATILITY
Dramatic changes (volatility) in the price of an investment can be
dangerous because you may have planned or may need to sell your
investment just at a time when its value has decreased. We recommend an
investment in the Funds only as a long term investment (5 years and
longer) because you will be better able to plan to sell your shares at a
time when this volatility will not be as great a factor in your decision
process.
MATTHEWS ASIAN GROWTH AND INCOME FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above, the
ownership of convertible securities and bonds have different kinds of
risks than those of the ownership of common and preferred stock. These
risks include interest rate risk and principal risk. The principal of a
bond refers to the amount of money that was borrowed when the bond was
issued. This principal could be lost if the borrower cannot make timely
payment (default) on the bond. In the event of a default the Fund could
lose money. Further, in the event that market interest rates increase,
the bond's market value will go down, which means that if the Fund sold a
bond during that time it would get less money for it. Also, many Asian
convertible securities and bonds are not rated by rating agencies like
Moody's or Standard & Poor's, or if they are rated, they're rated below
investment grade. These securities are commonly referred to as "junk
bonds" and may have a greater risk of default.
Since this Fund may invest in companies from many different countries,
each country's size, level of economic development and governmental
stability will have an impact on the value of those companies. In
general, the economies of these countries are smaller and less developed
than in the United States. Their stock exchanges and brokerage industries
do not have the level of government oversight as do those in the United
States and sometimes their governments are unstable. Each of these
factors can cause these stock markets to be more volatile. Please read
the SAI for an extensive presentation of these and other risk factors.
MATTHEWS ASIAN TECHNOLOGY FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above, as a
sector fund that invests in technology companies, the Fund is subject to
the risks associated with this sector. This makes the Fund more
vulnerable to the price changes of securities issuers in
technology-related industries and more vulnerable to factors that affect
the technology industry, relative to a broadly diversified fund.
Certain technology-related companies may face special risks because their
products or services may not prove to be commercially successful.
Technology-related companies are also strongly affected by worldwide
scientific
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5
or technological developments. As a result, their products may rapidly
become obsolete which could cause a dramatic decrease in the value of
their stock. Such companies are also often subject to government
regulation and may therefore be adversely affected by governmental
policies.
MATTHEWS CHINA FUND (FORMERLY NAMED "MATTHEWS DRAGON CENTURY CHINA FUND")
UNIQUE RISKS: In addition to the "Principal Risks" noted above, investing
in the regional markets of China and Hong Kong involves risks and
considerations not present when investing in more established securities
markets. Investing in regionally concentrated investment funds should be
considered speculative and thus not appropriate for all investors.
China remains a totalitarian society with the continuing risk of
nationalization, expropriation or confiscation of property. The legal
system is still in its infancy making it more difficult to obtain and/or
enforce judgments.
Further, the government could at any time alter or discontinue economic
reform programs implemented since 1978. Military conflicts, either in
response to internal social unrest or conflicts with other countries are
an ever present consideration.
In addition to political risk, investments in China are also subject to
economic risk. There is a potential risk of total loss, including
interest, capital appreciation and principal. There is also a greater
risk involved in currency fluctuations, currency convertibility, interest
rate fluctuations and higher rates of inflation. The emergence of a
domestic consumer class is still at an early stage, making China heavily
dependent on exports.
MATTHEWS JAPAN FUND
UNIQUE RISKS: Japan is the second largest economy in the world, but it
has been in a recession lately. The government there has been working to
change certain regulations and policies that could help its economy, but
there is no guarantee that these changes will occur or be effective.
MATTHEWS KOREA FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above investing
in Korean securities has special risks including:
- substantial government involvement in, and influence on, the economy
and the private sector;
- political, economic and social instability, including the potential
for increasing militarization in North Korea;
- the substantially smaller size and lower trading volume of the
securities markets for Korean equity securities compared to the U.S.
or Japanese securities markets, resulting in a potential lack of
liquidity and increased price volatility;
- that the sale of portfolio securities by the Korean Securities
Stabilization Fund (the "Stabilization Fund"), a fund established in
order to stabilize the Korean securities markets, or other large
Korean institutional investors, may adversely impact the market value
of securities in the Fund's portfolio; and
- heavy concentration of market capitalization and trading volume in a
small number of issuers, which result in potentially fewer investment
opportunities for the Fund.
Risks Associated with North Korea Following World War II, the Korean
peninsula was partitioned. The demilitarized zone at the boundary between
Korea and North Korea was established after the Korean War of
800.789.ASIA (2742)
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1950-1953 and is supervised by United Nations forces. The United States
maintains a military force in Korea to help deter the ongoing military
threat from North Korean forces. The situation remains a source of
tension although negotiations to ease tensions and resolve the political
division of the Korean peninsula have been carried on from time to time.
There also have been efforts from time to time to increase economic,
cultural and humanitarian contacts between North Korea and Korea. There
can be no assurance that such negotiations or efforts will continue to
occur or will result in an easing of tension between North Korea and
Korea.
Military action or the risk of military action or the economic collapse
of North Korea could have a material adverse effect on Korea, and
consequently, on the ability of the Fund to achieve its investment
objective. Lack of available information regarding North Korea may be the
greatest risk factor.
Risks Associated with the Influence of the Korean Government The Korean
government has historically exercised and continues to exercise
substantial influence over many aspects of the private sector. The Korean
government from time to time has informally influenced the payment of
dividends and the prices of certain products, encouraged companies to
invest or to concentrate in particular industries, induced mergers
between companies in industries suffering from excess capacity and
induced private companies to publicly offer their securities. The Korean
government has sought to minimize excessive price volatility on the KSE
through various steps, including the imposition of limitations on daily
price movements of securities.
Risks Associated with a Non-Diversified Investment Company The Fund is a
"non-diversified" investment company, which means that it may invest a
larger portion of its assets in the securities of a single issuer
compared to that of a diversified fund. An investment in the Fund
therefore will entail greater risk than an investment in a diversified
fund because a higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the Fund's
portfolio, and economic, political or regulatory developments may have a
greater impact on the value of the Fund's portfolio than would be the
case if the portfolio were diversified among more issuers.
MATTHEWS PACIFIC TIGER FUND
UNIQUE RISKS: In addition to the "Principal Risks" noted above and since
this Fund may invest in companies from many different countries, each
country's size, level of economic development and governmental stability
will have an impact on the value of those companies. In general, the
economies of these countries are smaller and less developed than in the
United States. Their stock exchanges and brokerage industries do not have
the level of government oversight as do those in the United States and
sometimes their governments are unstable. Each of these factors can cause
these stock markets to be more volatile. Please read the SAI for an
extensive presentation of these and other risk factors.
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PAST PERFORMANCE
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The bar charts and performance tables help show some of the risks of
investing in the Funds. The bar charts show each Fund's performance from
prior years. Below the charts you will find the best and worst quarterly
returns since each Fund began. You can then compare those returns with
that of a broad based index found in the tables below the bar charts.
This information only speaks to the past. We do not know how the Funds
will perform in the future. In that the Matthews Asian Technology Fund
does not have a full calendar year's performance, no statistics are
presented.
MATTHEWS ASIAN GROWTH AND INCOME FUND
ANNUAL RETURNS FOR PERIODS ENDED 12/31
<TABLE>
<CAPTION>
ASIAN GROWTH AND INCOME FUND (%)
--------------------------------
<S> <C>
1995 8.19
1996 13.89
1997 -23.18
1998 1.24
1999 48.88
</TABLE>
Best Quarter: 2nd - 1999 21.85%
Worst Quarter: 4th - 1997 (25.31%)
YEAR-TO-DATE RETURN: 3.31% AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1999:
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS SEPTEMBER 12, 1994
-----------------------------------------
<S> <C> <C> <C>
Matthews Asian Growth and Income Fund 48.88% 7.36% 6.46%
*MSCI All Country Far East ex-Japan
Index 67.83% 0.37% (0.97%)**
</TABLE>
---------------------------------
* The MSCI (Morgan Stanley Capital International) All
Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the
Pacific region excluding Japan.
** Calculated from 8/31/94.
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MATTHEWS CHINA FUND
ANNUAL RETURN FOR PERIOD ENDED 12/31
<TABLE>
<CAPTION>
MATTHEWS CHINA FUND (%)
-----------------------
<S> <C>
1999 47.11
</TABLE>
Best Quarter: 2nd - 1999 67.56%
Worst Quarter: 3rd - 1999 (17.77%)
YEAR-TO-DATE RETURN: -1.11% AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1999:
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR FEBRUARY 19, 1998
-----------------------------
<S> <C> <C>
Matthews China Fund 47.11% (4.19%)
*Credit Lyonnais China World Index 38.33% (7.45%)**
</TABLE>
---------------------------------
* 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.
** Calculated from 2/28/98.
MATTHEWS JAPAN FUND
ANNUAL RETURN FOR PERIOD ENDED 12/31
<TABLE>
<CAPTION>
MATTHEWS JAPAN FUND (%)
-----------------------
<S> <C>
1999 107.35
</TABLE>
Best Quarter: 1st - 1999 38.40%
Worst Quarter: 4th - 1999 (9.85%)
YEAR-TO-DATE RETURN: -4.46% AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1999:
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR DECEMBER 31, 1998
------------------------------
<S> <C> <C>
Matthews Japan Fund 107.35% 107.35%
*TOPIX Index 79.01% 79.01%
</TABLE>
---------------------------------
* The TOPIX, also known as the Tokyo Price Index, is a
capitalization-weighted index of all companies listed on
the First Section of the Tokyo Stock Exchange.
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MATTHEWS KOREA FUND
ANNUAL RETURNS FOR PERIODS ENDED 12/31
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND (%)
-----------------------
<S> <C>
1995 -12.73
1996 -31.79
1997 -64.75
1998 96.15
1999 108.01
</TABLE>
Best Quarter: 4th - 1998 99.98%
Worst Quarter: 4th - 1997 (64.44%)
YEAR-TO-DATE RETURN: -37.35% AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1999:
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS JANUARY 3, 1995
----------------------------------------------
<S> <C> <C> <C>
Matthews Korea Fund 108.01% (3.06%) (3.06%)
*Korea Stock Price Index 97.68% (7.17%) (6.94%)**
</TABLE>
---------------------------------
* The Korean Stock Price Index is a
capitalization-weighted index of all common stocks listed
on the Korean Stock Exchange.
** Calculated from 12/31/94.
MATTHEWS PACIFIC TIGER FUND
ANNUAL RETURNS FOR PERIODS ENDED 12/31
<TABLE>
<CAPTION>
PACIFIC TIGER FUND (%)
----------------------
<S> <C>
1995 3.06
1996 24.18
1997 -40.89
1998 -2.86
1999 83.01
</TABLE>
Best Quarter: 2nd - 1999 58.23% Worst
Quarter: 4th - 1997 (38.17%)
YEAR-TO-DATE RETURN: -8.35% AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31,
1999:
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS SEPTEMBER 12, 1994
-----------------------------------------
<S> <C> <C> <C>
Matthews Pacific Tiger Fund 83.01% 6.10% 4.71%
*MSCI All Country Far East ex-Japan Index 67.83% 0.37% (0.97%)**
</TABLE>
---------------------------------
* The MSCI (Morgan Stanley Capital International) All
Country Far East ex-Japan Index is an unmanaged
capitalization-weighted index of stock markets in the
Pacific region excluding Japan.
** Calculated from 8/31/94.
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FEES AND EXPENSES
--------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy
and hold shares of any of the Funds:
SHAREHOLDER FEES
<TABLE>
<S> <C>
MAXIMUM SALES LOAD IMPOSED ON PURCHASES as a percentage of 0.00%
offering price
MAXIMUM SALES LOAD IMPOSED ON REINVESTED DIVIDENDS as a 0.00%
percentage of offering price
CONTINGENT DEFERRED SALES CHARGE as a percentage of original 0.00%
purchase price
REDEMPTION FEE as a percentage of amount redeemed within 90 2.00%
days of purchase
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING TOTAL
MAXIMUM 0.25% ANNUAL FEE REDUCTION NET EXPENSES
MANAGEMENT DISTRIBUTION/ SHAREHOLDER OPERATING AND/OR EXPENSE AFTER
MATTHEWS FUND -- CLASS I FEES 12B-1 FEES SERVICE FEE) EXPENSES REIMBURSEMENT REIMBURSEMENT
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asian Growth and Income 1.00% None 0.97% 1.97% 0.07% 1.90%
Asian Technology 1.00% None 1.66% 2.66% 0.66% 2.00%
China 1.00% None 1.15% 2.15% 0.15% 2.00%
Japan 1.00% None 1.00% 2.00% None 2.00%
Korea 1.00% None 0.75% 1.75% None 1.75%
Pacific Tiger 1.00% None 0.88% 1.88% 0.07% 1.81%
</TABLE>
Under a written agreement between the Funds and the Advisor, the Advisor
agrees to reimburse money to a Fund if its expense ratio exceeds a
certain percentage level as indicated above. In turn, if a Fund's
expenses fall below the level noted above within three years after the
Advisor has made such a reimbursement, a Fund may reimburse the Advisor
up to an amount not to exceed its expense limitation. This agreement will
continue through at least August 31, 2001.
EXAMPLE
Based on the level of expenses listed above, the total expenses relating
to an investment of $10,000 would be as follows, assuming a 5% annual
return, reinvestment of all dividends and distributions and redemption at
the end of each time period.
<TABLE>
<CAPTION>
NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asian Growth and Income Fund $193 $ 612 $1,056 $2,290
Asian Technology Fund $203 $ 760 $1,344 $2,927
China Fund $203 $ 659 $1,141 $2,471
Japan Fund $203 $ 627 $1,078 $2,327
Korea Fund $178 $ 551 $ 949 $2,062
Pacific Tiger Fund $184 $ 584 $1,010 $2,195
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder will bear directly or
indirectly. While the example assumes a 5% annual return, each Fund's
actual performance will vary and may result in actual returns greater or
less than 5%. The above example should not be considered a representation
of past or future expenses or performance. Actual expenses of the Funds
will most likely be different than those shown.
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<PAGE> 12
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THE INVESTMENT PROCESS
--------------------------------------------------------------------------------
The investment goal of each Fund noted above is fundamental. This means
that it can not be changed without a vote of a majority of the voting
securities of each respective Fund.
The way Matthews attempts to achieve each Fund's investment goals is not
fundamental and may change without shareholder approval. While an
investment policy or restriction may be changed by the Board of Trustees
(which oversees the management of the Funds) without shareholder
approval, you will be notified before we make any material change.
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC is the investment advisor
to the Funds. Matthews' address is 456 Montgomery Street, Suite 1200, San
Francisco, California 94104-1245 and can be reached by telephone
toll-free at 1-800-789-2742. The Advisor was founded in 1991 by G. Paul
Matthews who serves as Chief Investment Officer. Each Fund pays an annual
fee of 1% of its total assets to Matthews for the services it provides to
the Funds.
Matthews invests the Funds' assets, manages the Funds' business affairs
and supervises their overall day-to-day operations. Matthews also
furnishes the Funds with office space and certain administrative and
clerical services, and provides the personnel needed by the Funds with
respect to the Advisor's responsibilities under the investment advisory
agreement.
PORTFOLIO MANAGERS
<TABLE>
<S> <C>
Asian Growth and Income Fund G. Paul Matthews
Asian Technology Fund Mark W. Headley, G. Paul Matthews and Andrew T. Foster
(assistant)
China Fund G. Paul Matthews, Mark W. Headley and Richard H. Gao
Japan Fund Mark W. Headley
Korea Fund Mark W. Headley and G. Paul Matthews
Pacific Tiger Fund Mark W. Headley, G. Paul Matthews and Andrew T. Foster
(assistant)
</TABLE>
G. Paul Matthews: has been actively involved in the Asian financial
markets since 1982. Prior to founding Matthews International Capital
Management in 1991, he served as portfolio manager of G. T. Pacific
Growth Fund from 1982-85. While residing in Hong Kong, Mr. Matthews
oversaw all Asian investment from 1985-88 for G. T. Management Asia. From
1989 to 1991 he was self-employed. Mr. Matthews holds an M.A. in history
and law from Cambridge University in the United Kingdom.
Mark W. Headley: joined Matthews International as managing director and
as senior analyst on the investment team in 1995. He has over 10 years of
experience in the Asian markets. From 1989 to 1992 he held various
positions at Newport Pacific Management and its subsidiaries. In 1992,
Mr. Headley moved to Hong Kong, where he served as a director of Regent
Fund Management. He returned to San Francisco in 1993 and joined
Litman/Gregory & Co. as director of international investments. Mr.
Headley holds a B.A. in Economics and Politics from the University of
California at Santa Cruz.
800.789.ASIA (2742)
<PAGE> 13
12
Richard H. Gao: joined Matthews International in 1997 as China analyst.
In 1999 he was promoted to portfolio manager of the China Fund. In 1989
Mr. Gao served as a loan officer at the Bank of China in the city of
Guanzhow, China. He later became a foreign exchange trader at the Bank of
China's Treasury Department in 1991. From 1993 through 1994 he served as
assistant manager in charge of foreign exchange trading for import/export
companies at the Bank. Mr. Gao holds an M.B.A. from Dominican College of
San Rafael and is fluent in three Chinese dialects: Mandarin, Cantonese
and Shanghaiese.
Andrew T. Foster: joined Matthews International in November 1998 as an
analyst and was promoted to assistant portfolio manager in August 1999.
Prior to joining Matthews, Mr. Foster was based in Singapore where he
provided management consulting services for A.T. Kearney from 1996 to
1998. From 1992 to 1996 Mr. Foster attended Stanford University where he
was awarded a dual degree in Public Policy (with honors), and in
Economics.
All members of the investment team travel extensively to Asia to conduct
research relating to those markets.
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
PRICING OF FUND SHARES
The price at which the Funds' shares are bought or sold is called the net
asset value per share or "NAV." The NAV is computed once daily as of the
close of regular trading on the New York Stock Exchange ("NYSE"),
generally 4:00 p.m. Eastern time. In addition to Saturday and Sunday the
NYSE is closed on the days that the following holidays are observed: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The NAV is computed by adding the value of all securities and other
assets of a Fund, deducting any liabilities, and dividing by the total
number of outstanding shares. The Funds' expenses are accounted for by
estimating the total expenses for the year and applying each day's
estimated amount when the NAV calculation is made.
The Funds' equity securities are valued based on market quotations or,
when no market quotations are available, at fair value as determined in
good faith by or under direction of the Board of Trustees. Foreign
securities are valued as of the close of trading on the primary exchange
on which they trade. The value is then converted to U.S. dollars using
current exchange rates.
Securities listed on any U.S. securities exchange are valued at their
last sale price on the exchange where the securities are principally
traded or, if there has been no sale on that date, at the mean between
the last reported bid and asked prices. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices.
Securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices
provided by investment dealers in accordance with procedures established
by the Board of Trustees.
Short-term fixed-income securities having a maturity of 60 days or less
are valued at amortized cost, which the Board of Trustees believes
represents fair value. When a security is valued at amortized cost, it is
first valued at its purchase price. After it is purchased, it is valued
by assuming a constant amortization to maturity of any
www.matthewsfunds.com
<PAGE> 14
13
discount or premium (because the Fund will hold the security until it
matures and then receive its face value), regardless of the way of
changing interest rates could change the market value of the instrument.
Foreign currency exchange rates are generally determined prior to the
close of trading on the NYSE. Occasionally, events affecting the value of
foreign investments and such exchange rates occur between the time at
which they are determined and the close of trading on the NYSE. Such
events would not normally be reflected in a calculation of the Funds' net
asset value on that day. If events that materially affect the value of
the Funds' foreign investments or the foreign currency exchange rates
occur during such period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the Board
of Trustees. Foreign securities held by the Funds may be traded on days
and at times when the NYSE is closed. Accordingly, the net asset value of
the Funds may be significantly affected on days when shareholders have no
access to the Funds. For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts
stated in foreign currency are translated into U.S. dollar equivalents at
the prevailing market rates.
PURCHASE OF SHARES
You may purchase Fund shares directly from the Funds by mail or by wire
without paying any sales charge. The price for each share you buy will be
the NAV calculated after your order is "received" by the Fund. "Received"
means that payment for your purchase and all the information needed to
complete your order must be received by the Fund before your order is
processed. If your order is received before 4:00 p.m. on a day the Funds'
NAVs are calculated, the price you pay will be that day's NAV. If your
order is received after 4:00 p.m., the price you will pay will be the
next NAV calculated.
Generally, you may purchase shares of the Funds through the Funds'
underwriter, a registered broker-dealer, by calling 800.892.0382. Shares
of the Funds may also be purchased through various brokers who have
arrangements with the respective Funds. These brokers may charge you a
fee for their services.
You may purchase and sell shares through securities brokers and benefit
plan administrators or their subagents. You should contact them directly
for information regarding how to invest or redeem through them. They may
also charge you service or transaction fees. If you purchase or redeem
shares through them, you will receive the NAV calculated after receipt of
the order by them (generally, 4:00 p.m. Eastern time) on any day the NYSE
is open. If your order is received by them after that time, it will be
purchased or redeemed at the next-calculated NAV. Brokers and benefit
plan administrators who perform shareholder servicing for the Fund may
receive fees from the Funds or Matthews for providing these services.
These brokers may charge you a fee for their services.
<TABLE>
<S> <C>
Minimum Initial Investment (non-retirement plan account): $ 2,500
Subsequent Investments: $ 250
Minimum Initial Investment (retirement plan account*): $ 500
Subsequent Investments: $ 50
</TABLE>
* Retirement Plan Accounts include IRAs and 401(k) plans. Speak with the Funds'
agents for the many retirement plans available.
800.789.ASIA (2742)
<PAGE> 15
14
The Funds may reject any purchase order or stop selling shares of the
Funds at any time. Also, the Funds may vary or waive the initial
investment minimum and minimums for additional investments.
<TABLE>
<S> <C> <C>
OPEN AN ACCOUNT ADDING TO AN ACCOUNT
BY MAIL - Complete and sign application - Make check payable to:
- Make check payable to: Matthews (name of Fund)
Matthews (name of Fund) - Mail check with a statement stub to address at
- Mail application and check to: left.
Matthews International Funds
P.O. Box 61767
211 South Gulph Road
King of Prussia, PA 19406
VIA PHONE You cannot open an account over the When you open your account, you must check the
telephone. box for "Telephone Options." Note that you may
only exchange shares from one Matthews Fund to
another.
*BY WIRE - Complete and sign application - Notify Funds' agent by calling:
- Mail application to: 800-892-0382.
Matthews International Funds - Then wire funds to:
Post Office Box 61767 Boston Safe Deposit & Trust
211 South Gulph Road ABA # 011001234
King of Prussia, PA 19406 Credit:
- Wire funds using instructions at right. [name of specific Matthews Fund]
Account # 000221
FBO: [your name and account number]
VIA INTERNET You cannot currently open an account over the - When you open your account, complete the Online
Internet. We expect this option to be Account Access Section and attach a voided
available in 2001. check.
- After you have received confirmation of your
purchase, call 800.892.0382 and request a
Personal Identification Number (PIN).
- You may also request an application to enable
this feature after an account is open by
calling 800.892.0382.
VIA AUTOMATIC N/A Complete the Automatic Investment Plan section
INVESTMENT of the application. Be sure to sign the
PLAN application and include a voided check.
</TABLE>
* NOTE THAT WIRE FEES ARE CHARGED BY MOST BANKS.
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<PAGE> 16
15
EXCHANGE OF SHARES
You may exchange your shares of one Matthews Fund for another provided
that the other fund is registered for sale in your state. Minimum
investment requirements apply. Any request must be received by the Fund's
agent by 4:00 p.m. Eastern time on any day the New York Stock Exchange is
open, to receive that day's NAV. Such exchanges may be made by telephone
or the Internet if you have so authorized on your application. Call
800-892-0382 for full details. Because excessive exchanges can harm a
Fund's performance, no more than four exchanges out of any one Fund are
allowed during a 12-month period. The exchange privilege may also be
terminated if the management of the Funds believes it is in the best
interest for all shareholders to do so. Note that redemption fees may
apply.
SELLING (REDEEMING) SHARES
You may sell your shares back to the Funds on any day they are open for
business. To receive a specific day's NAV, your request must be received
by the Funds before 4:00 p.m. Eastern time of that day. If it is received
after 4:00 p.m. Eastern time, you will receive the next NAV calculated.
If you used a check to buy your shares and later decide to sell them,
your proceeds from that redemption will be withheld until the Funds are
sure that your check has cleared. This could take as much as 15 days or
more.
If your request to sell your shares is made by telephone or Internet, you
may have difficulty getting through to the Funds in times of drastic
market conditions. If the Funds believe that it is in the best interest
of all shareholders, it may modify or discontinue telephone transactions
without any notice.
TELEPHONE AND INTERNET SECURITY
The convenience of using telephone and/or Internet transactions may have
a cost in decreased security. The Funds employ certain security measures
as they process these transactions. If such security procedures are used,
the Funds or their agents will not be responsible for any losses that you
incur because of a fraudulent telephone or Internet transaction. If the
security measures are not followed and you incur a loss because of a
fraudulent telephone or Internet transaction, the Funds or their agents
will be responsible for that loss.
800.789.ASIA (2742)
<PAGE> 17
16
<TABLE>
<S> <C>
SELLING (REDEEMING) SHARES
BY MAIL - Send a letter to the Funds at the following address:
Matthews International Funds
P.O. Box 61767
211 South Gulph Road
King of Prussia, PA 19406
The letter must include your name and account number, the
name of the Fund and the amount you want to sell in dollars
or shares. This letter must be signed by each owner of the
account. For security purposes, a signature guarantee will
be required if:
SIGNATURE - your request is for an amount over $100,000; or
GUARANTEE - the money is to be paid to anyone other than the registered owners; or
REQUIRED IF - the money is to be sent to an address which is different
than the registered address or to a bank account other than
the account which was pre-authorized.
VIA PHONE When you opened your account, you must have checked the
appropriate part of the application or after you opened your
account, you have instructed the Funds (in writing, with
signature guarantee) to allow telephone transactions. Call
800.892.0382.
BY WIRE Same as by phone above.
VIA INTERNET - You must have already obtained online account access and a
PIN number from the Funds' transfer agent. (See "Adding to
an Account" on page 14.)
- Go to www.matthewsfunds.com and click on "Account Access",
then follow instructions on how to place a redemption.
THROUGH A BROKER Contact your broker directly. Note that your Broker may
charge you a fee.
</TABLE>
REDEMPTION FEE
Please remember that if you sell your shares within 90 days of the day
you bought them, the money you receive will be 2% less than the total
amount redeemed. This 2% fee is retained by the Funds to compensate the
Funds for the extra expense they incur because of short term trading. In
addition, the Funds hope that the fee will discourage short term trading
of their shares.
REDEMPTION IN KIND
Under certain circumstances, you could receive your redemption proceeds
as a combination of cash and securities. Receiving securities instead of
cash is called "redemption in kind." Even though the Funds are permitted
to do this, the first $250,000 of any redemption must be paid to you in
cash. Note that if you receive securities as well, you will incur
transactions charges if you sell them.
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<PAGE> 18
17
MINIMUM SIZE OF AN ACCOUNT
The Funds are charged by their service providers a fee for each account.
If an account balance falls below $2,500, it becomes too expensive to
keep it open. If this happens to your account we will give you the option
of investing more money into you account, or closing it. You will receive
a letter from the Fund discussing your options in the event your account
falls below $2,500.
DISTRIBUTIONS
All of the Funds except Growth and Income will distribute their net
investment income annually in December. Growth and Income will distribute
its net investment income semi-annually in June and December. Any net
realized gain from the sale of portfolio securities and net realized
gains from foreign currency transactions are distributed at least once
each year unless they are used to offset losses carried forward from
prior years.
All such distributions are reinvested automatically in additional shares
at net asset value, unless you elect to receive them in cash. The way you
receive distributions may be changed at any time by writing the Funds.
Any check in payment of dividends or other distributions which cannot be
delivered by the Post Office or which remains uncashed for a period of
more than one year will be reinvested in the shareholder's account at the
then current net asset value and the dividend option changed from cash to
reinvest.
Distributions are treated the same for tax purposes whether received in
cash or reinvested. Please note that shares purchased shortly before the
record date for a dividend or distribution may have the effect of
returning capital although such dividends and distributions are subject
to taxes.
TAXES
An investment in the Funds has certain tax consequences, depending on the
type of account that you have. Distributions are subject to federal
income tax and may also be subject to state and local income taxes.
Distributions are generally taxable when they are paid, whether in cash
or by reinvestment. Distributions declared in October, November or
December, and paid in the following January are taxable as if they were
paid on December 31.
The exchange of one Matthews Fund for another is a "taxable event" which
means that if you have a gain you may be obligated to pay tax on it.
If you have a qualified retirement account, taxes are generally deferred
until distributions are made from the retirement account.
Part of a distribution may include realized capital gains which may be
taxed at different rates depending on how long the fund has held specific
securities.
Make sure you have a social security number or tax I.D. number on file
with the Funds. If you do not, you may be subject to a 31 percent back up
withholding on your distributions.
Speak with your tax counselor for complete information concerning the tax
implications of your ownership of the Funds.
800.789.ASIA (2742)
<PAGE> 19
18
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
These financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund assuming all of the dividends and distributions were reinvested. The
information for the fiscal years ended August 31, 1999 and 2000 was audited by
Tait, Weller and Baker. The information for the periods prior to August 31, 1999
was audited by other independent accountants.
<TABLE>
<CAPTION>
MATHEWS
ASIAN
TECHNOLOGY
FUND
MATTHEWS ASIAN GROWTH AND INCOME FUND ------------
--------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
-------------------------------------------- AUGUST 31,
2000 1999 1998 1997 1996 2000(1)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.37 $ 6.54 $11.71 $10.53 $ 9.88 $ 10.00
Income from Investment Operations
Net investment income (loss) 0.63(1) 0.59 0.13 0.10 0.25 0.26
Net realized and unrealized gain (loss) on
investments and foreign currency 1.09 2.75 (4.15) 1.42 0.75 (2.65)
-----------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.72 3.34 (4.02) 1.52 1.00 (2.39)
-----------------------------------------------------------
Less Distributions from:
Net investment income (0.59) (0.51) (0.10) (0.10) (0.26) 0.00
Net realized gains on investments 0.00 0.00 (1.05) (0.24) (0.09) 0.00
-----------------------------------------------------------
TOTAL DISTRIBUTIONS (0.59) (0.51) (1.15) (0.34) (0.35) 0.00
NET ASSET VALUE, END OF PERIOD $ 10.50 $ 9.37 $ 6.54 $11.71 $10.53 $ 7.61
TOTAL RETURN 18.68% 52.65% (35.27%) 14.67% 10.24% (23.90%)++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $11,469 $10,644 $4,063 $6,166 $3,272 $24,570
Ratio of expenses to average net assets
before expense waivers 1.97% 2.05% 3.76% 4.45% 8.73% 2.66%+
Ratio of expenses to average net assets
after expense waivers 1.90% 1.90% 1.90% 1.90% 1.85% 2.00%+
Ratio of net investment income (loss) to
average net assets before waivers 6.17% 7.98% (0.36%) (1.55%) (4.13%) 3.75%+
Ratio of net investment income (loss) to
average net assets after waivers 6.24% 8.13% 1.50% 1.00% 2.75% 4.41%+
Portfolio turnover 62.23% 34.82% 54.67% 50.20% 88.16% 50.35%++
<CAPTION>
MATTHEWS CHINA FUND MATTHEWS JAPAN FUND
------------------------- -----------------------
YEAR PERIOD
YEAR ENDED AUGUST 31, ENDED ENDED
------------------------- AUGUST 31, AUGUST 31,
2000 1999 1998(3) 2000 1999(4)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.48 $ 4.36 $10.00 $ 21.70 $ 10.00
Income from Investment Operations
Net investment income (loss) 0.12(2) 0.12 0.10 (0.11) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.44 4.11 (5.74) (0.29) 11.74
---------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.56 4.23 (5.64) (0.40) 11.70
---------------------------------------------------
Less Distributions from:
Net investment income (0.11) (0.11) 0.00 0.00 0.00
Net realized gains on investments 0.00 0.00 0.00 (0.54) 0.00
---------------------------------------------------
TOTAL DISTRIBUTIONS (0.11) (0.11) 0.00 (0.54) 0.00
NET ASSET VALUE, END OF PERIOD $ 9.93 $ 8.48 $ 4.36 $ 20.76 $ 21.70
TOTAL RETURN 18.54% 97.79% (56.40%)++ (1.75%) 117%++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $9,232 $6,245 $1,576 $23,869 $24,486
Ratio of expenses to average net assets
before expense waivers 2.15% 2.09% 7.84%+ 1.88% 3.45%+
Ratio of expenses to average net assets
after expense waivers 2.00% 2.00% 2.00%+ 2.00% 2.00%+
Ratio of net investment income (loss) to
average net assets before waivers 1.54% 2.93% (3.45%)+ (0.36%) (2.54%)+
Ratio of net investment income (loss) to
average net assets after waivers 1.69% 3.02% 2.38%+ (0.48%) (1.09%)+
Portfolio turnover 80.90% 40.27% 11.84%++ 223.00% 28.92%++
</TABLE>
---------------
+ Annualized.
++ Not Annualized.
(1) The Fund commenced operations on December 27, 1999.
(2) Calculated using the average shares method.
(3)The Fund commenced operations on February 19, 1998.
(4)The Fund commenced operations on December 31, 1998.
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<PAGE> 20
19
FINANCIAL HIGHLIGHTS CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATTHEWS KOREA FUND
------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.49 $ 2.03 $ 6.19 $ 7.23 $ 9.13
Income from Investment Operations
Net investment income (loss) 0.03(1) 0.03 (0.03) (0.04)(1) (0.07)
Net realized and unrealized gain (loss) on
investments and foreign currency (1.45) 5.43 (4.13) (1.00)(1) (1.75)
------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.42) 5.46 (4.16) (1.04) (1.82)
------------------------------------------------------
Less Distributions from:
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gains on investments (0.88) 0.00 0.00 0.00 (0.08)
------------------------------------------------------
TOTAL DISTRIBUTIONS (0.88) 0.00 0.00 0.00 (0.08)
NET ASSET VALUE, END OF PERIOD $ 5.19 $ 7.49 $ 2.03 $ 6.19 $ 7.23
TOTAL RETURN (22.92%) 268.97% (67.21%) (14.38%) (20.11%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $115,145 $230,846 $66,607 $19,356 $2,721
Ratio of expenses to average net assets
before expense waivers 1.75% 1.77% 2.07% 2.90% 11.36%
Ratio of expenses to average net assets after
expense waivers 1.75% 1.77% 2.06% 2.50% 2.23%
Ratio of net investment income (loss) to
average net assets before waivers 0.42% (0.37%) (1.13%) (1.81%) (10.44%)
Ratio of net investment income (loss) to
average net assets after waivers 0.42% (0.37%) (1.12%) (1.41%) (1.31%)
Portfolio turnover 47.80% 57.06% 94.01% 112.68% 139.71%
<CAPTION>
MATTHEWS PACIFIC TIGER FUND
-------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 4.07 $ 11.30 $ 10.81 $ 9.77
Income from Investment Operations
Net investment income (loss) 0.20(1) 0.21 0.02(1) 0.02 0.01
Net realized and unrealized gain (loss) on
investments and foreign currency 2.01 6.15 (7.18) 0.50 1.03
-------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.21 6.36 (7.16) 0.52 1.04
-------------------------------------------------------
Less Distributions from:
Net investment income (0.27) (0.02) (0.01) (0.01) 0.00
Net realized gains on investments 0.00 0.00 (0.06) (0.02) 0.00
-------------------------------------------------------
TOTAL DISTRIBUTIONS (0.27) (0.02) (0.07) (0.03) 0.00
NET ASSET VALUE, END OF PERIOD $ 12.35 $ 10.41 $ 4.07 $ 11.30 $ 10.81
TOTAL RETURN 21.28% 156.28% (63.43%) 4.75% 10.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $111,502 $109,936 $31,319 $43,647 $17,148
Ratio of expenses to average net assets
before expense waivers 1.88% 1.90% 2.06% 1.97% 4.35%
Ratio of expenses to average net assets after
expense waivers 1.81% 1.90% 1.90% 1.90% 1.90%
Ratio of net investment income (loss) to
average net assets before waivers 1.49% 3.35% 0.14% 0.20% (2.13%)
Ratio of net investment income (loss) to
average net assets after waivers 1.56% 3.35% 0.30% 0.27% 0.32%
Portfolio turnover 52.11% 98.74% 73.09% 70.73% 124.69%
</TABLE>
---------------
(1) Calculated using the average shares method.
800.789.ASIA (2742)
<PAGE> 21
20
GENERAL INFORMATION
--------------------------------------------------------------------------------
If you wish to know more about Matthews International Funds, You will
find additional information in the following documents.
SHAREOWNER REPORTS
You will receive Semi-Annual Reports dated February 28 and Annual
Reports, audited by independent accountants, dated August 31. These
reports contain a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, which is incorporated into this prospectus by reference and
dated December 15, 2000, is available to you without charge. It contains
more detailed information about the Funds.
HOW TO OBTAIN REPORTS
CONTACTING MATTHEWS INTERNATIONAL FUNDS
You can obtain free copies of the above reports and SAI by visiting our
web site at WWW.MATTHEWSFUNDS.COM. To request additional information or
to speak to a representative of the Funds, contact us at:
Matthews International Funds
P.O. Box 61767, 211 South Gulph Road
King of Prussia, PA 19406
800.789.2742
OBTAINING INFORMATION FROM THE SEC:
You can visit the SEC's web site at www.sec.gov to view the SAI and other
information. You can also view and copy information about the Funds at
the SEC's Public Reference Room in Washington, DC. Also, you can obtain
copies of this information by sending your request and duplication fee to
the SEC's Public Reference Room, Washington DC 20549-6009. To find out
more about the Public Reference Room, you can call the SEC at
202.942.8090. You may also e-mail the SEC at [email protected] to obtain
additional information about a Fund.
Investment Company Act File Number: 811-08510
www.matthewsfunds.com
<PAGE> 22
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
Downey L. Hebble
INVESTMENT ADVISOR
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104-1245
800.789.ASIA (2742)
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
[LOGO]
For additional information about the
Matthews International Funds:
456 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CALIFORNIA 94104-1245
800.789.ASIA (2742)
www.matthewsfunds.com
Investment Company Act File Number: 811-08510
MAT-P12/00
MATTHEWS
INTERNATIONAL FUNDS
www.matthewsfunds.com
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS ASIAN TECHNOLOGY FUND
MATTHEWS CHINA FUND
MATTHEWS JAPAN FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
[LOGO]
PROSPECTUS
DECEMBER 15, 2000
[WATERMARK]
The U.S. Securities and Exchange Commission (the "SEC") has not approved
of, or disapproved of the Fund or the securities that the Fund sells. Also, the
SEC has not passed upon the adequacy or accuracy of this prospectus. Anyone who
informs you otherwise is committing a crime.
<PAGE> 23
(This Page Intentionally Left Blank)
<PAGE> 24
MATTHEWS INTERNATIONAL FUNDS
WWW.MATTHEWSFUNDS.COM
MATTHEWS ASIAN GROWTH AND INCOME FUND
MATTHEWS ASIAN TECHNOLOGY FUND
MATTHEWS CHINA FUND
MATTHEWS JAPAN FUND
MATTHEWS KOREA FUND
MATTHEWS PACIFIC TIGER FUND
STATEMENT OF ADDITIONAL INFORMATION
December 15, 2000
This Statement of Additional Information or "SAI" is not a prospectus, but it
does relate to the prospectus of Matthews International Funds dated December 15,
2000.
Read this document in conjunction with the Prospectus. A copy of the Prospectus
may be obtained without charge from the companies at the addresses and telephone
numbers below or at our Web site: www.matthewsfunds.com.
UNDERWRITER:
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PFPC Distributors, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
(800) 892-0382
INVESTMENT ADVISOR:
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Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, CA 94104
(800) 789-2742
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or its Underwriter. The Prospectus does not
constitute an offering by the Funds or by the Underwriter in any jurisdiction in
which such offering may not lawfully be made.
TABLE OF CONTENTS
Page
FUND HISTORY........................................2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND
RISKS..........................................2
Classification.................................2
Investment Strategies and Risks................2
MATTHEWS' INVESTMENT PROCESS .......................3
Foreign Currency Transactions..................4
Investment Strategies and Risks
Common to All Funds........................4
Investment Strategies and Risks Specific
to Each Fund...............................6
Risks Related to Lower Rated Debt
Securities................................11
Non-Principal Investment Strategies...........11
FUNDS' POLICIES....................................21
TEMPORARY DEFENSIVE POSITION.......................22
PORTFOLIO TURNOVER.................................23
MANAGEMENT OF THE FUNDS............................23
Trustees and Officers.........................23
CONTROL PERSONS AND PRINCIPAL HOLDERS
OF SECURITIES.................................24
INVESTMENT ADVISORY AND OTHER
SERVICES......................................26
The Investment Advisor........................26
Principal Underwriter.........................27
Service Agreements............................28
Other Service Providers.......................29
BROKERAGE ALLOCATION AND OTHER
PRACTICES.....................................29
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SHARES OF BENEFICIAL INTEREST......................31
PURCHASE, REDEMPTION AND PRICING
OF SHARES.....................................31
Purchase of Shares............................31
Determination of Net Asset Value..............31
Redemption in Kind........................32
Equalization..................................32
TAXATION OF THE TRUST..............................32
In General....................................32
Taxes Regarding Options, Futures and
Foreign Currency Transactions.................33
Unique Foreign Tax Issues.....................34
UNDERWRITERS.......................................35
CALCULATION OF PERFORMANCE DATA....................35
In General....................................35
Average Total Return Quotation................35
Yield Quotation...............................36
Performance and Advertisements................37
OTHER INFORMATION..................................38
Reports to Shareholders.......................38
Financial Statements..........................38
APPENDIX.......................................... 38
Bond Ratings..................................38
FUND HISTORY
Matthews International Funds (the "Trust"), 456 Montgomery Street, Suite 1200,
San Francisco, California 94104, is a family of mutual funds currently offering
six separate series of shares named:
Matthews Asian Growth and Income Fund, Matthews Asian Technology Fund, Matthews
China Fund (formerly named Matthews Dragon Century China Fund), Matthews Japan
Fund, Matthews Korea Fund and Matthews Pacific Tiger Fund (collectively referred
to as the "Funds" or individually as a "Fund"). All six funds are offered in a
single prospectus, referred to herein as the "Prospectus." The Trust was
organized as a Delaware business trust on April 13, 1994 and commenced
operations on September 12, 1994. It has never been engaged in any other
business.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
Please read the following information together with the information contained in
the Prospectus concerning the investment strategies, risks and policies of the
Funds. The information here supplements the information in the Prospectus.
Classification
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund is
"diversified" except for the Korea Fund which is non diversified. Diversified
means that as to 75% of the assets of a Fund, one holding can not represent more
than 5% of the assets of the Fund, nor can any holding represent more that 10%
of its company's shares. The remaining 25% of the Fund could be invested in one
holding, or in multiple holdings not subject to the above limitations.
Each Fund has elected and intends to continue to qualify and elect to be treated
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986 (the "Code"). Such qualification relieves the Funds of liability
for federal income taxes to the extent the Funds' earnings are distributed in
accordance with the Code. To so qualify, among other requirements, each Fund
will limit its investments so that, at the close of each quarter of its taxable
year, (i) not more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer, and it
will not own more than 10% of the outstanding voting securities of a single
issuer.
Investment Strategies and Risks
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As a general matter, the Advisor believes that the discipline of company
evaluation and choosing good stocks (and in the case of the Asian Growth and
Income Fund, convertible securities) is the best way to manage the assets of the
Funds, and to be fully invested as appropriate with cash needs.
MATTHEWS' INVESTMENT PROCESS
Matthews International Capital Management LLC, serves as the investment advisor
to the Trust. In this SAI, they are referred to as "Matthews" or the "Advisor."
The Advisor uses a multi-factor research approach when selecting investments for
the Funds. These factors include evaluation of each country's political
stability, prospects for economic growth (inflation, interest direction, trade
balance and currency strength), identification of long term trends that might
create investment opportunities, the status of the purchasing power of the
people and population and composition of the work force. In reviewing potential
companies in which to invest, the Advisor considers the company's quality of
management, plans for long-term growth, competitive position in the industry,
future expansion plans and growth prospects, valuations compared with industry
average, earnings track record, technology, research and development,
productivity, labor costs, raw material costs and sources, profit margins,
capital resources, governmental regulation, a debt/equity ratio less than the
market average, and other factors. In addition, the Advisor will visit countries
and companies in person to derive firsthand information for further evaluation.
After evaluation of all factors, the Advisor attempts to identify those
companies in such countries and industries that are best positioned and managed
to take advantage of the varying economic and political factors.
The Funds may invest in securities of issuers of various sizes, large or small.
Smaller companies often have limited product lines, markets or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies generally are subject to more
abrupt or erratic market movements and may be less liquid than securities of
larger, more established companies or the market averages in general.
Many of the debt and convertible securities in which the Funds invest are
un-rated by any rating agency and, therefore, there is no objective standard
against which the Advisor may evaluate such securities. The Advisor seeks to
minimize the risks of investing in lower-rated securities through investment
analysis and attention to current developments in interest rates and economic
conditions. In selecting debt and convertible securities for the Funds, the
Advisor will assess the following factors:
1) potential for capital appreciation; 2) price of security relative to price of
underlying stock, if a convertible security; 3) yield of security relative to
yield of other fixed-income securities; 4) interest or dividend income; 5) call
and/or put features; 6) creditworthiness; 7) price of security relative to price
of other comparable securities 8) size of issue; 9) currency of issue; and 10)
impact of security on diversification of the portfolios.
The Funds may also invest in securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
Generally, ADRs in registered form are dollar denominated securities designed
for use in the U.S. securities markets, which represent and may be converted
into an underlying foreign security. EDRs, in bearer form, are designed for use
in the European securities markets.
The Funds may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices.
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Foreign Currency Transactions
The Funds must engage in foreign currency transactions in connection with their
investment in foreign securities but will not speculate in foreign currency
exchange. The Funds will conduct their foreign currency exchange transactions
either on a spot (i.e. cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction, a Fund is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. This tends to limit potential gains however,
that might result from a positive change in such currency relationships. The
Funds may also hedge their foreign currency exchange rate risk by engaging in
currency financial futures and options transactions.
When the Advisor believes that the currency of a particular foreign country may
suffer a substantial decline against the United States dollar, it may enter into
a forward contract to sell an amount of foreign currency approximating the value
of some or all of the Funds' securities denominated in such foreign currency. In
this situation the Funds may, in the alternative, enter into a forward contract
to sell a different foreign currency for a fixed United States dollar amount
where the Advisor believes that the United States dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the United States dollar value of the currency in which portfolio
securities of the Funds are denominated ("cross-hedge"). The forecasting of
short-term currency market movement is extremely difficult and whether such a
short-term hedging strategy will be successful is highly uncertain.
The Funds may enter into forward contracts to sell foreign currency with respect
to portfolio positions denominated or quoted in that currency.
INVESTMENT STRATEGIES AND RISKS COMMON TO ALL FUNDS
Below are explanations and the associated risks of certain unique securities and
investment techniques. Shareholders should understand that all investments
involve risk and there can be no guarantee against loss resulting from an
investment in the Funds, nor can there be any assurance that the Funds'
investment objectives will be attained. Again, we remind you that generally
speaking, the Trust's investment strategy is to invest the shareholders' money
in equity securities (convertible securities in the case of Asian Growth and
Income Fund) consistent with each Funds' investment goal.
ADRs and EDRs
For many foreign securities, there are United States dollar denominated ADRs,
which are bought and sold in the United States and are issued by domestic banks.
ADRs represent the right to receive securities of foreign issuers deposited in
the domestic bank or a correspondent bank. ADRs do not eliminate all the risks
inherent in investing in the securities of foreign issuers. By investing in ADRs
rather than directly in foreign issuer's
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stock however, the Funds will avoid currency risks during the settlement period
for either purchases or sales. The Funds may also invest in EDRs which are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and are designed for use in the European securities markets.
EDRs are not necessarily denominated in the currency of the underlying security.
The Funds have no current intention to invest in unsponsored ADRs and EDRs.
IDRs
IDRs (International Depositary Receipts, also known as GDRs or Global Depositary
Receipts) are similar to ADRs except that they are bearer securities for
investors or traders outside the U.S., and for companies wishing to raise equity
capital in securities markets outside the U.S. Most IDRs have been used to
represent shares although it is possible to use them for bonds, commercial paper
and certificates of deposit. IDRs can be convertible to ADRs in New York making
them particularly useful for arbitrage between the markets. The Funds have no
current intention to invest in unsponsored IDRs.
Risks Associated with Euroconvertible
Securities
Most of the convertible securities in which the Funds will invest are unrated by
any rating agency and, therefore, there is no objective standard against which
the Advisor may evaluate such securities. Investing in a convertible security
denominated in a currency different from that of the security into which it is
convertible exposes the Fund to currency risk.
The theoretical value of convertible securities varies with a number of factors
including the value and volatility of the underlying stock, the level and
volatility of the interest rates, the passage of time, dividend policy, and
other variables. Euroconvertible securities, specifically, are also influenced
by the level and volatility of the foreign exchange rate between the security's
currency and the underlying stock's currency. While the volatility of
convertible fixed income securities will typically be less than that of the
underlying securities, the volatility of warrants will typically be greater than
that of the underlying securities.
Risks Associated with Emerging
Markets
Investing in securities of issuers in Asia and the Pacific Basin involves
special risks. First, the Funds' investment focus on that region makes the Funds
particularly subject to political, social, or economic conditions experienced in
that region. Second, many of the countries in Asia and the Pacific Basin
constitute so-called "developing" or "emerging" economies and markets. The risks
of investing in foreign markets generally are greater for investments in
developing markets. Additional risks of investment in such markets include (i)
less social, political, and economic stability; (ii) the smaller size of the
securities markets in such countries and the lower volume of trading, which may
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Funds' investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests, or expropriation or confiscation of assets or property,
which could result in the Funds' loss of their entire investment in that market;
and (iv) less developed legal structures governing private or foreign investment
or allowing for judicial redress for injury to private property.
Risks Associated with Foreign
Currency
The U.S. dollar market value of the Funds' investments and of dividends and
interest earned by the Funds may be significantly affected by changes in
currency exchange rates.
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The value of Fund assets denominated in foreign currencies will increase or
decrease in response to fluctuations in the value of those foreign currencies
relative to the U.S. dollar. Although the Funds may attempt to manage currency
exchange rate risks, there is no assurance that the Funds will do so at an
appropriate time or that they will be able to predict exchange rates accurately.
For example, if the Funds increase their exposure to a currency and that
currency's price subsequently falls, such currency management may result in
increased losses to the Funds. Similarly, if the Funds decrease their exposure
to a currency and the currency's price rises, the Funds will lose the
opportunity to participate in the currency's appreciation. Some currency prices
may be volatile, and there is the possibility of governmental controls on
currency exchange or governmental intervention in currency markets, which could
adversely affect the Funds. Foreign investments which are not U.S. dollar
denominated may require the Funds to convert assets into foreign currencies or
to convert assets and income from foreign currencies to U.S. dollars. Normally,
exchange transactions will be conducted on a spot, cash or forward basis at the
prevailing rate in the foreign exchange market.
Dividends and interest received by the Funds with respect to foreign securities
may give rise to withholding and other taxes imposed by foreign countries. Tax
consequences between certain countries and the United States may reduce or
eliminate such taxes. In addition, foreign countries generally do not impose
taxes on capital gains with respect to investments by non-resident investors.
Matthews Korea Fund does not intend to engage in activities that will create a
permanent establishment in Korea within the meaning of the Korea-U.S. Tax
Treaty. Therefore, Matthews Korea Fund generally will not be subject to any
Korean income taxes other than Korean withholding taxes. Exemptions or
reductions in these taxes apply if the Korea-U.S. Tax Treaty applies to the
Fund. If the treaty provisions are not, or cease to be, applicable to Matthews
Korea Fund, significant additional withholding taxes would apply.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS ASIAN TECHNOLOGY FUND
This fund is concentrated in the technology sector, the movements in its NAV
will follow that sector, as opposed to the general movement of the economies of
the countries where the companies are located. This concentration will have a
tendency to make the NAV more volatile than a non-concentrated portfolio.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS CHINA FUND
The Fund may hold a significant weighting in securities listed on either the
Shanghai and/or Shenzhen stock exchanges. Securities listed on these exchanges
are divided into two classes, A shares, which are limited to domestic investors,
and B shares, which are allocated for international investors. The Fund's
exposure to securities listed on either the Shanghai and Shenzhen exchanges will
initially be through B shares, until the regulatory environment eliminates the
share class distinction. In addition to B shares, the Fund may also invest in
Hong Kong listed H shares, Hong Kong listed Red chips (which are companies owned
by mainland China enterprises, but are listed in Hong Kong), and companies with
the majority of their revenues derived from business conducted in China
(regardless of the exchange the security is listed on or the country the company
is based).
The Fund may invest up to 35% of its total assets in equity and other securities
of issuers located outside of the China region, including, without limitation,
the United States, and in non-convertible bonds and other debt
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securities issued by foreign issuers and foreign government entities.
The Advisor may invest where the Advisor believes the potential for capital
growth exists and in companies which have demonstrated the ability to anticipate
and adapt to changing markets. The Fund may invest in the securities of all
types of issuers, large or small, whose earnings are believed by the Advisor to
be in a relatively strong growth trend or whose assets are substantially
undervalued.
Under normal circumstances, the Advisor expects that the portfolio of the Fund
will be comprised of twenty to sixty individual stocks in various countries in
the China region. When purchasing portfolio securities for the Fund, the
Advisor's philosophy is a buy and hold strategy versus buying for short-term
trading.
In addition to the risks of investing in China and Hong Kong discussed in the
prospectus, investors should know that China's securities markets have less
regulation, are substantially smaller, less liquid and more volatile than the
securities markets of more developed countries. Financial information on
companies listed on these markets is limited and can be inaccurate. Companies
listed on these markets may trade at prices not consistent with traditional
valuation measures. Management of these companies could have conflicting
financial interests or little experience managing a business.
INVESTMENT STRATEGIES AND RISKS SPECIFIC TO MATTHEWS JAPAN FUND
The Fund may invest in equity and other securities of issuers located outside of
Japan, including the United States, and in non-convertible bonds and other debt
securities issued by foreign issuers and foreign government entities. The Fund
may invest in non-convertible debt securities provided that such securities are
rated, at the time of investment, BBB or higher by S&P or Baa or higher by
Moody's or rated of equivalent credit quality by an internationally recognized
statistical rating organization or, if not rated, are of equivalent credit
quality as determined by the Advisor. Securities rated BBB by S&P or Baa by
Moody's are considered to have speculative characteristics. Non-convertible debt
securities in which the Fund may invest include U.S. dollar or yen-denominated
debt securities issued by the Japanese government or Japanese companies and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund may invest up to 5% of its total assets in securities rated below
investment grade (securities rated Baa or higher by Moody's or BBB or higher by
S&P or, if unrated, are comparable in quality). Debt securities rated below
investment grade, commonly referred to as junk bonds, have speculative
characteristics that result in a greater risk of loss of principal and interest.
The Fund may invest its assets in a broad spectrum of securities of Japanese
industries which are believed to have attractive long-term growth potential. The
Fund has the flexibility to invest in both large and small companies, as deemed
appropriate by the Advisor. Smaller companies often have limited product lines,
markets or financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies generally are subject to
more abrupt or erratic market movements and may be less liquid than securities
of larger, more established companies or the market averages in general. In
selecting industries and companies for investment, the Advisor considers overall
growth prospects, competitive position in export markets, technology, research
and development, productivity, labor costs, raw material costs and sources,
profit margins, capital resources, government regulation, quality of management
and other factors. After evaluation of all factors, the Advisor attempts to
identify those companies and industries that
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are best positioned and managed to take advantage of the varying economic and
political factors.
Under normal circumstances, the Advisor expects that the portfolio of the Fund
will be comprised of 25 to 75 individual stocks in the Japanese economy. When
purchasing portfolio securities for the Fund, the Advisor's philosophy is
generally a buy and hold strategy versus buying for short-term trading.
Concentration in Japanese Securities
The Fund concentrates its investments in equity securities of Japanese
companies. Consequently, the Fund's share value may be more volatile than that
of mutual funds not sharing this geographic concentration. The value of the
Fund's shares may vary in response to political and economic factors affecting
companies in Japan. The Fund should not be considered a complete investment
program, rather it may be used as a vehicle for diversification.
Securities in Japan are denominated and quoted in yen. Yen are fully convertible
and transferable based on floating exchange rates into all readily convertible
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of the Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by fluctuations in the value of Japanese yen relative to the U.S.
dollar.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earning of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent on foreign economies for raw materials. International
trade is important to Japan's economy, as exports provide the means to pay for
many of the raw materials it must import. Because of the concentration of the
Japanese exports in highly visible products such as automobiles, machine tools
and semiconductors, and the large trade surpluses ensuing therefrom, Japan has
entered a difficult phase in its relations with its trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest.
INVESTMENT STRATEGIES SPECIFIC TO MATTHEWS KOREA FUND
Equity securities in which the Fund may invest include South Korean common
stocks, preferred stocks (including convertible preferred stock), bonds, notes
and debentures convertible into common or preferred stocks, warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar enterprises
and depositary receipts. At present, not all of these types of securities are
available for investment in South Korea.
The Fund may invest up to 35% of its total assets in non-convertible debt
securities provided that such securities are rated, at the time of investment,
BBB or higher by S&P or Baa or higher by Moody's or rated of equivalent credit
quality by an internationally recognized statistical rating organization or, if
not rated, are of equivalent credit quality as determined by the Advisor.
Securities rated BBB by S&P or Baa by Moody's are considered to have speculative
characteristics. Non-convertible debt securities in which the Fund
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may invest include U.S. dollar or won-denominated debt securities issued by the
South Korean government or South Korean companies and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Korean law
does not currently permit foreign investors such as the Fund to acquire debt
securities denominated in won or equity securities of companies organized under
the laws of Korea that are not listed on the Korea Stock Exchange ("KSE"). At
the present time, however, foreign investors are permitted to invest in debt
securities issued by Korean companies outside of Korea and denominated in
currencies other than won.
The Fund may invest up to 35% of its total assets in securities rated below
investment grade (securities rated below Baa by Moody's or below BBB by S&P or,
if unrated, are comparable in quality) commonly referred to as "junk bonds."
Debt securities rated below investment grade may have speculative
characteristics that result in a greater risk of loss of principal or interest.
See "Risks Associated with Lower Rated Securities."
The Fund may invest its assets in a broad spectrum of securities of Korean
industries which are believed to have attractive long-term growth potential.
Because the Fund intends to invest primarily in equity securities of South
Korean companies, an investor in the Fund should be aware of certain risks
relating to South Korea, the Korean securities markets and international
investments generally which are not typically associated with U.S. domestic
investments. In addition, the Fund may be more volatile than a geographically
diverse fund.
Security Valuation Considerations
The Korean government has historically imposed significant restrictions and
controls for foreign investors. As a result, the Fund may be limited in its
investments or precluded from investing in certain Korean companies, which may
adversely affect the performance of the Fund. Under the current regulations,
foreign investors are allowed to invest in almost all shares listed on the KSE.
From time to time, many of the securities trade among non-Korean residents at a
premium over the market price. Foreign investors may effect transactions with
other foreign investors off the KSE in the shares of companies that have reached
the maximum aggregate foreign ownership limit through a securities company in
Korea. These transactions typically occur at a premium over prices on the KSE.
There can be no assurance that the Fund, if it purchases such shares at a
premium, will be able to realize such premium, on the sale of such shares or
that such premium will not be adversely affected by changes in regulations or
otherwise. Such securities will be valued at fair value as determined in good
faith by the Board of Trustees.
Risks Associated with Investing in Korean Securities
Investments by the Fund in the securities of Korean issuers may involve
investment risks different from those of U.S. issuers, including possible
political, economic or social instability in Korea, and by changes in Korean law
or regulations. In addition, there is the possibility of the imposition of
currency exchange controls, foreign withholding tax on the interest income
payable on such instruments, foreign controls, seizure or nationalization of
foreign deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the Korean securities held by the Fund.
Political instability and/or military conflict involving North Korea may
adversely affect the value of the Fund's assets. Foreign securities may also be
subject to greater fluctuations in price than securities of domestic
corporations or the U.S. Government. There may be less publicly available
information about a Korean company
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than about a domestic company. Brokers in Korea may not be as well capitalized
as those in the U.S., so that they are more susceptible to financial failure in
times of market, political, or economic stress. Additionally, Korean accounting,
auditing and financial reporting standards and requirements differ, in some
cases, significantly, from those applicable to U.S. issuers. In particular the
assets and profits appearing on the financial statements of a Korean issuer may
not reflect its financial position or results of operations in accordance with
U.S. generally accepted accounting principles. There is a possibility of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in Korea.
In addition, brokerage commissions, custodian services, withholding taxes, and
other costs relating to investment in foreign markets generally are more
expensive than in the United States. Therefore, the operating expense ratio of
the Fund can be expected to be higher than that of a fund investing primarily in
the securities of U.S. issuers.
Risks Associated with the Korean Securities Markets
In addition to the risks of investing in Korea discussed in the Fund's
Prospectus, investors should know that the Korean securities markets are smaller
than the securities markets of the U.S. or Japan. Certain restrictions on
foreign investment in the Korean securities markets may preclude investments in
certain securities by the Fund and limit investment opportunities for the Fund.
Investing in securities of South Korean companies and of the government of the
Republic of Korea involves certain considerations not typically associated with
investing in securities of United States companies or the United States
government. Among these are the risks of political, economic and social
uncertainty and instability, including the potential for increasing
militarization in North Korea. Relations between North and South Korea, while
improving, remain tense and the possibility of military action still exists. In
the event that military action were to take place, the value of the Fund's
Korean assets are likely to be adversely affected. The Fund may also be affected
by foreign currency fluctuations or exchange controls, differences in accounting
procedures and other risks. The Fund is also subject to typical stock and bond
market risk. In addition, limitations of foreign ownership currently exist which
may impact the price of a Korean security paid by the Fund.
In the latter part of 1997, Korea experienced a national financial crisis
requiring intervention by the International Monetary Fund ("IMF") and a large
infusion of foreign capital. The financial crisis has led to a recessionary
environment, which is continuing with serious consequences for unemployment and
domestic business activity. The government has initiated, in conjunction with
the IMF, wide-ranging reform activities. The full impact on corporate Korea
cannot be predicted but widespread restructuring and consolidation as well as a
continued high rate of bankruptcies can be expected.
INVESTMENT POLICIES AND RISKS SPECIFIC TO MATTHEWS PACIFIC TIGER FUND
Equity securities in which the Fund may invest include common stocks, preferred
stocks, warrants, and securities convertible into common stocks, such as
convertible bonds and debentures.
The Fund may invest up to 35% of its total assets in equity and other securities
of issuers located outside of the Pacific Tiger economies, including, without
limitation, the United States, and in non-convertible bonds and other debt
securities issued by foreign issuers and foreign government entities.
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The Fund may invest up to 15% of its total assets in securities rated below
investment grade (securities rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or,
if unrated, are comparable in quality). Debt securities rated below investment
grade, commonly referred to as junk bonds, have speculative characteristics that
result in a greater risk of loss of principal and interest.
The Advisor may invest where the Advisor believes the potential for capital
growth exists and in companies which have demonstrated the ability to anticipate
and adapt to changing markets. The Fund may invest in the securities of all
types of issuers, large or small, whose earnings are believed by the Advisor to
be in a relatively strong growth trend or whose assets are substantially
undervalued.
Under normal circumstances, the Advisor expects that the portfolio of the Fund
will be comprised of forty to eighty individual stocks in various countries in
the Pacific Tiger economies. When purchasing portfolio securities for the Fund,
the Advisor's philosophy is a buy and hold strategy versus buying for short-term
trading.
RISKS RELATED TO LOWER RATED DEBT SECURITIES
Debt securities rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("S&P") (commonly referred
to as "junk bonds") are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of credit risk.
There can be no assurance that the Funds would be protected from widespread bond
defaults brought about by a sustained economic downturn or other market and
interest rate changes.
The value of lower-rated debt securities will be influenced not only by changing
interest rates, but also by the bond market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, low and medium-rated bonds may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the value and liquidity (liquidity refers
to the ease or difficulty which the Fund could sell a security at its perceived
value) of lower-rated securities held by a Fund, especially in a thinly traded
foreign market.
To the extent that an established secondary market does not exist and a
particular lower-rated debt security is thinly traded, that security's fair
value may be difficult to determine because of the absence of reliable objective
data. As a result, a Fund's valuation of the security and the price it could
obtain upon its disposition could differ. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower-rated securities held by the Funds, especially in
a thinly traded market.
The credit ratings of S&P and Moody's are evaluations of the safety of principal
and interest payments, not market value risk, of lower-rated securities. These
ratings are provided as an Appendix to this SAI. Also, credit rating agencies
may fail to change timely the credit ratings to reflect subsequent events.
Therefore, in addition to using recognized rating agencies and other sources,
the Advisor may perform its own analysis of issuers in selecting investments for
the Funds. The Advisor's analysis of issuers may include, among other things,
historic and current financial condition and current and anticipated cash flows.
Non-Principal Investment Strategies
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The following strategies and specific type of investments are not the principal
investment strategies of the Funds, but are reserved by the Advisor for its use
in the event that the Advisor deems it appropriate to do so to achieve the
Funds' fundamental goals.
1. Loans of Portfolio Securities
The Funds may lend portfolio securities to broker-dealers and financial
institutions. In return, the broker-dealers and financial institutions pay the
Funds money to borrow these securities. The Funds may lend portfolio securities
provided:
(1) the loan is secured continuously by collateral marked-to-market daily and
maintained in an amount at least equal to the current market value of the
securities loaned; (2) the Funds may call the loan at any time and receive the
securities loaned; (3) the Funds will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
by a Fund will not at any time exceed 33% of the total assets of such Fund.
Collateral will consist of U.S. Government securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, the Funds will only enter into portfolio loans
after a review by the Advisor, under the supervision of the Board of Trustees,
including a review of the creditworthiness of the borrower. Such reviews will be
monitored on an ongoing basis. Lending portfolio securities by Matthews Korea
Fund is not currently permitted under Korean laws and regulations. In the event
that these laws change, the Fund will take advantage of this strategy as it
deems appropriate.
2. Repurchase Agreements
The Funds may purchase repurchase agreements to earn income. The Funds may also
enter into repurchase agreements with financial institutions that are deemed to
be creditworthy by the Advisor, pursuant to guidelines established by the Board
of Trustees. The repurchase price under the repurchase agreements equals the
price paid by each Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreement). Repurchase agreements may be considered to
be collateralized loans by the Funds under the 1940 Act.
Any collateral will be marked-to-market daily. If the seller of the underlying
security under the repurchase agreement should default on its obligation to
repurchase the underlying security, a Fund may experience delay or difficulty in
exercising its right to realize upon the security and, in addition, may incur a
loss if the value of the security should decline, as well as disposition costs
in liquidating the security. A Fund will not invest more than 15% of its net
assets in repurchase agreements maturing in more than seven days. The Funds must
treat each repurchase agreement as a security for tax diversification purposes
and not as cash, a cash equivalent or receivable. Matthews Korea Fund is not
currently permitted to engage in repurchase transactions in Korea under Korean
laws and regulations.
The financial institutions with whom the Funds may enter into repurchase
agreements are banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers and
banks, if such banks and non-bank dealers are deemed creditworthy by the
Advisor. The Advisor will continue to monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain during the
term of the agreement the value of the securities subject to the agreement at
not less than the repurchase
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price. The Funds will only enter into a repurchase agreement where the market
value of the underlying security, including interest accrued, will be at all
times equal to or exceed the value of the repurchase agreement.
The Funds may invest in repurchase agreements with foreign parties, or in a
repurchase agreement based on securities denominated in foreign currencies.
Legal structures in foreign countries, including bankruptcy laws, may offer less
protection to investors such as the Funds, and foreign repurchase agreements
generally involve greater risks than a repurchase agreement in the United
States.
3. Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements to raise cash on a
short-term basis. Reverse repurchase agreements involve the sale of securities
held by the Funds pursuant to the Funds' agreement to repurchase the securities
at an agreed upon price, date and rate of interest. Such agreements are
considered to be borrowings under the 1940 Act, and may be entered into only for
temporary or emergency purposes. While reverse repurchase transactions are
outstanding, the Funds will maintain in a segregated account of cash, U.S.
Government securities or other liquid, high-grade debt securities in an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Funds may decline below the price
of the securities the Funds are obligated to repurchase such securities.
4. Securities of Other Investment Companies
The Funds may invest in the securities of other investment companies and
currently intend to limit their investments in securities issued by other
investment companies so that, as determined immediately after a purchase of such
securities is made: (i) not more than 5% of the value of any the individual
Funds' total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of their total assets will be invested in the
aggregate in securities of investment companies as a group; and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the respective Fund.
As a shareholder of another investment company, a Fund would bear along with
other shareholders, its pro rata portion of the investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Funds bear directly in connection with their own
operations.
5. Illiquid Securities
Illiquid Securities are securities that can not be disposed of at the market
price within seven days of wanting to do so. The Board of Trustees has delegated
the function of making day to day determinations of whether a security is liquid
or not to the Advisor, pursuant to guidelines established by the Board of
Trustees and subject to it quarterly review. The Advisor will monitor the
liquidity of securities held by each Fund and report periodically on such
decisions to the Board of Trustees.
The Fund may invest up to 15% of its net assets in equity or debt securities for
which there is no ready market. The Fund may therefore not be able to readily
sell such securities. Such securities are unlike securities that are traded in
the open market and which can be expected to be sold immediately. The sale price
of securities that are not readily marketable may be lower or higher than the
Fund's most recent estimate of their fair value. Generally, less public
information is available with respect to the issuers of these securities than
with respect to companies whose securities are traded on an exchange. Securities
which are not readily marketable are more
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likely to be issued by start-up, small or family business and therefore subject
to greater economic, business and market risks than the listed securities of
more well-established companies.
6. Rule 144A Securities (Restricted Securities)
Securities which are not registered with the SEC pursuant to Rule 144A of the
Securities Act of 1933, as amended (the "1933 Act"), are only traded among
institutional investors. These securities are sometimes called "Restricted
Securities" because they are restricted from being sold to the general public
because they are not registered with the SEC.
Some of these securities are also illiquid because they can not be sold at its
market price within 7 days of wanting to do so. The Funds will limit their
investments in securities of issuers which are restricted from selling to the
public without registration under the 1933 Act. This 15% does not include any
restricted securities that have been determined to be liquid by the Funds' Board
of Trustees.
7. Convertible Securities
Each Fund may purchase convertible securities. While common stock occupies the
most junior position in a company's capital structure, convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time. In addition, the owner of convertible securities
receives interest or dividends until the security is converted. The provisions
of any convertible security determine its ranking in a company's capital
structure. In the case of subordinated convertible debentures, the holder's
claims on assets and earnings are subordinated to the claims of other creditors,
and are senior to the claims of preferred and common shareholders. In the case
of preferred stock and convertible preferred stock, the holder's claims on
assets and earnings are subordinated to the claims of all creditors but are
senior to the claims of common shareholders.
To the extent that a convertible security's investment value is greater than its
conversion value, its price will be primarily a reflection of such investment
value and its price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security. If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, may sell at some
premium over its conversion value. At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security.
8. Forward Commitments, When-Issued Securities and Delayed-Delivery Transactions
The Funds may purchase securities on a when-issued basis, or purchase or sell
securities on a forward commitment basis or purchase securities on a
delayed-delivery basis. The Funds will normally realize a capital gain or loss
in connection with these transactions. For purposes of determining the Funds'
average dollar-weighted maturity, the maturity of when-issued or forward
commitment securities will be calculated from the commitment date.
When the Funds purchase securities on a when-issued, delayed-delivery or forward
commitment basis, the Funds' custodian will maintain in a segregated account:
cash, U.S. Government securities or other high grade liquid debt obligations
having a value (determined daily) at least equal to the amount of the Funds'
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities themselves in a
segregated account while the commitment is outstanding. These procedures are
designed to ensure that the Funds will maintain sufficient assets at all times
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to cover their obligations under when-issued purchases, forward commitments and
delayed-delivery transactions.
Securities purchased or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although the Funds would
generally purchase securities on a when-issued, delayed-delivery or a forward
commitment basis with the intention of acquiring the securities, the Funds may
dispose of such securities prior to settlement if the Advisor deems it
appropriate to do so.
9. Fixed-Income Securities (Bonds etc.)
All fixed-income securities are subject to two types of risks: credit risk (will
the borrower be able to pay back the money) and the interest rate risk. The
credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they come due. The interest rate risk refers to the
fluctuations in the net asset value of any portfolio of fixed-income securities
resulting from the inverse relationship between price and yield of fixed-income
securities; that is, when the general level of interest rates rises, the prices
of outstanding fixed-income securities decline, and when interest rates fall,
prices rise.
In addition, if the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a rise in interest rates or a decline in the exchange rate of the
currency would adversely affect the value of the security expressed in dollars.
Fixed-income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries.
10. Short-Selling
The Funds may make short sales. A short sale occurs when a Fund borrows stock
(usually from a broker) and promises to give it back at some date in the future.
If the market price of that stock goes down, the Fund buys the stock at a lower
price so that it can pay back the broker for the stock borrowed. The difference
between the price of the stock when borrowed, and when later purchased, is a
profit. The profit is reduced by a fee paid to the broker for borrowing the
stock.
A Fund may incur a loss as a result of a short sale if the price of the security
increases between the date of the short sale and the date on which the Fund
replaced the borrowed security. The amount of any loss will be increased, by the
amount of any premium, dividends or interest the Fund may be required to pay in
connection with a short sale. No securities will be sold short if, after effect
is given to any such short sale, the total market value of all securities sold
short would exceed 10% of the value of the Fund's net assets. The Fund will
place in a segregated account with its custodian bank an amount of cash or U.S.
Government securities equal to the difference between the market value of the
securities sold short at the time they were sold short and any cash or U.S.
Government securities required to be deposited as collateral with the broker in
connection with the short sale.
This segregated account will be marked to market daily, provided that at no time
will the amount deposited in it plus the amount deposited with the broker as
collateral be less than the market value of the securities at the time they were
sold short.
11. Interest Rate Futures Contracts
The Funds may enter into contracts for the future delivery of fixed-income
securities commonly referred to as "interest rate futures contracts." These
futures contracts will be used only as a hedge against anticipated interest rate
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changes. The Funds will not enter into an interest rate futures contract if
immediately thereafter more than 5% of the value of the respective Fund's total
assets will be committed to margin. The principal risks related to the use of
such instruments are (1) the offsetting correlation between movements in the
market price of the portfolio investments being hedged and in the price of the
futures contract or option may be imperfect (the Advisor guessed wrong about how
interest rates would change); (2) possible lack of a liquid secondary market for
closing out futures or option positions; (3) the need for additional portfolio
management skills and techniques; and (4) losses due to unanticipated market
price movements.
12. Futures Transactions
The Funds may engage in futures transactions for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into offsetting transactions. The Funds may invest in futures
transactions for hedging purposes or to maintain liquidity. A Fund may not
purchase or sell a futures contract, however, unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 10% or
less of its total assets.
At maturity, a futures contract obligates the Funds to take or make delivery of
certain securities or the cash value of a securities index. A Fund may sell a
futures contract in order to offset a decrease in the market value of its
portfolio securities that might otherwise result from a market decline. A Fund
may do so either to hedge the value of its portfolio of securities as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund may purchase a futures
contract in anticipation of purchases of securities. In addition, a Fund may
utilize futures contracts in anticipation of changes in the composition of its
portfolio holdings.
The Funds may engage in futures transactions on U.S. or foreign exchanges or
boards of trade. In the U.S., futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. Government agency.
The Funds may enter into such futures transactions to protect itself against the
adverse effects of fluctuations in security prices, or interest rates, without
actually buying or selling the securities underlying the contract. A stock index
futures contract obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement was made.
With respect to options on futures contracts, when the Funds are temporarily not
fully invested, they may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities.
The writing of a call option on a futures contract constitutes a partial hedge
against the declining price of the security or foreign currency which is
deliverable upon exercise of the futures contract. The writing of a put option
on a futures contract constitutes a partial hedge against the increasing price
of the
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security or foreign currency which is deliverable upon exercise of the futures
contract.
To the extent that market prices move in an unexpected direction, the Funds may
not achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize a loss. Further, with respect to options on futures
contracts, the Funds may seek to close out an option position by writing or
buying an offsetting position covering the same securities or contracts and have
the same exercise price and expiration date. The ability to establish and close
out positions on options will be subject to the maintenance of a liquid
secondary market, which cannot be assured.
The Funds may purchase and sell call and put options on futures contracts traded
on an exchange or board of trade. When a Fund purchases an option on a futures
contract, it has the right to assume a position as a purchaser or seller of a
futures contract at a specified exercise price at any time during the option
period. When a Fund sells an option on a futures contract, it becomes obligated
to purchase or sell a futures contract if the option is exercised. In
anticipation of a market advance, the Funds may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Funds intend to
purchase. Similarly, if the market is expected to decline, the Funds might
purchase put options or sell call options on futures contracts rather than sell
futures contracts. In connection with the Funds' position in a futures contract
or option thereon, the Funds will create a segregated account of liquid assets,
such as cash, U.S. Government securities or other liquid high grade debt
obligations, or will otherwise cover its position in accordance with applicable
requirements of the SEC.
a. Restrictions on the Use of Futures Contracts
Each Fund may enter into futures contracts provided that such obligations
represent no more than 20% of the Fund's net assets. Under the Commodity
Exchange Act, each Fund may enter into futures transactions for hedging purposes
without regard to the percentage of assets committed to initial margin and for
other than hedging purposes provided that assets committed to initial margin do
not exceed 5% of the Fund's net assets. To the extent required by law, the Fund
will set aside cash and appropriate liquid assets in a segregated account to
cover its obligations related to futures contracts.
b. Risk Factors of Futures Transactions
The primary risks associated with the use of futures contracts and options
(commonly referred to as "derivatives") are: (i) imperfect correlation between
the change in market value of the securities held by the Funds and the price of
futures contracts and options; (ii) possible lack of a liquid secondary market
for a futures contract and the resulting inability to close a futures contract
when desired; (iii) losses, which are potentially unlimited, due to
unanticipated market movements; and (iv) the Advisor's ability to predict
correctly the direction of security prices, interest rates and other economic
factors.
13. Foreign Currency Hedging Strategies
a. Special Considerations
The Funds may use options and futures on foreign currencies and forward currency
contracts to hedge against movements in the values of the foreign currencies in
which the Funds' securities are denominated. Such currency hedges can protect
against price movements in a security the Funds own or intend to acquire that
are attributable to changes in the value of the currency in which it is
denominated. While hedging may limit the detriment when a currency moves against
a Fund, the Advisor's ability to anticipate changes in the price of foreign
currencies is not always accurate, so the hedge may limit the full
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benefit of a currency move in the Fund's favor. In addition, such hedges do not
protect against price movements in the securities that are attributable to other
causes.
The value of hedging instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such hedging instruments, a
Fund could be disadvantaged by having to deal in the odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Funds might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, the Funds may hedge against price movements in that currency by
entering into transactions using hedging instruments on other currencies, the
values of which the Advisor believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the hedging instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Funds might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
b. Forward Currency Contracts
A forward currency contract involves an obligation to purchase or sell a
specific currency at a specified future date, which may be any fixed number of
days from the contract date agreed upon by the parties, at a price set at the
time the contract is entered into.
The Funds may enter into forward currency contracts to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or another foreign currency. The
Funds also may use forward currency contracts for "cross-hedging." Under this
strategy, the Funds would increase their exposure to foreign currencies that the
Advisor believes might rise in value relative to the U.S. dollar, or the Funds
would shift their exposure to foreign currency fluctuations from one country to
another.
The cost to each Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward currency
contracts can enter into offsetting closing transactions, similar to closing
transactions on futures, by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Secondary markets generally do not
exist for forward currency contracts, with the result that closing transactions
generally can be made for forward currency contracts only by negotiating
directly with the contra party.
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Thus, there can be no assurance that the Funds will in fact be able to close out
a forward currency contract at a favorable price prior to maturity. In addition,
in the event of insolvency of the contra party, the Funds might be unable to
close out a forward currency contract at any time prior to maturity. In either
event, the Funds would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in securities
denominated in the foreign currency or to maintain cash or securities in a
segregated account.
The precise matching of forward currency contracts amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Funds might need to purchase
or sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
(i) Limitations on the Use of Forward Currency Contracts: The Funds may enter
into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate
the Funds to deliver an amount of foreign currency in excess of the value
of their portfolio securities or other assets denominated in that currency,
or (2) the Funds maintain cash, U.S. Government securities or liquid,
high-grade debt securities in a segregated account in an amount not less
than the value of their total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market
daily.
14. Options
The Funds may buy put and call options and write covered call and secured put
options. Such options may relate to particular securities, stock indices, or
financial instruments and may or may not be listed on a national securities
exchange and issued by the Options Clearing Corporation. Options trading is a
highly specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
securities, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
securities themselves.
a. Writing Call Options
The Funds may write covered call options from time to time on portions of its
portfolios, without limit, as the Advisor determines is appropriate in pursuing
a Funds' investment goals. The advantage to the Funds of writing covered calls
is that each Fund receives a premium which is additional income. However, if the
security rises in value, the respective Fund may not fully participate in the
market appreciation.
The Funds will write call options only if they are "covered." In the case of a
call option on a security, the option is "covered" if a Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, liquid assets, such as cash, U.S. Government
securities or other liquid high-grade debt obligations, in such amount held in a
segregated account by its custodian) upon conversion or exchange of other
securities held by it.
For a call option on an index, the option is covered if a Fund maintains with
its custodian a diversified stock portfolio, or liquid assets equal to the
contract value. A call option is also covered if a Fund holds a call on the same
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security or index as the call written here the exercise price of the call held
is (i) equal to or less than the exercise price of the call written; or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets such as cash, U.S. Government securities
and other high-grade debt obligations in a segregated account with its
custodian.
The Funds' obligation under a covered call option is terminated upon the
expiration of the option or upon entering a closing purchase transaction. In a
closing purchase transaction, a Fund, as writer of an option, terminates its
obligation by purchasing an option of the same series as the option previously
written.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The Funds may realize a net gain or loss from
a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. A closing purchase transaction cannot be effected with respect
to an option once the option writer has received an exercise notice for such
option.
b. Writing Put Options
Each Fund may write put options. The Funds will write put options only if they
are "secured" at all times by liquid assets of cash or U.S. Government
securities maintained in a segregated account by the Funds' custodian in an
amount not less than the exercise price of the option at all times during the
option period. Secured put options will generally be written in circumstances
where the Advisor wishes to purchase the underlying security for a Fund's
portfolio at a price lower than the current market price of the security. With
regard to the writing of put options, each Fund will limit the aggregate value
of the obligations underlying such put options to 50% of its total net assets.
Following the writing of a put option, the Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
c. Purchasing Call Options
The Funds may purchase call options to the extent that premiums paid by the
Funds do not aggregate more than 10% of a Fund's total assets. When the Funds
purchase a call option, in return for a premium paid by the Fund to the writer
of the option, the Fund obtains the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium upon writing the option,
has the obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. The advantage of purchasing call
options is that the Fund may alter portfolio characteristics and
Matthews International Funds
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<PAGE> 44
modify portfolio maturities without incurring the cost associated with such
transactions.
The Funds may, following the purchase of a call option, liquidate their position
by effecting a closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased. The Funds will
realize a profit from a closing sale transaction if the price received on the
transaction is more than the premium paid to purchase the original call option;
the Funds will realize a loss from a closing sale transaction if the price
received on the transaction is less than the premium paid to purchase the
original call option.
Although the Funds will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that the Funds would have to exercise
their options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Funds may expire without any value
to the Funds, in which event the Funds would realize a capital loss which will
be short-term unless the option was held for more than one year.
d. Purchasing Put Options
Each Fund may invest up to 10% of its total assets in the purchase of put
options. Each Fund will, at all times during which it holds a put option, own
the security covered by such option. The purchase of the put options on
substantially identical securities held will constitute a short sale for tax
purposes, the effect of which is to create short-term capital gain on the sale
of the security and to suspend running of its holding period (and treat it as
commencing on the date of the closing of the short sale) or that of a security
acquired to cover the same if at the time the put was acquired, the security had
not been held for more than one year.
A put option purchased by a Fund gives it the right to sell one of its
securities for an agreed price up to an agreed date. Each Fund intends to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The Funds may sell a put option which they have
previously purchased prior to the sale of the securities underlying such option.
Such sale will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold.
The Funds may sell a put option purchased on individual portfolio securities.
Additionally, the Funds may enter into closing sale transactions. A closing sale
transaction is one in which a Fund, when it is the holder of an outstanding
option, liquidate its respective position by selling an option of the same
series as the option previously purchased.
FUNDS' POLICIES
The Policies set forth below are fundamental and may not be changed as to a Fund
without the approval of a majority of the outstanding voting shares (as defined
in the 1940 Act) of the Fund. Unless otherwise indicated, all percentage
limitations listed below apply to the Funds and apply only at the time of the
transaction. Accordingly, if a percentage restriction is adhered to at the time
an investment is made, a later increase or decrease in the percentage which
results from a relative change in values or from a change in a Fund's total
assets will not be considered a violation.
Matthews International Funds
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<PAGE> 45
Except as otherwise set forth herein and in the Prospectus each Fund may not:
1. Issue senior securities or 2. Borrow money, except that each Fund may borrow
from banks and enter into reverse repurchase agreements for temporary purposes
in amounts up to one-third of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the total assets of the Fund at the time
of its borrowing. All borrowing will be done from a bank and asset coverage of
at least 300% is required. A Fund will not purchase securities when borrowings
exceed 5% of that Fund's total assets;
3. Act as an underwriter of securities, except that, in connection with the
disposition of a security, a Fund may be deemed to be an "underwriter" as that
term is defined in the 1933 Act;
4. Purchase the securities of issuers conducting their principal business
activities in the same industry (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if immediately after
such purchase the value of a Fund's investments in such industry would exceed
25% of the value of the total assets of the Fund. This Policy does not apply to
the Technology Fund;
5. Purchase or sell real estate real estate limited partnership interests,
interests in oil, gas and/or mineral exploration or development programs or
leases. This restriction shall not prevent the Funds from investing directly or
indirectly in portfolio instruments secured by real estate or interests therein
or acquiring securities of real estate investment trusts or other issuers that
deal in real estate.;
6. Make loans, except that this restriction shall not prohibit (a) the purchase
and holding of debt instruments in accordance with a Fund's investment
objectives and policies, (b) the lending of portfolio securities, or (c) entry
into repurchase agreements with banks or broker-dealers;
7. Change its diversification status under the 1940 Act.
8. Purchase or sell commodities or commodity contracts, except that a Fund may
purchase or sell currencies, may enter into futures contracts on securities,
currencies, or on indexes of such securities or currencies, or any other
financial instruments, and may purchase or sell options on such futures
contracts;
9. Make investments in securities for the purpose of exercising control;
10. Purchase the securities of any one issuer if, immediately after such
purchase, a Fund would own more than 10% of the outstanding voting securities of
such issuer;
11. Invest more than 5% of its total assets in securities of companies less than
three years old. Such three-year period shall include the operation of any
predecessor company or companies.
TEMPORARY DEFENSIVE POSITION
The Advisor intends to be fully invested in the economies appropriate to each
Fund's investment objectives as is practicable, in light of economic and market
conditions and the Funds' cash needs. When, in the opinion of the Advisor, a
temporary defensive position is warranted, the Funds are permitted to hold cash
or invest temporarily and without limitation in U.S. Government securities or
money market instruments backed by U.S. Government securities. The Funds'
investment objective may not be achieved at such times when a temporary
defensive position is taken.
Matthews International Funds
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<PAGE> 46
PORTFOLIO TURNOVER
The Advisor buys and sells securities for the Funds whenever it believes it is
appropriate to do so. The rate of portfolio turnover will not be a limiting
factor in making portfolio decisions. It is currently estimated that under
normal market conditions the annual portfolio turnover rate for the Funds will
not exceed 100%. Portfolio turnover rates may vary greatly from year to year as
well as within a particular year. High portfolio turnover rates (i.e. over 100%)
will generally result in higher transaction costs to the Fund and also may
result in a higher level of taxable gain for a shareholder. Portfolio turnover
for the Funds' most recent fiscal period are set forth in "FINANCIAL HIGHLIGHTS"
table in the Prospectus.
MANAGEMENT OF THE FUNDS
Trustees and Officers
Information pertaining to the Trustees and executive officers of the Funds is
set forth below. Note that neither the Trustees nor the officers of the Funds
receive any pension or retirement benefits from the Funds.
<TABLE>
<CAPTION>
Name & Address Age Aggregate Total Position(s) Principal Occupation During
Compensation from Compensation Held with Past Five Years
Funds for Fiscal from Funds and Registrant
Year Ended Aug. Fund Complex
31, 2000 Paid to Trustees
<S> <C> <C> <C> <C> <C>
Norman W. Berryessa 72 $8,000 $8,000 Trustee Independent Contractor,
100 Bush Street Emmett Larkin Co., since
Suite 1000 1983; President & CEO of
San Francisco, CA 94109 Gallegoes Institutional
Investors, Inc. From 1990
to 1994.
Robert K. Connolly 68 $8,000 $8,000 Trustee Retired since 8/90. Prior
P.O. Box 941990 thereto Institutional Sales
Sonoma, CA 95476 Manager and Securities
Analyst for Barrington
Research Associates.
John H. Dracott* 72 $0 $0 Trustee International mutual fund
1795 Vistaza West consultant
P.O. Box 162 Emeritus since 1991
Tiburon, CA 94920
David FitzWilliam-Lay* 70 $0 $0 Trustee Director, USDC Investment
26 Chalfont House, Trust PLC & Berry Starquest
19 Chesham Street PLC. Retired in 1993 after
London SWIX 8NG 3 yrs. as Chairman of GT
Management, PLC. United
Kingdom
Richard K. Lyons 40 $8,000 $12,000 Chairman of Professor, Haas School of
350 Barrows Hall the Business University of
</TABLE>
Matthews International Funds
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<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C> <C>
Board of
Berkeley, CA 94720 Trustees California since 1995;
Assistant Professor 1993-95
G. Paul Matthews* 45 $0 $0 President Chief Executive Officer and
456 Montgomery Street Chief Investment Officer of
Suite 1200 Matthews International
San Francisco, CA 94104 Capital Management LLC since
1991.
Mark W. Headley* 42 $0 $0 Vice President President, Matthews
456 Montgomery Street International Capital
Suite 1200 Management LLC since 1999;
San Francisco, CA 94104 Portfolio Manager and
Managing Director 1996-1999;
Managing Director and Senior
Analyst from 1995-1996.
Joseph M. O'Donnell* 46 $0 $0 Secretary Chief Operating Officer &
456 Montgomery Street General Counsel, Matthews
Suite 1200 International Capital
San Francisco, CA 94104 Management, LLC since 8/99.
From 1/98 to 6/99, Vice
President, Legal, SEI
Investments Co. From 3/93
to 12/97, Vice President and
General Counsel, FPS
Services, Inc.
James E. Walter* 30 $0 $0 Treasurer Head Trader, Matthews
456 Montgomery Street International Capital
Suite 1200 Management, LLC since 1996,
San Francisco, CA 94104 prior thereto, The Sherwin
Williams Company.
</TABLE>
* These Trustees and officers are considered "interested persons" of the
Funds as defined under the 1940 Act. The Trust currently does not maintain
any pension or retirement benefits plan for the benefit of the Trustees.
The Trustees of the Funds receive a retainer of $4,000 per year, plus $1,000 per
meeting and expenses for each meeting of the Board of Trustees they attend. (The
Chairman of the Board of Trustees receives a retainer of $6,000 per year, plus
$1,500 per meeting.) However, no officer or employee of the Advisor receives any
compensation from the Funds for acting as a Trustee of the Funds. The officers
of the Funds receive no compensation directly from the Funds for performing the
duties of their offices.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 30, 2000 the Trustees and officers as a group owned less than 1%
of the outstanding shares of the Trust.
As of November 30, 2000 the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the:
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<PAGE> 48
Account Holders Name, Address, Number and Percentage of Shares
Matthews Asian Growth and Income Fund:
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, 569,660, 48.6%.
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 168,446, 14.4%.
National Financial Services Corp., FBO; C/O Sal Vella, Attn: Mutual Funds, 200
Liberty Street, 5th Floor, New York, NY 10281, 126,774, 10.8%.
Matthews Asian Technology Fund
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, 1,171,346, 52.5%.
National Financial Services Corp., FBO; C/O Sal Vella, Attn: Mutual Funds, 200
Liberty Street, 5th Floor, New York, NY 10281, 338,889, 15.2%.
Donaldson Lufkin Jenrette, P.O. Box 2052, Jersey City, NJ 07304-9998, 184,429,
8.3%.
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 127,460, 5.7%.
Matthews China Fund:
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, 503,437, 54.5%.
National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200
Liberty Street, 5th Floor, New York, NY 10281, 99,374, 10.8%.
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 86,156, 9.3%.
Matthews Japan Fund:
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, 534,745, 55.2%.
National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200
Liberty Street, 5th Floor, New York, NY 10281, 144,492, 14.9%.
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 82,643; 8.5%.
Matthews Korea Fund:
Morgan Stanley & Co., FBO Goodness LTD Fee Account; ATTN: Mena Griffiths, P.O.
Box N-7776, Lyford Cay, Nassau FF 00000, 6,434,291, 26.9%.
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, 4,879,695, 20.4%.
National Financial Services Corp., FBO; C/O Sal Vella, ATTN: Mutual Funds, 200
Liberty Street, 5th Floor, New York, NY 10281, 3,558,578, 14.9%.
RDV Capital Management, LP, 126 Ottawa Ave., NW, Ste. 500, Grand Rapids, MI
49503-2829, 1,524,488, 6.4%.
Matthews International Funds
Page 25 of 45
<PAGE> 49
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 1,329,553, 5.6%.
Matthews Pacific Tiger Fund:
Charles Schwab & Co., Inc., FBO Special Custody Acct; ATTN: Mutual Funds 101
Montgomery Street San Francisco, CA 94104, 4,105,799, 45.2%.
National Financial Services Corp., FBO; C/O Sal Vella ATTN: Mutual Funds 200
Liberty St., 5th FL New York, NY 10281-1003, 1,065,456, 11.7%.
National Investor Services Corp., FBO; 55 Water Street, FL 32, New York, NY
10041-3299, 490,926, 5.4%.
Bear Stearns Securities Corp., FBO Accounts; 1 Metrotech Center North, Brooklyn,
NY 11201-3859, 686,120, 7.55%.
INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Advisor
Currently the Trust employs only one investment advisor, Matthews International
Capital Management LLC. The Advisor performs its duties and is paid pursuant to
a contract. Some of the terms of this contract are set by the 1940 Act such as
that it is reviewed each year by the Board of Trustees and that the Board may
cancel it without penalty on 60 days' notice.
The advisory services provided by the Advisor and the fees received by it for
such services are described in the Prospectus. As stated in the Prospectus, the
Advisor may from time to time voluntarily waive its advisory fees with respect
to any Fund.
Under the Advisory Contract, the Advisor is not liable for any error of judgment
or mistake of law or for any loss suffered by the Trust or a Fund in connection
with the performance of the Advisory Contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The terms of the Advisory Contract provide that it will continue from year to
year provided that it is approved at least annually by the vote of the holders
of at least a majority of the outstanding shares of the respective Fund, or by
the Trustees of the respective Fund. The Advisory Contract may be terminated
with respect to a Fund by vote of the Board of Trustees or by the holders of a
majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to the Advisor. The Advisor may also
terminate its advisory relationship with respect to a Fund on 60 days' written
notice to the Trust. The Advisory Contract terminates automatically in the event
of an assignment.
Under its respective Advisory Contract, each Fund pays the following expenses:
1. the fees and expenses of the Trust's disinterested Trustees;
2. the salaries and expenses of any of the Trust's officers or employees who are
not affiliated with the Advisor;
3. interest expenses;
4. taxes and governmental fees;
5. brokerage commissions and other expenses incurred in acquiring or disposing
of portfolio securities;
6. the expenses of registering and qualifying shares for sale with the
Securities and Exchange Commission (" SEC") and with various state securities
commissions;
7. accounting and legal costs;
Matthews International Funds
Page 26 of 45
<PAGE> 50
8. insurance premiums;
9. fees and expenses of the Trust's custodian, administrator and transfer agent
and any related services;
10. expenses of obtaining quotations of the Funds' portfolio securities and of
pricing the Funds' shares;
11. expenses of maintaining the Trust's legal existence and of shareholders'
meetings;
12. expenses of preparation and distribution to existing shareholders of
reports, proxies and prospectuses; and
13. fees and expenses of membership in industry organizations.The ratio of each
Fund's expenses to its relative net assets can be expected to be higher than the
expense ratios of funds investing solely in domestic securities, since the cost
of maintaining the custody of foreign securities and the rate of investment
management fees paid by each Fund generally are higher than the comparable
expenses of such other funds.
General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurance, etc.) and expenses shares by the Funds will be allocated
among the Funds on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to each Fund. Expenses which relate exclusively to a
particular Fund or Class, such as certain registration fees, brokerage
commissions and other portfolio expenses, will be borne directly by that Fund or
Class.
During the fiscal years ended August 31, 1998, 1999 and 2000, the aggregate
advisory fees earned by the Advisor, before voluntary waivers, totaled
$1,155,889, $2,401,451 and $3,522,268, respectively.
Matthews Fund Gross Gross Gross
Advisory Advisory Advisory
Fees Earned Fees Fees Earned
During FYE Earned During FYE
08-31, 1998 During FYE 08-31, 2000
08-31, 1999
Growth and Income $48,161 $65,119 $114,463
Asian Technology N/A N/A $117,827
China $15,893 $30,128 $77,085
Japan N/A $41,869 $260,067
Korea $640,716 $1,597,951 $1,783,564
Pacific Tiger $451,119 $666,384 $1,169,262
The Trust and the Advisor have adopted a Code of Ethics pursuant to Section
17(j) of the 1940 Act and Rule 17j-1 thereunder. The Code of Ethics conforms to
the provisions of Rule 17j-1 as adopted by the SEC on October 29, 1999.
Currently, the Code of Ethics prohibits personnel subject to the Code of Ethics
from buying or selling securities for their own individual accounts if such
securities at the time of such purchase or sale (i) are being considered for
purchase or sale by the Trust or (ii) are then being purchased or sold by the
Trust. Notwithstanding these prohibitions, there are limited circumstances in
which personnel subject to the Code of Ethics may buy or sell securities for
their own account (E.G. purchases which are part of an automatic dividend
reinvestment plan).
Principal Underwriter
Provident Distributors, Inc. ("Provident"), 3200 Horizon Drive, King of Prussia,
PA 19406, acts as an underwriter of the Funds' shares for the purpose of
facilitating the registration of shares of the Funds under state securities laws
and assists in the continuous offering of shares pursuant to an underwriting
Matthews International Funds
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<PAGE> 51
agreement (the "Underwriting Agreement") approved by the Board of Trustees.
In this regard, Provident has agreed at its own expense to qualify as a
broker-dealer under all applicable Federal or state laws in those states which
the Trust shall from time to time identify to Provident as states in which it
wishes to offer its shares for sale, in order that state registrations may be
maintained for the Funds.
Provident is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
Pursuant to its Underwriter Compensation Agreement with the Trust, Provident is
paid for certain registration and transaction fees.
Effective January 1, 2001, PFPC Distributors, Inc., with principal offices at
4400 Computer Drive, Westboro, Massachusetts 01581, will acquire substantially
all the assets of Provident Distributors, Inc. and thereby become the Funds'
distributor subsequent to that date.
Service Agreements
PFPC Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903,
provides certain administrative services to the Trust pursuant to an Investment
Company Services Agreement (the "Investment Company Services Agreement"). The
Funds pay the Administrator a fee at the annual rate of:
0.10% of the first $250 million of average net assets of each Fund;
0.075% of the next $250 million of such average net assets;
0.05% of the next $250 million of such average net assets and
0.03% on average net assets in excess of $750 million.
Such fee shall not be less than $100,000 per year for each Fund (except for
Matthews Japan and China Funds, which are subject to a minimum fee of $55,000),
subject to certain reductions provided for in the Investment Company Services
Agreement.
Under the Investment Company Services Agreement, PFPC: (1) coordinates with the
custodian and transfer agent and monitors the services they provide to the
Funds; (2) coordinates with and monitors any other third parties furnishing
services to the Funds; (3) provides the Funds with necessary office space,
telephones and other communications facilities and personnel competent to
perform administrative and clerical functions; (4) supervises the maintenance by
third parties of such books and records of the Funds as may be required by
applicable federal or state law; (5) prepares or supervises the preparation by
third parties of all Federal, state and local tax returns and reports of the
Funds required by applicable law; (6) prepares and files and arranges for the
distribution of proxy materials and periodic reports to shareholders of the
Funds as required by applicable law; (7) prepares and arranges for the filing of
such registration statements and other documents with the SEC and other Federal
and state regulatory authorities as may be required by applicable law; (8)
reviews and submits to the officers of the Trust for their approval invoices or
other requests for payment of the Funds' expenses and instructs the Custodian to
issue checks in payment thereof; and (9) takes such other action with respect to
the Trust or the Funds as may be necessary in the opinion of the Administrator
to perform its duties under the agreement.
During the fiscal years ended August 31, 1998, 1999 and 2000, the aggregate fees
paid to the Administrator by the Funds totaled $127,419, $193,575 and $292,263,
respectively and are broken down as follows:
Matthews International Funds
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<PAGE> 52
Matthews Fund Admin. Fees Admin. Fees Admin. Fees
Paid During Paid During Paid During
FYE 08-31, FYE 08-31, FYE 08-31,
1998 1999 2000
Asian Technology N/A N/A $16,746
China $22,432 $0 $5,991
Growth and Income $30,649 $3,677 $8,834
Japan N/A $15,359 $25,239
Korea $39,772 $112,782 $141,042
Pacific Tiger $34,566 $61,577 $94,411
Rule 12b-1 Plan (Distribution Plan)
The Funds' 12b-1 Plan (the "Plan") is not currently active. The plan was active,
however, through the fiscal year ended August 31, 2000, when the Matthews
Pacific Tiger Fund and the Matthews Korea Fund made distribution payments to the
Underwriter pursuant to the Plan in the approximate total amount of $39,686.
Such payments made by the Matthews Pacific Tiger Fund consisted of payments of
approximately: $0 for printing, postage and stationary, and $0 for compensation
to brokers. Such payments made by the Matthews Korea Fund consisted of payments
of approximately: $0 for printing, postage and stationary, and $0 for
compensation to brokers. The Matthews China Fund made no distribution payments
to the Underwriter for the period ended August 31, 2000.
Other Service Providers
CUSTODIAN
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
custodian of the Trust's assets pursuant to a custodian agreement. Under the
custodian agreement, The Bank of New York (i) maintains a separate account or
accounts in the name of each Fund (ii) holds and transfers portfolio securities
on account of each Fund, (iii) accepts receipts and makes disbursements of money
on behalf of each Fund, (iv) collects and receives all income and other payments
and distributions on account of each Fund's securities and (v) makes periodic
reports to the Board of Trustees concerning each Fund's operations.
COUNSEL TO THE TRUST
Paul, Hastings, Janofsky and Walker LLP, 345 California Street, San Francisco,
CA 94104-2635 serves as counsel to the Trust.
INDEPENDENT AUDITORS
Tait, Weller and Baker, 8 Penn Center, Philadelphia, Pennsylvania 19103 were
first selected as the independent auditors for the Trust by the Board of
Trustees on July 16, 1999 and were re-approved on November 10, 2000. The
independent auditors provide audit services and assistance and consultation with
respect to regulatory filings with the SEC. The books of each Fund will be
audited at least once each year by Tait, Weller and Baker.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Advisor is responsible for decisions to buy and sell securities for the
Funds and for the placement of its portfolio business and the negotiation of
commissions, if any, paid on such transactions. Fixed-income securities and many
equity securities in which the Funds invest are traded in over-the-counter
markets. These securities are generally traded on a net
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<PAGE> 53
basis with dealers acting as principal for their own accounts without a stated
commission. In over-the-counter transactions, orders are placed directly with a
principal market-maker unless a better price and execution can be obtained by
using a broker. Brokerage commissions are paid on transactions in listed
securities, futures contracts and options thereon.
The Advisor is responsible for effecting portfolio transactions and will do so
in a manner deemed fair and reasonable to the Funds. The primary consideration
in all portfolio transactions will be prompt execution of orders in an efficient
manner at the most favorable price.
In selecting and monitoring broker-dealers and negotiating commissions, the
Advisor may consider a number of factors, including, for example, net price,
reputation, financial strength and stability, efficiency of execution and error
resolution, block trading and block positioning capabilities, willingness to
execute related or unrelated difficult transactions in the future, order of
call, offering to the Advisor on-line access to computerized data regarding the
Funds' accounts, and other matters involved in the receipt of brokerage services
generally.
The Advisor may also purchase from a broker or allow a broker to pay for certain
research services, economic and market information, portfolio strategy advice,
industry and company comments, technical data, recommendations, general reports,
consultations, performance measurement data and on-line pricing and news service
and periodical subscription fees.
The Advisor may pay a brokerage commission in excess of that which another
broker-dealer might charge for effecting the same transaction in recognition of
the value of these research services. In such a case, however, the Advisor will
determine in good faith that such commission is reasonable in relation to the
value of brokerage and research provided by such broker-dealer, viewed in terms
of either the specific transaction or the Advisor's overall responsibilities to
the portfolios over which Advisor exercises investment authority. Research
services furnished by brokers through whom the Advisor intends to effect
securities transactions may be used in servicing all of the Advisor's accounts;
not all of such services may be used by the Advisor in connection with accounts
which paid commissions to the broker providing such services. In conducting all
of its soft dollar relationships, the Advisor will seek to take advantage of the
safe harbor provided by Section 28(e) of the Securities Exchange Act of 1934, as
amended.
The Advisor will attempt to equitably allocate portfolio transactions among the
Funds and other accounts whenever concurrent decisions are made to purchase or
sell securities by the Funds and other accounts. In making such allocations
between the Funds and others, the main factors to be considered are the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and the opinions of the persons
responsible for recommending investments to the Funds and the others. In some
cases, this procedure could have an adverse effect on the Funds. In the opinion
of the Advisor, however, the results of such procedures will, on the whole, be
in the best interests of each of the clients.
For the fiscal years ended August 31, 1998, 1999 and 2000, the aggregate
brokerage commissions paid by the Trust on behalf of the Funds amounted to
$1,295,324, $1,579,983 and $1,976,298 respectively. The total brokerage
commissions attributable to each Fund are set forth below.
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Matthews Fund Brokerage Brokerage Brokerage
Commissions Commissions Commissions
Paid During Paid During Paid During
FYE 08-31, FYE 08-31, FYE 08-31,
1998 1999 2000
Asian N/A N/A $180,397
Technology
China $16,307 $20,865 $60,490
Growth and $2,956 $17,991 $23,471
Income
Japan N/A $37,953 $229,967
Korea $906,617 $711,735 $956,244
Pacific Tiger $369,443 $791,439 $525,729
There are no brokers which the Advisor uses which are affiliated with the Trust
or the Advisor. Daewoo Securities formerly rendered advisory services to Korea
Fund, but no longer does so.
The percentage of Total Brokerage Commissions paid to Daewoo Securities and the
percentage of Total Transactions involving Commissions paid to Daewoo Securities
for the fiscal year ended August 31, 1999 and 2000 was 0% and 0%, respectively.
The percentage of Total Brokerage Commissions paid to Daeyu Securities Co. and
the percentage of Total Transactions involving Commission paid to Daeyu for the
fiscal year ended August 31, 1999 or 2000 was 0% and 0%, respectively.
SHARES OF BENEFICIAL INTEREST
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest, each with a $0.001 par value. Shares of each Fund represent equal
proportionate interests in the assets of that Fund only, and have identical
voting, dividend, redemption, liquidation and other rights. All shares issued
are fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares and no conversion rights.
The validity of shares of beneficial interest offered by this registration
statement has been passed on by Paul, Hastings, Janofsky and Walker LLP, 345
California Street, San Francisco, CA 94104-2635.
All accounts will be maintained in book entry form and no share certificates
will be issued.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase of Shares
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The shares are offered to the public through the Underwriter or through
investment professionals who may charge a fee for their services.
Determination of Net Asset Value
Generally, the net asset value of a Fund will be determined as of the close of
trading on each day the New York Stock Exchange ("NYSE") is open for trading.
The Funds do not determine net asset value on days that the NYSE is closed and
at other times described in the Prospectus. The NYSE is closed on the day which
the following holidays are observed: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the NYSE will not be open for trading on the
preceding Friday and when such holiday falls on a Sunday, the NYSE will not be
open for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Trading in securities on Asian and Pacific Basin securities exchanges and
over-the-counter markets is normally completed well before the close of the
business day in New York. In addition, Far Eastern securities trading may not
take place on all business days in New York. Furthermore, trading takes place in
Japanese markets and in various foreign markets on days which are not business
days the NYSE is open and therefore the Fund's respective net asset values are
not calculated.
The calculation of the Funds' net asset values may not take place
contemporaneously with the determination of the prices of portfolio securities
held by the Funds. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the NYSE
will not be reflected in the Funds' calculation of net asset value unless the
Board of Trustees deems that the particular event would materially affect the
net asset value, in which case an adjustment will be made. Assets or liabilities
initially expressed in terms of foreign currencies are translated prior to the
next determination of the net asset value of the Funds' shares into U.S. dollars
at the prevailing market rates. The fair value of all other assets is added to
the value of securities to arrive at the total assets.
Portfolio securities for Matthews Korea Fund and Matthews Japan Fund which are
traded on the Korean exchange and Japanese exchanges, respectively, are valued
at the most recent sale price reported on the exchange. If no sale occurred, the
security is then valued at the calculated mean between the most recent bid and
asked quotations. If there are no such bid and asked quotations, the most recent
bid quotation is used. All other securities are valued at fair value as
determined in good faith by the Board of Trustees including certain investments
in Korean equity securities and Japanese equity securities that have met the
limit for aggregate foreign ownership and for which premiums to the local stock
exchange prices are offered by prospective foreign investors.
Generally portfolio securities subject to a "foreign share" premium are valued
at the local share prices (i.e., without including any foreign share premium)
because of the uncertainty of realizing the premium and the recent trend toward
the reduction or disappearance of such foreign premiums.
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Redemption in Kind
At the organizational meeting of the Trust, the Trustees directed that the Trust
elect to pay redemptions in cash as consistent with Rule 18f-1 of the 1940 Act.
The Trustees further directed that Form N-18F-1 be filed with the SEC on the
Trust's behalf committing the Trust to pay in cash all requests for redemption
by any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of $250,000 or 1 percent of the net asset
value of such company at the beginning of such period. This means that the Trust
could, if the redemption is larger that $250,000 or 1% of the net asset value of
the Trust, pay a redemption with the securities held in the Trust's portfolios.
It this occurred, the shareholder receiving these portfolio securities would
incur transactions charges if they were to convert the securities into cash.
Equalization
For any of its fiscal years, each Fund may use the equalization method to
allocate taxable income. Equalization allocates a pro-rata share of taxable
income to departing shareholders when they redeem shares of a Fund, reducing the
amount of the distribution to be made to remaining shareholders of that Fund.
This should contribute to the tax-efficiency of a Fund for its long-term
shareholders.
TAXATION OF THE TRUST
In General
Each Fund has elected and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Code. In order to so
qualify for any taxable year, a fund must, among other things, (i) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) distribute at least 90% of its
dividend, interest and certain other taxable income each year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of a fund's total assets and 10% of the
outstanding voting securities of such issuer, and have no more than 25% of its
assets invested in the securities (other than those of the U.S. Government or
other regulated investment companies) of any one issuer or of two or more
issuers which the fund controls and which are engaged in the same, similar or
related trades and businesses.
To the extent the Funds qualify for treatment as regulated investment companies,
they will not be subject to Federal income tax on income paid to shareholders in
the form of dividends or capital gains distributions.
An excise tax will be imposed on the excess, if any, of the Funds' "required
distributions" over actual distributions in any calendar year. Generally, the
"required distribution" is 98% of a fund's ordinary income for the calendar year
plus 98% of its capital gain net income recognized during the one-year period
ending on October 31 plus undistributed amounts from prior years. The Funds
intend to make distributions sufficient to avoid imposition of the excise tax.
For a distribution to qualify as such with respect to a calendar year under the
foregoing rules, it must be declared by a Fund during October, November or
December to shareholders of record during such months and paid by January 31 of
the following year. Such distributions will be taxable in the year they are
declared, rather than the year in which they are received.
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Shareholders will be subject to Federal income taxes on distributions made by
the Funds whether received in cash or additional shares of the Funds.
Distributions of net investment income and net capital gains, if any, will be
taxable to shareholders without regard to how long a shareholder has held shares
of the Funds. Dividends paid by the Funds may qualify in part for the dividends
received deduction for corporations.
The Funds will notify shareholders each year of the amount of dividends and
distributions, and the portion of their dividends which qualify for the
corporate deduction.
Taxes Regarding Options, Futures and Foreign Currency Transactions
When the Funds write a call, or purchase a put option, an amount equal to the
premium received or paid by them is included in the Funds' accounts as an asset
and as an equivalent liability. In writing a call, the amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which a Fund has written expires on its stipulated expiration date, the Fund
recognizes a short-term capital gain. If the Fund enters into a closing purchase
transaction with respect to an option which the Fund has written, the Fund
realizes a short-term gain (or loss if the cost of the closing transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received.
The premium paid by the Fund for the purchase of a put option is recorded in the
Fund's assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess would be unrealized depreciation. The current market value of a
purchased option is the last sale price on the principal exchange on which such
option is traded or, in the absence of a sale, the mean between the last bid and
asked prices. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a short-term or long-term capital
loss for Federal income tax purposes in the amount of the cost of the option. If
the Fund exercises a put option, it realizes a capital gain or loss (long-term
or short-term, depending on the holding period of the underlying security) from
the sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Fund at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for Federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss
("60/40 gain or loss"). Certain options, futures contracts and options on
futures contracts utilized by the Fund are "Section 1256 contracts." Any gains
or losses on Section 1256 contracts held by the Fund at the end of each taxable
year (and on October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though
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they were realized and the resulting gain or loss is treated as a 60/40 gain or
loss.
Unique Foreign Tax Issues
Foreign governments may withhold taxes from dividends or interest paid with
respect to foreign securities typically at a rate between 10% and 35%. Tax
conversions between certain countries and the United States may reduce or
eliminate such taxes. The Funds intend to elect to pass-through foreign taxes
paid in order for a shareholder to take a credit or deduction if, at the close
of its fiscal year, more than 50% of a Fund's total assets are invested in
securities of foreign issuers.
Under the United States-Korea income tax treaty, as presently in effect, the
government of Korea imposes a nonrecoverable withholding tax and resident tax
aggregating 10.125% on dividends and 12.9% on interest paid to Matthews Korea
Fund by Korean issuers. Under United States-Korea income tax treaty, there is no
Korean withholding tax on realized capital gains.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable Federal tax consequences
of an investment in the Funds. Dividends and distributions also may be subject
to state and local taxes. Shareholders are urged to consult their tax advisors
regarding specific questions as to Federal, state and local taxes.
The foregoing discussion relates solely to U.S. Federal income tax law. Non-U.S.
investors should consult their tax advisors concerning the tax consequences of
ownership of shares of the Funds, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
UNDERWRITERS
Other than Provident, which serves as a nominal statutory underwriter, the Trust
has not engaged an underwriter which actively distributes its shares.
CALCULATION OF PERFORMANCE DATA
In General
From time to time, the Trust may include general comparative information, such
as statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Trust may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund.
In addition, the yield and total return of a Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Average Total Return Quotation
The Funds compute their average annual total return by determining the average
annual compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
P(1+T)n = ERV
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ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000. n = period covered by the
computation, expressed in terms of years. T = average annual total return.
The Funds compute their aggregate total return by determining the aggregate
compounded rate of return during specified period that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ ERV - 1 ] P ERV = ending redeemable value at the end
of the period covered by the computation of a hypothetical $1,000 payment made
at the beginning of the period. P = hypothetical initial payment of $1,000.
The average annual total returns for the Funds which quote such performance were
as follows for the periods shown:
Series *Inception 9/1/99
through through
8/31/00 8/31/00
Growth and Income 6.97% 18.68%
Asian Technology N/A N/A
China 0.87% 18.54%
Japan 57.42% (-1.75%)
Korea (-9.10%) (-22.92%)
Pacific Tiger 4.36% 21.28%
*Asian Growth and Income commenced operations on September 12, 1994; Asian
Technology commenced operations on December 27, 1999; China commenced operations
on February 19, 1998; Japan commenced operations on December 31, 1998; Korea
commenced operations on January 3, 1995; and Pacific Tiger commenced operations
on September 12, 1994.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Since performance will fluctuate, performance data for the Funds should not be
used to compare an investment in the Funds' shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
Yield Quotation
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Yield, in its simplest form, is the ratio of income per share derived from the
Fund's investments to a current maximum offering price expressed in terms of
percent. The yield is quoted on the basis of earnings after expenses have been
deducted. The yield of a Fund is calculated by dividing the net investment
income per share earned during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period and annualizing the
result. The Funds' net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
YIELD = 2 [(a - b + 1)6 - 1 ] cd
Where:
a = dividends and interest earned during the period. b= expenses accrued for the
period (net of reimbursements). c= the average daily number of shares
outstanding during the period that were entitled to receive dividends. d =
maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by a Fund is calculated by computing the
yield to maturity of each obligation held by that Fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by that Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The date on which
the obligation reasonably may be expected to be called or, if none, the maturity
date. With respect to debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes in the market
values of such debt obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
Performance and Advertisements
The Funds' performance may from time to time be compared, in marketing and other
fund literature, to the performance of other mutual funds in general or to the
performance of particular types of mutual funds with similar investment goals,
as tracked by independent organizations. Among these organizations, Lipper
Analytical Services, Inc. ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are based on changes in net
asset value, with all income and capital gains dividends reinvested. Such
calculations do not include the effect of any sales charges imposed by other
funds. The Funds will be compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings. The Funds' performance
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may also be compared to the average performance of their Lipper category.
The Funds' performance may also be compared to the performance of other mutual
funds by Morningstar, Inc. ("Morningstar") which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for
three, five and ten year periods. Ranks are not absolute or necessarily
predictive of future performance.
Matthews Asian Growth and Income Fund, and Pacific Tiger Fund may compare their
performance to a wide variety of indices including the Morgan Stanley All
Country Far East ex-Japan Index and the Morgan Stanley All Country Far East Free
ex-Japan Index. The Index is expressed in US Dollars to provide a benchmark for
US Dollar-denominated investors.
The Matthews China Fund may compare its performance to a wide variety of indices
including the Credit Lyonnais China World Index, a market capitalization
weighted index of Chinese equities which are listed on the Hong Kong, Shanghai,
and Shenzen stock exchanges.
The Matthews Japan Fund may compare its performance to a wide variety of indices
including the Tokyo Stock Price Index (TOPIX), a market capitalization weighted
index of over 1100 stocks traded in the Japanese market.
The Matthews Korea Fund may compare its performance to a wide variety of indices
including the South Korea Stock Market Price Index, a market capitalization
weighted index of all common stocks traded in the South Korean Market.
The Matthews Asian Technology Fund may compare its performance to a wide variety
of indices including the MSCI/Matthews Asian Technology Index, a market
capitalization weighted index of Asian equities tracking a broad range of
technology stocks.
In assessing such comparisons of yield, return, or volatility, an investor
should keep in mind that the composition of the investments in the reported
indices and averages is not identical to those of the Funds, that the averages
are generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by a Fund to calculate its
figures.
Because the Funds' investments primarily are denominated in foreign currencies,
the strength or weakness of the U.S. dollar as against these currencies may
account for part of the Funds' investment performance. Historical information
regarding the value of the dollar versus foreign currencies may be used from
time to time in advertisements concerning the Funds. Marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which the Funds invest. Sources for such statistics may
include official publications of various foreign governments, exchanges, or
investment research firms.
OTHER INFORMATION
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part. Each such statement is qualified in all respects by such reference.
Reports to Shareholders
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Shareholders will receive unaudited semi-annual reports describing the Funds'
investment operations and annual financial statements audited by independent
certified public accountants. Inquiries regarding the Funds may be directed to
the Advisor at (800) 789-2742.
Financial Statements
The financial statements for the Funds, including the notes thereto as of August
31, 2000 are incorporated by reference from the Funds' 2000 Annual Report to
Shareholders and the Funds' 2000 Semi-Annual Report to Shareholders as filed
with the S.E.C. on form N-30D.
APPENDIX
Bond Ratings
Moody's Investors Service, Inc. ("Moody's") describes classifications of
corporate bonds as follows:
AaaBonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BaaBonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CaaBonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high
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degree. Such issues are often in default or have other market shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate and municipal
bond rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
Standard & Poor's Corporation ("S&P") describes classification of corporate and
municipal debt as follows:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC - debt rating.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default. The D rating is assigned on the day an interest or
principal payment is missed.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of obligation as a matter of policy.
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MATTHEWS INTERNATIONAL FUNDS
Form N-1A
Part C - Other Information
ITEM 23. EXHIBITS
(a) Trust Instrument and Certificate of Trust is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 5 on
December 26, 1996.
(b) By-Laws are incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 5 on December 26, 1996.
(c) Not Applicable.
(d)(1) Investment Advisory Agreement for Matthews Pacific Tiger Fund with
Matthews International Capital Management, effective September 12, 1994, is
incorporated herein by reference to and was filed electronically with
Post-Effective Amendment No. 5 on December 26, 1996.
(d)(2) Investment Advisory Agreement for Matthews Asian Growth and Income Fund
(formerly Matthews Asian Convertible Securities Fund) with Matthews
International Capital Management, effective September 12, 1994, is incorporated
herein by reference to and was filed electronically with Post-Effective
Amendment No. 5 on December 26, 1996.
(d)(3) Investment Advisory Agreement for Matthews Korea Fund with Matthews
International Capital Management, effective December 13, 1994, is incorporated
herein by reference to and was filed electronically with Post-Effective
Amendment No. 5 on December 26, 1996.
(d)(4) Investment Advisory Agreement for Matthews China Fund (formerly Matthews
Dragon Century China Fund) with Matthews International Capital Management,
effective December 22, 1997 is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 8 on December 31, 1997.
(d)(5) Form of Investment Advisory Agreement for Matthews Japan Fund with
Matthews International Capital Management, is incorporated herein by reference
to and was filed electronically with Post-Effective Amendment No. 9 on October
16, 1998.
(d)(6) Investment Advisory Agreement between Matthews International Funds, on
behalf of Matthews Asian Technology Fund and Matthews International Capital
Management, LLC is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 13 on December 20, 1999.
(d)(7) Form of Investment Advisory Agreement between Matthews International
Funds, on behalf of Matthews Asian -Pacific Institutional Fund and Matthews
International Capital Management, LLC to be filed by subsequent amendment.
(e)(1) Underwriting Agreement for Matthews International Funds with Provident
Distributors, Inc., effective December 1, 1999, is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 13
on December 20, 1999.
(f) Not Applicable.
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(g)(1) Custody Agreement with The Bank of New York, effective June 1, 1995 is
incorporated herein by reference to and was electronically filed with
Post-Effective Amendment No. 4 on December 28, 1995.
(h)(1) Investment Company Services Agreement for Matthews International Funds
with FPS Services, Inc., effective October 1, 1997, is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 8 on
December 31, 1997.
(h)(1)(i) Amendment to Investment Company Services Agreement adding new series
and new classes for Matthews Pacific Tiger Fund and Matthews Korea Fund,
effective November 11, 1997, is incorporated herein by reference to and was
filed electronically with Post-Effective Amendment No. 8 on December 31, 1997.
(h)(1)(ii) Form of Amendment to Investment Company Services Agreement adding
Matthews Japan Fund is incorporated herein by reference to and was filed
electronically with Post-Effective Amendment No. 9 on October 16, 1998.
(h)(1)(iii) Amendment No. 3 to Investment Company Services Agreement adding
Matthews Asian Technology Fund, effective October 15, 1999, is incorporated
herein by reference to and was filed electronically with Post-Effective
Amendment No. 13 on December 20, 1999.
(h)(1)(iv) Amendment to Investment Company Services Agreement for the addition
of sales support services, effective Decemeber 1, 1999 is incorporated herein by
reference to and was filed electronically with Post-Effective Amendment No. 13
on December 20, 1999.
(h)(1)(v) Amendment No. 4 to Investment Company Services Agreement adding
Matthews Asia-Pacific Institutional Fund, effective October 15, 2000, to be
filed by subsequent amendment.
(h)(2) Shareholder Services Agreement between Matthews International Funds
and Matthews International Capital Management, LLC, is incorporated herein by
reference to and filed electronically with Post-Effective Amendment No. 13 on
December 20, 1999.
(i) Opinion of counsel as to legality of shares - filed herewith.
(j) Other opinions: Independent Auditors Consent - filed herewith.
(k) Not Applicable.
(l) Not Applicable.
(m) 12b-1 Plan is incorporated herein by reference to and filed
electronically with Post-Effective Amendment No. 13 on December 20, 1999.
(n) Not Applicable.
(o) 18f-3 Plan is incorporated herein by reference to and filed
electronically with Post-Effective Amendment No. 13 on December 20, 1999.
(p)(1) Code of Ethics of Matthews International Funds is incorporated
herein by reference to and filed electronically with Post-Effective Amendment
No. 14 on October 12, 2000.
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(p)(2) Code of Ethics of Capital Management, LLC is incorporated herein by
reference to and filed electronically with Post-Effective Amendment No. 14 on
October 12, 2000.
(q) Power of Attorney is filed herewith.
Item 24. Persons Controlled by or under Common Control with the Registrant
Not Applicable.
Item 25. Indemnification
Section 10.2 of the Registrant's Trust Instrument provides as follows:
10.2 INDEMNIFICATION. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while as a Trustee or thereafter, by reason of his
being or having been such a Trustee EXCEPT with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties, PROVIDED that
as to any matter disposed of by a compromise payment by such person, pursuant to
a consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of bad faith had been adjudicated, it
would in the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions shall not
exclude any other right to which he may be lawfully entitled, PROVIDED that no
person may satisfy any right of indemnity or reimbursement hereunder except out
of the property of the Trust. The Trustees may make advance payments in
connection with the indemnification under this Section 10.2, PROVIDED that the
indemnified person shall have given a written undertaking to reimburse the Trust
in the event it is subsequently determined that he is not entitled to such
indemnification.
The Trust shall indemnify officers, and shall have the power to indemnify
representatives and employees of the Trust, to the same extent that Trustees are
entitled to indemnification pursuant to this Section 10.2
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in that Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in that Act and will
be governed by the final adjudication of such issue.
Section 10.3 of the Registrant's Trust Instrument, incorporated herein by
reference as Exhibit 1 to Post-Effective Amendment No. 5, also provides for the
indemnification of shareholders of the Registrant. Section 10.3 states as
follows:
10.3 SHAREHOLDERS. In case any Shareholder or former Shareholder of any Series
shall be held to be personally liable solely by reason of his being or having
been a shareholder of such Series and not
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because of his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators or other legal
representatives or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by the Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Trust and satisfy
any judgment thereon from the assets of the Series.
In addition, Registrant currently has a trustees' and officers' liability policy
covering certain types of errors and omissions.
Item 26. Business and Other Connections of Advisor:
Matthews International Capital Management, LLC provides investment advisory
services to individual, mutual funds and institutional investors, and as of
October 1, 2000 had approximately $270 million in assets under management.
For information as to any other business, vocation or employment of a
substantial nature in which each Trustee or officer of the Registrant's
investment advisor has been engaged for his own account or in the capacity of
Trustee, officer, employee, partner or trustee, reference is made to the Form
ADV (File #801-39520) filed by it under the Investment Advisers Act of 1940.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Provident Distributors, Inc. (the "Distributor") acts as
principal underwriter for the following investment companies as
of 12/01/00:
International Dollar Reserve Fund I, Ltd.
Provident Institutional Funds Trust
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
Columbia Strategic Value Fund, Inc.
Columbia Technology Fund, Inc.
GAMNA Series Funds, Inc.
WT Investment Trust
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
Robertson Stephens Investment Trust
Harris Insight Funds Trust
Alleghany Funds
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Deutsche Asset Management VIT Funds
First Choice Funds Trust
Forward Funds, Inc.
IBJ Funds Trust
Light Index Funds, Inc.
LKCM Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
New Covenant Funds, Inc.
Pictet Funds
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
The Stratton Funds, Inc.
The Galaxy Fund
The Galaxy VIP Fund
Galaxy Fund II
Trainer, Wortham First Mutual Funds
Undiscovered Managers Funds
Wilshire Target Funds, Inc.
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth and Income Fund
WPG Growth Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc., a wholly owned subsidiary of Provident
Distributors, Inc.)
Northern Funds Trust and Northern Institutional Funds Trust
(Distributed by Northern Funds Distributors, LLC., a wholly
owned subsidiary of Provident Distributors, Inc.)
The Offit Investment Fund, Inc. (Distributed by Offit Funds
Distributor, Inc., a wholly owned subsidiary of Provident
Distributors, Inc.)
The Offit Variable Insurance Fund, Inc. (Distributed by Offit
Funds Distributor, Inc., a wholly owned subsidiary of
Provident Distributors, Inc.)
ABN AMRO Funds (Distributed by ABN AMRO Distribution Services
(USA), Inc., a wholly owned subsidiary of Provident
Distributors, Inc.)
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Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is located at
3200 Horizon Drive, King of Prussia, Pennsylvania 19406.
(b) The following is a list of the executive officers, directors,
and partners of Provident Distributors, Inc.:
President and Treasurer Philip H. Rinnander
Secretary and Sole Director Jane Haegele
Vice President Jason A. Greim
Vice President Barbara A. Rice
Vice President Jennifer K. Rinnander
Vice President and Compliance Officer Lisa M. Buono
(c) Not Applicable.
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Item 28. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records will be maintained at the
offices of Registrant's Custodian:
The Bank of New York, 90 Washington Street, New York, N.Y. 10286
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b),(4); (2)(C) and (D); (4); and
31a-1(f), the required books and records are maintained at the offices of
Registrant's Administrator, Transfer Agent and Fund Accounting Services Agent:
PFPC, Inc., 3200 Horizon Drive, King of Prussia, 19406-0903.
(c) With respect to Rules 31a-1(b)(5), (6), (9), (10) and (11) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser:
Matthews International Capital Management, LLC, 456 Montgomery Street, Suite
1200, San Francisco, CA 94104
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant, Matthews
International Funds, certifies that this Post-Effective Amendment No. 15 to its
Registration Statement meets all of the requirements for effectiveness pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 15 to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Wilmington, and State of Delaware on the
14th day of December 2000.
Matthews International Funds
Registrant
By /s/G. Paul Matthews*
--------------------
G. Paul Matthews, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement of Matthews International Funds has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
/s/ G. Paul Matthews* President and December 14, 2000
--------------------- Principal Executive
G. Paul Matthews Officer
/s/ James E. Walter* Treasurer December 14, 2000
------------------------
James E. Walter
/s/ Joseph M. O'Donnell* Secretary December 14, 2000
------------------------
Joseph M.O'Donnell
/s/ Robert K. Connolly* Trustee December 14, 2000
-------------------------
Robert K. Connolly
/s/ Richard K. Lyons* Trustee December 14, 2000
-------------------------
Richard K. Lyons
/s/ David FitzWilliam-Lay* Trustee December 14, 2000
--------------------------
David FitzWilliam-Lay
/s/ Norman W. Berryessa * Trustee December 14, 2000
-------------------------
Norman W. Berryessa
* By: /s/ Mary Jane Maloney, as Attorney-in-Fact and Agent pursuant to
Power of Attorney
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EXHIBIT 23(i)
Law Offices of
Paul, Hastings, Janofsky & Walker LLP
A Limited Liability Partnership Including Professional Corporations
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet: www.phjw.com
December 12, 2000
Matthews International Capital Management, LLC
456 Montgomery Street, Suite 1200
San Francisco, California 94104-1245
Re: Matthews Internationals Funds (the "Registrant")
Ladies and Gentlemen:
We hereby consent to the continued use in the Registrant's
Registration Statement, until its withdrawal, of our opinion (the "Prior
Opinion") respecting the legality of the shares of beneficial interest for the
following series of Matthews International Funds: Matthews Growth and Income
Fund, Matthews Asian Technology Fund, Matthews China Fund (formerly named
Matthews Dragon Century China Fund), Matthews Japan Fund, Matthews Korea Fund
and Matthews Pacific Tiger Fund.
The Prior Opinion was filed as an exhibit to Post-Effective
Amendment No. 13 filed with the Securities and Exchange Commission on December
20, 1999.
Very truly yours,
Paul, Hastings, Janofsky & Walker LLP
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<PAGE> 73
EXHIBIT 23(j)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A of Matthews International Funds
comprising, respectively, the Matthews Asian Growth and Income Fund, Matthews
Asian Technology Fund, Matthews China Fund, Matthews Japan Fund, Matthews Korea
Fund, and Matthews Pacific Tigers Fund and to the use of our report dated
October 13, 2000 on the financial statements and financial highlights. Such
financial statements and financial highlights are incorporated by reference in
the Statement of Additional Information, which is a part of such Registration
Statement.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
DECEMBER 13, 2000
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EXHIBIT 23(q)
Power-of-Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a Trustee or
Officer of Matthews International Funds, a Delaware business trust (the
"Trust"), does hereby make, constitute and appoint John P. Falco, Downey L.
Hebble, Mary Jane Maloney and Joseph M. O'Donnell, and each of them,
attorneys-in fact and agents of the undersigned with full power and authority of
substitution and resubstitution, in any and all capacities, to execute for and
on behalf of the undersigned any and all amendments to the Registration
Statement on Form N-1A relating to the shares of the Trust and any other
documents and instruments incidental thereto, and to deliver and file the same,
with all exhibits thereto, and all documents and instruments in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing that said attorneys-in-fact and agents,
and each of them, deem advisable or necessary to enable the Trust to effectuate
the intents and purposes hereof, and the undersigned hereby fully ratifies and
confirms all that said attorneys-in-fact and agents, of any of them, or their or
his or her substitute or substitutes, shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed his name this 10th
day of October, 2000.
MATTHEWS INTERNATIONAL FUNDS
/s/ Norman W. Berryessa /s/ Richard K. Lyons
--------------------------- --------------------
Norman W. Berryessa Richard K. Lyons
Trustee Trustee
/s/ Robert K. Connolly /s/ G. Paul Matthews
------------------------- -------------------------
Robert K. Connolly G. Paul Matthews
Trustee President
/s/ John H. Dracott /s/ James E. Walter
------------------- -------------------
John H. Dracott James E. Walter
Trustee, Emeritus Treasurer
/s/ David FitzWilliam-Lay
------------------------------
David FitzWilliam-Lay
Trustee
11
